-----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, OXer+568CAbab6FKsGWIfCEUAGx2tmu7ChXBQj1ZkXNx51Rg6BjPDbMUzbY0C4GQ gJgBV9YZGlVPF9mVT4rUHg== 0000950134-99-003122.txt : 19990421 0000950134-99-003122.hdr.sgml : 19990421 ACCESSION NUMBER: 0000950134-99-003122 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19990420 GROUP MEMBERS: ARKANSAS BEST CORP /DE/ GROUP MEMBERS: TREADCO ACQUISITION CORP SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: TREADCO INC CENTRAL INDEX KEY: 0000876948 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTOMOTIVE REPAIR, SERVICES & PARKING [7500] IRS NUMBER: 710706271 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: SEC FILE NUMBER: 005-41810 FILM NUMBER: 99597654 BUSINESS ADDRESS: STREET 1: 1101 SOUTH 21ST STREET CITY: FORT SMITH STATE: AR ZIP: 72901 BUSINESS PHONE: 5017856000 MAIL ADDRESS: STREET 1: PO BOX 10048 CITY: FORT SMITH STATE: AR ZIP: 72917-0048 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ARKANSAS BEST CORP /DE/ CENTRAL INDEX KEY: 0000894405 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 710673405 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 3801 OLD GREENWOOD RD CITY: FORT SMITH STATE: AR ZIP: 72903 BUSINESS PHONE: 5017856000 MAIL ADDRESS: STREET 1: P O BOX 48 CITY: FORT SMITH STATE: AR ZIP: 72902 SC 13E3/A 1 AMENDMENT NO. 1 TO SC 13E3 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ SCHEDULE 13E-3/A (AMENDMENT NO. 1) RULE 13e-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934) TREADCO, INC. (NAME OF THE ISSUER) ------------------ ARKANSAS BEST CORPORATION TREADCO ACQUISITION CORPORATION (NAME OF PERSON(S) FILING STATEMENT) ------------------ COMMON STOCK, PAR VALUE $.01 PER SHARE (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) (TITLE OF CLASS OF SECURITIES) ------------------ 894545 10 2 (CUSIP NUMBER OF CLASS OF SECURITIES) RICHARD F. COOPER VICE PRESIDENT AND GENERAL COUNSEL ARKANSAS BEST CORPORATION 3801 OLD GREENWOOD ROAD FORT SMITH, ARKANSAS 72903 (501) 785-6000 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT) COPIES TO: ALAN J. BOGDANOW, ESQ. HUGHES & LUCE, L.L.P. 1717 MAIN STREET, SUITE 2800 DALLAS, TEXAS 75201 (214) 939-5500 =============================================================================== -1- 2 INTRODUCTION Arkansas Best Corporation, a Delaware corporation ("Parent"), hereby amends and supplements its Rule 13E-3 Transaction Statement (the "Statement") originally filed with the Securities and Exchange Commission (the "Commission") on March 23, 1999, as amended, with respect to a tender offer by Parent to purchase all of the outstanding shares of the common stock, par value $.01 per share (the "Common Stock"), including the associated common stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares") of Treadco, Inc., a Delaware corporation (the "Company"), at a price of $9.00 per share net to the seller in cash upon the terms and subject to the conditions set forth in Parent's Offer to Purchase, dated March 23, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal, copies of which are attached as Exhibits (d)(1) and (d)(2) hereto, respectively, and as Exhibits (a)(1) and (a)(2), respectively, to Parent's Tender Offer Statement on Schedule 14D-1 originally filed with the Commission on March 23, 1999 (as amended, the "Schedule 14D-1"). Capitalized terms used herein but not defined are used as defined in the Offer to Purchase and the Schedule 14D-1. The cross reference sheet below is being supplied pursuant to General Instruction F to Schedule 13E-3 and shows the location in the Schedule 14D-1 of the information required to be included in response to the items of this Statement. The information in the Schedule 14D-1, including all exhibits thereto, is hereby expressly incorporated herein by reference and the responses to each item to this Statement are qualified in their entirety by the provisions of the Schedule 14D-1. All cross references in this Statement, other than cross references to the Schedule 14D-1, are to the Offer to Purchase. -2- 3 CROSS REFERENCE SHEET TO SCHEDULE 14D-1
ITEM OF ITEM AND CAPTION OF SCHEDULE 14D-1 SCHEDULE 14D-1 ---------------------------------- -------------- 1. Issuer and Class of Security Subject to the Transaction (a)............................................................................... 1(a) (b)............................................................................... 1(b) (c)............................................................................... 1(c) (d)-(f)........................................................................... * 2. Identity and Background (a)............................................................................... 2(a) (b)............................................................................... 2(b) (c)............................................................................... 2(c) (d)............................................................................... 2(d) (e)............................................................................... 2(e) (f)............................................................................... 2(f) (g)............................................................................... 2(g) 3. Past Contacts, Transactions or Negotiations (a)............................................................................... 3(a) (b)............................................................................... 3(b) 4. Terms of the Transaction (a)............................................................................... 10(f) (b)............................................................................... * 5. Plans or Proposals of the Issuer or Affiliate (a)............................................................................... 5(a) (b)............................................................................... 5(b) (c)............................................................................... 5(c) (d)............................................................................... 5(d) (e)............................................................................... 5(e) (f)............................................................................... 5(g) (g)............................................................................... * 6. Source and Amounts of Funds or Other Consideration (a)............................................................................... 4(a) (b)............................................................................... * (c)............................................................................... 4(b) (d)............................................................................... 4(c) 7. Purpose(s), Alternatives, Reasons and Effects (a)............................................................................... 5(f) (b)-(c)........................................................................... * (d)............................................................................... 10(f) 8. Fairness of the Transaction (a)-(f)........................................................................... * 9. Reports, Opinions, Appraisals and Certain Negotiations (a)............................................................................... 10(f) (b)............................................................................... 10(f) (c)............................................................................... *
-3- 4 10. Interest in Securities of the Issuer (a)............................................................................... 6(a) (b)............................................................................... 6(b) 11. Contracts, Arrangements or Understandings With Respect to the Issuer's Securities........................................................... 7 12. Present Intention and Recommendation of Certain Persons With Regard to the Transaction (a)-(b)........................................................................... * 13. Other Provisions of the Transaction (a)-(c)........................................................................... * 14. Financial Information (a)-(b)........................................................................... * 15. Persons and Assets Employed, Retained or Utilized (a)............................................................................... * (b)............................................................................... 8 16. Additional Information............................................................ 10 17. Material to be Filed as Exhibits.................................................. 11
- ---------------- * The item is not required by Schedule 14D-1, is inapplicable or is answered in the negative. -4- 5 ITEM 4. TERMS OF THE TRANSACTION. (a) Item 4(a) is hereby amended by the following: The information incorporated by reference from the first paragraph of "THE TENDER OFFER --Certain Conditions of the Offer" of the Offer to Purchase, filed as Exhibit (d)(1), is amended by deleting such information and substituting therefore: Notwithstanding any other provisions of the Offer, Parent shall not be required to accept for payment or pay for and may delay the acceptance for payment of, or the payment for, any Shares, and may terminate the Offer and not accept for payment or pay for any Shares, if (i) immediately prior to the expiration of the Offer (as it may be extended in accordance with the Offer), the Minimum Condition shall not have been satisfied, (ii) any applicable waiting period under the HSR Act shall not have expired or been terminated prior to the expiration of the Offer; (iii) any required consent, permit or authorization from any regulatory or governmental authority has not been obtained prior to the Expiration Date; or (iv) at any time prior to the Expiration Date, Parent makes a determination (which shall be made in good faith) that any of the following conditions exist: ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS. (a) Item 7(a) is hereby amended by the following: The information incorporated by reference from the third paragraph under "SPECIAL FACTORS --Purpose and Structure of the Transaction" of the Offer to Purchase, filed as Exhibit (d)(1), is amended by deleting such information and substituting therefore: The present requirements to maintain the listing of the Shares on the Nasdaq National Market and registration of the Shares under the Exchange Act, coupled with the Company's status as a public company, impose on the Company direct and indirect compliance costs. Compliance with such ongoing requirements imposes an administrative burden on the Company, resulting in the diversion of management time and resources. The Parent's management estimates that the following compliance, public company-related, and other costs would be eliminated after consummation of the Transaction: Directors insurance and fees $200,000 Annual public reporting expenses $167,500 Higher interest rate cost $ 60,000 -------- Total pre-tax savings of the above items $427,500 -------- After-tax savings $261,203 State tax savings $ 35,741 -------- Total after-tax savings including state tax savings $296,943 ======== After-tax savings from goodwill reductions $462,000 ======== Total savings $758,943 ========
-5- 6 (d) Item 7(d) is hereby amended by the following: The disclaimer that reads: "NONE OF THE COMPANY OR PARENT OR THEIR RESPECTIVE ADVISORS ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OF THE PROJECTIONS," which is incorporated by reference from the fourth sentence of the second paragraph of "SPECIAL FACTORS -- Certain Projections" of the Offer to Purchase, filed as Exhibit (d)(1), is amended by deleting such information. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS. (a) Item 9(a) is hereby amended and supplemented by deleting the sixth and seventh paragraphs of "SPECIAL FACTORS -- Background of the Offer and the Merger" of the Offer to Purchase, filed as Exhibit (d)(1), and substituting therefore: In November 1998, Morgan Stanley began reviewing with Parent its options with respect to the Company. Representatives of Morgan Stanley made a presentation regarding these alternatives to Parent's Board of Directors at its regular meeting on December 10, 1998. Morgan Stanley, among other things, presented an historical overview of the Company, discussed its financial condition and results of operations, reviewed the stock's liquidity, identified the Company's research coverage, and discussed the Company's possible strategic value to Parent. Morgan Stanley reviewed the following strategic alternatives with Parent's Board of Directors: (i) Parent continuing to hold its 49% interest in the Company, (ii) sale of 100% of the Company, and (iii) a Parent repurchase of the remaining Company interest held by the public with a potential strategic sale in the future. Morgan Stanley also reviewed certain considerations such as tax considerations, the Bandag settlement, the revenue and earnings of the business, other potential strategic buyers, estimated strategic value, cost savings associated with having the Company as a wholly-owned subsidiary of Parent, and the long-term strategic fit with Parent. In addition, Morgan Stanley reviewed the process, timelines and potential after-tax proceeds associated with either a repurchase of shares or an immediate sale of the Company. Morgan Stanley also discussed other potential economic benefits to Parent associated with repurchasing the Company. Morgan Stanley was not requested to, and did not, render a financial opinion regarding the fairness of the consideration in the Offer and the Merger. In addition, Morgan Stanley was not requested to, and did not, solicit third party indications of interest with respect to Parent's interest in the Company. See "THE TENDER OFFER - Fees and Expenses" for a description of Parent's fee arrangements with Morgan Stanley in connection with the Offer and the Merger. Item 9(a) is also hereby amended and supplemented by reference to the Morgan Stanley Dean Witter presentation to Parent's Board of Directors on December 10, 1998, which is attached as Exhibit (b)(2) hereto; by reference to the Stephens presentation to the Special Committee on March 15, 1999, which is attached as Exhibit (b)(3) hereto; and by reference to Parent's letter to the Special Committee which was delivered to Stephens on March 15, 1999 which is attached as Exhibit (b)(4) hereto. (b) Item 9(b) is hereby amended by the following: The disclosure that reads: "Because such analyses are inherently subject to uncertainty, none of the Company, Parent or Stephens or any other person assumes responsibility if future events do not conform to the judgments reflected in the opinion of Stephens," which is incorporated by reference from the last sentence of the second paragraph of "SPECIAL FACTORS -- Opinion of Financial Advisor" of the Offer to Purchase, filed as Exhibit (d)(1), is amended by deleting such information and substituting therefore: "Such analyses are inherently subject to uncertainty and actual results could differ significantly from current expectations due to a number of factors, including general economic conditions; competitive initiatives and pricing pressures; labor relations; costs of raw material; availability and cost of capital; shifts in market demand; weather conditions; the performance and needs of industries served by the Company's businesses; actual future costs of operating expenses; self-insurance claims and employee wages and benefits; actual costs of continuing investments in technology; and the timing and amount of capital expenditures." -6- 7 ITEM 14. FINANCIAL INFORMATION (a) On April 14, 1999, the Company issued a press release regarding the 1999 first quarter operating results, a copy of which is attached hereto as Exhibit (d)(7) and incorporated herein by reference. ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. EXHIBIT ITEM NUMBER (a)(1) $250,000,000 Credit Agreement dated as of June 12, 1998 among Parent and Societe Generale, Southwest Agency, as Administrative Agent and Bank of America National Trust Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents. (b)(1) Opinion of Stephens Inc. included as ANNEX A to the Offer to Purchase as Exhibit (d)(1) hereto. (b)(2) Morgan Stanley Dean Witter presentation to Parent's Board of Directors on December 10, 1998. (b)(3) Stephens Inc. presentation to the Special Committee on March 15, 1999. (b)(4) Parent's letter of March 15, 1999 to the Special Committee. (c)(1) Agreement and Plan of Merger dated as of March 15, 1999 among Parent, Newco and the Company included as ANNEX B to the Offer to Purchase as Exhibit (d)(1) hereto. (c)(2) Support Agreement dated as of January 22, 1999 between Parent and Shapiro Capital Management Company, Inc. (d)(1) Offer to Purchase. (d)(2) Letter of Transmittal. (d)(3) Notice of Guaranteed Delivery. (d)(4) Letter to Brokers, Dealers, Banks, Trust Companies and Other Nominees. (d)(5) Form of Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies and Other Nominees. (d)(6) Guidelines for Certification of Taxpayer Identification Number on Form W-9. (d)(7) Press Release of the Company dated April 14, 1999. (e) Section 262 of the Delaware General Corporation Law included as ANNEX E to the Offer to Purchase as Exhibit (d)(1) hereto. -7- 8 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. DATED: April 20, 1999 ARKANSAS BEST CORPORATION By: /s/ DAVID E. LOEFFLER ----------------------------------------- Name: David E. Loeffler ------------------------------------- Title: Vice President and Chief Financial Officer ------------------------------------- TREADCO ACQUISITION CORPORATION By: /s/ DAVID E. LOEFFLER ----------------------------------------- Name: David E. Loeffler ------------------------------------- Title: Vice President ------------------------------------- -8- 9 EXHIBIT INDEX
EXHIBIT ITEM NUMBER ---- - ------- (a)(1) $250,000,000 Credit Agreement dated as of June 12, 1998 among Parent and Societe Generale, Southwest Agency, as Administrative Agent and Bank of America National Trust Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents. (b)(1) Opinion of Stephens Inc. included as ANNEX A to the Offer to Purchase as Exhibit (d)(1) hereto. (b)(2) Morgan Stanley Dean Witter presentation to Parent's Board of Directors on December 10, 1998. (b)(3) Stephens Inc. presentation to the Special Committee on March 15, 1999. (b)(4) Parent's letter of March 15, 1999 to the Special Committee. (c)(1) Agreement and Plan of Merger dated as of March 15, 1999 among Parent, Newco and the Company included as ANNEX B to the Offer to Purchase as Exhibit (d)(1) hereto. (c)(2) Support Agreement dated as of January 22, 1999 between Parent and Shapiro Capital Management Company, Inc. (d)(1) Offer to Purchase. (d)(2) Letter of Transmittal. (d)(3) Notice of Guaranteed Delivery. (d)(4) Letter to Brokers, Dealers, Banks, Trust Companies and Other Nominees. (d)(5) Form of Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies and Other Nominees. (d)(6) Guidelines for Certification of Taxpayer Identification Number on Form W-9. (d)(7) Press Release of the Company dated April 14, 1999. (e) Section 262 of the Delaware General Corporation Law included as ANNEX E to the Offer to Purchase as Exhibit (d)(1) hereto.
-9- EX-99.(A)(1) 2 CREDIT AGREEMENT DATED 1/12/99 1 Exhibit (a)(1) ================================================================================ $250,000,000 CREDIT AGREEMENT Dated as of June 12, 1998 Among ARKANSAS BEST CORPORATION as the Borrower, SOCIETE GENERALE, SOUTHWEST AGENCY as Administrative Agent, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and WELLS FARGO BANK (TEXAS), N.A., as Co-Documentation Agents, and THE BANKS NAMED HEREIN as the Banks ================================================================================ 2 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS Section 1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2 Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 1.3 Accounting Terms; Changes in GAAP . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 1.4 Types of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 1.5 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE II THE ADVANCES AND THE LETTERS OF CREDIT Section 2.1 The Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.2 Method of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 2.4 Reduction of the Revolving Commitments . . . . . . . . . . . . . . . . . . . . . . . 25 Section 2.5 Repayment of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 2.6 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 2.7 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 2.8 Breakage Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 2.9 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 2.10 Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 2.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 2.12 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 2.13 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 2.14 Determination of Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 2.15 Bank Replacement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 2.16 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 2.17 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE III CONDITIONS OF LENDING Section 3.1 Conditions Precedent to Effectiveness of this Agreement . . . . . . . . . . . . . . 41 Section 3.2 Conditions Precedent for each Borrowing or Letter of Credit . . . . . . . . . . . . 42 ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1 Corporate Existence; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 4.2 Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 4.3 Authorization and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 4.4 Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 4.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 4.6 True and Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 4.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 4.8 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
-ii- 3 Section 4.9 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 4.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 4.11 Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 4.12 Condition of Property; Casualties . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 4.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 4.14 No Burdensome Restrictions; No Defaults . . . . . . . . . . . . . . . . . . . . . . 46 Section 4.15 Environmental Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 4.16 Permits, Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 4.17 Existing Mortgage Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 4.18 Year 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE V AFFIRMATIVE COVENANTS Section 5.1 Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 5.2 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 5.3 Preservation of Corporate Existence, Etc. . . . . . . . . . . . . . . . . . . . . . 49 Section 5.4 Payment of Taxes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 5.5 Visitation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 5.6 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 5.7 Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 5.8 Ownership of ABF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ARTICLE VI NEGATIVE COVENANTS Section 6.1 Liens, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 6.2 Amendment of Material Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 6.3 Agreements Restricting Distributions From Subsidiaries . . . . . . . . . . . . . . . 54 Section 6.4 Merger or Consolidation; Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 6.5 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 6.6 Investments, Loans, Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 6.7 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 6.8 Maintenance of Ownership of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 56 Section 6.9 No Further Negative Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 6.10 Other Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 6.11 Debt Service Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 6.12 Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 6.14 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 6.15 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 6.16 Acquisition Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE VII REMEDIES Section 7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 7.2 Optional Acceleration of Maturity . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 7.3 Automatic Acceleration of Maturity . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 7.4 Cash Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
-iii- 4 Section 7.5 Non-exclusivity of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 7.6 Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE VIII AGENCY AND ISSUING BANK PROVISIONS Section 8.1 Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 8.2 Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 8.3 The Agent and Its Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 8.4 Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 8.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Section 8.6 Successor Agent and Issuing Banks . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 8.7 Co-Documentation Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 ARTICLE IX MISCELLANEOUS Section 9.1 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 9.2 Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 9.3 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 9.4 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 9.5 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 9.6 Bank Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 9.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 9.8 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 9.9 Survival of Representations, etc . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 9.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 9.11 Business Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 9.12 Usury Not Intended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 9.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 9.14 Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 9.15 Banks Not in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 9.16 Headings Descriptive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 9.17 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 9.18 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 EXHIBITS: Exhibit A - Form of Note Exhibit B - Form of Subsidiary Guaranty and Contribution Agreement Exhibit C - Form of Borrower Security Agreement Exhibit D - Form of Guarantors Security Agreement Exhibit E - Form of Notice of Borrowing Exhibit F - Form of Notice of Conversion or Continuation Exhibit G - Form of Assignment and Acceptance Exhibit H - Form of Borrower's/Guarantors' Counsel Opinion
-iv- 5 Exhibit I - Form of Agent's Counsel Opinion Exhibit J - Form of Compliance Certificate Exhibit K - Form of Borrowing Base Certificate Exhibit L - Form of Swingline Note
-v- 6
SCHEDULES: Schedule 1.1(a) - Revolving Commitments Schedule 1.1(b) - Letters of Credit Outstanding Schedule 2.17 - Locations of Certificates of Title Schedule 4.1 - Subsidiaries Schedule 4.7 - Litigation Schedule 4.10 - Tax Disclosure Schedule 6.1 - Existing Liens and Secured Indebtedness Schedule 6.7 - Certain Intercompany Arrangements Schedule 6.15 - Outstanding Indebtedness Schedule 9.2 - Notice Information for Banks
-vi- 7 CREDIT AGREEMENT This Credit Agreement dated as of June 12, 1998 is among Arkansas Best Corporation, a Delaware corporation, as the Borrower, Societe Generale, Southwest Agency, as Administrative Agent, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and the Banks. The parties hereto do hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS Section I.1 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (unless otherwise indicated, such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Acceptable Security Interest" means a valid, binding, and enforceable Lien in any collateral (a) which exists in favor of the Agent for the benefit of the Agent, the Co-Documentation Agents and the Banks, (b) which upon perfection will be superior to all other Liens, other than Liens permitted under Section 6.1 of this Agreement, (c) which secures the Obligations, and (d) which (i) is perfected, except to the extent nonperfection is expressly permitted by the Credit Documents or (ii) will be perfected upon filing or recording under applicable law all documents or instruments necessary to perfect the same and all such documents and instruments have been duly executed by the Borrower or a Guarantor, as the case may be, and delivered to the Agent on or prior to the Effective Date. "Accession Agreement" means an Accession Agreement in the form attached to the Guaranty as Annex 2 thereto, which agreement causes the Person executing and delivering the same to the Agent to become a party to the Guaranty and to the Guarantors Security Agreement. "Acquisition Expenditures" means, for any period, the aggregate of all expenditures and costs of the Borrower and its Subsidiaries paid in cash, debt securities, Property other than common stock, or the assumption of Indebtedness during such period for (a) the purchase or acquisition of assets of a business of another Person other than the Borrower and any of its Subsidiaries, and (b) the acquisition of stock, partnership, joint venture interests or other equity interests in any Person other than the Borrower and any of its Subsidiaries. "Adjusted Consolidated" means Consolidated (as herein defined) less accounts of Treadco. "Adjusted Prime Rate" means, for any day, the fluctuating rate per annum of interest equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Rate in effect on such day plus 1/2%. "Advance" means either a Revolving Advance or a Swingline Advance, any such Revolving Advance being either a Prime Rate Advance or a Eurodollar Rate Advance. 8 "Affiliate" means, as to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person or any Subsidiary of such Person. The term "control" (including the terms "controlled by" or "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of a Control Percentage, by contract or otherwise. "Agent" means Societe Generale, Southwest Agency in its capacity as Administrative Agent for the Banks pursuant to Article VIII and any successor Administrative Agent pursuant to Section 8.6. "Agent's Fee Letter" means the letter agreement dated as of April 13, 1998 between the Borrower and the Agent. "Agreement" means this Credit Agreement dated as of June 12, 1998 among the Borrower, the Agent, the Co-Documentation Agents and the Banks, as it may be amended hereafter in accordance with its terms. "Applicable Lending Office" means, with respect to each Bank, such Bank's Domestic Lending Office in the case of a Prime Rate Advance and such Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "Applicable Margin" means, at any time with respect to any Revolving Advance, commitment fees or letter of credit fees hereunder (except as otherwise provided below), the lesser of the applicable percentages set forth in the following two tables. Except as otherwise provided herein, the "Applicable Margin" shall mean the following percentages determined as a function of the Borrower's Leverage Ratio:
Eurodollar Letter of Tier Leverage Rate Prime Rate Commitment Credit Level Ratio Advances Advances Fees Fees ----- ----- -------- -------- ---- ---- I $3.25 1.250% 0.250% 0.375% 1.125% II $2.75 and <3.25 1.125% 0.125% 0.375% 1.000% III $2.25 and <2.75 0.875% 0.000% 0.250% 0.750% IV $2.00 and <2.25 0.750% 0.000% 0.250% 0.625% V $1.50 and <2.00 0.625% 0.000% 0.200% 0.500% VI $1.25 and <1.50 0.500% 0.000% 0.200% 0.375% VII less than 1.25 0.400% 0.000% 0.200% 0.275%
-2- 9 The foregoing ratio (a) shall be established at Tier Level III for the period from the Effective Date through June 30, 1998, and (b) shall thereafter be determined from the financial statements of the Borrower and its Consolidated Subsidiaries most recently delivered pursuant to Section 5.6(a) or Section 5.6(b) and certified to by an authorized financial officer of the Borrower in accordance with such Sections. Any change in the Applicable Margin shall be effective upon the date of delivery of the financial statements pursuant to Section 5.6(a) or Section 5.6(b), as the case may be, and receipt by the Agent of the Compliance Certificate required by such Sections. If the Borrower fails to deliver any financial statements within the times specified in Section 5.6(a) or 5.6(b), as the case may be, such ratio shall be (i) established at Tier Level I from the date such financial statements should have been delivered until the Borrower delivers such financial statements to the Agent and the Banks, and (ii) when such financial statements are in fact received by the Agent and the Banks, if it is determined that the actual ratio was less than that established at Tier Level I, then the Applicable Margin for the period from the date such financial statements should have been delivered until the date the Agent and the Banks actually received such financial statements shall be recalculated to reflect the actual ratio for such period of time, and if interest or fees have been paid in the period prior to such recalculation, appropriate adjustment shall be made to the next scheduled payment of interest or fees to be made by the Borrower. Notwithstanding the foregoing but subject to the paragraph below, if at any time, the Borrower's Senior Debt is rated BB+ or higher by S&P or Ba1 or higher by Moody's, then "Applicable Margin" shall mean, at any time with respect to any Revolving Advance, commitment fees or letter of credit fees hereunder, the following percentages determined as a function of the ratings by S&P or Moody's applicable on such date of the Borrower's Senior Debt as set forth below:
Senior Eurodollar Letter of Tier Debt Rating Rate Prime Rate Commitment Credit Level ----------- Advances Advances Fees Fees ----- -------- -------- ---- ---- S&P Moody's --- ------- I BBB+or Baa1 0.300% 0.000% 0.1250% 0.175% higher or higher II BBB Baa2 0.350% 0.000% 0.1500% 0.225% III BBB- Baa3 0.400% 0.000% 0.1875% 0.275% IV BB+ Ba1 0.625% 0.000% 0.2000% 0.500%
If ratings fall within different Tier Levels, the Applicable Margin shall be based on the numerically lower of the two Tier Levels (where Tier I is the numerically lowest such Tier and Tier IV is the numerically highest such Tier) unless the numerically higher Tier Level is two or more Tier Levels above the numerically lower Tier Level, in which case the Tier Level which is one level above the numerically lower Tier Level will apply. In the event that one rating falls within Tier Level IV and the other such rating is one rating level immediately below (ie. either -3- 10 BB or Ba2), then the Applicable Margin will be based on Tier Level IV; provided, however that if the other such rating differs by more than one rating immediately below (ie. either BB- or Ba3 or lower), then the Applicable Margin shall be determined by reference to the Leverage Ratio as provided above. If the ratings established by Moody's or S&P for Senior Debt change (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. If the rating system of either Moody's or S&P shall change when a rating for Senior Debt exists from both Moody's and S&P or if either such rating agency shall cease to be in the business of rating corporate debt obligations while the other remains in such business, the Applicable Margin shall be based on the rating of the agency that has not changed its rating system or that remains in the business of rating corporate debt obligations. If both Moody's and S&P shall change their rating system, cease rating the Borrower's Senior Debt or cease to be in the business of rating corporate debt obligations, then the Borrower and the Agent shall select a substitute nationally recognized statistical rating agency or agencies, as the case may be; provided, however that if the Borrower and the Agent cannot mutually agree on such a substitute rating agency, the Applicable Margin shall be determined by reference to the Borrower's Leverage Ratio as provided above. "Assignment and Acceptance" means an assignment and acceptance entered into by a Bank and an Eligible Assignee, and accepted by the Agent, in substantially the form of the attached Exhibit G. "Authorized Sale of Property" means any sale by the Borrower or any Guarantor of (a) real property owned by the Borrower or such Guarantor which is to be sold to a third party for fair market value, or (b) Revenue Equipment owned by the Borrower or such Guarantor, to the extent such sale is in the ordinary course of business; provided that in each case, such sale would not, after giving effect to such sale, cause any Default. "Banks" means each of the lenders party to this Agreement, including without limitation each Eligible Assignee that shall become a party to this Agreement pursuant to Section 9.6. "Borrower" means Arkansas Best Corporation, a Delaware corporation, and any successor, legal representative or permitted assignee thereof. "Borrower Security Agreement" means the Security Agreement dated of even date herewith executed by the Borrower in substantially the form of Exhibit C, as it may be amended from time to time in accordance with its terms. "Borrowing" means a Revolving Borrowing or the making of a Swingline Advance by SG. "Borrowing Base" means an amount equal to the sum of (a) 80% of the Net Depreciated Value of Eligible Revenue Equipment, plus (b) 50% of the Current Market Value of Treadco Shares, plus (c) 85% of the aggregate outstanding amount of Eligible Receivables, plus (d) 50% of the Net Depreciated Value of Eligible Other Equipment, plus (e) 70% of the Real Estate Value of Eligible Real Property. -4- 11 "Borrowing Base Certificate" means a certificate of the Borrower in substantially the form of the attached Exhibit K. "Borrowing Base Determination Date" means any date the Borrowing Base is determined in accordance with Section 2.14. "Business Day" means a day of the year on which banks are not required or authorized to close in New York City or Dallas, Texas and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on by banks in the London interbank market. "Calculation Day" means the last day of each calendar quarter. "Calculation Period" means, with respect to any Calculation Day, the period of the four consecutive calendar quarters ending on such day. "Canadian Subsidiaries" means, collectively, ABF Freight System (B.C.) Ltd., a British Columbia corporation, ABF Freight System Canada, Ltd., a Canadian corporation, and CaroTrans Canada, Ltd., a Canadian corporation. "Capital Expenditure" means any payment made directly or indirectly for the purpose of acquiring or constructing fixed assets, real property or equipment which in accordance with GAAP would be added as a debit to the fixed asset account of such Person making such expenditure, including, without limitation, amounts paid or payable for such purpose under any conditional sale or other title retention agreement or under any Capital Lease, but excluding repairs of Property made during such period in the normal and ordinary course of business in keeping with past practices. "Capital Lease" means, for any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "Cash Collateral Account" means a special cash collateral account containing cash deposited pursuant to Sections 2.7(c), 7.2(b) or 7.3(b) to be maintained at the Agent's office in accordance with Section 7.4. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, state and local analogs, and all rules and regulations and requirements thereunder in each case as now or hereafter in effect. "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute. "Co-Documentation Agents" means Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as co-documentation agents for the Banks pursuant to Article VIII. "Collateral" shall have the meaning set forth in the Security Agreements. -5- 12 "Commitment" means, with respect to any Bank, such Bank's Revolving Commitment. "Compliance Certificate" means a certificate of the Borrower in substantially the form of the attached Exhibit J. "Consolidated" refers to the consolidation of the accounts of the Borrower and its Subsidiaries in accordance with GAAP, including, when used in reference to the Borrower, principles of consolidation consistent with those applied in the preparation of the Financial Statements. "Control Percentage" means, with respect to any Person, the percentage of the outstanding capital stock of such Person having ordinary voting power which gives the direct or indirect holder of such stock the power to elect a majority of the Board of Directors of such Person. "Controlled Group" means all members of a controlled group of corporations and all trades (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code. "Convert", "Conversion", and "Converted" each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.2(b). "Credit Documents" means this Agreement, the Notes, the Guaranty, the Security Agreements, Hedge Agreements between the Borrower and any Bank or any Affiliate of any Bank, the Agent's Fee Letter, and each other agreement, instrument or document executed by the Borrower or any of its Subsidiaries at any time in connection with this Agreement. "Current Market Value of Treadco Shares" means, as of any date of determination thereof, (a) the number of shares of Treadco owned by the Borrower or a wholly-owned Subsidiary of the Borrower and free and clear of all Liens, other than Liens in favor of the Agent and the Agent for the benefit of the Banks multiplied by (b) the most recent closing price of shares of Treadco reported on the National Association of Securities Dealers Automated Quotations System ("NASDAQ") National Market System or, if applicable, the average of the closing bid and asked quotations for such security as reported on NASDAQ, or if such shares become listed on another recognized national securities exchange, the most recent closing price of such shares on such other exchange. "Debt Service" means, for any Person for the period for which such amount is being determined, (a) the amount (without duplication) of all scheduled principal payments actually made and interest accrued with respect to any Indebtedness of such Person and all payments made in respect of Capital Leases of such Person, less (b) interest income earned by such Person. "Default" means (a) an Event of Default or (b) any event or condition which with notice or lapse of time or both would, unless cured or waived, become an Event of Default. -6- 13 "Dollar Equivalent" means the equivalent in another currency of an amount in Dollars to be determined by reference to the rate of exchange quoted by the Agent, at 10:00 a.m. (Dallas, Texas time) on the date of determination, for the spot purchase in the foreign exchange market of such amount of Dollars with such other currency. "Dollars" and "$" means lawful money of the United States of America. "Domestic Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Domestic Lending Office" opposite its name on Schedule 9.2 or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "EBITDA" means, without duplication, for any period for which such amount is being determined, the sum of the amounts for such period of (a) Adjusted Consolidated operating income plus (b) to the extent deducted in determining Adjusted Consolidated operating income, depreciation, amortization and surety bonds and letter of credit fees. "Effective Date" means the date all of the conditions precedent set forth in Section 3.1 have been satisfied, and the Agent shall have confirmed the same in writing to the Banks. "Eligible Assignee" means (a) a commercial bank organized under the laws of the United States, or any State thereof, and having primary capital of not less than $250,000,000 and approved by the Agent, the Issuing Banks, and (provided no Default has occurred and is continuing) the Borrower, which approvals will not be unreasonably withheld, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development and having primary capital (or its equivalent) of not less than $250,000,000 (or its Dollar Equivalent) and approved by the Agent, the Issuing Banks, and (provided no Default has occurred and is continuing) the Borrower, which approvals will not be unreasonably withheld, (c) a Bank and approved by the Agent, the Issuing Banks, and (provided no Default has occurred and is continuing) the Borrower, which approvals will not be unreasonably withheld, and (d) an Affiliate of the respective assigning Bank, without approval of any Person but otherwise meeting the eligibility requirements of (a) or (b) above. "Eligible Other Equipment" means, as of any Borrowing Base Determination Date, all Other Equipment which is owned by the Borrower or any Guarantor other than a Canadian Subsidiary on such date and was so owned on the date of the most recent Borrowing Base Certificate delivered to the Banks. "Eligible Real Property" means, as of any Borrowing Base Determination Date, any real property (other than Properties which are acquired after the date hereof and which are unacceptable to the Agent, in its sole reasonable discretion) which is owned by the Borrower or any Guarantor on such date and was so owned on the date of the most recent Borrowing Base Certificate delivered to the Banks. "Eligible Receivables" means, as of any Borrowing Base Determination Date, all Receivables of the Borrower or any Guarantor other than a Canadian Subsidiary as of the date of the most recent Borrowing Base Certificate delivered to the Banks, except: -7- 14 (1) any Receivable which remains unpaid more than 90 days after the date of the original invoice for such Receivable; (2) any Receivable which is from an obligor which is to the Borrower's or any Guarantor's knowledge Insolvent; (3) any Receivable which is not to the Borrower's or any Guarantor's knowledge free and clear of all Liens except (i) Liens in favor of the Agent for the benefit of the Banks and (ii) Permitted Liens on Receivables of a Intermodal Subsidiary described in Section 6.1(l) to the extent the aggregate obligations secured by such Liens do not exceed $3,000,000 in the aggregate; (4) any Receivable which does not arise under a contract representing the legal, valid and binding payment obligation of the obligor thereon, enforceable by the Borrower or such Guarantor in accordance with its terms; (5) any Receivable which together with the related contract does not comply in all material respects with all Legal Requirements of the jurisdictions where it originated; (6) any Receivable which does not provide, according to its original terms, that the amount payable thereunder will be due within 60 days following the date upon which the related obligor became obligated thereon; (7) any Receivable which is payable by an obligor which is located in any jurisdiction outside of the United States of America, Puerto Rico or Canada; (8) any Receivable which is unacceptable to the Majority Banks for credit reasons in their reasonable discretion; and (9) any Receivable which is payable by an Affiliate of the Borrower (other than Treadco); (10) any Receivable which is subject to setoff, counterclaim, defense, allowance, dispute or adjustment other than allowances or discounts in the ordinary course of business consistent with past practices. "Eligible Revenue Equipment" means, as of any Borrowing Base Determination Date, all Revenue Equipment which is owned by the Borrower or any Guarantor other than a Canadian Subsidiary as of such date and was so owned as of the date of the most recent Borrowing Base Certificate delivered to the Banks. "Environment" or "Environmental" shall have the meanings set forth in 42 U.S.C. ' 9601(8) (1998). "Environmental Claim" means any third party (including governmental agencies and employees) action, lawsuit, claim, demand, regulatory action or proceeding, order, decree, -8- 15 consent agreement or notice of potential or actual responsibility or violation (including claims or proceedings under the Occupational Safety and Health Acts or similar laws or requirements relating to health or safety of employees) which seeks to impose liability under any Environmental Law. "Environmental Law" means all Legal Requirements arising from, relating to, or in connection with the Environment, health, or safety, including without limitation CERCLA, relating to (a) pollution, contamination, injury, destruction, loss, protection, cleanup, reclamation or restoration of the air, surface water, groundwater, land surface or subsurface strata, or other natural resources; (b) solid, gaseous or liquid waste generation, treatment, processing, recycling, reclamation, cleanup, storage, disposal or transportation; (c) exposure to pollutants, contaminants, hazardous, medical, infectious, or toxic substances, materials or wastes; (d) the safety or health of employees; or (e) the manufacture, processing, handling, transportation, distribution in commerce, use, storage or disposal of hazardous, medical, infectious, or toxic substances, materials or wastes. "Environmental Permit" means any permit, license, order, approval or other authorization under Environmental Law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Federal Reserve Board (or any successor), as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Eurodollar Lending Office" opposite its name on Schedule 9.2 (or, if no such office is specified, its Domestic Lending Office) or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent. "Eurodollar Rate" means, for the Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing, the interest rate per annum (rounded upward to the nearest whole multiple of 1/100 of 1% per annum) equal to (a) the rate set forth on the applicable Telerate Page as the London Interbank Offered Rate, for deposits in Dollars at 11:00 a.m. (London, England time) two Business Days before the first day of such Interest Period and for a period equal to such Interest Period; provided that, if no such quotation appears on the applicable Telerate Page, the Eurodollar Rate shall be an interest rate per annum equal to the rate per annum at which deposits in Dollars are offered by the principal office of SG in London, England to prime banks in the London interbank market at 11:00 a.m. (London, England time) two Business Days before the first day of such Interest Period, in the case of Advances made in Dollars in each case in an amount substantially equal to SG's Eurodollar Rate Advance comprising part of such Borrowing and for a period equal to such Interest Period divided by (b) one minus the applicable statutory reserve requirements of the Agent, expressed as a decimal (including without duplication or limitation, basic, supplemental, marginal and emergency reserves), from time to time in effect under Regulation D or similar regulations of the Federal Reserve Board. It is -9- 16 agreed that for purposes of this definition, Eurodollar Rate Advances made hereunder shall be deemed to constitute Eurocurrency Liabilities as defined in Regulation D and to be subject to the reserve requirements of Regulation D. "Eurodollar Rate Advance" means an Advance which bears interest as provided in Section 2.6(b). "Events of Default" has the meaning set forth in Section 7.1. "Existing Credit Agreement" means the Amended and Restated Credit Agreement dated as of February 21, 1996, as amended, among the Borrower, the banks party thereto, SG, as Managing Agent and Administrative Agent, and NationsBank of Texas, N.A., as Documentation Agent. "Existing Lien" means a mortgage Lien on real property which is existing on the Effective Date and which is identified on Schedule 6.1. "Expiration Date" means, with respect to any Letter of Credit, the date on which such Letter of Credit will expire or terminate in accordance with its terms. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for any such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any of its successors. "Financial Statements" means the financial statements described in Section 4.5. "Fuel Hedge Agreement" means a swap, collar, floor, cap, option, forward sale or purchase or other similar arrangement between the Borrower or any of its Subsidiaries and a financial institution which is intended to reduce or eliminate the risk of fluctuations in the price of fuel. "Fund," "Trust Fund," or "Superfund" means the Hazardous Substance Response Trust Fund, established pursuant to 42 U.S.C. ' 9631 (1988) and the Post-closure Liability Trust Fund, established pursuant to 42 U.S.C. ' 9641 (1988), which statutory provisions have been amended or repealed by the Superfund Amendments and Reauthorization Act of 1986, and the "Fund," "Trust Fund," or "Superfund" that are now maintained pursuant to ' 9507 of the Code. "GAAP" means United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the requirements of Section 1.3. -10- 17 "Governmental Authority" means any foreign governmental authority, the United States of America, any state of the United States of America and any subdivision of any of the foregoing, and any agency, department, commission, board, authority or instrumentality, bureau or court having jurisdiction over any Bank, the Borrower, or the Borrower's Subsidiaries or any of their respective Properties. "Governmental Proceedings" means any action or proceedings by or before any Governmental Authority, including, without limitation, the promulgation, enactment or entry of any Legal Requirement. "Guarantor" means each Subsidiary of the Borrower that is a party to the Guaranty, and "Guarantors" means such Persons collectively. The Guarantors on the Effective Date are identified on Schedule 4.1. "Guarantors Security Agreement" means the Security Agreement dated of even date herewith executed by the Guarantors in substantially the form of Exhibit D, as it may be amended from time to time in accordance with its terms. "Guaranty" means the Subsidiary Guaranty and Contribution Agreement dated of even date herewith in substantially the form of the attached Exhibit B executed by certain Subsidiaries of the Borrower, as it may be amended hereafter in accordance with its terms. "Hazardous Substance" means the substances identified as such pursuant to CERCLA and those regulated under any other Environmental Law, including without limitation pollutants, contaminants, petroleum, petroleum products, radionuclides, radioactive materials, and medical and infectious waste. "Hazardous Waste" means the substances regulated as such pursuant to any Environmental Law. "Hedge Agreement" means any Interest Hedge Agreement or any Fuel Hedge Agreement. "Hedging Obligations" means all obligations of the Borrower or any of its Subsidiaries under any Hedge Agreement. "Indenture" means the Indenture dated as of April 15, 1986 between the Borrower (as successor in interest to Carolina Freight Corporation) and First Union National Bank of North Carolina, N.A. (formerly known as First Union National Bank), as Trustee, as it may be amended or supplemented in accordance with its terms. "Indebtedness" means (without duplication), at any time and with respect to any Person, (a) indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase price of property or services purchased (other than amounts constituting trade payables or bank drafts (payable within 120 days) arising in the ordinary course); (b) indebtedness of others which such Person has directly or indirectly -11- 18 assumed or guaranteed or otherwise provided credit support therefor; (c) indebtedness of others secured by a Lien on assets of such Person, whether or not such Person shall have assumed such indebtedness; (d) obligations of such Person in respect of letters of credit, surety bonds, acceptance facilities, or drafts or similar instruments issued or accepted by banks and other financial institutions for the account of such Person (other than trade payables or bank drafts (payable within 120 days) arising in the ordinary course); (e) obligations of such Person under Capital Leases; and (f) outstanding amount of preferred trust securities or other similar arrangements. "Insolvent" means, with respect to any Person, that (a) the present fair saleable value of such Person's assets is less than the amount that will be required to pay its probable liability on its then existing legal liabilities, either matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent, as they become absolute or matured, or (b) the property remaining in its hands is an unreasonably small capital for the business or transaction in which it is engaged or is about to engage. "Interest Expense" means, for any Person, for any period for which such amount is being determined, total interest expense (including that properly attributable to Capital Leases in accordance with GAAP and amortization of debt discount and debt issuance costs), including, without limitation, all capitalized interest if such interest would be in excess of $100,000 in any fiscal year, all commissions and other fees, discounts, and charges incurred with respect to surety bonds and letters of credit. "Interest Hedge Agreement" means an interest hedge, rate swap or cap or other similar arrangement between the Borrower or any of its Subsidiaries and a financial institution providing for the exchange of nominal interest obligations or the cap of the interest rate on the Advances made under this Agreement. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Advance or the date of the Conversion of any Prime Rate Advance into such an Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.2 and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.2. The duration of each such Interest Period shall be one, two or three weeks (with respect to the initial Advances only), or one, two, three or six (or to the extent available to all of the Banks, twelve) months, in each case as the Borrower may, upon notice received by the Agent not later than 11:00 a.m. (Dallas, Texas time) on the third Business Day prior to the first day of such Interest Period (except as otherwise provided in Section 2.2(a)), select; provided, however, that: (1) Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration; -12- 19 (2) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (3) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month in which it would have ended if there were a numerically corresponding day in such calendar month. "Intermodal Subsidiary" means any Subsidiary of the Borrower which contracts for the benefit of its customers the railroad shipment of such customer's goods with any railroad company. "Issuing Bank" means SG or any other Bank which agrees at the request of the Borrower to act as issuer of a Letter of Credit hereunder, or any Bank acting as a successor issuing bank pursuant to Section 8.6, and "Issuing Banks" means, collectively, all of such Banks. "Legal Requirement" means any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or official interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority. "Letter of Credit" means, individually, any letter of credit issued by an Issuing Bank which is subject to this Agreement, including, without limitation, the letters of credit described on Schedule 1.1(b), and "Letters of Credit" means all such letters of credit collectively. "Letter of Credit Documents" means, with respect to any Letter of Credit, such Letter of Credit and any agreements, documents, and instruments entered into in connection with or relating to such Letter of Credit. "Letter of Credit Exposure" means, at any time, the sum of (a) the aggregate undrawn maximum face amount of each Letter of Credit at such time and (b) the aggregate unpaid amount of all Reimbursement Obligations at such time. "Letter of Credit Obligations" means any obligations of the Borrower under this Agreement in connection with the Letters of Credit. "Leverage Ratio" means the ratio of the Borrower's Adjusted Consolidated Indebtedness to its EBITDA. "Lien" means any mortgage, lien, pledge, charge, deed of trust, security interest, encumbrance or other type of preferential arrangement to secure or provide for the payment of any obligation of any Person, whether arising by contract, operation of law or otherwise (including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement). -13- 20 "Liquid Investments" means: (1) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States; (2) (i) negotiable or nonnegotiable certificates of deposit, time deposits, or other similar banking arrangements maturing within 180 days from the date of acquisition thereof ("bank debt securities"), issued by (A) any Bank or (B) any other bank or trust company which has a combined capital surplus and undivided profit of not less than $250,000,000 or the Dollar Equivalent thereof, if at the time of deposit or purchase, such bank debt securities are rated not less than "A" (or the then equivalent) by the rating service of S&P or of Moody's, and (ii) commercial paper issued by (A) any Bank or (B) any other Person if at the time of purchase such commercial paper is rated not less than "A-2" (or the then equivalent) by the rating service of S&P or not less than "P-2" (or the then equivalent) by the rating service of Moody's, or upon the discontinuance of both of such services, such other nationally recognized rating service or services, as the case may be, as shall be selected by the Borrower with the consent of the Majority Banks; (3) repurchase agreements relating to investments described in clauses (a) and (b) above with a market value at least equal to the consideration paid in connection therewith, with any Person who regularly engages in the business of entering into repurchase agreements and has a combined capital surplus and undivided profit of not less than $250,000,000 or the Dollar Equivalent thereof, if at the time of entering into such agreement the debt securities of such Person are rated not less than "A" (or the then equivalent) by the rating service of S&P or of Moody's; and (4) shares of any mutual fund registered under the Investment Company Act of 1940, as amended, which invests solely in underlying securities of the types described in clauses (a), (b) and (c) above and which do not constitute "margin stock" within the meaning of Regulation U of the Federal Reserve Board; and (5) such other instruments (within the meaning of Article 9 of the Texas Business and Commerce Code) as the Borrower may request and the Majority Banks may approve in writing, which approval will not be unreasonably withheld. "Majority Banks" means, at any time, Banks holding at least 51% of the then aggregate unpaid principal amount of the Notes held by the Banks and the participation interest in the Letter of Credit Exposure of the Banks at such time, or, if no such principal amount and Letter of Credit Exposure is then outstanding, Banks having at least 51% of the aggregate amount of the Revolving Commitments at such time. "Mandatory Revolving Borrowing" means a Revolving Borrowing comprised of Prime Rate Advances made to repay a Swingline Advance which has not been repaid to SG on the date due. -14- 21 "Material Adverse Change" shall mean a material adverse change in the business, financial condition, or results of operations of the Borrower or any Guarantor, in each case since the date of the Financial Statements. "Maturity Date" means June 12, 2003. "Maximum Rate" means the maximum nonusurious interest rate under applicable law. "Moody's" means Moody's Investors Service, Inc. and any successor thereto which is a nationally recognized statistical rating organization. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any member of the Controlled Group is making or accruing an obligation to make contributions. "Net Cash Proceeds" means (a) the aggregate cash proceeds (including without limitation, insurance proceeds) received by the Borrower or any Guarantor in connection with any sales, transfers or dispositions of assets, minus (b) the reasonable expenses of the Borrower or such Guarantor in connection with any such sales, transfers or dispositions of assets. "Net Depreciated Value" means, with respect to Revenue Equipment and Other Equipment, the aggregate value of such Revenue Equipment and Other Equipment on the books of the Borrower or any Guarantor as of the date of acquisition thereof by the Borrower or such Guarantor or the actual cost of such Revenue Equipment or Other Equipment to the Borrower or such Guarantor, whichever is less (the "Cost"), minus depreciation computed to the date of the most recent Borrowing Base Certificate delivered to the Banks at a rate sufficient to depreciate such Revenue Equipment and Other Equipment, as appropriate, to the extent, and in the periods, set forth below on a straight-line basis to a customary residual value: city tractors: within seven years trucks: within five years tractors (other than city tractors): within three years trailers: within seven years Other Equipment: within fifteen years "Net Income" means, for any Person for any period for which such amount is being determined, the net income of such Person after taxes, as determined in accordance with GAAP, excluding, however, extraordinary items, including but not limited to (a) any net gain or loss during such period arising from the sale, exchange, or other disposition of capital assets (such term to include all fixed assets and all securities) other than in the ordinary course of business and (b) any write-up or write-down of assets. -15- 22 "Net Purchase Price" means the aggregate cash consideration paid in connection with any Acquisition Expenditure plus any assumptions of Indebtedness in connection with such Acquisition Expenditure. "Net Worth" means, for any Person, stockholders' equity of such Person determined in accordance with GAAP. "Note" means a Revolving Note or the Swingline Note. "Notice of Borrowing" means a notice of borrowing in the form of the attached Exhibit E signed by a Responsible Officer of the Borrower. "Notice of Conversion or Continuation" means a notice of conversion or continuation in the form of the attached Exhibit F signed by a Responsible Officer of the Borrower. "Obligations" means all Advances, Reimbursement Obligations, Hedging Obligations owing to any Bank or any Affiliate of a Bank and other amounts payable by the Borrower to the Agent or the Banks under the Credit Documents. "Other Equipment" means, with respect to any Person, equipment other than Revenue Equipment, free and clear of all Liens other than Permitted Liens. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Liens" means the Liens permitted to exist pursuant to Section 6.1. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, limited liability company, joint venture or other entity, or a government or any political subdivision or agency thereof or any trustee, receiver, custodian or similar official. "Plan" means an employee benefit plan (other than a Multiemployer Plan) maintained for employees of the Borrower or any member of the Controlled Group and covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code. "Prime Rate" means a fluctuating interest rate per annum as shall be in effect from time to time equal to the rate of interest publicly announced by Societe Generale, New York Branch as its prime commercial lending rate (which may not be the lowest rate offered to its customers), whether or not the Borrower has notice thereof. "Prime Rate Advance" means an Advance which bears interest as provided in Section 2.6(a). "Property" of any Person means any property or assets (whether real, personal, or mixed, tangible or intangible) of such Person. -16- 23 "Pro Rata Share" means, at any time with respect to any Bank, either (a) the ratio (expressed as a percentage) of such Bank's Revolving Commitment at such time to the aggregate Revolving Commitments at such time or (b) if the Revolving Commitments have been terminated, the ratio (expressed as a percentage) of such Bank's aggregate outstanding Advances and participation interest in the Letter of Credit Exposure at such time to the aggregate outstanding Advances and Letter of Credit Exposure of all the Banks at such time. "Real Estate Value" means, with respect to any Eligible Real Property, (a) the net book value of such Eligible Real Property as of the date of the most recent Borrowing Base Certificate delivered to the Banks less (b) the aggregate amount of Indebtedness (other than bond Indebtedness which is supported by a Letter of Credit) secured by Liens on such Property. "Receivables" means all rights to receive payment for goods sold or for services rendered in the ordinary course of business. "Register" has the meaning set forth in paragraph (c) of Section 9.6. "Reimbursement Obligations" means all of the obligations of the Borrower set forth in Section 2.13(c). "Release" shall have the meaning set forth in CERCLA or under any other Environmental Law. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA. "Response" shall have the meaning set forth in CERCLA or under any other Environmental Law. "Responsible Officer" means the Chief Executive Officer, President, Chief Financial Officer, any Treasurer or Secretary of any Person. "Restricted Payment" means (a) any direct or indirect payment, prepayment, redemption, purchase, or deposit of funds or Property for the payment (including any sinking fund or defeasance), prepayment, redemption or purchase of Subordinated Debt, and (b) the making by any Person of any dividends or other distributions (in cash, property, or otherwise) on, or payment for the purchase, redemption or other acquisition of, any shares of any capital stock or other ownership interests of such Person, other than dividends payable in such Person's stock or ownership interests. "Revenue Equipment" means, with respect to any Person, trucks, tractors, trailers, city tractors, converter gears and all accessories and parts attached thereto, owned by such Person as of the date of determination free and clear of all Liens other than Permitted Liens. "Revolving Advance" means any advance by a Bank to the Borrower pursuant to Section 2.1(a). -17- 24 "Revolving Borrowing" means a borrowing consisting of simultaneous Revolving Advances of the same Type made by each Bank pursuant to Section 2.1(a) or Converted by each Bank to Revolving Advances of a different Type pursuant to Section 2.2(b). "Revolving Commitment" means, with respect to any Bank, the amount set opposite such Bank's name on Schedule 1.1(a) as its Revolving Commitment, or if such Bank has entered into any Assignment and Acceptance, the amount set forth for such Bank as its Revolving Commitment in the Register maintained by the Agent pursuant to Section 9.6(c), as such amount may be reduced pursuant to Section 2.4. "Revolving Note" means a promissory note of the Borrower payable to the order of any Bank, in substantially the form of the attached Exhibit A, evidencing indebtedness of the Borrower to such Bank resulting from Revolving Advances owing to such Bank. "Rolling Period" means with respect to any fiscal quarter of the Borrower, such fiscal quarter and the three immediately preceding fiscal quarters. "S&P" means Standard & Poor's Ratings Service, a division of McGraw-Hill Companies, Inc., or any successor thereof which is a nationally recognized statistical rating organization. "Security Agreements" means, collectively, the Borrower Security Agreement, the Guarantors Security Agreement, and any other agreement executed in connection with the Liens in favor of the Agent for the benefit of the Banks securing the Obligations. "Senior Debt" means the Senior Secured Debt or the Senior Unsecured Debt; provided however, that if Moody's and/or S&P have different ratings for both the Senior Secured Debt and the Senior Unsecured Debt, then "Senior Debt" shall mean the Senior Secured Debt; provided further however, that if the Collateral securing this Agreement has been released pursuant to Section 2.17(f), then "Senior Debt" shall mean the Senior Unsecured Debt. "Senior Secured Debt" means the Borrower's senior, secured, non-credit enhanced, long-term indebtedness for borrowed money. "Senior Unsecured Debt" means the Borrower's senior, unsecured, non-credit enhanced, long-term indebtedness for borrowed money; provided however, that if either Moody's or S&P does not rate the Borrower's Senior Unsecured Debt, then "Senior Unsecured Debt" shall mean for the purposes of determining such rating agency's applicable rating, the Borrower's "corporate credit rating". "SG" means Societe Generale, Southwest Agency. "Subordinated Debentures" means the 6 1/4% Convertible Subordinated Debentures Due 2011 issued by the Borrower pursuant to the Indenture in the original aggregate principal amount of $50,000,000, of which $44,883,000 is outstanding on the date of this Agreement. -18- 25 "Subordinated Debt" means (a) the Subordinated Debentures, and (b) any Indebtedness of the Borrower or any of its Subsidiaries which is subordinated to their respective obligations under the Credit Documents and which is on terms and conditions satisfactory to the Agent and the Banks. "Subordinated Debt Documents" means the Indenture, the Subordinated Debentures and all documents, instruments and agreements now or hereafter executed by the Borrower or any of its Subsidiaries in respect of Subordinated Debt and any and all amendments, modifications, supplements, renewals or restatements thereof approved in accordance with Section 6.2. "Subsidiary" of a Person means any corporation, association, partnership or other business entity of which more than 50% of the outstanding shares of capital stock (or other equivalent interests) having by the terms thereof ordinary voting power under ordinary circumstances to elect a majority of the board of directors or Persons performing similar functions (or, if there are no such directors or Persons, having general voting power) of such entity (irrespective of whether at the time capital stock (or other equivalent interests) of any other class or classes of such entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more Subsidiaries of such Person or by one or more Subsidiaries of such Person. "Swingline Advance" has the meaning set forth in Section 2.1(b). "Swingline Note" means a promissory note of the Borrower payable to the order of SG in substantially the form of the attached Exhibit L, evidencing the indebtedness of the Borrower to SG from Swingline Advances owing to SG. "Termination Event" means (a) the occurrence of a Reportable Event with respect to a Plan, as described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), (b) the withdrawal of the Borrower or any of its Affiliates from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c) the giving of a notice of intent to terminate a Plan under Section 4041(c) of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "Treadco" means Treadco, Inc., a Delaware corporation, which is an Affiliate of the Borrower. "Type" has the meaning set forth in Section 1.4. "Year 2000 Compliant" means that all software, embedded microchips, and other processing capabilities utilized by, and material to the business operations or financial condition of, the Borrower and its Subsidiaries are able to correctly perform all date-sensitive functions prior to and after December 31, 1999. -19- 26 Section I.2 Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". Section I.3 Accounting Terms; Changes in GAAP. (1) All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP applied on a consistent basis with those applied in the preparation of the Financial Statements. (2) Unless otherwise indicated, all financial statements of the Borrower, all calculations for compliance with covenants in this Agreement, and all calculations of any amounts to be calculated under the definitions in Section 1.1 shall be based upon the Consolidated accounts of the Borrower and its Subsidiaries in accordance with GAAP. (3) If any changes in accounting principles after the Effective Date are required by GAAP or the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or similar agencies results in a change in the method of calculation of, or affects the results of such calculation of, any of the financial covenants, standards or terms found in this Agreement, then the parties shall enter into and diligently pursue negotiations in order to amend such financial covenants, standards or terms so as to equitably reflect such change, with the desired result that the criteria for evaluating the Borrower's and its Consolidated Subsidiaries' financial condition shall be the same after such change as if such change had not been made. Section I.4 Types of Advances. Advances are distinguished by "Type". The "Type" of an Advance refers to the determination whether such Advance is a Eurodollar Rate Advance or Prime Rate Advance, each of which constitutes a Type. Section I.5 Miscellaneous. Article, Section, Schedule and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Agreement, unless otherwise specified. ARTICLE II THE ADVANCES AND THE LETTERS OF CREDIT Section II.1 The Advances. (1) Revolving Advances. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make Revolving Advances to the Borrower from time to time on any Business Day prior to the Maturity Date in an aggregate amount not to exceed at any time outstanding an amount equal to such Bank's Revolving Commitment less such Bank's Pro Rata Share of the Letter of Credit Exposure at such time. The aggregate amount of all -20- 27 outstanding Revolving Advances, Swingline Advances and Letter of Credit Exposure at any time may not exceed the lesser of (i) the aggregate Revolving Commitments at such time or (ii) the Borrowing Base at such time. Within the limits of each Bank's Revolving Commitment and the Borrowing Base limitation set forth above, the Borrower may from time to time prepay pursuant to Section 2.7 and reborrow under this Section 2.1(a). (2) Swingline Advances. On the terms and conditions set forth in this Agreement, SG may, in its sole discretion from time-to-time on any Business Day during the period from the date of this Agreement until the Maturity Date, make advances ("Swingline Advances") under the Swingline Note to the Borrower in an aggregate principal amount not to exceed $15,000,000 outstanding at any time; provided that the aggregate principal amount of outstanding Revolving Advances, Swingline Advances, and Letter of Credit Exposure may not exceed the lesser of (i) the aggregate Revolving Commitments at such time or (ii) the Borrowing Base at such time; and provided further than no Swingline Advance shall be made by SG if the statements set forth in Section 3.2(a) are not true on the date of such Swingline Advance, it being agreed by the Borrower that the giving of the applicable Notice of Borrowing and the acceptance by the Borrower of the proceeds of such Swingline Advance shall constitute a representation and warranty by the Borrower that on the date of such Swingline Advance such statements are true. Subject to the other provisions hereof, the Borrower may from time-to-time borrow, prepay (in whole or in part) and reborrow Swingline Advances. (1) Except as provided in the following clause (B) below, each request for a Swingline Advance shall be made pursuant to telephone notice to SG given no later than 11:00 a.m. (Dallas, Texas time) on the date of the proposed Swingline Advance, promptly confirmed by a completed and executed Notice of Borrowing telecopied to the Agent. SG will promptly make the Swingline Advance available to the Borrower at the Borrowers' account with the Agent. (2) The Borrower and the Banks agree that in the event any Swingline Advance is not repaid on the date due to SG, each Bank shall pay to the Agent its Pro Rata Share of such Swingline Advance and such payment shall be deemed to be a Prime Rate Advance made pursuant to such Bank's Revolving Commitment, whether made before or after termination of the Commitments, acceleration of the Advances, or otherwise, and whether or not the conditions precedent in Section 3.2 have been satisfied. The Agent shall give each Bank notice of such Mandatory Revolving Borrowing by 11:00 a.m. (Dallas, Texas time) on the date the Mandatory Revolving Borrowing is to be made. Each Bank shall make its Advance available to the Agent for the account of SG in immediately available funds by 1:00 p.m. (Dallas, Texas time) on the date requested, and the Borrower hereby irrevocably instructs SG to apply the proceeds of such Mandatory Revolving Borrowing to the payment of the outstanding Swingline Advances. Section II.2 Method of Borrowing. (1) Notice. Each Revolving Borrowing shall be made pursuant to a Notice of Borrowing, given not later than (i) 11:00 a.m. (Dallas, Texas time) on the third Business Day before the date of the proposed Borrowing, in the case of a Eurodollar Rate Advance or -21- 28 (ii) 11:00 a.m. (Dallas, Texas time) on the Business Day of the proposed Borrowing, in the case of a Prime Rate Advance, by the Borrower to the Agent, which shall give to each Bank prompt notice on the day of receipt of timely Notice of Borrowing of such proposed Borrowing by telecopier; provided however that the Agent and each of the Banks hereby waive the requirement in subsection (i) of this Section 2.2(a) that the Borrower provide three Business Days advance written notice of the date of the initial Borrowing. Each Swingline Advance shall be made pursuant to a Notice of Borrowing, given not later than 11:00 a.m. (Dallas, Texas time) on the day of the proposed Borrowing. Each Notice of Borrowing shall be in writing or by telecopier specifying the requested (a) date of such Borrowing, (b) Type of Advances comprising such Borrowing, (c) aggregate amount of such Borrowing, and (d) if such Borrowing is to be comprised of Eurodollar Rate Advances, the Interest Period for each such Advance. In the case of a proposed Borrowing comprised of Eurodollar Rate Advances, the Agent shall promptly notify each Bank of the applicable interest rate under Section 2.6(b). Each Bank shall (1) in the case of all Revolving Borrowings other than Borrowings made on the same day as the day the Notice of Borrowing is received, before 11:00 a.m. (Dallas, Texas time) on the date of such Borrowing and (2) in the case of Revolving Borrowings made on the same day as the date of the Notice of Borrowing or Mandatory Revolving Borrowings, before 1:00 p.m. (Dallas, Texas time), make available for the account of its Applicable Lending Office to the Agent at its address referred to in Section 9.2, or such other location as the Agent may specify by notice to the Banks, in same day funds, such Bank's Pro Rata Share of such Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such funds available to the Borrower at its account with the Agent. (2) Conversions and Continuations. In order to elect to Convert or continue Advances comprising part of the same Revolving Borrowing under this Section, the Borrower shall deliver an irrevocable Notice of Conversion or Continuation to the Agent at the Agent's office no later than 11:00 a.m. (Dallas, Texas time) (i) on the Business Day of the proposed conversion date in the case of a Conversion of such Advances to Prime Rate Advances and (ii) at least three Business Days in advance of the proposed Conversion or continuation date in the case of a Conversion to, or a continuation of, Eurodollar Rate Advances. Each such Notice of Conversion or Continuation shall be in writing or by telecopier, specifying (a) the requested Conversion or continuation date (which shall be a Business Day), (b) the Borrowing amount and Type of the Advances to be Converted or continued, (c) whether a Conversion or continuation is requested, and if a Conversion, into what Type of Advances, and (d) in the case of a Conversion to, or a continuation of, Eurodollar Rate Advances, the requested Interest Period. Revolving Advances may only be Converted or continued as Revolving Advances. Swingline Advances may not be converted or continued. Promptly after receipt of a Notice of Conversion or Continuation under this paragraph, the Agent shall provide each Bank with a copy thereof and, in the case of a Conversion to or a Continuation of Eurodollar Rate Advances, notify each Bank of the applicable interest rate under Section 2.6(b). For purposes other than the conditions set forth in Section 3.2, the portion of Revolving Advances comprising part of the same Revolving Borrowing that are Converted to Revolving Advances of another Type shall constitute a new Revolving Borrowing. (3) Certain Limitations. Notwithstanding anything in paragraphs (a) and (b) above: -22- 29 (1) each Borrowing (other than a Borrowing of Swingline Advances) shall be in an aggregate amount not less than $2,000,000 or greater multiples of $1,000,000, in the case of Eurodollar Rate Advances, or $1,000,000 or greater multiples of $100,000, in the case of Prime Rate Advances, and shall consist of Advances of the same Type made on the same day by the Banks ratably according to their respective Commitments. (2) at no time shall there be more than five Interest Periods applicable to outstanding Eurodollar Rate Advances; (3) the Borrower may not select Eurodollar Rate Advances for any Borrowing to be made, Converted or continued if (A) the aggregate amount of such Borrowing is less than $2,000,000 or (B) a Default has occurred and is continuing; (4) (A) if any Bank shall, at any time prior to the making of any requested Borrowing comprised of Eurodollar Rate Advances, notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other governmental authority asserts that it is unlawful, for such Bank or its Eurodollar Lending Office to perform its obligations under this Agreement to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances, such Bank's Pro Rata Share of such Borrowing shall be made as a Prime Rate Advance of such Bank, but otherwise shall be considered part of the same Borrowing and interest on such Prime Rate Advance shall be due and payable at the same time that interest on the Eurodollar Rate Advances comprising the remainder of such Borrowing shall be due and payable; and (B) such Bank agrees to use commercially reasonable efforts (consistent with its internal policies and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such designation would avoid the effect of this paragraph and would not, in the reasonable judgment of such Bank, be otherwise disadvantageous to such Bank; (5) if the Agent is unable to determine the Eurodollar Rate for Eurodollar Rate Advances comprising any requested Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Agent shall notify the Borrower and the Banks that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Prime Rate Advance; (6) if the Majority Banks shall, at least one Business Day before the date of any requested Borrowing, notify the Agent that the Eurodollar Rate for Eurodollar Rate Advances comprising such Borrowing will not adequately reflect the cost to such Banks of making or funding their respective Eurodollar Rate Advances, as the case may be, for such Borrowing, the right of the Borrower to select -23- 30 Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Agent shall notify the Borrower and the Banks that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Prime Rate Advance; and (7) if the Borrower shall fail to select the duration or continuation of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.1 and paragraph (a) or (b) above, the Agent will forthwith so notify the Borrower and the Banks and such Advances will be made available to the Borrower on the date of such Borrowing as Prime Rate Advances or, if an existing Advance, Converted into Prime Rate Advances. (4) Notices Irrevocable. Each Notice of Borrowing and Notice of Conversion or Continuation shall be irrevocable and binding on the Borrower. In the case of any Borrowing which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Bank against any loss, out-of-pocket cost or expense incurred by such Bank as a result of any condition precedent for Borrowing set forth in Article III not being satisfied for any reason, including, without limitation, any loss, cost or expense actually incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund the Advance to be made by such Bank as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. (5) Agent Reliance. Unless the Agent shall have received notice from a Bank before the date of any Revolving Borrowing or Mandatory Revolving Borrowing that such Bank will not make available to the Agent such Bank's Pro Rata Share of the Borrowing, the Agent may assume that such Bank has made its Pro Rata Share of such Borrowing available to the Agent on the date of such Borrowing in accordance with paragraph (a) of this Section 2.2 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made its Pro Rata Share of such Borrowing available to the Agent, such Bank and the Borrower severally agree to immediately repay to the Agent on demand such corresponding amount, together with interest on such amount, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable on such day to Advances comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds Rate for such day. If such Bank shall repay to the Agent such corresponding amount and interest as provided above, such corresponding amount so repaid shall constitute such Bank's Advance as part of such Borrowing for purposes of this Agreement even though not made on the same day as the other Advances comprising such Borrowing. (6) Bank Obligations Several. The failure of any Bank to make the Advance to be made by it as part of any Borrowing shall not relieve any other Bank of its obligation, if any, to make its Advance on the date of such Borrowing. No Bank shall be responsible for the failure of any other Bank to make the Advance to be made by such other Bank on the date of any Borrowing. -24- 31 (7) Notes. The indebtedness of the Borrower to each Bank resulting from Revolving Advances owing to such Bank shall be evidenced by the Revolving Note of the Borrower payable to the order of such Bank in substantially the form of Exhibit A. The indebtedness of the Borrower to SG resulting from Swingline Advances owing to SG shall be evidenced by the Swingline Note of the Borrower payable to the order of SG in substantially the form of Exhibit L. Section II.3 Fees. (1) Commitment Fees. The Borrower agrees to pay to the Agent for the account of each Bank a commitment fee on the average daily amount by which such Bank's Revolving Commitment exceeds the sum of such Bank's outstanding Revolving Advances and Pro Rata Share of the Letter of Credit Exposure at a rate per annum equal to the Applicable Margin for the period from the Effective Date until the Maturity Date, such fees due and payable quarterly in arrears on the last Business Day of each March, June, September and December and on the Maturity Date. (2) Letter of Credit Fees. The Borrower agrees to pay to the Agent for the pro rata benefit of the Banks, fees in respect of all Letters of Credit outstanding at a rate per annum equal to the Applicable Margin calculated on the maximum amount available from time to time to be drawn under such outstanding Letters of Credit, payable in arrears (i) on and through the last Business Day of each March, June, September and December and (ii) on the Maturity Date. In addition, the Borrower agrees to pay to each Issuing Bank for its own account fees in respect of all Letters of Credit outstanding and issued by such Issuing Bank equal to one-eighth percent (1/8%) per annum of the maximum amount available from time to time to be drawn under such outstanding Letters of Credit, payable in arrears on the last Business Day of each March, June, September and December and on the Maturity Date. (3) Agent Fees. The Borrower agrees to pay to the Agent for its benefit the fees set forth in the Agent's Fee Letter. Section II.4 Reduction of the Revolving Commitments. (1) Voluntary Reduction. The Borrower shall have the right, upon at least three Business Days' irrevocable notice to the Agent, to terminate in whole or reduce ratably in part the unused portion of the Revolving Commitments; provided that each partial reduction shall be in the aggregate amount of $1,000,000 or an integral multiple of $1,000,000. Any reduction or termination of the Revolving Commitments pursuant to this Section 2.4 shall be permanent, with no obligation of the Banks to reinstate such Revolving Commitments and the commitment fees provided for in Section 2.3(a) shall thereafter be computed on the basis of the Revolving Commitments, as so reduced. -25- 32 (2) Change of Control. Upon the occurrence of any of the following: (i) a change in control is reported by the Borrower in response to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or (ii) any "person" (as such term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Borrower representing the Control Percentage or more of the combined voting power of the Borrower's then outstanding securities; then, in such event the Majority Banks may, at their sole option upon written notice to the Borrower (a "Termination Notice"), declare the obligation of each Bank to make Advances and the obligation of each Issuing Bank to issue, increase, or extend Letters of Credit to be terminated, whereupon the same shall forthwith terminate and the Revolving Commitments shall reduce to zero. Section II.5 Repayment of Advances. (1) Revolving Advances. The Borrower shall repay the outstanding principal amount of each Revolving Advance on the Maturity Date. (2) Swingline Advances. The Borrower shall repay the outstanding principal amount of each Swingline Advance on the earlier of the Maturity Date or the date which is three Business Days after the date such Swingline Advance was made. Section II.6 Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (1) Prime Rate Advances. If such Advance is a Prime Rate Advance, a rate per annum equal at all times to the lesser of (i) the Adjusted Prime Rate in effect from time to time plus the Applicable Margin and (ii) the Maximum Rate, payable in arrears on the last Business Day of each calendar quarter and on the date such Prime Rate Advance shall be paid in full, provided that any amount of principal which is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to the lesser of (a) the rate required to be paid on such Advance immediately prior to the date on which such amount becomes due plus two percent (2%) and (b) the Maximum Rate. (2) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during the Interest Period for such Advance to the lesser of (i) the Eurodollar Rate for such Interest Period plus the Applicable Margin and (ii) the Maximum Rate, payable in arrears on the last day of such Interest Period, and on the date such Eurodollar Rate Advance shall be paid in full; provided that any amount of principal which is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to the lesser of (A) the greater of (1) the Adjusted Prime Rate in effect from time to time plus two percent (2%) and (2) the rate required to be paid on such Advance immediately prior to the date on which such amount became due plus two percent (2%) and (B) the Maximum Rate. -26- 33 (3) Swingline Advances. If such Advance is a Swingline Advance, a rate per annum equal at all times to the lesser of (i) the rate agreed to pursuant to the Letter Agreement dated as of April 17, 1998 between SG and the Borrower and (ii) the Maximum Rate, payable in arrears on the date such Advance shall be paid in full, provided that any amount of principal which is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to the lesser of (A) the rate required to be paid on such Advance immediately prior to the date on which such amount becomes due plus two percent (2%) and (B) the Maximum Rate. (4) Usury Recapture. In the event the rate of interest chargeable under this Agreement or the Notes at any time is greater than the Maximum Rate, the unpaid principal amount of the Notes shall bear interest at the Maximum Rate until the total amount of interest paid or accrued on the Notes equals the amount of interest which would have been paid or accrued on the Notes if the stated rates of interest set forth in this Agreement had at all times been in effect. In the event, upon payment in full of the Notes, the total amount of interest paid or accrued under the terms of this Agreement and the Notes is less than the total amount of interest which would have been paid or accrued if the rates of interest set forth in this Agreement had, at all times, been in effect, then the Borrower shall, to the extent permitted by applicable law, pay the Agent for the account of the Banks an amount equal to the difference between (i) the lesser of (A) the amount of interest which would have been charged on the Notes if the Maximum Rate had, at all times, been in effect and (B) the amount of interest which would have accrued on the Notes if the rates of interest set forth in this Agreement had at all times been in effect and (ii) the amount of interest actually paid or accrued under this Agreement on the Notes. In the event the Banks ever receive, collect or apply as interest any sum in excess of the Maximum Rate, such excess amount shall, to the extent permitted by law, be applied to the reduction of the principal balance of the Notes, and if no such principal is then outstanding, such excess or part thereof remaining shall be paid to the Borrower. (5) Other Amounts Overdue. If any amount payable under this Agreement other than the Advances is not paid when due and payable, including without limitation, accrued interest and fees, then such overdue amount shall accrue interest hereon due and payable on demand at a rate per annum equal to the Adjusted Prime Rate plus two percent (2%), from the date such amount became due until the date such amount is paid in full. Section II.7 Prepayments. (1) Right to Prepay. The Borrower shall have no right to prepay any principal amount of any Advance except as provided in this Section 2.7. (2) Optional Prepayments. The Borrower may elect to prepay any of the Advances, after giving notice thereof to the Agent (i) by 11:00 a.m. (Dallas, Texas time) on the day of prepayment of any Swingline Advance, and (ii) by 11:00 a.m. (Dallas Texas time) at least -27- 34 three Business Days' prior to the day of prepayment of any Eurodollar Rate Advances, and at least one Business Day prior to the day of prepayment of any Prime Rate Advances. Such notice must state the proposed date and aggregate principal amount of such prepayment, whether such prepayment should be applied to reduce outstanding Revolving Advances or Swingline Advances, and if applicable, the relevant Interest Period for the Advances to be prepaid. If any such notice is given, the Borrower shall prepay Advances comprising part of the same Borrowing in whole or ratably in part in an aggregate principal amount equal to the amount specified in such notice, and shall also pay accrued interest to the date of such prepayment on the principal amount prepaid and amounts, if any, required to be paid pursuant to Section 2.8 as a result of such prepayment being made on such date; provided, however, that each partial prepayment of Eurodollar Rate Advances shall be in an aggregate principal amount not less than $1,000,000 or an integral multiple of $1,000,000. (3) Mandatory Prepayments. (1) Change of Control. On the fifth Business Day following the Borrower's receipt of a Termination Notice pursuant to Section 2.4(b) hereof, the Borrower shall be required to prepay all outstanding Advances in full and to deposit with the Agent into the Cash Collateral Account an amount equal to the Letter of Credit Exposure. (2) Borrowing Base Deficiency. On each Borrowing Base Determination Date, the Borrower shall be required to prepay the Advances in an aggregate amount equal to the excess of (A) the aggregate amount of outstanding Advances and Letter of Credit Exposure on such date over (B) the Borrowing Base, as determined on such Borrowing Base Determination Date (or, upon payment in full of all outstanding Advances, to deposit with the Agent into the Cash Collateral Account an amount equal to the amount of the Letter of Credit Exposure which exceeds the Borrowing Base). (3) Reduction of Revolving Commitments. In the event the Revolving Commitments are reduced in accordance with Section 2.4(a), the Borrower shall prepay the Advances to the extent the outstanding Advances plus the Letter of Credit Exposure exceed the reduced Revolving Commitments (or, upon payment in full of all outstanding Advances, to deposit with the Agent into the Cash Collateral Account an amount equal to the amount of the Letter of Credit Exposure which exceeds the Revolving Commitments as so reduced). (4) Accrued Interest. Each prepayment pursuant to this Section 2.7(c) shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.8 as a result of such prepayment being made on such date. (5) Avoidance of Breakage Costs. In the event that the amount of any mandatory prepayment of Advances under this Section 2.7(c) exceeds the aggregate principal amount of Advances which consist of Prime Rate Advances (the amount of such excess being the "Excess Amount"), the Borrower shall have the right, in lieu of making such prepayment in full, to prepay such outstanding Advances which are Prime Rate -28- 35 Advances and to deposit an amount equal to the Excess Amount with the Agent in the Cash Collateral Account maintained by and in the sole dominion and control of the Agent for the ratable benefit of the Banks. Any amount so deposited shall be held by the Agent as collateral for the Obligations and applied to the prepayment of Advances which are Eurodollar Rate Advances at the end of the current Interest Period(s) applicable thereto. On any day on which amounts collected in the Cash Collateral Account remain on deposit in or to the credit of the Cash Collateral Account after giving effect to the payment made on such day pursuant to this Section 2.7(c), and the Borrower shall have delivered to the Agent a written request or a telephonic request (which shall be promptly confirmed in writing) prior to 10:00 am (Dallas, Texas time) that such remaining collected amounts be invested in cash equivalents specified in such request, the Agent shall invest such funds, to the extent the Agent is reasonably able to do so, in such cash equivalents as are acceptable to, and with no risk to, the Agent on an overnight basis or with maturities such that amounts will be available to pay the Obligations secured thereby as they become due, whether at maturity, by acceleration or otherwise; provided, however, that any loss resulting from such investments shall be charged to and be immediately payable by the Borrower on demand by the Agent. (4) Ratable Payments. Each payment of any Advance pursuant to this Section 2.7 or any other provision of this Agreement shall be made in a manner such that all Advances comprising part of the same Borrowing are paid in whole or ratably in part. (5) Effect of Notice. All notices given pursuant to this Section 2.7 shall be irrevocable and binding upon the Borrower. Section II.8 Breakage Costs. If (a) any payment of principal of any Eurodollar Rate Advance is made other than on the last day of the Interest Period for such Advance as a result of any payment pursuant to Section 2.7 or the acceleration of the maturity of the Notes pursuant to Article VIII or otherwise; (b) any Conversion of a Eurodollar Rate Advance is made other than on the last day of the Interest Period for such Advance pursuant to Section 2.12 or otherwise; or (c) the Borrower fails to make a principal or interest payment with respect to any Eurodollar Rate Advance on the date such payment is due and payable, the Borrower shall, within 10 days of any written demand sent by any Bank to the Borrower through the Agent, pay to the Agent for the account of such Bank any amounts (without duplication of any other amounts payable in respect of breakage costs) required to compensate such Bank for any additional losses, out-of-pocket costs or expenses which it may reasonably incur as a result of such payment or nonpayment, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Bank to fund or maintain such Advance. Section II.9 Increased Costs. (1) Eurodollar Rate Advances. If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the calculation of the Eurodollar Rate) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other Governmental -29- 36 Authority (whether or not having the force of law), there shall be any increase in the cost to any Bank of agreeing to make or making, funding or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Bank (with a copy of such demand to the Agent), immediately pay to the Agent for the account of such Bank additional amounts (without duplication of any other amounts payable in respect of increased costs) sufficient to compensate such Bank for such increased cost; provided, however, that, before making any such demand, each Bank agrees to use commercially reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost and would not, in the reasonable judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate as to the amount of such increased cost and detailing the calculation of such cost submitted to the Borrower and the Agent by such Bank at the time such Bank demands payment under this Section shall be conclusive and binding for all purposes, absent manifest error. (2) Capital Adequacy. If any Bank or any Issuing Bank determines in good faith that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) implemented or effective after the date of this Agreement affects or would affect the amount of capital required or expected to be maintained by such Bank or such Issuing Bank and that the amount of such capital is increased by or based upon the existence of such Bank's commitment to lend or such Issuing Bank's commitment to issue Letters of Credit or any Bank's commitment to risk participate in Letters of Credit and other commitments of this type, then, upon 30 days prior written notice by such Bank or such Issuing Bank (with a copy of any such demand to the Agent), the Borrower shall immediately pay to the Agent for the account of such Bank or to such Issuing Bank, as the case may be, from time to time as specified by such Bank or such Issuing Bank, additional amounts (without duplication of any other amounts payable in respect of increased costs) sufficient to compensate such Bank or such Issuing Bank, in light of such circumstances, (i) with respect to such Bank, to the extent that such Bank reasonably determines such increase in capital to be allocable to the existence of such Bank's commitment to lend under this Agreement or its commitment to risk participate in Letters of Credit and (ii) with respect to such Issuing Bank, to the extent that such Issuing Bank reasonably determines such increase in capital to be allocable to the issuance or maintenance of the Letters of Credit. A certificate as to such amounts and detailing the calculation of such amounts submitted to the Borrower by such Bank or such Issuing Bank shall be conclusive and binding for all purposes, absent manifest error. (3) Letters of Credit. If any change in any law or regulation or in the interpretation thereof by any court or administrative or Governmental Authority charged with the administration thereof shall either (i) impose, modify, or deem applicable any reserve, special deposit, or similar requirement against letters of credit issued by, or assets held by, or deposits in or for the account of, any Issuing Bank or any Bank or (ii) impose on such Issuing Bank or any Bank any other condition regarding the provisions of this Agreement relating to the Letters of Credit or any Letter of Credit Obligations, and the result of any event referred to in the preceding clause (i) or (ii) shall be to increase the cost to such Issuing Bank of issuing or maintaining any Letter of Credit, or increase the cost to such Bank of its risk participation in any Letter of Credit -30- 37 (which increase in cost shall be determined by such Issuing Bank's or such Bank's reasonable allocation of the aggregate of such cost increases resulting from such event), then, upon demand by such Issuing Bank or such Bank (with a copy sent to the Agent), as the case may be, the Borrower shall pay to the Agent (for the account of such Issuing Bank), as the case may be, from time to time as specified by such Issuing Bank or such Bank, additional amounts which shall be sufficient to compensate such Issuing Bank or such Bank for such increased cost. Each Issuing Bank and each Bank agrees to use commercially reasonable efforts (consistent with internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office for the booking of its Letters of Credit or risk participations if the making of such designation would avoid the effect of this paragraph and would not, in the reasonable judgment of such Issuing Bank or such Bank, be otherwise disadvantageous to such Issuing Bank or such Bank, as the case may be. A certificate as to such increased cost incurred by such Issuing Bank or such Bank, as the case may be, as a result of any event mentioned in clause (i) or (ii) above, and detailing the calculation of such increased costs submitted by such Issuing Bank or such Bank to the Borrower, shall be conclusive and binding for all purposes, absent manifest error. Section II.10 Payments and Computations. (1) Payment Procedures. Except if otherwise set forth herein, the Borrower shall make each payment under this Agreement and under the Notes not later than 11:00 a.m. (Dallas, Texas time) on the day when due in Dollars to the Agent at the location referred to in the Notes (or such other location as the Agent shall designate in writing to the Borrower) in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal, interest or fees ratably (other than amounts payable solely to the Agent, the Issuing Banks, or a specific Bank pursuant to Section 2.1(b), 2.3(b), 2.3(c), 2.6(c), 2.8, 2.9, 2.11, 2.12, or 2.13(c) but after taking into account payments effected pursuant to Section 9.4) to the Banks in accordance with each Bank's Pro Rata Share for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Bank or any Issuing Bank to such Bank or such Issuing Bank for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. (2) Computations. All computations of interest based on the Adjusted Prime Rate shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of fees and interest based on the Eurodollar Rate and the Federal Funds Rate shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Agent of an interest rate shall be conclusive and binding for all purposes, absent manifest error. (3) Non-Business Day Payments. Whenever any payment shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. -31- 38 (4) Agent Reliance. Unless the Agent shall have received written notice from the Borrower prior to the date on which any payment is due to the Banks that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such date an amount equal to the amount then due such Bank. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank, together with interest, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate for such day. (5) Application of Payments. Unless otherwise specified in Section 2.7 hereof, whenever any payment received by the Agent under this Agreement is insufficient to pay in full all amounts then due and payable under this Agreement and the Notes, such payment shall be distributed and applied by the Agent and the Banks in the following order: first, to the payment of fees and expenses due and payable to the Agent under and in connection with this Agreement or any other Credit Document; second, to the payment of all expenses due and payable under Section 2.11(c), ratably among the Banks in accordance with the aggregate amount of such payments owed to each such Bank; third, to the payment of fees due and payable to the Issuing Banks pursuant to Section 2.3(b); fourth, to the payment of all other fees due and payable under Section 2.3 ratably among the Banks in accordance with their applicable Commitments; and fifth, to the payment of the interest accrued on and the principal amount of all of the Notes and the interest accrued on and all Reimbursement Obligations, regardless of whether any such amount is then due and payable, ratably among the Banks in accordance with the aggregate accrued interest plus the aggregate principal amount owed to such Bank. Section II.11 Taxes. (1) No Deduction for Certain Taxes. Any and all payments by the Borrower shall be made, in accordance with Section 2.10, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank, each Issuing Bank, and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank, such Issuing Bank, or the Agent (as the case may be) is organized or any political subdivision of the jurisdiction (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes") and, in the case of each Bank and each Issuing Bank, Taxes by the jurisdiction of such Bank's Applicable Lending Office or any political subdivision of such jurisdiction. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable to any Bank, any Issuing Bank, or the Agent, (i) the sum payable shall be increased as may be necessary so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 2.11), such Bank, such Issuing Bank, or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made; provided, however, that if the Borrower's obligation to deduct or withhold Taxes is caused solely by such -32- 39 Bank's, such Issuing Bank's, or the Agent's failure to provide the forms described in paragraph (e) of this Section 2.11 and such Bank, such Issuing Bank, or the Agent could have provided such forms, no such increase shall be required; (ii) the Borrower shall make such deductions; and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (2) Other Taxes. In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Notes, or the other Credit Documents (hereinafter referred to as "Other Taxes"). (3) Indemnification. The Borrower indemnifies each Bank, each Issuing Bank, and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.11) paid by such Bank, such Issuing Bank, or the Agent (as the case may be) and any liability (including interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Each payment required to be made by the Borrower in respect of this indemnification shall be made to the Agent for the benefit of any party claiming such indemnification within 30 days from the date the Borrower receives written demand detailing the calculation of such amounts therefor from the Agent on behalf of itself as Agent, any Issuing Bank, or any such Bank. If any Bank, the Agent, or any Issuing Bank receives a refund in respect of any taxes paid by the Borrower under this paragraph (c), such Bank, the Agent, or such Issuing Bank, as the case may be, shall promptly pay to the Borrower the Borrower's share of such refund. (4) Evidence of Tax Payments. The Borrower will pay prior to delinquency all Taxes payable in respect of any payment. Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Agent, at its address referred to in Section 9.2, the original or a certified copy of a receipt evidencing payment of such Taxes. (5) Foreign Bank Withholding Exemption. Each Bank and each Issuing Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Borrower and the Agent on the date of this Agreement or upon the effectiveness of any Assignment and Acceptance (i) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Bank is entitled to receive payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes, (ii) if applicable, an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax, and (iii) any other governmental forms which are necessary or required under an applicable tax treaty or otherwise by law to reduce or eliminate any withholding tax, which have been reasonably requested by the Borrower. Each Bank which delivers to the Borrower and the Agent a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the next preceding sentence further undertakes to deliver to the Borrower and the Agent two further copies of Form 1001 or 4224 -33- 40 and Form W-8 or W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower and the Agent, and such extensions or renewals thereof as may reasonably be requested by the Borrower and the Agent certifying in the case of a Form 1001 or 4224 that such Bank is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes. If an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any delivery required by the preceding sentence would otherwise be required which renders all such forms inapplicable or which would prevent any Bank from duly completing and delivering any such letter or form with respect to it and such Bank advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax, such Bank shall not be required to deliver such forms. The Borrower shall withhold tax at the rate and in the manner required by the laws of the United States with respect to payments made to a Bank failing to timely provide the requisite Internal Revenue Service forms. Section II.12 Illegality. If any Bank shall notify the Agent and the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful for such Bank or its Eurodollar Lending Office to perform its obligations under this Agreement to maintain any Eurodollar Rate Advances of such Bank then outstanding hereunder, then, notwithstanding anything herein to the contrary, the Borrower shall, if demanded by such Bank in its notice, no later than 11:00 a.m. (Dallas, Texas time), (a) if not prohibited by law or regulation to maintain such Eurodollar Rate Advances for the duration of the Interest Period, on the last day of the Interest Period for each outstanding Eurodollar Rate Advance of such Bank or (b) if prohibited by law or regulation to maintain such Eurodollar Rate Advances for the duration of the Interest Period, on the second Business Day following its receipt of such notice from such Bank, Convert all Eurodollar Rate Advances of such Bank then outstanding to Prime Rate Advances, and pay accrued interest on the principal amount Converted to the date of such Conversion and amounts, if any, required to be paid pursuant to Section 2.8 as a result of such Conversion being made on such date. Each Bank agrees to use commercially reasonable efforts (consistent with its internal policies and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such designation would avoid the effect of this paragraph and would not, in the reasonable judgment of such Bank, be otherwise disadvantageous to such Bank. Section II.13 Letters of Credit. (1) Issuance. From time to time from the date of this Agreement until three months before the Maturity Date, at the request of the Borrower, each Issuing Bank shall, on any Business Day and on the terms and conditions hereinafter set forth, issue, increase, decrease, amend, or extend the expiration date of Letters of Credit for the account of the Borrower (for its own benefit or for the benefit of any of its Subsidiaries). No Letter of Credit will be issued, increased, or extended (i) if such issuance, increase, or extension would cause the -34- 41 Letter of Credit Exposure to exceed the lesser of (A) $75,000,000 or (B) an amount equal to (1) the lesser of the Borrowing Base or the aggregate Revolving Commitments less (2) the aggregate outstanding Revolving Advances, Swingline Advances and Letter of Credit Exposure at such time; (ii) unless such Letter of Credit has an Expiration Date not later than the earlier of (A) one year after the date of issuance thereof and (B) five days before the Maturity Date; (iii) unless such Letter of Credit is in form and substance acceptable to the respective Issuing Bank in its sole discretion; (iv) unless such Letter of Credit is a standby letter of credit not supporting the repayment of indebtedness for borrowed money of any Person, other than a Letter of Credit issued in substitution of any letter of credit outstanding on the Effective Date and listed on Schedule 1.1(b); (v) unless the Borrower has delivered to the respective Issuing Bank a completed and executed letter of credit application on such Issuing Bank's standard form, which shall contain terms no more restrictive than the terms of this Agreement; and (vi) unless such Letter of Credit is governed by the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 ("UCP") or any successor to the UCP. If the terms of any letter of credit application referred to in the foregoing clause (v) conflicts with the terms of this Agreement, the terms of this Agreement shall control. (2) Participations. With respect to each Letter of Credit described on Schedule 1.1(b) which is outstanding on the Effective Date, each Bank agrees that it has a participation in the related Letter of Credit Exposure equal to such Bank's Pro Rata Share on the Effective Date. On the date of the issuance or increase of any Letter of Credit on or after the Effective Date, each Issuing Bank shall be deemed to have sold to each other Bank and each other Bank shall have been deemed to have purchased from such Issuing Bank a participation in the Letter of Credit Exposure related to the Letters of Credit issued by such Issuing Bank equal to such Bank's Pro Rata Share at such date and such sale and purchase shall otherwise be in accordance with the terms of this Agreement. Each Issuing Bank shall promptly notify each such participant Bank by telex, telephone, or telecopy of each Letter of Credit of such Issuing Bank issued, increased or decreased, and the actual dollar amount of such Bank's participation in such Letter of Credit. Each Bank's obligation to purchase participating interests pursuant to this Section and to reimburse the respective Issuing Bank for such Bank's Pro Rata Share of any payment under a Letter of Credit by such Issuing Bank not reimbursed in full by the Borrower shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any of the circumstances described in paragraph (d) below, (ii) the occurrence and continuance of a Default, (iii) an adverse change in the financial condition of the Borrower or any Guarantor, or (iv) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing, except for any such circumstance, happening or event constituting or arising from gross negligence or willful misconduct on the part of such Issuing Bank. (3) Reimbursement. The Borrower hereby agrees to pay on demand to each Issuing Bank in respect of each Letter of Credit issued by such Issuing Bank an amount equal to any amount paid by such Issuing Bank under or in respect of such Letter of Credit. In the event any Issuing Bank makes a payment pursuant to a request for draw presented under a Letter of Credit and such payment is not promptly reimbursed by the Borrower upon demand, such Issuing Bank shall give notice of such payment to the Agent and the Banks, and each Bank shall promptly reimburse such Issuing Bank for such Bank's Pro Rata Share of such payment, and such -35- 42 reimbursement shall be deemed for all purposes of this Agreement to constitute a Prime Rate Advance to the Borrower from such Bank. If such reimbursement is not made by any Bank to any Issuing Bank on the same day on which such Issuing Bank shall have made payment on any such draw, such Bank shall pay interest thereon to such Issuing Bank at a rate per annum equal to the Federal Funds Rate. The Borrower hereby unconditionally and irrevocably authorizes, empowers, and directs the Agent and the Banks to record and otherwise treat each payment under a Letter of Credit not immediately reimbursed by the Borrower as a Borrowing comprised of Prime Rate Advances to the Borrower. (4) Obligations Unconditional. The obligations of the Borrower under this Agreement in respect of each Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, notwithstanding the following circumstances: (1) any lack of validity or enforceability of any Letter of Credit Documents; (2) any amendment or waiver of or any consent to departure from any Letter of Credit Documents; (3) the existence of any claim, set-off, defense or other right which the Borrower or any Bank or any other Person may have at any time against any beneficiary or transferee of such Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the respective Issuing Bank or any other Person or entity, whether in connection with this Agreement, the transactions contemplated in this Agreement or in any Letter of Credit Documents or any unrelated transaction; (4) any statement or any other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect to the extent the respective Issuing Bank would not be liable therefor pursuant to the following paragraph (e); (5) payment by the respective Issuing Bank under such Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit; or (6) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; provided, however, that nothing contained in this paragraph (d) shall be deemed to constitute a waiver of any remedies of the Borrower in connection with the Letters of Credit. -36- 43 (5) Liability of Issuing Banks. The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. No Issuing Bank nor any of its officers or directors shall be liable or responsible for: (1) the use which may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (2) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (3) payment by such Issuing Bank against presentation of documents which do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the relevant Letter of Credit; or (4) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit (including such Issuing Bank's own negligence), except that the Borrower shall have a claim against such Issuing Bank, and such Issuing Bank shall be liable to, and shall promptly pay to, the Borrower, to the extent of any direct, as opposed to consequential, damages suffered by the Borrower which the Borrower proves were caused by (A) such Issuing Bank's willful misconduct or gross negligence in determining whether documents presented under a Letter of Credit comply with the terms of such Letter of Credit or (B) such Issuing Bank's willful failure to make lawful payment under any Letter of Credit after the presentation to it of a draft and certificate strictly complying with the terms and conditions of such Letter of Credit. In furtherance and not in limitation of the foregoing, any Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. Section II.14 Determination of Borrowing Base. The Borrowing Base shall be determined by the Agent, as follows: (1) Monthly. On the 25th day of each calendar month the Agent shall determine the Borrowing Base upon receipt of a Borrowing Base Certificate dated as of the last day of the immediately preceding calendar month. (2) Acceptable Security Interest. Each of the Eligible Revenue Equipment, the Treadco Shares and the Eligible Receivables shall be subject to an Acceptable Security Interest in favor of the Agent for the benefit of the Banks until the Liens held by the Agent for the benefit of the Banks upon the Collateral have been released pursuant to Section 2.17(f). (3) Property Adjustments. Following (i) any sale by the Borrower or any Guarantor of any Property included in the Borrowing Base with a sales value in excess of $25,000,000 individually or in the aggregate since the most recent month end, (ii) any loss or casualty not covered by insurance resulting in destruction of any Property included in the -37- 44 Borrowing Base if the loss or casualty exceeds $25,000,000 individually or in the aggregate since the most recent month end, and (iii) any permitted purchase by the Borrower or any Guarantor of any Property which can be included in the Borrowing Base with a purchase price in excess of $25,000,000 individually or in the aggregate since the most recent month end (each of such events hereinafter called an "Adjustment Event"), the Borrower shall (in the case of (i) and (ii) above) or may (in the case of (iii) above) give the Agent notice of such Adjustment Event within five Business Days of the closing of such Adjustment Event, and the Agent may in its sole reasonable discretion (in the case of (i) and (ii) above) or shall (in the case of (iii) above) further adjust the appropriate Borrowing Base components set forth in the most recent month end Borrowing Base Certificate delivered by the Borrower to the Banks to reflect the Adjustment Events occurring since the date of such Borrowing Base Certificate. (4) Notice of Borrowing Base Change. Promptly following any date the Borrowing Base is redetermined in accordance with the preceding paragraphs, the Agent shall give notice to the Banks and the Borrower of the new Borrowing Base. Section II.15 Bank Replacement. (1) Right to Replace. The Borrower shall have the right to replace each Bank affected by a condition under Section 2.2(c)(iv), 2.9, or 2.12 for more than 90 days (each such affected Bank, an "Affected Bank") in accordance with the procedures in this Section 2.15 and provided that no reduction of the total Revolving Commitments occurs as a result thereof. (2) First Right of Refusal; Replacement. (1) Upon the occurrence of any condition permitting the replacement of a Bank, each Bank which is not an Affected Bank shall have the right, but not the obligation, to elect to increase its respective Revolving Commitment by an amount not to exceed the amount of the Revolving Commitments of the Affected Banks, which election shall be made by written notice from each such Bank to the Agent and the Borrower given within 30 days after the date such condition occurs specifying the amount of such proposed increase in such Bank's Revolving Commitment. (2) If the aggregate amount of the proposed increases in Revolving Commitments of all such Banks making such an election is in excess of the Revolving Commitments of the Affected Banks, (A) the Revolving Commitments of the Affected Banks shall be allocated pro rata among such Banks based on the respective amounts of the proposed increases to Revolving Commitments elected by each of such Banks, and (B) the respective Commitments of such Banks shall be increased by the respective amounts as so allocated so that after giving effect to such termination and increases the aggregate amount of the Revolving Commitments of the Banks will be the same as prior to such termination. (3) If the aggregate amount of the proposed increases to Revolving Commitments of all Banks making such an election equals the Revolving -38- 45 Commitments of the Affected Banks, the respective Revolving Commitments of such Banks shall be increased by the respective amounts of their proposed increases, so that after giving effect to such termination and increase the aggregate amount of the Revolving Commitments of all of the Banks will be the same as prior to such termination. (4) If the aggregate amount of the proposed increases to Revolving Commitments of all Banks making such an election is less than the Revolving Commitments of the Affected Banks, (A) the respective Revolving Commitments of such Banks shall be increased by the respective amounts of their proposed increases, and (B) the Borrower shall add additional Banks which are Eligible Assignees to this Agreement to replace such Affected Banks, which additional Banks would have aggregate Revolving Commitments no greater than those of the Affected Banks minus the amounts thereof assumed by the other Banks pursuant to such increases. (3) Procedure. Any assumptions of Revolving Commitments pursuant to this Section 2.15 shall be (i) made by the purchasing Bank or Eligible Assignee and the selling Bank entering into an Assignment and Assumption and by following the procedures in Section 9.6 for adding a Bank. In connection with the increase of the Revolving Commitments of any Bank pursuant to the foregoing paragraph (b), each Bank with an increased Revolving Commitment shall purchase from the Affected Banks at par such Bank's ratable share of the outstanding Advances of the Affected Banks and assume such Bank's ratable share of the Affected Banks' Letter of Credit Exposure. Section II.16 Sharing of Payments, Etc. If any Bank shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off or otherwise) on account of its Advances or its share of Letter of Credit Obligations in excess of its Pro Rata Share of payments on account of the Advances or Letter of Credit Obligations obtained by all the Banks, such Bank shall notify the Agent and forthwith purchase from the other Banks such participations in the Advances made by them or Letter of Credit Obligations held by them as shall be necessary to cause such purchasing Bank to share the excess payment ratably in accordance with the requirements of this Agreement with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Bank, such purchase from each Bank shall be rescinded and such Bank shall repay to the purchasing Bank the purchase price to the extent of such Bank's ratable share (according to the proportion of (a) the amount of the participation sold by such Bank to the purchasing Bank as a result of such excess payment to (b) the total amount of such excess payment) of such recovery, together with an amount equal to such Bank's ratable share (according to the proportion of (i) the amount of such Bank's required repayment to the purchasing Bank to (ii) the total amount of all such required repayments to the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Borrower agrees that any Bank so purchasing a participation from another Bank pursuant to this Section 2.16 may, to the fullest extent permitted by law, unless and until rescinded as provided above, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation. -39- 46 Section II.17 Collateral. (1) Creation and Perfection of Liens. Prior to the termination of the Revolving Commitments and the repayment in full of the Obligations, a perfected Lien shall exist on all Collateral in favor of the Agent for the benefit of the Banks to secure the Obligations in accordance with the terms of the Security Agreements, except that to the extent any Lien previously granted to the Agent for the benefit of the Banks on Revenue Equipment is unperfected as of the Effective Date, the Borrower shall cause such Liens to be perfected as promptly as practicable. (2) Further Assurances. The Borrower agrees to promptly, on demand, execute and deliver, and cause the Guarantors to execute and deliver, at the Borrower's expense, such security agreements, pledge agreements, assignments, mortgages, financing statements, stock powers, and other collateral documentation, and take such other actions deemed by the Agent and its counsel to be necessary in order to effect the foregoing. (3) Appraisals. The Borrower agrees to obtain, at its own expense and as promptly as practicable, such other appraisals as any Governmental Authority may require the Agent to obtain from time to time to satisfy any applicable Legal Requirement. (4) Certificates of Title. The Borrower agrees to hold, and to cause each Guarantor to hold, the certificates of title relating to titled Revenue Equipment of the Borrower or any Guarantor only at the offices listed on Schedule 2.17 attached hereto and in the custody of the Custodians described in the Borrower Security Agreement and the Guarantors Security Agreement. (5) Authorized Sales of Property and Release of Liens by Agent. The Banks hereby acknowledge and agree that the Borrower and any Guarantor may from time to time elect to make an Authorized Sale of Property. In connection with any such Authorized Sale of Property, each of the Banks hereby agrees that the Agent is authorized to release, or to provide for the release, of any Lien held by the Agent for the benefit of the Banks upon the Property to be sold without further notice to, or consent from, the Banks; provided that on the date of the requested release of Lien and on the date of the sale of any such Property, no Default has occurred which is continuing (it being agreed by the Borrower that each request for a release of Lien shall constitute a representation and warranty from the Borrower in favor of the Banks, effective on the date of such release of Lien and on the date of the sale of such Property, that no Default has occurred and is continuing on such date or would result from the sale of such Property). (6) Release of Collateral. If at any time, (a) either (i) the Borrower's Senior Unsecured Debt is rated BBB- or higher by S&P and Baa3 or higher by Moody's, or (ii) the Borrower's Leverage Ratio is 1.90 to 1.00 or less for a period of three consecutive fiscal quarters, and (b) no Default has occurred and is continuing, then the Agent and the Banks agree that all Liens and security interest they may have on all Collateral shall terminate, and each of the Banks -40- 47 hereby agrees that the Agent is authorized to release, or to provide for the release, of any Lien held by the Agent for the benefit of the Banks upon the Collateral without further notice to, or consent from the Banks. The Agent agrees to promptly notify the Banks upon the release of the Liens held by the Agent for the benefit of the Banks upon all of the Collateral under this Section 2.17(f). ARTICLE III CONDITIONS OF LENDING Section III.1 Conditions Precedent to Effectiveness of this Agreement. This Agreement shall become effective upon the following conditions precedent having been satisfied: (1) Documentation. The Agent shall have received counterparts of this Agreement executed by the Borrower and the Banks, and the following duly executed by all the parties thereto, in form and substance satisfactory to the Agent, and in sufficient copies for each Bank: (1) the Guaranty, the Borrower Security Agreement, the Guarantors Security Agreement, and any related Uniform Commercial Code financing statements; (2) a certificate from the Chief Executive Officer, President or Chief Financial Officer of the Borrower dated as of the Effective Date stating that as of the Effective Date (A) all representations and warranties of the Borrower set forth in this Agreement and the Security Agreements are true and correct in all material respects; (B) no Default has occurred and is continuing; and (C) the conditions in this Section 3.1 have been met; (3) a certificate of the Secretary or an Assistant Secretary of the Borrower and each Guarantor dated as of the date of this Agreement certifying as of the date of this Agreement (A) the names and true signatures of officers of the Borrower and such Guarantor authorized to sign the Credit Documents to which such Person is a party, (B) resolutions of the Board of Directors of such Person with respect to the transactions herein contemplated, and (C) copies of the articles or certificate of incorporation and bylaws of such Person; (4) a favorable opinion of Richard F. Cooper, General Counsel to the Borrower and Guarantors, dated as of the Effective Date and in substantially the form of Exhibit H; (5) a favorable opinion of Bracewell & Patterson, L.L.P., counsel to the Agent, dated as of the Effective Date and in substantially in the form of the attached Exhibit I; -41- 48 (6) the audited Consolidated and unaudited consolidating balance sheet of the Borrower and its Subsidiaries as at December 31, 1997, and the related Consolidated and consolidating statements of operations, shareholders' equity and cash flows, of the Borrower and its Subsidiaries for the fiscal year then ended, duly certified by the Chief Financial Officer or Treasurer of the Borrower; (7) a Borrowing Base Certificate dated as of April 30, 1998 duly completed and executed by the Chief Financial Officer or Treasurer of the Borrower; and (8) such other documents, governmental certificates, agreements, lien searches as the Agent may reasonably request. (2) Representations and Warranties. The representations and warranties contained in Article IV hereof and Section 7 of the Guaranty and in each Security Agreement shall be true and correct in all material respects. (3) Certain Payments. The Borrower shall have paid the fees required to be paid as of the Effective Date pursuant to the Agent's Fee Letter. (4) Termination of Existing Credit Agreement. The Agent and the Banks shall have received sufficient evidence indicating that contemporaneously with the making of the initial Advances, the obligations of the Borrower under the Existing Credit Agreement will be repaid with the proceeds of such Advances and thereafter all obligations of the Borrower and the lenders under the Existing Credit Agreement shall be terminated (including, without limitation, any obligations of any Subsidiary of the Borrower in respect of guaranties, security agreements executed in connection with such Existing Credit Agreement but excluding any obligations which expressly survive the repayment of the amounts owing under the Existing Credit Agreement). Section III.2 Conditions Precedent for each Borrowing or Letter of Credit. The obligation of each Bank to fund an Advance on the occasion of each Borrowing (other than the Conversion or continuation of any existing Borrowing and other than a Mandatory Revolving Borrowing) and of any Issuing Bank to issue or increase or extend any Letter of Credit shall be subject to the further conditions precedent that on the date of such Borrowing or the issuance or increase or extension of such Letter of Credit the following statements shall be true (and each of the giving of the applicable Notice of Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing or the issuance or increase or extension of such Letter of Credit shall constitute a representation and warranty by the Borrower that on the date of such Borrowing or the issuance or increase or extension of such Letter of Credit such statements are true): (1) the representations and warranties contained in Article IV hereof and Section 7 of the Guaranty and in each Security Agreement are correct in all material respects on and as of the date of such Borrowing or the issuance or increase or extension of such Letter of -42- 49 Credit, before and after giving effect to such Borrowing or to the issuance or increase or extension of such Letter of Credit and to the application of the proceeds from such Borrowing, as though made on and as of such date and (2) no Default has occurred and is continuing or would result from such Borrowing or from the application of the proceeds therefrom. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants as follows: Section IV.1 Corporate Existence; Subsidiaries. The Borrower is a corporation duly organized, validly existing, and in good standing under the laws of Delaware and in good standing and qualified to do business in each jurisdiction where its ownership or lease of property or conduct of its business requires such qualification and where a failure to be qualified could reasonably be expected to cause a Material Adverse Change. Each Subsidiary of the Borrower is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and in good standing and qualified to do business in each jurisdiction where its ownership or lease of property or conduct of its business requires such qualification and where a failure to be qualified could reasonably be expected to cause a Material Adverse Change. The Borrower has no Subsidiaries on the date of this Agreement other than the Subsidiaries listed on the attached Schedule 4.1, and Schedule 4.1 lists the jurisdiction of incorporation and the address of the principal office of each such Subsidiary existing on the date of this Agreement. Section IV.2 Corporate Power. The execution, delivery, and performance by the Borrower and each Guarantor of the Credit Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby (a) are within the Borrower's and the Guarantors' corporate powers, (b) have been duly authorized by all necessary corporate action, (c) do not contravene (i) the Borrower's or any Guarantor's certificate or articles, as the case may be, of incorporation or by-laws or (ii) any law or any contractual restriction binding on or affecting the Borrower or any Guarantor, the contravention of which could reasonably be expected to cause a Material Adverse Change, and (d) will not result in or require the creation or imposition of any Lien prohibited by this Agreement. At the time of each Borrowing, such Borrowing and the use of the proceeds of such Borrowing will be within the Borrower's corporate powers, will have been duly authorized by all necessary corporate action, (A) will not contravene (1) the Borrower's certificate of incorporation or by-laws or (2) any law or any contractual restriction binding on or affecting the Borrower, the contravention of which could reasonably be expected to cause a Material Adverse Change, and (B) will not result in or require the creation or imposition of any Lien prohibited by this Agreement. -43- 50 Section IV.3 Authorization and Approvals. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by the Borrower or any Guarantor of the Credit Documents to which it is a party or the consummation of the transactions contemplated thereby. At the time of each Borrowing, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required for such Borrowing or the use of the proceeds of such Borrowing. Section IV.4 Enforceable Obligations. This Agreement, the Notes, and the other Credit Documents to which the Borrower is a party have been duly executed and delivered by the Borrower and the Guaranty and the Guarantors Security Agreement and the other Credit Documents to which each Guarantor is a party have been duly executed and delivered by such Guarantor. Each Credit Document is the legal, valid, and binding obligation of the Borrower and each Guarantor which is a party to it enforceable against the Borrower and each such Guarantor in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors' rights generally and by general principles of equity (whether considered in proceeding at law or in equity). Section IV.5 Financial Statements. (1) The audited Consolidated and unaudited consolidating balance sheet of the Borrower and its Subsidiaries as at December 31, 1997, and the related Consolidated and consolidating statements of operations, shareholders' equity and cash flows, of the Borrower and its Subsidiaries for the fiscal year then ended, copies of which have been furnished to each Bank duly certified by the Chief Financial Officer or Treasurer of the Borrower, fairly present the financial condition of the Borrower and its Subsidiaries as at such date and the results of the operations of the Borrower and its Subsidiaries for the year ended on such date, and such balance sheet and statements were prepared in accordance with GAAP. (2) No Material Adverse Change has occurred. Section IV.6 True and Complete Disclosure. No representation, warranty, or other statement made by the Borrower (or on behalf of the Borrower) in this Agreement or any other Credit Document contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which they were made as of the date of this Agreement. There is no fact known to any Responsible Officer of the Borrower on the date of this Agreement and on the Effective Date that has not been disclosed to the Agent which they reasonably expect to cause a Material Adverse Change. All projections, estimates, and pro forma financial information furnished by the Borrower or on behalf of the Borrower were prepared on the basis of assumptions, data, information, tests, or conditions believed to be reasonable at the time such projections, estimates, and pro forma financial information were furnished. Section IV.7 Litigation. Except as set forth in the attached Schedule 4.7, there is no pending or, to the best knowledge of the Borrower, threatened action or proceeding affecting the -44- 51 Borrower or any of its Subsidiaries before any court, Governmental Authority or arbitrator, which could reasonably be expected to cause a Material Adverse Change or which purports to affect the legality, validity, binding effect or enforceability of this Agreement, any Note, or any other Credit Document. Section IV.8 Use of Proceeds. (1) Revolving Advances. The proceeds of the Revolving Advances have been, and will be used by the Borrower to refinance existing indebtedness under the Existing Credit Agreement and for general corporate purposes of the Borrower and its Subsidiaries. (2) Swingline Line Advances. The proceeds of the Swingline Line Advances will be used by the Borrower for general corporate purposes of the Borrower and its Subsidiaries. (3) Regulations. No proceeds of Advances will be used to purchase or carry any margin stock in violation of Regulations G, T, U or X of the Federal Reserve Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Federal Reserve Board). Section IV.9 Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Section IV.10 Taxes. Except as set forth on Schedule 4.10, all federal, state, local and foreign tax returns, reports and statements required to be filed (after giving effect to any extension granted in the time for filing) by the Borrower, its Subsidiaries or any member of the Controlled Group (hereafter collectively called the "Tax Group") have been filed with the appropriate governmental agencies in all jurisdictions in which such returns, reports and statements are required to be filed, and where the failure to file could reasonably be expected to cause a Material Adverse Change, except where contested in good faith and by appropriate proceedings; and all material taxes and other material impositions due and payable have been timely paid prior to the date on which any material fine, penalty, interest, late charge or loss may be added thereto for non-payment thereof except where contested in good faith and by appropriate proceedings. Neither the Borrower nor any member of the Tax Group has given, or been requested to give, a waiver of the statute of limitations relating to the payment of any federal, state, local or foreign taxes or other impositions. None of the property owned by the Borrower or any other member of the Tax Group is property which the Borrower or any member of the Tax Group is required to treat as being owned by any other Person pursuant to the provisions of Section 168(f)(8) of the Code. Proper and accurate amounts have been withheld by the Borrower and all other members of the Tax Group from their employees for all periods to comply in all material respects with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law. Timely payment of all material sales and use taxes required by applicable law have been made by the Borrower and all other members of the Tax Group, the failure to timely pay of which could reasonably be expected to -45- 52 cause a Material Adverse Change. The amounts shown on all tax returns to be due and payable have been paid in full or adequate provision therefor is included on the books of the appropriate member of the Tax Group. Section IV.11 Pension Plans. All Plans are in compliance in all material respects with all applicable provisions of ERISA. No Termination Event has occurred with respect to any Plan, and each Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Code. No "accumulated funding deficiency" (as defined in Section 302 of ERISA) has occurred and there has been no excise tax imposed under Section 4971 of the Code. To the knowledge of any Responsible Officer of the Borrower, no Reportable Event has occurred with respect to any Multiemployer Plan, and each Multiemployer Plan has complied with and been administered in all material respects with applicable provisions of ERISA and the Code. To the knowledge of any Responsible Officer of the Borrower, neither the Borrower nor any member of the Controlled Group has had a complete or partial withdrawal from any Multiemployer Plan for which there is any material withdrawal liability. As of the most recent valuation date applicable thereto, neither the Borrower nor any member of the Controlled Group has received notice that any Multiemployer Plan is insolvent or in reorganization. Section IV.12 Condition of Property; Casualties. The material Properties used or to be used in the continuing operations of the Borrower and each of its Subsidiaries, taken as a whole, are and will continue to be in good repair, working order and condition, normal wear and tear excepted. Since December 31, 1997, neither the business nor the material Properties of the Borrower and its Subsidiaries, taken as a whole, has been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of property or cancellation of contracts, permits or concessions by a Governmental Authority, riot, activities of armed forces or acts of God or of any public enemy. Section IV.13 Insurance. The Borrower and each of its Subsidiaries carry insurance with reputable insurers in respect of such of their respective Properties, in such amounts and against such risks as is customarily maintained by other Persons of similar size engaged in similar businesses or, self-insure to the extent that is customary for Persons of similar size engaged in similar businesses. Section IV.14 No Burdensome Restrictions; No Defaults. (1) Neither the Borrower nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction or provision of applicable law or governmental regulation which could reasonably be expected to cause a Material Adverse Change. The Borrower and the Guarantors are not in default under or with respect to any contract, agreement, lease or other instrument to which the Borrower or any Guarantor is a party and which could reasonably be expected to cause a Material Adverse Change. Neither the Borrower nor any Guarantor has received any notice of default under any material contract, agreement, lease or other instrument to which the Borrower or such Guarantor is a party which is continuing and which, if not cured, could reasonably be expected to cause a Material Adverse Change. -46- 53 (2) No Default has occurred and is continuing. Section IV.15 Environmental Condition. (1) The Borrower and its Subsidiaries, taken as a whole, (i) have obtained all Environmental Permits necessary for the ownership and operation of their respective material Properties and the conduct of their respective businesses; (ii) have been and are in compliance with all terms and conditions of such Environmental Permits and with all other material requirements of applicable Environmental Laws of which the failure to comply could reasonably be expected to cause a Material Adverse Change; (iii) have not received notice of any violation or alleged violation of any Environmental Law or Environmental Permit, which violation could reasonably be expected to cause a Material Adverse Change; and (iv) are not subject to any actual or contingent material Environmental Claim, which Environmental Claim could reasonably be expected to cause a Material Adverse Change. (2) None of the present or previously owned or operated Property of the Borrower or of any of its present or former Subsidiaries, wherever located, (i) has been placed on or proposed to be placed on the National Priorities List, the Comprehensive Environmental Response Compensation Liability Information System list, or their state or local analogs, or have been otherwise investigated, designated, listed, or identified as a potential site for removal, remediation, cleanup, closure, restoration, reclamation, or other response activity under any Environmental Laws which could reasonably be expected to cause a Material Adverse Change; (ii) is subject to a Lien, arising under or in connection with any Environmental Laws, that attaches to any revenues or to any Property owned or operated by the Borrower or any of its Subsidiaries, wherever located, which Lien could reasonably be expected to cause a Material Adverse Change; or (iii) has been the site of any Release of Hazardous Substances or Hazardous Wastes from present or past operations which has caused at the site or at any third-party site any condition that has resulted in or could reasonably be expected to result in the need for Response that could cause a Material Adverse Change. (3) Without limiting the foregoing, the present and, to the best knowledge of any Responsible Officer of the Borrower, future liability, if any, of the Borrower and its Subsidiaries, taken as a whole, which could reasonably be expected to arise in connection with requirements under Environmental Laws will not result in a Material Adverse Change. Section IV.16 Permits, Licenses, etc. The Borrower and its Subsidiaries possess all certificates of public convenience, authorizations, permits, licenses, patents, patent rights or licenses, trademarks, trademark rights, trade names rights and copyrights which are material to the conduct of its business. The Borrower and its Subsidiaries manage and operate their business in accordance with all applicable Legal Requirements which the failure to so manage or operate could reasonably be expected to cause a Material Adverse Change. -47- 54 Section IV.17 Existing Mortgage Debt. All outstanding Indebtedness secured by a Lien on real property of the Borrower or any Guarantor existing as of the Effective Date is described on Schedule 6.1, and the amount of such Indebtedness shown on such Schedule is the aggregate outstanding amount as of the Effective Date. No "default" or "event of default", however defined, has occurred and is continuing under any documentation evidencing such Indebtedness or the Lien securing such Indebtedness. Section IV.18 Year 2000. (a) The Borrower has (i) begun analyzing the operations of the Borrower and its Subsidiaries and Affiliates that could be adversely affected by the failure to become Year 2000 Compliant and (ii) developed a plan for becoming Year 2000 Compliant in a timely manner, the implementation of which is on schedule in all material respects and (iii) as of the Effective Date, implemented that plan in accordance with that schedule in all material respects. The Borrower reasonably believes that it will become Year 2000 compliant for its operations and those of its Subsidiaries and Affiliates on a timely basis except to the extent that a failure to do so could not reasonably be expected to cause a Material Adverse Change. (b) The Borrower reasonably believes any suppliers and vendors that are material to the operations of the Borrower or its Subsidiaries and Affiliates will be Year 2000 Compliant for their own computer applications except to the extent that a failure to do so could not reasonably be expected to cause a Material Adverse Change. ARTICLE V AFFIRMATIVE COVENANTS So long as any Note or any amount under any Credit Document shall remain unpaid, any Letter of Credit shall remain outstanding, or any Bank shall have any Revolving Commitment hereunder, the Borrower agrees, unless the Majority Banks shall otherwise consent in writing, to comply with the following covenants. Section V.1 Compliance with Laws, Etc. The Borrower will comply, and cause each of its Subsidiaries to comply, with all Legal Requirements of which the failure to comply could reasonably be expected to cause a Material Adverse Change; provided, however, that this Section 5.1 shall not prevent the Borrower, or any of its Subsidiaries from, in good faith and with reasonable diligence, contesting the validity or application of any such laws or regulations by appropriate legal proceedings. Section V.2 Insurance. The Borrower will maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates, provided that the Borrower or such Subsidiary may self-insure to the extent and in the manner normal for similarly situated companies of like size, type and financial condition that are part of a group of companies under common control. All policies shall -48- 55 expressly protect or recognize the Agent's interest as required by the Agent. Upon request the Borrower shall deliver certificates evidencing such insurance and copies of the underlying policies as they are available. Section V.3 Preservation of Corporate Existence, Etc. The Borrower will preserve and maintain, and cause each of the Guarantors to preserve and maintain, its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each such Guarantor to qualify and remain qualified, as a foreign corporation in each jurisdiction in which qualification is necessary or desirable in view of its business and operations or the ownership of its properties, and, in each case, where failure to qualify or preserve and maintain its rights and franchises could reasonably be expected to cause a Material Adverse Change; provided, however, that nothing contained in this Section 5.3 shall prevent any transaction permitted by Sections 6.4 or 6.9. Section V.4 Payment of Taxes, Etc. The Borrower will pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent and which the failure to timely pay or discharge could reasonably be expected to cause a Material Adverse Change, (a) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or Property that are material in amount, prior to the date on which penalties attach thereto and (b) all lawful claims that are material in amount which, if unpaid, might by law become a Lien upon its Property; provided, however, that neither the Borrower nor any such Subsidiary shall be required to pay or discharge any such tax, assessment, charge, levy, or claim which is being contested in good faith and by appropriate proceedings, and (except with respect to the claim described on Schedule 4.10) with respect to which reserves in conformity with GAAP have been provided. Section V.5 Visitation Rights. At any reasonable time and from time to time and so long as any visit or inspection will not unreasonably interfere with the Borrower's or any of its Subsidiaries operations, upon reasonable notice, the Borrower will, and will cause its Subsidiaries to, permit the Agent and any Bank or any of its agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit and inspect at its reasonable discretion the properties of, the Borrower and any such Subsidiary, to discuss the affairs, finances and accounts of the Borrower and any such Subsidiary with any of their respective officers or directors. Section V.6 Reporting Requirements. The Borrower will furnish to the Agent and each Bank: (1) Quarterly Financials. As soon as available and in any event not later than 45 days after the end of each of the first three quarters of each fiscal year of the Borrower and not later than 60 days after the end of the fourth quarter of each fiscal year of the Borrower, the unaudited Consolidated and consolidating balance sheets of Borrower and its Subsidiaries as of the end of such quarter and the related unaudited statements of income, shareholders' equity and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous year and ending with the end of such quarter, and the corresponding figures as at the end of, and for, the corresponding period in the preceding fiscal year, all in reasonable detail and -49- 56 duly certified with respect to such statements (subject to year-end audit adjustments) by an authorized financial officer of the Borrower as having been prepared in accordance with GAAP, together with a Compliance Certificate duly executed by a Responsible Officer; (2) Annual Financials. As soon as available and in any event not later than 90 days after the end of each fiscal year of the Borrower, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, including therein audited Consolidated balance sheets of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related Consolidated statements of income, shareholders' equity and cash flows of the Borrower and its Subsidiaries for such fiscal year, and the corresponding figures as at the end of, and for, the preceding fiscal year, in each case certified by Ernst & Young L.L.P. or other independent certified public accountants of recognized standing acceptable to the Agent and including, if requested by the Agent, any management letters delivered by such accountants to the Borrower in connection with such audit together with a certificate of such accounting firm to the Banks stating that, in the course of the regular audit of the business of the Borrower and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that a Default has occurred and is continuing, or if, in the opinion of such accounting firm, a Default has occurred and is continuing, a statement as to the nature thereof, together with a Compliance Certificate; (3) Annual Projections. As soon as available and in any event not later than March 31st of each calendar year, the Consolidated annual projections of the Borrower and its Subsidiaries for such year in reasonable detail and duly certified by an authorized financial officer of the Borrower as the projections presented or to be presented to the Borrower's Board of Directors for their review; (4) Securities Law Filings. Promptly and in any event within 15 days after the sending or filing thereof, copies of all proxy material, reports and other information which the Borrower or any of its Subsidiaries sends to or files with the United States Securities and Exchange Commission or sends to any shareholder of the Borrower or of any of its Subsidiaries; (5) Defaults. As soon as possible and in any event within five days after the occurrence of each Default known to a Responsible Officer of the Borrower or any of its Subsidiaries, a statement of an authorized financial officer of the Borrower setting forth the details of such Default and the actions which the Borrower has taken and proposes to take with respect thereto; (6) ERISA Notices. Except as to any matter which could not reasonably be expected to cause a Material Adverse Change, as soon as possible and in any event (i) within 30 days after the Borrower or any of its Subsidiaries knows or has reason to know that any Termination Event described in clause (a) of the definition of Termination Event with respect to any Plan has occurred, (ii) within 10 days after the Borrower or any of its Subsidiaries knows or has reason to know that any other Termination Event with respect to any Plan has occurred, a statement of the Chief Financial Officer of the Borrower describing such Termination Event and the action, if any, which the Borrower or such Subsidiary proposes to take with respect thereto; (iii) within 10 days after receipt thereof by the Borrower or any of its Subsidiaries from the -50- 57 PBGC, copies of each notice received by the Borrower or any such Subsidiary of the PBGC's intention to terminate any Plan or to have a trustee appointed to administer any Plan; and (iv) within 10 days after receipt thereof by the Borrower or any of its Subsidiaries from a Multiemployer Plan sponsor, a copy of each notice received by the Borrower or any of its Subsidiaries concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA; (7) Environmental Notices. Promptly upon the knowledge of any Responsible Officer of the Borrower of receipt thereof by the Borrower or any of its Subsidiaries, a copy of any form of notice, summons or citation received from the United States Environmental Protection Agency, or any other Governmental Authority directly engaged in protection of the Environment, concerning (i) material violations or alleged violations of Environmental Laws, which seeks to impose liability therefor and which, based upon information reasonably available to the Borrower at the time or after such violation, could reasonably be expected to cause a Material Adverse Change, (ii) any action or omission on the part of the Borrower or any of its present or former Subsidiaries in connection with Hazardous Waste or Hazardous Substances which, based upon information reasonably available to the Borrower at the time of such receipt, could reasonably be expected to cause a Material Adverse Change, (iii) any notice of potential responsibility under CERCLA which could reasonably be expected to cause a Material Adverse Change, or (iv) concerning the filing of a Lien other than a Permitted Lien upon, against or in connection with the Borrower, its present or former Subsidiaries, or any of their leased or owned Property, wherever located; (8) Other Governmental Notices or Actions. Promptly and in any event within five Business Days after receipt thereof by the Borrower or any of its Subsidiaries, and the knowledge of such receipt by a Responsible Officer of the Borrower or any inside counsel of the Borrower, (i) a copy of any notice, summons, citation, or proceeding seeking to adversely modify in any material respect, revoke, or suspend any license, permit, or other authorization from the United States Department of Transportation, or any other Governmental Authority, which action could reasonably be expected to cause a Material Adverse Change, and (ii) any revocation or involuntary termination of any license, permit or other authorization from the United States Department of Transportation, or any other Governmental Authority, which revocation or termination could reasonably be expected to cause a Material Adverse Change; (9) Borrowing Base Certificate. On or prior to the 25th day of each calendar month, a completed Borrowing Base Certificate setting forth the components of the Borrowing Base as of the last day of the immediately preceding calendar month; (10) Other Notices. Promptly following any merger or dissolution of any Subsidiary of the Borrower which is permitted hereunder, notice thereof; (11) Material Litigation. As soon as possible and in any event within five days of any Responsible Officer of the Borrower or any of its Subsidiaries having knowledge thereof, notice any litigation, claim or any other event which could reasonably be expected to cause a Material Adverse Change; -51- 58 (12) Year 2000. The Borrower will promptly notify the Agent in the event the Borrower determines that any computer application which is material to the operations of the Borrower, its Subsidiaries or any of its material vendors or suppliers will not be fully Year 2000 compliant on a timely basis, except to the extent that such failure could not be reasonably be expected to cause a Material Adverse Change; and (13) Other Information. Such other information respecting the business or Properties, or the condition or operations, financial or otherwise, of the Borrower, or any of its Subsidiaries, as any Bank through the Agent may from time to time reasonably request. Section V.7 Maintenance of Property. The Borrower will, and will cause each of its Subsidiaries to, (a) maintain their material owned, leased, or operated property, equipment, buildings and fixtures in substantially the same or better condition and repair as the condition and repair as of December 31, 1997, normal wear and tear excepted and (b) not knowingly or willfully permit the commission of waste or other injury, or the occurrence of pollution, contamination or any other condition in, on or about the owned or operated property involving the Environment that could reasonably be expected to cause a Material Adverse Change. Section V.8 Ownership of ABF. The Borrower will maintain its ownership of 100% of the common stock of ABF Freight System, Inc., a Delaware corporation and wholly-owned Subsidiary of the Borrower. ARTICLE VI NEGATIVE COVENANTS So long as any Note or any amount under any Credit Document shall remain unpaid, any Letter of Credit shall remain outstanding, or any Bank shall have any Revolving Commitment, the Borrower agrees, unless the Majority Banks otherwise consent in writing, to comply with the following covenants. Section VI.1 Liens, Etc. The Borrower will not create, assume, incur or suffer to exist, or permit any of its Subsidiaries to create, assume, incur, or suffer to exist, any Lien on or in respect of any of its Property whether now owned or hereafter acquired, or assign any right to receive income, except that the Borrower and its Subsidiaries may create, incur, assume or suffer to exist Liens: (1) securing the Obligations; (2) for taxes, assessments or governmental charges or levies on Property of the Borrower or any Guarantor to the extent not required to be paid pursuant to Sections 5.1 and 5.4; -52- 59 (3) imposed by law, such as landlords', carriers', warehousemen's and mechanics' liens and other similar Liens arising in the ordinary course of business securing obligations which are not overdue for a period of more than 15 days or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Borrower and its Subsidiaries in accordance with GAAP; (4) arising in the ordinary course of business out of pledges or deposits under workers' compensation laws, unemployment insurance, old age pensions or other social security or retirement benefits, bonds or letters of credit, or similar legislation or to secure public or statutory obligations of the Borrower or any of its Subsidiaries; (5) existing on Property acquired by the Borrower or any of its Subsidiaries in the ordinary course of business prior to the Borrower's or such Subsidiaries' acquisition of such Property; (6) securing Indebtedness incurred after the Effective Date (other than secured Indebtedness permitted by the following paragraphs (g), (j), (k), and (l) below) in an amount not to exceed $5,000,000 in the aggregate at any time; provided that the fair market value of the collateral securing any such Indebtedness may exceed the outstanding principal amount of such Indebtedness only to the extent such excess is within customary commercial bank lending and collateralization requirements; (7) securing Indebtedness existing on the Effective Date and listed on the attached Schedule 6.1; provided that the Indebtedness secured by such Liens shall not be renewed, refinanced or extended if the amount of such Indebtedness so renewed, refinanced or extended is greater than the outstanding amount of such Indebtedness on the date of this Agreement; (8) constituting easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of Property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the Property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (9) arising from litigation and which are effectively stayed from execution and would not otherwise cause a Default to occur; (10) on real property to secure the purchase price of such Property or improvements thereon; (11) on leased real and personal property to secure solely the lease obligations associated with such property; (12) on certain Receivables of any Intermodal Subsidiary in favor of any railroad company which secures the obligations of such Intermodal Subsidiary to such railroad company -53- 60 in connection with rail shipments with such railroad company contracted for by such Intermodal Subsidiary for the benefit of the obligors of such Receivables; and (13) on real property securing surety bonds in an amount not to exceed $10,000,000. Section VI.2 Amendment of Material Documents. The Borrower will not, nor will it permit any of its Subsidiaries to, enter into any amendment of the Subordinated Debt Documents. Section VI.3 Agreements Restricting Distributions From Subsidiaries. The Borrower will not, nor will it permit any of its Subsidiaries to, enter into any agreement (other than a Credit Document) which limits distributions to or any advance by any of the Borrower's Subsidiaries to the Borrower. Section VI.4 Merger or Consolidation; Asset Sales. The Borrower will not, and will not permit any of its Subsidiaries to, (a) merge or consolidate with or into any other Person, unless (i) the Borrower (in the case of any transaction involving the Borrower) or such Subsidiary (unless such Subsidiary is merged into the Borrower or another Subsidiary) is the surviving corporation, and (ii) immediately after giving effect to any such proposed transaction no Default would exist; or (b) sell, transfer, or otherwise dispose of any of the Borrower's or such Subsidiary's Property (unless, in the case of a Subsidiary, such assets are sold, leased, transferred or otherwise conveyed to another Subsidiary which is a Guarantor) except for (i) sales, transfers and dispositions in the ordinary course of business for a fair and adequate consideration, (ii) sales, transfers or dispositions of assets which are obsolete or are no longer in use and which are not significant to the continuation of the Borrower or any of its Subsidiaries business; (iii) sales, transfers or dispositions of assets, other than sales, transfer or dispositions otherwise permitted by (i), (ii) or (iv) hereof, the Net Cash Proceeds of which do not exceed $40,000,000 in the aggregate for all such sales, transfers or dispositions of assets during any fiscal year; or (iv) sales of the assets or capital stock of any Affiliate of the Borrower other than any of its Subsidiaries. Section VI.5 Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, make any Restricted Payment, except that (a) a wholly-owned Subsidiary of the Borrower may make a Restricted Payment to the Borrower or another wholly-owned Subsidiary of the Borrower, (b) provided no Default has occurred and is continuing or would result therefrom, the Borrower may pay or prepay the sinking fund payments which are required to be made by the Borrower under Section 3.4 of the Indenture, provided that the Borrower may not purchase Subordinated Debentures the aggregate face value of which exceeds $5,000,000 in any fiscal year, and (c) provided no Default has occurred and is continuing or would result therefrom, the Borrower or any Subsidiary may make Restricted Payments of the kind described in clause (b) of the definition of the term "Restricted Payments" in an aggregate amount not to exceed $9,000,000 in any fiscal year, provided further that if the Borrower's Senior Debt is rated BBB- or higher by S&P or Baa3 or higher by Moody's, then the Borrower or any Subsidiary may make Restricted Payments of the kind described in clause (b) of the definition of the term "Restricted Payments" in an aggregate amount not to exceed $18,000,000 in any fiscal year. -54- 61 Section VI.6 Investments, Loans, Advances. The Borrower will not, and will not permit any of its Subsidiaries to, make or permit to exist any loans, advances or capital contributions to, or make any investment in, or purchase or commit to purchase any stock or other securities or evidences of indebtedness of or interests in any Person, except the following (provided that after giving effect thereto there shall exist no Default): (1) the purchase of Liquid Investments with a Bank and the purchase of Subordinated Debentures to the extent permitted by Section 6.5(b); (2) trade and customer accounts receivable which are for goods furnished or services rendered in the ordinary course of business and are payable in accordance with customary trade terms; (3) ordinary course of business contributions, loans or advances to, or investments in, (i) a direct or indirect Subsidiary of the Borrower, provided that if, at any time the aggregate amount of all such contributions, loans or advances to, or investments in, any such Subsidiary occurring exceeds $5,000,000, the Borrower shall have caused such Subsidiary (if not then a Guarantor) to have executed and delivered to the Agent an Accession Agreement, related financing statements and a certificate covering the same matters described in Section 3.1(a)(iii) with respect to such Guarantor and the Borrower's counsel shall deliver an opinion with respect thereto covering the matters previously opined on with respect to each Guarantor or (ii) the Borrower; (4) contributions to, or capital investments in a Person which, prior to such contribution or investment, is not a Subsidiary but which becomes a Subsidiary as a result of such contribution or investment, provided that (i) if the aggregate amount of such contributions to or investments in any such Person exceeds $5,000,000, the Borrower shall have caused such Person to have executed and delivered to the Agent an Accession Agreement, related financing statements and a certificate covering the same matters described in Section 3.1(a)(iii) with respect to such Person, and the Borrowers' counsel shall deliver an opinion with respect thereto covering the matters previously opined on with regard to each Guarantor; (ii) the aggregate amount of all such contributions to, or investments in any such Persons which have not so executed and delivered an Accession Agreement plus the aggregate amount of investments under paragraph (e) below shall not exceed $5,000,000; and (iii) the aggregate consideration paid (other than in the form of common stock of the Borrower) after the Effective Date for such contributions or investments shall not exceed $5,000,000 in any fiscal year; and (5) other capital investments not otherwise permitted by this Section 6.6 in any Person which is not, and will not become a Subsidiary of the Borrower as a result of such capital investment provided that (i) the aggregate amount of such investments outstanding at any time plus the aggregate amount of contributions to, or investments in any Persons as contemplated under paragraph (d) above which have not executed and delivered an Accession Agreement shall not exceed $5,000,000; (ii) such Person shall be in the same or substantially similar line or lines of business as the Borrower and its Subsidiaries or a line of business directly related to providing services of the nature the Borrower and its Subsidiaries provide on the date this Agreement is executed; and (iii) the liabilities of such other Person shall be nonrecourse to the Borrower and its Subsidiaries. -55- 62 Section VI.7 Affiliate Transactions. Except as expressly permitted elsewhere in this Agreement, the Borrower will not, and will not permit any of its Subsidiaries to, make, directly or indirectly: (a) any transfer, sale, lease, assignment or other disposal of any assets to any Affiliate of the Borrower or any purchase or acquisition of assets from any such Affiliate; or (b) any arrangement or other transaction directly or indirectly with or for the benefit of any such Affiliate (including without limitation, guaranties and assumptions of obligations of an Affiliate); provided that the Borrower and its Subsidiaries (i) may enter into any arrangement or other transaction with any such Affiliate providing for the leasing of property, the rendering or receipt of services or the purchase or sale of inventory and other assets in the ordinary course of business if the monetary or business consideration arising therefrom would be substantially as advantageous to the Borrower and its Subsidiaries as the monetary or business consideration which it would obtain in a comparable arm's length transaction with a Person not such an Affiliate, (ii) the Borrower and any of its Subsidiaries may guaranty or otherwise assume obligations of an Affiliate to the extent permitted under Section 6.16 hereof, and (iii) may maintain the arrangements listed on the attached Schedule 6.7. Section VI.8 Maintenance of Ownership of Subsidiaries. The Borrower will not, and will not permit any of its Subsidiaries to, sell or otherwise dispose of any shares of capital stock of any Guarantor except as otherwise provided in Section 6.4. Upon the sale or disposition of any Guarantor to any Person other than the Borrower or any other Guarantor, the Agent will, at the Borrower's expense, execute and deliver to such Guarantor such documents as such Guarantor shall reasonably require and take any other actions reasonably required to evidence or effect the release of such Guarantor's Guaranty and the termination of the Liens held by the Agent for the benefit of the Banks upon the Collateral (unless such Liens have been released pursuant to Section 2.17(f)) pursuant to the Guarantors Security Agreement. Section VI.9 No Further Negative Pledges. Except as set forth in agreements and documentation governing Indebtedness of the Borrower or any of its Subsidiaries existing on the Effective Date, or with respect to prohibitions against other encumbrances on specific Property encumbered to secure payment of particular Indebtedness (which Indebtedness related solely to such specific Property, and improvements and accretions thereto, and is otherwise permitted hereby), the Borrower will not, and will not permit any of its Subsidiaries to, enter into or suffer to exist any agreement (other than this Agreement and the Credit Documents) (a) prohibiting the creation or assumption of any Lien upon the Properties of the Borrower or any of its Subsidiaries, whether now owned or hereafter acquired, or (b) requiring an obligation to be secured if some other obligation is or becomes secured. Section VI.10 Other Businesses. The Borrower will not, and will not permit the Guarantors to, substantially alter the character of their respective businesses from that conducted as of the Effective Date. Section VI.11 Debt Service Ratio. The Borrower will not permit its ratio, calculated as of the most recent Calculation Day for the applicable Calculation Period, of (a) EBITDA for the -56- 63 Rolling Period ending on such date to (b) Adjusted Consolidated Debt Service for such Rolling Period to be less than (i) 2.0 to 1.0 through the fiscal quarter ending December 31, 1999 and (ii) 2.5 to 1.0 thereafter; provided, however that if the Borrower sells, transfers or otherwise disposes of the capital stock or all or substantially all of the Property of any of its Subsidiaries (other than to another Subsidiary which is a Guarantor) which Subsidiary generates in excess of $5,000,000 of annual EBITDA (as determined in accordance with the Consolidated annual projections of the Borrower and its Subsidiaries delivered on or before the Effective Date), then the ratio shall not be less than 2.25 to 1.0 for each such Calculation Period during fiscal year 2000 and 2001. Section VI.12 Net Worth. The Borrower will not permit its Consolidated Net Worth as of the most recent Calculation Day to be less than an amount equal to $125,000,000 plus (A) 50% of cumulative Consolidated Net Income of the Borrower (without deduction for quarterly losses) from January 1, 1998 to the date of determination plus (B) 75% of the net cash proceeds of any issuance of equity, including any conversion of the Subordinated Debentures by the Borrower after the Effective Date; provided, however that if the Borrower sells, transfers or otherwise disposes of the capital stock or all or substantially all of the Property of any of its Subsidiaries (other than to another Subsidiary which is a Guarantor) then the minimum Consolidated Net Worth shall be reduced by up to $30,000,000 in book losses resulting from such sale, transfer or disposition, on a dollar for dollar basis. For purposes of calculating "Net Worth" pursuant to this Section 6.12, all earnings and losses of Treadco after December 31, 1997 shall be excluded therefrom. Section VI.13 Maximum Leverage Ratio. The Borrower will not permit its Leverage Ratio to be greater than 3.75 to 1.0 calculated as of the most recent Calculation Day for the applicable Calculation Period; provided, however that if the Liens held by the Agent for the benefit of the Banks upon the Collateral have been released pursuant to Section 2.17(f), then the Borrower's Leverage Ratio shall not be greater than 3.45 to 1.0 calculated as of the most recent Calculation Day for the applicable Calculation Period. Section VI.14 Capital Expenditures. The Borrower may make or permit any of its Subsidiaries to make or commit to make any Capital Expenditure; provided, however, that Capital Expenditures may not exceed $85,000,000 in an aggregate amount per fiscal year so long as the Borrower's Senior Debt is not rated either BBB- or higher by S&P or Baa3 or greater by Moody's. For purposes of calculating "Capital Expenditures" pursuant to this Section 6.14, all Acquisition Expenditures permitted pursuant to Section 6.16 and any Net Cash Proceeds received pursuant to Section 6.4 shall be excluded. Section VI.15 Indebtedness. The Borrower will not incur or permit to exist, or permit any of its Subsidiaries to incur or permit to exist, any Indebtedness other than the Obligations and the following: (1) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to the Borrower or another Subsidiary; (2) Indebtedness outstanding on the Effective Date and listed on Schedule 6.15; -57- 64 (3) Indebtedness of a corporation which becomes a Subsidiary after the date hereof, provided that (i) such Indebtedness existed at the time such corporation became a Subsidiary and was not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such corporation by the Borrower or a Subsidiary thereof, no Default shall have occurred and be continuing; (4) Capital Leases in connection with permitted Capital Expenditures pursuant to Section 6.14; (5) Subordinated Debt and other unsecured senior Indebtedness incurred after the Effective Date (other than Indebtedness permitted pursuant to paragraphs (a)-(d) above), provided that the Net Cash Proceeds of such Subordinated Debt and such other unsecured Indebtedness are simultaneously used to prepay Advances; and (6) extensions, renewals and refinancing of any of the Indebtedness specified in paragraphs (a) - (c) above so long as the principal amount of such Indebtedness is not thereby increased. Section VI.16 Acquisition Expenditures. The Borrower shall not and shall not permit any of its Subsidiaries to make any Acquisition Expenditure, unless (a) such Acquisition Expenditure is made in substantially the same or complementary lines of business of the Borrower and does not violate any other provision of this Agreement; (b) the aggregate amount of the Net Purchase Prices made during any fiscal year does not exceed $40,000,000; (c) the aggregate consideration paid in common stock for all Acquisition Expenditures made during any fiscal year does not exceed $40,000,000; (d) at the time of such Acquisition Expenditure no Default has occurred and is continuing or would occur upon the consummation of such acquisition and the Agent shall have received a Compliance Certificate demonstrating pro forma financial covenant compliance; and (e) immediately following the making of such Acquisition Expenditure, the lesser of (i) the aggregate amount of the Commitments or (ii) the Borrowing Base exceeds the aggregate outstanding principal amount of the Advances and the Letter of Credit Exposure by at least $20,000,000. ARTICLE VII REMEDIES Section VII.1 Events of Default. The occurrence of any of the following events shall constitute an "Event of Default" under any Credit Document: (1) Payment. The Borrower shall fail to pay any principal of any Note or any Reimbursement Obligation when the same becomes due and payable as set forth in this Agreement, or any interest on any Note or any fee or other amount payable hereunder or under any other Credit Document within five days after the same becomes due and payable; -58- 65 (2) Representation and Warranties. Any representation or warranty made or deemed to be made (i) by the Borrower in this Agreement or in any other Credit Document, (ii) by the Borrower (or any of its officers) in connection with this Agreement or any other Credit Document, or (iii) by any Subsidiary in any Credit Document shall prove to have been incorrect in any material respect when made or deemed to be made; (3) Covenant Breaches. (i) The Borrower shall fail to perform or observe any covenant contained in Sections 5.3 or 5.4, or Section 5.6(e), (f), (g), (h) or (i) or Article VI of this Agreement or the Borrower shall fail to perform or observe its covenant in Section 4.4 of the Borrower Security Agreement, or shall fail to cause any Guarantor to perform or observe its covenant in Section 4.4 of the Guarantors Security Agreement or (ii) the Borrower or any Guarantor shall fail to perform or observe any term or covenant set forth in any Credit Document which is not covered by clause (i) above or any other provision of this Section 7.1 if such failure shall remain unremedied for 30 days after the earlier of the date written notice of such default shall have been given to the Borrower or such Guarantor by the Agent or any Bank or the date a Responsible Officer of the Borrower or any Guarantor has actual knowledge of such default; (4) Cross-Defaults. (i) The Borrower or any its Subsidiaries shall fail to pay any principal of or premium or interest on its Indebtedness which is outstanding in a principal amount of at least $15,000,000 individually or when aggregated with all such Indebtedness of the Borrower or its Subsidiaries so in default (but excluding Indebtedness evidenced by the Notes) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to Indebtedness which is outstanding in a principal amount of at least $15,000,000 individually or when aggregated with all such Indebtedness of the Borrower and its Subsidiaries so in default, and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or (iii) any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; (5) Insolvency. The Borrower or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against the Borrower or any such Subsidiary, either such proceeding shall remain undismissed for a period of 30 days or any of the actions sought in such proceeding shall occur; or the Borrower or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this paragraph (e); -59- 66 (6) Judgments. Any judgment or order for the payment of money in excess of $15,000,000 (reduced for purposes of this paragraph for the amount in respect of such judgment or order that a reputable insurer has acknowledged being payable under any valid and enforceable insurance policy) shall be rendered against the Borrower or any of its Subsidiaries which, within 30 days from the date such judgment is entered, shall not have been discharged or execution thereof stayed pending appeal; (7) ERISA. (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is likely to result in the termination of such Plan for purposes of Title IV of ERISA, unless such Reportable Event, proceedings or appointment are being contested by the Borrower in good faith and by appropriate proceedings, (iv) any Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any member of the Controlled Group shall incur any liability in connection with a withdrawal from a Multiemployer Plan or the insolvency (within the meaning of Section 4245 of ERISA) or reorganization (within the meaning of Section 4241 of ERISA) of a Multiemployer Plan, unless such liability is being contested by the Borrower in good faith and by appropriate proceedings, or (vi) any other event or condition shall occur or exist, with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could subject the Borrower or any Guarantor to any tax, penalty or other liabilities in the aggregate exceeding $15,000,000; (8) Guaranty. Any provision of the Guaranty requiring the payment of the Guaranteed Obligations (as defined in the Guaranty) shall for any reason cease to be valid and binding on any Guarantor or any Guarantor shall so state in writing; (9) Invalidity of Subordination Provisions. The subordination provisions of the Subordinated Debentures shall be invalidated or otherwise cease to be in full force and effect. Section VII.2 Optional Acceleration of Maturity. If any Event of Default (other than an Event of Default pursuant to paragraph (e) of Section 7.1) shall have occurred and be continuing, then, and in any such event, (1) the Agent (i) shall at the request, or may with the consent, of the Majority Banks, by notice to the Borrower, declare the obligation of each Bank to make Advances and the obligation of each Issuing Bank to issue, increase, or extend Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Majority Banks, by notice to the Borrower, declare the Notes, all interest thereon, the Letter of Credit Obligations, and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest, all such Letter of Credit Obligations and all such amounts shall become and be -60- 67 forthwith due and payable in full, without presentment, demand, protest or further notice of any kind (including, without limitation, any notice of intent to accelerate or notice of acceleration), all of which are hereby expressly waived by the Borrower, and (2) the Borrower shall, on demand of the Agent at the request or with the consent of the Majority Banks, deposit with the Agent into the Cash Collateral Account an amount of cash equal to the Letter of Credit Exposure as security for the Obligations to the extent the Letter of Credit Obligations are not otherwise paid at such time. Section VII.3 Automatic Acceleration of Maturity. If any Event of Default pursuant to paragraph (e) of Section 7.1 shall occur, (1) the obligation of each Bank to make Advances and the obligation of each Issuing Bank to issue, increase, or extend Letters of Credit shall immediately and automatically be terminated and the Notes, all interest on the Notes, all Letter of Credit Obligations, and all other amounts payable under this Agreement shall immediately and automatically become and be due and payable in full, without presentment, demand, protest or any notice of any kind (including, without limitation, any notice of intent to accelerate or notice of acceleration), all of which are hereby expressly waived by the Borrower and (2) to the extent permitted by law or court order, the Borrower shall deposit with the Agent into the Cash Collateral Account an amount of cash equal to the outstanding Letter of Credit Exposure as security for the Obligations to the extent the Letter of Credit Obligations are not otherwise paid at such time. Section VII.4 Cash Collateral Account. (1) Pledge. The Borrower hereby pledges, and grants to the Agent for the benefit of the Banks, a security interest in all funds held in the Cash Collateral Account from time to time and all proceeds thereof, as security for the payment of the Obligations, including without limitation all Letter of Credit Obligations owing to any Issuing Bank or any other Bank due and to become due from the Borrower to any Issuing Bank or any other Bank under this Agreement in connection with the Letters of Credit. (2) Application against Letter of Credit Obligations. The Agent may, at any time or from time to time apply funds then held in the Cash Collateral Account to the payment of any Letter of Credit Obligations owing to any Issuing Bank, in such order as the Agent may elect, as shall have become or shall become due and payable by the Borrower to any Issuing Bank under this Agreement in connection with the Letters of Credit. (3) Duty of Care. The Agent shall exercise reasonable care in the custody and preservation of any funds held in the Cash Collateral Account and shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which -61- 68 the Agent accords its own property, it being understood that the Agent shall not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any such funds. Section VII.5 Non-exclusivity of Remedies. No remedy conferred upon the Agent or the Banks is intended to be exclusive of any other remedy, and each remedy shall be cumulative of all other remedies existing by contract, at law, in equity, by statute or otherwise. Section VII.6 Right of Set-off. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent, if any, specified by Section 7.2 to authorize the Agent to declare the Notes and any other amount payable hereunder due and payable pursuant to the provisions of Section 7.2 or the automatic acceleration of the Notes and all amounts payable under this Agreement pursuant to Section 7.3, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement, the Note held by such Bank, and the other Credit Documents, irrespective of whether or not such Bank shall have made any demand under this Agreement, such Note, or such other Credit Documents, and although such obligations may be unmatured. Each Bank agrees to promptly notify the Borrower after any such set-off and application made by such Bank, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section are in addition to any other rights and remedies (including, without limitation, other rights of set-off) which such Bank may have. ARTICLE VIII AGENCY AND ISSUING BANK PROVISIONS Section VIII.1 Authorization and Action. Each Bank hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Credit Documents as are delegated to the Agent by the terms hereof and of the other Credit Documents, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or any other Credit Document (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks, and such instructions shall be binding upon all Banks and all holders of Notes; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement, any other Credit Document, or applicable law. Section VIII.2 Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken (including the Agent's own negligence) by it or them under or in connection with this Agreement or the other -62- 69 Credit Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (a) may treat the payee of any Note as the holder thereof until the Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent; (b) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations made in or in connection with this Agreement or the other Credit Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Credit Document on the part of the Borrower or its Subsidiaries or to inspect the property (including the books and records) of the Borrower or its Subsidiaries; (e) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Credit Document; and (f) shall incur no liability under or in respect of this Agreement or any other Credit Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. Section VIII.3 The Agent and Its Affiliates. With respect to its Revolving Commitment, the Advances made by it and the Notes issued to it, the Agent shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent. The term "Bank" or "Banks" shall, unless otherwise expressly indicated, include the Agent in its individual capacity. The Agent and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower or any of its Subsidiaries, and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if the Agent were not an agent hereunder and without any duty to account therefor to the Banks. Section VIII.4 Bank Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent, any Co-Documentation Agent or any other Bank and based on the financial statements referred to in Section 4.5 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent, any Co-Documentation Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. Section VIII.5 Indemnification. The Banks severally agree to indemnify the Agent, the Co-Documentation Agents and each Issuing Bank (to the extent not reimbursed by the Borrower), according to their respective Pro Rata Shares from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent, any Co-Documentation Agent or such Issuing Bank in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent, any Co-Documentation Agent or such -63- 70 Issuing Bank under this Agreement or any other Credit Document (including the Agent's, such Co-Documentation Agent's or such Issuing Bank's own negligence), provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's, such Co-Documentation Agent's and such Issuing Bank's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Credit Document, to the extent that the Agent is not reimbursed for such expenses by the Borrower. Section VIII.6 Successor Agent and Issuing Banks. The Agent or any Issuing Bank may resign at any time by giving written notice thereof to the Banks and the Borrower and may be removed at any time with or without cause by the Majority Banks upon receipt of written notice from the Majority Banks to such effect. Upon receipt of notice of any such resignation or removal, the Majority Banks shall have the right to appoint a successor Agent or Issuing Bank with, if an Event of Default has not occurred and is not continuing, the consent of the Borrower, which consent shall not be unreasonably withheld. If no successor Agent or Issuing Bank shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Agent's or Issuing Bank's giving of notice of resignation or the Majority Banks' removal of the retiring Agent or Issuing Bank, then the retiring Agent or Issuing Bank may, on behalf of the Banks and the Borrower, appoint a successor Agent or Issuing Bank, which shall be a commercial bank meeting the financial requirements of an Eligible Assignee and, in the case of an Issuing Bank, a Bank. Upon the acceptance of any appointment as Agent or Issuing Bank by a successor Agent or Issuing Bank, such successor Agent or Issuing Bank shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent or Issuing Bank, and the retiring Agent or Issuing Bank shall be discharged from its duties and obligations under this Agreement and the other Credit Documents, except that the retiring Issuing Bank shall remain an Issuing Bank with respect to any Letters of Credit issued by such Issuing Bank and outstanding on the effective date of its resignation or removal and the provisions affecting such Issuing Bank with respect to such Letters of Credit shall inure to the benefit of the retiring Issuing Bank until the termination of all such Letters of Credit. After any retiring Agent's or Issuing Bank's resignation or removal hereunder as Agent or Issuing Bank, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent or Issuing Bank under this Agreement and the other Credit Documents. Section VIII.7 Co-Documentation Agents. The Co-Documentation Agents shall have no duties, obligations or liabilities in their capacity as Co-Documentation Agents. -64- 71 ARTICLE IX MISCELLANEOUS Section IX.1 Amendments, Etc. No amendment or waiver of any provision of this Agreement, the Notes, or any other Credit Document, nor consent to any departure by the Borrower or any Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Banks and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment shall increase the Commitment of any Bank without the written consent of such Bank, and no amendment, waiver or consent shall, unless in writing and signed by all the Banks, do any of the following: (a) increase the aggregate Commitments of the Banks, (b) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder or under any other Credit Document, (c) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (d) amend Section 2.16 or this Section 9.1, (e) release any Guarantor from its obligations under the Guaranty, other than the release of any Guarantor's obligations under the Guaranty in accordance with Section 6.8, (f) release any Lien in favor of the Agent for the benefit of the Banks on Property of the Borrower or Guarantors, except as contemplated by the Security Agreements or as provided in Section 2.17(e) and (f), or (g) amend the definition of "Majority Banks"; and provided, further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Agent, any Co-Documentation Agent or any Issuing Bank in addition to the Banks required above to take such action, affect the rights or duties of the Agent, such Co-Documentation Agent or such Issuing Bank, as the case may be, under this Agreement or any other Credit Document, and (ii) no waiver or consent to departure from any of the conditions specified in Section 3.1 or 3.2 shall be effective unless in writing and signed by the Majority Banks and the Agent. Section IX.2 Notices, Etc. All notices and other communications shall be in writing (including telecopy or telex) and mailed, telecopied, telexed, hand delivered or delivered by a nationally recognized overnight courier, if to the Borrower, at its address at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903, Attention: Chief Financial Officer, with a copy to the General Counsel (telecopy: (501) 785-6124; telephone: (501) 785-6000); if to any Bank at its Domestic Lending Office specified opposite its name on Schedule 9.2; if to the Agent or to SG in its capacity as Agent or as an Issuing Bank, at its address at 4800 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, Attention: David Oldani, Associate and Ms. Terri Jones, Operations (telecopy: (214) 754-0171; telephone: (214) 979- 2777); and if a Notice of Borrowing or a Notice of Conversion or Continuation to the Agent at the Domestic Lending Office for the Agent specified opposite its name on Schedule 9.2 or, as to each party, at such other address or teletransmission number as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telecopied, telexed or hand delivered or delivered by overnight courier, be effective three days after deposited in the mails, when telecopy transmission is completed, when confirmed by telex answer-back or when delivered, respectively, except that notices and communications to the Agent pursuant to Article II or VIII shall not be effective until received by the Agent. Section IX.3 No Waiver; Remedies. No failure on the part of any Bank, the Agent, or any Issuing Bank to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any -65- 72 other or further exercise thereof or the exercise of any other right. The remedies provided in this Agreement and the other Credit Documents are cumulative and not exclusive of any remedies provided by law. Section IX.4 Costs and Expenses. The Borrower agrees to pay on demand all out-of-pocket costs and expenses of the Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement, the Notes and the other Credit Documents including, without limitation, (a) the fees set forth in the letter agreement dated as of May 29, 1998 between the Borrower and counsel for the Agent, and (b) all reasonable out-of-pocket costs and expenses, if any, of the Agent, each Co-Documentation Agent, each Issuing Bank, and each Bank (including, without limitation, reasonable counsel fees and expenses of the Agent, such Co-Documentation Agent, such Issuing Bank, and each Bank) in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other Credit Documents after an Event of Default has occurred and is continuing, and (c) to the extent not included in the foregoing, the costs of any appraisals, title policies, mortgage and intangible taxes, costs of recordation of any mortgages or Uniform Commercial Code financing statement or continuation statement, and any related title or Uniform Commercial Code search conducted subsequent to such recordation, any flood plain search costs, and other costs usual and customary in connection with the taking of a Lien on real property. Section IX.5 Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Agent, and when the Agent shall have, as to each Bank, either received a counterpart hereof executed by such Bank or been notified by such Bank that such Bank has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent, each Co-Documentation Agent, each Issuing Bank, and each Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights or delegate its duties under this Agreement or any interest in this Agreement without the prior written consent of each Bank. Section IX.6 Bank Assignments and Participations. (1) Assignments. Any Bank may assign to one or more banks or other entities all or any portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Revolving Commitment, the Advances owing to it, the Notes held by it, and the participation interest in the Letter of Credit Obligations held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of such Bank's rights and obligations under this Agreement and shall involve a ratable assignment of such Bank's Revolving Commitment and such Bank's Revolving Advances, (ii) the amount of the resulting Revolving Commitment and Revolving Advances of the assigning Bank (unless it is assigning all its Revolving Commitment) and the assignee Bank pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000 and shall be an integral multiple of $1,000,000, (iii) each such assignment shall be to an Eligible Assignee, (iv) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with the Revolving Note subject to such -66- 73 assignment, and (v) each Eligible Assignee (other than the Eligible Assignee of the Agent or an Eligible Assignee which is an Affiliate of the assigning Bank) shall pay to the Agent a $3,000 administrative fee. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least three Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto for all purposes and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and (B) such Bank thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of such Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto). Notwithstanding anything herein to the contrary, any Bank may assign, as collateral or otherwise, any of its rights under the Credit Documents to any Federal Reserve Bank. (2) Term of Assignments. By executing and delivering an Assignment and Acceptance, the Bank thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency of value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the Guarantors or the performance or observance by the Borrower or the Guarantors of any of their obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.5 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such Bank or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank. (3) The Register. The Agent shall maintain at its address referred to in Section 9.2 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Revolving Commitments of, and principal amount of the Advances owing to, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent, the Issuing Banks, and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this -67- 74 Agreement. The Register shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. (4) Procedures. Upon its receipt of an Assignment and Acceptance executed by a Bank and an Eligible Assignee, together with the Revolving Note or, in the case of an assignment to another Bank, Revolving Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of the attached Exhibit G, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for such Note or Notes, a new Revolving Note payable to the order of such Eligible Assignee in amount equal to the Revolving Commitment assumed by it pursuant to such Assignment and Acceptance, and if the assigning Bank has retained any Revolving Commitment hereunder, a new Revolving Note payable to the order of such Bank in an amount equal to, respectively, the Revolving Commitment retained by it hereunder. Such new Notes shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the attached Exhibit A. (5) Participations. Each Bank may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Revolving Commitment, the Advances owing to it, its participation interest in the Letter of Credit Obligations, and the Revolving Note held by it); provided, however, that (i) such Bank's obligations under this Agreement (including, without limitation, its Revolving Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Bank shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrower, the Agent, and the Issuing Banks and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, (v) such Bank shall not require the participant's consent to any matter under this Agreement, except for change in the principal amount of any Note in which the participant has an interest, reductions in fees or interest, or extending the Maturity Date, and (vi) such Bank shall give prompt prior notice to the Borrower of each such participation to be sold by such Bank. The Borrower hereby agrees that participants shall have the same rights under Sections 2.8, 2.9, 2.11(c), and 9.7 hereof as the Bank to the extent of their respective participations. Notwithstanding the foregoing, upon the receipt of notice by the Borrower of the sale of a participation by any Bank to one or more banks or other entities (other than an Affiliate of such Bank) in or to all or a portion of its rights and obligations under this Agreement (each such bank or other entity, a "Proposed Participant"), the Borrower shall have the right, but not the obligation, to select additional banks to replace such Proposed Participant on the same terms and conditions as the Proposed Participant upon prompt written notice from the Borrower to the Agent and the Bank selling such participation. The Borrower shall have ten days from the date of its receipt of notice of the proposed sale of such participation to the Proposed Participant to select replacement banks to replace such Proposed Participant. If the Borrower does not select any replacement banks or does not elect to select any replacement banks the applicable Bank may sell such participation to the Proposed Participant. -68- 75 (6) Confidentiality. Each Bank may furnish any information concerning the Borrower and its Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants); provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree in writing to preserve the confidentiality of any confidential information relating to the Borrower and its Subsidiaries received by it from such Bank. Such Bank shall promptly deliver a signed copy of any such confidentiality agreement to the Borrower. Section IX.7 Indemnification. The Borrower shall indemnify the Agent, the Co-Documentation Agents, the Banks (including any lender which was a Bank hereunder prior to any full assignment of its Revolving Commitment), the Issuing Banks, and each affiliate thereof and their respective directors, officers, employees and agents from, and discharge, release, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from (i) any actual or proposed use by the Borrower or any Affiliate of the Borrower of the proceeds of any Advance, (ii) any breach by the Borrower or any Guarantor of any provision of this Agreement or any other Credit Document, (iii) any investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to the foregoing, or (iv) any Environmental Claim or requirement of Environmental Laws concerning or relating to the present or previously-owned or operated properties, or the operations or business, of the Borrower or any of its Subsidiaries, and the Borrower shall reimburse the Agent, each Co-Documentation Agent, each Issuing Bank, and each Bank, and each affiliate thereof and their respective directors, officers, employees and agents, upon demand for any reasonable out-of-pocket expenses (including legal fees) incurred in connection with any such investigation, litigation or other proceeding; and EXPRESSLY INCLUDING ANY SUCH LOSSES, LIABILITIES, CLAIMS, DAMAGES, OR EXPENSE INCURRED BY REASON OF THE PERSON BEING INDEMNIFIED'S OWN NEGLIGENCE, BUT EXCLUDING ANY SUCH LOSSES, LIABILITIES, CLAIMS, DAMAGES OR EXPENSES INCURRED BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. Section IX.8 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Section IX.9 Survival of Representations, etc. All representations and warranties contained in this Agreement or made in writing by or on behalf of the Borrower in connection herewith shall survive the execution and delivery of this Agreement and the Credit Documents, the making of the Advances and any investigation made by or on behalf of the Banks, none of which investigations shall diminish any Bank's right to rely on such representations and warranties. All obligations of the Borrower provided for in Sections 2.8, 2.9, 2.11(c), and 9.7 shall survive any termination of this Agreement and repayment in full of the Obligations. -69- 76 Section IX.10 Severability. In case one or more provisions of this Agreement or the other Credit Documents shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not be affected or impaired thereby. Section IX.11 Business Loans. The Borrower warrants and represents that the Advances evidenced by the Notes are and shall be for business, commercial, investment or other similar purposes and not primarily for personal, family, household or agricultural use, as such terms are used in Chapter One ("Chapter One") of the Texas Credit Code. At all such times, if any, as Chapter One shall establish a Maximum Rate, the Maximum Rate shall be the "indicated rate ceiling" (as such term is defined in Chapter One) from time to time in effect. Section IX.12 Usury Not Intended. It is the intent of the Borrower and each Bank in the execution and performance of this Agreement and the other Credit Documents to contract in strict compliance with applicable usury laws, including conflicts of law concepts, governing the Advances of each Bank including such applicable laws of the State of Texas and the United States of America from time to time in effect. In furtherance thereof, the Banks and the Borrower stipulate and agree that none of the terms and provisions contained in this Agreement or the other Credit Documents shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the Maximum Rate and that for purposes hereof "interest" shall include the aggregate of all charges which constitute interest under such laws that are contracted for, charged or received under this Agreement; and in the event that, notwithstanding the foregoing, under any circumstances the aggregate amounts taken, reserved, charged, received or paid on the Advances, include amounts which by applicable law are deemed interest which would exceed the Maximum Rate, then such excess shall be deemed to be a mistake and each Bank receiving same shall credit the same on the principal of its Notes (or if such Notes shall have been paid in full, refund said excess to the Borrower). In the event that the maturity of the Notes is accelerated by reason of any election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the Maximum Rate and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited on the applicable Notes (or, if the applicable Notes shall have been paid in full, refunded to the Borrower). The provisions of this Section shall control over all other provisions of this Agreement or the other Credit Documents which may be in apparent conflict herewith. Section IX.13 Governing Law. This Agreement, the Notes and the other Credit Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas. Section IX.14 Consent to Jurisdiction. The Borrower hereby irrevocably submits to the jurisdiction of any Texas state or federal court sitting in Dallas, Texas in any action or proceeding arising out of or relating to this Agreement, the Notes and the other Credit Documents, and the Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such court. The Borrower hereby irrevocably -70- 77 waives, to the fullest extent it may effectively do so, any right it may have to the defense of an inconvenient forum to the maintenance of such action or proceeding. The Borrower hereby agrees that service of copies of the summons and complaint and any other process which may be served in any such action or proceeding may be made by mailing or delivering a copy of such process to the Borrower at its address specified in Section 9.2. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section shall affect the rights of any Bank, the Agent, or any Co-Documentation Agent to serve legal process in any other manner permitted by the law or affect the right of any Bank, the Agent or any Co-Documentation Agent to bring any action or proceeding against the Borrower or its Property in the courts of any other jurisdiction. Section IX.15 Banks Not in Control. None of the covenants or other provisions contained in the Credit Documents shall or shall be deemed to, give the Banks the rights or power to exercise control over the affairs and/or management of the Borrower, any of its Subsidiaries or any Guarantor, the power of the Banks being limited to the right to exercise the remedies provided in the Credit Documents; provided, however, that if any Bank becomes the owner of any stock, or other equity interest in, any Person whether through foreclosure or otherwise, such Bank shall be entitled (subject to requirements of law) to exercise such legal rights as it may have by being owner of such stock, or other equity interest in, such Person. Section IX.16 Headings Descriptive. The headings of the several Sections and paragraphs of the Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. SECTION IX.17 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENT AND THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER CREDIT DOCUMENT OR TO ANY COUNTERCLAIM THEREIN. SECTION IX.18 ENTIRE AGREEMENT. PURSUANT TO SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, A LOAN AGREEMENT IN WHICH THE AMOUNT INVOLVED IN THE LOAN AGREEMENT EXCEEDS $50,000 IN VALUE IS NOT ENFORCEABLE UNLESS THE LOAN AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE BOUND OR THAT PARTY'S AUTHORIZED REPRESENTATIVE. THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT SUBJECT TO THE PRECEDING PARAGRAPH SHALL BE DETERMINED SOLELY FROM THE WRITTEN LOAN AGREEMENT, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO THE LOAN AGREEMENT. THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS, AS DEFINED IN THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY -71- 78 EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. [Remainder of page left intentionally blank] -72- 79 EXECUTED as of the date first referenced above. BORROWER: ARKANSAS BEST CORPORATION ---------------------------------------- David E. Loeffler Vice President, Chief Financial Officer and Treasurer -73- 80 AGENT: SOCIETE GENERALE, SOUTHWEST AGENCY ---------------------------------------- Christopher J. Speltz Director - Head of SG-Dallas ---------------------------------------- David C. Oldani Associate -74- 81 CO-DOCUMENTATION AGENTS: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- -75- 82 WELLS FARGO BANK (TEXAS), N.A. ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- -76- 83 BANKS: SOCIETE GENERALE, SOUTHWEST AGENCY ---------------------------------------- Christopher J. Speltz Director - Head of SG-Dallas ---------------------------------------- David C. Oldani Associate -77- 84 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- -78- 85 WELLS FARGO BANK (TEXAS), N.A. ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- -79- 86 ABN AMRO BANK N.V. ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- -80- 87 CREDIT LYONNAIS NEW YORK BRANCH ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- -81- 88 DEPOSIT GUARANTY NATIONAL BANK ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- -82- 89 THE FIRST NATIONAL BANK OF CHICAGO ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- -83- 90 NATEXIS BANQUE BFCE ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- ---------------------------------------- By: ------------------------------------- Title: ---------------------------------- -84- 91 EXHIBIT A REVOLVING NOTE $ ________________________ ___________. 19__ For value received, the undersigned Arkansas Best Corporation, a Delaware corporation ("Borrower"), hereby promises to pay to the order of _________________________ ("Bank") the principal amount of _______________ and ____/100 Dollars ($__________) or, if less, the aggregate outstanding principal amount of each Revolving Advance (as defined in the Credit Agreement referred to below) made by the Bank to the Borrower, together with interest on the unpaid principal amount of each such Revolving Advance from the date of such Revolving Advance until such principal amount is paid in full, at such interest rates, and at such times, as are specified in the Credit Agreement. This Note is one of the Revolving Notes referred to in, and is entitled to the benefits of, and is subject to the terms of, the Credit Agreement dated as of June 12, 1998 (as the same may be further amended or modified from time to time, the "Credit Agreement"), among the Borrower, the Banks, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents and Societe Generale, Southwest Agency, as Administrative Agent. Capitalized terms used in this Note that are defined in the Credit Agreement and not otherwise defined in this Note have the meanings assigned to such terms in the Credit Agreement. The Credit Agreement, among other things, (a) provides for the making of Revolving Advances by the Bank to the Borrower from time to time in an aggregate amount not to exceed at any time outstanding the Dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such Revolving Advance being evidenced by this Note and (b) contains provisions for acceleration of the maturity of this Note upon the happening of certain events stated in the Credit Agreement and for prepayments of principal prior to the maturity of this Note upon the terms and conditions specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to the Agent at 4800 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201 (or at such other location or address as may be specified by the Agent to the Borrower) in same day funds. The Bank shall record all Revolving Advances and payments of principal made under this Note, but no failure of the Bank to make such recordings shall affect the Borrower's repayment obligations under this Note. 92 Except as specifically provided in the Credit Agreement, the Borrower hereby waives presentment, demand, protest, notice of intent to accelerate, notice of acceleration, and any other notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder of this Note shall operate as a waiver of such rights. This Note shall be governed by, and construed and enforced in accordance with, the laws of the state of Texas (except that Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch. 15, which regulates certain revolving credit loan accounts shall not apply to this Note). ARKANSAS BEST CORPORATION By: ----------------------------------------- David E. Loeffler Vice President, Chief Financial Officer, and Treasurer -2- 93 EXHIBIT B SUBSIDIARY GUARANTY AND CONTRIBUTION AGREEMENT This Subsidiary Guaranty and Contribution Agreement dated as of June 12, 1998 (this "Agreement") is executed by the parties signatory hereto or to an Accession Agreement in favor of the Agent, the Co-Documentation Agents and the Banks parties to the Credit Agreement herein described. INTRODUCTION A. This Agreement is given in connection with the Credit Agreement dated as of June 12, 1998 (as the same may be further amended or modified from time to time, the "Credit Agreement") among Arkansas Best Corporation, a Delaware corporation (the "Borrower"), the Banks, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and Societe Generale, Southwest Agency, as Administrative Agent. B. The Borrower is the principal financing entity for all capital requirements of its Subsidiaries, and from time to time the Borrower has made and will continue to make capital contributions and advances to its Subsidiaries, including each of the parties hereto (such parties herein called the "Guarantors"). Each Guarantor is a direct or indirect subsidiary of the Borrower and will derive substantial direct and indirect benefit from the transactions contemplated by the Credit Agreement. C. Under the Credit Agreement, it is a condition to the making of the Advances by the Banks and the issuance of the Letters of Credit by the Issuing Bank that each Guarantor shall have executed and delivered this Agreement. Therefore, in order to induce the Banks to make the Advances and the Issuing Bank to issue its Letters of Credit, each Guarantor hereby agrees as follows: Section 1. Definitions. All capitalized terms not otherwise defined in this Agreement that are defined in the Credit Agreement shall have the meaning assigned to such terms by the Credit Agreement. Section 2. Guaranty. Each Guarantor hereby unconditionally guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all obligations of the Borrower now or hereafter existing under the Credit Agreement, the Notes, and any other Credit Document, whether for principal, Reimbursement Obligations, Hedging Obligations owing to any Bank or any Affiliate of any Bank, interest, fees, expenses, or otherwise (such obligations being the "Guaranteed 94 Obligations"), and any and all expenses (including reasonable counsel fees and expenses) incurred by the Agent, any Co-Documentation Agent or any Bank in enforcing any rights under this Agreement. Each Guarantor agrees that its guaranty obligation under this Agreement is a guarantee of payment, not of collection and that such Guarantor is primarily liable for the payment of the Guaranteed Obligations. Section 3. Limit of Liability. Each Guarantor shall be liable under this Agreement with respect to the Guaranteed Obligations only for amounts aggregating up to the largest amount that would not render its guaranty obligation hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of any state law. Section 4. Guaranty Absolute. Each Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Credit Agreement and the other Credit Documents, regardless of any law, regulation, or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent, the Co-Documentation Agents or the Banks with respect thereto. The liability of each Guarantor under this Agreement shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Credit Agreement, any other Credit Document, or any other agreement or instrument relating thereto; (b) any change in the time, manner, or place of payment of, or in any other term of, any of the Guaranteed Obligations, or any other amendment or waiver of or any consent to departure from the Credit Agreement or any Credit Document; (c) any exchange, release, or nonperfection of any collateral, or any release or amendment or waiver of or consent to departure from any other agreement or guaranty, for any of the Guaranteed Obligations; or (d) any other circumstances which might otherwise constitute a defense available to, or a discharge of the Borrower or a Guarantor. Section 5. Continuation and Reinstatement, Etc. Each Guarantor agrees that, to the extent that the Borrower makes payments to the Agent, any Co-Documentation Agent or any Bank, or the Agent, any Co-Documentation Agent or any Bank receives any proceeds of collateral, and such payments or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, or otherwise required to be repaid, then to the extent of such repayment the Guaranteed Obligations shall be reinstated and continued in full force and effect as of the date such initial payment or collection of proceeds occurred. The Guarantor shall defend and indemnify the Agent, each Co-Documentation Agent and each Bank from and against any claim or loss under this Section 5 (including reasonable attorneys' fees and expenses) in the defense of any such action or suit. -2- 95 Section 6. Certain Waivers. 6.01. Notice. Each Guarantor hereby waives promptness, diligence, notice of acceptance, notice of acceleration, notice of intent to accelerate, and any other notice with respect to any of the Guaranteed Obligations and this Agreement. 6.02. Other Remedies. Each Guarantor hereby waives any requirement that the Agent, any Co-Documentation Agent or any Bank protect, secure, perfect, or insure any Lien or any Property subject thereto or exhaust any right or take any action against the Borrower or any other Person or any collateral, including any action required by Chapter 34 of the Texas Business and Commerce Code. 6.03. Waiver of Subrogation. (a) Each Guarantor hereby irrevocably waives, until payment in full of all Guaranteed Obligations and termination of all Commitments, any claim or other rights which it may acquire against the Borrower that arise from such Guarantor's obligations under this Agreement or any other Credit Document, including, without limitation, any right of subrogation (including, without limitation, any statutory rights of subrogation under Section 509 of the Bankruptcy Code, 11 U.S.C. ' 509, or otherwise), reimbursement, exoneration, contribution, indemnification, or any right to participate in any claim or remedy of the Agent, any Co-Documentation Agent or any Bank against the Borrower or any collateral which the Agent, any Co-Documentation Agent or any Bank now has or acquires. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Guaranteed Obligations shall not have been paid in full and all of the Commitments terminated, such amount shall be held in trust for the benefit of the Agent, the Co-Documentation Agents and the Banks, and shall promptly be paid to the Agent for the benefit of the Agent, the Co-Documentation Agents and the Banks to be applied to the Guaranteed Obligations, whether matured or unmatured, as the Agent may elect. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Credit Agreement and that the waiver set forth in this Section 6.03(a) is knowingly made in contemplation of such benefits. (b) Each Guarantor further agrees that it will not enter into any agreement providing, directly or indirectly, for any contribution, reimbursement, repayment, or indemnity by the Borrower or any other Person on account of any payment by such Guarantor to the Agent or the Banks under this Agreement. Section 7. Representations and Warranties. Each Guarantor hereby represents and warrants as follows: 7.01. Corporate Authority. Such Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, which is set forth on Schedule 4.1 to the Credit Agreement. The execution, delivery and performance by such Guarantor of this Agreement are within such Guarantor's corporate powers, have been duly authorized by all necessary corporate action, and do not -3- 96 contravene (a) such Guarantor's charter or bylaws or (b) any law or material contractual restriction affecting such Guarantor or its Property. 7.02. Government Approval. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery, and performance by such Guarantor of this Agreement. 7.03. Binding Obligations. This Agreement is the legal, valid, and binding obligation of such Guarantor enforceable against such Guarantor in accordance with its terms subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors' rights (whether considered in a proceeding at law or in equity). Section 8. Covenants. Each Guarantor will comply with all covenant provisions of Article V and Article VI of the Credit Agreement to the extent such provisions are applicable to a Subsidiary of the Borrower. Section 9. Contribution. As a result of the transactions contemplated by the Credit Agreement, each of the Guarantors will benefit, directly and indirectly, from the Obligations and in consideration thereof desire to enter into a contribution agreement among themselves as set forth in this Section 9 to allocate such benefits among themselves and to provide a fair and equitable arrangement to make contributions in the event any payment is made by any Guarantor hereunder to the Agent or the Banks (such payment being referred to herein as a "Contribution," and for purposes of this Agreement, includes any exercise of recourse by the Agent against any Property of a Contributor designated as collateral under the Guarantors Security Agreement and application of proceeds of such collateral in satisfaction of such Guarantor's obligations under this Agreement). The Guarantors hereby agree as follows: 9.01. Calculation of Contribution. In order to provide for just and equitable contribution among the Guarantors in the event any Contribution is made by a Guarantor (a "Funding Guarantor"), such Funding Guarantor shall be entitled to a contribution from certain other Guarantors for all payments, damages and expenses incurred by that Funding Guarantor in discharging any of the Obligations, in the manner and to the extent set forth in this Section. The amount of any Contribution under this Agreement shall be equal to the payment made by the Funding Guarantor to the Agent or any other Beneficiary pursuant to this Agreement and shall be determined as of the date on which such payment is made. 9.02. Benefit Amount Defined. For purposes of this Agreement, the "Benefit Amount" of any Guarantor as of any date of determination shall be the net value of the benefits to such Guarantor and all of its Subsidiaries (including any Subsidiaries which may be Guarantors) from extensions of credit made by the Banks to the Borrower under the Credit Agreement; provided, that in determining the contribution liability of any Guarantor which is a Subsidiary to its direct or indirect parent corporation or of any -4- 97 Guarantor to its direct or indirect Subsidiary, the Benefit Amount of such Subsidiary and its Subsidiaries, if any, shall be subtracted in determining the Benefit Amount of the parent corporation. Such benefits shall include benefits of funds constituting proceeds of Advances made to the Borrower by the Banks which are in turn advanced or contributed by the Borrower to such Guarantor or its Subsidiaries and benefits of Letters of Credit issued pursuant to the Credit Agreement on behalf of, or the proceeds of which are advanced or contributed or otherwise benefit, directly or indirectly, such Guarantor and its Subsidiaries (collectively, the "Benefits"). In the case of any proceeds of Advances or Benefits advanced or contributed to a Person (an "Owned Entity") any of the equity interests of which are owned directly or indirectly by a Guarantor, the Benefit Amount of a Guarantor with respect thereto shall be that portion of the net value of the benefits attributable to Advances or Benefits equal to the direct or indirect percentage ownership of such Guarantor in its Owned Entity. 9.03. Contribution Obligation. Each Guarantor shall be liable to a Funding Guarantor in an amount equal to the greater of (A) the (i) ratio of the Benefit Amount of such Guarantor to the total amount of Obligations, multiplied by (ii) the amount of Obligations paid by such Funding Guarantor and (B) 95% of the excess of the fair saleable value of the property of such Guarantor over the total liabilities of such Guarantor (including the maximum amount reasonably expected to become due in respect of contingent liabilities) determined as of the date on which the payment made by a Funding Guarantor is deemed made for purposes of this Agreement (giving effect to all payments made by other Funding Guarantors as of such date in a manner to maximize the amount of such contributions). 9.04. Allocation. In the event that at any time there exists more than one Funding Guarantor with respect to any Contribution (in any such case, the "Applicable Contribution"), then payment from other Guarantors pursuant to this Agreement shall be allocated among such Funding Guarantors in proportion to the total amount of the Contribution made for or on account of the Borrower by each such Funding Guarantor pursuant to the Applicable Contribution. In the event that at any time any Guarantor pays an amount under this Agreement in excess of the amount calculated pursuant to clause (A) of Subsection 9.03 above, that Guarantor shall be deemed to be a Funding Guarantor to the extent of such excess and shall be entitled to contribution from the other Guarantors in accordance with the provisions of this Section. 9.05. Subsidiary Payment. The amount of contribution payable under this Section by any Guarantor shall be reduced by the amount of any contribution paid hereunder by a Subsidiary of such Guarantor. 9.06. Equitable Allocation. If as a result of any reorganization, recapitalization, or other corporate change in the Borrower or any of its Subsidiaries, or as a result of any amendment, waiver or modification of the terms and conditions of other Sections of this Agreement or the Obligations, or for any other reason, the contributions under this Section become inequitable as among the Guarantors, the Guarantors shall promptly -5- 98 modify and amend this Section to provide for an equitable allocation of contributions. Any of the foregoing modifications and amendments shall be in writing and signed by all Guarantors. 9.07. Asset of Party to Which Contribution is Owing. The Guarantors acknowledge that the right to contribution hereunder shall constitute an asset in favor of the Guarantor to which such contribution is owing. 9.08. Subordination. No payments payable by a Guarantor pursuant to the terms of this Section 9 shall be paid until all amounts then due and payable by the Borrower to any Bank, pursuant to the terms of the Credit Documents, are paid in full in cash. Nothing contained in this Section 9 shall affect the obligations of any Guarantor to any Bank under the Credit Agreement or any other Credit Documents. Section 10. Miscellaneous. 10.01. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing, including telegraphic communication, and delivered or teletransmitted to the Agent, as set forth in the Credit Agreement, and to each Guarantor, at the address set forth beside such Guarantor's name on Annex 1 hereto or in the Accession Agreement executed by such Guarantor, or to such other address as shall be designated by any Guarantor or the Agent in written notice to the other parties. All such notices and other communications shall be effective when delivered or teletransmitted to the above addresses. 10.02. Amendments, Etc. No waiver of any provision of this Agreement nor consent to any departure by any Guarantor therefrom shall be effective unless the same shall be in writing and signed by the Agent, Majority Banks and the Borrower, and no amendment of this Agreement shall be effective unless the same shall be in writing and signed by each Guarantor and the Agent, with the consent of the Majority Banks; provided that any amendment or waiver releasing any Guarantor from any liability hereunder shall be signed by all the Banks; and provided further that any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Notwithstanding the foregoing, in the event that any Subsidiary of the Borrower hereafter is required in a accordance with the terms of the Credit Agreement or otherwise agrees to become a guarantor of the Borrower's obligations under the Credit Documents, then such Subsidiary may become a party to this Agreement by executing an Accession Agreement ("Accession Agreement") in the form attached hereto as Annex 2, and each Guarantor and the Agent hereby agrees that upon such Subsidiary's execution of such Accession Agreement, this Agreement shall be deemed to have been amended to make such Person a Guarantor hereunder for all purposes and a party hereto and no signature is required on behalf of the other Guarantors or the Agent to make such an amendment to this Agreement effective. -6- 99 10.03. No Waiver; Remedies. No failure on the part of the Agent, or any Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 10.04. Right of Set-Off. Upon the occurrence and during the continuance of any Event of Default, the Agent, the Co-Documentation Agents and the Banks are hereby authorized at any time, to the fullest extent permitted by law, to set off and apply any deposits (general or special, time or demand, provisional or final) and other indebtedness owing by the Agent, the Co-Documentation Agents or the Banks to the account of any Guarantor against any and all of the obligations of such Guarantor under this Agreement, irrespective of whether or not the Agent, the Co-Documentation Agents or the Banks shall have made any demand under this Agreement and although such obligations may be contingent and unmatured. The Agent, the Co-Documentation Agents and the Banks agree promptly to notify each Guarantor affected by any such set-off after any such set-off and application made by the Agent, the Co-Documentation Agents or the Banks provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Agent, the Co-Documentation Agents and the Banks under this Section 10.04 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Agent, the Co-Documentation Agents and the Banks may have. 10.05. Continuing Guaranty; Transfer of Interest. This Agreement shall create a continuing guaranty and shall (a) remain in full force and effect until payment in full and termination of the Guaranteed Obligations, (b) be binding upon each Guarantor, its successors, and assigns, and (c) inure, together with the rights and remedies of the Agent hereunder, to the benefit of the Agent, the Co-Documentation Agents, the Banks, and their respective successors, transferees, and assigns. Without limiting the generality of the foregoing clause, when any Bank assigns or otherwise transfers any interest held by it under the Credit Agreement or other Credit Document to any other Person pursuant to the terms of the Credit Agreement or other Credit Document, that other Person shall thereupon become vested with all the benefits held by such Bank under this Agreement. Upon the payment in full and termination of the Guaranteed Obligations, the guaranties granted hereby shall terminate and all rights hereunder shall revert to each Guarantor to the extent such rights have not been applied pursuant to the terms hereof. Upon any such termination, the Agent will, at each Guarantor's expense, execute and deliver to such Guarantor such documents as such Guarantor shall reasonably request and take any other actions reasonably requested to evidence or effect such termination. 10.06. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas. Each Guarantor hereby irrevocably submits to the jurisdiction of any Texas state or federal court sitting in Dallas, Texas in any action or proceeding arising out of or relating to this Agreement and the other Credit Documents, and such Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such court. Each -7- 100 Guarantor hereby irrevocably waives, to the fullest extent it may effectively do so, any right it may have to the defense of an inconvenient forum to the maintenance of such action or proceeding. Each Guarantor hereby agrees that service of copies of the summons and complaint and any other process which may be served in any such action or proceeding may be made by mailing or delivering a copy of such process to such Guarantor at its address specified below. Each Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section shall affect the rights of any Bank, the Agent, or any Co-Documentation Agent to serve legal process in any other manner permitted by the law or affect the right of any Bank, any Co-Documentation Agent or the Agent to bring any action or proceeding against any Guarantor or its Property in the courts of any other jurisdiction. SECTION 10.07. WAIVERS OF JURY TRIAL. EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT TO WHICH IT IS A PARTY OR TO ANY COUNTERCLAIM THEREIN. SECTION 10.08. ENTIRE AGREEMENT. PURSUANT TO SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, A LOAN AGREEMENT IN WHICH THE AMOUNT INVOLVED IN THE LOAN AGREEMENT EXCEEDS $50,000 IN VALUE IS NOT ENFORCEABLE UNLESS THE LOAN AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE BOUND OR THAT PARTY'S AUTHORIZED REPRESENTATIVE. THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT SUBJECT TO THE PRECEDING PARAGRAPH SHALL BE DETERMINED SOLELY FROM THE WRITTEN LOAN AGREEMENT, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO THE LOAN AGREEMENT. THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS, AS DEFINED IN THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. [REMAINDER OF PAGE INTENTIONALLY BLANK] -8- 101 Each Guarantor has caused this Agreement to be duly executed as of the date first above written. GUARANTORS: ABF CARTAGE, INC. ABF FARMS, INC. ABF FREIGHT SYSTEM (B.C.) LTD. ABF FREIGHT SYSTEM CANADA, LTD. ABF FREIGHT SYSTEM, INC. AGILE FREIGHT SYSTEM, INC. AGRICULTURAL EXPRESS OF AMERICA, INC. BEST SERVICE CORP. CAROTRANS INTERNATIONAL, INC. CLIPPER EXXPRESS COMPANY DATA-TRONICS CORP. FLEETNET AMERICA, INC. G.I. TRUCKING COMPANY LAND-MARINE CARGO, INC. TRANSPORT REALTY, INC. By: -------------------------------------- David E. Loeffler Authorized Agent -9- 102 ANNEX 1 to Subsidiary Guaranty and Contribution Agreement ADDRESSES OF GUARANTORS FOR NOTICES ABF Cartage, Inc. Clipper Exxpress Company 3801 Old Greenwood Road 15700 West 103rd Street Fort Smith, Arkansas 72903 Lemont, Illinois 60439 ABF Farms, Inc. Data-Tronics Corp. 3801 Old Greenwood Road 3801 Old Greenwood Road Fort Smith, Arkansas 72903 Fort Smith, Arkansas 72903 ABF Freight System (B.C.), Ltd. FleetNet America, Inc. 3801 Old Greenwood Road 300 Commerce Drive Fort Smith, Arkansas 72903 Cherryville, North Carolina 28021 ABF Freight System Canada, Ltd. G. I. Trucking Company 3801 Old Greenwood Road 14727 Alondra Boulevard Fort Smith, Arkansas 72903 La Mirada, California 90638 ABF Freight System, Inc. Land-Marine Cargo, Inc. 3801 Old Greenwood Road 3801 Old Greenwood Road Fort Smith, Arkansas 72903 Fort Smith Arkansas 72903 Agile Freight System, Inc. Transport Realty, Inc. 15700 West 103rd Street 3801 Old Greenwood Road Lemont, Illinois 60439 Fort Smith, Arkansas 72903 Agricultural Express of America, Inc. 15700 West 103rd Street Lemont, Illinois 60434 Best Service Corp. 3801 Old Greenwood Road Fort Smith, Arkansas 72903 CaroTrans International, Inc. 15700 West 103rd Street Lemont, Illinois 60434 103 ANNEX 2 to Subsidiary Guaranty and Contribution Agreement ACCESSION AGREEMENT ___________[NAME OF SUBSIDIARY], a ________________ corporation (the "Company"), hereby agrees with (i) Societe Generale, Southwest Agency, as Administrative Agent (the "Agent") under the Credit Agreement dated as of June 12, 1998 among Arkansas Best Corporation, a Delaware corporation which is the direct or indirect shareholder of the Company, the lenders parties thereto, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and Societe Generale, Southwest Agency as Administrative Agent (as such agreement is further amended from time to time in accordance with its terms, the "Credit Agreement"; capitalized terms used herein and not otherwise defined having the meanings set forth therein), and (ii) the parties to the Subsidiary Guaranty and Contribution Agreement dated as of June 12, 1998 and the Guarantors Security Agreement dated as of June 12, 1998 each executed in connection with the Credit Agreement, as follows: The Company hereby agrees and confirms that, as of the date hereof, it (a) intends to be a party to the Guaranty and a party to the Guarantors Security Agreement and undertakes to perform all the obligations expressed therein, respectively, of a Guarantor (as defined in the Guaranty) and a Grantor (as defined in the Guarantors Security Agreement), (b) agrees to be bound by all of the provisions of the Guaranty and of the Guarantors Security Agreement as if it had been an original party to such Guaranty and such Guarantors Security Agreement, and (c) confirms that the representations and warranties set forth in the Guaranty and the Guarantors Security Agreement with respect to the Company, a party thereto, are true and correct in all material respects as of the date of this Accession Agreement. For purposes of notices under the Guaranty and under the Guarantors Security Agreement, the address for the Company is as follows: Attention: ------------------------------- Telephone: ------------------------------- Telecopy: -------------------------------- For purposes of Section 3.2 of the Guarantors Security Agreement, the address of the Company where all of its books and records concerning its Accounts is [the same as the address set forth above] [as set forth below:]. For purposes of Section 3.5 of the Guarantors Security Agreement, a UCC Financing Statement for the Company should be filed in the following office(s): 104 ------------------------- ------------------------- This Accession Agreement shall be governed by and construed in accordance with the laws of the State of Texas. IN WITNESS WHEREOF this Accession Agreement was executed and delivered as of the ___ day of _________, 19__. [NAME OF SUBSIDIARY] ----------------------------------------- By: -------------------------------------- Title: ----------------------------------- 105 EXHIBIT C SECURITY AGREEMENT This Security Agreement dated as of June 12, 1998 (as amended or otherwise modified from time to time, the "Security Agreement") is by and between Arkansas Best Corporation, a Delaware corporation (the "Grantor"), and Societe Generale, Southwest Agency, as Administrative Agent for the Banks parties to the Credit Agreement described below (the "Agent"). INTRODUCTION The Grantor, Societe Generale, Southwest Agency, as Administrative Agent, Bank of America National Trust and Savings Association and Well Fargo Bank (Texas), N.A., as Co-Documentation Agents, and the Banks have entered into an Credit Agreement dated as of June 12, 1998 (as amended or otherwise modified from time to time, the "Credit Agreement"). Under the Credit Agreement, the Grantor is required to execute and deliver this Security Agreement. Therefore, in order to induce the Banks to enter into the Credit Agreement and to make the Advances and the Issuing Banks to issue the Letters of Credit in accordance with the terms of the Credit Agreement, the Grantor hereby agrees with the Agent for its benefit and the ratable benefit of the Banks as follows: Section 1. Definitions. (a) All capitalized terms not otherwise defined in this Security Agreement that are defined in the Credit Agreement shall have the meaning assigned to such terms by the Credit Agreement. (b) Any terms used in this Security Agreement that are defined in the Texas Business and Commerce Code ("UCC") shall have the meaning assigned to those terms by the UCC, whether specified elsewhere in this Security Agreement or not. Section 2. Security Interest. 2.1. Grant of Security Interest. The Grantor hereby grants to the Agent for its benefit and the ratable benefit of the Banks security interests in the Collateral (as defined in Section 2.2 below) to secure the performance and payment of all obligations of the 106 Grantor now or hereafter existing under the Credit Agreement and the other Credit Documents, including any extensions, modifications, substitutions, amendments and renewals thereof, whether for principal, interest, Hedging Obligations owing to any Bank or any Affiliate of any Bank, fees, expenses, indemnification, or otherwise (collectively, the "Secured Obligations"). 2.2. Collateral. "Collateral" shall mean all of the Grantor's right, title, and interest in the following, whether now owned or hereafter acquired: (a) Revenue Equipment. All trucks, tractors, trailers and city tractors, and all accessories and parts therefor or attached thereto (the "Revenue Equipment"); (b) Accounts. All accounts and all rights to payment owing or to be owing to the Grantor, wherever the records for such accounts and rights to payment are held, including all instruments and chattel paper, wherever located, that represent any right of the Grantor to payment for services rendered, whether or not it has been earned by performance (all such accounts, instruments and chattel paper being the "Accounts"); (c) Stock. All shares of capital stock of Treadco, Inc., a Delaware corporation, and each Subsidiary of the Grantor (collectively herein all of such shares are called the "Pledged Shares"); (d) Collateral Account. The Collateral Account referred to in Section 4.7 of this Security Agreement and all Liquid Investments held in the Collateral Account; (e) Records. All ledger sheets, files, records, computer databases and software and documents relating to the foregoing Collateral; and (f) Proceeds. All proceeds of the foregoing Collateral and, to the extent not otherwise included, all payments under any insurance, indemnity, warranty, or guaranty of or for the foregoing Collateral. Section 3. Representations and Warranties. The Grantor hereby represents and warrants the following to the Agent and the Banks: 3.1. Revenue Equipment. All Revenue Equipment which, under applicable law, is required to be registered, is properly registered in the name of the Grantor or, in the case of newly acquired Revenue Equipment, the Grantor is diligently pursuing the process of causing such Revenue Equipment to be registered in the Grantor's name. All Revenue Equipment, the ownership of which, under applicable law, is evidenced by a certificate of title, is properly titled in the name of the Grantor. All certificates of title with respect to the Revenue Equipment owned by the Grantor will be maintained by the Custodians (as defined in Section 4.9 of this Security Agreement) at the address of the Grantor referenced on Schedule 2.17 in the Credit Agreement. -2- 107 3.2. Accounts. The chief place of business and chief executive office of the Grantor and the office where the Grantor keeps its records concerning the Accounts are located at the address for the Grantor on Annex 1 attached hereto. None of the Accounts are evidenced by a promissory note or other instrument. 3.3. Pledged Shares. The Pledged Shares are duly authorized, validly issued and fully paid and non-assessable, and the Agent will be in possession of all certificates evidencing the Pledged Shares, accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, and accompanied in each case by any required transfer tax stamps, all in form and substance reasonably satisfactory to the Agent. 3.4. Other Liens. The Grantor is, and will be the record and beneficial owner of all Collateral pledged by the Grantor free and clear of any Lien, except for Liens created hereby or Liens or interests otherwise permitted by the Credit Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is, or will be on file in any recording office, except such as may be filed in connection with this Security Agreement or in connection with Liens or interests otherwise permitted by the Credit Agreement. 3.5. Lien Priority and Perfection. (a) This Security Agreement creates valid security interests in the Collateral, securing the payment of the Secured Obligations, and such security interests are or will be perfected first priority security interests, second only to perfected Liens or interests otherwise permitted by the Credit Agreement, (i) in the case of Collateral other than as described in clause (ii) and (iii) below following the filing of a UCC Financing Statement in the form of Annex 2 attached hereto (with the Grantor's name and address filled in under the title "Debtor") in the office(s) set forth on Annex 3 attached hereto, (ii) in the case of Pledged Shares, provided that the Agent retains possession of such Pledged Shares and instruments of transfer or assignment related thereto which were executed in blank and delivered by the Grantor to the Agent prior to the date hereof, and (iii) in the case of titled Revenue Equipment, when the Agent's interest as a secured party is recorded on the certificates of title relating to the Grantor's titled Revenue Equipment (other than certificates of title for Revenue Equipment which is already subject to a Lien permitted by the Credit Agreement) as contemplated by the Custodial Agreement described in Section 4.9 of this Security Agreement. (b) No other authorization, approval, or other action by, and no notice to or filing with, any Governmental Authority is necessary to grant the security interests contemplated hereby, or to allow the Grantor to perform its obligations hereunder, or to permit the Agent to exercise its rights and remedies hereunder. -3- 108 Section 4. Grantor Covenants. 4.1. Further Assurances. The Grantor agrees that at any time, at the Grantor's expense, the Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be reasonably necessary or that the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, the Grantor will at the Agent's request: (a) deliver and pledge to the Agent any instrument representing any Account, duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Agent, (b) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices as may be reasonably necessary, or as the Agent may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby, and (c) if the Grantor is an owner of Pledged Shares issued by Treadco, Inc., notify Treadco, Inc. of the Lien on such Pledged Shares created hereby and cause Treadco, Inc. to send written notice to the Agent acknowledging such Lien and expressly agreeing to remit any and all dividends and distributions on account of such Pledged Shares remitted after the date of this Security Agreement directly to the Agent. 4.2. Revenue Equipment. The Grantor shall: (a) cause the Revenue Equipment owned by the Grantor to be maintained and preserved in accordance with Section 5.7 of the Credit Agreement, and shall in accordance with past practices, make or cause to be made all repairs, replacements, and other improvements which are necessary or desirable to restore the Revenue Equipment to good working order; (b) promptly furnish to the Agent a statement respecting any material loss or damage to any of the Revenue Equipment owned by the Grantor which is not repaired; (c) promptly pay or cause to be paid prior to delinquency all property and other taxes, assessments, and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Revenue Equipment owned by the Grantor, except to the extent permitted by the Credit Agreement; (d) promptly cause all Revenue Equipment owned by the Grantor which, under applicable law, is required to be registered, to be properly registered in the name of the Grantor, and cause all Revenue Equipment, the ownership of which, under applicable law, is evidenced by a certificate of title to be properly titled in the name of the Grantor, and to have the Agent's interest in such Revenue Equipment properly noted on the -4- 109 certificate of title with respect thereof (it being agreed that a Grantor will not be in default under this provision if the Grantor is diligently pursuing the process, as applicable, of causing such Revenue Equipment to be registered in the Grantor's name or to be titled in the Grantor's name or to have the Agent's interest noted on such certificate of title, provided, however, that with respect to any newly acquired Revenue Equipment if the process of titling such Revenue Equipment in the Grantor's name and recording the Agent's interest on such title is not completed within 120 days after the Grantor's acquisition of the applicable unit of Revenue Equipment, such unit of Revenue Equipment shall not be counted in determining the Borrowing Base until such process is completed). Until the Agent exercises remedies under this Security Agreement, the certificates of title with respect to Revenue Equipment owned by the Grantor shall be maintained by the Custodians at one of the addresses referenced on Schedule 2.17 of the Credit Agreement as the location of such certificates of title. 4.3. Insurance. (a) The Grantor shall, at its own expense, maintain, or cause to be maintained, insurance with respect to the Revenue Equipment owned by the Grantor in such amounts, against such risks, in such form, and with such insurers, as the Credit Agreement requires. Further, the Grantor shall, at the request of the Agent, duly deliver certificates of loss casualty insurance to the Agent showing the Agent as loss payee as its interests may appear. (b) During the continuance of any Event of Default, all loss casualty insurance payments in respect of such Revenue Equipment shall be paid to and applied by the Agent as specified in Section 6. 4.4. Accounts. The Grantor shall keep its chief place of business and chief executive office and the office where it keeps the instruments, chattel paper, or contracts representing Accounts and the records concerning the Accounts at the location therefor specified in Section 3.2 or, upon 30 days' prior written notice to the Agent, at such other locations in a jurisdiction where all actions required by Section 4.1 shall have been taken with respect to the Accounts. The Grantor will hold and preserve such instruments, chattel paper, contracts, and records and will permit representatives of the Agent at any time during normal business hours to inspect and copy them. 4.5. Liability Under Contracts. Notwithstanding anything in this Security Agreement to the contrary, (a) the execution of this Security Agreement shall not release the Grantor from its obligations and duties under the contracts and agreements included in the Collateral to the extent set forth therein, (b) the exercise by the Agent of any of its rights hereunder shall not release the Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) neither the Agent nor any Bank shall have any obligation or liability under the contracts and -5- 110 agreements included in the Collateral by reason of the execution and delivery of this Security Agreement, nor shall the Agent or any Bank be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. 4.6. Pledged Shares. (a) Following the Grantor's acquisition of any Pledged Shares, the Grantor shall deliver or cause to be delivered to the Agent all certificates evidencing such Pledged Shares, accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, and accompanied in each case by any required transfer tax stamps, all in form and substance reasonably satisfactory to the Agent. (b) At any time during the continuation of an Event of Default, the Agent may from time to time in its sole discretion, cause any or all of the Pledged Shares to be transferred of record into the name of the Agent or a nominee. The Grantor will promptly give to the Agent copies of any notices and other communications received by it with respect to Pledged Shares registered in the name of the Grantor, and the Agent will promptly give the Grantor copies of any notices and other communications received by the Agent with respect to Pledged Shares registered in the name of the Agent or a nominee. (c) Provided that no Event of Default shall be continuing, the Grantor shall have the right, from time to time, to vote and to give consents, ratifications and waivers with respect to the Pledged Shares, and the Agent shall, upon receiving a written request from the Grantor, which request shall be deemed to be a representation and warranty by the Grantor that no Event of Default is continuing, deliver to the Grantor or as specified in such request such proxies, powers of attorney, consents, ratifications and waivers in respect of any Subsidiary Shares which are registered in the name of the Agent or a nominee as shall be specified in such request and be in form and substance satisfactory to the Agent. (d) While an Event of Default shall be continuing, all rights of the Grantor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to paragraph (c) above shall end upon notice from the Agent to the Grantor and thereafter the Agent shall have the right to the extent permitted by law for so long as such Event of Default continues, and the Grantor shall take all such action as may be necessary or appropriate to give effect to such right, to vote and to give consents, ratifications and waivers, and take any other action with respect to all Pledged Shares with the same force and effect as if the Agent were the absolute and sole owner thereof. (e) While an Event of Default shall be continuing, the Agent shall be entitled to receive and retain as Collateral all dividends and distributions made in respect of the Pledged Shares, and shall deposit all cash dividends into the Collateral Account described -6- 111 in Section 4.7 hereof. Any such dividends or distributions on account of Pledged Shares shall, if received by the Grantor, be received in trust for the benefit of the Agent, be segregated from the other property or funds of the Grantor, and be forthwith delivered to the Agent as Collateral in the same form as so received (with any necessary endorsement). 4.7. Collateral Account. (a) There is hereby established with the Agent a cash collateral account (the "Collateral Account") in the name and under the control of the Agent into which there shall be deposited from time to time the cash proceeds of the Collateral required to be delivered to the Agent pursuant to any provision of this Agreement. Any income received by the Agent with respect to the balance from time to time of the Collateral Account, including any interest or capital gains on Liquid Investments, shall remain, or be deposited, in the Collateral Account. All right, title and interest in and to the cash amounts on deposit from time to time in the Collateral Account together with any Liquid Investments from time to time made pursuant to paragraph (c) of this Section shall vest in the Agent, shall constitute part of the Collateral hereunder and shall not constitute payment of the Secured Obligations until applied thereto as hereinafter provided. (b) At any time during the continuation of an Event of Default, the Agent shall, if so instructed by the Majority Banks, apply or cause to be applied (subject to collection) any or all of the balance from time to time of the Collateral Account in the manner specified in Section 6. (c) Amounts on deposit in the Collateral Account shall be invested and re-invested from time to time in such Liquid Investments as the Grantor shall determine, which Liquid Investments shall be held in the name and be under the control of the Agent, provided that, at any time during the continuation of an Event of Default, the Agent shall, if instructed by the Majority Banks, liquidate any such Liquid Investments and apply or cause to be applied the proceeds thereof to the payment of the Secured Obligations in the manner specified in Section 6. In order to provide the Agent, for the benefit of the Banks, with a perfected security interest therein, each Liquid Investment shall be either: (i) evidenced by negotiable certificates or instruments, or if non-negotiable then issued in the name of the Agent, which (together with any appropriate instruments of transfer) are delivered to, and held by, the Agent or an agent thereof (which shall not be the Grantor or any of its Affiliates) in the State of Texas; or (ii) in book-entry form and issued by the United States and subject to pledge under applicable state law and treasury regulations and as to which (in the -7- 112 opinion of counsel to the Agent) appropriate measures shall have been taken for perfection of the security interests. 4.8. Transfer of Certain Collateral; Release of Certain Security Interest. The Grantor agrees that it shall not sell, assign, or otherwise dispose of any Collateral other than Revenue Equipment sold in the ordinary course of the Grantor's business and in accordance with the terms of the Credit Agreement without the prior written consent of the Agent and the Majority Banks. The Agent shall promptly, at a Grantor's expense, execute and deliver all further instruments and documents, and take all further action that the Grantor may reasonably request in order to release its security interest in any Collateral which is disposed of in accordance with the terms of this Security Agreement. 4.9.Release of Security Interest in Revenue Equipment. (a) The Grantor shall be entitled to sell its Revenue Equipment in the ordinary course of business, prior to the occurrence of any Default and in accordance with the terms of the Credit Agreement. In connection with any such sale, the Agent agrees for its benefit and the benefit of the Banks that the lien of the Agent recorded on any certificate of title with respect to any Revenue Equipment to be sold may be released by the Agent's custodians (the "Custodians") pursuant to a custodial agreement substantially in the form attached hereto as Annex 5 ("Custodial Agreement"), with a power of attorney, effective for a period of one calendar quarter (or the remaining portion thereof) which shall authorize the Custodians to execute, on behalf of the Agent, all documents and instruments necessary to release the security interest granted hereunder with respect to the Revenue Equipment to be sold or transferred, subject to the limitations set forth in the Custodial Agreement and such power of attorney. Upon the occurrence of any Default under the Credit Agreement, the Agent may revoke any then outstanding power of attorney provided in accordance with this Section, by giving notice of such revocation to the Custodians, and the Grantor. Upon the resignation of any individual holding a power of attorney hereunder, the Agent may designate an agent (whether or not such agent is an employee of the Grantor or any of its Subsidiaries) to hold a power of attorney, and such agent may enter onto any premises where the Grantor retains certificates of title on behalf of the Agent for the purpose of fulfilling such agent's obligations to the Agent under said power of attorney. (b) At the request of the Agent, the Grantor shall provide the Agent with a report listing Revenue Equipment owned by the Grantor as of the end of the most recent fiscal period. Section 5. Remedies. If any Event of Default shall have occurred and be continuing 5.1. UCC Remedies. -8- 113 (a) To the extent permitted by law, and in the case of Accounts, the Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for in this Security Agreement or otherwise available to it, all the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral). (b) All payments received by the Grantor under or in connection with or in respect of the Collateral shall be deposited with the Agent. 5.2. Assembly of Collateral. The Agent may require the Grantor to, at the Grantor's expense, promptly assemble all or part of the Collateral in Little Rock, Arkansas; Springfield, Illinois; Atlanta, Georgia; Dallas, Texas; Los Angeles, California; Denver, Colorado; Salt Lake City, Utah; Dayton, Ohio; Cherryville, North Carolina; or such other cities as the Grantor and the Agent may agree at such time; and make it available to the Agent at a place in each such city to be designated by the Agent which is reasonably convenient to both parties. The Agent may occupy any premises owned or leased by the Grantor where the Collateral or any part thereof is assembled for a reasonable period in order to effectuate its rights and remedies hereunder or under law, without obligation to the Grantor in respect of such occupation. 5.3. Sale of Collateral. The Agent may sell all or part of the Collateral at a public or private sale, at any of the Agent's offices or elsewhere, for cash, on credit, or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. The Grantor agrees that to the extent permitted by law such sales may be made without notice. If notice is required by law, the Grantor hereby deems 10 days advance notice of the time and place of any public sale or the time after which any private sale is to be made reasonable notification, recognizing that if the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market shorter notice may be reasonable. The Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. 5.4. Contract Rights. The Agent may exercise any rights and remedies of the Grantor under or in connection with the instruments, chattel paper, or contracts which represent Accounts or otherwise relate to the Collateral, including, without limitation, any rights of the Grantor to demand or otherwise require payment of any amount under, or performance of any provisions of, the instruments, chattel paper, or contracts which represent Accounts. 5.5. Accounts. -9- 114 (a) The Agent may, or may direct the Grantor to, take any action the Agent deems necessary or advisable to enforce collection of the Accounts including, without limitation, notifying the account debtors or obligors under any Accounts of the assignment of such Accounts to the Agent and directing such account debtors or obligors to make payment of all amounts due or to become due directly to the Agent. Upon such notification and direction, and at the expense of the Grantor, the Agent may enforce collection of any such Accounts, and adjust, settle, or compromise the amount or payment thereof in the same manner and to the same extent as the Grantor might have done. (b) After receipt by the Grantor of the notice referred to in paragraph (a) above, all amounts and proceeds (including instruments) received by the Grantor in respect of the Accounts shall be received in trust for the benefit of the Agent hereunder, shall be segregated from other funds of the Grantor, and shall promptly be paid over to the Agent in the same form as so received (with any necessary indorsement) to be held as Collateral. The Grantor shall not adjust, settle, or compromise the amount or payment of any receivable, or release wholly or partly any account debtor or obligor thereof, or allow any credit or discount thereon other than in the ordinary course of business and consistent with past practices. 5.6. Pledged Shares. (a) The Agent is authorized in connection with any sale of Pledged Shares (i) to restrict the prospective bidders on or purchasers of any of the Pledged Shares to a limited number of sophisticated investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any such Collateral, (ii) to cause to be placed on certificates for any or all of the Pledged Shares a legend to the effect that such security has not been registered under the Securities Act of 1933 ("Securities Act") and may not be disposed of in violation of the provisions of the Securities Act, and (iii) to impose such other limitations or conditions in connection with any such sale as the Agent reasonably deems necessary or advisable in order to comply with the Securities Act or any other law or regulation. (b) If the Agent shall determine to exercise its right to sell all or any of the Pledged Shares and if in the opinion of counsel for the Agent it is necessary, or if in the opinion of the Agent it is advisable, to have the Pledged Shares registered under the provisions of the Securities Act, the Grantor agrees, at its own expense, through the exercise of registration rights or otherwise, (i) to use its best efforts to cause the issuer of such Pledged Shares and its officers to execute and deliver, all such instruments and documents, and to do or cause to be done all other such acts and things, through the exercise of registration rights or otherwise, as may be necessary or, in the opinion of the Agent, advisable to register such securities under the provisions of the Securities Act and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make -10- 115 or cause to be made all amendments and supplements thereto and to the related prospectus which, in the opinion of the Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, (ii) to use its best efforts to cause the issuer of such Pledged Shares to agree to make, and to make available to its security holders as soon as practicable, an earning statement (which need not be audited) covering a period of at least 12 months, beginning with the first month after the effective date of any such registration statement, which earning statement will satisfy the provisions of Section 11(a) of the Securities Act, (iii) to use its best efforts to qualify such securities under state Blue Sky or securities laws and to obtain the approval of any governmental authorities for the sale of such securities, as requested by the Agent, and (iv) to indemnify and hold harmless and use its best efforts to cause the issuer of such Pledged Shares to indemnify and hold harmless the Agent, and any underwriters (and any Person controlling any of the foregoing) from and against any loss, liability, claim, damage and expense (and reasonable counsel fees incurred in connection therewith) under the Securities Act or otherwise insofar as such loss, liability, claim, damage or expense arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in such registration statement or prospectus or in any preliminary prospectus or any amendment or supplement thereto, or arises out of or is based upon any omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading, such indemnification to remain operative regardless of any investigation made by or on behalf of the Secured Parties or any underwriters (or any person controlling any of the foregoing); provided that the Grantor shall not be liable in any case to the extent that any such loss, liability, claim, damage or expense arises out of or is based on an untrue statement or alleged untrue statement or an omission with written information furnished to such corporation by the Agent or any underwriter expressly for use in such registration statement or prospectus. The rights of the Agent under this subsection (b) are in addition to and not in limitation of the rights of the Agent as assignee of any registration rights included in the Collateral. (c) Undertakings to Apply Reports. If the Agent shall determine to exercise its right to sell all or any of the Pledged Shares pursuant to Rule 144 of the General Rules and Regulations of the Securities Act ("Rule 144"), at the request of the Agent, the Grantor shall exercise best efforts to cause the issuer of such Pledged Shares to file, on a timely basis, all annual quarterly and other reports required to be filed by it under Sections 13 and 15(d) of the Exchange Act, and the rules and regulations of the Securities and Exchange Commission thereunder, as amended from time to time. In addition, at the request of the Agent, the Grantor shall exercise best efforts to cause the issuer of such Pledged Shares to cooperate with the Agent so as to enable such sales to be made in accordance with applicable laws, rules, and regulations and the requirements of the broker through which the sales are proposed to be executed, and shall, upon request and assuming that the requirements of Rule 144 have been complied with, furnish at the Grantor's expense an opinion of counsel to the issuer of such Pledged Shares that the proposed sale is in compliance with Rule 144. -11- 116 (d) Treadco Right of First Refusal. Notwithstanding anything in this Section 5.6 to the contrary, at any time prior to the date (the "First Refusal Termination Date") which is 90 days after the first date the Agent begins to exercise its remedies under Section 6 hereof with respect to any Collateral covered hereby and gives notice of such exercise of remedies to the Grantor, the Agent shall give a right of first refusal to Treadco, Inc. to buy any Pledged Shares issued by Treadco, Inc. to be sold by the Agent in accordance with this Section; provided, however, that Treadco, Inc. must exercise its right to purchase such Pledged Shares (a) prior to the 10th Business Day following the date the Agent receives a binding letter of intent from any other potential purchaser of such Pledged Shares setting forth the price such purchaser is willing to pay for such Pledged Shares and other material terms, which letter of intent was received by the Agent on or prior to the First Refusal Termination Date, and (b) by paying to the Agent a price equal or greater to the price for such Pledged Shares specified in such letter of intent by such other purchaser. Section 6. Application of Collateral. The proceeds of any sale, or other realization upon all or any part of the Collateral pledged by the Grantor shall be applied by the Agent in the following order: first, to payment of the expenses of such sale or other realization, including reasonable compensation to the Agent and its agents and counsel, and all expenses, liabilities and advances incurred or made by the Agent in connection therewith, and to the ratable payment of any other unreimbursed expenses for which the Agent or any Bank is to be reimbursed pursuant to Section 9.4 of the Credit Agreement; second, to the ratable payment of accrued but unpaid interest on the Secured Obligations; third, to the ratable payment of unpaid principal of the Secured Obligations; fourth, to cash secure the Secured Obligations relating to the Letter of Credit Exposure by depositing necessary amounts in the Collateral Account; and fifth, to the ratable payment of all other amounts payable by the Grantor under the Credit Agreement and this Security Agreement. Any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of all the Secured Obligations of the Grantor shall be paid over to the Grantor or to whomever may be lawfully entitled to receive such surplus. Section 7. Agent as Attorney-in-Fact for Grantor. -12- 117 7.1. Attorney-In-Fact. The Grantor hereby irrevocably appoints the Agent as the Grantor's attorney-in-fact, with full authority to act for the Grantor and in the name of the Grantor to, in the Agent's discretion: (a) filing one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Grantor where permitted by law; (b) to obtain and adjust insurance required as pursuant to Section 5.3 to the extent the Grantor has failed to provide such insurance; (c) to receive, indorse, and collect any drafts or other instruments, documents, and chattel paper which are part of the Collateral pledged by the Grantor; and (d) during the continuance of any Event of Default, to ask, demand, collect, sue for, recover, compromise, receive, and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral pledged by the Grantor and to file any claims or take any action or institute any proceedings which the Agent may deem necessary or desirable for the collection of any of such Collateral or otherwise to enforce the rights of the Agent with respect to any of such Collateral. The power of attorney granted hereby is coupled with an interest and is irrevocable. 7.2. Agent Performance. If the Grantor fails to perform any covenant contained herein, the Agent may itself perform, or cause performance of, such covenant, and the Grantor shall pay for the expenses of the Agent incurred in connection therewith in accordance with Section 9.1. 7.3. Agent's Duties. The powers conferred on the Agent under this Security Agreement are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for monies actually received by it hereunder, the Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Section 8. Miscellaneous. 8.1. Expenses. The Grantor will upon demand pay to the Agent the amount of any reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Agent may incur in connection with (a) the custody, preservation, use, or operation of, or the sale, collection, or other realization of, -13- 118 any of the Collateral, (b) the exercise or enforcement of any of the rights of the Agent or the Banks hereunder, and (c) the failure by the Grantor to perform or observe any of the provisions hereof. 8.2. Amendments; Etc. No waiver of any provision of this Security Agreement nor consent to any departure by the Grantor herefrom shall be effective unless the same shall be in writing and signed by the Agent (with the consent of such Banks as may be required pursuant to the Credit Agreement) and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Any amendment of this Security Agreement (except as provided in the foregoing sentence) shall be in writing and signed each of the parties hereto. 8.3. Addresses for Notices. All notices and other communications provided for hereunder shall be made to the parties at their addresses and as provided in the Credit Agreement. All such notices and other communications shall be effective as provided in the Credit Agreement. 8.4. Continuing Security Interest; Transfer of Interest. This Security Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until payment in full and termination of the Secured Obligations, (b) be binding upon the Grantor, its successors, and assigns, and (c) inure, together with the rights and remedies of the Agent hereunder, to the benefit of the Agent, the Banks, and their respective successors, transferees, and assigns. Without limiting the generality of the foregoing clause, when any Bank assigns or otherwise transfers any interest held by it under the Credit Agreement or other Credit Document to any other Person pursuant to the terms of the Credit Agreement or other Credit Document, that other Person shall thereupon become vested with all the benefits held by such Bank under this Security Agreement. Upon the payment in full and termination of the Secured Obligations, the security interest granted hereby shall terminate and all rights to the Collateral pledged by the Grantor shall revert to the Grantor to the extent such Collateral shall not have been sold or otherwise applied pursuant to the terms hereof. Upon any such termination, the Agent will, at the Grantor's expense, execute and deliver to the Grantor such documents as the Grantor shall reasonably request and take any other actions reasonably requested to evidence or effect such termination. 8.5. Concerning the Agent. The provisions of Article VIII of the Credit Agreement shall inure to the benefit of the Agent in respect of this Security Agreement and shall be binding upon the parties to the Credit Agreement in such respect. In furtherance and not in derogation of the rights, privileges and immunities of the Agent in its capacity as Agent hereunder: (a) The Agent is authorized to take all such action as is provided to be taken by it as Agent hereunder and all other action reasonably incidental thereto. As to any -14- 119 matters not expressly provided for herein (including, without limitation, the timing and methods of realization upon the Collateral) the Agent shall act or refrain from acting in accordance with written instructions from the Majority Banks or, in the absence of such instructions, in accordance with its discretion. (b) The Agent shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the security interests granted hereby in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder. The Agent shall have no duty to ascertain or inquire as to the performance or observance of any of the terms of this Security Agreement by the Grantor. 8.6. Choice of Law. This Security Agreement shall be governed by and construed and enforced in accordance with the laws of the state of Texas, except to the extent that the validity or perfection of the security interests hereunder, or remedies hereunder, in respect of any particular Collateral are governed by the laws of a jurisdiction other than the state of Texas. -15- 120 The parties hereto have caused this Security Agreement to be duly executed as of the date first above written. ARKANSAS BEST CORPORATION, a Delaware corporation ----------------------------------- David E. Loeffler Vice President, Chief Financial Officer, and Treasurer SOCIETE GENERALE, SOUTHWEST AGENCY, as Agent ---------------------------------- Christopher Speltz First Vice President -16- 121 ANNEX 1 to Borrower Security Agreement ADDRESS WHERE RECORDS FOR ACCOUNTS AND GENERAL INTANGIBLES ARE KEPT Arkansas Best Corporation 3801 Old Greenwood Rd. Fort Smith, Arkansas 72903 122 ANNEX 2 to Borrower Security Agreement UCC-1 FINANCING STATEMENT 1. The name and address of the DEBTOR is: Arkansas Best Corporation 3801 Old Greenwood Road Fort Smith, Arkansas 72903 2. The name and address of the SECURED PARTY is: Societe Generale, Southwest Agency 4800 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 3. The federal tax I.D. number of the Debtor is: 71-0673405 4. This Financing Statement covers the following assets or types of Collateral: (a) Revenue Equipment. All now owned or hereafter acquired trucks, tractors, trailers and city tractors, and all accessories and parts therefor or attached thereto; (b) Accounts. All now owned or hereafter acquired accounts and all rights to payment owing or to be owing to the Debtor, wherever the records for such accounts and rights to payment are held, including all instruments and chattel paper, wherever located, that represent any right of the Debtor to payment for services rendered, whether or not it has been earned by performance; (c) Stock. All shares of capital stock of Treadco, Inc., a Delaware corporation, and each subsidiary of the Debtor; (d) Records. All now owned or hereafter acquired ledger sheets, files, records, computer databases and software and documents relating to the foregoing Collateral; and 123 (e) Proceeds. All proceeds of the foregoing Collateral and, to the extent not otherwise included, all payments under any insurance, indemnity, warranty, or guaranty of or for the foregoing Collateral. DEBTOR: ------ ARKANSAS BEST CORPORATION --------------------------------------- David E. Loeffler Vice President, Chief Financial Officer, and Treasurer -2- 124 ANNEX 3 to Borrower Security Agreement UCC FILING LOCATIONS Arkansas Secretary of State Office of the County Clerk of Sebastian County, Arkansas 125 ANNEX 4 to Borrower Security Agreement CUSTODIAL AGREEMENT This Custodial Agreement ("Agreement") dated as of June 12, 1998, is among the individuals signatory hereto as Custodians below, each such individual residing at the address set forth below his or her name below (such individuals each herein called the "Custodian"), and Societe Generale, Southwest Agency, as Administrative Agent (the "Agent") under the Credit Agreement (as amended or otherwise modified from time to time, the "Credit Agreement") dated as of June 12, 1998 among Arkansas Best Corporation, a Delaware corporation (the "Borrower"), the lenders parties thereto (the "Banks"), Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and the Agent. All capitalized terms defined in the Credit Agreement and used herein without definition shall have the same meanings herein as therein defined. WHEREAS, the Agent has requested the Custodian to act on the Agent's behalf to protect and preserve the Agent's rights, for the benefit of the Banks, with respect to certain Revenue Equipment pledged as collateral and securing the obligations of the Borrower and each Guarantor to the Banks; and WHEREAS, the Custodian has agreed so to act on behalf of the Agent under the terms of this Agreement; NOW, THEREFORE, in consideration of the premises and intending to be legally bound hereby, the parties hereto agree as follows: (a) As described in the Borrower Security Agreement and the Guarantors Security Agreement, and subject to the limitations described therein, any Grantor (as defined in such Security Agreements) may sell or transfer Revenue Equipment constituting Collateral (as defined in such Security Agreements) in the ordinary course of business. Due to the difficulty of administering such sales if the Agent were to hold the certificates of title with respect to all Revenue Equipment at its offices in Dallas, Texas, the Agent hereby designates each Custodian, as agent for the Agent, and by this Agreement authorizes such Custodian to hold such certificates of title for the Agent at the offices specified on Schedule 2.17 to the Credit Agreement. By execution hereof, each Custodian agrees that he or she shall act as Custodian for the Agent as herein provided and shall not take any action to release the Agent's lien on any of such certificates of title except as may from time to time be necessary to permit ordinary course of business sales of Revenue Equipment prior to the occurrence of a Default under the Credit Agreement in accordance with the terms of a power of attorney which will from time to time be executed and delivered to such Custodian by the Agent. 126 (b) The Agent and each Custodian agree that such Custodian will act in accordance with the terms hereof on behalf of the Agent, to protect the Agent's interest in said Revenue Equipment for which ownership is evidenced by a certificate of title and in which the Agent has an interest. Each Custodian shall take reasonable measures and exercise reasonable care to prevent any Person other than any additional Custodian appointed by the Agent under the terms of an agreement substantially similar to this Agreement, from releasing or causing to be released the Agent's lien on any such Revenue Equipment, and will promptly notify the Agent of any such actions of which such Custodian becomes aware. (c) The Agent anticipates issuing a power of attorney substantially in the form of the Schedule attached hereto to the Custodian on a periodic basis, each for a limited duration, as described in Section 4.9 of the Borrower Security Agreement and the Guarantors Security Agreement to permit the Custodian to act on behalf of the Agent in releasing the Agent's lien on Revenue Equipment sold in accordance with the Credit Agreement and such Security Agreements and in supplying lienholder information to the proper governmental authorities for title processing and licensing necessary to reflect the Agent's continuing security interest in Revenue Equipment. Each Custodian recognizes that the power of attorney received by him or her shall be broad to enable the release of the Agent's lien as contemplated by the Security Agreements but nevertheless agrees that he or she will only release liens on Revenue Equipment in accordance with the terms of the Security Agreements and this Agreement, and such Custodian is hereby authorized to do so and to supply lienholder information. No Custodian will release or take any action toward releasing any liens if such Custodian has reason to believe that (a) such release would not be in compliance with the terms of the Security Agreements or this Agreement, or (b) representations by employees, officers or other agents of the Grantor to the effect that certain sales or transfers comply with the terms of the Security Agreements are untrue, and such Custodian will promptly notify the Agent thereof. (d) Upon the occurrence of any Default under the Credit Agreement, the Agent may by notice to each Custodian, immediately revoke the power of attorney in effect at such time, and upon receipt of such notice which may be by telephone, telecopy or telex, such Custodian shall not take any further action to release any lien until instructed otherwise by the Agent. (e) Any Custodian may resign as Custodian hereunder upon 14 days' advance written notice to the Agent and the Borrower. Without limiting any rights of the Agent under the Credit Agreement and the Security Agreements, the Agent may terminate any Custodian's responsibilities hereunder (a) immediately in the event that such Custodian breaches his agreements, covenants or responsibilities hereunder or (b) upon 14 days' written notice, without cause, with the consent of the Borrower. Upon the resignation or termination of any Custodian, such Custodian shall have no further rights or responsibilities hereunder and shall immediately return to the Agent any then effective 127 power of attorney; such Custodian will not hold himself or herself out as having any authority as a Custodian, and such Custodian shall notify all Persons as may be reasonably necessary to resolve any confusion, that such individual is no longer a Custodian hereunder. (f) This Agreement may be amended or waived only by a writing signed by the Agent, the Borrower and each Custodian. This Agreement shall be construed in accordance with and governed by the laws of the State of Texas. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall be in no way affected thereby, and this Agreement shall be construed and be enforceable as if such invalid, illegal or unenforceable term had not been included herein. [REMAINDER OF PAGE INTENTIONALLY BLANK] -3- 128 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as an instrument under seal as of the date first above written. SOCIETE GENERALE, SOUTHWEST AGENCY, as Agent ---------------------------------------------- By: ------------------------------------------- Title: ---------------------------------------- CUSTODIANS: --------------------------------------------- Name: ---------------------------------------- Address: --------------------------------------------- --------------------------------------------- Telephone: ----------------------------------- Telecopy: ------------------------------------ The undersigned, Arkansas Best Corporation, hereby recognizes that any Custodian referred to above shall, as agent for the Agent, hold certificates of title to Revenue Equipment which is subject to a Lien in favor of the Agent for the benefit of the Banks at the office referred to in the foregoing Custodial Agreement and, accordingly, for valuable consideration, receipt of which is hereby acknowledged, the undersigned grants such Custodian on behalf of itself and its Subsidiaries a continuing right to use its offices for such purpose as may be necessary and convenient to carry out the provisions of the foregoing Custodial Agreement. ARKANSAS BEST CORPORATION ----------------------------------------- David E. Loeffler Vice President, Chief Financial Officer, and Treasurer -4- 129 SCHEDULE TO CUSTODIAL AGREEMENT POWER OF ATTORNEY This Power of Attorney is made the ___ day of _________, 19__, by Societe Generale, Southwest Agency, as Administrative Agent (the "Agent") for itself and the lenders which are or may become parties to the Credit Agreement dated as of June 12, 1998 among Arkansas Best Corporation, such lenders, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and the Agent (as it may be amended or otherwise modified from time to time, the "Credit Agreement"). KNOW ALL PERSONS BY THESE PRESENTS, that the Agent does hereby constitute and appoint ______________________________ as the Agent's true and lawful attorney and in the name, place, and stead of the Agent to execute, on behalf of the Agent, such documents and instruments necessary to release the security interest or lien granted by the Grantor (as defined in the Borrower Security Agreement and the Guarantors Security Agreement referenced in the Credit Agreement) on the revenue equipment for which a certificate of title has been issued and which designates the Agent as the secured party on the application for certificate of title or certificate of title, as appropriate, with respect to any revenue equipment of the Grantor the ownership of which is evidenced by a certificate of title. This Power of Attorney shall expire at the close of business on ______' 19__. IN WITNESS WHEREOF, the Agent has caused this Power of Attorney to be duly executed this ___ day of ___________, 19__. SOCIETE GENERALE, SOUTHWEST AGENCY, as Agent -------------------------------------------- By: ----------------------------------------- Title: -------------------------------------- 130 I attest to the fact that this is a true and exact copy of the Original Power of Attorney Subscribed and sworn to before me this _____ day of __________, 199__. Notary Public My Commission Expires:__________ -2- 131 EXHIBIT D SECURITY AGREEMENT This Security Agreement dated as of June 12, 1998 (as amended or otherwise modified from time to time, the "Security Agreement") is by and among the parties named as Grantors on the signature pages hereto or on the signature page of an Accession Agreement (as herein defined) executed after the date hereof (collectively herein such parties are called the "Grantors", and each a "Grantor"), and Societe Generale, Southwest Agency, as Administrative Agent for the Banks parties to the Credit Agreement described below (the "Agent"). INTRODUCTION The Agent, Arkansas Best Corporation, a Delaware corporation (the "Borrower") which is the direct or indirect sole shareholder of each Grantor, Societe Generale, Southwest Agency, as Administrative Agent, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas) N.A., as Co-Documentation Agents, and the Banks have entered into a Credit Agreement dated as of June 12, 1998, (as amended or otherwise modified from time to time, the "Credit Agreement"). Each Grantor has guaranteed the Borrower's obligations under the Credit Agreement pursuant to the Guaranty dated as of June 12, 1998, each among the Grantors in favor of the Banks, the Co-Documentation Agents and the Agent (as amended or otherwise modified from time to time, the "Guaranty"). Under the Credit Agreement, each Grantor is required to execute and deliver this Security Agreement. Therefore, in order to induce the Banks to enter into the Credit Agreement and to make the Advances and the Issuing Banks to issue the Letters of Credit in accordance with the terms of the Credit Agreement, each Grantor hereby agrees with the Agent for its benefit and the ratable benefit of the Banks as follows: Section 1. Definitions. (a) All capitalized terms not otherwise defined in this Security Agreement that are defined in the Credit Agreement shall have the meaning assigned to such terms by the Credit Agreement. (b) Any terms used in this Security Agreement that are defined in the Texas Business and Commerce Code ("UCC") shall have the meaning assigned to those terms 132 by the UCC, whether specified elsewhere in this Security Agreement or not. Section 2. Security Interest. 2.1. Grant of Security Interest. Each Grantor hereby grants to the Agent for its benefit and the ratable benefit of the Banks security interests in the Collateral (as defined in Section 2.2 below) to secure the performance and payment of all obligations of such Grantor now or hereafter existing under the Guaranty, including any extensions, modifications, substitutions, amendments and renewals thereof, whether for principal, interest, fees, Hedging Obligations owing to any Bank or any Affiliate of any Bank, expenses, indemnification, or otherwise (collectively, the "Secured Obligations"). 2.2. Collateral. "Collateral" shall mean all of each Grantor's right, title, and interest in the following, whether now owned or hereafter acquired: (a) Revenue Equipment. All trucks, tractors, trailers and city tractors, and all accessories and parts therefor or attached thereto (the "Revenue Equipment"); (b) Accounts. All accounts and all rights to payment owing or to be owing to each Grantor, wherever the records for such accounts and rights to payment are held, including all instruments and chattel paper, wherever located, that represent any right of such Grantor to payment for services rendered, whether or not it has been earned by performance (all such accounts, instruments, and chattel paper being the "Accounts"); (c) Stock. All shares of each Subsidiary of each Grantor (collectively herein all of such shares are called the "Pledged Shares"); (d) Collateral Account. The Collateral Account referred to in Section 4.7 of this Security Agreement and all Liquid Investments held in the Collateral Account; (e) Records. All ledger sheets, files, records, computer databases and software and documents relating to the foregoing Collateral; and (f) Proceeds. All proceeds of the foregoing Collateral and, to the extent not otherwise included, all payments under any insurance, indemnity, warranty, or guaranty of or for the foregoing Collateral. Section 3. Representations and Warranties. Each Grantor hereby represents and warrants the following to the Agent and the Banks: -2- 133 3.1. Revenue Equipment. All Revenue Equipment which, under applicable law, is required to be registered, is properly registered in the name of such Grantor or, in the case of newly acquired Revenue Equipment, such Grantor is diligently pursuing the process of causing such Revenue Equipment to be registered in such Grantor's name. All Revenue Equipment, the ownership of which, under applicable law, is evidenced by a certificate of title, is properly titled in the name of such Grantor. All certificates of title with respect to the Revenue Equipment owned by such Grantor will be maintained by the Custodians (as defined in Section 4.9 of this Security Agreement) at the address referenced for such Grantor on Schedule 2.17 to the Credit Agreement. 3.2. Accounts. The chief place of business and chief executive office of each Grantor and the office where such Grantor keeps its records concerning the Accounts are located at the address for such Grantor on Annex 1 attached hereto or as set forth in the Accession Agreement executed by such Grantor. None of the Accounts is evidenced by a promissory note or other instrument. 3.3. Pledged Shares. The Pledged Shares are duly authorized, validly issued and fully paid and non-assessable, and the Agent will be in possession of all certificates evidencing the Pledged Shares, accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, and accompanied in each case by any required transfer tax stamps, all in form and substance reasonably satisfactory to the Agent. 3.4. Other Liens. Each Grantor is, and will be the record and beneficial owner of all Collateral pledged by such Grantor free and clear of any Lien, except for Liens created hereby or Liens or interests otherwise permitted by the Credit Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is, or will be on file in any recording office, except such as may be filed in connection with this Security Agreement or in connection with Liens or interests otherwise permitted by the Credit Agreement. 3.5. Lien Priority and Perfection. (a) This Security Agreement creates valid security interests in the Collateral, securing the payment of the Secured Obligations, and such security interests (other than security interests in Property of any Canadian Subsidiary) are or will be perfected first priority security interests, second only to interests otherwise permitted by the Credit Agreement, with respect to each Grantor's Collateral (i) in the case of Collateral other than as described in clauses (ii) and (iii) below following the filing of a UCC Financing Statement in the form of Annex 2 attached hereto (with each Grantor's name and address filed in under the title "Debtor") in the office(s) set forth on Annex 3 attached hereto with respect to such Grantor or in the Accession Agreement executed by such Grantor, (ii) in the case of the Pledged Shares owned by such Grantor, provided that the Agent retains possession of such Pledged Shares and instruments of transfer or assignment related thereto which were executed in blank by such Grantor and -3- 134 delivered by such Grantor to the Agent prior to the date hereof, and (iii) in the case of titled Revenue Equipment of such Grantor, when the Agent's interest as a secured party is recorded on the certificates of title relating to such Grantor's titled Revenue Equipment (other than certificates of title for Revenue Equipment which is already subject to a Lien permitted by the Credit Agreement) as contemplated by the Custodial Agreement described in Section 4.9 of this Security Agreement. (b) No other authorization, approval, or other action by, and no notice to or filing with, any Governmental Authority is necessary to grant the security interests contemplated hereby, or to allow any Grantor to perform its obligations hereunder, or to permit the Agent to exercise its rights and remedies hereunder. Section 4. Grantor Covenants. 4.1. Further Assurances. Each Grantor agrees that at any time, at such Grantor's expense, such Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be reasonably necessary or that the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor will at the Agent's request: (a) deliver and pledge to the Agent any instrument representing any Account, duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Agent, and (b) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices as may be reasonably necessary, or as the Agent may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby. 4.2. Revenue Equipment. Each Grantor shall: (a) cause the Revenue Equipment owned by such Grantor to be maintained and preserved in accordance with Section 5.7 of the Credit Agreement, and shall in accordance with past practices, make or cause to be made all repairs, replacements, and other improvements which are necessary or desirable to restore the Revenue Equipment to good working order; (b) promptly furnish to the Agent a statement respecting any material loss or damage to any of Revenue Equipment owned by such Grantor which is not repaired; (c) promptly pay or cause to be paid prior to delinquency all property and other taxes, assessments, and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Revenue Equipment owned by such Grantor, except to the extent permitted by the Credit -4- 135 Agreement; (d) promptly cause all Revenue Equipment owned by such Grantor which, under applicable law, is required to be registered, to be properly registered in the name of such Grantor, and cause all Revenue Equipment, the ownership of which, under applicable law, is evidenced by a certificate of title to be properly titled in the name of such Grantor, and to have the Agent's interest in such Revenue Equipment properly noted on the certificate of title with respect thereof (it being agreed that a Grantor will not be in default under this provision if such Grantor is diligently pursuing the process, as applicable, of causing such Revenue Equipment to be registered in such Grantor's name or to be titled in such Grantor's name or to have the Agent's interest noted on such certificate of title, provided, however, that with respect to any newly acquired Revenue Equipment if the process is not completed within 120 days after such Grantor's acquisition of the applicable unit of Revenue Equipment, such unit of Revenue Equipment shall not be counted in determining the Borrowing Base until such process is completed). Until the Agent exercises remedies under this Security Agreement, the certificates of title with respect to Revenue Equipment owned by each Grantor shall be maintained by the Custodians at one of the addresses referenced on Schedule 2.17 of the Credit Agreement as the location of such certificates of title. 4.3. Insurance. (a) Each Grantor shall, at its own expense, maintain, or cause to be maintained, insurance with respect to the Revenue Equipment owned by such Grantor in such amounts, against such risks, in such form, and with such insurers, as the Credit Agreement requires. Further, such Grantor shall, at the request of the Agent, duly deliver certificates of loss casualty insurance to the Agent showing the Agent as loss payee and additional insured as its interests may appear. (b) During the continuance of any Event of Default, all loss casualty insurance payments in respect of such Revenue Equipment shall be paid to and applied by the Agent as specified in Section 6. 4.4. Accounts. Each Grantor shall keep its chief place of business and chief executive office and the office where it keeps the instruments, chattel paper, or contracts representing Accounts and the records concerning the Accounts at the location therefor specified in Section 3.2 or, upon 30 days' prior written notice to the Agent, at such other locations in a jurisdiction where all actions required by Section 4.1 shall have been taken with respect to the Accounts. Each Grantor will hold and preserve such instruments, chattel paper, contracts, and records and will permit representatives of the Agent at any time during normal business hours to inspect and copy them. 4.5. Liability Under Contracts. Notwithstanding anything in this Security -5- 136 Agreement to the contrary, (a) the execution of this Security Agreement shall not release any Grantor from its obligations and duties under the contracts and agreements included in the Collateral to the extent set forth therein, (b) the exercise by the Agent of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) neither the Agent nor any Bank shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of the execution and delivery of this Security Agreement, nor shall the Agent or any Bank be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. 4.6. Pledged Shares. (a) Following any Grantor's acquisition of any Pledged Shares, such Grantor shall deliver or cause to be delivered to the Agent all certificates evidencing such Pledged Shares, accompanied by duly executed instruments of transfer or assignment in blank, with signatures appropriately guaranteed, and accompanied in each case by any required transfer tax stamps, all in form and substance reasonably satisfactory to the Agent. (b) At any time during the continuation of an Event of Default, the Agent may from time to time in its sole discretion, cause any or all of the Pledged Shares to be transferred of record into the name of the Agent or a nominee. Each Grantor will promptly give to the Agent copies of any notices and other communications received by it with respect to Pledged Shares registered in the name of such Grantor, and the Agent will promptly give such Grantor copies of any notices and other communications received by the Agent with respect to Pledged Shares registered in the name of the Agent or a nominee. (c) Provided that no Event of Default shall be continuing, each Grantor shall have the right, from time to time, to vote and to give consents, ratifications and waivers with respect to the Pledged Shares, and the Agent shall, upon receiving a written request from such Grantor, which request shall be deemed to be a representation and warranty by such Grantor that no Event of Default is continuing, deliver to such Grantor or as specified in such request such proxies, powers of attorney, consents, ratifications and waivers in respect of any Pledged Shares which are registered in the name of the Agent or a nominee as shall be specified in such request and be in form and substance satisfactory to the Agent. (d) While an Event of Default shall be continuing, all rights of any Grantor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to paragraph (c) above with respect to the Pledged Shares shall end upon notice from the Agent to such Grantor and thereafter the Agent shall have the right to the extent permitted by law for so long as such Event of Default continues, and such -6- 137 Grantor shall take all such action as may be necessary or appropriate to give effect to such right, to vote and to give consents, ratifications and waivers, and take any other action with respect to such Pledged Shares with the same force and effect as if the Agent were the absolute and sole owner thereof. (e) While an Event of Default shall be continuing, the Agent shall be entitled to receive and retain as Collateral all dividends and distributions made in respect of the Pledged Shares, and shall deposit all cash dividends into the Collateral Account described in Section 4.7 hereof. Any such dividends or distributions on account of Pledged Shares shall, if received by any Grantor, be received in trust for the benefit of the Agent, be segregated from the other property or funds of such Grantor, and be forthwith delivered to the Agent as Collateral in the same form as so received (with any necessary endorsement). 4.7. Collateral Account. (a) There is hereby established with the Agent a cash collateral account (the "Collateral Account") in the name and under the control of the Agent into which there shall be deposited from time to time the cash proceeds of the Collateral required to be delivered to the Agent pursuant to any provision of this Agreement. Any income received by the Agent with respect to the balance from time to time of the Collateral Account, including any interest or capital gains on Liquid Investments, shall remain, or be deposited, in the Collateral Account. All right, title and interest in and to the cash amounts on deposit from time to time in the Collateral Account together with any Liquid Investments from time to time made pursuant to paragraph (c) of this Section shall vest in the Agent, shall constitute part of the Collateral hereunder and shall not constitute payment of the Secured Obligations until applied thereto as hereinafter provided. (b) At any time during the continuation of an Event of Default, the Agent shall, if so instructed by the Majority Banks, apply or cause to be applied (subject to collection) any or all of the balance from time to time of the Collateral Account in the manner specified in Section 6. (c) Amounts on deposit in the Collateral Account shall be invested and re-invested from time to time in such Liquid Investments as the Borrower shall determine on behalf of the Grantor which deposited such amounts, which Liquid Investments shall be held in the name and be under the control of the Agent, provided that, at any time during the continuation of an Event of Default, the Agent shall, if instructed by the Majority Banks, liquidate any such Liquid Investments and apply or cause to be applied the proceeds thereof to the payment of the Secured Obligations in the manner specified in Section 6. In order to provide the Agent, for the benefit of the Banks, with a perfected security interest therein, each Liquid Investment shall be either: -7- 138 (i) evidenced by negotiable certificates or instruments, or if non-negotiable then issued in the name of the Agent, which (together with any appropriate instruments of transfer) are delivered to, and held by, the Agent or an agent thereof (which shall not be the Grantor or any of its Affiliates) in the State of Texas; or (ii) in book-entry form and issued by the United States and subject to pledge under applicable state law and treasury regulations and as to which (in the opinion of counsel to the Agent) appropriate measures shall have been taken for perfection of the security interests. 4.8. Transfer of Certain Collateral; Release of Certain Security Interest. Each Grantor agrees that it shall not sell, assign, or otherwise dispose of any Collateral other than Revenue Equipment sold in the ordinary course of such Grantor's business and in accordance with the terms of the Credit Agreement without the prior written consent of the Agent and the Majority Banks. The Agent shall promptly, at a Grantor's expense, execute and deliver all further instruments and documents, and take all further action that such Grantor may reasonably request in order to release its security interest in any Collateral which is disposed of in accordance with the terms of this Security Agreement. 4.9. Release of Security Interest in Revenue Equipment. (a) Each Grantor shall be entitled to sell its Revenue Equipment in the ordinary course of business prior to the occurrence of any Default and in accordance with the terms of the Credit Agreement. In connection with any such sale, the Agent agrees for its benefit and the benefit of the Banks that the lien of the Agent recorded on any certificate of title with respect to any Revenue Equipment to be sold may be released by the Agent's custodians (the "Custodians") pursuant to a custodial agreement substantially in the form attached hereto as Annex 5 ("Custodial Agreement"), with a power of attorney, effective for a period of one calendar quarter (or the remaining portion thereof), which shall authorize the Custodians to execute, on behalf of the Agent, all documents and instruments necessary to release the security interest granted hereunder with respect to the Revenue Equipment to be sold or transferred, subject to the limitations set forth in the Custodial Agreement and such power of attorney. Upon the occurrence of any Default under the Credit Agreement, the Agent may revoke any then outstanding power of attorney provided in accordance with this Section, by giving notice of such revocation to the Custodians, the Borrower and the Grantors. Upon the resignation of any individual holding a power of attorney hereunder, the Agent may designate an agent (whether or not such agent is an employee of the Borrower or any of its Subsidiaries) to hold a power of attorney, and such agent may enter onto any premises where any Grantor retains certificates of title on behalf of the Agent for the purpose of fulfilling such agent's obligations to the Agent under said power of attorney. (b) At the request of the Agent, each Grantor shall provide the Agent with a -8- 139 report listing Revenue Equipment owned by such Grantor as of the end of the most recent fiscal period. Section 5. Remedies. If any Event of Default shall have occurred and be continuing: 5.1. UCC Remedies. (a) To the extent permitted by law, and in the case of Accounts, the Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for in this Security Agreement or otherwise available to it, all the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral). (b) All payments received by any Grantor under or in connection with or in respect of the Collateral shall be deposited with the Agent. 5.2. Assembly of Collateral. The Agent may require each Grantor to, at such Grantor's expense, promptly assemble all or part of the Collateral in Little Rock, Arkansas; Springfield, Illinois; Atlanta, Georgia; Dallas, Texas; Los Angeles, California; Denver, Colorado; Salt Lake City, Utah; Dayton, Ohio; Cherryville, North Carolina; or such other cities as such Grantor and the Agent may agree at such time; and make it available to the Agent at a place in each such city to be designated by the Agent which is reasonably convenient to both parties. The Agent may occupy any premises owned or leased by any Grantor where the Collateral or any part thereof is assembled for a reasonable period in order to effectuate its rights and remedies hereunder or under law, without obligation to such Grantor in respect of such occupation. 5.3. Sale of Collateral. The Agent may sell all or part of the Collateral at a public or private sale, at any of the Agent's offices or elsewhere, for cash, on credit, or for future delivery, and upon such other terms as the Agent may deem commercially reasonable. Each Grantor agrees that to the extent permitted by law such sales may be made without notice. If notice is required by law, such Grantor hereby deems 10 days advance notice of the time and place of any public sale or the time after which any private sale is to be made reasonable notification, recognizing that if the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market shorter notice may be reasonable. The Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. 5.4. Contract Rights. The Agent may exercise any rights and remedies of each Grantor under or in connection with the instruments, chattel paper, or contracts which -9- 140 represent Accounts, or otherwise relate to the Collateral, including, without limitation, any rights of such Grantor to demand or otherwise require payment of any amount under, or performance of any provisions of, the instruments, chattel paper, or contracts which represent Accounts. 5.5. Accounts. (a) The Agent may, or may direct any Grantor to, take any action the Agent deems necessary or advisable to enforce collection of the Accounts including, without limitation, notifying the account debtors or obligors under any Accounts of the assignment of such Accounts to the Agent and directing such account debtors or obligors to make payment of all amounts due or to become due directly to the Agent. Upon such notification and direction, and at the expense of each Grantor, the Agent may enforce collection of any such Accounts, and adjust, settle, or compromise the amount or payment thereof in the same manner and to the same extent as such Grantor might have done. (b) After receipt by any Grantor of the notice referred to in paragraph (a) above, all amounts and proceeds (including instruments) received by such Grantor in respect of the Accounts shall be received in trust for the benefit of the Agent hereunder, shall be segregated from other funds of such Grantor, and shall promptly be paid over to the Agent in the same form as so received (with any necessary indorsement) to be held as Collateral. No Grantor shall adjust, settle, or compromise the amount or payment of any receivable, or release wholly or partly any account debtor or obligor thereof, or allow any credit or discount thereon other than in the ordinary course of business and consistent with past practices. 5.6. Pledged Shares. (a) The Agent is authorized in connection with any sale of Pledged Shares (i) to restrict the prospective bidders on or purchasers of any of the Pledged Shares to a limited number of sophisticated investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any such Collateral, (ii) to cause to be placed on certificates for any or all of the Pledged Shares a legend to the effect that such security has not been registered under the Securities Act of 1933 ("Securities Act") and may not be disposed of in violation of the provisions of the Securities Act, and (iii) to impose such other limitations or conditions in connection with any such sale as the Agent reasonably deems necessary or advisable in order to comply with the Securities Act or any other law or regulation. (b) If the Agent shall determine to exercise its right to sell all or any of the Pledged Shares and if in the opinion of counsel for the Agent it is necessary, or if in the opinion of the Agent it is advisable, to have the Pledged Shares registered under the provisions of the Securities Act, each Grantor agrees, at its own expense, through the exercise of registration rights or otherwise, (i) to use its best efforts to cause the issuer of -10- 141 such Pledged Shares and its officers to execute and deliver, all such instruments and documents, and to do or cause to be done all other such acts and things, through the exercise of registration rights or otherwise, as may be necessary or, in the opinion of the Agent, advisable to register such securities under the provisions of the Securities Act and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make or cause to be made all amendments and supplements thereto and to the related prospectus which, in the opinion of the Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, (ii) to use its best efforts to cause the issuer of such Pledged Shares to agree to make, and to make available to its security holders as soon as practicable, an earning statement (which need not be audited) covering a period of at least 12 months, beginning with the first month after the effective date of any such registration statement, which earning statement will satisfy the provisions of Section 11(a) of the Securities Act, (iii) to use its best efforts to qualify such securities under state Blue Sky or securities laws and to obtain the approval of any governmental authorities for the sale of such securities, as requested by the Agent, and (iv) to indemnify and hold harmless and use its best efforts to cause the issuer of such Pledged Shares to indemnify and hold harmless the Agent, and any underwriters (and any Person controlling any of the foregoing) from and against any loss, liability, claim, damage and expense (and reasonable counsel fees incurred in connection therewith) under the Securities Act or otherwise insofar as such loss, liability, claim, damage or expense arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in such registration statement or prospectus or in any preliminary prospectus or any amendment or supplement thereto, or arises out of or is based upon any omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading, such indemnification to remain operative regardless of any investigation made by or on behalf of the Secured Parties or any underwriters (or any person controlling any of the foregoing); provided that no Grantor shall be liable in any case to the extent that any such loss, liability, claim, damage or expense arises out of or is based on an untrue statement or alleged untrue statement or an omission with written information furnished to such corporation by the Agent or any underwriter expressly for use in such registration statement or prospectus. The rights of the Agent under this subsection (b) are in addition to and not in limitation of the rights of the Agent as assignee of any registration rights included in the Collateral. (c) Undertakings to File Reports. If the Agent shall determine to exercise its right to sell all or any of the Pledged Shares pursuant to Rule 144 of the General Rules and Regulations of the Securities Act ("Rule 144"), at the request of the Agent, each Grantor shall exercise best efforts to cause the issuer of such Pledged Shares to file, on a timely basis, all annual quarterly and other reports required to be filed by it under Sections 13 and 15(d) of the Exchange Act, and the rules and regulations of the Securities and Exchange Commission thereunder, as amended from time to time. In addition, at the -11- 142 request of the Agent, each Grantor shall exercise best efforts to cause the issuer of such Pledged Shares to cooperate with the Agent so as to enable such sales to be made in accordance with applicable laws, rules, and regulations and the requirements of the broker through which the sales are proposed to be executed, and shall, upon request and assuming that the requirements of Rule 144 have been complied with, furnish at such Grantor's expense an opinion of counsel to the issuer of such Pledged Shares that the proposed sale is in compliance with Rule 144. Section 6. Application of Collateral. The proceeds of any sale, or other realization upon all or any part of the Collateral pledged by any Grantor shall be applied by the Agent in the following order: first, to payment of the expenses of such sale or other realization, including reasonable compensation to the Agent and its agents and counsel, and all expenses, liabilities and advances incurred or made by the Agent in connection therewith, and to the ratable payment of any other unreimbursed expenses for which the Agent or any Bank is to be reimbursed pursuant to Section 9.4 of the Credit Agreement; second, to the ratable payment of accrued but unpaid interest on the Secured Obligations of such Grantor; third, to the ratable payment of unpaid principal of the Secured Obligations of such Grantor; fourth, to cash secure the Secured Obligations of such Grantor relating to the Letter of Credit Exposure by depositing necessary amounts in the Collateral Account; and fifth, to the ratable payment of all other amounts payable by such Grantor under the Guaranty and this Security Agreement. Any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of all the Secured Obligations of such Grantor shall be paid over to such Grantor or to whomever may be lawfully entitled to receive such surplus. Section 7. Agent as Attorney-in-Fact for Grantor. 7.1. Attorney-In-Fact. Each Grantor hereby irrevocably appoints the Agent as such Grantor's attorney-in-fact, with full authority to act for such Grantor and in the name of such Grantor to, in the Agent's discretion: (a) filing one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of such Grantor where permitted by law; -12- 143 (b) to obtain and adjust insurance required as pursuant to Section 5.3 to the extent such Grantor has failed to provide such insurance; (c) to receive, indorse, and collect any drafts or other instruments, documents, and chattel paper which are part of the Collateral pledged by such Grantor; and (d) during the continuance of any Event of Default, to ask, demand, collect, sue for, recover, compromise, receive, and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral pledged by such Grantor and to file any claims or take any action or institute any proceedings which the Agent may deem necessary or desirable for the collection of any of such Collateral or otherwise to enforce the rights of the Agent with respect to any of such Collateral. The power of attorney granted hereby is coupled with an interest and is irrevocable. 7.2. Agent Performance. If any Grantor fails to perform any covenant contained herein, the Agent may itself perform, or cause performance of, such covenant, and such Grantor shall pay for the expenses of the Agent incurred in connection therewith in accordance with Section 9.1. 7.3. Agent's Duties. The powers conferred on the Agent under this Security Agreement are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for monies actually received by it hereunder, the Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Section 8. Miscellaneous. 8.1. Expenses. Each Grantor will upon demand pay to the Agent the amount of any reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Agent may incur in connection with (a) the custody, preservation, use, or operation of, or the sale, collection, or other realization of, any of the Collateral, (b) the exercise or enforcement of any of the rights of the Agent or the Banks hereunder, and (c) the failure by such Grantor to perform or observe any of the provisions hereof. 8.2. Amendments; Etc. No waiver of any provision of this Security Agreement nor consent to any departure by any Grantor herefrom shall be effective unless the same shall be in writing and signed by the Agent (with the consent of such Banks as may be required pursuant to the Credit Agreement) and then such waiver or consent shall be -13- 144 effective only in the specific instance and for the specific purpose for which given. Any amendment of this Security Agreement (except as provided in the foregoing sentence) shall be in writing and signed by all of the parties hereto; provided, however, that any Subsidiary of the Borrower that may hereafter become a Guarantor in accordance with the provisions of the Credit Agreement and the Guaranty may become a party to this Security Agreement by executing an Accession Agreement ("Accession Agreement") in the form attached as Annex 2 to the Guaranty, and each Grantor and the Agent hereby agrees that upon such Guarantor's execution of such Accession Agreement, this Security Agreement shall be deemed to have been amended to make such Person a Grantor hereunder for all purposes and a party hereto and no signature is required on behalf of the other Grantors or the Agent to make such an amendment to this Security Agreement effective. 8.3. Addresses for Notices. All notices and other communications provided for hereunder shall be made as provided in the Credit Agreement (i) in the case of the Agent, at the address for the Agent provided in the Credit Agreement and (ii) in the case of any Grantor, to such Grantor at the address for such Grantor set forth on Annex 1 attached to the Guaranty or in the Accession Agreement executed by such Grantor. All such notices and other communications shall be effective as provided in the Credit Agreement. 8.4. Continuing Security Interest; Transfer of Interest. This Security Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until payment in full and termination of the Secured Obligations, (b) be binding upon each Grantor, its successors, and assigns, and (c) inure, together with the rights and remedies of the Agent hereunder, to the benefit of the Agent, the Banks, and their respective successors, transferees, and assigns. Without limiting the generality of the foregoing clause, when any Bank assigns or otherwise transfers any interest held by it under the Credit Agreement or other Credit Document to any other Person pursuant to the terms of the Credit Agreement or other Credit Document, that other Person shall thereupon become vested with all the benefits held by such Bank under this Security Agreement. Upon the payment in full and termination of the Secured Obligations, the security interest granted hereby shall terminate and all rights to the Collateral pledged by any Grantor shall revert to such Grantor to the extent such Collateral shall not have been sold or otherwise applied pursuant to the terms hereof. Upon any such termination, the Agent will, at each Grantor's expense, execute and deliver to such Grantor such documents as such Grantor shall reasonably request and take any other actions reasonably requested to evidence or effect such termination. 8.5. Concerning the Agent. The provisions of Article VIII of the Credit Agreement shall inure to the benefit of the Agent in respect of this Security Agreement and shall be binding upon the parties to the Credit Agreement in such respect. In furtherance and not in derogation of the rights, privileges and immunities of the Agent in its capacity as Agent hereunder: -14- 145 (a) The Agent is authorized to take all such action as is provided to be taken by it as Agent hereunder and all other action reasonably incidental thereto. As to any matters not expressly provided for herein (including, without limitation, the timing and methods of realization upon the Collateral) the Agent shall act or refrain from acting in accordance with written instructions from the Majority Banks or, in the absence of such instructions, in accordance with its discretion. (b) The Agent shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of the security interests granted hereby in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder. The Agent shall have no duty to ascertain or inquire as to the performance or observance of any of the terms of this Security Agreement by the Grantors. 8.6. Choice of Law. This Security Agreement shall be governed by and construed and enforced in accordance with the laws of the state of Texas, except to the extent that the validity or perfection of the security interests hereunder, or remedies hereunder, in respect of any particular Collateral are governed by the laws of a jurisdiction other than the state of Texas. [REMAINDER OF PAGE INTENTIONALLY BLANK] -15- 146 The parties hereto have caused this Security Agreement to be duly executed as of the date first above written. GRANTORS: ABF CARTAGE, INC. ABF FARMS, INC. ABF FREIGHT SYSTEM (B.C.) LTD. ABF FREIGHT SYSTEM CANADA, LTD. ABF FREIGHT SYSTEM, INC. AGILE FREIGHT SYSTEM, INC. AGRICULTURAL EXPRESS OF AMERICA, INC. BEST SERVICE CORP. CAROTRANS INTERNATIONAL, INC. CLIPPER EXXPRESS COMPANY DATA-TRONICS CORP. FLEETNET AMERICA, INC. G.I. TRUCKING COMPANY LAND-MARINE CARGO, INC. TRANSPORT REALTY, INC. ----------------------------------- David E. Loeffler Authorized Agent -16- 147 ANNEX 1 to Guarantors Security Agreement NAMES AND ADDRESSES OF EACH GRANTOR WHERE RECORDS FOR ACCOUNTS ARE KEPT ABF Cartage, Inc. 3801 Old Greenwood Road Fort Smith, Arkansas 72903 ABF Farms, Inc. 3801 Old Greenwood Road Fort Smith, Arkansas 72903 ABF Freight System (B.C.), Ltd. 3801 Old Greenwood Road Fort Smith, Arkansas 72903 ABF Freight System Canada, Ltd. 3801 Old Greenwood Road Fort Smith, Arkansas 72903 ABF Freight System, Inc. 3801 Old Greenwood Road Fort Smith, Arkansas 72903 Agile Freight System, Inc. 15700 West 103rd Street Lemont, Illinois 60439 Agricultural Express of America, Inc. 15700 West 103rd Street Lemont, Illinois 60434 Best Service Corp. 3801 Old Greenwood Road Fort Smith, Arkansas 72903 CaroTrans International, Inc. 15700 West 103rd Street Lemont, Illinois 60434 148 Clipper Exxpress Company 15700 West 103rd Street Lemont, Illinois 60439 Data-Tronics Corp. 3801 Old Greenwood Road Fort Smith, Arkansas 72903 FleetNet America, Inc. 300 Commerce Drive Cherryville, North Carolina 28021 G.I. Trucking Company 14727 Alondra Boulevard La Mirada, California 90638 Land-Marine Cargo, Inc. 3801 Old Greenwood Road Fort Smith, Arkansas 72903 Transport Realty, Inc. 3801 Old Greenwood Road Fort Smith, Arkansas 72903 -2- 149 ANNEX 2 to Guarantors Security Agreement FINANCING STATEMENT 1. The name and address of the DEBTOR is: 2. The name and address of the SECURED PARTY is: Societe Generale, Southwest Agency 4800 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 3. The federal tax I.D. number of the Debtor is: ___________________. 4. This Financing Statement covers the following assets or types of Collateral: (a) Revenue Equipment. All now owned or hereafter acquired trucks, tractors, trailers and city tractors, and all accessories and parts therefor or attached thereto; (b) Accounts. All now owned or hereafter acquired accounts and all rights to payment owing or to be owing to the Debtor, wherever the records for such accounts and rights to payment are held, including all instruments and chattel paper, wherever located, that represent any right of the Debtor to payment for services rendered, whether or not it has been earned by performance; (c) Stock. All shares of capital stock of each Subsidiary of the Debtor; (d) Records. All now owned or hereafter acquired ledger sheets, files, records, computer databases and software and documents relating to the foregoing Collateral; and (e) Proceeds. All proceeds of the foregoing Collateral and, to the extent not otherwise included, all payments under any insurance, indemnity, warranty, or guaranty of or for the foregoing Collateral. DEBTOR: 150 -------------------------------------- -------------------------------------- By: --------------------------------- Title: ------------------------------ -2- 151 ANNEX 3 to Guarantors Security Agreement UCC FILING LOCATIONS ABF Cartage, Inc. Arkansas Secretary of State Sebastian County, Arkansas Hawaii Secretary of State ABF Farms, Inc. Arkansas Secretary of State Sebastian County, Arkansas ABF Freight System (B.C.), Ltd. Arkansas Secretary of State Sebastian County, Arkansas Illinois Secretary of State ABF Freight System Canada, Ltd. Arkansas Secretary of State Sebastian County, Arkansas Illinois Secretary of State ABF Freight System, Inc. Alabama Secretary of State Arizona Secretary of State Arkansas Secretary of State Sebastian County, Arkansas Garland County, Arkansas Craighead County, Arkansas Drew County, Arkansas Jefferson County, Arkansas Washington County, Arkansas Pulaski County, Arkansas California Secretary of State Colorado Secretary of State Connecticut Secretary of State 152 Florida Secretary of State Clarke County, Georgia Douglas County, Georgia Gordon County, Georgia Chatham County, Georgia Dougherty County, Georgia Jackson County, Georgia Fulton County, Georgia Clayton County, Georgia DeKalb County, Georgia Jeff Davis County, Georgia Bibb County, Georgia Henry County, Georgia Hawaii Secretary of State Idaho Secretary of State Illinois Secretary of State Indiana Secretary of State Iowa Secretary of State Kansas Secretary of State Kentucky Secretary of State Jefferson County, Kentucky Rapides Parish, Louisiana Jefferson Parish, Louisiana Caddo Parish, Louisiana Maryland Secretary of State Baltimore City, Maryland Howard County, Maryland Prince George County, Maryland Massachusetts Secretary of State Plymouth County, Massachusetts Middlesex County, Massachusetts Bristol County, Massachusetts Worcester County, Massachusetts Michigan Secretary of State Minnesota Secretary of State Mississippi Secretary of State Warren County, Mississippi Washington County, Mississippi Hinds County, Mississippi Missouri Secretary of State Jackson County, Missouri Cape Girardeau, Missouri Independent City of St. Louis, Missouri -2- 153 Greene County, Missouri Buchanan County, Missouri Nebraska Secretary of State Nevada Secretary of State New Hampshire Secretary of State New Jersey Secretary of State New Mexico Secretary of State New York Secretary of State Albany County, New York Kings County, New York Erie County, New York Suffolk County, New York Monroe County, New York Onondaga County, New York North Carolina Secretary of State Buncombe County, North Carolina Mecklenberg County, North Carolina Gaston County, North Carolina Catawba County, North Carolina Durham County, North Carolina Henderson County, North Carolina Guilford County, North Carolina Cumberland County, North Carolina Forsyth County, North Carolina Union County, North Carolina Nash County, North Carolina Wake County, North Carolina Oregon Secretary of State Ohio Secretary of State Summit County, Ohio Franklin County, Ohio Lucas County, Ohio Butler County, Ohio Hamilton County, Ohio Cuyahoga County, Ohio Montgomery County, Ohio Portage County, Ohio Belmont County, Ohio Trumbull County, Ohio Pennsylvania Secretary of State Northumberland County, Pennsylvania Allegheny County, Pennsylvania Berks County, Pennsylvania -3- 154 Delaware County, Pennsylvania Cumberland County, Pennsylvania Erie County, Pennsylvania Lehigh County, Pennsylvania Philadelphia County, Pennsylvania Luzerne County, Pennsylvania York County, Pennsylvania Oklahoma Secretary of State Rhode Island Secretary of State South Carolina Secretary of State Tennessee Secretary of State Texas Secretary of State Utah Secretary of State Vermont Secretary of State Chittenden County, Vermont Virginia Secretary of State Independent City of Lynchburg, Virginia Independent City of Norfolk, Virginia Martinsville County, Virginia Prince William County, Virginia Chesapeake County, Virginia Independent City of Richmond, Virginia Washington Secretary of State Wisconsin Secretary of State West Virginia Secretary of State Agile Freight System, Inc. California Secretary of State Agricultural Express of America, Inc. Illinois Secretary of State California Secretary of State Best Service Corp. Arkansas Secretary of State Sebastian County, Arkansas CaroTrans International, Inc. California Secretary of State Florida Secretary of State -4- 155 Georgia Secretary of State DeKalb County, Georgia Illinois Secretary of State Jefferson Parish, Louisiana Maryland Secretary of State Independent City of Baltimore, Maryland New Jersey Secretary of State North Carolina Secretary of State Gaston County, North Carolina Mecklenburg County, North Carolina South Carolina Secretary of State Texas Secretary of State Virginia Secretary of State Virginia Beach County, Virginia Clipper Exxpress Company Illinois Secretary of State Nevada Secretary of State Ohio Secretary of State Data-Tronics Corp. Arkansas Secretary of State Sebastian County, Arkansas FleetNet America, Inc. North Carolina Secretary of State Gaston County, North Carolina G.I. Trucking Company Arizona Secretary of State California Secretary of State Los Angeles County, California Colorado Secretary of State Oklahoma Secretary of State Texas Secretary of State Utah Secretary of State Washington Secretary of State Land-Marine Cargo, Inc. -5- 156 Illinois Secretary of State Transport Realty, Inc. Arkansas Secretary of State Sebastian County, Arkansas -6- 157 ANNEX 4 to Guarantors Security Agreement CUSTODIAL AGREEMENT This Custodial Agreement ("Agreement") dated as of ______________, is among the individuals signatory hereto as Custodians below, each such individual residing at the address set forth below his or her name below (such individuals each herein called the "Custodian"), and Societe Generale, Southwest Agency, as Administrative Agent (the "Agent") under the Credit Agreement (as amended or otherwise modified from time to time, the "Credit Agreement") dated as of June 12, 1998 among Arkansas Best Corporation, a Delaware corporation (the "Borrower"), the lenders parties thereto (the "Banks"), Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and the Agent. All capitalized terms defined in the Credit Agreement and used herein without definition shall have the same meanings herein as therein defined. WHEREAS, the Agent has requested the Custodian to act on the Agent's behalf to protect and preserve the Agent's rights, for the benefit of the Banks, with respect to certain Revenue Equipment pledged as collateral and securing the obligations of the Borrower and each Guarantor to the Banks; and WHEREAS, the Custodian has agreed so to act on behalf of the Agent under the terms of this Agreement; NOW, THEREFORE, in consideration of the premises and intending to be legally bound hereby, the parties hereto agree as follows: (a) As described in the Borrower Security Agreement and the Guarantors Security Agreement, and subject to the limitations described therein, any Grantor (as defined in such Security Agreements) may sell or transfer Revenue Equipment constituting Collateral (as defined in such Security Agreements) in the ordinary course of business. Due to the difficulty of administering such sales if the Agent were to hold the certificates of title with respect to all Revenue Equipment at its offices in Dallas, Texas, the Agent hereby designates each Custodian, as agent for the Agent, and by this Agreement authorizes such Custodian to hold such certificates of title for the Agent at the offices specified on Schedule 2.17 to the Credit Agreement. By execution hereof, each Custodian agrees that he or she shall act as Custodian for the Agent as herein provided and shall not take any action to release the Agent's lien on any of such certificates of title except as may from time to time be necessary to permit ordinary course of business sales of Revenue Equipment prior to the occurrence of a Default under the Credit Agreement in 158 accordance with the terms of a power of attorney which will from time to time be executed and delivered to such Custodian by the Agent. (b) The Agent and each Custodian agree that such Custodian will act in accordance with the terms hereof on behalf of the Agent, to protect the Agent's interest in said Revenue Equipment for which ownership is evidenced by a certificate of title and in which the Agent has an interest. Each Custodian shall take reasonable measures and exercise reasonable care to prevent any Person other than any additional Custodian appointed by the Agent under the terms of an agreement substantially similar to this Agreement, from releasing or causing to be released the Agent's lien on any such Revenue Equipment, and will promptly notify the Agent of any such actions of which such Custodian becomes aware. (c) The Agent anticipates issuing a power of attorney substantially in the form of the Schedule attached hereto to the Custodian on a periodic basis, each for a limited duration, as described in Section 4.9 of the Borrower Security Agreement and the Guarantors Security Agreement to permit the Custodian to act on behalf of the Agent in releasing the Agent's lien on Revenue Equipment sold in accordance with the Credit Agreement and such Security Agreements and in supplying lienholder information to the proper governmental authorities for title processing and licensing necessary to reflect the Agent's continuing security interest in Revenue Equipment. Each Custodian recognizes that the power of attorney received by him or her shall be broad to enable the release of the Agent's lien as contemplated by the Security Agreements but nevertheless agrees that he or she will only release liens in accordance with the terms of the Security Agreements and this Agreement, and such Custodian is hereby authorized to do so and to supply lienholder information. No Custodian will release or take any action toward releasing any liens if such Custodian has reason to believe that (a) such release would not be in compliance with the terms of the Security Agreements or this Agreement, or (b) representations by employees, officers or other agents of the Grantor to the effect that certain sales or transfers comply with the terms of the Security Agreements are untrue, and such Custodian will promptly notify the Agent thereof. (d) Upon the occurrence of any Default under the Credit Agreement, the Agent may by notice to each Custodian, immediately revoke the power of attorney in effect at such time, and upon receipt of such notice which may be by telephone, telecopy or telex, such Custodian shall not take any further action to release any lien until instructed otherwise by the Agent. (e) Any Custodian may resign as Custodian hereunder upon 14 days' advance -2- 159 written notice to the Agent and the Borrower. Without limiting any rights of the Agent under the Credit Agreement and the Security Agreements, the Agent may terminate any Custodian's responsibilities hereunder (a) immediately in the event that such Custodian breaches his agreements, covenants or responsibilities hereunder or (b) upon 14 days' written notice, without cause, with the consent of the Borrower. Upon the resignation or termination of any Custodian, such Custodian shall have no further rights or responsibilities hereunder and shall immediately return to the Agent any then effective power of attorney; such Custodian will not hold himself or herself out as having any authority as a Custodian, and such Custodian shall notify all Persons as may be reasonably necessary to resolve any confusion, that such individual is no longer a Custodian hereunder. (f) This Agreement may be amended or waived only by a writing signed by the Agent, the Borrower and each Custodian. This Agreement shall be construed in accordance with and governed by the laws of the State of Texas. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall be in no way affected thereby, and this Agreement shall be construed and be enforceable as if such invalid, illegal or unenforceable term had not been included herein. [REMAINDER OF PAGE INTENTIONALLY BLANK] -3- 160 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as an instrument under seal as of the date first above written. SOCIETE GENERALE, SOUTHWEST AGENCY, as Agent -------------------------------------- By: ---------------------------------- Title: ------------------------------- CUSTODIANS: -------------------------------------- Name: -------------------------------- Address: -------------------------------------- -------------------------------------- Telephone: -------------------------- Telecopy: -------------------------- The undersigned, Arkansas Best Corporation, hereby recognizes that any Custodian referred to above shall, as agent for the Agent, hold certificates of title to Revenue Equipment which is subject to a Lien in favor of the Agent for the benefit of the Banks at the office referred to in the foregoing Custodial Agreement and, accordingly, for valuable consideration, receipt of which is hereby acknowledged, the undersigned grants such Custodian on behalf of itself and its Subsidiaries a continuing right to use its offices for such purpose as may be necessary and convenient to carry out the provisions of the foregoing Custodial Agreement. ARKANSAS BEST CORPORATION -------------------------------------- By: ---------------------------------- Title: ------------------------------- -4- 161 SCHEDULE TO CUSTODIAL AGREEMENT POWER OF ATTORNEY This Power of Attorney is made the ____ day of _________, 19___ by Societe Generale, Southwest Agency, as Administrative Agent (the "Agent") for itself and the lenders which are or may become parties to the Credit Agreement dated as of June 12, 1998 among Arkansas Best Corporation, such lenders, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and the Agent (as it may be amended or otherwise modified from time to time, the "Credit Agreement"). KNOW ALL PERSONS BY THESE PRESENTS, that the Agent does hereby constitute and appoint ______________________________ as the Agent's true and lawful attorney and in the name, place, and stead of the Agent to execute, on behalf of the Agent, such documents and instruments necessary to release the security interest or lien granted by the Grantor (as defined in the Borrower Security Agreement and Guarantors Security Agreement referenced in the Credit Agreement) on revenue equipment for which a certificate of title has been issued and which designates the Agent as the secured party on the application for certificate of title or certificate of title, as appropriate, with respect to any revenue equipment of the Grantor the ownership of which is evidenced by a certificate of title. This Power of Attorney shall expire on ___________, 19__. IN WITNESS WHEREOF, the Agent has caused this Power of Attorney to be duly executed this ___ day of __________, 19__. SOCIETE GENERALE, SOUTHWEST AGENCY, as Agent -------------------------------------- By: ---------------------------------- Title: ------------------------------- 162 I attest to the fact that this is a true and exact copy of the Original Power of Attorney Subscribed and sworn to before me this _____ day of __________, 199__. - - --------------------------------------------- Notary Public My Commission Expires:__________ -2- 163 EXHIBIT E NOTICE OF BORROWING [Date] Societe Generale, Southwest Agency, as Administrative Agent under the Credit Agreement herein described 4800 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: Ms. Terri Jones and Mr. David Oldani Ladies and Gentlemen: The undersigned, Arkansas Best Corporation, a Delaware corporation (the "Borrower"), refers to the Credit Agreement dated as of June 12, 1998 (as the same may be further amended or modified from time to time, the "Credit Agreement," the defined terms of which are used in this Notice of Borrowing unless otherwise defined in this Notice of Borrowing) among the Borrower, the Banks, the Co-Documentation Agents and the Agent, and hereby gives you irrevocable notice pursuant to Section 2.2(a) of the Credit Agreement that the undersigned hereby requests a Borrowing, and in connection with that request sets forth below the information relating to such Borrowing (the "Proposed Borrowing") as required by Section 2.2(a) of the Credit Agreement: (a) The Business Day of the Proposed Borrowing is _____________, 19_____. (b) The Proposed Borrowing will be a Revolving Borrowing composed of [Prime Rate Advances] [Eurodollar Rate Advances]. (c) The aggregate amount of the Proposed Borrowing is $____________. (d) The Interest Period for each Eurodollar Rate Advance made as part of the Proposed Borrowing is [_____ month[s]]. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing: (a) the representations and warranties contained in the Credit Agreement and Section 7 of the Guaranty and in each Security Agreement are correct in all 164 Societe Generale, Southwest Agency [Date] Page 2 material respects, before and after giving effect to the Proposed Borrowing and the application of the proceeds therefrom, as though made on the date of the Proposed Borrowing; and (b) no Default has occurred and remains uncured, or would result from such Proposed Borrowing or from the application of the proceeds therefrom. Very truly yours, ARKANSAS BEST CORPORATION By: --------------------------------- David E. Loeffler Vice President, Chief Financial Officer, and Treasurer 165 EXHIBIT F NOTICE OF CONVERSION OR CONTINUATION [Date] Societe Generale, Southwest Agency, as Administrative Agent under the Credit Agreement herein described 4800 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: Ms. Terri Jones and Mr. David Oldani Ladies and Gentlemen: The undersigned, Arkansas Best Corporation, a Delaware corporation (the "Borrower"), refers to the Credit Agreement dated as of June 12, 1998 (as the same may be further amended or modified from time to time, the "Credit Agreement," the defined terms of which are used in this Notice of Conversion or Continuation unless otherwise defined in this Notice of Conversion or Continuation), among the Borrower, the Banks, the Co-Documentation Agents, and the Agent, and hereby gives you irrevocable notice pursuant to Section 2.2(b) of the Credit Agreement that the undersigned hereby requests a Conversion or continuation of an outstanding Borrowing, and in connection with that request sets forth below the information relating to such Conversion or continuation (the "Proposed Borrowing") as required by Section 2.2(b) of the Credit Agreement: (a) The Business Day of the Proposed Borrowing is _______________, 19 ____. (b) The Proposed Borrowing will be a composed of [Prime Rate Advances] [Eurodollar Rate Advances]. (c) The aggregate amount of the Borrowing to be Converted or continued is $ _______ and consists of [Prime Rate Advances] [Eurodollar Rate Advances]. (d) The Proposed Borrowing consists of [a Conversion to [Prime Rate Advances] [Eurodollar Rate Advances]] [a continuation of [Prime Rate Advances] [Eurodollar Rate Advances]]. 166 Societe Generale, Southwest Agency [Date] Page 2 (e) The Interest Period for each Eurodollar Rate Advance made as part of the Proposed Borrowing is [____ month[s]]. Very truly yours, ARKANSAS BEST CORPORATION By: -------------------------------- David E. Loeffler Vice President, Chief Financial Officer, and Treasurer 167 EXHIBIT G ASSIGNMENT AND ACCEPTANCE Dated ________________, 19__ Reference is made to the Credit Agreement dated as of June 12, 1998 (as the same may be further amended or modified from time to time, the "Credit Agreement") among Arkansas Best Corporation, a Delaware corporation (the "Borrower"), the Banks, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and Societe Generale, Southwest Agency, as Administrative Agent. Capitalized terms not otherwise defined in this Assignment and Acceptance shall have the meanings assigned to them in the Credit Agreement. Pursuant to the terms of the Credit Agreement, ________________ wishes to assign and delegate 1 of its rights and obligations under the Credit Agreement. Therefore, _________________ ("Assignor"), _______________ ("Assignee"), and the Agent agree as follows: 1. As of the Effective Date (as defined below), the Assignor hereby sells and assigns and delegates to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, without recourse to the Assignor and without representation or warranty except for the representations and warranties specifically set forth in clauses (i), (ii), and (iii) of Section 2, a ___% interest in and to all of the Assignor's rights and obligations under the Credit Agreement in connection with its Commitment, including, without limitation, such percentage interest in the Assignor's Revolving Commitment and the Advances owing to the Assignor, the participation interest in the Letter of Credit Obligations held by the Assignor and the Term Note held by the Assignor. 2. The Assignor (i) represents and warrants that, prior to executing this Assignment and Acceptance, its Revolving Commitment is $__________, the aggregate outstanding principal amount of Revolving Advances owed to it by the Borrower is $_____________, and its Pro Rata Share of the Letter of Credit Exposure is $___________; (ii) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (iii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with the Credit Agreement or any other Credit Document or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of the Credit Agreement or any other - - --------------- (1) Specify percentage in no more than 5 decimal points. 168 Credit Document or any other instrument or document furnished pursuant thereto; (iv) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Guarantor or the performance or observance by the Borrower or any Guarantor of any of its obligations under the Credit Agreement or any other Credit Document or any other instrument or document furnished pursuant thereto; and (v) attaches the Note referred to in paragraph 1 above and requests that the Agent exchange such Note for a new Revolving Note dated ____________, 19__ in the principal amount of $______________ payable to the order of the Assignee [, and a new Revolving Note dated ___________, 19__ in the principal amount of $__________, payable to the order of Assignor]. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.5 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Co-Documentation Agents, the Assignor, or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement or any other Credit Document; (iii) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and any other Credit Document as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement or any other Credit Document are required to be performed by it as a Bank; (v) specifies as its Domestic Lending Office (and address for notices) and Eurodollar Lending Office the offices set forth beneath its name on the signature pages hereof; (vi) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement and its Notes or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty(2), and (vii) represents that it is an Eligible Assignee. 4. The effective date for this Assignment and Acceptance shall be ________________ (the "Effective Date")(3) and following the execution of this Assignment and Acceptance, the Agent will record it. 5. Upon such recording, and as of the Effective Date, (i) the Assignee shall be a _________ - - --------------- (2) If the Assignee is organized under the laws of a jurisdiction outside the United States. (3) See Section 9.6. Such date shall be at least three Business Days after the execution of this Assignment and Acceptance. -2- 169 party to the Credit Agreement for all purposes, and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights (other than rights against the Borrower pursuant to Sections 2.9, 2.11(c) and 9.7 of the Credit Agreement, which shall survive this assignment) and be released from its obligations under the Credit Agreement. 6. Upon such recording, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest, and commitment fees) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas. -3- 170 The parties hereto have caused this Assignment and Acceptance to be duly executed as of the date first above written. [ASSIGNOR] By: ---------------------------------------- Name: ---------------------------------------- Title: ---------------------------------------- Address: ---------------------------------------- ---------------------------------------- ---------------------------------------- Attention: -------------------------------------- Telecopy: -------------------------------------- Telephone: -------------------------------------- [ASSIGNEE] By: ---------------------------------------- Name: ---------------------------------------- Title: ---------------------------------------- Domestic Lending Office: Address: -------------------------------------- -------------------------------------- Attention: -------------------------------------- Telecopy: -------------------------------------- Telephone: -------------------------------------- -4- 171 Eurodollar Lending Office: Address: -------------------------------------- -------------------------------------- Attention: -------------------------------------- Telecopy: -------------------------------------- Telephone: -------------------------------------- SOCIETE GENERALE, SOUTHWEST AGENCY, as Agent By: ---------------------------------------- Name: ---------------------------------------- Title: ---------------------------------------- Address: 4800 Trammel Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: David Oldani Telecopy: (214) 979-1104 Telephone: (214) 979-2777 -5- 172 EXHIBIT H June 12, 1998 To Each of the Banks Party to the Credit Agreement and Societe Generale, Southwest Agency, as Administrative Agent for the Banks Ladies and Gentlemen: I have acted as counsel to Arkansas Best Corporation, a Delaware corporation (the "Borrower"), and the Guarantors in connection with the Credit Agreement dated as of June 12, 1998 (the "Credit Agreement"), among the Borrower, the Banks, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and Societe Generale, Southwest Agency, as Administrative Agent. I have been requested to render this opinion pursuant to Section 3.01(a)(iv) of the Credit Agreement. Capitalized terms not otherwise defined in this opinion that are defined in the Credit Agreement shall have the meanings assigned to them in the Credit Agreement. In connection with this opinion, I have examined and relied upon the originals, or copies certified or otherwise identified to my satisfaction, of such corporate documents and records of the Borrower and the Guarantors and have received such information from officers and representatives of the Borrower and the Guarantors as I have deemed necessary or appropriate to enable me to express the opinions expressed below. I have also relied on certificates of officers of the Borrower and the Guarantors and certificates of public officials as to certain factual matters. For purposes of this opinion, I have also examined each of the Credit Documents. In rendering my opinion, I have assumed (a) the genuineness of all signatures, (b) the authenticity of all documents submitted to me as originals, (c) the conformity to authentic original documents of all documents submitted to me as certified, conformed, or photostatic copies, and (d) the due authorization, execution, and delivery of all documents referred to herein by the parties thereto other than the Borrower and the Guarantors. 173 To Each of the Banks Party to the Credit Agreement and Societe Generale, Southwest Agency, as Administrative Agent for the Banks June 12, 1998 Page 2 Based on the foregoing and subject to the further assumptions, qualifications, and limitations set forth below, and as may be disclosed in the Credit Documents, I am of the opinion that: 1. The Borrower and the Guarantors are corporations duly incorporated, validly existing, and in good standing under the laws of the jurisdictions of their incorporation. 2. The Borrower and the Guarantors have the requisite corporate power to own or hold under lease their assets and to carry on their businesses as now being conducted and as proposed to be conducted. 3. The Borrower and the Guarantors are duly qualified as foreign corporations and are authorized to do business in each jurisdiction where the character of the properties owned or held under lease by them or the nature of the business transacted by them makes such qualification necessary and where failure to so qualify would have a material adverse effect on the business, operations, or financial condition of the Borrower or any of the Guarantors. 4. To my knowledge after due inquiry, there are no legal or arbitral proceedings or any proceedings by or before any governmental or regulatory authority or agency, now pending or threatened against or affecting the Borrower or any of the Guarantors or the rights of the Borrower or any of the Guarantors which could reasonably be expected to have a material adverse effect on the financial condition, operations, or business of the Borrower or any of the Guarantors or the ability of the Borrower or any of the Guarantors to perform their respective obligations under the Credit Documents. 5. None of (a) the execution and delivery of the Credit Documents, (b) the consummation of the transactions therein contemplated, or (c) compliance with the terms and provisions thereof will (i) conflict with or result in a breach of, or require any consent under, the certificate or articles, as the case may be, of incorporation or bylaws of the Borrower or any of the Guarantors, or any law or regulation applicable to the Borrower or any of the Guarantors, or any of their respective properties, or any order, writ, injunction or decree of any court or Governmental Authority or agency known to us after due inquiry, (ii) conflict with any material agreement or instrument to which the Borrower or any of the Guarantors is a party or by which the Borrower or any of the Guarantors or their respective properties are bound, known to us after due inquiry (a "Material Contract"), or (iii) constitute a default under any Material Contract or (except for the Liens permitted by the Agreement) result in the creation or imposition of any 174 To Each of the Banks Party to the Credit Agreement and Societe Generale, Southwest Agency, as Administrative Agent for the Banks June 12, 1998 Page 3 Lien upon any of the revenues or assets of the Borrower or any of the Guarantors pursuant to the terms of any such Material Contract. 6. The Borrower and the Guarantors have all necessary corporate power and authority to execute, deliver and perform their respective obligations under the Credit Documents to which they are a party and the execution, delivery, and performance by the Borrower and the Guarantors of the Credit Documents to which they are a party and the obligations thereunder have been duly authorized by all necessary corporate action. 7. The Credit Documents to which they are a party have been duly and validly executed and delivered by the Borrower and the Guarantors and constitute legal, valid, and binding obligations of the Borrower and the Guarantors enforceable against them in accordance with their respective terms, except that the enforceability thereof may be limited (a) by bankruptcy, insolvency, reorganization, fraudulent conveyance, or moratorium or other similar laws relating to the enforcement of creditors' rights generally and (b) by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 8. No authorizations, approvals, or consents of, or filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery, or performance by the Borrower or any of the Guarantors of the Credit Documents to which they are a party, except for authorizations, consents, and approvals that have already been obtained and filings which have already been made. 9. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation_U or X of the Board of Governors of the Federal Reserve System). 10. Neither the Borrower nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 11. The Borrower Security Agreement and the Guarantors Security Agreement each create valid security interests in favor of the Agent for the benefit of the Banks, enforceable against the Borrower and each Guarantor, respectively, in all rights, titles and interests of the Borrower in the Collateral (as defined in such Security Agreement), as security for the Secured Obligations (as defined in such Security Agreements). Upon (i) the filing of the UCC1 Financing Statements executed by 175 To Each of the Banks Party to the Credit Agreement and Societe Generale, Southwest Agency, as Administrative Agent for the Banks June 12, 1998 Page 4 the Borrower and the respective Guarantors in the forms attached as Annex 2to each such Security Agreement at the locations listed on Annex 3 to each such Security Agreement and Annex 7 to the Guarantors Security Agreement for the respective Grantor (as defined in such Security Agreements), (ii) the delivery of the Pledged Shares (as such terms are defined in each such Security Agreement), together with stock powers executed in blank to the Agent, and (iii) the filing of applications for certificates of title noting the Agent's lien thereon with the appropriate Registry of Motor Vehicles or similar authority, then such security interests granted by the Borrower and the Guarantors (other than the Canadian Subsidiaries) under the Uniform Commercial Code or other applicable law will be perfected security interests in the Collateral described therein or evidenced thereby. The foregoing opinion is, with your concurrence, predicated upon and qualified in its entirety by the following: I am a member of the Bar of the State of Arkansas, and I express no opinion as to the laws of any jurisdiction, other than the Federal Laws of the United States of America, the Laws of the State of Arkansas, and the Delaware General Corporation Law. Insofar as the foregoing opinion involves agreements that purport to be governed by Texas or other states' laws, I have assumed that such law is the same as the Law of the State of Arkansas. This opinion is solely for your benefit and may not be relied upon by any person other than you and your counsel and any of your assignees and participants. Very truly yours, Richard F. Cooper 176 EXHIBIT I June 12, 1998 To each of the Banks party to the Credit Agreement and Societe Generale, Southwest Agency, as Administrative Agent for the Banks. Ladies and Gentlemen: We have acted as special counsel to Societe Generale, Southwest Agency, acting for itself and as Administrative Agent, and Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents (the "Agents"), in connection with the preparation, execution and delivery of the Credit Agreement dated as of June 12, 1998 (the "Credit Agreement") among Arkansas Best Corporation, a Delaware corporation (the "Borrower"), the Banks, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and Societe Generale, Southwest Agency, as Administrative Agent. Capitalized terms not otherwise defined in this opinion that are defined in the Credit Agreement shall have the meaning assigned to them in the Credit Agreement. In connection with our representation of the Agents, we have examined executed counterparts of the Credit Agreement, the Notes, the Guaranty, the Security Agreements, the opinions of legal counsel to the Borrower and the Guarantors, delivered on the date hereof, and such other documents furnished by the Borrower and the Guarantors pursuant to Section 3.1 of the Credit Agreement (the "Closing Documents"). For purposes of this opinion, we have assumed (a) the authenticity of all such documents submitted to us as originals, (b) the genuineness of all signatures, and (c) the conformity to the originals of all such documents submitted to us as copies. We have relied (a) as to factual matters, on the representations and warranties and other statements of fact contained in the Closing Documents, and (b) as to matters of law covered by the opinions of counsel to the Borrower and Guarantors, on such opinions. We also have assumed that each of the Borrower, the Guarantors, the Banks, the Co-Documentation Agents and the Administrative Agent has duly executed and delivered the Closing Documents with all necessary power and authority. 177 To each of the Banks party to the Credit Agreement and Societe Generale, Southwest Agency, as Agent for the Banks June 12, 1998 Page 2 Based upon the foregoing examination of documents and assumptions and upon such other investigation as we have deemed necessary, we are of the opinion that the opinion of Borrower's and Guarantors' counsel and the other Closing Documents are substantially responsive to the requirements of the Credit Agreement. This opinion is solely for the benefit of the Banks and the Agents, their respective successors, assigns, participants and other transferees and may be relied upon only by such persons in connection with the transactions contemplated by the Credit Agreement. Very truly yours, Bracewell & Patterson, L.L.P. 178 EXHIBIT J COMPLIANCE CERTIFICATE This certificate dated as of __________, 199__ is prepared pursuant to Section 5.6 [(a)] [(b)] of the Credit Agreement dated as of June 12, (as it may be amended in accordance with its terms, the "Credit Agreement") among Arkansas Best Corporation (the "Borrower"), the Banks, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and Societe Generale, Southwest Agency, as Administrative Agent. Unless otherwise defined in this certificate, capitalized terms that are defined in the Credit Agreement. The Borrower hereby certifies (a) that no Default has occurred or is continuing, (b) that all of the representations and warranties made by the Borrower and its Subsidiaries in the Credit Agreement and Section 7 of the Guaranty and each Security Agreement are true and correct in all material respects as if made on this date, and (c) that as of the last day of the previous quarter the amounts and calculations attached as Exhibit A hereto were true and correct. Executed this _____ day of __________, 199__. ARKANSAS BEST CORPORATION By: -------------------------------- David E. Loeffler Vice President, Chief Financial Officer, and Treasurer 179 EXHIBIT K BORROWING BASE CERTIFICATE Arkansas Best Corporation, a Delaware corporation (the "Borrower"), pursuant to Section 5.6(i) of the Credit Agreement dated as of June 12, 1998 (terms defined therein used herein as so defined), among the Borrower, the Banks, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and Societe Generale, Southwest Agency, as Administrative Agent, does hereby certify the following as of __________, 19__ [last day of immediately preceding calendar month]: 1. Net Depreciated Value of Eligible Revenue Equipment $ -------------------------- 2. Borrowing Base Value of Eligible Revenue Equipment (80%) $ -------------------------- 3. Aggregate Outstanding Eligible Receivables $ -------------------------- 4. Borrowing Base Value of Eligible Receivables (85%) $ -------------------------- 5. Real Estate Value of Eligible Real Property $ -------------------------- 6. Borrowing Base Value of Eligible Real Property (70%) $ -------------------------- 7. Current Market Value of Treadco Shares ($_____ per share) $ -------------------------- 8. Borrowing Base Value of Treadco Shares (50%) $ -------------------------- 9. Net Depreciated Value of Eligible Other Equipment $ -------------------------- 10. Borrowing Base Value of Eligible Other Equipment (50%) $ -------------------------- 11. TOTAL BORROWING BASE VALUE (Sum of Lines 2, 4, 6, 8, and 10) $ -------------------------- 12. Total Revolving Commitments $ -------------------------- 13. BORROWING BASE LIMIT UNDER REVOLVING COMMITMENTS (Lesser of Line 11 or Line 12) $ -------------------------- 14. Outstanding Revolving Advances $ --------------------------
180 15. Letter of Credit Exposure $ -------------------------- 16. Availability under Revolving Commitments (Line 13 minus the sum of Lines 14 and 15) $ --------------------------
The Borrower has caused this Borrowing Base Certificate to be executed this ____ day of ____, 199__. ARKANSAS BEST CORPORATION By: -------------------------- Name: ------------------------ Title: ----------------------- 181 EXHIBIT L FORM OF SWINGLINE NOTE $15,000,000 June 12, 1998 For value received, the undersigned Arkansas Best Corporation, a Delaware corporation ("Borrower"), hereby promises to pay to the order of Societe Generale, Southwest Agency (the "Bank") the principal amount of Fifteen Million and No/100 Dollars ($15,000,000) or, if less, the aggregate outstanding principal amount of each Swingline Advance (as defined in the Credit Agreement referred to below) made by the Bank to the Borrower, together with interest on the unpaid principal amount of each such Swingline Advance from the date of such Swingline Advance until such principal amount is paid in full, at such interest rates, and at such times, as are specified in the Credit Agreement. This Note is the Swingline Note referred to in, and is entitled to the benefits of, and is subject to the terms of, the Credit Agreement dated as of June 12, 1998 (as the same may be further amended or modified from time to time, the "Credit Agreement"), among the Borrower, the Banks, Bank of America National Trust and Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents, and Societe Generale, Southwest Agency, as Administrative Agent. Capitalized terms used in this Note that are defined in the Credit Agreement and not otherwise defined in this Note have the meanings assigned to such terms in the Credit Agreement. The Credit Agreement, among other things, (a) provides for the making of Swingline Advances by the Bank to the Borrower from time to time at the discretion of the Bank in an aggregate amount not to exceed at any time outstanding the Dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such Swingline Advance being evidenced by this Note and (b) contains provisions for acceleration of the maturity of this Note upon the happening of certain events stated in the Credit Agreement and for prepayments of principal prior to the maturity of this Note upon the terms and conditions specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to the Agent at 4800 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201 (or at such other location or address as may be specified by the Agent to the Borrower) in same day funds. The Bank shall record all Swingline Advances and payments of principal made under this Note, but no failure of the Bank to make such recordings shall affect the Borrower's repayment obligations under this Note. Except as specifically provided in the Credit Agreement, the Borrower hereby waives presentment, demand, protest, notice of intent to accelerate, notice of acceleration, and any other notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder of this Note shall operate as a waiver of such rights. 182 This Note shall be governed by, and construed and enforced in accordance with, the laws of the state of Texas (except that Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch. 15, which regulates certain revolving credit loan accounts shall not apply to this Note). ARKANSAS BEST CORPORATION By: ------------------------------------- David E. Loeffler Vice President, Chief Financial Officer, and Treasurer EX-99.(B)(2) 3 MORGAN STANLEY DEAN WITTER PRESENTATION 1 EXHIBIT (b)(2) ARKANSAS BEST CORP. ================================================================================ BOARD PRESENTATION December 10, 1998 MORGAN STANLEY DEAN WITTER MORGAN STANLEY 2 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- PRESENTATION OUTLINE 1) HISTORICAL OVERVIEW o TREADCO PRICE / VOLUME GRAPH SINCE IPO o RECENT EQUITY ANALYST COMMENTARY o CURRENT VALUATION BASED UPON 1999 PLAN 2) STRATEGIC ALTERNATIVES 3) CONSIDERATIONS 4) PROCESS ALTERNATIVES 5) ECONOMIC ANALYSIS MORGAN STANLEY 3 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- CURRENT TREADCO SITUATION o DEPRESSED FINANCIAL RESULTS o BUSINESS IN TRANSITION o ILLIQUID STOCK DUE TO FLOAT AND SMALL CAPITALIZATION o LIMITED INVESTOR AND ANALYST FOLLOWING o ATTRACTIVE STRATEGIC VALUE MORGAN STANLEY 4 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- TREADCO PRICE PERFORMANCE SINCE ITS IPO [CHART] 8/10/93 TRED announces acquisition of Trans-World Tire Corporation 7/20/95 2Q operating margine suffers over 3% drop compared to previous 2Q 8/23/95 TRED announces change in Bandag relationship 10/2/95 TRED announces supplier agreement with Oliver 10/20/95 3 TRED officers leave Company to work for Bandag 10/30/95 TRED wins court order against Bandag 2/8/96 TRED confirms complete conversion to Oliver 10/29/98 TRED suspends regular dividend MORGAN STANLEY 5 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- ANALYSIS OF TREADCO SHAREHOLDINGS
TOTAL ASSETS UNDER CURRENT CUMULATIVE INSTITUTION EQUITY ORIENTATION MANAGEMENT CHANGE HOLDINGS % TSO % TSO Arkansas Best Corporation n/a n/a 0 2,497,200 49.2% 49.2% Shapiro Capital Management Co., Inc Growth 0.1 (9,100) 1,153,225 22.7% 72.0% Dimensional Fund Advisors, Inc Index, Value 13.2 0 309,192 6.1% 78.1% Franklin Resources, Inc Growth, Incom 86.9 10,000 303,000 6.0% 84.0% Royce & Associates, Inc Value 2.0 0 67,100 1.3% 85.4% Barclays Global Investors, N.A. Growth, Value, Index, Quant n/a (2,000) 59,666 1.2% 86.5% Kennedy Capital Management, Inc Growth, Value 1.7 (57,285) 57,115 1.1% 87.7% Investment Counselors of Maryland Value 4.3 0 40,000 0.8% 88.5% Clover Capital Management, Inc. Value 1.8 25,000 25,000 0.5% 88.9% Mellon Bank, N.A. Index, Value 25.4 0 16,100 0.3% 89.3% Williams Jones & Associates, Inc n/a n/a 0 10,000 0.2% 89.5% Northern Trust Quantitative Advisors Growth, Value 23.5 3,400 8,300 0.2% 89.6% Dresdner RCM Global Investors (UK) n/a 2.7 0 4,500 0.1% 89.7% Boston Advisors, Inc. Growth 0.4 0 1,200 0.0% 89.7% Donaldson Lufkin & Jeanette, Inc. n/a n/a 0 400 0.0% 89.7% First United Trust Company, N.A. Income n/a 0 200 0.0% 89.8% The Frost National Bank n/a n/a 0 100 0.0% 89.8% Societe Generale Asset Mgmt (US) Value n/a (195,000) 0 0.0% 89.8% Top 18 Holders (224,985) 4,552,298 89.8% Remaining 0 Holdings 0 0 0.0% ----------- ----------- ------- Total Holder Holdings (224,985) 4,552,298 89.8% ----------- Other Holdings 519,702 10.2% ----------- ------- Total Shares Outstanding 5,072,000 100.0% ----------- ------- REPORT INSTITUTION EQUITY ORIENTATION DATE Arkansas Best Corporation n/a 9/11/98 Shapiro Capital Management Co., Inc Growth 9/30/98 Dimensional Fund Advisors, Inc Index, Value 6/30/98 Franklin Resources, Inc Growth, Incom 9/30/98 Royce & Associates, Inc Value 9/30/98 Barclays Global Investors, N.A. Growth, Value, Index, Quant 9/30/98 Kennedy Capital Management, Inc Growth, Value 9/30/98 Investment Counselors of Maryland Value 9/30/98 Clover Capital Management, Inc. Value 9/30/98 Mellon Bank, N.A. Index, Value 9/30/98 Williams Jones & Associates, Inc n/a 9/30/98 Northern Trust Quantitative Advisors Growth, Value 12/31/97 Dresdner RCM Global Investors (UK) n/a 9/30/98 Boston Advisors, Inc. Growth 6/30/98 Donaldson Lufkin & Jeanette, Inc. n/a 9/30/98 First United Trust Company, N.A. Income 9/30/98 The Frost National Bank n/a 6/30/98 Societe Generale Asset Mgmt (US) Value 9/30/98
================================================================================ Summary of Latest 13F Reports 3 Holders increased holdings, of which 1 were new investors or first time filers 4 Holders decreased holdings, of which 1 eliminated their positions 11 Holders held their positions Index funds representing 8.5% of Total Holder Shares Outstanding ================================================================================ MORGAN STANLEY 6 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- RECENT EQUITY ANALYST PERCEPTION OF TREADCO "Although company results are showing signs of improvement, expenses remain high and near term results should continue to be weak. Considering the difficult environment and the current valuation levels, we reiterate our neutral rating." -- Stephen Girsky, MSDW "Falling rubber prices continue to favor new tire purchases over recapped tires, which has a direct negative impact on Treadco. Furthermore, Treadco switched to another rubber supplier in 1996, which adversely impacted the subsidiary's margines." -- James Valentine, MSDW "Arkansas Best Corp's intentions regarding its 46% ownership stake in Treadco, are unknown. We believe that the values of both Companies would increase were the Companies to separate. Moreover, TRED does not have the appropriate capital structure to grow, nor is ABFS in a position to support rapid growth at Treadco." "We believe Treadco has far greater earnings power than the Company is currently generating. Similarly Treadco is a large player in an industry where consolidation makes economic sense. However, if Arkansas Best retains its ownership stake in Treadco, Treadco's ability to fund rapid growth will be constrained. Additionally, the limited float and uncertainty surrounding the future of the large block of shares will likely result in the stock continuing to trade at a discount." -- Scott Alaniz, Stephens Inc. MORGAN STANLEY 7 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- TREADCO CURRENT VALUATION
AGGREGATE VALUE/ ----------------------------------- P/E EBIT EBITDA STOCK EQUITY AGGREGATE PRICE/ -------------- --------------- ---------------- PRICE VALUE(1) VALUE(2) BOOK(3) 1998 1999 1998 1999 1998 1999 ==================================================================================================== BUSINESS PLAN ESTIMATES(4) $ 0.9 $3.9 $ 2.2 $ 6.5 $ 5.6 $ 10.5 ==================================================================================================== $ 5.00 $25.4 $43.8 0.4x 29.4x 6.4x 19.7x 6.8x 7.9x 4.2x 7.00 35.5 54.0 0.4x 29.4x 6.4x 19.7x 6.8x 7.9x 4.2x 9.00 45.7 64.1 0.4x 29.4x 6.4x 19.7x 6.8x 7.9x 4.2x 11.00 55.8 74.3 0.4x 29.4x 6.4x 19.7x 6.8x 7.9x 4.2x 13.00 65.9 84.4 0.4x 29.4x 6.4x 19.7x 6.8x 7.9x 4.2x
Notes (1) Assumes 5,072,255 shares outstanding. (2) Aggregate Value equals equity value plus short-term debt plus long-term debt. (3) Total Stockholders' Equity was $59.73MM as of 9/30/98. (4) Source Treadco business plan MORGAN STANLEY 8 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- STRATEGIC ALTERNATIVES 1) Status Quo 2) ABC initiated immediate sale of 100% of Treadco 3) ABC repurchase of remaining Treadco interest with potential strategic sale in the future MORGAN STANLEY 9 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- VALUATION CONSIDERATIONS o Structural mechanisms to maximize ABC's pre-tax and after-tax value o ABC specific tax considerations o Impact of Bandag settlement o Revenue and earnings momentum of business o Potential strategic buyers o Current and future estimated strategic value o Cost savings associated with 100% owned Treadco o Ability to recapitalize Treadco's balance sheet o Long-term strategic fit with ABC MORGAN STANLEY 10 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- POTENTIAL BUYERS o Goodyear o Bandag o Michelin o Oliver o BF Goodrich MORGAN STANLEY 11 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- PROCESS ALTERNATIVES SCENARIO 1: REPURCHASE OF PUBLIC SHARES o Potentially approach other significant shareholders to ascertain price objectives and willingness to sell o Negotiations with Treadco's outside directors (independent committee) and external financial and legal advisors o Announcement of an agreement with Treadco's independent committee o Commencement of tender offer and merger process o Estimated timeline: 12-16 weeks MORGAN STANLEY 12 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- PROCESS ALTERNATIVES (continued) SCENARIO 2: 100% IMMEDIATE SALE OF TREADCO o Prioritize potential buyers o Information discussions with one or more potential buyers o Potential preparation of offering memorandum and distribution to potential bidders o Negotiations and receipt of definitive offer o Approval by Treadco's outside committee and ABC's Board o Tender offer and merger process o Estimated timeline: 12-16 weeks MORGAN STANLEY 13 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- IMMEDIATE SALE OF TREADCO Value of ABC's holding @ $9(1) $22.47 ABC Current Tax Basis 0.0 Expense in sale, etc. (1.0) Income Taxes(2) (7.3) ------ Current After-Tax Proceeds $14.17
Notes: (1) $2,497,000 shares currently owned by ABC (2) 34% tax rate MORGAN STANLEY 14 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- REPURCHASE TREADCO
ABC TOTAL ABC INCREMENTAL AFTER-TAX INCREMENTAL EVENTUAL TREADCO INVESTMENT AFTER-TAX COST OF CARRY ABC ABC AFTER-TAX SALE EQUITY IN REMAINING COST OF ON INCREMENTAL TAX AFTER-TAX PROCEEDS OVER PRICE VALUE(1) TRED SHARES(2) DISPOSITION(3) INVESTMENT BENEFIT PROCEEDS IMMEDIATE SALE - -------- -------- ---------------- -------------- --------------- ------- -------- -------------- $ 5.00 $25.4 $ (23.2) $ (1.22) $ (0.92) $ 13.48 $ 13.52 $(.07) 6.00 30.4 (23.2) (1.22) (0.92) 11.75 16.87 2.7 7.00 35.5 (23.2) (1.22) (0.92) 10.03 20.22 6.0 8.00 40.6 (23.2) (1.22) (0.92) 8.30 23.57 9.4 9.00 45.6 (23.2) (1.22) (0.92) 6.58 26.91 12.7 10.00 50.7 (23.2) (1.22) (0.92) 4.86 30.26 16.3 11.00 55.8 (23.2) (1.22) (0.92) 3.13 33.61 19.4
Notes (1) Assumes 5,072,255 shares outstanding. (2) Purchase of 2,575,000 shares at $9.00 per share. (3) Assumes $2.0MM of expenses and 39% tax rate. (4) Assumes 6.5% interest rate and 39% tax rate. (5) Assumes $65MM tax basis and 34% tax rate. MORGAN STANLEY 15 ARKANSAS BEST CORP. - -------------------------------------------------------------------------------- OTHER POTENTIAL ECONOMIC BENEFITS o Bandag settlement o Potential dividend to ABC through recapitalization o Ongoing Treadco free cash flow subsequent to repurchase o Elimination of costs associated with being independently owned MORGAN STANLEY EX-99.(B)(3) 4 STEPHENS PRESENTATION TO SPECIAL COMMITTEE-3/15/99 1 EXHIBIT (b)(3) DISCLAIMER REGARDING FINANCIAL PRESENTATION CONTAINED IN EXHIBIT (b)(3) THE FINANCIAL PRESENTATION OF STEPHENS INC. AS PROVIDED IN THIS EXHIBIT (b)(3) IS PROVIDED PURSUANT TO THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION. THE PRESENTATION CONTAINS DETAILED INFORMATION REGARDING THE HISTORICAL FINANCIAL PERFORMANCE OF TREADCO, INC AND CERTAIN COMPARABLE COMPANIES AND TRANSACTIONS. STEPHENS OBTAINED THE HISTORICAL INFORMATION REGARDING TREADCO FROM TREADCO MANAGEMENT AND THE HISTORICAL INFORMATION REGARDING COMPARABLE COMPANIES AND TRANSACTIONS FROM INDUSTRY PUBLICATIONS AND OTHER SOURCES. STEPHENS HAS NOT INDEPENDENTLY VERIFIED ANY OF SUCH HISTORICAL INFORMATION. THE PRESENTATION ALSO CONTAINS DETAILED PROJECTIONS AND OTHER INFORMATION REGARDING THE FUTURE FINANCIAL PERFORMANCE OF TREADCO. SUCH PROJECTIONS WERE BASED ON ESTIMATES AND ASSUMPTIONS THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES, ALL OF WHICH ARE DIFFICULT TO PREDICT AND MANY OF WHICH ARE BEYOND THE CONTROL OF TREADCO. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS CAN BE REALIZED OR THAT ACTUAL RESULTS WILL NOT BE MATERIALLY HIGHER OR LOWER THAN THOSE PROJECTED. THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS OR FORECASTS. THE INCLUSION OF THE PROJECTIONS IN THIS EXHIBIT SHOULD NOT BE REGARDED AS AN INDICATION THAT STEPHENS, TREADCO, ARKANSAS BEST CORPORATION OR ANY OTHER PERSON WHO RECEIVED SUCH INFORMATION CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS. NEITHER STEPHENS, TREADCO, NOR ARKANSAS BEST CORPORATION INTENDS TO UPDATE, REVISE OR CORRECT SUCH PROJECTIONS IF THEY BECOME INACCURATE (EVEN IN THE SHORT TERM). A NUMBER OF FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE PROJECTIONS, INCLUDING GENERAL ECONOMIC CONDITIONS; COMPETITIVE INITIATIVES AND PRICING PRESSURES; AVAILABILITY AND COST OF CAPITAL; SHIFTS IN MARKET DEMAND; THE AVAILABILITY OF ALTERNATIVE PRODUCTS TO TREADCO CUSTOMERS AND PROSPECTIVE CUSTOMERS; WEATHER CONDITIONS; GOVERNMENT REGULATIONS; THE PERFORMANCE AND NEEDS OF INDUSTRIES SERVED BY TREADCO; ACTUAL FUTURE COSTS OF OPERATING EXPENSES SUCH AS THE PRICE OF OIL; SELF-INSURANCE CLAIMS AND EMPLOYEE WAGES AND BENEFITS; AND THE TIMING AND AMOUNT OF CAPITAL EXPENDITURES. 2 A PRESENTATION TO ================================================================================ THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF TREADCO, INC. REGARDING THE ABC PROPOSAL MARCH 15, 1999 STEPHENS INC. INVESTMENT BANKERS ================================================================================ 3 DISCLAIMER ================================================================================ The historical financial information contained in this presentation has been obtained from Treadco but has not been independently verified. The projections contained in this presentation regarding the future financial performance of Treadco have been developed by Treadco management. Stephens Inc. has relied upon the accuracy of such historical financial information and projected financial results in preparing this presentation. Any inaccuracies in such historical financial information or projected financial results may change the conclusions expressed in this presentation. Stephens Inc. assumes no responsibility for any such inaccuracies in the historical financial information or projected financial results used in this presentation. This memorandum has been prepared as of March 15, 1998, and reflects information made available to us prior to such date. It does not include information regarding all of the assessments made by Stephens Inc. in arriving at its conclusions. This memorandum has been prepared solely for the use of the Special Committee of the Board of Directors. It is confidential and may not be disclosed or provided to any third parties without the written permission of Stephens Inc. ================================================================================ 4 ================================================================================ TABLE OF CONTENTS ================================================================================ 5 TABLE OF CONTENTS ================================================================================ I. Overview of ABC Proposal II. Historical Trading Analysis III. Key Valuation Analysis Appendix A. Financial Projections B. Comparable Publicly Traded Companies C. Comparable Acquisitions ================================================================================ STEPHENS INC. INVESTMENT BANKERS 6 ================================================================================ OVERVIEW OF ABC PROPOSAL ================================================================================ 7 NEGOTIATIONS TIMETABLE ================================================================================ January 22nd Announcement by ABC to acquire all outstanding shares of Treadco not owned by ABC at $9.00 per share. January 29th Special Committee retains Stephens to provide an opinion on the fairness of the offer price. February 1Oth Special Committee meets with its advisors, Stephens and Kutak Rock, to discuss preliminary analysis by Stephens of the offer by ABC and the proposed transaction structure. At the request of the Special Committee, Stephens attempts to negotiate a higher price and, with Kutak Rock, changes in the transaction structure. February 16th Special Committee meets telephonically with its advisors to discuss negotiations. At the request of the Special Committee, Stephens again attempts to negotiate with ABC a higher price and, with Kutak Rock, changes in the transaction structure. February 25th Stephens meets telephonically with ABC to discuss the transaction. Stephens attempts to negotiate a higher price. February 26th Stephens and Kutak Rock meet telephonically with ABC to discuss the negotiations of the transaction. Stephens attempts to negotiate a higher price. ================================================================================ STEPHENS INC. INVESTMENT BANKERS 8 NEGOTIATIONS TIMETABLE ================================================================================ March 5th Special Committee meets telephonically with its advisors to discuss the negotiations. Based on ABC's repeated refusals to increase the offer price, the Special Committee makes final comments to the transaction documents. March 9th Special Committee and its advisors meet telephonically. Stephens and Kutak Rock advise the Special Committee that the final comments were acceptable to ABC. ================================================================================ STEPHENS INC. INVESTMENT BANKERS 9 OVERVIEW OF FAIRNESS OPINION ================================================================================ Stephens Inc., in its role as financial advisor to the Special Committee of the Board of Directors of Treadco, concludes that the current proposal from ABC of $9.00 per share is fair from a financial point of view to the stockholders of Treadco. Several factors were taken into account to reach this determination: o Analysis of publicly available financial statements and reports o Analysis of internal financial and operating data including financial projections o Review of historical trading activity of Treadco stock o Review of the financial performance and trading activity of the common stock of comparable publicly traded companies o Review of the financial terms of comparable transactions o Review of the definitive merger agreement and related documents o Discussions with management about the future business prospects and potential strategic alternatives of the Company Stephens also notes that with the proxy from Shapiro Capital Management, ABC has voting control of approximately 71.1% of the outstanding shares. ================================================================================ 1 STEPHENS INC. INVESTMENT BANKERS 10 OVERVIEW OF ABC PROPOSAL ================================================================================ Initial Proposal ABC initially proposed a two step transaction: Step 1: Treadco would self tender for all "The Tender" outstanding common shares not currently owned by ABC. Funding for this step would have come from Treadco's current credit facility and a loan of up to $12 million from ABC. Step 2: A merger between Treadco and ABC with all "The Merger" non-tendered shares receiving the right to $9.00 in cash per share. A Proxy statement would have been required in conjunction with the merger. Consummation of the Tender and the Merger could have occurred independently or the Tender could have been consummated while ABC, under certain circumstances, may not have been obligated to close the Merger. ================================================================================ 2 STEPHENS INC. INVESTMENT BANKERS 11 OVERVIEW OF ABC PROPOSAL ================================================================================ Current Proposal ABC's current proposal includes the following: Step 1: A tender offer by ABC for any and all "The Tender" outstanding common shares of Treadco not currently owned by ABC at $9.00 per share. Funding for this step will come from ABC's credit facility. Step 1 A second step merger in which all remaining "The Merger" shares are effectively cashed out at the offer price. ABC has a proxy from Shapiro Capital Management, Treadco's second largest shareholder at 21.5% of outstanding common, to vote for this merger. ================================================================================ 3 STEPHENS INC. INVESTMENT BANKERS 12 KEY FINANCIAL TERMS OF PROPOSAL ================================================================================ Proposed consideration in the ABC proposal consists of $9.00 per share in cash for the 2,575,055 shares outstanding not already owned by ABC for an aggregate value of $23.2 million. This is a premium of 33.3% over the closing price on December 23, 1998, 30 days prior to announcement. In addition, all debt outstanding will be assumed. Options and Performance Award Units will be cashed out in the transaction. Implied Transaction Value 5.072 million shares @ $9.00 per share $ 45.7 Equity Value of Stock Options and PAUs 0.6 Pro Forma Debt Assumed 11.7 One-time Expenses 0.1 -------- Total Transaction Value $ 58.1 Total Transaction Value/ 1998 1999E -------- --------- Revenue 0.3x 0.3x EBITDA 5.9 4.8 EBITA 15.9 10.7 Transaction Value/ Net Income 47.3x 17.1x Book Value 0.7 0.7
================================================================================ 4 STEPHENS INC. INVESTMENT BANKERS 13 ACQUISITION MATRIX ================================================================================
Dollars in Thousands 30 Days Before Announcement Offer Value Per Share ------------ -------------------------------------------- Per Share Price $ 6.75 $ 8.00 $ 9.00 $ 10.00 ------------ ------------ ------------ ------------ Premium to Market 18.5% 33.3% 48.1% Value of Common Equity $ 34,238 $ 40,578 $ 45,650 $ 50,723 Fully Diluted Equity Transaction Value 34,863 41,203 46,275 51,347 Aggregate Equity + Net Debt Value (a) 46,703 53,044 58,116 63,188 Total Transaction Value/ 1998 Revenue 0.3x 0.3x 0.3x 0.3x Estimated 1999 Revenue 0.2 0.3 0.3 0.3 1998 EBITDA 4.7x 5.4x 5.9x 6.4x Estimated 1999 EBITDA 3.9 4.4 4.8 5.2 1998 EBITDA 12.7x 14.5x 15.9x 17.2x Estimated 1999 EBITDA 8.6 9.7 10.7 11.6
- ------------------------ (a) Total transaction includes net value of options and severance expenses. ================================================================================ 5 STEPHENS INC. INVESTMENT BANKERS 14 TREADCO HISTORICAL AND MANAGEMENT'S PROJECTED FINANCIAL RESULTS ================================================================================
Dollars in Thousands For the Years Ended Dec. 31, For the Projected Years Ended December 31, ----------------------------- --------------------------------------------------------------------- 1997 1998 1999 2000 2001 2002 2003 ------------ ----------- ------------ ----------- ---------- ---------- ---------- Revenue $ 161,276 $ 181,293 191,935 $ 202,987 $ 214,714 $ 227,162 $ 240,378 Gross Profit 35,581 44,580 47,814 51,424 54,846 58,396 61,936 EBITDA 3,485 9,850(a) 12,072 13,602 14,796 16,034 17,141 EBITA (2,092) 3,666(a) 5,442 7,129 8,449 10,147 11,593 Net Income (2,504) 978 2,704 3,703 4,534 5,599 6,508 EPS $ (0.49) $ 0.19 $ 0.53 $ 0.73 $ 0.89 $ 1.10 $ 1.28 Revenue Growth(b) 12.4% 5.9% 5.8% 5.8% 5.8% 5.8% EPS Growth NM 176.6% 37.0% 22.4% 23.5% 16.2% Gross Margin(b) 22.1% 24.6% 24.9% 25.3% 25.5% 25.7% 25.8% EBITDA Margin 2.2% 5.4% 6.3% 6.7% 6.9% 7.1% 7.1% EBITA Margin (1.3)% 2.0% 2.8% 3.5% 3.9% 4.5% 4.8% Net Income Margin (1.6)% 0.5% 1.4% 1.8% 2.1% 2.5% 2.7% - --------------------------------------------------------------------------------------------------------------------------------- Net Working Capital 29,702 29,254 30,972 32,755 34,647 36,656 38,789 Net PP&E 31,329 34,313 33,929 35,956 38,609 42,222 46,675 Total Debt 15,314 11,741 11,741 11,741 11,741 11,741 11,741 Total Debt/Total Capital 20.7% 15.3% 15.1% 14.5% 13.8% 13.0% 12.2% Capital Expenditures 2,015 7,517 6,246 8,500 9,000 9,500 10,000
(a) Restated for add-back of $1,174 of legal expense associated with Bandag Settlement. (b) Revenue growth and gross margins are based on assumptions provided by management. ================================================================================ 6 STEPHENS INC. INVESTMENT BANKERS 15 TREADCO OWNERSHIP PROFILE ================================================================================
As a % of Dollars in Thousands Shares Fully-Diluted Owned Shares Out --------- ------------- Institutional Holdings(a) Shapiro Capital Management Co., Inc. 1,130,880 21.1% Franklin Resources, Inc. 329,000 6.1% Dimensional Fund Advisors, Inc. 309,092 5.8% Clover Capital Management, Inc. 75,000 1.4% Royce & Associates, Inc. 67,100 1.3% Barclays Global Investors, N.A. 59,666 1.1% Mellon Private Asset Management 16,100 0.3% Williams Jones & Associates Inc. 10,000 0.2% All Others as a Group 5,200 0.1% --------- ----- Total Institutional Ownership 2,002,038 37.3% Estimated Individual Float 741,814 13.8% --------- ----- Public Float 2,743,852 51.2% Corporate Insiders(b) Arkansas Best Corporation 2,497,200 46.6% Daniel V. Evans 24,579 0.5% William A. Marquard 24,000 0.4% Nicholas M. Georgitsis 18,000 0.3% John R. Meyers 16,624 0.3% John H. Morris 14,000 0.3% Robert B. Gilbert 14,000 0.3% Robert A. Young III(c) 10,000 0.2% --------- ----- Total Corporate Insiders 2,618,403 48.8% Total Shares Outstanding(d) 5,072,255 94.6% Options Outstanding 290,000 5.4% --------- ----- Total Fully-Diluted Shares Outstanding 5,362,255 100.0% ========= =====
- ------------ (a) Source: Technimetrics, March 11, 1999. (b) Includes options owned. Source: Company proxy dated May 6, 1998. (c) Does not include beneficial shares owned by Mr. Young in Arkansas Best Corporation. (d) Source: Company 10-Q dated September 30, 1998. ================================================================================ 7 STEPHENS INC. INVESTMENT BANKERS 16 ================================================================================ HISTORICAL TRADING ANALYSIS ================================================================================ 17 PRICE AND VOLUME GRAPH ================================================================================ March 10, 1997 to March 10, 1999 [Graph depicting Share Price and Trading Volume for Treadco Common Stock during referenced period] VOLUME IN THOUSANDS ----------------------------- 52 Week High $10.13 52 Week Low $ 4.75 360 Day Avg. (a) $ 7.59 90 Day Avg. (a) $ 6.34 30 Day Avg. (a) $ 6.63 ----------------------------- (a) Prior to announcement of transaction ================================================================================ 8 STEPHENS INC. INVESTMENT BANKERS 18 TREADCO TRADING VOLUME ANALYSIS ================================================================================ March 10, 1997 to March 10, 1999
# OF DAYS AVERAGE TOTAL PRICE RANGE TRADED VOLUME VOLUME - ---------------- --------- --------- ----------- $13.01 - $14.00 2 4,850 9,700 $12.01 - $13.00 25 6,420 160,500 $11.01 - $12.00 6 23,583 141,500 $10.01 - $11.00 47 7,681 361,000 $ 9.01 - $10.00 128 7,755 992,700 $ 8.01 - $ 9.00 157 3,609 566,600 $ 7.01 - $ 8.00 49 6,018 294,900 $ 6.01 - $ 7.00 79 8,320 657,300 $ 5.01 - $ 6.00 13 19,677 255,800 ----- -------- ----------- TOTAL 506 6,798 3,440,000 ===== ======== ===========
DISTRIBUTION OF TOTAL VOLUME TRADED $13.01 - $14.00 0.3% $12.01 - $13.00 4.7% $11.01 - $12.00 4.1% $10.01 - $11.00 10.5% $ 9.01 - $10.00 28.9% $ 8.01 - $ 9.00 16.5% $ 7.01 - $ 8.00 8.6% $ 6.01 - $ 7.00 19.1% $ 5.01 - $ 6.00 7.4%
================================================================================ 9 STEPHENS INC. INVESTMENT BANKERS 19 INDEXED PRICE COMPARISON ================================================================================ March 10, 1997 to March 10, 1999 [Graph depicting price comparison of S&P 500 Stock Index, Treadco Common Stock and Peer Group Index] Peer Group Includes: TBCCC, BDG, SPD, CTB, GT Indexed prices are market cap weighted ================================================================================ 10 STEPHENS INC. INVESTMENT BANKERS 20 ================================================================================ KEY VALUATION ANALYSIS ================================================================================ 21 OVERVIEW OF VALUATION METHODS ================================================================================ Key valuation methods used to determine the fairness from a financial point of view of the consideration to be received in the ABC proposal include: --------------------------------------------------------------------------- Comparable Company Analysis Examined the trading multiples of comparable publicly traded companies. Focused on multiples of EBITDA, EBITA and Net Income. --------------------------------------------------------------------------- Comparable Transaction Analysis Analyzed change of control transactions of comparable companies, focusing on EBITDA, EBITA and Net Income multiples. --------------------------------------------------------------------------- Discounted Cash Flow Analysis Utilized management projections to develop a current valuation by discounting the cash flows and a terminal valuation. --------------------------------------------------------------------------- Premium Paid Analysis Compared the 30 day premium offered in the ABC proposal to that of several other transactions where large shareholders acquired the remaining equity interest in similar going private transactions. --------------------------------------------------------------------------- Historical Trading Prices Compared the offer price to the range of prices the Company's common stock had traded at during the past year. ================================================================================ 11 STEPHENS INC. INVESTMENT BANKERS 22 VALUATION SUMMARY ================================================================================ [Chart depicting implied valuation ranges derived from each valuation method in relation to $9.00 price] ================================================================================ 12 STEPHENS INC. INVESTMENT BANKERS 23 FOOTNOTES TO VALUATION SUMMARY ================================================================================ (a) Assumes EBITDA multiples of 4.0x to 6.0x based on comparable publicly traded company multiples. (b) Assumes EBITA multiples of 6.0x to 9.0x based on comparable publicly traded company multiples. (c) Assumes P/E multiples of 10.0x to 16.0x based on comparable publicly traded company multiples. (d) Assumes P/E multiples of 8.0x to 14.0x based on comparable publicly traded company multiples. (e) Assumes EBITDA multiples of 6.0x to 10.0x based on comparable publicly traded company multiples. (f) Assumes EBITA multiples of 10.0x to 20.0x based on comparable transaction multiples. (g) Assumes EPS multiples of 20.0x to 40.0x based on comparable transaction multiples. (h) Assumes DCF with exit EBITDA multiples of 5.0x to 7.0x and a discount rate of 11.0% to 13.0%. (i) Assumes a premium on the market price 30 days and 1 day prior to announcement of 10% to 50% based upon comparable going private transactions. (j) Reflects the high and low market prices of Treadco stock over the last 52 week period. ================================================================================ 13 STEPHENS INC. INVESTMENT BANKERS 24 SUMMARY OF COMPARABLE COMPANIES ================================================================================ Dollars In Millions
TOTAL MARKET CAPITALIZATION (a)/ MARKET CAPITALIZATION (b)/ -------------------------- -------------------------- 3/10/99 TOTAL LTM CFY MARKET MARKET MARKET NET I/B/E/S LTM LTM COMPANY PRICE CAP. (a) CAP. (b) INCOME ESTIMATE (c) EBITDA (d) EBITA (e) - ---------------------------- ------- ----------- --------- -------- ------------ ---------- --------- TBC, Corp. $ 5.69 $ 120.4 $ 241.9 7.1x 6.3x 5.9x 7.0x Bandag, Inc. 31.25 703.5 644.1 12.1 11.4 4.7 5.9 Standard Products Co. 15.63 251.2 454.9 6.8 7.8 4.0 7.0 Cooper Tire & Rubber Co. 20.13 1,562.8 1,734.5 12.3 11.3 5.6 8.1 Goodyear Tire & Rubber Co. 50.69 7,933.2 9,944.0 10.1 11.7 5.8 8.1
SUMMARY OF MARKET MULTIPLES Maximum 12.3x 11.7x 5.9x 8.1x Minimum 6.8 6.3 4.0 5.9 Average 9.7 9.7 5.2 7.2 Median 10.1 11.3 5.6 7.0
- ------------------- (a) Market capitalization is equal to common shares outstanding multiplied by the current market price. (b) Market capitalization plus total debt less cash and cash equivalents. (c) Defined as current market price divided by the current fiscal year I/B/E/S estimate. (d) For comparative purposes, defined as earnings before interest and taxes plus depreciation and amortization. (e) Earnings before interest, taxes, and amortization of selected intangibles. Selected intangible assets consist of goodwill, trademarks and non-compete agreements. ================================================================================ 14 STEPHENS INC. INVESTMENT BANKERS 25 SUMMARY OF COMPARABLE TRANSACTIONS ================================================================================ Dollars in Millions
Transaction Total Total Value/ Transaction Value/ Closing Transaction Transaction ----------- -------------------------- Date Acquiror Target Value Value Net Income EBITDA EBITA - --------- ----------------------- --------------- ----------- ----------- ----------- ----------- ------------ 12/24/98 Goodyear Tire & Rubber Brad Ragan, Inc. $ 81.6 $121.3 46.4x 14.1x 20.1x 03/01/97 Cooper Tire & Rubber Avon Tyres plc 110.4 135.5 22.5 6.2 10.5 07/15/96 TBC Corporation Big O Tires 56.0 69.8 29.6 7.9 9.2 ----------------------------------------------------------------------------------------------------------------------- ABC Treadco, Inc 45.7 58.1 47.3x 5.9x 15.9 -----------------------------------------------------------------------------------------------------------------------
================================================================================ 15 STEPHENS INC. INVESTMENT BANKERS 26 SUMMARY OF DISCOUNTED CASH FLOW ANALYSIS ================================================================================
Dollars in Thousands Assumes a Discount Rate of: ------------------------------------------------------------ ENTERPRISE VALUE 11.0% 11.5% 12.0% 12.5% 13.0% -------- -------- -------- -------- -------- 5.0x $ 53,671 $ 52,519 $ 51,397 $ 50,305 $ 49,241 5.5 58,757 57,492 56,260 55,061 53,893 Terminal Value Multiple 6.0 63,843 62,465 61,123 59,817 58,544 2003 EBITDA = $ 17,141 6.5 68,929 67,438 65,986 64,573 63,196 7.0 74,015 72,411 70,849 69,329 67,848 Plus: Cash & Cash Equivalents $ -- $ -- $ -- $ -- $ -- Less: Total Debt 11,741 11,741 11,741 11,741 11,741
EQUITY VALUE Assumes a Discounted Rate of: ------------------------------------------------------------ 11.0% 11.5% 12.0% 12.5% 13.0% -------- -------- -------- -------- -------- 5.0x $ 41,930 $ 40,778 $ 39,656 $ 38,564 $ 37,500 5.5 47,016 45,751 44,519 42,320 42,152 6.0 52,102 50,724 49,383 48,076 46,804 6.5 57,188 55,697 54,246 52,832 51,455 7.0 62,275 60,670 59,109 57,588 56,107
Assumes a Discounted Rate of: EQUITY VALUE PER SHARE ------------------------------------------------------------ 1998 Shares Outstanding (in Thousands)= 5,072 11.0% 11.5% 12.0% 12.5% 13.0% -------- -------- -------- -------- -------- 5.0x $ 8.27 $ 8.04 $ 7.82 $ 7.60 $ 7.39 5.5 9.27 9.02 8.78 8.54 8.31 6.0 10.27 10.00 9.74 9.48 9.23 6.5 11.27 10.98 10.69 10.42 10.14 7.0 12.28 11.96 11.65 11.35 11.06
================================================================================ 16 STEPHENS INC. INVESTMENT BANKERS 27 SUMMARY OF PREMIUM ANALYSIS =============================================================================== Dollars in Millions
Value of Initial % Date Date Transaction of Shares Announced Effective Target Name Acquiror Name ($mil) Owned - --------- --------- --------------------------------- ------------------------------ ----------- --------- 01/28/97 05/21/97 Calgene Inc (Monsanto Co) Monsanto Co $ 242.6 56.3% 02/13/97 05/20/97 Reflectone Inc British Aerospace Holdings 41.1 43.4 06/03/97 01/15/98 Faulding Inc (FH Faulding & Co) FH Faulding & Co Ltd 77.3 62.0 06/20/97 03/30/98 Wheelabrator Technologies Inc Waste Management Inc 869.7 67.0 06/26/97 11/26/97 Rhone-Poulene Roner Inc Rhone-Poulene SA 4,831.6 65.0 07/30/97 09/18/97 Amdahl Corp Fujitsu Ltd 924.8 42.0 07/30/97 02/02/98 Plasti-Line Inc PL Holdings Corp 30.7 47.0 08/04/97 12/23/97 Perkins Family Restaurant LP Restaurant Co 76.3 48.0 09/04/97 12/30/97 Cinergi Pictures Entertainment Investor Group 16.3 51.8 10/23/97 01/08/99 Brad Ragan Inc (Goodyear Tire) Goodyear Tire & Rubber Co 20.7 75.0 12/23/97 03/20/98 American Paging Inc Telephone and Data Systems Inc 9.1 73.9 01/08/98 01/30/98 Rayonier Timberlands LP Rayonier Inc 65.8 74.7 01/22/98 09/29/98 BT Office Products Intl Inc Buhrmann NV 138.1 70.0 03/05/98 05/20/98 XLConnect Solutions Inc Xerox Corp 93.0 80.0 04/30/98 11/02/98 Mycogen Corp (Dow AgroSciences) Dow AgroSciences (Dow Chemical) 355.2 69.0 05/11/98 12/07/98 DeKalb Genetics Corp Monsanto Co 2,262.7 40.0 09/23/98 12/17/98 J&L Specialty Steel Inc Usinor SA 115.0 53.5 - -------- -------- --------------------------------- ------------------------------ --------- ------- 01/22/99 Treadco, Inc Arkansas Best Corporation $ 55.1 49.0 - -------- -------- --------------------------------- ------------------------------ --------- -------
Target Stock Price ----------------------------------------------------- % of Price 30 Days 1 Day Shares Per Before Before 30 Day 1 Day Acq. Share Announ. Announ Premium Premium ------ -------- ----------- ---------- ------- ------- 43.7% $ 8.00 $ 5.06 $ 4.94 58.0% 62.0% 56.6 24.00 19.25 20.00 24.7% 20.0% 38.0 13.50 9.25 10.75 45.9% 25.6% 33.0 16.50 12.38 13.00 33.3% 26.9% 35.0 97.00 75.50 79.44 28.5% 22.1% 58.0 12.40 8.81 11.81 40.7% 5.0% 53.0 14.50 11.13 10.63 30.3% 36.5% 52.0 14.00 10.75 10.88 30.2% 28.7% 48.2 2.52 1.50 1.81 68.0% 39.0% 25.0 37.25 29.00 30.00 28.4% 24.2% 26.1 2.50 2.06 2.13 21.2% 17.6% 25.3 13.00 12.00 11.69 8.3% 11.2% 30.0 13.75 7.75 10.38 77.4% 32.5% 20.0 20.00 17.13 22.50 16.8% -11.1% 31.0 28.00 18.19 19.75 54.0% 41.8% 60.0 100.00 70.81 77.00 41.2% 29.9% 46.5 6.38 5.06 3.19 26.0% 100.2% ------------------------------------------ Maximum 77.4% 100.2% Minimum 8.3% -11.1% Mean 37.2% 30.1% Median 10.3% 26.9% ------------------------------------------ ----- ------- ---------- ---------- ----- ------ 50.0% $ 9.00 $ 6.75 $ 6.50 33.3% 38.5% ----- ------- ---------- ---------- ----- ------
================================================================================ 17 STEPHENS INC. INVESTMENT BANKERS 28 ================================================================================ APPENDIX A FINANCIAL PROJECTIONS ================================================================================ 29 PROJECT TREADCO TREADCO Revised Projections - Consolidated Income Statement ================================================================================
(Dollars in Thousands, Except Per Share) FYE December 31, Projected FY Ended December 31, -------------------------------------------------------------------------------------------------- 1997 1998(a) 1999 2000 2001 2002 2003 ---------- ----------- ---------- ---------- ---------- ---------- ---------- Total Sales 161,276 181,293 191,935 202,987 214,714 227,162 240,378 Cost of Sales 125,695 136,713 144,121 151,563 159,868 168,766 178,442 ---------- ----------- ---------- ---------- ---------- ---------- ---------- Gross Profit 35,581 44,580 47,814 51,424 54,846 58,396 61,936 Total SG&A and Bonus 32,096 34,730 35,742 37,822 40,050 42,362 44,796 EBITDA 3,485 9,850 12,072 13,602 14,796 16,034 17,141 Depreciation 5,576 6,184 6,630 6,473 6,347 5,887 5,547 ---------- ----------- ---------- ---------- ---------- ---------- ---------- EBITA (2,092) 3,666 5,442 7,129 8,449 10,147 11,593 Total Other Expense (Income) 1,786 1,100 1,080 (a) 1,155 1,135 1,116 1,097 Income (Loss) Before Taxes (3,878) 1,392 4,361 5,973 7,313 9,031 10,497 Income Tax Expense (Benefit) (1,374) 414 1,657 2,270 2,779 3,432 3,989 ---------- ----------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss) $ (2,504) $ 978 $ 2,704 $ 3,703 $ 4,534 $ 5,599 $ 6,508 ========== ========== ========== ========== ========== ========== ========== Earnings Per Share $ (0.49) $ 0.19 $ 0.53 $ 0.73 $ 0.89 $ 1.10 $ 1.28 ========== ========== ========== ========== ========== ========== ========== Weighted Average Common Shares (In Thousands) 5,072.255 5,072.255 5,072.255 5,072.255 5,072.255 5,072.255 5,072.255 MARGINS - ------------------------------------------------------------------------------------------------------------------------------------ EBITDA 2.2% 5.4% 6.3% 6.7% 6.9% 7.1% 7.1% EBITA (1.3)% 2.0% 2.8% 3.5% 3.9% 4.5% 4.8% Net Income (Loss) (1.6)% 0.5% 1.4% 1.8% 2.1% 2.5% 2.7% ==================================================================================================================================== GROWTH RATES - ------------------------------------------------------------------------------------------------------------------------------------ Total Sales 12.4% 5.9% 5.8% 5.8% 5.8% 5.8% EBITDA 182.7% 22.6% 12.7% 8.8% 8.4% 6.9% EBITA NM 48.5% 31.0% 18.5% 20.1% 14.3% Net Income (Loss) NM 176.6% 37.0% 22.4% 23.5% 16.2% Earnings Per Share NM 176.6% 37.0% 22.4% 23.5% 16.2% ====================================================================================================================================
(a) Excludes one time gain from sales of asset. 30 PROJECT TREADCO TREADCO Revised Projections - Consolidated Balance Sheet ================================================================================
(Dollars in Thousands, Except Per Share) FYE December 31, Projected FY Ended December 31, -------------------- -------------------------------------------------------- ASSETS: 1997 1998 1999 2000 2001 2002 2003 -------- -------- -------- -------- -------- -------- -------- Current Assets Cash & Equivalents $ -- $ -- $ 1,830 $ 2,183 $ 2,631 $ 3,067 $ 3,449 Accounts Receivable 25,537 27,170 28,765 30,422 32,179 34,045 36,025 Inventories 27,326 30,670 32,471 34,340 36,324 38,430 40,666 Other Current Assets 2,782 1,725 1,826 1,932 2,043 2,162 2,287 -------- -------- -------- -------- -------- -------- -------- Total Current Assets 55,645 59,566 64,893 68,876 73,178 77,704 82,428 Property & Equipment, Net 31,329 34,313 33,929 35,956 38,609 42,222 46,675 Goodwill, Less Amortization 12,694 12,232 11,770 11,308 10,846 10,384 9,922 Noncompete Agreements, Less Amortization 174 -- -- -- -- -- -- Deferred Income Taxes Receivable -- 146 154 163 172 182 193 Other Assets 616 1,113 1,113 1,113 1,113 1,113 1,113 -------- -------- -------- -------- -------- -------- -------- Total Assets $100,458 $107,370 $111,860 $117,417 $123,919 $131,606 $140,332 ======== ======== ======== ======== ======== ======== ======== LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities Short Term Debt $ 125 $ 3,037 $ 3,037 $ 3,037 $ 3,037 $ 3,037 $ 3,037 Accounts Payable 17,144 17,905 18,956 20,048 21,206 22,436 23,741 Accrued Liabilities 8,067 8,563 9,065 9,587 10,141 10,729 11,354 Current Portion of LT Debt 2,305 2,545 2,545 2,545 2,545 2,545 2,545 Other Current Liabilities 732 3,843 4,069 4,303 4,552 4,816 5,096 -------- -------- -------- -------- -------- -------- -------- Total Current Liabilities 28,372 35,893 37,672 39,520 41,481 43,562 45,772 Long Term Debt 12,884 6,159 6,159 6,159 6,159 6,159 6,159 Other Liabilities 90 102 108 115 121 128 136 Deferred Income Taxes Payable 278 -- -- -- -- -- -- Revolver -- -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- Total Liabilities 41,624 42,155 43,940 45,794 47,761 49,850 52,067 Total Shareholders' Equity 58,835 65,216 67,920 71,623 76,158 81,757 88,265 -------- -------- -------- -------- -------- -------- -------- Total Liabilities & Shareholder's Equity $100,458 $107,370 $111,860 $117,417 $123,919 $131,606 $140,332 ======== ======== ======== ======== ======== ======== ======== CALCULATIONS - ---------------------------------------------------------------------------------------------------------------------------- Net Working Capital 29,702 29,254 30,972 32,755 34,647 36,656 38,789 Capital Expenditures 6,246 8,500 9,000 9,500 10,000 - ----------------------------------------------------------------------------------------------------------------------------
31 PROJECT TREADCO TREADCO-Statement of Cash Flow ================================================================================ (Dollars in Thousands, Except Per Share)
FYE Dec. 31, Projected FY Ended December 31, ----------- -------------------------------------------------------- 1998 1999 2000 2001 2002 2003 -------- -------- -------- -------- -------- -------- Net Income (Loss) $ 978 $ 2,704 $ 3,703 $ 4,534 $ 5,599 $ 6,508 Depreciation & Amortization 6,184 7,092 6,935 6,809 6,349 6,009 Change in Current Assets (3,921) (3,496) (3,631) (3,853) (4,090) (4,342) Change in Accounts Payable 761 1,051 1,092 1,158 1,229 1,305 Change in Accrued Liabilities 496 503 522 554 588 624 Change in Other Current Liabilities 3,112 226 234 249 264 280 Change Other Assets (497) -- -- -- -- -- Change Other Liabilities 13 6 6 7 7 7 Change in Deferred Income Taxes Receivable (146) (9) (9) (9) (10) (11) Change in Deferred Income Taxes Payable (278) -- -- -- -- -- -------- -------- -------- -------- -------- -------- Total Operating Changes 6,702 8,077 8,852 9,448 9,936 10,382 Capital Expenditures (7,517) (6,246) (8,500) (9,000) (9,500) (10,000) Fixed Asset Adjustment (1,189) -- -- -- -- 0 Net Change in Noncompete Assets 174 -- -- -- -- -- -------- -------- -------- -------- -------- -------- Total Investing Changes (1,831) 1,830 352 448 436 382 Net Change in Short Term Debt 2,912 -- -- -- -- -- Net Change in Current Portion of LT Debt 240 -- -- -- -- -- Net Change in Long Term Debt (6,724) -- -- -- -- -- Net change in Revolver (a) -- -- -- -- -- -- Net Change in Shareholder's Equity 5,404 -- (0) -- -- -- -------- -------- -------- -------- -------- -------- Total Financing Changes -- 1,830 352 448 436 382 Beginning Cash Balance -- -- 1,830 2,183 2,631 3,067 -------- -------- -------- -------- -------- -------- Ending Cash Balance $ -- $ 1,830 $ 2,183 $ 2,631 $ 3,067 $ 3,449 ======== ======== ======== ======== ======== ========
(a) Revolver assumes a minimum cash balance of $0 Million. 32 PROJECT TREADCO TREADCO Revised Projections-Historical and Projected Income Statement Detail - ----------------------------------------------------------------------------- (Dollars in Thousands, Except Per Share)
FYE Dec. 31, Projected FY Ended December 31, -------------------------- -------------------------------------------------------------------- 1997 1998(a) 1999 2000 2001 2002 2003 ---------- ---------- ---------- ---------- ---------- ---------- ---------- SALES Recaps-Treadco Castings $ 26,309 $ 28,360 $ 30,710 $ 32,552 $ 34,505 $ 36,576 $ 38,770 Recaps-Customer 35,954 39,475 41,266 43,742 46,366 49,148 52,097 Used Tires 3,063 2,998 3,071 3,194 3,322 3,454 3,593 New Tires 77,815 87,820 92,129 96,735 101,572 106,651 111,983 Service 12,214 15,063 16,890 18,579 20,437 22,481 24,729 Accessories 2,352 3,405 3,455 3,593 3,737 3,886 4,042 Wheel Refurbishing 376 433 384 399 415 432 449 National Sales 3,194 3,740 4,031 4,192 4,360 4,534 4,715 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Sales 161,276 181,293 191,935 202,987 214,714 227,162 240,378 COST OF SALES Recaps 46,270 48,415 52,038 54,932 58,228 61,293 64,970 Recapping Efficiency 1,452 991 (1,224) (1,538) (1,686) (1,501) (1,472) Used Tires 2,417 2,106 2,202 2,284 2,375 2,470 2,569 New Tires 68,065 75,869 80,152 84,160 88,368 92,786 97,425 New Tire Volume Bonus (3,877) (5,541) (5,067) (5,320) (5,586) (5,866) (6,159) New Tire Shrinkage (417) 262 369 387 406 427 448 Service 9,833 12,078 13,174 14,120 15,124 16,411 17,805 Accessories 1,740 2,272 2,246 2,300 2,392 2,487 2,587 Wheel Refurbishing 212 260 231 240 249 259 269 National Account Costs -- -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL COST OF SALES 125,695 136,713 144,121 151,563 159,868 168,766 178,442 GROSS PROFIT 35,581 44,580 47,814 51,424 54,846 58,396 61,936 SELLING GENERAL & ADMINISTRATIVE General Office Charges 6,238 7,660 7,294 7,825 8,293 8,750 9,241 Advertising 63 78 68 61 64 68 72 Manager & Office Salaries 5,335 5,668 5,923 6,219 6,530 6,856 7,199 Salesman Salaries 5,909 7,288 7,732 8,691 9,269 9,869 10,467 Warehouse & Delivery Labor 1,807 2,260 2,207 2,295 2,387 2,482 2,581 Insurance 1,231 1,610 1,586 1,421 1,503 1,590 1,683 Health & Welfare 1,584 1,568 1,602 1,491 1,580 1,673 1,767 Legal 9 5 9 8 9 9 10 Collection Expense 44 47 52 51 54 57 60 Audit 97 95 74 51 54 57 60 Office Expense 562 672 768 812 859 909 962 Stationary 192 71 68 61 64 68 72 Payroll Taxes 1,052 1,271 1,282 1,193 1,264 1,338 1,413 Tax & License 1,051 1,079 1,173 1,218 1,288 1,363 1,442 Telephone 521 485 498 609 644 681 721 Travel & Entertainment 258 314 328 406 429 454 481 Truck Expense 3,048 3,158 3,097 3,248 3,435 3,635 3,846 Bad Debt 2,341 1,450 1,133 1,218 1,288 1,363 1,442 Interest -- -- -- -- -- -- -- Miscellaneous Income (425) (152) (138) (122) (129) (136) (144) Miscellaneous Expense 264 316 384 406 429 454 481 ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL SG&A 31,181 34,944 35,137 37,160 39,315 41,540 43,856 OPERATING CASH FLOW 4,400 9,637 12,677 14,264 15,530 16,856 18,081 Bonus 915 961 605 662 735 823 940 ---------- ---------- ---------- ---------- ---------- ---------- ---------- EBITDA 3,485 9,850 12,072 13,602 14,796 16,034 17,141 Depreciation 5,576 6,184 6,630 6,473 6,347 5,887 5,547 ---------- ---------- ---------- ---------- ---------- ---------- ---------- EBITA (2,092) 3,666 5,442 7,129 8,449 10,147 11,593 OTHER Goodwill-Amortization 462 462 462 462 462 462 462 Interest Expense 1,256 1,125 947 920 893 867 842 Interest Income (44) (40) (33) (32) (31) (30) (29) Miscellaneous 396 (9,082) -- -- -- -- -- (Gain) Loss on sale of assets (284) (448) (296)(b) (194) (189) (183) (178) ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OTHER 1,786 (7,982) 1,080 1,155 1,135 1,116 1,097 INCOME BEFORE TAXES (3,878) 1,392 4,361 5,973 7,313 9,031 10,497 Provision for Income Taxes (1,897) 958 1,657 2,270 2,779 3,432 3,989 Deferred Taxes 524 (544) -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME (LOSS) $ (2,504) $ 978 $ 2,704 $ 3,703 $ 4,534 $ 5,599 $6,508 ========== ========== ========== ========== ========== ========== ========== Earnings Per Share (0.49) 0.19 0.53 0.73 0.89 1.10 1.28 Weighed Average Common Shares (In Thousands) 5,072.255 5,072.255 5,072.255 5,072.255 5,072.255 5,072.255 5,072.255 General Office Charges Salary $ 2,071 $ 2,195 $ 2,327 $ 2,467 $ 2,615 Payroll Taxes 170 176 186 197 209 Insurance 150 304 322 341 361 Health & Welfare 248 220 233 247 261 Office Expenses 769 812 859 909 962 Travel 498 507 537 568 601 Telephone 91 81 86 91 96 Contribution -- -- -- -- -- Directors Fee 103 103 108 108 108 Directors Expenses 24 25 25 26 27 Service Fee 1,291 1,291 1,330 1,330 1,330 Programming & Processing 1,491 1,640 1,804 1,984 2,183 Depreciation 129 132 134 137 140 Legal 180 180 180 180 180 Fees 156 159 162 166 169 ---------- ---------- ---------- ---------- ---------- Total $ 7,371 $ 7,825 $ 8,293 $ 8,750 $ 9,241 Growth Rates - ------------------------------------------------------------------------------------------------------------------------------------ Sales 12.4% 5.9% 5.8% 5.8% 5.8% 5.8% EBITDA 182.7% 22.6% 12.7% 8.8% 8.4% 6.9% EBITA NM 48.3% 31.0% 18.5% 20.1% 14.3% Net Income NM 176.6% 37.0% 22.4% 22.3% 16.2% - ------------------------------------------------------------------------------------------------------------------------------------
(a) Excludes impact of the settlement of the Bandag Lawsuit. (b) Excludes one-time extraordinary gain from sale of Springdale property. 33 PROJECT TREADCO TREADCO Revised Projections - Historical and Projected Income Statement Detail ================================================================================ Conservative Assumptions
Projected FY Ended December 31, ------------------------------------ 1999 2000 2001 2002 2003 ------ ------ ------ ------ ------ SALES Recaps- Treadco Casings 8.3% 6.0% 6.0% 6.0% 6.0% Annual Revenue Growth Recaps - Customer 4.5% 6.0% 6.0% 6.0% 6.0% Annual Revenue Growth Used Tires 2.4% 4.0% 4.0% 4.0% 4.0% Annual Revenue Growth New Tires 4.9% 5.0% 5.0% 5.0% 5.0% Annual Revenue Growth Service 12.1% 10.0% 10.0% 10.0% 10.0% Annual Revenue Growth Accessories 1.5% 4.0% 4.0% 4.0% 4.0% Annual Revenue Growth Wheel Refurbishing (11.3)% 4.0% 4.0% 4.0% 4.0% Annual Revenue Growth National Sales 7.8% 4.0% 4.0% 4.0% 4.0% Annual Revenue Growth COST OF SALES Recaps 72.3% 72.0% 72.0% 71.5% 71.5% % of Recaps Sales Recapping Efficiency 3.2% 2.4% 2.0% 1.6% 1.2% % of Recaps Sales Minus Depreciation Used Tires 71.7% 71.5% 71.5% 71.5% 71.5% % of Used Tires Sales New Tires 87.0% 87.0% 87.0% 87.0% 87.0% % of New Tire Sales New Tire Volume Bonus (5.5)% (5.5)% (5.5)% (5.5)% (5.5)% % of New Tire Sales New Tire Shrinkage 0.4% 0.4% 0.4% 0.4% 0.4% % of New Tire Sales Service 78.0% 76.0% 74.0% 73.0% 72.0% % of Service Accessories 65.0% 64.0% 64.0% 64.0% 64.0% % of Accessories Wheel Refurbishing 60.1% 60.0% 60.0% 60.0% 60.0% % of Wheel Refurbishing National Account Costs 0.0% 0.0% 0.0% 0.0% 0.0% Added Back to Sales SELLING GENERAL & ADMINISTRATIVE General Office Charges 3.8% 3.9% 3.9% 3.9% 3.8% Per Schedule Below (% of Total Sales) Advertising 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales Manager & Office Salaries 4.5% 5.0% 5.0% 5.0% 5.0% Grows 5% per year Salesmen Salaries 16.2% 16.9% 16.9% 16.9% 16.9% As a % of Gross Profit Warehouse & Delivery Labor (2.4)% 4.0% 4.0% 4.0% 4.0% Grows 4% per year Insurance 0.8% 0.7% 0.7% 0.7% 0.7% As a % of Total Sales Health & Welfare 11.7% 10.0% 10.0% 10.0% 10.0% As a % of Payroll Legal 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales Collection Expense 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales Audit 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales Office Expense 0.4% 0.4% 0.4% 0.4% 0.4% As a % of Total Sales Stationery 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales Payroll Taxes 9.4% 8.0% 8.0% 8.0% 8.0% As a % of Payroll Tax & Licenses 0.6% 0.6% 0.6% 0.6% 0.6% As a % of Total Sales Telephone 0.3% 0.3% 0.3% 0.3% 0.3% As a % of Total Sales Travel & Entertainment 0.2% 0.2% 0.2% 0.2% 0.2% As a % of Total Sales Truck Expenses 1.6% 1.6% 1.6% 1.6% 1.6% As a % of Total Sales Bad Debt 0.6% 0.6% 0.6% 0.6% 0.6% As a % of Total Sales Interest 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales Miscellaneous Income (0.1)% (0.1)% (0.1)% (0.1)% (0.1)% As a % of Total Sales Miscellaneous Expense 0.2% 0.2% 0.2% 0.2% 0.2% As a % of Total Sales Bonus 10.0% 8.5% 8.0% 7.5% 7.5% Aa a % of operating income Depreciation 1.6% 1.5% 1.4% 1.3% 1.2% As a % of Total Sales OTHER Interest Expense 0.5% 0.5% 0.4% 0.4% 0.4% As a % of Total Sales Interest Income 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales Miscellaneous 0.0% 0.0% 0.0% 0.0% 0.0% As a % of Total Sales (Gain) Loss on sale of assets (0.2)% (0.1)% (0.1)% (0.1)% (0.1)% As a % of Total Sales Provision for Income Taxes 38.0% 38.0% 38.0% 38.0% 38.0% % of Pretax Income Deferred Taxes 0.0% 0.0% 0.0% 0.0% 0.0% General Office Charges Salary 6.0% 6.0% 6.0% 6.0% % Increase Payroll Taxes 8.0% 8.0% 8.0% 8.0% As a % of Payroll Insurance 0.2% 0.2% 0.2% 0.2% As a % of Sales Health & Welfare 10.0% 10.0% 10.0% 10.0% As a % of Payroll Office Expense 0.4% 0.4% 0.4% 0.4% As a % of Sales Travel 0.3% 0.3% 0.3% 0.3% As a % of Sales Telephone 0.0% 0.0% 0.0% 0.0% As a % of Sales Contribution 0.0% 0.0% 0.0% 0.0% As a % of Sales Directors Fee 0.0% 5.0% 0.0% 0.0% % Increase Directors Expenses 3.0% 3.0% 3.0% 3.0% % Increase Service Fee 0.0% 3.0% 0.0% 0.0% % Increase Programming & Processing 10.0% 10.0% 10.0% 10.0% % Increase Depreciation 2.0% 2.0% 2.0% 2.0% % Increase Legal 0.0% 0.0% 0.0% 0.0% % Increase Fees 2.0% 2.0% 2.0% 2.0% % Increase
34 ================================================================================ APPENDIX B COMPARABLE PUBLICLY TRADED COMPANIES ================================================================================ 35 PAGE 1 OF 2 TREADCO COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES - -------------------------------------------------------------------------------- (Dollars in Millions, Except Per Share) Ticker TBCC Company Name TBC CORP TBC Corp distributes tires for the automotive replacement market through Latest Market Price as of 3/10/99 $ 5.69 wholesale and retail customers in the 52 Week High 4/1/98 10.25 U.S., Canada and Mexico; and franchises 52 Week Low 9/1/98 4.25 and/or operates 415 retail tire and TWO-YEAR HISTORICAL automotive service stores located mainly STOCK PRICE PERFORMANCE Shares Outstanding 21.2 in the Midwest and Western U.S. Options Outstanding 1.1 [CHART] Weighted Average Exercise Price $ 8.84 Market Capitalization/ LTM Net Income 7.1 x Market Capitalization $ 120.4 I/B/E/S Projected Current EPS 6.3 Total Market Capitalization (a) 241.9 I/B/E/S Projected Next Fiscal EPS 5.7 LTM Common Equity 0.9 Latest Twelve Months Ended 12/98 LTM Cash Flow (b) 5.0 Latest Fiscal Year Ended 12/98 I P O Date 11/5/84 Total Market Capitalization (a)/ LTM EBITA (c) 7.0 x I/B/E/S Projected Current EPS (c)(d) $ 0.91 LTM EBITDA (f) 5.9 I/B/E/S Projected Next Fiscal EPS (c)(d) $ 1.00 LTM Revenue 0.4
Gross Net Other Deprec. Net Interest Revenue Profit Income EBITA (e) & Amort (g) EBITDA (f) Expense (h) ------- ------ --------- --------- ----------- ---------- ------------ LTM $ 646.1 $ 102.9 $ 1.5 $ 34.6 $ 7.2 $ 40.9 $ 5.9 LFY 646.1 102.9 1.5 34.6 7.2 40.9 5.9 LFY-1 642.9 98.7 3.3 37.8 7.7 45.1 5.8 LFY-2 604.6 76.0 2.8 29.5 6.3 35.8 4.1 LFY-3 (q) 547.8 59.1 2.3 27.9 4.6 32.5 3.1 LFY-4 (q) 563.7 63.6 2.9 29.9 4.1 34.0 1.4 4 Year Compound Growth 3.5 % 12.8 % (15.0) % 3.7 % 15.0 % 4.7 % 44.0 % Net Cash Earnings Income Flow (b) Per Share (c) ------ -------- ------------- LTM $ 16.9 $ 24.1 $ 0.75 LFY 16.9 24.1 0.75 LFY-1 19.7 27.4 0.84 LFY-2 15.5 21.8 0.65 LFY-3 (q) 15.2 19.9 0.62 LFY-4 (q) 19.5 23.6 0.71 4 Year Compound Growth (3.6) % 0.4 % 1.4 %
Total Net Common Preferred Long-Term Short-Term Long-Term Total Working Equity Equity Debt (l) Debt Capital (j) Capital (k) Capital (l) ------- --------- -------- ---------- ----------- ----------- ----------- LTM $ 138.4 $ -- $ 59.7 $ 63.5 $ 198.1 $ 261.6 $ 167.6 LTM - Previous Year (o) $ 134.2 $ -- $ 67.6 $ 26.4 $ 201.8 $ 228.3 $ 155.9 LFY 138.4 -- 59.7 63.5 198.1 261.6 167.6 LFY-1 134.2 -- 67.6 26.4 201.8 228.3 155.9 LFY-2 (q) 119.8 -- 69.6 23.2 189.4 212.5 141.2 LFY-3 (q) 104.8 -- 0.6 50.9 105.4 156.3 127.5 LFY-4 (q) 114.0 -- -- 25.8 114.0 139.8 117.1 LFY-5 (o,q) 116.6 -- -- 26.1 116.6 142.6 121.2 4 Year Compound Growth (p) 5.0 % N/A % N/A % 25.3 % 14.8 % 17.0 % 9.4 % Cash and Cash Net Total Equiv. (m) P, P & E Assets (m) ---------- -------- ---------- LTM $ 1.7 $ 44.1 $ 332.1 LTM - Previous Year (o) $ 0.9 $ 36.3 $ 264.0 LFY 1.7 44.1 332.1 LFY-1 0.9 36.3 264.0 LFY-2 (q) -- 35.1 253.9 LFY-3 (q) -- 19.1 180.0 LFY-4 (q) -- 14.6 169.7 LFY-5 (o,q) -- 15.4 166.7 4 Year Compound Growth (p) N/A % 31.8 % 18.3 %
- ------------------------- (a) Market capitalization plus total debt and preferred stock less cash and cash equivalents (b) For comparative purposes, defined as net income plus depreciation and amortization. (c) Primary EPS. (d) Source: Institutional Brokers Estimate Survey mean estimate. (e) Earnings before interest, taxes, and amortization of selected intangibles. Selected intangible assets consist of goodwill, trademarks and non-compete agreements. (f) For comparative purposes, defined as earnings before interest and taxes plus depreciation and amortization. (g) Depreciation and amortization as shown on the cash flow statement. (h) Defined as total interest expense less interest income. Continued on Next page 36 Page 2 of 2 TREADCO COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES ================================================================================ Company Name: TBC CORP
As a Percentage of Revenue ---------------------------------------------------------- Gross Deprec. Cash Net Profit EBITA(a) & Amort. EBITDA(b) Flow(c) Income ------ -------- -------- --------- ------- ------ LTM 15.9 % 5.4 % 1.1 % 6.3 % 3.7 % 2.6 % LFY 15.9 5.4 1.1 6.3 3.7 2.6 LFY-1 15.4 5.9 1.2 7.0 4.3 3.1 LFY-2 12.6 4.9 1.0 5.9 3.6 2.6 LFY-3 10.8 5.1 0.8 5.9 3.6 2.8 LFY-4 11.3 5.3 0.7 6.0 4.2 3.5 5 Year Average 13.2 % 5.3 % 1.0 % 6.2 % 3.9 % 2.9 %
Returns on Average Percent of Long Term Capitalization(d) ------------------------------------------- -------------------------------------- Total EBITDA/ Total Debt/ Common Long-Term Total Net Common Preferred Long-Term Total Equity Assets Capital(d) Capital(e) Interest Equity Equity Debt(f) Capitalization ------ ------ ---------- ---------- -------- ------ ------ ------- -------------- LTM 12.4 % 5.7 % 8.4 % 6.9 % 6.9 x 69.9 % -- % 30.1 % 47.1 % LFY 12.4 5.7 8.4 6.9 6.9 69.9 -- 30.1 47.1 LFY-1 15.5 7.6 10.1 8.9 7.8 66.5 -- 33.5 41.2 LFY-2 13.8 7.1 10.5 8.4 8.7 63.3 -- 36.7 43.6 LFY-3 13.9 8.7 13.9 10.3 10.5 99.5 -- 0.5 32.9 LFY-4 17.0 11.6 17.0 13.8 24.6 100.0 -- -- 18.4 5 Year Average 14.5 % 8.2 % 12.0 % 9.7 % 11.7 x 79.8 % -- % 20.2 % 36.7 %
- ------------------------------------ (a) Earnings before interest, taxes, and amortization of selected intangibles. Selected intangible assets consist of goodwill, trademarks and non-compete agreements. (b) For comparative purposes, defined as earnings before interest and taxes plus depreciation and amortization (c) For comparative purposes, defined as net income plus depreciation and amortization. (d) Does not include short-term debt. (e) Includes short-term debt. (f) Includes capitalized leases and redeemable preferred stock. Continued From Previous Page - ------------------------------------ (i) Includes capitalized leases and redeemable preferred stock. (j) Does not include short-term debt. (k) Includes short-term debt. (l) Defined as total current assets less cash and cash equivalents minus current liabilities less short-term debt. (m) Includes short-term, marketable securities. (n) Excludes cash and cash equivalents (o) Used to calculate average return figures and LTM return figures. (p) Growth calculated for same period, LFY-4 through LFY, as income statement growth calculations. (q) Numbers were restated with no subsequent financials to confirm Factset data in designated historical years. 37 Page 1 of 2 TREADCO COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES ================================================================================ (Dollars in Millions, Except Per Share) Ticker BDG Company Name BANDAG,INC Bandaq, Inc. makes retreading materials and equipment for its worldwide network of Latest Market Price as of 3/10/99 $ 31.25 apx. 1,300 franchised dealerships that 52 Week High 4/3/98 59.75 produce and market retread tires and 52 Week Low 10/13/98 28.31 provide tire management services; and sells TWO-YEAR HISTORICAL and services new and retread tires STOCK PRICE PERFORMANCE Shares Outstanding 22.5 Options Outstanding 0.2 [CHART] Weighted Average Exercise Price $ 23.13 Market Capitalization/ LTM Net Income 12.1 x Market Capitalization $ 703.5 I/B/E/S Projected Current EPS 11.4 Total Market Capitalization (a) 644.1 I/B/E/S Projected Next Fiscal EPS 10.6 LTM Common Equity 1.5 Latest Twelve Months Ended 12/98 LTM Cash Flow (b) 7.4 Latest Fiscal Year Ended 12/98 I P O Date 11/5/84 Total Market Capitalization (a)/ LTM EBITA (e) 5.9 x I/B/E/S Projected Current EPS (c)(d) $ 2.75 LTM EBITDA (f) 4.7 I/B/E/S Projected Next Fiscal EPS (c)(d) $ 2.95 LTM Revenue 0.6
Gross Net Other Deprec. Net Interest Revenue Profit Income EBITA (e) & Amort (g) EBITDA (f) Expense (h) ------- ------ --------- --------- ----------- ---------- ------------ LTM $1,087.0 $ 419.2 $ 11.1 $ 110.0 $ 36.9 $ 137.3 $ 2.5 LFY 1,087.0 419.2 11.1 110.0 36.9 137.3 2.5 LFY-1 822.5 340.1 14.1 129.9 36.9 164.5 3.3 LFY-2 756.9 314.8 12.1 133.0 34.6 166.6 1.2 LFY-3 740.4 297.5 14.9 158.1 34.6 191.7 2.0 LFY-4 650.6 273.2 15.1 152.0 35.3 187.3 2.1 4 Year Compound Growth 13.7 % 11.3 % (7.4) % (7.8) % 1.1 % (7.5) % 4.1 % Net Cash Earnings Income Flow (b) Per Share (c) ------ -------- ------------- LTM $ 58.0 $ 94.9 $ 2.58 LFY 58.0 94.9 2.58 LFY-1 74.8 (q) 111.7 3.27 (q) LFY-2 81.6 116.2 3.44 LFY-3 97.0 131.6 3.82 LFY-4 94.0 129.3 3.51 4 Year Compound Growth (11.4) % (7.5) % (7.4) %
Total Net Common Preferred Long-Term Short-Term Long-Term Total Working Equity Equity Debt (i) Debt Capital (j) Capital (k) Capital (l) ------- --------- -------- ---------- ----------- ----------- ----------- LTM (r) $ 457.0 $ -- $ -- $ 5.8 $ 457.0 $ 462.8 $ 222.5 LTM - Previous Year (o) 463.4 -- 123.2 $ 99.7 $ 586.6 $ 686.3 $ 194.2 LFY (r) 457.0 -- -- 5.8 457.0 462.8 222.5 LFY-1 463.4 -- 123.2 99.7 586.6 686.3 194.2 LFY-2 410.9 -- 10.1 2.0 421.0 423.0 91.9 LFY-3 400.0 -- 11.9 3.0 411.8 414.9 113.0 LFY-4 434.0 -- 12.3 8.3 446.3 454.6 92.4 LFY-5 413.1 -- 11.0 12.2 424.1 436.3 73.3 4 Year Compound Growth (p) 1.3 % N/A % (100.0) % (8.5) % 0.6 % 0.4 % 24.6 % Cash and Cash Net Total Equiv. (m) P, P & E Assets (n) ---------- -------- ---------- LTM (r) $ 65.2 $ 201.2 $ 693.0 LTM - Previous Year (o) $ 198.0 $ 197.6 $ 701.9 LFY (r) 65.2 201.2 693.0 LFY-1 198.0 197.6 701.9 LFY-2 112.6 145.1 475.8 LFY-3 96.5 144.9 457.7 LFY-4 147.4 151.8 434.7 LFY-5 152.5 146.6 398.2 4 Year Compound Growth (p) (18.5) % 7.3 % 12.4 %
- ------------------------- (a) Market capitalization plus total debt and preferred stock less cash and cash equivalents. (b) For comparative purposes, defined as net income plus depreciation and amortization. (c) Primary EPS. (d) Source: Institutional Brokers Estimate Survey mean estimate. (e) Earnings before interest, taxes, and amortization of selected intangibles. Selected intangible assets consist of goodwill, trademarks and non-compete agreements. (f) For comparative purposes, defined as earnings before interest and taxes plus depreciation and amortization. (g) Depreciation and amortization as shown on the cash flow statement. (h) Defined as total interest expense less interest income. Continued on Next page 38 Page 2 of 2 TREADCO COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES ================================================================================ Company Name: BANDAG INC
As a Percentage of Revenue ---------------------------------------------------------- Gross Deprec. Cash Net Profit EBITA(a) & Amort. EBITDA(b) Flow(c) Income ------ -------- -------- --------- ------- ------ LTM 38.6 % 10.1 % 3.4 % 12.6 % 8.7 % 5.3 % LFY 38.6 10.1 3.4 12.6 8.7 5.3 LFY-1 41.4 15.8 4.5 20.0 13.6 9.1 LFY-2 41.6 17.6 4.6 22.0 15.4 10.8 LFY-3 40.2 21.4 4.7 25.9 17.8 13.1 LFY-4 42.0 23.4 5.4 28.8 19.9 14.4 5 Year Average 40.7 % 17.6 % 4.5 % 21.9 % 15.1 % 10.6 %
Return on Average Percent of Long-Term Capitalization(d) ------------------------------------------- -------------------------------------- Total EBITDA/ Total Debt/ Common Long-Term Total Net Common Preferred Long-Term Total Equity Assets Capital(d) Capital(e) Interest Equity Equity Debt(f) Capitalization ------ ------ ---------- ---------- -------- ------ ------ ------- -------------- LTM 12.6 % 8.3 % 11.1 % 10.1 % 54.9 x 100.0 % -- % -- % 1.3 % LFY 12.6 8.3 11.1 10.1 54.9 100.0 -- -- 1.3 LFY-1 17.1 12.7 14.9 13.5 49.3 79.0 -- 21.0 32.5 LFY-2 20.1 17.5 19.6 19.5 134.8 97.6 -- 2.4 2.9 LFY-3 23.3 21.7 22.6 22.3 97.8 97.1 -- 2.9 3.6 LFY-4 22.2 22.6 21.6 21.1 88.1 97.3 -- 2.7 4.5 5 Year Average 19.1 % 16.6 % 18.0 % 17.3 % 85.0 x 94.2 % -- % 5.8 % 8.9 %
- ------------------------------------ (a) Earnings before interest, taxes, and amortization of selected intangibles. Selected intangible assets consist of goodwill, trademarks and non-compete agreements. (b) For comparative purposes, defined as earnings before interest and taxes plus depreciation and amortization (c) For comparative purposes, defined as net income plus depreciation and amortization. (d) Does not include short-term debt. (e) Includes short-term debt. (f) Includes capitalized leases and redeemable preferred stock. Continued From Previous Page - ------------------------------------ (i) Includes capitalized leases and redeemable preferred stock. (j) Does not include short-term debt. (k) Includes short-term debt. (l) Defined as total current assets less cash and cash equivalents minus current liabilities less short-term debt. (m) Includes short-term, marketable securities. (n) Excludes cash and cash equivalents (o) Used to calculate average return figures and LTM return figures. (p) Growth calculated for same period, LFY-4 through LFY, as income statement growth calculations. (q) Excludes gain on sale of marketable securities of $95.1 million and a non-recurring charge of $16.5 million tax effected at 40%. (r) Third quarter data used since 12/31/98 balance sheet not available. 39 Page 1 of 2 TREADCO COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES ================================================================================ (Dollars in Millions, Except Per Share) Ticker SPD Company Name STANDARD PRODUCTS CO The Standard Products Co. makes rubber and plastic engineering and high-volume production Latest Market Price as of 3/10/99 $ 15.63 processes for automotive original equipment 52 Week High 4/21/98 35.88 manufacturers, and the appliance, construction 52 Week Low 10/21/98 14.25 and marine industries; and makes precure and TWO-YEAR HISTORICAL old cure tread rubber for the truck tire STOCK PRICE PERFORMANCE Shares Outstanding 16.1 retreading industry. Options Outstanding 0.8 [CHART] Weighted Average Exercise Price $ 27.44 Market Capitalization/ LTM Net Income 6.8 x Market Capitalization $ 251.2 I/B/E/S Projected Current EPS 7.8 Total Market Capitalization (a) 454.9 I/B/E/S Projected Next Fiscal EPS 6.3 LTM Common Equity 0.9 Latest Twelve Months Ended 12/98 LTM Cash Flow (b) 2.8 Latest Fiscal Year Ended 6/98 I P O Date 11/5/84 Total Market Capitalization (a)/ LTM EBITA (e) 7.0 x I/B/E/S Projected Current EPS (c)(d) $ 2.00 LTM EBITDA (f) 4.0 I/B/E/S Projected Next Fiscal EPS (c)(d) $ 2.48 LTM Revenue 0.4
Gross Net Other Deprec. Net Interest Revenue Profit Income EBITA (e) & Amort (g) EBITDA (f) Expense (h) ------- ------ --------- --------- ----------- ---------- ------------ LTM $1,080.6 $ 152.2 $ (3.4) $ 64.6 $52.6 $114.7 $12.8 LFY 1,101.3 166.0 (7.0) 83.0 55.1 135.6 12.4 LFY-1 1,108.3 145.5 0.1 81.9 (r) 53.1 (r) 129.5 12.9 LFY-2 1,083.9 108.5 4.6 46.9 52.5 95.3 14.9 LFY-3 995.9 99.5 (0.2) 34.6 (s) 46.8 77.3 13.0 LFY-4 872.4 119.4 2.1 61.3 (s) 40.5 97.7 9.1 4 Year Compound Growth 6.0 % 8.6 % N/A % 7.9 % 8.0 % 8.5 % 8.0 % Net Cash Earnings Income Flow (b) Per Share (c) ------ -------- ------------- LTM $ 37.2 $ 89.8 $ 2.31 LFY 43.4 98.6 2.58 LFY-1 38.1 (q) 91.3 2.27 LFY-2 14.6 67.1 0.87 LFY-3 20.1 66.9 1.20 LFY-4 33.0 73.5 1.99 4 Year Compound Growth 7.1 % 7.6 % 6.7 %
Total Net Common Preferred Long-Term Short-Term Long-Term Total Working Equity Equity Debt (i) Debt Capital (j) Capital (k) Capital (l) ------- --------- -------- ---------- ----------- ----------- ----------- LTM $ 280.8 $ -- $ 142.9 $ 60.7 $ 423.8 $ 484.5 $ 79.9 LTM - Previous Year (o) $ 269.0 $ -- $ 121.7 $ 19.5 $ 390.8 $ 410.2 $ 60.7 LFY 300.2 -- 92.5 29.0 392.6 421.7 51.5 LFY-1 268.4 -- 121.8 20.9 390.2 411.1 60.5 LFY-2 258.8 -- 143.0 3.6 401.8 405.5 57.7 LFY-3 260.5 -- 190.5 6.8 451.0 457.8 104.2 LFY-4 242.7 -- 135.4 12.1 378.1 390.1 100.0 LFY-5 224.4 -- 115.6 13.7 340.0 353.7 87.5 4 Year Compound Growth (p) 5.5 % N/A % (9.1) % 24.5 % 0.9 % 2.0 % (15.3) % Cash and Cash Net Total Equiv. (m) P, P & E Assets (n) ---------- -------- ---------- LTM $ -- $ 349.8 $ 723.4 LTM - Previous Year (o) $ 5.4 $ 303.9 $ 665.2 LFY 1.6 330.4 682.6 LFY-1 7.0 303.0 684.9 LFY-2 -- 298.5 684.7 LFY-3 19.5 269.4 682.3 LFY-4 -- 242.0 624.3 LFY-5 5.5 224.4 559.3 4 Year Compound Growth (p) N/A % 8.1 % 2.3 %
- ------------------------- (a) Market capitalization plus total debt and preferred stock less cash and cash equivalents (b) For comparative purposes, defined as net income plus depreciation and amortization. (c) Primary EPS. (d) Source: Institutional Brokers Estimate Survey mean estimate. (e) Earnings before interest, taxes, and amortization of selected intangibles. Selected intangible assets consist of goodwill, trademarks and non-compete agreements. (f) For comparative purposes, defined as earnings before interest and taxes plus depreciation and amortization. (g) Depreciation and amortization as shown on the cash flow statement. (h) Defined as total interest expense less interest income. Continued on Next page 40 Page 2 of 2 TREADCO COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES ================================================================================ Company Name: STANDARD PRODUCTS CO
As a Percentage of Revenue ---------------------------------------------------------- Gross Deprec. Cash Net Profit EBITA(a) & Amort. EBITDA(b) Flow(c) Income ------ -------- -------- --------- ------- ------ LTM 14.1 % 6.0 % 4.9 % 10.6 % 8.3 % 3.4 % LFY 15.1 7.5 5.0 12.3 9.0 3.9 LFY-1 13.1 7.4 4.8 11.7 8.2 3.4 LFY-2 10.0 4.3 4.8 8.8 6.2 1.3 LFY-3 10.0 3.5 4.7 7.8 6.7 2.0 LFY-4 13.7 7.0 4.6 11.2 8.4 3.8 5 Year Average 12.4 % 6.0 % 4.8 % 10.4 % 7.7 % 2.9 %
Returns on Average Percent of Long Term Capitalization(d) ------------------------------------------- -------------------------------------- Total EBITDA/ Total Debt/ Common Long-Term Total Net Common Preferred Long-Term Total Equity Assets Capital(d) Capital(e) Interest Equity Equity Debt(f) Capitalization ------ ------ ---------- ---------- -------- ------ ------ ------- -------------- LTM 13.5 % 5.4 % 9.1 % 8.3 % 9.0 x 66.3 % -- % 33.7 % 42.0 % LFY 15.3 6.4 11.1 10.4 10.9 76.5 -- 23.5 28.8 LFY-1 14.5 5.6 9.6 9.3 10.0 68.8 -- 31.2 34.7 LFY-2 5.6 2.1 3.4 3.4 6.4 64.4 -- 35.6 36.2 LFY-3 8.0 3.1 4.8 4.7 5.9 57.8 -- 42.2 43.1 LFY-4 14.1 5.6 9.2 8.9 10.7 64.2 -- 35.8 37.8 5 Year Average 11.5 % 4.5 % 7.6 % 7.4 % 8.8 x 66.3 % -- % 33.7 % 36.1 %
- ------------------------------------ (a) Earnings before interest, taxes, and amortization of selected intangibles. Selected intangible assets consist of goodwill, trademarks and non-compete agreements. (b) For comparative purposes, defined as earnings before interest and taxes plus depreciation and amortization. (c) For comparative purposes, defined as net income plus depreciation and amortization. (d) Does not include short-term debt. (e) Includes short-term debt. (f) Includes capitalized leases and redeemable preferred stock. Continued From Previous Page - ------------------------------------ (i) Includes capitalized leases and redeemable preferred stock. (j) Does not include short-term debt. (k) Includes short-term debt. (l) Defined as total current assets less cash and cash equivalents minus current liabilities less short-term debt. (m) Includes short-term, marketable securities. (n) Excludes cash and cash equivalents. (o) Used to calculate average return figures and LTM return figures. (p) Growth calculated for same period, LFY-4 through LFY, as income statement growth calculations. (q) Goodwill amortization was calculated from the differences in balance sheet totals less any additional goodwill acquired that year. (r) Excludes non-recurring charge of $17.7 million. (s) Goodwill amortization totals were taken from 1996 due to inadequate disclosure to determine the annual figures. 41 Page 1 of 2 TREADCO COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES ================================================================================ (Dollars in Millions, Except Per Share) Ticker CTR Company Name COOPER TIRE & RUBBER COOPER TIRE & RUBBER CO. makes and sells automobile, truck and motorcycle Latest Market Price as of 3/10/99 $ 20.13 tires, inner tubes, vibration control 52 Week High 3/20/98 25.31 systems, hose and hose assemblies, and 52 Week Low 10/13/98 15.44 automotive sealing for the transportation TWO-YEAR HISTORICAL industry. STOCK PRICE PERFORMANCE Shares Outstanding 77.7 Options Outstanding 0.8 [CHART] Weighted Average Exercise Price $ 21.59 Market Capitalization/ LTM Net Income 12.3 x Market Capitalization $1,562.8 I/B/E/S Projected Current EPS 11.3 Total Market Capitalization (a) 1,734.5 I/B/E/S Projected Next Fiscal EPS 10.9 LTM Common Equity 1.8 Latest Twelve Months Ended 12/98 LTM Cash Flow (b) 7.1 Latest Fiscal Year Ended 12/98 I P O Date 11/5/84 Total Market Capitalization (a)/ LTM EBITA (e) 8.1 x I/B/E/S Projected Current EPS (c)(d) $ 1.78 LTM EBITDA (f) 5.6 I/B/E/S Projected Next Fiscal EPS (c)(d) $ 1.85 LTM Revenue 0.9
Gross Net Other Deprec. Net Interest Revenue Profit Income EBITA (e) & Amort (g) EBITDA (f) Expense (h) ------- ------ --------- --------- ----------- ---------- ------------ LTM $ 1,876.1 $ 330.6 $ 3.6 $ 213.4 $ 94.5 $ 307.9 $ 15.2 LFY 1,876.1 330.6 3.6 213.4 94.5 307.9 15.2 LFY-1 1,813.0 314.6 3.9 212.9 94.5 307.4 15.7 LFY-2 1,619.3 252.8 0.8 173.7 76.8 250.6 1.7 LFY-3 1,493.6 250.7 3.8 180.8 63.3 244.1 0.7 LFY-4 1,403.2 277.3 2.3 210.8 55.6 266.4 2.7 4 Year Compound Growth 7.5 % 4.5 % 12.3 % 0.3 % 14.2 % 3.7 % 54.4 % Net Cash Earnings Income Flow (b) Per Share (c) ------ -------- ------------- LTM $ 127.0 $ 221.4 $ 1.64 LFY 127.0 221.4 1.64 LFY-1 124.9 219.3 1.55 LFY-2 107.9 184.7 1.30 LFY-3 112.8 176.1 1.35 LFY-4 128.5 184.1 1.54 4 Year Compound Growth (0.3) % 4.7 % 1.6 %
Total Net Common Preferred Long-Term Short-Term Long-Term Total Working Equity Equity Debt (i) Debt Capital (j) Capital (k) Capital (l) ------- --------- -------- ---------- ----------- ----------- ----------- LTM $ 867.9 $ -- $ 205.3 $ 8.4 $ 1,073.2 $ 1,081.6 $ 342.9 LTM - Previous Year (o) 833.6 -- 205.5 11.3 1,039.1 1,050.4 312.6 LFY 867.9 -- 205.3 8.4 1,073.2 1,081.6 342.9 LFY-1 833.6 -- 205.5 11.3 1,039.1 1,050.4 312.6 LFY-2 786.6 -- 69.5 37.1 856.1 893.2 273.8 LFY-3 748.8 -- 28.6 5.0 777.4 782.4 254.1 LFY-4 662.1 -- 33.6 5.1 695.7 700.8 204.9 LFY-5 (o) 550.2 -- 38.7 5.3 588.9 594.3 184.4 4 Year Compound Growth (p) 7.0 % N/A % 57.2 % 13.1 % 11.4 % 11.5 % 13.7 % Cash and Cash Net Total Equiv. (m) P, P & E Assets (n) ---------- -------- ---------- LTM $ 42.0 $ 885.3 $ 1,499.3 LTM - Previous Year (o) 52.9 860.4 1,443.0 LFY 42.0 885.3 1,499.3 LFY-1 52.9 860.4 1,443.0 LFY-2 19.5 792.4 1,253.6 LFY-3 23.2 678.9 1,120.5 LFY-4 103.3 549.6 936.4 LFY-5 (o) 25.8 527.9 863.8 4 Year Compound Growth (p) (20.2) % 12.7 % 12.5 %
- ------------------------- (a) Market capitalization plus total debt and preferred stock less cash and cash equivalents (b) For comparative purposes, defined as net income plus depreciation and amortization. (c) Primary EPS. (d) Source: Institutional Brokers Estimate Survey mean estimate. (e) Earnings before interest, taxes, and amortization of selected intangibles. Selected intangible assets consist of goodwill, trademarks and non-compete agreements. (f) For comparative purposes, defined as earnings before interest and taxes plus depreciation and amortization. (g) Depreciation and amortization as shown on the cash flow statement. (h) Defined as total interest expense less interest income. Continued on Next page 42 Page 2 of 2 TREADCO COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES ================================================================================ Company Name: COOPER TIRE & RUBBER
As a Percentage of Revenue ---------------------------------------------------------- Gross Deprec. Cash Net Profit EBITA(a) & Amort. EBITDA(b) Flow(c) Income ------ -------- -------- --------- ------- ------ LTM 17.6 % 11.4 % 5.0 % 16.4 % 11.8 % 6.8 % LFY 17.6 11.4 5.0 16.4 11.8 6.8 LFY-1 17.4 11.7 5.2 17.0 12.1 6.9 LFY-2 15.6 10.7 4.7 15.5 11.4 6.7 LFY-3 16.8 12.1 4.2 16.3 11.8 7.6 LFY-4 19.8 15.0 4.0 19.0 13.1 9.2 5 Year Average 17.4 % 12.2 % 4.6 % 16.8 % 12.0 % 7.4 %
Returns on Average Percent of Long Term Capitalization(d) ------------------------------------------- -------------------------------------- Total EBITDA/ Total Debt/ Common Long-Term Total Net Common Preferred Long-Term Total Equity Assets Capital(d) Capital(e) Interest Equity Equity Debt(f) Capitalization ------ ------ ---------- ---------- -------- ------ ------ ------- -------------- LTM 14.9 % 8.6 % 12.0 % 11.9 % 20.2 x 80.9 % -- % 19.1 % 19.8 % LFY 14.9 8.6 12.0 11.9 20.2 80.9 -- 19.1 19.8 LFY-1 15.4 9.3 13.2 12.8 19.6 80.2 -- 19.8 20.6 LFY-2 14.1 9.1 13.2 12.9 151.5 91.9 -- 8.1 11.9 LFY-3 16.0 11.0 15.3 15.2 350.2 96.3 -- 3.7 4.3 LFY-4 21.2 14.3 20.0 19.8 99.4 95.2 -- 4.8 5.5 5 Year Average 16.3 % 10.4 % 14.7 % 14.5 % 128.2 x 88.9 % -- % 11.1 % 12.4 %
- ------------------------------------ (a) Earnings before interest, taxes, and amortization of selected intangibles. Selected intangible assets consist of goodwill, trademarks and non-compete agreements. (b) For comparative purposes, defined as earnings before interest and taxes plus depreciation and amortization. (c) For comparative purposes, defined as net income plus depreciation and amortization. (d) Does not include short-term debt. (e) Includes short-term debt. (f) Includes capitalized leases and redeemable preferred stock. Continued From Previous Page - ------------------------------------ (i) Includes capitalized leases and redeemable preferred stock. (j) Does not include short-term debt. (k) Includes short-term debt. (l) Defined as total current assets less cash and cash equivalents minus current liabilities less short-term debt. (m) Includes short-term, marketable securities. (n) Excludes cash and cash equivalents (o) Used to calculate average return figures and LTM return figures. (p) Growth calculated for same period, LFY-4 through LFY, as income statement growth calculations. 43 Page 1 of 2 TREADCO COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES ================================================================================ (Dollars in Millions, Except Per Share) Ticker GT Company Name GOODYEAR TIRE AND RUBBER CO Goodyear Tire & Rubber Co develops, makes and sells tires and related Latest Market Price as of 3/10/99 $ 50.69 transportation products; participates 52 Week High 3/31/98 76.75 in various crude oil transportation 52 Week Low 2/26/99 45.44 and gathering activities, and makes TWO-YEAR HISTORICAL various industrial rubber and chemical STOCK PRICE PERFORMANCE Shares Outstanding 155.9 products. Options Outstanding 8.2 [CHART] Weighted Average Exercise Price $ 46.86 Market Capitalization/ LTM Net Income 10.1 x Market Capitalization $7,933.2 I/B/E/S Projected Current EPS 11.7 Total Market Capitalization (a) 9,944.0 I/B/E/S Projected Next Fiscal EPS 10.2 LTM Common Equity 2.2 Latest Twelve Months Ended 9/98 LTM Cash Flow (b) 6.3 Latest Fiscal Year Ended 12/97 I P O Date 11/5/84 Total Market Capitalization (a)/ LTM EBITA (e) 8.1 x I/B/E/S Projected Current EPS (c)(d) $ 4.35 LTM EBITDA (f) 5.8 I/B/E/S Projected Next Fiscal EPS (c)(d) $ 5.00 LTM Revenue 0.8
Gross Net Other Deprec. Net Interest Revenue Profit Income EBITA (e) & Amort (g) EBITDA (f) Expense (h) --------- -------- --------- --------- ----------- ---------- ------------ LTM $12,781.0 $3,055.4 $ 63.7 $1,229.6 (q) $ 477.5 $1,707.1 $ 133.3 LFY 13,155.1 3,109.2 (35.0) 1,184.7 (q) 469.3 1,654.0 119.5 LFY-1 13,112.8 3,086.1 (73.1) 1,122.9 (q) 460.8 1,583.7 128.6 LFY-2 13,165.9 3,072.3 (74.6) 1,060.8 434.9 1,495.7 135.0 LFY-3 12,288.2 3,016.8 (63.5) 995.1 410.3 1,405.4 129.4 LFY-4 11,643.4 2,930.4 (61.0) 947.3 392.9 1,340.2 162.4 4 Year Compound Growth 3.1 % 1.5 % (13.0) % 5.7 % 4.5 % 5.4 % (7.4) % Net Cash Earnings Income Flow (b) Per Share (c) -------- -------- ------------- LTM $ 786.6 (q) $1,264.1 $ 5.05 LFY 717.8 (q) 1,187.1 3.58 LFY-1 624.9 (q) 1,085.7 0.66 LFY-2 611.0 1,045.9 4.02 LFY-3 567.0 977.3 3.75 LFY-4 488.7 881.6 3.33 4 Year Compound Growth 10.1 % 7.7 % 1.8 %
Total Net Common Preferred Long-Term Short-Term Long-Term Total Working Equity Equity Debt (i) Debt Capital (j) Capital (k) Capital (l) --------- --------- --------- ---------- ----------- ----------- ----------- LTM $3,669.3 $ -- $1,279.6 $ 889.5 $ 4,948.9 $ 5,838.4 $ 2,242.5 LTM - Previous Year (o) 3,540.7 -- 927.4 529.8 4,468.1 4,997.9 $ 1,539.3 LFY 3,395.5 -- 844.5 506.7 4,240.0 4,746.7 1,161.0 LFY-1 3,279.1 -- 1,132.2 244.5 4,411.3 4,655.8 1,264.8 LFY-2 3,281.7 -- 1,320.0 226.7 4,601.7 4,828.4 1,063.7 LFY-3 2,803.2 -- 1,108.7 226.9 3,911.9 4,138.8 771.5 LFY-4 2,300.8 -- 1,065.9 354.1 3,366.7 3,720.8 865.3 LFY-5 (o) 1,930.3 -- 1,471.1 473.6 3,401.4 3,875.0 833.1 4 Year Compound Growth (p) 10.2 % N/A % (5.7) % 9.4 % 5.9 % 6.3 % 7.6 % Cash and Cash Net Total Equiv. (m) P, P & E Assets (n) ---------- -------- ---------- LTM $ 158.3 $4,058.2 $10,520.9 LTM - Previous Year (o) 226.7 4,011.0 9,824.5 LFY 258.6 4,149.7 9,658.8 LFY-1 238.5 4,067.9 9,433.3 LFY-2 268.3 4,561.2 9,521.3 LFY-3 250.9 4,382.8 8,872.4 LFY-4 227.7 4,287.9 8,208.4 LFY-5 (o) 304.0 4,363.6 8,259.7 4 Year Compound Growth (p) 3.2 % (0.8) % 4.2 %
- ------------------------- (a) Market capitalization plus total debt and preferred stock less cash and cash equivalents. (b) For comparative purposes, defined as net income plus depreciation and amortization. (c) Primary EPS. (d) Source: Institutional Brokers Estimate Survey mean estimate. (e) Earnings before interest, taxes, and amortization of selected intangibles. Selected intangible assets consist of goodwill, trademarks and non-compete agreements. (f) For comparative purposes, defined as earnings before interest and taxes plus depreciation and amortization. (g) Depreciation and amortization as shown on the cash flow statement. (h) Defined as total interest expense less interest income. Continued on Next page 44 Page 2 of 2 TREADCO COMPARISON OF SELECTED PUBLICLY-TRADED COMPARABLE COMPANIES ================================================================================ Company Name: GOODYEAR TIRE & RUBBER CO
As a Percentage of Revenue ---------------------------------------------------------- Gross Deprec. Cash Net Profit EBITA(a) & Amort. EBITDA(b) Flow(c) Income ------ -------- -------- --------- ------- ------ LTM 23.9 % 9.6 % 3.7 % 13.4 % 9.9 % 6.2 % LFY 23.6 9.0 3.6 12.6 9.0 5.5 LFY-1 23.5 8.6 3.5 12.1 8.3 4.8 LFY-2 23.3 8.1 3.3 11.4 7.9 4.6 LFY-3 24.6 8.1 3.3 11.4 8.0 4.6 LFY-4 25.2 8.1 3.4 11.5 7.6 4.2 5 Year Average 24.0 % 8.4 % 3.4 % 11.8 % 8.2 % 4.7 %
Returns on Average Percent of Long Term Capitalization(d) ------------------------------------------- -------------------------------------- Total EBITDA/ Total Debt/ Common Long-Term Total Net Common Preferred Long-Term Total Equity Assets Capital(d) Capital(e) Interest Equity Equity Debt(f) Capitalization ------ ------ ---------- ---------- -------- ------ ------ ------- -------------- LTM 21.8 % 7.7 % 16.7 % 14.5 % 12.8 x 74.1 % -- % 25.9 % 37.2 % LFY 21.5 7.5 16.6 15.3 13.8 80.1 -- 19.9 28.5 LFY-1 19.0 6.6 13.9 13.2 12.3 74.3 -- 28.7 29.6 LFY-2 20.1 6.6 14.4 13.6 11.1 71.3 -- 28.7 32.0 LFY-3 22.2 6.6 15.6 14.4 10.9 71.7 -- 28.3 32.3 LFY-4 23.1 5.9 14.4 12.9 8.3 68.3 -- 31.7 38.2 5 Year Average 21.2 % 6.7 % 15.0 % 13.9 % 11.3 x 73.1 % -- % 26.9 % 32.1 %
- ------------------------------------ (a) Earnings before interest, taxes, and amortization of selected intangibles. Selected intangible assets consist of goodwill, trademarks and non-compete agreements. (b) For comparative purposes, defined as earnings before interest and taxes plus depreciation and amortization. (c) For comparative purposes, defined as net income plus depreciation and amortization. (d) Does not include short-term debt. (e) Includes short-term debt. (f) Includes capitalized leases and redeemable preferred stock. Continued From Previous Page - ------------------------------------ (i) Includes capitalized leases and redeemable preferred stock. (j) Does not include short-term debt. (k) Includes short-term debt. (l) Defined as total current assets less cash and cash equivalents minus current liabilities less short-term debt. (m) Includes short-term, marketable securities. (n) Excludes cash and cash equivalents. (o) Used to calculate average return figures and LTM return figures. (p) Growth calculated for same period, LFY-4 through LFY, as income statement growth calculations. (q) Excludes one time charges of $265.2 million and $872.0 million in 1997 and 1996. 45 ================================================================================ APPENDIX C COMPARABLE ACQUISITIONS ================================================================================ 46 Stephens Inc. TREADCO Analysis of Selected Comparable Acquisitions Acquiror: Goodyear Tire & Rubber Target: Brad Ragan, Inc. Announcement Date: 10/23/97 Target's Location: Charlotte, North Carolina Closing Date: 12/24/98 Date Stock Price Premium Transaction Value(a): $ 81.6 ---- ----------- ------- Total Transaction Value: $121.3 Offer Price $37.25 1 Day Prior 30.00 24.2% 30 Days Prior 29.00 28.4% TARGET SUMMARY Brad Ragan, Inc. distributes new and retreaded off-the-road and trucktires through a network of 53 commercial outlets in 19 states. The company operates a chain of 116 retail stores in the southeast, featuring products and services for auto and home use. TRANSACTION SUMMARY Goodyear acquired the remaining 556,924 shares of Brad Ragan, Inc. common stock it previously did not own for a cash purchase price of $37.25 per share. Shareholders of Brad Ragan, Inc. approved the sale per an agreement and Plan of Share Exchange between the companies. TRANSACTION MULTIPLES
Latest Twelve Months Ended September 30, 1998, (Dollars in Millions) Transaction Value(a) ---------------------------------------------- --------------------------------- ------- Net Stockholders' Cash Net Stockholders' Cash Income Equity Flow(c) Income Equity Flow(c) ------ ------------- ------- ------ ------------- ------- LTM $ 1.8 $49.4 $4.3 46.4 x 1.7 x 19.0 x LFY 1.4 48.2 3.7
Total Transaction Value(b) -------------------------------------- ------- Total Total Revenues EBITA EBITDA Revenues EBITA EBITDA -------- ------------- ------- -------- ------------- ------- LTM $267.7 $ 6.0 $8.6 0.5 x 20.1 x 14.1 x LFY 259.6 5.3 7.5
- --------------- (a) As discussed in a Bloomberg acquisition detail. (b) Defined as transaction value plus net debt assumed of $39.7. (c) Defined as net income plus depreciation and amortization. 47 Stephens Inc. TREADCO Analysis of Selected Comparable Acquisitions Acquiror: TBC Corporation Target: Big O Tires Announcement Date: 05/02/96 Target's Location: Englewood, Colorado Closing Date: 07/15/96 Date Stock Price Premium Transaction Value(a): $56.0 ---- ----------- ------- Total Transaction Value(b): $69.8 Offer Price $16.47 1 Day Prior 15.31 7.6% 30 Days Prior 14.50 13.6% TARGET SUMMARY Big O Tires franchises Big O Tire retail stores and supplies them with tires, wheels and related replacement automotive parts. The Company is active in promoting certain programs and sales techniques to its franchises. TRANSACTION SUMMARY Under the terms of the agreement, Big O stockholders received $16.47 in cash for each share. Big O had 3.4 million shares outstanding, and the total value of the transaction including assumptions of certain long-term liabilities is approximately $56 million. TBC Corporation acquired all outstanding shares of Big O Tires. TRANSACTION MULTIPLES
Latest Twelve Months Ended March 31, 1996 (Dollars in Millions) Transaction Value(a) ---------------------------------------------- ---------------------------------- ------- Net Stockholders' Cash Net Stockholders' Cash Income Equity Flow(c) Income Equity Flow(c) ------ ------------- ------- ------ ------------- ------- LTM $ 1.9 $38.3 $3.1 29.6 x 1.5 x 17.8 x LFY 1.5 37.4 2.8
Transaction Value(b) ---------------------------------- ------- Total Total Revenues EBITA EBITDA Revenues EBITA EBITDA -------- ------------- ------- -------- ------------- ------- LTM $146.1 $ 7.6 $8.8 0.5 x 9.2 x 7.9 x LFY 142.1 7.2 8.5
- --------------- (a) As discussed in a Business Editors press release dated 07/10/96. (b) Defined as transaction value plus net debt assumed of $13.8. (c) Defined as net income plus depreciation and amortization. 48 Stephens Inc. TREADCO Analysis of Selected Comparable Acquisitions Acquiror: Cooper Tire & Rubber Target: Avon Tyres plc Announcement Date: 02/18/97 Target's Location: United Kingdom Closing Date: 03/01/97 Date Stock Price Premium Transaction Value(a): $110.4 ---- ----------- ------- Total Transaction Value(b): $135.5 Offer Price 1 Day Prior N/A N/A 30 Days Prior N/A N/A TARGET SUMMARY Avon Tyres products include passenger, light and medium truck tires, high performance and racing tires, motorcycle tires, industrial tires, tire retreading and remoulding supplies. TRANSACTION SUMMARY Cooper, through a wholly-owned UK subsidiary, acquired the tire operations of Avon Rubber plc of the United Kingdom. They bought the complete tire business, which includes the land and plants in England, distribution companies in France, Germany and Switzerland and the right to use the Avon name for $110.4 million. TRANSACTION MULTIPLES
Latest Twelve Months Ended September 28, 1996 (Dollars in Millions)(c) Transaction Value(a) ---------------------------------------------- --------------------------------- ------- Net Stockholders' Cash Net Stockholders' Cash Income Equity Flow(d) Income Equity Flow(d) ------ ------------- ------- ------ ------------- ------- LTM $ 4.9 $70.9 $14.0 22.5 x 1.6 x 7.9 x LFY 4.9 70.9 14.0
Transaction Value(b) --------------------------------- ------- Total Total Revenues EBITA EBITDA Revenues EBITA EBITDA -------- ------------- ------- -------- ------------- ------- LTM $173.5 $12.9 $21.9 0.8 x 10.5 x 6.2 x LFY 173.5 12.9 21.9
- --------------- (a) As disclosed in a Business Editors press release dated 07/10/96. (b) Defined as transaction value plus net debt assumed of $25.1. (c) Exchange rate of 1.5655 Dollars per British Pound assumed as of 09/28/96. (d) Defined as net income plus depreciation and amortization. EX-99.(B)(4) 5 PARENT'S LETTER OF 3/15/99 TO SPECIAL COMMITTEE 1 EXHIBIT (b)(4) [ARKANSAS BEST CORPORATION LETTERHEAD] March 15, 1999 Members of the Special Committee of the Board of Directors of Treadco, Inc.: Mr. Nicolas M. Georgitsis, Mr. Robert B. Gilbert Stephens Inc. 111 Center Street, Suite 2400 Little Rock, Arkansas 72203 Attention: Noel M. Strauss Re: Treadco, Inc. Ladies and Gentlemen: In connection with negotiation of the proposed acquisition of Treadco, Inc. ("Treadco") by Arkansas Best Corporation ("ABC"), the management of Treadco (i) has provided Stephens Inc. ("Stephens") in its capacity as financial advisor to the Special Committee of the Board of Directors of Treadco, certain internal nonpublic financial information including the management projections of Treadco presented to the Board of Directors of Treadco on December 9, 1998 (the "Management Projections") and (ii) provided input to Stephens in its preparation of revised projections for Treadco (the "Revised Projections"). Management of Treadco has also provided to ABC and Stephens the preliminary results of operations of Treadco for the two months ended February 28, 1999 (the "YTD Results"). The Management Projections and the Revised Projections have been furnished to and reviewed by ABC, and ABC has participated in discussions with the management of Treadco and Stephens regarding the methodology and basis for such projections, including inquiries of the management of Treadco it deemed necessary or appropriate. Based on such review and inquiry as well as a review of the YTD Results, ABC advises you that as of the date hereof and to the knowledge of ABC: (i) the projected results of operations for the five year period ended December 31, 2003, taken as a whole, included in the Management Projections are not significantly understated and (ii) there is no fact, circumstance, occurrence or event not disclosed to Stephens in their preparation of the Revised Projections that ABC believes would significantly impact Treadco's operating results for the year ending December 31, 1999. 2 Stephens Inc. March 15, 1999 Page 2 For the purposes hereof, "knowledge of ABC" shall mean the actual knowledge of its executive officers and its officers or employees who are officers or directors of Treadco. Actual results of Treadco could differ significantly from current expectations due to a number of factors, including general economic conditions; competitive initiatives and pricing pressures; labor relations; costs of raw material; availability and cost of capital; shifts in market demand; weather conditions; the performance and needs of industries served by Treadco's businesses; actual future costs of operating expenses; self-insurance claims and employee wages and benefits; actual costs of continuing investments in technology; and the timing and amount of capital expenditures. Sincerely, ARKANSAS BEST CORPORATION By: /s/ DAVID E. LOEFFLER --------------------------------------- David E. Loeffler Vice President and Chief Financial Officer Attachments EX-99.(C)(2) 6 SUPPORT AGREEMENT DATED 1/22/99 1 Exhibit (c)(2) LETTER DATED 1/22/99 FROM SHAPIRO CAPITAL TO ABC January 22, 1999 Arkansas Best Corporation 3801 Old Greenwood Road Fort Smith, Arkansas 72903 Re: Treadco, Inc. Gentlemen: You have advised the undersigned that Arkansas Best Corporation ("ABC") is contemplating making a proposal to acquire the shares of the common stock of Treadco, Inc. (the "Company") not owned by ABC at $9.00 per share in cash in a transaction in which the Company would become a wholly owned subsidiary of ABC again (the "Transaction"). The undersigned believes the $9.00 per share cash price is fair and agrees to support the Transaction. In order to facilitate the proposal and the Transaction, the undersigned hereby irrevocably appoints ABC, with full power of substitution, as the proxy of the undersigned to attend any and all meetings of stockholders of the Company and any adjournments or postponements of such meetings (collectively, a "Meeting"), to vote for and in the name, place and stead of the undersigned at any Meeting, or grant any consents with respect to, 1,132,775 shares of the common stock of the Company, beneficially owned (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) by the undersigned on the date of this proxy (the "Proxy Shares"), with respect only to voting for or consenting to the approval of the Transaction, any matters related to or in connection with the Transaction, and voting against or withholding consent from any corporate action the consummation of which would violate, frustrate the purpose of, or prevent or delay the Transaction. The undersigned represents and warrants to ABC that (i) the undersigned is the beneficial owner of the Proxy Shares; (ii) the undersigned has all necessary power and authority to deliver this proxy; and (iii) none of the Proxy Shares is subject to any proxy or voting trust or any other arrangement, or understanding with respect to the voting of such shares in connection with the Transaction other than this proxy. Notwithstanding anything herein to the contrary, the undersigned may, and expressly reserves the right to, tender the Proxy Shares in any tender offer made by ABC or the Company for the common stock of the Company upon the terms and conditions of such tender offer. This proxy is coupled with an interest and is expressly made irrevocable and will expire upon the earlier of (i) July 31, 1999, (ii) March 31, 1999 if ABC and the Company have not entered into a definitive agreement regarding the Transaction by such date or (iii) the 2 consummation of the Transaction. The undersigned acknowledges that monetary damages would be an inadequate remedy for a breach of the provisions of this proxy and that (in addition to any other remedy available at law) the obligations of the undersigned and the rights of the ABC are specifically enforceable. Very truly yours, SHAPIRO CAPITAL MANAGEMENT COMPANY, INC. By: /s/ Samuel R. Shapiro ------------------------- Samuel R. Shapiro President EX-99.(D)(1) 7 OFFER TO PURCHASE 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF TREADCO, INC. AT $9.00 NET PER SHARE BY ARKANSAS BEST CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, APRIL 20, 1999, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF SHARES REPRESENTING AT LEAST 66 2/3% OF ALL OUTSTANDING SHARES ON A FULLY DILUTED BASIS WHEN AGGREGATED WITH THE SHARES OWNED BY ARKANSAS BEST CORPORATION ("PARENT"), WHICH CURRENTLY OWNS APPROXIMATELY 47% OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS, AND (II) THE EXPIRATION OR TERMINATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. THE BOARD OF DIRECTORS OF TREADCO, INC. (THE "COMPANY"), UPON THE RECOMMENDATION OF A SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS, HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER REFERRED TO HEREIN AND DETERMINED THAT THE OFFER AND THE MERGER, TAKEN TOGETHER, ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY (OTHER THAN PARENT) AND RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES. --------------------- IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's shares of common stock, par value $.01 per share of the Company (including the associated common stock purchase rights) (collectively, the "Shares") should either (i) complete and sign the Letter of Transmittal or a facsimile copy thereof in accordance with the instructions in the Letter of Transmittal, have such stockholder's signature thereon guaranteed if required by Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of Transmittal or such facsimile and any other required documents to the Depositary and either deliver the certificates for such Shares to the Depositary along with the Letter of Transmittal or facsimile or deliver such Shares pursuant to the procedure for book-entry transfer set forth in "THE TENDER OFFER -- Procedure for Tendering Shares" or (ii) request such stockholder's broker, dealer, bank, trust company or other nominee to effect the transaction for such stockholder. A stockholder having Shares registered in the name of a broker, dealer, bank, trust company or other nominee must contact such broker, dealer, bank, trust company or other nominee if such stockholder desires to tender such Shares. A stockholder who desires to tender Shares and whose certificates for such Shares are not immediately available or who cannot comply in a timely manner with the procedure for book-entry transfer, or who cannot deliver all required documents to the Depositary prior to the expiration of the Offer, may tender such Shares by following the procedure for guaranteed delivery set forth in "THE TENDER OFFER -- Procedure for Tendering Shares," including the Notice of Guaranteed Delivery. Questions and request for assistance or for additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Information Agent at the address and telephone number set forth on the back cover of this Offer to Purchase. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. March 23, 1999 THE INFORMATION AGENT FOR THE OFFER IS: D.F. KING & CO., INC. 2 TABLE OF CONTENTS
PAGE ---- INTRODUCTION................................................ 1 SPECIAL FACTORS............................................. 3 Background of the Offer and the Merger.................... 3 Recommendation of the Special Committee and the Board of Directors; Fairness of the Offer and the Merger........ 7 Opinion of Financial Advisor.............................. 9 Position of Parent Regarding Fairness of the Offer and the Merger................................................. 12 Certain Projections....................................... 13 Purpose and Structure of the Transaction.................. 14 Plans for the Company After the Offer and the Merger...... 14 Certain Effects of the Offer and the Merger............... 14 Interests of Certain Persons in the Offer and the Merger................................................. 16 The Merger Agreement...................................... 18 Dissenters' Rights........................................ 24 Certain Federal Income Tax Consequences................... 25 THE TENDER OFFER............................................ 25 Terms of the Offer........................................ 25 Procedure for Tendering Shares............................ 27 Withdrawal Rights......................................... 29 Acceptance for Payment and Payment for Shares............. 30 Price Range of the Shares; Dividends...................... 31 Certain Information Concerning Parent and Newco........... 31 Certain Information Concerning the Company................ 33 Available Information..................................... 35 Source and Amount of Funds................................ 35 Dividends and Distributions............................... 36 Certain Conditions of the Offer........................... 36 Certain Legal Matters; Regulatory Matters................. 38 Fees and Expenses......................................... 39 Miscellaneous............................................. 40 ANNEXES ANNEX A -- Opinion of Stephens Inc........................ A-1 ANNEX B -- Agreement and Plan of Merger................... B-1 ANNEX C -- Directors and Executive Officers of Parent and Newco.................................................. C-1 ANNEX D -- Directors and Executive Officers of the Company................................................ D-1 ANNEX E -- Text of Section 262 of the General Corporation Law of the State of Delaware........................... E-1
i 3 To the Holders of Common Stock of Treadco, Inc.: INTRODUCTION Arkansas Best Corporation, a Delaware corporation ("Parent") hereby offers to purchase all outstanding shares of common stock, par value $.01 per share (the "Common Stock"), including the associated common stock purchase rights (the "Rights" and together with the Common Stock, the "Shares") issued pursuant to the Rights Agreement (as defined below), of Treadco, Inc., a Delaware corporation (the "Company"), at $9.00 per Share (the "Offer Price"), net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. Parent will pay all fees and expenses of Harris Trust Company of New York, which is acting as the Depositary (the "Depositary"), and D.F. King & Co., Inc. which is acting as Information Agent (the "Information Agent"), incurred in connection with the Offer. See "THE TENDER OFFER -- Fees and Expenses." THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD"), BASED, AMONG OTHER THINGS, ON THE UNANIMOUS RECOMMENDATION OF A SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS OF THE BOARD (THE "SPECIAL COMMITTEE"), HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER (AS DEFINED BELOW) AND DETERMINED THAT THE OFFER AND THE MERGER, TAKEN TOGETHER, ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY (OTHER THAN PARENT) AND RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. The Special Committee was recently formed to review and consider a proposal (the "Proposal") from Parent, which currently owns approximately 49% of the outstanding Shares (47% of the outstanding Shares on a fully diluted basis), that the Shares not owned by Parent be acquired for $9.00 in cash per Share. Stephens Inc., financial advisor to the Special Committee ("Stephens"), has delivered to the Special Committee and the Board its written opinion to the effect that, as of the date of such opinion, the $9.00 in cash to be received by the holders of the Shares (other than Parent and its affiliates, directors, officers and employees of the Company, and any holders of more than 10% of the aggregate Shares outstanding (the "Disinterested Stockholders")) in each of the Offer and the Merger is fair to the Disinterested Stockholders, from a financial point of view. Such opinion is set forth in full as ANNEX A hereto. Stockholders should read the full text of Stephens' opinion for a description of the assumptions made, matters considered and procedures followed in rendering such opinion. See "SPECIAL FACTORS -- Opinion of Financial Advisor." See "SPECIAL FACTORS -- Recommendation of the Special Committee and the Board of Directors; Fairness of the Offer and the Merger" for the various factors considered by the Special Committee in approving the Offer and the Merger and in unanimously recommending that the Board approve the Offer and the Merger. The Company has filed with the Securities and Exchange Commission (the "Commission") a Solicitation/Recommendation Statement on Schedule 14D-9 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") which is being mailed to stockholders of the Company herewith. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN "THE TENDER OFFER -- TERMS OF THE OFFER") THAT NUMBER OF SHARES REPRESENTING AT LEAST 66 2/3% OF ALL OUTSTANDING SHARES ON A FULLY DILUTED BASIS WHEN AGGREGATED WITH THE SHARES OWNED BY PARENT, WHICH CURRENTLY OWNS APPROXIMATELY 47% OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS (THE "MINIMUM CONDITION"), AND (II) THE EXPIRATION OR TERMINATION OF ALL APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED (THE "HSR ACT"). THE OFFER IS ALSO SUBJECT 1 4 TO OTHER TERMS AND CONDITIONS. SEE "THE TENDER OFFER -- CERTAIN CONDITIONS OF THE OFFER." The Offer is being made pursuant to the Agreement and Plan of Merger dated as of March 15, 1999 (the "Merger Agreement"), among Parent, Treadco Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Parent ("Newco"), and the Company pursuant to which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, Newco will be merged with and into the Company, with the Company surviving the merger (as such, the "Surviving Corporation") as a wholly-owned subsidiary of Parent (the "Merger" and together with the Offer, the "Transaction"). A copy of the Merger Agreement is attached hereto as ANNEX B. In the Merger, each outstanding Share (other than Shares owned by (i) Parent, Newco, the Company, or any direct or indirect subsidiary of Parent or (ii) stockholders of the Company, if any, who are entitled to and who properly exercise dissenters' rights under Delaware law) will be converted into the right to receive the per Share price paid in the Offer in cash, without interest (the "Merger Consideration"). The Merger is subject to a number of conditions, including approval by stockholders of the Company. Under the Company's certificate of incorporation and Delaware law, the approval of the affirmative vote of the holders of the Shares representing 66 2/3% of the outstanding Shares is required to approve and adopt the Merger Agreement and the Merger. See "SPECIAL FACTORS -- The Merger Agreement." As of March 10, 1999, there were 5,072,255 shares issued and outstanding and 290,000 shares reserved for issuance upon the exercise of outstanding stock options. Parent currently owns 2,497,200 shares (the "Parent Shares"). Accordingly, Parent believes that the Minimum Condition will be satisfied if approximately 1,077,637 shares are validly tendered and not withdrawn prior to the Expiration Date. If the Minimum Condition is satisfied and Parent accepts for payment Shares tendered pursuant to the Offer, Parent will be able to effect the Merger without the affirmative vote of any other stockholder of the Company. Immediately prior to the delivery of the Proposal by Parent to the Company, Shapiro Capital Management Company, Inc. ("Shapiro Capital") entered into an agreement with Parent (the "Support Agreement"), which, among other things, granted Parent a proxy to vote 1,132,775 shares (approximately 21% of the outstanding Shares on a fully diluted basis) beneficially owned by Shapiro Capital for the approval of the Merger and against any corporate action the consummation of which would violate, frustrate the purpose of, or prevent or delay the Merger (the "Shapiro Proxy"). In the Support Agreement, Shapiro Capital reserves the right to tender all Shares owned by it pursuant to the Offer. Based on the number of Shares subject to the Shapiro Proxy when aggregated with the Parent Shares, Parent currently has the voting power to effect the Merger without the affirmative vote of any other stockholder of the Company. See "SPECIAL FACTORS -- Background of the Offer and the Merger" for a further description of the Support Agreement. In connection with the execution of the Merger Agreement, the Company amended the Rights Agreement, dated as of September 1, 1991 between the Company and NCNB Texas National Bank (as amended, the "Rights Agreement") governing the Rights to purchase shares of Common Stock at $60.00 per share issued under the Company's Rights Agreement, to provide that the Offer would not constitute an event resulting in a "Distribution Date" (as such term is defined in the Rights Agreement). The Rights Agreement prior to this amendment generally provided that the Rights would not be applicable to any acquisition of the Company by Parent or an affiliate thereof. Certain federal income tax consequences of the sale of Shares pursuant to the Offer and the exchange of Shares for the Merger Consideration pursuant to the Merger are described in "SPECIAL FACTORS -- Certain Federal Income Tax Considerations." THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION AND SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER OR THE MERGER. 2 5 SPECIAL FACTORS BACKGROUND OF THE OFFER AND THE MERGER The Company was formed in June 1991 under Delaware Law as a wholly-owned subsidiary of Parent as the successor to the truck tire retreading and new tire sales business previously developed and conducted by another wholly-owned subsidiary of Parent. In September 1991, the Company sold 2.5 million Shares and Parent sold 179,300 Shares in an underwritten public offering at an initial public offering price of $16.00 per Share. The offering was underwritten in part by Morgan Stanley & Co. Incorporated ("Morgan Stanley"), which is acting as financial advisor to Parent in connection with the Transaction. The Company realized $37.2 million and Parent realized $2.7 million in connection with the sale, after the payment of the underwriters' discount. The Company proceeds were used to repay indebtedness under the Company's credit facility and indebtedness owed to Parent, and Parent used its proceeds for general corporate purposes. The initial public offering of the Company reduced Parent's ownership of the Company to approximately 46%. In the first quarter of 1998, Parent began an evaluation of its then 46% investment in the Company. The evaluation process focused on, among other things, the performance of the Company, the costs incurred by the Company with respect to its status as a public company, lower interest rates available to Parent under its credit agreement, lower state income tax costs and other tax benefits available to Parent if the Company were a wholly-owned subsidiary. Parent also reviewed the Company's operating ratios for periods from 1990 to 1994, which were significantly better than 1995 and subsequent years. This evaluation resulted in a presentation by Parent's management to Parent's Board of Directors in May 1998 regarding the Company. The presentation included a return on investment analysis assuming the Company achieved its own forecasts and an analysis of Parent's after tax proceeds in the event that the Company never achieved an acceptable return and Parent decided to dispose of its investment in the Company. This analysis reflected the tax benefits of selling assets of the Company rather than stock. The direct tax benefits to Parent of a sale of assets totaled approximately $10 million. In July 1998, Parent's management made another presentation to Parent's Board of Directors which was basically the same as the April 1998 presentation except that the transaction costs of purchasing the remaining outstanding shares of the Company were increased. Parent's Board of Directors discussed the possibility of obtaining an option to purchase the shares of the Company's second largest beneficial stockholder, Shapiro Capital, an investment management firm that beneficially owns approximately 21% of the outstanding Shares on a fully diluted basis. In August 1998, Samuel R. Shapiro, President of Shapiro Capital, advised John R. Meyers, President of the Company, of his possible interest in disposing of the Shares beneficially owned by Shapiro Capital. Mr. Meyers informed Robert A. Young, President and CEO of Parent and Chairman of the Board of the Company of such discussions with Mr. Shapiro. On September 11, 1998, Parent purchased a block of 177,500 shares for $6.375 per Share in a private block transaction through Stephens. Parent used working capital on hand to purchase such Shares. This purchase represents Parent's sole acquisition of Shares since the Company's initial public offering. Parent filed a Schedule 13D under the Exchange Act with the Commission reflecting this purchase of Shares on September 18, 1998. As a result of this purchase, Parent owned in the aggregate approximately 49% of the total outstanding Shares. In November 1998, Morgan Stanley began assisting Parent in its analysis of the Company. Representatives of Morgan Stanley made a presentation regarding the Company to Parent's Board of Directors at its regular meeting on December 10, 1998. Morgan Stanley reviewed with the Board of Directors the Company's financial results, status of the transition of the Company, liquidity of the stock, research coverage, and possible strategic value. Morgan Stanley reviewed the following strategic alternatives with Parent's Board of Directors (i) Parent continuing to hold its 49% interest in the Company, (ii) sale of 100% of the Company or (iii) a Parent repurchase of the remaining Company interest held by the public. Morgan Stanley was not requested to, and 3 6 did not, render a financial opinion regarding the fairness of the consideration in the Offer and the Merger. In addition, Morgan Stanley was not requested to, and did not, solicit third party indications of interest with respect to Parent's interest in the Company. See "THE TENDER OFFER -- Fees and Expenses" for a description of Parent's fee arrangements with Morgan Stanley in connection with the Offer and the Merger. Additionally, at this meeting, representatives of the Company made a presentation regarding the Company's 1999 budget and its five-year business plan (the "Management Projections"). This presentation had also been given to the Board of Directors of the Company the previous day. See "Certain Projections." After discussion of the alternatives, Parent's Board of Directors concluded that it would be appropriate for Mr. Young to meet with Mr. Shapiro to determine if Shapiro Capital remained interested in selling its Shares. On December 18, 1998, the Company announced that it had entered into a settlement of a dispute with Bandag, Incorporated and certain of Bandag's current and former employees arising out of the two companies' former franchise relationship. Under the settlement terms, the Company received a one-time cash payment of approximately $9.995 million and reported additional after-tax income of approximately $5.4 million, which represented $1.06 per Share on an after-tax basis. The settlement payment was applied to reduce the Company's outstanding borrowings under its revolving credit agreement. At the direction of Parent's Board of Directors, on January 6, 1999, Mr. Young met with Mr. Shapiro at the principal offices of Shapiro Capital. At such meeting, Mr. Young and Mr. Shapiro proposed various prices and after negotiations, Messrs. Young and Shapiro tentatively agreed to a $9.00 per Share price for the Shares beneficially owned by Shapiro Capital (the "Shapiro Shares"). Subsequently, during the week of January 11, 1999, counsel for Parent and Shapiro Capital exchanged drafts of an agreement for the purchase of the Shapiro Shares. However, Parent and Shapiro Capital determined that in light of the large number of investment management accounts holding the Shapiro Shares, a direct purchase would be impractical. Immediately prior to the delivery of the Proposal by Parent to the Company described below, Parent and Shapiro Capital did however enter into the Support Agreement on January 22, 1999, pursuant to which, among other things, Shapiro Capital granted the Shapiro Proxy to Parent to vote the Shapiro Shares (1,132,775 shares (approximately 21% of the outstanding Shares on a fully diluted basis)) for the approval of the Merger and against any corporate action the consummation of which would violate, frustrate the purpose of, or prevent or delay the Merger. The Shapiro Proxy will terminate upon the earlier of (i) July 31, 1999 or (ii) the consummation of the Merger. In addition, the Support Agreement states that Shapiro Capital believes the $9.00 per share cash price is fair, that Shapiro Capital will support the Transaction and that Shapiro Capital reserves the right to tender any and all Shares beneficially owned by it pursuant to the Offer. Parent filed an amendment to the Schedule 13D referred to above reporting the Support Agreement on January 26, 1999 (as amended, the "Schedule 13D"). The Schedule 13D and the Support Agreement, which is attached as an exhibit to the Schedule 13D, are available for inspection and copies are obtainable in the manner set forth in "THE TENDER OFFER -- Available Information." On January 22, 1999, Parent delivered to the Board the Proposal, in which Parent offered to enter into a merger agreement with the Company pursuant to which all of the issued and outstanding Shares not owned by Parent would be acquired for cash in an amount equal to $9.00 per Share. The Proposal is attached as an exhibit to the Schedule 13D and is available for inspection and copies are obtainable in the manner set forth in "THE TENDER OFFER -- Available Information." Representatives of Parent advised the Company's independent directors that a special committee should be formed to evaluate the Proposal and that such committee would need independent advisors. On January 25, 1999, the independent directors of the Board interviewed representatives of Stephens, an independent investment banking firm located in Little Rock, Arkansas and recommended by representatives of Parent as knowledgeable about the Company. On January 26, 1999, the Board met and formally appointed Robert B. Gilbert and Nicholas M. Georgitsis as the members of the Special Committee to, among other things, consider how the Company should respond to the Proposal. On January 28, 1999, the Special Committee retained Kutak Rock as independent legal advisor to the Special Committee, and on January 29, 1999, the 4 7 Special Committee retained Stephens as independent financial advisor to the Special Committee. Since analysts for Stephens had written research reports about the Company in the past, and Stephens had previously been a market maker for the Shares, the Special Committee chose not to interview any other investment bankers. During the first two weeks of February 1999, Stephens and Kutak Rock conducted due diligence regarding the proposed transaction at the offices of the Company. On February 2, 1999, counsel for Parent sent Kutak Rock a draft Merger Agreement which provided for a self-tender by the Company to purchase for cash the Shares not owned by Parent. On February 10, 1999, the Special Committee met in person with its financial and legal advisors to consider the Proposal and the terms and conditions of the draft of the Merger Agreement. At this meeting the Special Committee and its financial and legal advisors discussed their comments regarding the proposed structure, particularly the Company tender offer, the results of due diligence and the appropriateness of the Offer Price. On February 12, 1999, representatives of Parent, including its financial and legal advisors, met by telephone conference with the Special Committee's financial and legal advisors. During such meeting the parties discussed the structure of the Transaction and the Offer Price. Specifically, the advisors of the Special Committee requested that the Transaction be structured as a tender offer by Parent or a one-step merger transaction instead of a tender offer by the Company, which utilized the credit facility and working capital of the Company to finance the Offer and asked if Parent had offered its best price for the Shares. Parent agreed to consider the Special Committee's concerns regarding the requirements that the Company initiate a tender offer for the Shares but advised the Special Committee that the $9.00 Offer Price was its best and highest price. Parent, however, agreed to review with Stephens certain information on which its analysis would be based. On February 16, 1999, the Special Committee met telephonically with its legal and financial advisors. The advisors reported to the Special Committee the results of the February 12, 1999 conference call with the Parent and its advisors. Stephens advised the Special Committee of the results of its initial analyses of the fairness of the Offer Price. Such initial analyses indicated that, while the Offer Price may be fair, a better Offer Price might be obtainable if Stephens specifically requested Parent to consider a $10.00 Offer Price and offer its analyses and other justification in support thereof. The Special Committee instructed Stephens to suggest to Parent an offer price of $10.00 and to provide Parent with analyses supportive of this price. It also instructed Kutak Rock to reiterate its concerns regarding the Merger Agreement, including terms requiring the Company to initiate a self-tender and those specifying certain conditions under which Parent would be entitled to a break-up fee. On February 18, 1999, representatives of Parent, including its financial and legal advisors, met by telephone conference with the Special Committee's financial and legal advisors. During such meeting the parties again discussed the structure of the Transaction and the Offer Price. Specifically, Stephens outlined its due diligence and preliminary valuation methodology to date. After various discussions among the parties, Stephens again suggested that Parent raise the Offer Price, and suggested an Offer Price of $10.00 would be more appropriate in light of its analysis. In response, David E. Loeffler, Vice President and CFO of Parent, indicated that Parent was not willing to raise the Offer Price. Mr. Loeffler did agree to review Stephens' preliminary analysis and certain information on which its analysis was based. Legal counsel for the Special Committee then reiterated the Special Committee's concerns over the structure of the Transaction as a self-tender and requested that Parent be the bidder in any tender offer for the Shares. Such counsel also expressed concern over a proposed $1 million break-up fee payable to Parent by the Company under certain conditions. On February 22, 1999, Stephens sent Parent a letter which set forth summary financial information derived from the Management Projections, summary financial information derived from financial projections for the Company prepared by Stephens with input from the Company's management which assumed a lower revenue growth rate and a lower operating margin (the "Revised Projections") than the Management Projections and various valuation methodologies utilizing the Revised Projections. In such letter, Stephens again asked Parent to consider raising the Offer Price and suggested that $10.00 per Share would be more appropriate. Such letter did not indicate, however, that an Offer Price of less than $10.00 per Share would not be fair. 5 8 On February 25, 1999, representatives of Parent met by telephone conference with Stephens to discuss the Stephens letter of February 22, 1999. Mr. Loeffler indicated that Parent believed that the $9.00 per Share Offer Price was fair and that Parent was not willing to raise its offer. Mr. Loeffler also noted his belief that the Management Projections were too aggressive for a fairness analysis in light of the Company's past failures to meet its budget and operating income for the first part of 1999 being substantially behind budget. Mr. Loeffler then informed Stephens that Parent was willing to make some changes to the structure of the Transaction in response to the concerns over the structure of the Transaction. On February 26, 1999, representatives of Parent, including its legal advisors, met by telephone conference with the Special Committee's financial and legal advisors. During such meeting legal counsel for the Special Committee advised Parent that, among other things, the Special Committee wanted Parent to conduct the tender offer, the elimination or substantial reduction in the triggers and amount of the break-up fee and certain other protections to insure that the Offer and the Merger would close. The Special Committee also requested that Parent modify the Merger Agreement to provide a sale premium recapture ("Recapture") such that if, within one year after the Merger is consummated, Parent sells the Company, then it would pay pro ratably to all stockholders of the Company as of the date of the Merger Agreement, any premium Parent would otherwise receive in such sale. Premium in this instance would have been the amount of any excess received by Parent over the value of the Company assuming such value to be equivalent of a $9.00 price per Share for all outstanding Shares. Representatives of Parent indicated their willingness to make certain of the requested changes and reiterated that they believed the $9.00 Offer Price to be fair and that Parent would not agree to the Recapture. Later that day, counsel for Parent distributed a revised draft of the Merger Agreement to the parties that provided, among other things, for Parent making the tender offer, the use of funds solely from Parent to consummate the Offer and the Merger and the reduction of the break-up fee from $1 million plus expenses of Parent to $675,000 inclusive of expenses of Parent. On March 2, 1999, counsel to Parent met by telephone conference with Stephens and Kutak Rock to discuss the revised draft of the Merger Agreement, and on March 3, 1999, counsel for Parent distributed a revised draft of the Merger Agreement reflecting certain changes discussed the prior day, including, among other things, further limiting the type of events that would trigger the break-up fee. On March 5, 1999 the Special Committee met telephonically with its financial and legal advisors. Stephens advised the Special Committee that Parent once again had declined to increase the Offer Price and had declined to include the Recapture in the Merger Agreement. Stephens indicated that it would likely be prepared to render an opinion on the fairness of a $9.00 offer price from a financial point of view provided that it and the Special Committee receive certain assurances from Parent that to its knowledge that there is no fact, circumstance, occurrence or event not disclosed to Stephens in their preparation of the Revised Projections that Parent believed would significantly impact the Company's operating results for fiscal 1999. The Special Committee instructed Stephens and Kutak Rock to request such assurances of Parent. The Special Committee also instructed Kutak Rock to request that Parent in the Merger Agreement represent that it knows of no current discussions or negotiations involving the sale of the Company to a third party. On March 5, 1999, counsel to Parent met by telephone conference with Stephens and Kutak Rock to discuss the revised draft of the Merger Agreement. Counsel for the Special Committee indicated that the latest changes were acceptable to the Special Committee and that the Special Committee was ready to proceed with the Transaction as provided in the latest draft of the Merger Agreement subject to certain changes to the Merger Agreement including the foregoing representations of Parent regarding a lack of a third party proposal, the Special Committee receiving an opinion from Stephens that the $9.00 Offer Price was fair to the Disinterested Stockholders and that Stephens receive certain information from Parent regarding the Management Projections and the Revised Projections. Later that day, counsel for Parent distributed a draft of a side letter containing certain assurances of Parent with respect to the Management Projections and, as discussed above, the Revised Projections, which was subsequently executed and delivered to Stephens by Parent on March 15, 1999. On March 9, 1999, the Special Committee and its legal and financial advisors met telephonically. At this meeting, Stephens advised that the assurances regarding the Revised Projections by Parent were acceptable, 6 9 and Kutak Rock advised that the Special Committee's final comments to the Merger Agreement had been appropriately resolved. On March 15, 1999, the Special Committee unanimously determined to recommend the proposed transaction to the Board of Directors of the Company after Stephens expressed the opinion (subsequently confirmed in its written opinion) that, on the basis of, and subject to the matters stated in its opinion, the consideration to be received by the Disinterested Stockholders pursuant to the Offer and the Merger is fair to the Disinterested Stockholders from a financial point of view. Later that day, the Board, with all directors participating by conference telephone, met to consider the Offer and the Merger. The Special Committee, with representatives of Stephens and Kutak Rock participating, reported to the Board on its review of the Offer, the Merger and the Merger Agreement and its recommendation of the proposed transaction as fair to the holders of Shares (other than Parent) (the "Public Stockholders"). After receiving the recommendation of the Special Committee, asking questions of the Special Committee as well as its financial and legal advisors and receiving a further explanation of the provisions of the Offer and Merger Agreement from representatives of Parent and its legal advisors, the Board unanimously approved the Offer, the Merger and the Merger Agreement. Subsequently that day, the Board of Directors of Parent, at a special meeting held by conference telephone to consider the matter, unanimously approved the Offer, the Merger and the Merger Agreement. Representatives of Parent and the Company completed execution of the Merger Agreement, and the proposed Offer and the Merger were announced the next day. RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS; FAIRNESS OF THE OFFER AND THE MERGER The Special Committee has unanimously (a) determined that the Offer and the Merger, taken together, are fair to the Public Stockholders, (b) recommended that the Board approve the Offer and adopt the Merger Agreement and the transactions contemplated thereby in accordance with the Delaware Corporation Law, (c) resolved to recommend that Public Stockholders accept the Offer and approve the Merger Agreement, and (d) recommended that the Board take action to render the Rights inapplicable to the Offer and the Merger. In recommending approval of the Merger Agreement and the transactions contemplated thereby, and recommending that the Public Stockholders tender their Shares pursuant to the Offer, the Special Committee considered a number of factors, including: (i) The results of operations, financial condition, assets, liabilities, business strategy and prospects of the Company and the nature of the industry in which the Company competes. The members of the Special Committee were generally familiar with the Company's business, results of operations and prospects and further reviewed the Company's business, conditions and prospects in the course of various meetings referred to above. In evaluating the Company's prospects, the Special Committee with the assistance of its financial advisor considered the substantial risks inherent in the tire retreading and new tire businesses, including the increasingly competitive environment in which the Company operates, and consolidations in the industry leading to economies of scale. The Special Committee determined that these factors indicated an industry trend favoring larger companies with sustainable economies of scale. The Special Committee determined that these economies were not available to the Company and, without significant additional investment over time, these would not be available to the Company in the future. The Special Committee also considered the recent losses of certain key marketing and sales personnel, which losses were represented by management of the Company to further undermine the Company's short-term competitive abilities. The Special Committee also considered certain projected financial data in considering the Company's prospects. See "Certain Projections." (ii) The opinion of Stephens to the effect that, as of the date of such opinion and based upon and subject to certain factors and assumptions stated therein, the $9.00 per Share cash consideration to be received by the Disinterested Stockholders pursuant to the Offer and the Merger is fair from a financial point of view to such 7 10 stockholders. THE FULL TEXT OF STEPHENS' OPINION IS ATTACHED AS ANNEX A HERETO AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. (iii) The historical trading prices of the Shares, the historical trading volume and liquidity in the trading market for the Shares, and the relationship of the $9.00 per Share Offer Price to the historical market prices for the Common Stock, including the fact that the Offer Price represents a 33.3% premium over the $6.75 per share closing price of the Company's Common Stock on December 23, 1998, the trading day thirty days prior to the public announcement of the Proposal. (iv) The fact that Parent has advised the Company that it is not aware of any current offer or indication of interest from any person regarding the sale of the Company and that, since January 22, 1999, the date of the announcement of Parent's Proposal, no person or entity has publicly communicated such an offer or indication of interest in acquiring the Company, or a significant position in the Shares. (v) The view of the Special Committee, after consultation with its financial and legal advisors, that the terms of the Merger Agreement, including the amounts payable to Parent in the event of termination, which amounts are believed by the Special Committee to approximate Parent's expenses incurred in the Transaction, would not materially deter bona fide acquisition proposals by third parties. (vi) The fact that the Merger Agreement includes an obligation for Parent to make a first-step cash tender offer thereby enabling the Public Stockholders who tender their shares to receive cash consideration without waiting for the Merger to be consummated. Also considered favorable was the fact that Public Stockholders who do not tender their Shares pursuant to the Offer would receive in the Merger the same cash price per share paid by Parent in the Offer (unless they elect to exercise their statutory dissenters' rights). (vii) The availability of judicial appraisal rights under Section 262 of the Delaware General Corporation Law ("DGCL") to stockholders of the Company who dissent from the Merger. (viii) The fact that Shapiro Capital had indicated to Parent its willingness to accept $9.00 for its Shares, and its granting to Parent of the Shapiro Proxy to vote in favor of the Merger on its behalf. (ix) The fact that due to Parent's ownership position in the Company's Common Stock, coupled with the proxy from Shapiro Capital, Parent possesses sufficient votes to effect the Merger and to prevent any effort by a third party to acquire control of the Company except with the consent of Parent. In light of the Company's return on equity over recent periods, the Special Committee did not consider net book values or liquidation value to be appropriate indicators of the value of the consideration to be received by the Public Stockholders. In addition to the factors listed above, the Board and the Special Committee had each considered the fact that consummation of the Offer and the Merger would eliminate the opportunity of the Public Stockholders to participate in any potential future growth in the value of the Company, but determined that this loss of opportunity was reflected (i) in part by the price of $9.00 per Share to be paid in the Offer and the Merger and (ii) was considered in the premium and other analyses performed by Stephens. In reaching its decision to approve the Merger Agreement and recommending acceptance of the Offer, the Special Committee relied on the factors identified above. Because of the appointment of the Special Committee and its engagement of Stephens and Kutak Rock, neither the Special Committee nor the Board considered it necessary to retain additional representatives to act solely on behalf of the Public Stockholders for purpose of negotiating the terms of the Transaction. The foregoing discussion of the information and factors considered by the Special Committee is not meant to be exhaustive but includes the material factors considered by the Special Committee in reaching its conclusions and recommendations. In view of the variety of factors considered in its reaching a determination, the Special Committee did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its conclusions and recommendations. In addition, individual members of the Special Committee may have given different weights to different factors. 8 11 The Board, by a unanimous vote of all directors, based in part on the recommendation and approval of the Special Committee, approved the Merger Agreement and the transactions contemplated thereby and determined that each of the Offer and the Merger is fair to the Public Stockholders. The Board, by a unanimous vote of all directors, has recommended that all holders of Shares (other than Parent and certain affiliates) accept the Offer and tender their Shares pursuant to the Offer. In reaching its determinations referred to above, the Board considered the recommendation of the Special Committee and the factors set forth immediately above, each of which, in view of the Board, supported such determinations. The Board, including the Special Committee, believes that the Offer and the Merger are procedurally fair because, among other things: (i) the Special Committee consisted of independent directors appointed to represent the interests of the Public Stockholders. (ii) the Special Committee retained Stephens as its independent financial advisor to assist them in evaluating the Offer and the Merger. (iii) the Special Committee retained and was advised by independent legal counsel. (iv) the deliberations pursuant to which the Special Committee evaluated the Offer and the Merger and alternatives thereto. (v) the fact that Shapiro Capital had indicated to Parent its willingness to accept $9.00 per Share through the execution of the Support Agreement, and the fact that the terms and conditions of the Merger Agreement, including the $9.00 per Share price, were actively negotiated between the Special Committee, on the one hand, and Parent, on the other hand. The Board and the Special Committee recognized that the Merger is not structured to require the approval of a majority of the stockholders of the Company other than Parent, and that Parent through its Share ownership and the Shapiro Proxy has sufficient voting power to approve the Merger without the affirmative vote of any other stockholder of the Company. The Board and the Special Committee recognized that Parent is required pursuant to the Merger Agreement to vote its Shares in favor of the Merger. Parent advised the Special Committee and the Board that it has not received, and the Company, the Board and Special Committee did not receive any indications of interest or proposals regarding the acquisition of the Company after the public announcement of the Proposal. OPINION OF FINANCIAL ADVISOR Stephens was retained by the Special Committee to assist it in evaluating the fairness, to the Disinterested Stockholders, from a financial point of view, of the Offer Price and the Merger Consideration. At the meeting of the Company's Board of Directors held on March 15, 1999, Stephens delivered to the Special Committee a written opinion stating that each of the Offer Price and the Merger Consideration is fair to the Disinterested Stockholders from a financial point of view. In arriving at its written opinion, Stephens (i) reviewed certain publicly available business and financial information relating to the Company; (ii) reviewed certain information including internal financial statements, financial projections (Management Projections and Revised Projections), and other financial and operating data concerning the Company furnished to Stephens by the Company and Parent; (iii) held discussions with certain senior officers, directors and other representatives or advisors of the Company and Parent concerning the business, operations and prospects of and potential strategic alternatives available to the Company; (iv) reviewed the reported price and trading activity for the Company's common stock; (v) analyzed certain financial and stock market information for the Company as compared with similar information for other publicly traded companies; (vi) reviewed the financial terms, to the extent publicly available, of certain comparable business combinations; (vii) reviewed the Merger Agreement, the exhibits thereto, and other related documents; and (viii) performed certain discounted cash flow analyses and other studies and analyses as it considered 9 12 appropriate. In addition, Stephens considered for the purposes of its opinion, recent trends in the new tire and retreaded tire industry and the competitive position of the Company. In arriving at its opinion, Stephens performed a variety of financial analyses, the material portions of which are summarized below. This summary does not purport to be a complete description of the analyses performed by Stephens. In addition, Stephens believes that its analyses must be considered as a whole and that selecting portions of its analysis or the factors considered by it, without considering all such factors and analyses, could create a misleading view of the process underlying its analyses. Stephens did not draw any specific conclusions from or with regard to any one method of analysis in isolation from others. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial or summary description. The matters considered by Stephens in arriving at its opinion are based on numerous macroeconomic, operating and financial assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond Parent's and the Company's control. The analyses performed by Stephens are not necessarily indicative of actual values, which may be significantly more or less favorable than suggested by such analyses. Additionally, analyses relating to the values of businesses do not purport to be appraisals or to reflect the prices at which such business actually may be sold. Because such analyses are inherently subject to uncertainty, none of the Company, Parent or Stephens or any other person assumes responsibility if future events do not conform to the judgments reflected in the opinion of Stephens. In rendering its opinion, Stephens assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information publicly available or furnished to or otherwise reviewed by or discussed with Stephens. With respect to financial forecasts and other information provided to or otherwise reviewed by or discussed with Stephens, the management of the Company advised Stephens that such forecasts and other information were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company as to the future financial performance of the Company. Stephens did not make or obtain an independent evaluation or appraisal of the assets, liabilities (contingent or otherwise and including the loss and loss adjustment expense reserves) or reserves of the Company nor did Stephens make any physical inspection of the properties or assets of the Company. The full text of the written opinion of Stephens dated March 15, 1999, which sets forth the assumptions made, matters considered and limitations on the review undertaken, is attached hereto as ANNEX A and is incorporated herein by reference. Holders of Shares are urged to read the opinion carefully in its entirety. Stephens' opinion is directed only to the fairness of the Offer Price and the Merger Consideration to the Disinterested Stockholders from a financial point of view. The summary of the opinion of Stephens set forth in this Offer to Purchase is qualified in its entirety by reference to the full text of such opinion. Overview. In its presentation to the Special Committee, Stephens presented an overview of the Proposal, the Offer and the Merger and the negotiations leading to the definitive Merger Agreement. Stephens reviewed the recent historical performance of the Company as well as its future performance as projected by the management of the Company. Stephens noted that at $9.00 per Share, the implied value of common equity, including the value of stock options and performance award units plus the amount of assumed debt less the amount of assumed cash and cash equivalents ("Implied Total Transaction Value") of the entire Company was approximately $58.1 million. This Implied Total Transaction Value represented approximately 0.3x the Company's 1998 and estimated 1999 revenues included in the Revised Projections; 5.9x and 4.8x the Company's 1998 earnings, before interest, taxes, depreciation and amortization ("EBITDA") (restated to exclude the effects of the Bandag settlement and related litigation expenses) and estimated 1999 EBITDA included in the Revised Projections, respectively; and 15.9x and 10.7x the Company's 1998 earnings, before interest, taxes and amortization ("EBITA") (restated to exclude the effects of the Bandag settlement and related litigation expenses) and estimated 1999 EBITA included in the Revised Projections, respectively. The total implied value of common equity, including the value of stock options and performance award units ("Implied Transaction Value") of the entire Company was approximately $46.3 million. This Implied Transaction Value represented 47.3x and 17.1x the Company's 1998 net income (restated to exclude the effects of the Bandag 10 13 settlement and related litigation expenses) and estimated 1999 net income included in the Revised Projections, respectively and approximately 0.7x the Company's 1998 and estimated 1999 book value. Valuation Analysis. Stephens arrived at ranges of value for the Company's Shares by utilizing four principal valuation methodologies: a comparable company analysis; a comparable transaction analysis; a discounted cash flow analysis; and an analysis of premiums paid in similar transactions. Stephens also analyzed the historical trading (including price and volume) of the Company's Shares. Comparable Company Analysis. Stephens compared certain publicly available financial information, operating data and projected financial performance (research analyst estimates per I/B/E/S) of five companies that Stephens believed to be appropriate for comparison, specifically, TBC Corporation ("TBC"); Bandag, Inc.; Standard Products Co.; Cooper Tire & Rubber Co. ("Cooper"); and Goodyear Tire & Rubber Co. ("Goodyear"), to corresponding financial and operating data of the Company. Stephens derived ranges of implied value for the Company's Shares by examining the comparable companies' trading ratios of a) market value of common equity plus total debt less cash and cash equivalents ("Total Market Capitalization") to 1998 EBITDA of 4.0x to 5.9x; b) Total Market Capitalization to 1998 EBITA of 5.9x to 8.1x; c) market price of common shares to reported 1998 earnings per share of 6.8x to 12.3x; and d) the market price of common shares to estimated 1999 earnings per share (per research analyst estimates from I/B/E/S) of 6.3x to 11.7x. Stephens derived a range of implied values for the Company's Shares of $5.45 to $9.34 based on a ratio of Total Market Capitalization to 1998 EBITDA (excluding the effects of the Bandag settlement and related litigation expenses); a range of $2.02 to $4.19 based on a ratio of Total Market Capitalization to 1998 EBITA (excluding the effects of the Bandag settlement and related litigation expenses); a range of $1.93 to $3.08 based on a ratio of market price of common shares to 1998 earnings per share (excluding the effects of the Bandag settlement and related litigation expenses); and a range of $4.26 to $7.46 based on a ratio of market price of common shares to 1999 estimated earnings per share included in the Revised Projections. Comparable Transaction Analysis. Stephens analyzed the financial terms, to the extent publicly available, of three transactions involving businesses comparable to that of the Company which were announced since May 5, 1996. The selected transactions were Goodyear's acquisition of Brad Ragan, Inc.; Cooper's acquisition of Avon Tyres PLC, and TBC's acquisition of Big O Tires. Stephens derived ranges of implied value for the Company's shares by examining the comparable transaction ratios of a) the price paid for the common equity plus assumed debt less assumed cash ("Total Transaction Value") to latest twelve month EBITDA which ranged from 6.2x to 14.1x; b) the Total Transaction Value to latest twelve month EBITA which ranged from 9.2x to 20.1x; and c) the price paid for the common equity ("Transaction Value") to latest twelve month net income which ranged from 22.5x to 46.4x. Stephens derived a range of implied values for the Company's Shares of $9.34 to $17.10 based on a ratio of Total Transaction Value to 1998 EBITDA (excluding the effects of the Bandag settlement and related litigation expenses); a range of $4.91 to $12.14 based on a ratio of Total Transaction Value to 1998 EBITA (excluding the effects of the Bandag settlement and related litigation expenses); and a range of $3.86 to $7.71 based on a ratio of Transaction Value to 1998 net income (excluding the effects of the Bandag settlement and related litigation expenses). Discounted Cash Flow Analysis. Stephens performed a discounted cash flow analysis of the Company based upon the Revised Projections. Utilizing these projections, Stephens calculated a range of implied value per share based upon the discounted net present value of the sum of the projected stream of unlevered free cash flows of the Company for the years ending December 31, 1999 through 2003 and a projected terminal value at 2003 less debt plus cash as of December 31, 1998 and divided by the number of the Company's fully diluted shares outstanding. Stephens applied several discount rates (ranging from 11.0% to 13.0%) and multiples of EBITDA (ranging from 5.0x to 7.0x) to generate the terminal value. Utilizing this methodology, the implied range of value per Company Share was $7.39 to $12.28. Premiums Paid Analysis. Stephens compared the premiums over market prices paid in 17 selected reported transactions from May 21, 1997 through December 17, 1998 in which a large or controlling stockholder bought out the remaining public stockholders in a going private transaction. Stephens compared 11 14 the per share prices paid in such transactions with the closing price for the target's stock thirty days and one day prior to announcement of the subject transactions. The average premium paid in these transactions was 37.2% and 30.1% over the subject target's closing per share price thirty days and one day prior to announcement, respectively. This was compared to similarly calculated premiums of 33.3% and 38.5% for the Shares thirty days and one day prior to the January 22, 1999 announcement of the Proposal, respectively. Information Concerning Stephens. Stephens is a nationally recognized investment banking firm and, as a customary part of its investment banking activities, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, private placements and for other purposes. The Special Committee selected Stephens as a financial advisor because of its expertise, reputation and familiarity with the Company. The Special Committee engaged Stephens to render a fairness opinion in connection with the Transaction. The Company agreed to pay Stephens a reasonable and customary fee upon the rendering of a fairness opinion. The Company has agreed to reimburse Stephens for out-of-pocket expenses (including fees and disbursements of their counsel) and to indemnify Stephens and certain related persons against certain liabilities in connection with rendering the fairness opinion and serving as the Special Committee's financial advisor. POSITION OF PARENT REGARDING FAIRNESS OF THE OFFER AND THE MERGER Parent believes that the consideration to be received by the Public Stockholders pursuant to the Offer and the Merger is fair to the Public Stockholders. Parent bases its belief on the following facts and conclusions: (i) the Company's Board and the Special Committee concluded that the Offer and the Merger, taken together, are fair to and in the best interests of the Public Stockholders; (ii) notwithstanding the fact that Stephens Opinion was addressed to the Special Committee, and that Parent is not entitled to rely on such opinion, the Special Committee received an opinion from Stephens that, as of the date of such opinion and based on and subject to certain matters stated in such opinion, the consideration to be received in the Offer and the Merger is fair to the Disinterested Stockholders from a financial point of view; (iii) the support of the Transaction by Shapiro Capital, the largest independent stockholder of the Company, which was the product of arms-length negotiations; (iv) neither the Company nor Parent have received any indications of interest from third parties regarding the acquisition of the Company since the announcement of the Proposal; (v) the consideration stated in the Offer and the Merger for purchase of the Shares not already owned by Parent represents a premium of 38.5% over the closing price of the Shares on January 21, 1999, the day prior to announcement of the Proposal, and a premium of approximately 33.3% over the closing price thirty days prior to the announcement of the Proposal; (vi) although the current prices for the Shares reflect a decline in value of the Company over historical market prices, such decline is attributable to the deterioration in the Company's financial results and business prospects in recent years as well as concerns about the Company's position within the truck tire industry in general; (vii) the Shares provide only limited liquidity for the Company's stockholders and that condition is not likely to change in light of the lack of analyst coverage of the Company and limited trading volume of the Shares; and (viii) the other factors enumerated by the Special Committee as supporting their recommendation of the Offer and the Merger. Parent found it not practicable to assign, and did not assign, relative weights to the individual factors considered in reaching its conclusion as to fairness. In light of the nature of the Company's business and the Transaction, Parent did not consider net book value or liquidation value to be appropriate indicators of the value of the consideration to be received by the Public Stockholders. 12 15 CERTAIN PROJECTIONS In the course of the discussions between the parties, the Company provided Parent and Stephens with the Management Projections and Stephens, with the input of the management of the Company, prepared the Revised Projections as described in "SPECIAL FACTORS -- Background of the Offer and the Merger" regarding the Company. Stephens and the management of the Company discounted the Management Projections since management of the Company and Stephens believed that they were overly optimistic due to, among other things, increased competition within the tire industry, the Company's actual performance during the past three years and the first two months of 1999 and the Company's failure to meet its projections in prior years. Accordingly, the Management Projections were not given significant consideration by the Special Committee in reaching their conclusions about the fairness of the Offer and the Merger to the Public Stockholders. In addition, Stephens reviewed but did not rely on the Management Projections except to provide an initial starting point for the formulation by Stephens with input from the Company's management of the Revised Projections. However, the Special Committee and Stephens did review and consider the Revised Projections which are not publicly available and contain, among other things, the summary financial information set forth below.
YEAR ENDING DECEMBER 31, ------------------------------------------ 1999 2000 2001 2002 2003 ------ ------ ------ ------ ------ (IN MILLIONS EXCEPT PER SHARE DATA) Revenue........................................... $191.9 $203.0 $214.7 $227.2 $240.4 Operating Income.................................. 5.4 7.1 8.4 10.1 11.5 Net Income........................................ 2.7 3.7 4.5 5.6 6.5 Earnings Per Share................................ $ 0.53 $ 0.73 $ 0.89 $ 1.10 $ 1.28
THE COMPANY (I) DOES NOT, AS A MATTER OF COURSE, MAKE PUBLIC FORECASTS AS TO FUTURE REVENUES OR PROFITS AND (II) THE FOREGOING PROJECTIONS WERE BASED ON ESTIMATES AND ASSUMPTIONS THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES, ALL OF WHICH ARE DIFFICULT TO PREDICT AND MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS CAN BE REALIZED OR THAT ACTUAL RESULTS WILL NOT BE MATERIALLY HIGHER OR LOWER THAN THOSE PROJECTED. THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS OR FORECASTS. NONE OF THE COMPANY OR PARENT OR THEIR RESPECTIVE ADVISORS ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OF THE PROJECTIONS. THE INCLUSION OF THE FOREGOING PROJECTIONS SHOULD NOT BE REGARDED AS AN INDICATION THAT THE COMPANY OR PARENT OR ANY OTHER PERSON WHO RECEIVED SUCH INFORMATION CONSIDERS IT AN ACCURATE PREDICTION OF FUTURE EVENTS. NEITHER THE COMPANY NOR PARENT INTENDS TO UPDATE, REVISE OR CORRECT SUCH PROJECTIONS IF THEY BECOME INACCURATE (EVEN IN THE SHORT TERM). A NUMBER OF FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FOREGOING PROJECTIONS, INCLUDING GENERAL ECONOMIC CONDITIONS; COMPETITIVE INITIATIVES AND PRICING PRESSURES; AVAILABILITY AND COST OF CAPITAL; SHIFTS IN MARKET DEMAND; WEATHER CONDITIONS; GOVERNMENT REGULATIONS; THE PERFORMANCE AND NEEDS OF INDUSTRIES SERVED BY THE COMPANY; ACTUAL FUTURE COSTS OF OPERATING EXPENSES SUCH AS THE PRICE OF OIL; SELF-INSURANCE CLAIMS AND EMPLOYEE WAGES AND BENEFITS; AND THE TIMING AND AMOUNT OF CAPITAL EXPENDITURES. 13 16 PURPOSE AND STRUCTURE OF THE TRANSACTION The purpose of the Offer is for Parent to acquire the entire equity interest in the Company. Following the Offer, Parent intends to acquire any remaining equity interest in the Company through the consummation of the Merger. In order to provide a prompt and orderly transfer of sole ownership of the Company to Parent and to expedite the time during which stockholders may receive cash for their Shares, the Transaction has been structured as a cash tender offer by Parent followed by a merger of Newco with and into the Company in which, subject to the terms and conditions of the Merger Agreement, the remaining equity interest in the Company (other than the Parent Shares) not acquired pursuant to the Offer will be exchanged for the Merger Consideration. See "Background of the Offer and the Merger" for a description of the negotiations among the parties regarding the structure of the Transaction. The present requirement to maintain the listing of the Shares on the Nasdaq National Market and registration of the Shares under the Exchange Act imposes on the Company direct and indirect compliance costs that would be eliminated after consummation of the Transaction. In addition, compliance with such ongoing requirements impose an administrative burden on the Company, resulting in the diversion of management time and resources. In addition, boards of directors of publicly-traded companies often have to address conflicts of interest that inevitably arise as a result of the differing interests and goals of majority and minority stockholders. Parent believes that eliminating the potential for any conflict between the interests of Parent and the other stockholders of the Company is a substantial benefit of the Transaction. PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER It is expected that, immediately following the Merger, Parent will continue its review of the Company and its assets, corporate structure, dividend policy, capitalization, operations, properties, policies, management and personnel and to consider, what, if any, changes would be desirable in light of the circumstances then existing, and reserves the right to take such actions or effect such changes as it deems desirable. Parent may retain advisors or consultants to assist in such review. Any such changes could include changes in the Company's business, corporate structure, capitalization, management or dividend policy or a sale or recapitalization of the Company. See "Certain Effects of the Offer and the Merger." Pursuant to the Merger Agreement, the directors of Newco along with John R. Meyers, a current director and the President and Chief Executive Officer of the Company, will be the directors of the Company upon consummation of the Merger, and the officers of the Company will remain the officers of the Company, after the Merger. Except as described herein, Parent has no current plans or proposals, and since the Proposal has not engaged in any discussions with any third parties, that would relate to, or result in, any extraordinary corporate transaction involving the Company, such as a merger, reorganization or liquidation involving the Company, a sale or transfer of a material amount of assets of the Company, any change in the Company's capitalization or dividend policy or any other material change in the Company's business, corporate structure or personnel. However, Parent reserves the right to effect such actions or effect such changes as its deems desirable. CERTAIN EFFECTS OF THE OFFER AND THE MERGER If the Offer and the Merger are consummated, the Public Stockholders will not have the opportunity to participate in the future earnings, profits, and growth of the Company and will not have a right to vote on corporate matters. Parent, as the parent company of the Company, will own a 100% interest in the net book value and net earnings of the Company and will benefit from any increase in the value of the Company following the Offer and the Merger. Any such increase could be realized by Parent through a sale or recapitalization of the Company. Similarly, Parent will bear the risk of any decrease in the value of the Company after the Merger and the Public Stockholders will not face the risk of a decline in the value of the Company after the Merger. 14 17 The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and will reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the stockholders of the Company other than Parent. Parent cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the Shares or whether it would cause future market prices to be greater or less than the Offer price. It is possible that the Offer could be consummated but the Merger fails to occur if certain conditions to the Merger are not satisfied and not waived by Parent. See "Merger Agreement -- Conditions to Merger." This outcome could have certain adverse effects on any holders of Shares who do not tender their Shares in the Offer, including adverse effects on the value, liquidity or trading market of the Shares. These and certain other adverse effects are described more fully in the remainder of this section. If the Offer closes but the Merger fails to occur, Parent could own a number of Shares sufficient to give it voting control of the Company and enable it to approve a merger, recapitalization, asset sale or other extraordinary transaction involving the Company without the necessity of obtaining the affirmative vote or approval of any other stockholders. The Merger Agreement does not prohibit Parent or any third party from offering consideration of less than $9.00 per share to the remaining holders of the Shares in any such transaction. Parent, however, does not have any intention to consummate the Offer without also subsequently consummating the Merger pursuant to the terms of the Merger Agreement. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the requirements of the Nasdaq National Market for continued listing and may, therefore, be delisted from such exchange. According to the Nasdaq National Market's published guidelines, the Shares might no longer be eligible for quotation on the Nasdaq National Market if, among other things, either (i) the number of publicly-held Shares is less than 750,000, there are fewer than 400 holders of at least 100 shares, the aggregate market value of the publicly-held Shares is less than $5 million, net tangible assets are less than $4 million and there are fewer than two registered and active market makers for the Shares, or (ii) the number of publicly-held Shares is less than 1,100,000, there are fewer than 400 holders of at least 100 shares, the aggregate market value of publicly held Shares is less than $15 million, and either (x) the Company's market capitalization is less than $50 million or (y) the total assets and total revenue of the Company for the most recently completed fiscal year or two of the last three most recently completed fiscal years does not exceed $50 million and there are fewer than four registered and active market makers. As of March 10, 1999, there were 5,072,255 shares outstanding held of record by 171 holders (not including beneficial holders of Shares in street name). If the Shares were to cease to be quoted on the Nasdaq National Market, the market for the Shares could be adversely affected. It is possible that the Shares would be traded or quoted on other securities exchanges or in the over-the-counter market, and that price quotations would be reported by such exchanges or through the National Association of Securities Dealers Automated Quotation System, Inc. ("Nasdaq"). The extent of the public market for the Shares and availability of such quotations would, however, depend upon such factors as the number of holders and/or the aggregate market value of the publicly-held Shares at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act and other factors. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares. Depending upon factors similar to those described above regarding listing and market quotations, the Shares might no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations and, therefore, could no longer be used as collateral for loans made by brokers. The Shares are currently registered under the Exchange Act. Such registration may be terminated if the Shares are not listed on a national securities exchange and there are less than 300 holders of record. Termination of the registration of the Shares under the Exchange Act would substantially reduce the 15 18 information required to be furnished by the Company to holders of Shares and to the Commission and would make certain of the provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy or information statement in connection with stockholder action and the related requirement of an annual report to stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Shares. Furthermore, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities" or eligible for listing on a securities exchange or Nasdaq reporting. Following consummation of the Merger, the Shares will be delisted from the Nasdaq National Market, and the registration of the Shares under the Exchange Act will be terminated. Accordingly, following the Merger, there will be no publicly-traded securities of the Company outstanding, and the Company will no longer be required to file reports with the Commission. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER In considering the recommendation of the Special Committee and the Board with respect to the Offer and the Merger, stockholders should be aware that certain members of the Company's management and the Board have certain interests which are referred to below and which present them with actual or potential conflicts of interest in connection with the Transaction. General. During the Company's previous three fiscal years, the Company has engaged in certain transactions and entered into various agreements with Parent and its subsidiaries, and Parent and its subsidiaries have had numerous contacts with the Company. Certain employees working on behalf of the Company have assisted Parent and Newco with respect to the Transaction. No employee working on behalf of the Company has, or will, receive any additional or separate compensation for such services. Service Fees and Other Related Party Transactions. The Company is a party to a Transition Services Agreement with Parent whereby Parent provides services in the areas of accounting, data processing, financial, legal, tax, cash management, human resources, and risk management activities. The Transition Services Agreement is effective indefinitely, unless terminated by either party on 90 days' notice. The Agreement requires the Company to pay a service fee for these services based on the value and cost of services provided. Certain other expenses, primarily data processing and programming services, are charged to the Company based on their actual cost to Parent. Total fees charged to the Company under this agreement were as follows:
1998 1997 1996 ---------- ---------- ---------- Service Fee...................................... $1,342,800 $1,400,021 $1,543,829 Data Processing Services......................... 1,361,646 1,225,298 1,018,213 ---------- ---------- ---------- Total.................................. $2,704,446 $2,625,319 $2,562,042 ========== ========== ==========
In November 1998, the Company purchased from Parent an office building for use as the Company's headquarters. As consideration, the Company transferred its present headquarters building to Parent along with a cash payment of $500,000. In the opinion of management of the Company, the transaction values were fair to the Company. Director and Officer Interlocks. Three of the six members of the Board are currently members of the Parent's Board or are officers of Parent, and some of the Company's executive officers are also officers of Parent. See ANNEXES C and D for a listing of each of the directors and officers of Parent, Newco and the Company. Pursuant to the Merger Agreement, the directors of Newco along with John R. Meyers, a current director and the President and Chief Executive Officer of the Company, will be the directors of the Company upon consummation of the Merger, and the officers of the Company will remain the officers of the Company after the Merger. 16 19 Beneficial Ownership of Shares by Directors and Officers of Parent or Newco. As of December 31, 1998, the following directors and executive officers of Parent or Newco owned the following number of Shares and held stock options to purchase Shares:
TOTAL NUMBER OF SHARES SUBJECT NUMBERS OF TO STOCK NAME TITLE SHARES OWNED(1) OPTIONS HELD - ---- ----- --------------- ----------------- Robert A. Young III.................. President, CEO & Director of Parent 10,000 25,000 William A. Marquard.................. Chairman of Parent 10,000 25,000 John H. Morris....................... Director of Parent -- 25,000 J. Lavon Morton...................... Vice President of Parent 1,000 -- Jerry A. Yarbrough................... Senior Vice President of Parent 800 --
- --------------- (1) Exclusive of stock options to purchase Shares. No other director or executive officer of Parent or Newco holds any Shares or stock options to purchase Shares. Beneficial Ownership of Shares by Directors and Officers of the Company. In addition to the foregoing information regarding Shares owned by directors and officers of Parent or Newco (certain of whom are directors or officers of the Company (see ANNEXES C and D)), as of December 31, 1998, the following directors and officers of the Company owned the following number of Shares and held stock options to purchase Shares:
TOTAL NUMBER OF SHARES SUBJECT NUMBERS OF TO STOCK NAME TITLE SHARES OWNED(1) OPTIONS HELD - ---- ----- --------------- ----------------- John R. Meyers....................... President, CEO & Director 4,400 45,000 Nicolas M. Georgitsis(2)............. Director 4,000 25,000 Robert B. Gilbert(2)................. Director -- 25,000 Daniel V. Evans...................... Executive Vice President & COO 2,279 40,000
- --------------- (1) Exclusive of stock options to purchase Shares. (2) Member of the Special Committee. The Company has been advised by the executive officers, directors and affiliates of Parent and the Company (other than Parent) that such persons intend to tender Shares owned by them pursuant to the Offer. Stock Options. With regard to the stock options to purchase Shares owned by the directors and officers of the Company, Parent and Newco, all such stock options as well as the rest of the outstanding stock options of the Company, will immediately vest upon consummation of the Merger, and it is expected that the optionees will receive a cash payment equal to the difference between the $9.00 Offer Price and the exercise price for each stock option with respect to each option that has an exercise price of less than $9.00 per Share. For each stock option that has an exercise price of $9.00 per Share or more, the optionee will receive a cash payment equal to $0.10 for each such stock option in return for full release of claims under such options. The 17 20 directors and officers of Parent, Newco and the Company owning stock options are expected to receive the following consideration in exchange for their stock options:
TOTAL NUMBER OF SHARES SUBJECT TO STOCK AGGREGATE NAME TITLE OPTIONS HELD CONSIDERATION - ---- ----- ----------------- ------------- Robert A. Young III.................. President, CEO & Director of Parent; Director of the Company 25,000 $11,375 William A. Marquard.................. Chairman of Parent; Director of the Company 25,000 $13,250 John H. Morris....................... Director of Parent; Director of the Company 25,000 $13,250 John R. Meyers....................... President, CEO & Director of the Company 45,000 $82,500 Nicolas M. Georgitsis(1)............. Director of the Company 25,000 $18,250 Robert B. Gilbert(1)................. Director of the Company 25,000 $18,250 Daniel V. Evans...................... Executive Vice President & COO of the Company 40,000 $51,500
- --------------- (1) Member of the Special Committee. Performance Unit Award Program. Pursuant to the Treadco, Inc. 1995 Performance Award Program (the "Performance Program"), certain employees of the Company can be awarded Performance Award Units (the "Units") that have the value, as of any given day, equal to the closing sale price of the Shares on the most recent trading day. Only two employees of the Company hold Units, John R. Meyers, President, CEO and Director of the Company and Daniel V. Evans, Executive Vice President and COO of the Company. Pursuant to the terms of the Performance Program all outstanding Units will vest upon consummation of the Merger, and Messrs. Meyers and Evans will receive $9.00 in cash for each Unit for aggregate consideration of $277,695 and $138,851, respectfully. Indemnification; Insurance. Pursuant to the Merger Agreement, Parent, Newco and the Company have agreed to cooperate and use all reasonable efforts to defend against and respond to any action, suit, proceeding, or investigation relating to the Merger Agreement or to the transactions contemplated thereby commenced by any third party. It is also agreed that all rights to indemnification or exculpation now existing in favor of the directors, officers, employees and agents of the Company as provided in the Company's certificate of incorporation or bylaws shall, to the extent such rights are in accordance with applicable law, survive the Merger and stay in effect in accordance with their respective terms for a period of six years after the Effective Time. In addition, the Merger Agreement provides that Parent will cause the Surviving Corporation, until the sixth anniversary of the Effective Time, to maintain in effect policies of directors' and officers' liability insurance for directors and officers of the Company on terms no less favorable than the existing coverage maintained by the Company as of the date of the Merger Agreement; provided, however, that Parent shall not be required in order to maintain or procure such coverage to pay an annual premium in excess of 150% of the current annual premium paid by the Company for its existing coverage (the "Cap"); and provided, further, that if equivalent coverage cannot be obtained, or can be obtained only by paying an annual premium in excess of the Cap, Parent shall only be required to obtain as much coverage as can be obtained by paying an annual premium equal to the Cap. THE MERGER AGREEMENT The following is a summary of certain provisions of the Merger Agreement, a copy of which is attached hereto as ANNEX B. The following summary is qualified in its entirety by reference to the Merger Agreement. 18 21 The Offer. The Merger Agreement provides for the making of the Offer by Parent. The obligation of Parent to accept for payment and pay for Shares tendered pursuant to the Offer is subject to the satisfaction of the Minimum Condition, and certain other conditions that are described in "THE TENDER OFFER -- Certain Conditions of the Offer." Parent has agreed that, without the written consent of the Company (as recommended by the Special Committee), no change in the Offer may be made which changes the form of consideration to be paid or decreases the price per Share or the number of Shares sought in the Offer, which waives or reduces, in whole or part, the Minimum Condition, which imposes conditions to the Offer in addition to the Minimum Condition, and those conditions described in "THE TENDER OFFER -- Certain Conditions of the Offer" or which changes any other material term of the Offer in a manner adverse to the stockholders of the Company (other than Parent). The Merger. The Merger Agreement provides that, following the purchase of Shares pursuant to the Offer, the approval of the Merger Agreement by the stockholders of the Company and the satisfaction or waiver of the other conditions to the Merger, Newco will be merged with and into the Company. Under the Company's certificate of incorporation and Delaware law, the approval of the affirmative vote of the holders of the Shares representing 66 2/3% of the outstanding Shares is required to approve and adopt the Merger Agreement and the Merger. The Merger shall become effective at such time as a certificate of merger or certificate of ownership and merger is filed with the Delaware Secretary of State or at such later time as is specified in such certificate of merger (the "Effective Time"). As a result of the Merger, all of the properties, rights, privileges and franchises of the Company and Newco shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Newco shall become the debts, liabilities and duties of the Surviving Corporation. At the Effective Time, (i) each issued and outstanding Share owned or held by Parent or any direct or indirect subsidiary of Parent (other than the Company) shall remain issued and outstanding and no payment shall be made with respect thereto; (ii) each issued and outstanding Share owned or held by the Company or any direct or indirect subsidiary of the Company shall be canceled and no payment shall be made with respect thereto; (iii) each share of common stock of Newco shall be canceled, and no payment shall be made with respect thereto; and (iv) each Share outstanding immediately prior to the Effective Time shall, except as otherwise provided in (i) or (ii) above and except for Shares held by any holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal for such Shares in accordance with Section 262 of the DGCL, be converted into the right to receive $9.00 in cash, without interest, less any required withholding taxes. The Merger Agreement provides that the certificate of incorporation and bylaws of the Company at the Effective Time will be the certificate of incorporation of the Surviving Corporation. The Merger Agreement also provides that the directors of Newco at the Effective Time plus John R. Meyers, a current director and the President and Chief Executive Officer of the Company, will be the directors of the Surviving Corporation and the officers of the Company at the Effective Time will be the officers of the Surviving Corporation. Recommendation. The Merger Agreement states that (A) the Special Committee has (i) determined as of March 15, 1999 that the Offer and the Merger, taken together, are fair to the Company and its stockholders and in the best interests of the holders of the Shares (other than Parent and certain affiliates) and (ii) resolved as of March 15, 1999 to recommend acceptance of the Offer and approval and adoption of the Merger Agreement and the Merger to the Board, and (B) that the Board has (i) determined as of March 15, 1999 that the Offer and the Merger, taken together, are fair to the Company and its stockholders and in the best interests of the holders of the Shares (other than Parent and certain affiliates) as well as fair to and in the best interests of the Company and its stockholders (other than Parent and certain affiliates), (ii) resolved as of March 15, 1999 to recommend acceptance of the Offer and approval and adoption of the Merger Agreement and the Merger to the Company's stockholders (other than Parent and certain affiliates). Rights Plan. Pursuant to the Rights Agreement, the Rights will not be triggered by the Offer or the Merger. Pursuant to the Merger Agreement, the Company amended the Rights Agreement to provide that the Offer would not constitute an event resulting in a "Distribution Date" (as such term is defined in the Rights Agreement). 19 22 Stock Options; Performance Unit Awards. The Company has agreed to cooperate with Parent to terminate the 1991 Stock Option Plan and the 1995 Performance Award Program of the Company. Parent currently contemplates that (i) each outstanding stock option with an exercise price less than $9.00 per Share to purchase Shares, whether or not then exercisable, will be canceled immediately prior to the consummation of the Merger in exchange for an amount in cash payable at the time of such cancellation equal to the product of (x) the number of Shares subject to such stock option and unexercised immediately prior to the consummation of the Merger and (y) the excess of the Offer Price to be paid in the Offer over the per share exercise price pursuant to such stock option, and (ii) each outstanding stock option having an exercise price of $9.00 per Share or more to purchase Shares, whether or not then exercisable, will be canceled and exchanged for a cash payment of $0.10 for each such stock option for full release of claims under such stock options. All outstanding Performance Award Units will vest upon consummation of the Merger and the cash due to such holders thereof will be paid upon the closing of the Merger. See "Interests of Certain Persons in the Offer and the Merger." Interim Agreements of Parent, Newco and the Company. Pursuant to the Merger Agreement, the Company has covenanted and agreed that, during the period from the date of the Merger Agreement to the Effective Time, the Company will conduct its operations according to its ordinary and usual course of business consistent with past practice; that the Company will not intentionally take or willfully omit to take any actions that results in or would result in a Company Material Adverse Effect (as defined below); that the Company will use its reasonable best efforts to preserve intact the business organization of the Company, to keep available the services of its present officers and key employees and consultants, and to maintain satisfactory relationships with customers, agents, suppliers, and other persons having business relationships with the Company. Pursuant to the Merger Agreement, without limiting the generality of the foregoing, and except as otherwise expressly provided in the Merger Agreement, the Company will not (a) issue, sell, or dispose of additional shares of capital stock of any class (including the Shares) of the Company, or securities convertible into or exchangeable for any such shares or securities, or any rights, warrants, or options to acquire any such shares or securities, other than Shares issued upon exercise of options disclosed pursuant to the Merger Agreement, in each case in accordance with the terms so disclosed; (b) redeem, purchase, or otherwise acquire, or propose to redeem, purchase, or otherwise acquire, any of its outstanding capital stock, or other securities of the Company; (c) split, combine, subdivide, or reclassify any of its capital stock or declare, set aside, make, or pay any dividend or distribution on any shares of its capital stock; (d) sell, pledge, dispose of, or encumber any of its assets, except for sales, pledges, dispositions, or encumbrances in the ordinary course of business consistent with past practices; (e) incur or modify any indebtedness or issue or sell any debt securities, or assume, guarantee, endorse, or otherwise as an accommodation become absolutely or contingently responsible for obligations of any other person, or make any loans or advances, other than in the ordinary course of business consistent with past practices; (f) adopt or amend any bonus, profit sharing, compensation, severance, termination, stock option, pension, retirement, deferred compensation, employment or other employee benefit agreements, trusts, plans, funds, or other arrangements for the benefit or welfare of any director, officer, or employee, or (except for normal increases in the ordinary course of business that are consistent with past practices and that, in the aggregate, do not result in a material increase in benefits or compensation expense to the Company) increase in any manner the compensation or fringe benefits of any director, officer, or employee or pay any benefit not required by any existing plan or arrangement (including, without limitation, the granting or vesting of stock options or stock appreciation rights) or take any action or grant any benefit not expressly required under the terms of any existing agreements, trusts, plans, funds, or other such arrangements or enter into any contract, agreement, commitment, or arrangement to do any of the foregoing or make or agree to make any payments to any directors, officers, agents, contractors, or employees relating to a change or potential change in control of the Company; (g) acquire by merger, consolidation, or acquisition of stock or assets any corporation, partnership, or other business organization or division or make any 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 person; (h) adopt any amendments to its certificate of incorporation or bylaws, except as required by the Merger Agreement; (i) take any action other than in the ordinary course of business and consistent with past practices, to pay, discharge, settle, or satisfy any claim, liability, or obligation (absolute or contingent, accrued or unaccrued, asserted or unasserted, or otherwise); 20 23 (j) change any method of accounting or accounting practice used by the Company, except for any change required by reason of a concurrent change in generally accepted accounting principles; (k) revalue in any respect any of its assets, including, without limitation, writing down the value of its portfolio or writing off notes or accounts receivable other than in the ordinary course of business consistent with past practices; (l) authorize any unbudgeted capital expenditure or expenditures that, individually, is in excess of $300,000 or, in the aggregate, are in excess of $500,000; (m) make any tax election, settle or compromise any federal, state, or local tax liability or consent to the extension of time for the assessment or collection of any federal, state, or local tax; (n) settle or compromise any pending or threatened suit, action, or claim material to the Company or relevant to the transactions contemplated by this Agreement; (o) enter into any agreement, arrangement, or understanding to do any of the foregoing actions; (p) voluntarily take any action or willfully omit to take any action that could make any representation or warranty of the Company in the Merger Agreement untrue or incorrect in any material respect at any time, including as of the date of the Merger Agreement and as of the time of consummation of the Offer and the Effective Time, as if made as of such time. Parent has agreed not to take any action for the purpose of causing the Company to violate any of the foregoing obligations and agreed to take all action necessary to allow the Company to comply with its obligations under the Merger Agreement. Pursuant to the Merger Agreement, Parent and Newco will each hold and will each cause its consultants and advisors to hold in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all documents and information concerning the Company and its subsidiaries furnished to Parent or Newco in connection with the transactions contemplated by the Merger Agreement (except to the extent that such information can be shown to have been (i) previously known by Parent or Newco from sources other than the Company, or its directors, officers, representatives or affiliates, (ii) in the public domain through no fault of Parent or Newco or (iii) later lawfully acquired by Parent or Newco from other sources who are not known by Parent or Newco to be bound by a confidentiality agreement or otherwise prohibited from transmitting the information to Parent or Newco by a contractual, legal or fiduciary obligation) and will not release or disclose such information to any other person, except its auditors, attorneys, financial advisors and other consultants and advisors in connection with the Merger Agreement and the transactions contemplated thereby. Parent and Newco will each be deemed to have satisfied its obligation to hold such information confidential if it exercises the same care as it takes to preserve confidentiality for its own similar information. In the Merger Agreement the Company, its affiliates and their respective officers, directors, employees, representatives and agents have agreed that they shall immediately cease any existing discussions or negotiations, if any, with any parties conducted heretofore with respect to any acquisition of all or any material portion of the assets of, or any equity interest in, the Company or any business combination with the Company, subject to certain exceptions. The Company may, directly or indirectly, furnish information and access, in each case only in response to unsolicited requests therefor, to any corporation, partnership, person or other entity or group pursuant to confidentiality agreements, and may participate in discussions and negotiate with such entity or group concerning any merger, sale of assets, sale of shares of capital stock or similar transaction involving the Company, if such entity or group has submitted a written proposal to the Special Committee or the Board relating to any such transaction and the Special Committee or the Board by a majority vote determines in its good faith judgment, after consultation with its financial and legal advisors, that failing to take such action would constitute a breach of the Special Committee's or the Board's fiduciary duty. The Special Committee or the Board shall provide a copy of any such written proposal to Parent immediately after receipt thereof and thereafter keep Parent promptly advised of any development with respect thereto. Except as set forth above, neither the Company nor any of its affiliates, nor any of its or their respective officers, directors, employees, representatives or agents, shall, directly or indirectly, encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any corporation, partnership, person or other entity or group (other than Parent and Newco, any affiliate of Parent and Newco or any designees of Parent and Newco) concerning any merger, sale of assets, sale of shares or capital stock or similar transaction involving the Company; provided, however, that nothing in the Merger Agreement shall 21 24 prevent the Board from taking, and disclosing to the Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any tender offer; provided, further, that the Board shall not recommend that the stockholders of the Company tender their Shares in connection with any such tender offer unless the Special Committee or the Board by a majority vote determines in its good faith judgment, after consultation with its financial and legal advisors, that failing to take such action would constitute a breach of the Special Committee's or Board's fiduciary duty. Additionally, Parent has agreed to notify the Company of any bona fide proposal received by Parent regarding a Third Party Acquisition (as defined below) and if it obtains any information that would make certain representations and warranties of the Company untrue or inaccurate in any material respect. Between the date hereof and the Effective Time, the Company will give, upon reasonable notice, Parent and Newco and their authorized representatives reasonable access to all employees and properties and to all books and records of the Company, and will cause the Company's officers to furnish Parent and Newco with such financial and operating data and other information with respect to the business and properties of the Company as Parent or Newco may from time to time reasonably request. Pursuant to the Merger Agreement, the Company shall cause promptly after completion of the Offer a meeting of its stockholders (the "Company Stockholder Meeting") to be duly called and held for the purposes of voting on the approval and adoption of the Merger Agreement and the Merger. The Merger Agreement provides that the Company and Parent will cooperate and use all reasonable efforts to prepare, and the Company and Parent will file with the Commission, as soon as reasonably practical after completion of the offer, a proxy or information statement relating to the Company Stockholder Meeting (the "Proxy Statement"). The Company has agreed, subject to the fiduciary duties of the Special Committee and the Board, to use all reasonable efforts to obtain the necessary approvals by its stockholders of the Merger Agreement and the transactions contemplated thereby. Parent has agreed to vote and to cause its affiliates to vote all Shares owned by them or as to which a proxy or power of attorney is held by them, including the Shapiro Proxy, in favor of adoption of the Merger Agreement. Parent and Newco have each agreed that all rights to indemnification or exculpation now existing in favor of the directors, officers, employees and agents of the Company as provided in the Company's certificate of incorporation or bylaws shall, to the extent such rights are in accordance with applicable law, survive the Merger and stay in effect in accordance with their respective terms for a period of six years after the Effective Time. The Merger Agreement also provides that Parent will cause the Surviving Corporation, until the sixth anniversary of the Effective Time, to maintain in effect policies of directors' and officers' liability insurance for directors and officers of the Company on terms no less favorable than the existing coverage maintained by the Company as of the date of the Merger Agreement; provided, however, that Parent shall not be required in order to maintain or procure such coverage to pay an annual premium in excess of 150% of the current annual premium paid by the Company for its existing coverage (the "Cap"); and provided, further, that if equivalent coverage cannot be obtained, or can be obtained only by paying an annual premium in excess of the Cap, Parent shall only be required to obtain as much coverage as can be obtained by paying an annual premium equal to the Cap. The Merger Agreement provides that the Company, Newco and Parent will each use all reasonable efforts to consummate the transactions contemplated by the Merger Agreement. Representations and Warranties. The Merger Agreement contains various customary representations and warranties of the parties thereto including, without limitation, representations by the Company, Parent and Newco as to organization, corporate power and authority to execute, deliver and consummate the Merger Agreement, and necessary consents and approvals. In addition, the Company has made representations and warranties concerning undisclosed liabilities, certain changes or events concerning its businesses and the accuracy of its financial statements and its filings under the Exchange Act and the Securities Act. All of the Company's representations and warranties are qualified to the extent of Parent's knowledge of a breach or inaccuracy of such representations and warranties as of the date of the Merger Agreement. Parent has made additional representations and warranties concerning the Company's filings under the Exchange Act and 22 25 Securities Act, the availability of the funds necessary to consummate the Offer and the Merger, and the Company's ability to comply with its obligations under the Merger Agreement. Conditions to the Merger. The obligations of each of Parent, Newco and the Company to effect the Merger are subject to the satisfaction of certain conditions, including: (a) the Merger Agreement shall have been adopted by the affirmative vote of the stockholders of the Company by the requisite vote in accordance with the certificate of incorporation and bylaws of the Company and with applicable law; (b) no statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or enforced by any United States court or United States governmental authority which prohibits, restrains, enjoins or restricts the consummation of the Merger or which imposes any limitation on the ability of Parent to exercise rights of ownership of the Shares owned by Parent that will result in a Parent Material Adverse Effect (as defined in the Merger Agreement) provided that the parties will use their respective reasonable best efforts to have any such injunction, decree or order lifted; (c) any waiting period applicable to the Merger under the HSR Act shall have terminated or expired and all required filings, consents, approvals, permits and authorizations with or for governmental authorities have been made or obtained; and (d) the Company shall have purchased Shares pursuant to the Offer (except that Parent in its sole discretion may waive conditions to the Offer). Termination. The Merger Agreement may be terminated: (a) by mutual written consent of Parent, Newco and the Company (upon recommendation of the Special Committee); (b) by Parent and Newco or the Company if any court of competent jurisdiction in the United States or other United States governmental body shall have issued a final order, decree or ruling or taken any other final action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable; (c) by Parent and Newco if due to an occurrence or circumstances that would result in a failure to satisfy any of the conditions set forth in "THE TENDER OFFER -- Certain Conditions," Parent has (i) failed to commence the Offer within five days following the initial public announcement of the Offer, (ii) terminated the Offer or (iii) failed to pay for Shares pursuant to the Offer by July 31, 1999; (d) by the Company if (i) there has not been a breach of any material representation, warranty, covenant, or agreement on the part of the Company, and Parent has (A) failed to commence the Offer within five business days following the date of the initial public announcement of the Offer, (B) terminated the Offer, (C) failed to pay for the Shares pursuant to the Offer by July 31, 1999, or (ii) prior to the purchase of Shares pursuant to the Offer, a person or group has made a bona fide offer that the Special Committee or the Board by a majority vote determines in its good faith judgment and in the exercise of its fiduciary duties, after consultation with its financial and legal advisors, is more favorable to the stockholders of the Company than the Offer and the Merger; (e) by Parent and Newco prior to the purchase of Shares pursuant to the Offer if (i) there shall have been a breach (not cured or curable within certain time limits) of any representation or warranty on the part of the Company having a Company Material Adverse Effect or materially adversely affecting (or materially delaying) the ability of Parent to consummate the Offer and the Merger, (ii) there shall have been a breach (not cured or curable within certain time limits) of any covenant or agreement on the part of the Company resulting in a Company Material Adverse Effect or materially adversely affecting (or materially delaying) the ability of Parent to consummate the Offer and the Merger, (iii) the Special Committee shall engage in negotiations with any entity or group (other than Parent or Newco) that has proposed a Third Party Acquisition (as defined below) (with certain exceptions), (iv) the Company enters into an agreement, letter of intent or arrangement with respect to a Third Party Acquisition (as defined below), (v) the Special Committee or the Board shall have withdrawn or modified in an adverse manner its approval or recommendation of the Offer, the Merger Agreement or the Merger or shall have recommended another offer, or shall have adopted any resolution to effect any of the foregoing or (vi) the Minimum Condition shall not have been satisfied by the expiration date of the Offer and on or prior to such date (A) an entity or group (other than Parent or Newco) shall have made and not withdrawn a proposal with respect to a Third Party Acquisition or (B) any person or group (including the Company) other than Parent, its affiliates (other than the Company) or Shapiro Capital has become the beneficial owner of 19.9% (except in bona fide arbitrage transactions) or more of the Shares; or (f) by the Company if (i) there shall have been a breach of any representation or warranty on the part of Parent or Newco which materially adversely affects (or materially delays) the consummation of the Offer or (ii) there shall have been a material breach of any covenant or agreement on 23 26 the part of Parent or Newco and which materially adversely affects (or materially delays) the consummation of the Offer or the Merger. Termination Fee. If (i) Parent and Newco terminate the Merger Agreement pursuant to clause (e)(v) of the preceding paragraph; or (ii) the Company terminates the Merger Agreement pursuant to clause (d)(ii) of the preceding paragraph, then the Company shall pay to Parent and Newco, within one business day following such termination, a fee, in cash, of $675,000 (inclusive of all fees and expenses incurred by Parent, Newco and their affiliates (other than the Company) in connection with the transactions contemplated by the Merger Agreement) (the "Termination Fee"). "Third Party Acquisition" means the occurrence of any of the following events (i) the acquisition of the Company by merger or otherwise by any person (which includes a "person" as such term is defined in Section 13(d)(3) of the Exchange Act) or entity other than Parent, Newco or any affiliate thereof (other than the Company) or Shapiro Capital (a "Third Party"); (ii) the acquisition by Third Party of 19.9% or more of the assets of the Company; (iii) the acquisition by Third Party of 19.9% or more of the outstanding Shares; (iv) the adoption by the Company of a plan of liquidation or the declaration or payment of an extraordinary dividend; or (v) the repurchase by the Company of 19.9% or more of the outstanding Shares. Pursuant to the Merger Agreement, in the event of the termination and abandonment of the Merger Agreement, the Merger Agreement will become void and have no effect, without any liability on the part of any party or its directors, officers or Stockholders, other than certain provisions of the Merger Agreement relating to the termination fee, expenses of the parties and confidentiality of information, provided, that a party will not be relieved from liability for any breach of the Merger Agreement. Costs and Expenses. Except for the Termination Fee, if applicable, and as discussed below, the Merger Agreement provides that all costs and expenses incurred in connection with the transactions contemplated by the Merger Agreement shall be paid by the party incurring such costs and expenses. Parent has agreed to reimburse the Company for all expenses incurred with providing Parent the Company's stockholder lists, security position listings and mailing labels used in connection with the dissemination of the Offer to the holders of Shares. DISSENTERS' RIGHTS Holders of Shares do not have dissenters' rights as a result of the Offer. However, if the Merger is consummated, holders of Shares will have certain rights pursuant to the provisions of Section 262 of the DGCL to dissent and demand appraisal of, and to receive payment in cash of the fair value of, their Shares. If the statutory procedures were complied with, such rights could lead to a judicial determination of the fair value required to be paid in cash to such dissenting holders for their shares. Any such judicial determination of the fair value of Shares could be based upon considerations other than or in addition to the Offer Price or the market value of the Shares, including asset values and the investment value of the Shares. The value so determined could be more or less than the Offer Price or the Merger Consideration. If any stockholder of Shares who demands appraisal under Section 262 of the DGCL fails to perfect, or effectively withdraws or loses his right to appraisal, as provided in the DGCL, the Shares of such stockholder will be converted into the Merger Consideration in accordance with the Merger Agreement. A stockholder may withdraw his demand for appraisal by delivery to Parent of a written withdrawal of his demand for appraisal and acceptance of the Merger. ANNEX E to this Offer to Purchase sets forth in full Section 262 of the DGCL. The foregoing summary thereof is qualified in its entirety by reference thereto. FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. SEE ANNEX E. 24 27 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS Sales of Shares pursuant to the Offer (and the receipt of the right to receive cash by stockholders of the Company pursuant to the Merger) will be taxable transactions for Federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"), and may also be taxable transactions under applicable state, local, foreign and other tax laws. For Federal income tax purposes, a tendering stockholder will generally recognize gain or loss equal to the difference between the amount of cash received by the stockholder pursuant to the Offer (or to be received pursuant to the Merger) and the aggregate tax basis in the Shares tendered by the stockholder and purchased pursuant to the Offer (or canceled pursuant to the Merger). Gain or loss will be calculated separately for each block of Shares tendered and purchased pursuant to the Offer (or canceled pursuant to the Merger). If tendered Shares are held by a tendering stockholder as capital assets, gain or loss recognized by the tendering stockholder will be capital gain or loss, which will be long-term capital gain or loss if the tendering stockholder's holding period for the Shares exceeds one year. Under present law, long-term capital gains recognized by a tendering individual stockholder will generally be taxed at a maximum Federal marginal tax rate of 20%. A stockholder (other than certain exempt stockholders including, among others, all corporations and certain foreign individuals) that tenders Shares may be subject to 31% backup withholding unless the stockholder provides its Tax Identification Number ("TIN") and certifies that such number is correct or properly certifies that it is awaiting a TIN. A stockholder that does not furnish its TIN may be subject to a penalty imposed by the IRS. Each stockholder should complete and sign the Substitute From W-9 included as part of the Letter of Transmittal so as to provide the information and certification necessary to avoid backup withholding. If backup withholding applies to a stockholder, the Depositary is required to withhold 31% from payments to such stockholder. Backup withholding is not an additional tax. Rather, the amount of the backup withholding can be credited against the Federal income tax liability of the person subject to the backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund can be obtained by the stockholder upon filing an income tax return. THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO SHARES RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION OR WITH RESPECT TO HOLDERS OF SHARES WHO ARE SUBJECT TO SPECIAL TAX TREATMENT UNDER THE CODE, SUCH AS NON-U.S. PERSONS, LIFE INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS AND FINANCIAL INSTITUTIONS, AND MAY NOT APPLY TO A HOLDER OF SHARES IN LIGHT OF ITS INDIVIDUAL CIRCUMSTANCES. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE OFFER AND THE MERGER. THE TENDER OFFER TERMS OF THE OFFER Upon the terms and subject to the conditions of the Offer, Parent will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn in accordance with the procedures set forth below under "Withdrawal Rights." The term "Expiration Date" means 12:00 Midnight, New York City time, on Tuesday, April 20, 1999, unless and until Parent shall have extended the period of time during which the Offer is open, as extended, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Parent, shall expire. The Offer is subject to certain conditions set forth in "Certain Conditions of the Offer," including satisfaction of the Minimum Condition and the expiration or termination of the waiting period applicable to 25 28 the Transaction under the HSR Act. If any such condition is not satisfied, Parent may (1) terminate the Offer and return all tendered Shares to tendering stockholders, (2) extend the Offer and, subject to withdrawal rights as set forth below in "Withdrawal Rights," retain all such Shares until the expiration of the Offer as so extended, (3) waive such condition and, subject to any requirements to extend the period of time during which the Offer is open, purchase all Shares validly tendered by the Expiration Date and not withdrawn or (4) delay acceptance for payment of or payment for Shares, subject to applicable law, until satisfaction or waiver of the conditions to the Offer; provided, however, that unless previously approved by the Company (as recommended by the Special Committee) in writing, no change may be made which decreases the price per Share payable in the Offer, which changes the form of consideration to be paid in the Offer, which reduces the maximum number of Shares to be purchased in the Offer, which waives or reduces, in whole or part, the Minimum Condition, which imposes conditions to the Offer in addition to those set forth in "Certain Conditions of the Offer" or which broadens the scope of such conditions or which changes any other material term of the Offer in a manner adverse to the stockholders of the Company (other than Parent). In the Merger Agreement, Parent has agreed, subject to the conditions contained in "Certain Conditions of the Offer" and its rights under the Offer, to accept for payment Shares as soon as practicable after the latest of (1) the date on which the waiting period under the HSR Act has expired or been terminated, (2) the date on which the conditions set forth in "Certain Conditions of the Offer" are fulfilled and there is no right to terminate the Offer (subject to Parent's right to extend the Offer) pursuant to the provisions contained in "Certain Conditions of the Offer" and (3) the earliest date on which the Offer can expire under federal law. For a description of Parent's right to extend the period of time during which the Offer is open, and to amend, delay or terminate the Offer, see "SPECIAL FACTORS -- The Merger Agreement." There can be no assurance that Parent will exercise its right to extend the Offer (other than as required by applicable law). Any extension, waiver, amendment or termination will be followed as promptly as practicable by public announcement. In the case of an extension, Rule 14e-1(d) under the Exchange Act requires that the announcement be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rule 14d-4(d) under the Exchange Act. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the Offer be promptly disseminated to stockholders in a manner reasonably designed to inform stockholders of such change), and without limiting the manner in which Parent may choose to make any public announcement, Parent will not have any obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If Parent extends the Offer or if Parent (whether before or after its acceptance for payment of Shares) is delayed in its acceptance for payment of or payment for Shares or it is unable to pay for Shares pursuant to the Offer for any reason, then, without prejudice to Parent's rights under the Offer, the Depositary may retain tendered Shares on behalf of Parent, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal rights as described in "Withdrawal Rights." However, the ability of Parent to delay the payment for Shares that Parent has accepted for payment is limited by Rule 14e-1 under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of such bidder's offer. If Parent makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer (including, with the Company's consent (as recommended by the Special Committee), a waiver of the Minimum Condition), Parent will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of the Offer or information concerning the Offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. With respect to a change in price or a change in the percentage of securities sought, a minimum period of 10 business days is generally required to allow for adequate dissemination to stockholders. 26 29 The Company has provided Parent with the Company's stockholder lists and security position listings for the purpose of disseminating the Offer to holders of the Shares. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed by the Company to record holders of Shares and will be furnished by Parent to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. PROCEDURE FOR TENDERING SHARES Valid Tender. For a stockholder validly to tender Shares pursuant to the Offer, either (1) a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees, or an Agent's Message (as defined below) in connection with a book-entry delivery of Shares, and any other documents required by the Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and either certificates for tendered Shares must be received by the Depositary at one of such addresses or such Shares must be delivered pursuant to the procedure for book-entry transfer set forth below (and a Book-Entry Confirmation (as defined below) received by the Depositary), in each case prior to the Expiration Date, or (2) the tendering stockholder must comply with the guaranteed delivery procedure set forth below. Book-Entry Delivery. The Depositary will establish an account with respect to the Shares at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Offer within two business days after the date of this Offer. Any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other required documents, must, in any case, be transmitted to, and received by, the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date, or the tendering stockholder must comply with the guaranteed delivery procedure described below. The confirmation of a book-entry transfer of Shares into the Depositary's account at the Book-Entry Transfer Facility as described above is referred to herein as a "Book-Entry Confirmation." DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares, and, if applicable, Rights which are subject to such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Parent may enforce such agreement against such participant. Signature Guarantees. No signature guarantee is required on the Letter of Transmittal if (1) the Letter of Transmittal is signed by the registered holder of Shares (which term includes any participant in the Book-Entry Transfer Facility's system whose name appears on a security position listing as the owner of the Shares) tendered therewith and such registered holder has not completed either the box entitled "Special Delivery 27 30 Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal or (2) such Shares are tendered for the account of a firm that is a member of the Medallion Signature Guaranty Program or by any other "eligible guaranty institution" as such term is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing being referred to as an "Eligible Institution"). In all other cases, all signatures on the Letters of Transmittal must be guaranteed by an Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal. If the certificates for Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for Shares not tendered or not accepted for payment are to be issued to a person other than the registered holder of the certificates surrendered, the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as aforesaid. See Instruction 5 to the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's certificates for Shares are not immediately available or the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date, such stockholder's tender may be effected if all the following conditions are met: (1) such tender is made by or through an Eligible Institution; (2) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by Parent is received by the Depositary, as provided below, prior to the Expiration Date; and (3) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to such Shares), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees (or, in the case of a book-entry transfer, or Agent's Message) and any other documents required by the Letter of Transmittal, are received by the Depositary within three trading days after the date of execution of such Notice of Guaranteed Delivery. A "trading day" is any day on which the New York Stock Exchange, Inc. is open for business. The Notice of Guaranteed Delivery may be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. Notwithstanding any other provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (1) certificates for (or a timely Book-Entry Confirmation with respect to) such Shares, (2) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, or Agent's Message in connection with a book-entry transfer, and (3) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY PARENT, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. The valid tender of Shares pursuant to one of the procedures described above will constitute a binding agreement between the tendering stockholder and Parent upon the terms and subject to the conditions of the Offer. Appointment. By executing a Letter of Transmittal as set forth above, the tendering stockholder will irrevocably appoint designees of Parent as such stockholder's attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by Parent and with respect to any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after March 15, 1999. All such proxies shall be considered coupled with an interest in the tendered Shares. 28 31 Such appointment will be effective when, and only to the extent that, Parent accepts for payment Shares tendered by such stockholder as provided herein. Upon such acceptance for payment, all prior powers of attorney and proxies given by such stockholder with respect to such Shares or other securities or rights will, without further action, be revoked and no subsequent powers of attorney and proxies may be given (and, if given, will not be deemed effective). The designees of Parent will thereby be empowered to exercise voting and other rights with respect to such Shares or other securities or rights in respect of any annual, special or adjourned meeting of the Company's stockholders, or otherwise, as they in their sole discretion deem proper. Parent reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Parent's acceptance for payment of such Shares, Parent must be able to exercise voting and other rights with respect to such Shares and other securities or rights, including voting at any meeting of stockholders then scheduled. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by Parent in its sole discretion, which determination will be final and binding. Parent reserves the absolute right to reject any or all tenders determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of Parent's counsel, be unlawful. Parent also reserves the absolute right to waive any defect or irregularity in any tender with respect to any particular Shares, whether or not similar defects or irregularities are waived in the case of other Shares. No tender of Shares will be deemed to have been validly made until all defects or irregularities relating thereto have been cured or waived. None of Parent, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Parent's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. Backup Withholding. In order to avoid "backup withholding" of Federal income tax on payments of cash pursuant to the Offer, a stockholder surrendering Shares in the Offer must provide the Depositary with such stockholder's correct TIN on a Substitute Form W-9 and certify under penalties of perjury that such TIN is correct and that such stockholder is not subject to backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. If a stockholder does not provide its correct TIN or fails to provide the certifications described above, the Internal Revenue Service ("IRS") may impose a penalty on such stockholder and payment of cash to such stockholder pursuant to the Offer may be subject to backup withholding of 31%. All stockholders surrendering Shares pursuant to the Offer should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to Parent and the Depositary). Non-corporate foreign stockholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 9 to the Letter of Transmittal. WITHDRAWAL RIGHTS Except as otherwise provided herein, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time prior to the Expiration Date. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates for Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution, the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will thereafter be deemed not validly tendered for any purposes of the Offer. However, withdrawn Shares may be retendered by 29 32 again following one of the procedures described in "Procedure for Tendering Shares" at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by Parent in its sole discretion, which determination will be final and binding. None of Parent, the Depositary, the Information Agent, or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Parent will accept for payment and will pay for all Shares validly tendered prior to the Expiration Date and not properly withdrawn in accordance with the procedures set forth in "Withdrawal Rights" as soon as practicable after the later of (1) the Expiration Date and (2) the satisfaction or waiver of the conditions set forth in "Certain Conditions of the Offer." For a description of Parent's right or obligation to terminate the Offer and not accept for payment or pay for Shares or to delay acceptance for payment or payment for Shares, see "Certain Conditions of the Offer." In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (1) certificates for such Shares (or timely Book-Entry Confirmation of a transfer of such Shares as described in "Procedure for Tendering Shares"), (2) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's message), and (3) any other documents required by the Letter of Transmittal. For purposes of the Offer, Parent will be deemed to have accepted for payment, and thereby purchased, Shares properly tendered to Parent and not withdrawn as, if and when Parent gives oral or written notice to the Depositary of Parent's acceptance for payment of such Shares. Payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders for the purpose of receiving payment from Parent and transmitting payment to tendering stockholders. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY PARENT, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If Parent is delayed in its acceptance for payment of or payment for Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to Parent's rights under the Offer (but subject to compliance with Rule 14e-1(c) under the Exchange Act, which requires that a tender offeror pay the consideration offered or return the tendered securities promptly after the termination or withdrawal of a tender offer), the Depositary may, nevertheless, on behalf of Parent, retain tendered Shares. Any such Shares may not be withdrawn except to the extent tendering stockholders are entitled to exercise, and duly exercise, withdrawal rights as described in "Withdrawal Rights." If any tendered Shares are not purchased pursuant to the Offer because of an invalid tender or otherwise, certificates for any such Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares delivered by book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedure set forth in "Procedure for Tendering Shares," such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable after the expiration or termination of the Offer. Parent reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its direct or indirect wholly-owned subsidiaries, the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Parent of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 30 33 PRICE RANGE OF THE SHARES; DIVIDENDS The Shares are listed and traded on the Nasdaq National Market under the symbol "TRED." The following table sets forth, for each of the periods indicated, the high and low sales prices, the dividends per Share and the average daily trading volume as published in financial sources.
HIGH LOW DIVIDENDS VOLUME ------- ------ --------- ------ 1997 First Quarter......................................... $10.500 $8.625 $.04 2,636 Second Quarter........................................ $10.500 $8.125 $.04 4,550 Third Quarter......................................... $12.750 $9.375 $.04 7,579 Fourth Quarter........................................ $13.500 $9.125 $ -- 3,784 1998 First Quarter......................................... $10.000 $7.000 $ -- 2,886 Second Quarter........................................ $10.125 $7.625 $ -- 1,821 Third Quarter......................................... $ 9.375 $5.375 $ -- 5,852 Fourth Quarter........................................ $ 7.500 $4.750 $ -- 4,823 1999 First Quarter......................................... $ 9.500 $6.063 $ -- 2,580 (through March 19, 1999)
On January 21, 1999, the last full day of trading before the public announcement of the Proposal, the reported closing sales price of the Shares was $6.50 per Share. On March 15, 1999, the last full day of trading before the public announcement of the execution of the Merger Agreement, the reported closing sales price of the Shares was $8.6875 per Share. On March 19, 1999, the reported closing sales price of the Shares was $8.875 per Share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. In October 1997, the Board of Directors of the Company suspended the Company's regular quarterly dividend to provide additional funds for working capital and growth opportunities. Pursuant to the Merger Agreement, the Company has agreed not to declare, set aside, make or pay any dividend or distribution on the Shares. CERTAIN INFORMATION CONCERNING PARENT AND NEWCO General. Parent, a Delaware corporation, is a diversified holding company that provides national and regional transportation of general commodities through its motor carrier subsidiaries, and domestic and international intermodal freight services, utilizing a variety of transportation modes including over-the-road, rail, ocean and air, through its intermodal subsidiaries. The principal offices of Parent are located at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903. Selected Financial Information. Set forth below is certain selected consolidated financial information with respect to Parent excerpted or derived from the information contained in Parent's Annual Report on Form 10-K for the year ended December 31, 1998 (the "Parent 10-K"), which is incorporated by reference herein. More comprehensive financial information is included in the Parent 10-K and other documents filed by Parent with the Commission, and the following summary is qualified in its entirety by reference to the Parent 10-K and such other documents and all the financial information (including any related notes) contained therein. The Parent 10-K and other documents should be available for inspection and copies thereof should be obtainable in the manner set forth below under "Available Information." 31 34 ARKANSAS BEST CORPORATION SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------------ 1998 1997 1996 ---------- ---------- ---------- STATEMENT OF EARNINGS DATA: Operating revenues..................................... $1,651,453 $1,643,678 $1,604,335 Operating income (loss)................................ 66,410 62,908 (18,008) Minority interest in subsidiary........................ 3,257 (1,359) (1,768) Other expenses, net.................................... 3,259 8,916 5,906 Gain on sale of Cardinal Freight Carriers, Inc......... -- 8,985 -- Settlement of Litigation............................... 9,124 -- -- Interest expense....................................... 18,438 23,978 30,843 Income (loss) from continuing operations before income taxes............................................... 50,580 40,358 (52,989) Provision (credit) for income taxes.................... 21,905 19,389 (18,782) Income (loss) from continuing operations............... 28,675 20,969 (34,207) Loss from discontinued operations, net of tax.......... -- (5,622) (2,396) Net income (loss)...................................... $ 28,675 $ 15,347 $ (36,603) Income (loss) per share from continuing operations (diluted)........................................... $ 1.21 $ 0.84 $ (1.98) Net income (loss) per common share (diluted)........... $ 1.21 $ 0.56 $ (2.10) Cash dividends paid per common share................... -- -- $ 0.01
AS OF DECEMBER 31, ------------------------------------ 1998 1997 1996 ---------- ---------- ---------- BALANCE SHEET DATA: Total assets........................................... $ 710,604 $ 698,339 $ 828,181 Current portion of long-term debt...................... 17,504 16,484 37,197 Long-term debt (including capital leases and excluding current portion).................................... 196,079 202,604 317,874
32 35 Newco. Newco, a Delaware corporation and a wholly owned subsidiary of Parent, was organized to merge with and into the Company upon consummation of the Merger and has not conducted any unrelated activities since its organization. The principal offices of Newco are located at 3801 Old Greenwood Road, Fort Smith, Arkansas 72903. All outstanding shares of capital stock of Newco are owned by Parent. Miscellaneous. Except as described in this Offer to Purchase, neither Parent nor Newco (together, the "Corporate Entities") or, to the best knowledge of the Corporate Entities, any of the persons listed in ANNEX C or any associate or majority-owned subsidiary of the Corporate Entities or any of the persons so listed, beneficially owns any equity security of the Company, and none of the Corporate Entities, any of the other persons referred to above, or any of the respective directors, executive officers or subsidiaries of any of the foregoing, has effected any transaction in any equity security of the Company during the past 60 days. Except as described in this Offer to Purchase, (i) there have not been any contacts, transactions or negotiations between the Corporate Entities, any of their respective subsidiaries or, to the best knowledge of the Corporate Entities, any of the persons listed in ANNEX C, on the one hand, and the Company or any of its directors, officers or affiliates, on the other hand, that are required to be disclosed pursuant to the rules and regulations of the Commission and (ii) none of the Corporate Entities or, to the best knowledge of the Corporate Entities, any of the persons listed in ANNEX C has any contract, arrangement, understanding or relationship with any person with respect to any securities of the Company. During the last five years none of the Corporate Entities nor, to the best knowledge of the Corporate Entities, any of the persons listed in ANNEX C (i) has been convicted in a criminal proceeding (excluding traffic violations and similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree of final order enjoining future violations of, or prohibiting activities subject to, Federal or state securities laws or finding any violation of such laws. The name, business address, present principal occupation or employment, five-year employment history and citizenship of each of the directors and executive officers of Parent and Newco are set forth in ANNEX C. CERTAIN INFORMATION CONCERNING THE COMPANY General. The Company is a Delaware corporation with its principal executive offices at 1101 South 21st Street, Fort Smith, Arkansas 72901. The Company is the nation's largest independent tire retreader for the trucking industry and the fourth largest commercial truck tire dealer. Selected Financial Information. Set forth below is certain selected financial information with respect to the Company excerpted or derived from the information contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (the "Company Form 10-K"), which is incorporated by reference herein. More comprehensive financial information is included in the Company Form 10-K and other documents filed by the Company with the Commission, and the following summary is qualified in its entirety by reference to the Company Form 10-K and such other documents and all the financial information (including any related notes) contained therein. The Company Form 10-K and other documents should be available for inspection and copies thereof should be obtainable in the manner set forth below under "Available Information." 33 36 TREADCO, INC. SELECTED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- STATEMENT OF EARNINGS DATA: Revenues........................ $181,293 $161,276 $144,154 $147,906 $140,678 Costs and expenses.............. 178,801 163,785 149,337 142,920 129,162 Operating income (loss)......... 2,492 (2,509) (5,183) 4,986 11,516 Interest expense................ (1,086) (1,213) (873) (461) (236) Amortization expense............ (636) (723) (723) (723) (738) Other income.................... 579 567 1,427 300 232 Settlement of litigation........ 9,124(1) -- -- -- -- Income (loss) before income taxes........................ 10,473 (3,878) (5,352) 4,102 10,774 Provision (credit) for income taxes........................ 4,092 (1,374) (2,093) 1,711 4,265 Net income (loss)............... $ 6,381(1) $ (2,504) $ (3,259) $ 2,391 $ 6,509 Net income (loss) per share: Basic........................ $ 1.26(1) $ (.49) $ (.64) $ .47 $ 1.29 Diluted...................... $ 1.25(1) $ (.49) $ (.64) $ .47 $ 1.28 Average shares outstanding: Basic........................ 5,072 5,072 5,072 5,072 5,055 Diluted...................... 5,092 5,072 5,072 5,074 5,066 Cash dividends paid per share... $ -- $ .12 $ .16 $ .16 $ .16
AS OF DECEMBER 31, ---------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Working capital................. $ 23,673 $ 27,273 $ 34,043 $ 44,878 $ 37,364 Total assets.................... 107,370 100,458 105,416 93,035 89,583 Current portion of long-term debt......................... 2,545 2,305 1,645 863 123 Long-term debt (less current portion)..................... 6,159 12,884 19,610 10,000 3,863 Stockholders' equity............ 65,216 58,835 61,948 66,018 64,438
AS OF DECEMBER 31, ---------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- OTHER DATA: Ratio of earnings to fixed charges...................... 9.5:1 -- (2) -- (2) 8.3:1 33.5:1 Book value per share............ $ 12.86 $ 11.60 $ 12.21 $ 13.02 $ 12.74
- --------------- (1) Settlement of the Bandag arbitration resulted in a one-time cash payment of $9.995 million to the Company and in after-tax income of approximately $5.4 million or $1.06 per Share. (2) Earnings were inadequate to cover fixed charges. The deficiency was $3.878 million for 1997 and $5.352 million for 1996. 34 37 Miscellaneous. Except as described in this Offer to Purchase, neither the Company or, to the best knowledge of the Company, any of the persons listed in ANNEX D or any associate or majority-owned subsidiary of the Company or any of the persons so listed, beneficially owns any equity security of the Company, and none of the Company, any of the other persons referred to above, or any of the respective directors, executive officers or subsidiaries of any of the foregoing, has effected any transaction in any equity security of the Company during the past 60 days. Except as described in this Offer to Purchase, (i) there have not been any contracts, transactions or negotiations between the Company and, to the best knowledge of the Company, any of the persons listed in ANNEX D that are required to be disclosed pursuant to the rules and regulations of the Commission and (ii) neither the Company nor, to the best knowledge of the Company, any of the persons listed in ANNEX D has any contract, arrangement, understanding or relationship with any person with respect to any securities of the Company. During the last five years neither the Company nor, to the best knowledge of the Company, any of the persons listed in ANNEX D (i) has been convicted in a criminal proceeding (excluding traffic violations and similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree of final order enjoining future violations of, or prohibiting activities subject to, Federal or state securities laws or finding any violation of such laws. The name, business address, present principal occupation or employment, five-year employment history and citizenship of each of the directors and executive officers of the Company are set forth in ANNEX D. AVAILABLE INFORMATION Parent and the Company are each subject to the reporting requirements of the Exchange Act and, in accordance therewith, are required to file reports and other information with the Commission relating to their respective businesses, financial condition and other matters. Information as of particular dates concerning each of Parent's and the Company's directors and officers, their remuneration, the principal holders of Parent's and the Company's securities and any material interest of such persons in transactions with Parent or the Company is required to be disclosed in the respective proxy statements distributed to each of Parent's and the Company's stockholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located in the Northwestern Atrium Center, 500 West Madison Street (Suite 1400), Chicago, Illinois 6661 and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies should be obtainable, by mail, upon payment of the Commission's customary charges, by writing to the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, and can be obtained electronically on the Commission's website at http://www.sec.gov. Such information should also be on file at the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006. After consummation of the Merger, the Company will no longer file reports, proxy statements or other information with the Commission. See "THE TENDER OFFER -- Certain Effects of the Offer and Merger." SOURCE AND AMOUNT OF FUNDS The total amount of funds required by Parent to acquire all of the outstanding Shares pursuant to the Offer, consummate the Merger and to pay fees and expenses related to the Offer and the Merger is estimated to be approximately $24.3 million. See "Fees and Expenses." Parent expects to obtain the funds required to consummate the Offer and Merger through the use of a combination of (i) cash on hand, working capital and other internally-generated funds and (ii) borrowings under a $250 million existing bank credit facility. The Offer is not conditioned upon Parent receiving any financing. See "Certain Conditions of the Offer." Pursuant to a $250 million Credit Agreement dated June 12, 1998, among Parent, Societe Generale, Southwest Agency, as Administrative Agent, and Bank of America National Trust Savings Association and Wells Fargo Bank (Texas), N.A., as Co-Documentation Agents and the other banks that are parties thereto, 35 38 as amended (the "Parent Credit Agreement"), Parent may borrow up to an aggregate of $250 million for general corporate purposes on a revolving basis. As of December 31, 1998, Parent had $92.6 million in borrowing availability under the Parent Credit Agreement. The Parent Credit Agreement expires June 12, 2003, and loans under the Parent Credit Agreement currently bear interest at LIBOR plus .625%. Loans under the Parent Credit Agreement are secured by substantially all of Parent's accounts receivable and revenue equipment. It is anticipated that the indebtedness incurred by Parent in connection with the Offer and the Merger will be repaid from funds generated internally by Parent and its subsidiaries (including, after the Merger, if consummated, funds generated by the Surviving Corporation) and through other sources which may include the proceeds of future bank financings, the public or private sale of debt or equity securities or a combination thereof. No decisions have been made, however, concerning the method Parent will employ to repay such indebtedness. Such decisions, when made, will be based on Parent's review from time to time of the advisability of particular actions, as well as on prevailing interest rates and financial and other economic conditions. DIVIDENDS AND DISTRIBUTIONS If on or after the date of the Merger Agreement, the Company should (i) split, combine or otherwise change the Shares or its capitalization, (ii) issue or sell any additional securities of the Company or otherwise cause an increase in the number of outstanding securities of the Company (except for Shares issuable upon the exercise of employee stock options outstanding on the date of the Merger Agreement) or (iii) acquire currently outstanding Shares or otherwise cause a reduction in the number of outstanding Shares, then, without prejudice to Parent's rights set forth in "Terms of the Offer" and "Certain Conditions of the Offer," Parent in its sole discretion, subject to the terms of the Merger Agreement, may make such adjustments as it deems appropriate to the purchase price and other terms of the Offer. If, on or after the date of the Merger Agreement, the Company should declare or pay any dividend on the Shares or make any distribution (including, without limitation, cash dividends, the issuance of additional Shares pursuant to a stock dividend or stock split, the issuance of other securities or the issuance of rights for the purchase of any securities) with respect to the Shares that is payable or distributable to stockholders of record on a date prior to the transfer to the name of Parent or its nominee or transferee on the Company's stock transfer records of the Shares purchased pursuant to the Offer, then, without prejudice to Parent's rights set forth in "Terms of the Offer" and "Certain Conditions of the Offer," any such dividend, distribution or right to be received by the tendering stockholders will be received and held by the tendering stockholder at the Depositary for the account of Parent, accompanied by appropriate documentation of transfer. Pending such remittance and subject to applicable law, Parent will be entitled to all rights and privileges as owner of any such dividend, distribution or right and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by Parent in its sole discretion. Pursuant to the terms of the Merger Agreement, the Company is prohibited from taking any of the actions described in the two preceding paragraphs and nothing herein shall constitute a waiver by Parent of any of its rights under the Merger Agreement or a limitation of remedies available to Parent for any breach of the Merger Agreement, including termination thereof. CERTAIN CONDITIONS OF THE OFFER Notwithstanding any other provisions of the Offer, Parent shall not be required to accept for payment or pay for and may delay the acceptance for payment of, or the payment for, any Shares, and may terminate the Offer and not accept for payment or pay for any Shares, if (i) immediately prior to the expiration of the Offer (as it may be extended in accordance with the Offer), the Minimum Condition shall not have been satisfied, (ii) any applicable waiting period under the HSR Act shall not have expired or been terminated prior to the expiration of the Offer; (iii) any required consent, permit or authorization from any regulatory or governmen- 36 39 tal authority has not been obtained; or (iv) at any time prior to the acceptance for payment of Shares, Parent makes a determination (which shall be made in good faith) that any of the following conditions exist: (a) any of the representations or warranties of the Company contained in the Merger Agreement is not true and correct at and as of any date on or prior to the Expiration Date as if made at and as of such time, except for (i) failures to be true and correct as would not have a Company Material Adverse Effect or were known to Parent as of the date of the Merger Agreement; and (ii) failures to comply as are capable of being and are cured prior to the earlier of (A) 10 days after written notice from Parent to the Company of such failure or (B) two business days prior to the Expiration Date; (b) the Company has failed to comply with any of its obligations under the Merger Agreement, except for (i) failures to so comply as would not have a Company Material Adverse Effect or were known to Parent as of the date of the Merger Agreement; and (ii) failures to comply as are capable of being and are cured prior to the earlier of (A) 10 days after written notice from Parent to the Company of such failure or (B) two business days prior to the Expiration Date; (c) the Special Committee or the Board has withdrawn or modified in any respect adverse to Parent its recommendation of the Offer or taken any position inconsistent with such recommendation; (d) the Merger Agreement has been terminated in accordance with its terms; (e) the Company has reached an agreement with Parent that the Offer or the Merger be terminated or amended; (f) any state, federal, or foreign government, or governmental authority has taken any action, or proposed, sought, promulgated, or enacted, or any state, federal, or foreign government or governmental authority or court has entered, enforced, or deemed applicable to the Offer or the Merger, any statute, rule, regulation, judgment, order, or injunction that would (i) make the acceptance for payment of, the payment for, or the purchase of, some or all of the Shares illegal or otherwise restrict, materially delay, prohibit consummation of, or make materially more costly, the Offer or the Merger, (ii) result in a material delay in or restrict the ability of Parent, or render Parent unable, to accept for payment, pay for or purchase some or all of the Shares in the Offer, (iii) require the divestiture by Parent, Newco, or the Company or any of their respective subsidiaries or affiliates of all or any material portion of the business, assets, or property of any of them or any Shares, or impose any material limitation on the ability of any of them to conduct their business and own such assets, properties, and Shares, (iv) impose material limitations on the ability of Parent to hold or to exercise effectively all rights of ownership of the Shares, including the right to vote any Shares on all matters properly presented to the stockholders of the Company, or (v) impose any limitations on the ability of Parent, Newco, or any of their respective subsidiaries or affiliates effectively to control in any material respect the business or operations of the Company, Parent, Newco, or any of their respective subsidiaries or affiliates; (g) any change (or any condition, event or development involving a prospective change) has occurred or been threatened in the business, properties, assets, liabilities, capitalization, stockholders' equity, financial condition, operations, licenses or franchises, results of operations, or prospects of the Company, that would have a Company Material Adverse Effect; (h) there has occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market or quotations for shares traded thereon as reported by the Nasdaq or otherwise, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory), (iii) any limitation (whether or not mandatory) by any governmental authority on the extension of credit by banks or other financial institutions, (iv) after the date of the Merger Agreement, an aggregate decline of at least 25% in the Dow Jones Industrial Average or Russell 2000 Index or a decline in either such index of 12 1/2% in any 24-hour period, or (v) in the case of any of the occurrences referred to in clauses (i) through (iv) existing at the time of the commencement of the Offer, in the reasonable judgment of Parent, a material acceleration or worsening thereof; or 37 40 (i) any approval, permit, authorization, consent, or waiting period of any domestic or foreign, governmental, administrative, or regulatory entity (federal, state, local, provincial or otherwise) has not been obtained or satisfied on terms satisfactory to Parent in its reasonable discretion and the failure to obtain such consent, approval or authorization would have a Parent or Company Material Adverse Effect; that, in the good faith judgment of Parent and regardless of the circumstances (including any action or inaction by Parent, or any of its affiliates) giving rise to any such condition, makes it inadvisable to proceed with the Offer or with such acceptance for payment of, or payment for, Shares or to proceed with the Merger. "Company Material Adverse Effect" means any change or effect that, individually or when taken together with all such other changes or effects, would be materially adverse to the condition (financial or other), business, operations, properties, assets, liabilities, prospects, or results of operations of the Company. "Parent Material Adverse Effect" means any change or effect that, individually or when taken together with all such other changes or effects, would be materially adverse to the condition (financial or other), business, operations, properties, assets, liabilities, prospects, or results of operations of Parent and its subsidiaries taken as a whole. CERTAIN LEGAL MATTERS; REGULATORY MATTERS Neither Parent nor Newco is aware of any license or regulatory permit that appears to be material to the business of the Company that might be adversely affected by Parent's acquisition of Shares as contemplated herein or of any approval or other action, except as otherwise described herein, by any governmental entity that would be required for the acquisition or ownership of Shares by Parent as contemplated herein. Should any such approval or other action be required, Parent and Newco currently contemplate that such approval or other action will be sought. While, except as otherwise expressly described herein, Parent does not presently intend to delay the acceptance for payment of or payment for Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that failure to obtain any such approval or other action might not result in consequences adverse to the Company's business or that certain parts of the Company's business might not have to be disposed of if such approvals were not obtained or such other actions were not taken. Because of the failure of such approvals or other actions or because of conditions to be imposed in connection with such approvals or other actions, Parent could decline to accept for payment or pay for any Shares. See "Certain Conditions of the Offer." State Takeover Laws. A number of states throughout the United States have enacted takeover statutes that purport, in varying degrees, to be applicable to attempts to acquire securities of corporations that are incorporated or have assets, stockholders, executive offices or places of business in such states. In Edgar v. MITE Corp., the Supreme Court of the United States held that the Illinois Business Takeover Act, which involved state securities laws that made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and therefore was unconstitutional. In CTS Corp. v. Dynamics Corp. of America, however, the Supreme Court of the United States held that a state may, as a matter of corporate law and, in particular, those laws concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without prior approval of the remaining stockholders, provided that such laws were applicable only under certain conditions. Section 203 of the DGCL limits the ability of a Delaware corporation to engage in business combinations with "interested stockholders" (defined as any beneficial owner of 15% or more of the outstanding voting stock of the corporation) unless, among other things, the corporation's board of directors has given its prior approval to either the business combination or the transaction which resulted in the stockholder becoming an "interested stockholder." In accordance with the DGCL, the Company's certificate of incorporation specifically exempts Parent from being deemed an "interested stockholder" and, therefore, Section 203 of DGCL is inapplicable to the Merger. Parent and Newco do not believe that any state takeover statutes purport to apply to the Offer or the Merger. Neither Parent nor Newco has currently complied with any state takeover statute or regulation. 38 41 Parent reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer or the Merger and nothing in this Offer to Purchase or any action taken in connection with the Offer or the Merger is intended as a waiver of such right. If it is asserted that any state takeover statute is applicable to the Offer or the Merger and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, Parent might be required to file certain information with, or to receive approvals from, the relevant state authorities, and Parent might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in consummating the Offer or the Merger. In such case, Parent may not be obliged to accept for payment or pay for any Shares tendered pursuant to the Offer. Antitrust. Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares under the Offer may be consummated following the expiration of a 15-calendar day waiting period following the filing by Parent of a Notification and Report Form with respect to the Offer, unless Parent receives a request for additional information or documentary material from the Antitrust Division of the Department of Justice (the "Antitrust Division") or the Federal Trade Commission (the "FTC") or unless early termination of the waiting period is granted. Parent is in the process of making such filing. If, within the initial 15-day waiting period, either the Antitrust Division or the FTC requests additional information or material from Parent concerning the Offer, the waiting period will be extended and would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Parent with such request. Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act. Thereafter, such waiting period may be extended only by court order or with the consent of Parent. In practice, complying with a request for additional information or material can take a significant amount of time. In addition, if the Antitrust Division or the FTC raises substantive issues in connection with a proposed transaction, the parties frequently engage in negotiations with the relevant governmental agency concerning possible means of addressing those issues and may agree to delay consummation of the transaction while such negotiations continue. The Merger would not require an additional filing under the HSR Act if Parent owns 50% or more of the outstanding Shares at the time of the Merger or if the Merger occurs within one year after the HSR Act waiting period applicable to the Offer expires or is terminated. The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of the transactions such as Parent's proposed acquisition of the Company. At any time before or after Parent's purchase of Shares pursuant to the Offer, the Antitrust Division or FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or the consummation of the Merger or seeking the divestiture of Shares acquired by Parent or the divestiture of substantial assets of Parent or its subsidiaries, or the Company. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, of the results thereof. FEES AND EXPENSES Morgan Stanley has provided certain financial advisory services to Parent in connection with the Offer. See "SPECIAL FACTORS -- Background of the Offer and the Merger." Morgan Stanley will receive customary compensation for its services, be reimbursed its out-of-pocket expenses, and has been indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. Parent has retained D.F. King & Co., Inc. to act as the Information Agent and Harris Trust and Savings Bank to act as the Depositary in connection with the Offer. The Information Agent and the Depositary each will receive reasonable and customary compensation for their services, be reimbursed for certain reasonable out-of-pocket expenses and be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. Parent will not pay any fees or commissions to any broker or dealer or other person (other than the Information Agent) in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, 39 42 dealers, banks and trust companies will be reimbursed by Parent upon request for customary mailing and handling expenses incurred by them in forwarding material to their customers. Certain employees of the Company have assisted Parent with respect to the Transaction, primarily by providing information concerning the Company for the preparation of this Offer to Purchase to comply with the requirements under the Exchange Act. No employee of the Company has, or will, receive any additional or separate compensation for such services. Pursuant to resolution of the Board, each Board member receives a fee of $500 for each committee meeting attended. Each of the members of the Special Committee will receive an aggregate of $2,500 in meeting fees in connection with their services to date. The Merger Agreement provides that all expenses incurred in connection with the Offer and the Merger will be paid by the party incurring such costs and expenses. The following in an estimate of expenses to be incurred in connection with the Offer and the Merger. EXPENSES TO BE PAID BY PARENT AND NEWCO: Financial Advisory and Legal Fees and Expenses............ $350,000 Printing and Mailing...................................... $ 75,000 Filing Fees............................................... $ 50,000 Depositary Fees........................................... $ 7,500 Information Agent Fees.................................... $ 5,000 Miscellaneous............................................. $ 10,000 -------- TOTAL............................................. $497,500 ======== EXPENSES TO BE PAID BY THE COMPANY: Financial Advisory and Legal Fees and Expenses............ $275,000 Printing and Mailing Fees................................. $ 25,000 Miscellaneous............................................. $ 10,000 -------- TOTAL............................................. $310,000 ========
MISCELLANEOUS The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. Parent is not aware of any jurisdiction in which the making of the Offer or the tender of Shares in connection therewith would not be in compliance with the laws of such jurisdiction. To the extent Parent becomes aware of any state law that would limit the class of offerees in the Offer, Parent will amend the Offer and, depending on the timing of such amendment, if any, will extend the Offer to provide adequate dissemination of such information to holders of Shares prior to the expiration of the Offer. In any jurisdiction the securities, blue sky or other laws of which require the Offer to be made by a licensed broker or dealer, the Offer is being made on behalf of Parent by one or more registered brokers or dealers licensed under the laws of such jurisdiction. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF PARENT NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. 40 43 Parent has filed with the Commission Schedules 13E-3 and 14D-1 pursuant to Rules 13e-3 and 14d-3 and under the Exchange Act, furnishing certain additional information with respect to the Offer. In addition, the Company has filed with the Commission a Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act, furnishing certain additional related information. Such Schedules and any amendments thereto, including exhibits, should be available for inspection and copies should be obtainable in the manner set forth in "Available Information" (except that they will not be available at the regional offices of the Commission). ARKANSAS BEST CORPORATION 41 44 ANNEX A STEPHENS INC. March 15, 1999 The Special Committee of the Board of Directors of TREADCO, INC. 1101 South 21st Street Fort Smith, AR 72901 Gentlemen: We have acted as your financial advisor in connection with the proposed merger of Treadco, Inc. (the "Company") with Treadco Acquisition Corp., a wholly owned subsidiary of Arkansas Best Corporation, Inc. (the "Transaction"). This Transaction is expected to take the form of an all cash tender offer, followed by a merger of Treadco Acquisition Corp. and the Company. The terms and conditions of the Transaction are more fully set forth in the definitive merger agreement. You have requested our opinion as to the fairness to the disinterested stockholders of the Company from a financial point of view of the consideration to be received by such stockholders in the Transaction. For purposes of the opinion, the term "disinterested shareholders" means holders of the Company's one class of publicly-traded common stock other than (1) directors, officers and employees of the Company, (2) any holder of 10% percent or more of the outstanding shares of such class, and (3) ABC or any affiliates thereof. In connection with rendering our opinion we have: (i) analyzed certain publicly available financial statements and reports regarding the Company; (ii) analyzed certain internal financial statements and other financial and operating data (including financial projections) concerning the Company prepared by management of the Company; (iii) reviewed the reported prices and trading activity for the Common stock; (iv) compared the financial performance of the Company and the prices and trading activity of the Common Stock with that of certain other comparable publicly-traded companies and their securities; (v) reviewed the financial terms, to the extent publicly available, of certain comparable transactions; (vi) reviewed the definitive merger agreement and related documents; (vii) discussed with management of the Company and Arkansas Best Corporation ("the Parent") the operations of and future business prospects for the Company; (viii) assisted in your deliberations regarding the material terms of the Transaction, and (ix) performed such other analyses and provided such other services as we have deemed appropriate. We have relied on the accuracy and completeness of the information and financial data provided to us by the Company and Parent, and our opinion is based upon such information. We have inquired into the reliability of such information and financial data only to the limited extent necessary to provide a reasonable basis for our opinion, recognizing that we are rendering only an informed opinion and not an appraisal or certification of value. With respect to financial forecasts and other information provided to or otherwise reviewed by or discussed with us, the management of the Company has advised us that such forecasts and A-1 45 March 15, 1999 Page 2 other information were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company as to the future financial performance of the Company. As part of our investment banking business, we regularly issue fairness opinions and are continually engaged in the valuation of companies and their securities in connection with business reorganizations, private placements, negotiated underwritings, mergers and acquisitions and valuations for estate, corporate and other purposes. In the ordinary course of business, Stephens Inc. and its affiliates at any time may hold long or short positions, and may trade or otherwise effect transactions as principal or for the accounts of customers, in debt or equity securities or options on securities of the Company. Stephens is receiving a fee, and reimbursement of its expenses, in connection with the issuance of this fairness opinion and for its role as financial advisor to the Company. Based on the foregoing and our general experience as investment bankers, and subject to the qualifications stated herein, we are of the opinion on the date hereof that the consideration to be received by the disinterested shareholders of the Company in the Transaction is fair to them from a financial point of view. This opinion and a summary discussion of our underlying analyses and role as your financial advisor may be included in communications to the Company's shareholders provided that we approve of such disclosures prior to publication. Very truly yours, /s/ STEPHENS INC. STEPHENS, INC. A-2 46 ANNEX B AGREEMENT AND PLAN OF MERGER BY AND AMONG ARKANSAS BEST CORPORATION, TREADCO ACQUISITION CORPORATION, AND TREADCO, INC. MARCH 15, 1999 B-1 47 AGREEMENT AND PLAN OF MERGER TABLE OF CONTENTS
PAGE ---- RECITALS.................................................................... 1 ARTICLE I The Tender Offer 1.1 The Tender Offer............................................ 1 1.2 Company Actions............................................. 3 ARTICLE II The Merger 2.1 The Merger.................................................. 3 2.2 Effective Time.............................................. 3 2.3 Effects of the Merger....................................... 4 2.4 Certificate of Incorporation................................ 4 2.5 Bylaws...................................................... 4 2.6 Directors................................................... 4 2.7 Officers.................................................... 4 2.8 Conversion of the Shares.................................... 4 2.9 Dissenting Shares........................................... 4 2.10 Conversion of the Common Stock of Newco..................... 5 2.11 Payment for Shares.......................................... 5 2.12 Closing..................................................... 6 ARTICLE III Representations and Warranties of the Company 3.1 Organization and Qualification.............................. 6 3.2 Authorized Capital.......................................... 6 3.3 Corporate Authorization..................................... 6 3.4 Approvals; No Violations.................................... 7 3.5 SEC Filings; Financial Statements........................... 7 3.6 Absence of Undisclosed Liabilities.......................... 7 3.7 Finders and Investment Bankers.............................. 7 ARTICLE IV Representations and Warranties of Parent and Newco 4.1 Organization and Qualification.............................. 8 4.2 Corporate Authorization..................................... 8 4.3 Approvals; No Violations.................................... 8 4.4 No Prior Activities......................................... 8 4.5 Information Supplied........................................ 9 4.6 Financing................................................... 9 4.7 Company Reports............................................. 9 4.8 Company Compliance.......................................... 9 ARTICLE V Covenants 5.1 Conduct of Business of the Company.......................... 9 5.2 Proxy Statement............................................. 11 5.3 Action of Stockholders of the Company; Voting and Disposition of the Shares................................... 11 5.4 Additional Agreements....................................... 12 5.5 Notification of Certain Matters............................. 12 5.6 Access to Information....................................... 12 5.7 Public Announcements........................................ 13 5.8 Officers' and Directors' Indemnification.................... 13 5.9 Employee Options; Performance Award Units................... 13 5.10 Other Actions by the Company................................ 14
(i) 48
PAGE ---- ARTICLE VI Conditions to Consummation of the Merger 6.1 Stockholder Approval........................................ 14 6.2 No Injunction............................................... 14 6.3 Offer....................................................... 14 6.4 Governmental Consents....................................... 14 ARTICLE VII Termination; Amendment; Waiver 7.1 Termination................................................. 14 7.2 Effect of Termination....................................... 15 7.3 Fees and Expenses........................................... 15 7.4 Amendment................................................... 16 7.5 Waiver...................................................... 16 ARTICLE VIII Miscellaneous 8.1 Survival of Representations, Warranties, and Agreements..... 16 8.2 Brokerage Fees and Commissions.............................. 16 8.3 Entire Agreement; Assignment................................ 16 8.4 Severability................................................ 17 8.5 Notices..................................................... 17 8.6 Governing Law............................................... 18 8.7 Specific Performance........................................ 18 8.8 Other Potential Bidders..................................... 18 8.9 Descriptive Headings; References............................ 18 8.10 Parties in Interest......................................... 18 8.11 Beneficiaries............................................... 18 8.12 Counterparts................................................ 18 8.13 Obligations................................................. 19 8.14 Certain Definitions......................................... 19
Annex A Certain Conditions Schedules (ii) 49 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of March 15, 1999, by and among ARKANSAS BEST CORPORATION, a Delaware corporation ("Parent"), TREADCO ACQUISITION CORPORATION, a Delaware corporation and a wholly-owned subsidiary of Parent ("Newco"), and TREADCO, INC., a Delaware corporation (the "Company"). RECITALS The Board of Directors of the Company (the "Board"), upon the recommendation of a duly authorized special committee thereof (consisting of independent directors) (the "Special Committee") and the Board of Directors of Parent have unanimously determined that it is in the best interests of the stockholders of their respective corporations for Parent to acquire all the outstanding shares of common stock, par value $.01 per share, of the Company (including the associated Rights (as defined in Section 1.1(a) of this Agreement)) (collectively, the "Shares") other than those Shares owned by Parent or any of its subsidiaries. The parties intend to effect such acquisition through a tender offer on the terms described below, followed by a merger of Newco with and into the Company on the terms described below (the "Merger"). THEREFORE, in consideration of the foregoing, the mutual covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which all parties hereby acknowledge, the parties agree as follows: ARTICLE I THE TENDER OFFER 1.1 The Tender Offer. (a) Provided that this Agreement has not been terminated in accordance with Article VII and none of the events referred to in Annex A (other than the events referred to in clauses (i) through (ii) of the second paragraph of Annex A and paragraph clause (i) of Annex A) has occurred or is existing, within five business days of the date of this Agreement, Parent will commence a tender offer (the "Offer") subject to Rules 13e-3 and 14d-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") for all outstanding Shares at a price of $9.00 per Share (the "Per Share Amount") net to the seller in cash. Parent agrees to accept for payment all Shares validly tendered pursuant to the Offer as soon as legally permissible, and to pay for all such Shares as promptly as practicable, in each case upon the terms and subject to the conditions of the Offer, as it may be revised as permitted by this Agreement. The obligation of Parent to commence the Offer will be subject only to the conditions set forth in Annex A, and the obligation of Parent to accept for payment, purchase, and pay for the Shares tendered pursuant to the Offer will be subject to such conditions and to the further condition that the Shares validly tendered and not withdrawn prior to the expiration date of the Offer when aggregated with the Shares currently owned by Parent, its subsidiaries and affiliates (other than affiliates who are natural persons) represent not less than 66 2/3% of the number of Shares then outstanding and issuable on the exercise of the outstanding options (the "Minimum Condition"). Parent specifically reserves the right to extend the expiration date of the Offer (unless, after April 30, 1999, all conditions to the Offer listed on Annex A are fulfilled or waived by Parent and Newco), and to make any other changes in the terms and conditions of the Offer (provided that, unless previously approved by the Company (as recommended by the Special Committee) in writing, no change may be made that decreases the price per Share payable in the Offer, that changes the form of consideration to be paid in the Offer, that reduces the maximum number of Shares to be purchased in the Offer, that waives or reduces, in whole or in part, the Minimum Condition, that imposes conditions to the Offer in addition to those set forth in Annex A, or that broadens the scope of such conditions or amends any other material term of the Offer in a manner adverse to the Company's stockholders (other than Parent). Notwithstanding the foregoing, Parent (i) shall extend the Offer for any period required by any rule, regulation or interpretation of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer, and (ii) may, without the consent of the Company, extend the Offer for an aggregate period of not more than 10 business days beyond the latest applicable date that would otherwise be permitted under clause (i) of this sentence if, as of such 1 50 date, all of the offer conditions set forth on Annex A are satisfied or waived by Parent, but the number of Shares validly tendered and not withdrawn pursuant to the Offer is less than 90% of the then outstanding Shares on a fully diluted basis. The parties agree that the conditions set forth in Annex A are for the sole benefit of Parent and may be asserted by Parent or may be waived by Parent, in whole or in part, at any time and from time to time, in its sole discretion other than the Minimum Condition which requires the written consent of the Company (as recommended by the Special Committee). The failure by Parent at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances will not be deemed a waiver with respect to other facts or circumstances, and each such right will be deemed an ongoing right that may be asserted at any time and from time to time. The Per Share Amount will be paid net to the seller in cash, less any required withholding taxes, on the terms and subject to the conditions of the Offer. Parent and the Company agree that no Shares held by the Company or by Parent or any of its subsidiaries will be tendered in the Offer. The Company hereby consents to the Offer and represents that: (a) the Special Committee at a meeting duly called and held (i) determined at such time that the Offer and the Merger, taken together, are fair to the Company and its stockholders and in the best interests of the holders of the Shares (other than Parent, its subsidiaries and affiliates (other than those affiliates who are natural persons)); and (ii) resolved at such time to recommend acceptance of the Offer and approval and adoption of this Agreement, the Merger, and the transactions contemplated by this Agreement to the Board, (b) the Board at a meeting duly called and held (i) determined at such time that the Offer and the Merger, taken together, are fair to the Company and its stockholders and in the best interests of the holders of the Shares (other than Parent, its subsidiaries and affiliates (other than those affiliates who are natural persons)); (ii) resolved at such time to recommend acceptance of the Offer and approval and adoption of this Agreement, the Merger, and the transactions contemplated by this Agreement to the stockholders of the Company; and (iii) has taken all necessary action with respect to the rights to purchase shares of common stock, $.01 par value per share, of the Company at $60.00 per share (the "Rights") issued under the Company's Rights Agreement, dated as of September 1, 1991 between the Company and NCNB Texas National Bank (as amended, the "Rights Agreement"), to provide that the Offer will not constitute an event resulting in a "Distribution Date" (as such term is defined in the Rights Agreement) and (c) Stephens Inc., the Special Committee's financial advisor (the "Advisor"), has delivered to the Special Committee and the Board its opinion that, subject to the limitations and qualifications set forth in such opinion, the Per Share Amount is fair from a financial point of view to the holders of the Shares (other than Parent). (b) As promptly as practicable on the date of the commencement of the Offer, Parent will file with the SEC a Tender Offer Statement on Schedule 13E-3 and 14D-1 with respect to the Offer under the Exchange Act, which will (i) reflect the execution and delivery of this Agreement; (ii) set forth the Offer as provided for in this Agreement pursuant to an offer to purchase; and (iii) contain or incorporate by reference a form of letter of transmittal. Parent represents and agrees that the Tender Offer Statement on Schedule 13E-3 and 14D-1 and all other Offer Documents (as defined below) shall comply as to form in all material respects with the Exchange Act, and the rules and regulations promulgated thereunder, and that the Tender Offer Statement on Schedule 13E-3 and 14D-1 and all other Offer Documents, on the date first published, disseminated, or mailed to the Company's stockholders, shall not 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 not misleading. Parent agrees promptly to take all steps necessary to cause the Tender Offer Statement on Schedule 13E-3 and 14D-1 and all other Offer Documents to be corrected if and to the extent that such information shall become false or misleading in any material respect, and Parent agrees to take all steps necessary to amend or supplement the Tender Offer Statement on Schedule 13E-3 and 14D-1 and all other Offer Documents and to cause such documents as so amended or supplemented to be filed with the SEC and to be disseminated to the Company's stockholders, in each case as and to the extent required by the federal securities laws. The Company, the Special Committee and its advisors shall be given a reasonable opportunity to review the Tender Offer Statement on Schedule 13E-3 and 14D-1, all other Offer Documents and all amendments and supplements thereto prior to the filing with the SEC or dissemination to the Company's stockholders. 2 51 (c) Parent will promptly disseminate the offer to purchase referred to in Section 1.1(b) (as amended pursuant to this Agreement, the "Offer to Purchase" and, collectively with all other schedules and exhibits required to be filed with the SEC, the "Offer Documents") to the holders of the Shares, reflecting the terms set forth in this Agreement. The Offer Documents will contain the recommendation of the Special Committee and the Board that the holders of the Shares accept the Offer as described in Section 1.1(a) and may make reference to the opinion of the Advisor referred to in Section 1.1(a) and include or incorporate such opinion. The Company, with respect to written information supplied by the Company specifically for use in the Offer Documents or based upon information pertaining to the Company in the Company Reports (as defined in Section 3.5), agrees promptly to inform Parent in the event that any such information in the Offer Documents becomes false or misleading in any material respect. Subject to Section 1.2(b), Parent agrees to take all steps to cause the Offer Documents to be disseminated to the holders of Shares, as and to the extent required by applicable law. Parent will promptly provide to the Company any written comments it receives from the SEC with respect to the Offer Documents. 1.2 Company Actions. (a) The Company hereby agrees to file on the date the Offer Documents are filed with the SEC and promptly mail to its stockholders, a Solicitation/Recommendation Statement on Schedule 14D-9 (together with all schedules, amendments, and supplements, the "Schedule 14D-9") containing the recommendations of the Special Committee and the Board referred to in Section 1.1 and the opinion of the Advisor referred to in Section 1.1(a). The Company will promptly provide to Parent any written comments it receives from the SEC with respect to the Schedule 14D-9. The Schedule 14D-9, at the time it is first published, disseminated, or mailed to the stockholders of the Company, will not 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 not misleading. The Company agrees promptly to take all steps necessary to cause the Schedule 14D-9 to be corrected to the extent reasonably requested by Parent to reflect any change in information concerning Parent, Newco, or the Offer, and, as corrected, to be filed with the SEC and disseminated to the stockholders of the Company, as and to the extent required by applicable law. (b) In connection with the Offer, the Company will promptly furnish, or request its transfer agent to furnish, Parent with mailing labels, security position listings, and any available listing or computer files containing the names and addresses of the record holders of Shares as of the most recent practicable date and will furnish Parent with such information and assistance (including updated lists of security position listings and listing or computer files) as Parent or its agents may reasonably request in order to communicate the Offer to the record and beneficial holders of Shares. Subject to applicable law and except for such steps as are necessary to disseminate the Offer Documents, Parent and its affiliates will hold in confidence the information contained in any such labels, listings, and files, will use such information only in connection with the Offer and the Merger, and, if this Agreement is terminated, will deliver to the Company all copies of such information in its possession. Parent agrees to reimburse the Company for all expenses incurred by it in complying with this Section 1.2(b). ARTICLE II THE MERGER 2.1 The Merger. Upon the terms and subject to the conditions of this Agreement and in accordance with the Delaware General Corporation Law (the "DGCL"), Newco will be merged with and into the Company as soon as practicable following the satisfaction or waiver of the conditions set forth in Article VI. Following the Merger, the Company will continue as the surviving corporation (the "Surviving Corporation") and the separate corporate existence of Newco will cease. At the election of Parent, any one or more direct or indirect wholly-owned subsidiaries of Parent incorporated under the laws of the State of Delaware may be substituted for Newco as a constituent corporation in the Merger. As used in this Agreement, the term "Newco" refers to any such substituted corporation. 2.2 Effective Time. The Merger will be consummated by filing with the Delaware Secretary of State a certificate of merger or certificate of ownership and merger in accordance with the DGCL (the "Certificate of Merger") in such form as is required by, and executed in accordance with, the relevant provisions of the 3 52 DGCL, and such other documents as may be required by the provisions of the DGCL. The Merger will be effective at the time of such filing or at such later time as is specified in the Certificate of Merger in accordance with the provisions of the DGCL. Such time of effectiveness is referred to as the "Effective Time." 2.3 Effects of the Merger. The Merger will have the effects set forth in sec. 259 of the DGCL. As of the Effective Time, the Company will be a wholly-owned direct or indirect subsidiary of Parent. Without limiting the foregoing, at the Effective Time, all properties, rights, privileges, powers, and franchises of the Company and Newco will vest in the Surviving Corporation and all debts, liabilities, obligations, and duties of the Company and Newco will become the debts, liabilities, obligations, and duties of the Surviving Corporation. 2.4 Certificate of Incorporation. The Certificate of Incorporation of the Company as in effect at the Effective Time will be the Certificate of Incorporation of the Surviving Corporation until amended in accordance with applicable law, except that at the election of Parent, the Company will amend its Certificate of Incorporation at the Effective Time to conform as nearly as possible to the Certificate of Incorporation of Newco. 2.5 Bylaws. The Bylaws of the Company as in effect immediately prior to the Effective Time will be the Bylaws of the Surviving Corporation until amended in accordance with applicable law, except that at the election of Parent, the Company will amend its Bylaws immediately prior to the Effective Time to conform as nearly as possible to the Bylaws of Newco. 2.6 Directors. The directors of Newco at the Effective Time and John R. Meyers will be the initial directors of the Surviving Corporation and will hold office from the Effective Time until their respective successors are duly elected or appointed and qualified. 2.7 Officers. The officers of the Company at the Effective Time will be the initial officers of the Surviving Corporation and will hold office from the Effective Time until their respective successors are duly elected or appointed and qualified. 2.8 Conversion of the Shares. At the Effective Time: (a) Each Share issued and outstanding immediately prior to the Effective Time (other than (i) Shares held by Parent, the Company, or any direct or indirect subsidiary of Parent and (ii) any Dissenting Shares (as defined in Section 2.9)) will, without further action by Parent or the Company, automatically be canceled and extinguished and converted into the right to receive in cash the Per Share Amount (the "Merger Consideration") without interest, less any required withholding taxes, upon surrender of the certificate formerly representing such Share in accordance with Section 2.11. (b) Each Share issued and outstanding immediately prior to the Effective Time that is owned or held by the Company will be canceled and retired and cease to exist, without any conversion, and no payment will be made with respect to any such Share. (c) Each Share issued and outstanding immediately prior to the Effective Time that is owned or held by Parent or any direct or indirect subsidiary of Parent (other than the Company) will remain issued and outstanding. 2.9 Dissenting Shares. (a) Notwithstanding anything in this Agreement to the contrary, Shares that are issued and outstanding immediately prior to the Effective Time and that are held by stockholders that have complied in all respects with the requirements of the DGCL concerning the right of a stockholder of the Company to dissent from the Merger and to require an appraisal of such Shares in the manner provided in the DGCL, if applicable, and that, as of the Effective Time, have not effectively withdrawn or lost such right to appraisal (the "Dissenting Shares") will not be converted into or represent a right to receive the Merger Consideration pursuant to Section 2.8, but the holders of such Dissenting Shares will be entitled only to such rights as are granted under sec. 262 of the DGCL. Each holder of Dissenting Shares that becomes entitled to payment for such Shares pursuant to such section of the DGCL will receive payment for such Dissenting Shares from the Surviving Corporation in accordance with the DGCL; provided, however, that to the extent that any holder or holders of Shares have failed to establish the entitlement to appraisal rights as provided in 4 53 sec. 262 of the DGCL, such holder or holders (as the case may be) will forfeit the right to appraisal of such Shares and each such Share will thereupon be deemed to have been converted, as of the Effective Time, into and represent the right to receive payment from the Surviving Corporation of the Merger Consideration, without interest, as provided in Section 2.8. (b) The Company will give Parent (i) prompt notice of any written demands for appraisal, withdrawals of demands for appraisal, and any other instrument served pursuant to sec. 262 of the DGCL received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under sec. 262 of the DGCL. The Company will not, except with the express written consent of Parent, voluntarily make any payment with respect to any demands for appraisal or settle or offer to settle any such demands. 2.10 Conversion of the Common Stock of Newco. Each share of the common stock of Newco issued and outstanding immediately prior to the Effective Time will be canceled and retired and cease to exist, without any conversion, and no payment will be made with respect to any such Share. 2.11 Payment for Shares. (a) Prior to the Effective Time, Parent will appoint a bank or trust company reasonably acceptable to the Company as agent for the holders of Shares (the "Paying Agent") to receive and disburse the cash to which holders of Shares become entitled pursuant to Section 2.8. At the Effective Time, Parent will provide the Paying Agent with sufficient cash to allow the Merger Consideration to be paid by the Paying Agent for each Share then entitled to receive the Merger Consideration (the "Payment Fund"). (b) Promptly after the Effective Time, Parent will cause the Paying Agent to mail to each record holder immediately prior to the Effective Time of an outstanding certificate or certificates representing Shares that as of the Effective Time represent the right to receive the Merger Consideration (the "Certificates"), a form of letter of transmittal (which will specify that delivery will be effected, and risk of loss and title to the Certificates will pass, only upon proper delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates for payment. Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal duly executed and completed in accordance with its instructions and such other documents as may be requested, the holder of such Certificate will be entitled to receive in exchange for such Certificate, subject to any required withholding of taxes, the Merger Consideration and such Certificate will forthwith be canceled. No interest will be paid or accrued on the Merger Consideration upon the surrender of the Certificates. If payment or delivery is to be made to a person other than the person in whose name the Certificate surrendered is registered, it will be a condition of payment or delivery that the Certificate so surrendered be properly endorsed, with signature properly guaranteed, or otherwise be in proper form for transfer and that the person requesting such payment or delivery pay any transfer or other taxes required by reason of the payment or delivery to a person other than the registered holder of the Certificate surrendered or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Section 2.11, each Certificate (other than Certificates held by persons referred to in Section 2.8(a)(i) and (ii)) will represent for all purposes only the right to receive the Merger Consideration, without interest and subject to any required withholding of taxes. Notwithstanding the foregoing, neither the Paying Agent nor any party to this Agreement will be liable to a holder of Shares for any Merger Consideration delivered to a public official pursuant to applicable abandoned property, escheat, or similar laws. (c) Promptly following the date that is six months after the Effective Time, the Paying Agent will return to the Surviving Corporation all cash, certificates, and other property in its possession that constitute any portion of the Payment Fund, and the duties of the Paying Agent will terminate. Thereafter, each holder of a Certificate formerly representing a Share may surrender such Certificate to the Surviving Corporation and (subject to applicable abandoned property, escheat, and similar laws) receive in exchange therefor the Merger Consideration without any interest. Neither Parent, Newco, nor the Surviving Corporation will be liable to any holder of Shares for any amount paid to a public official pursuant to applicable abandoned property, escheat, or similar laws. If Certificates are not surrendered prior to midnight on the second anniversary of the Effective Time, unclaimed amounts of the Payment Fund will, to the extent permitted under applicable law, become the property of the Surviving Corporation. Notwithstanding the foregoing, the Surviving Corporation will be 5 54 entitled to receive from time to time all interest or other amounts earned with respect to the Payment Fund as such amounts accrue or become available. (d) Any portion of the Payment Fund for which rights to dissent have been perfected will be returned to the Surviving Corporation upon demand. (e) After the Effective Time there will be no registration of transfers on the stock transfer books of the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time. 2.12 Closing. Upon the terms and subject to the conditions of this Agreement, as soon as practicable after all the conditions to the obligations of the parties to effect the Merger under Article VI have been satisfied or waived, the Company and Newco will (a) file with the Secretary of State of Delaware the Certificate of Merger and (b) take all such other and further actions as may be required by law to make the Merger effective. Contemporaneous with the filing referred to in this Section 2.12, a closing (the "Closing") will be held at the offices of Hughes & Luce, L.L.P., 1717 Main Street, Suite 2800, Dallas, Texas or at such other location as the parties to this Agreement may establish for the purpose of confirming all the foregoing. The date and the time of such Closing are referred to as the "Closing Date." ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Newco that: 3.1 Organization and Qualification. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority and any necessary governmental authority to own, operate, and lease its properties and assets and to carry on its business as it is now being conducted, except for failures to have such power and authority as would not have a Company Material Adverse Effect (as defined below). The Company is duly qualified or licensed to do business and is in good standing in each jurisdiction where the character of its properties owned or leased or the nature of its activities makes such qualification or licensing necessary, except for failures to be so qualified or licensed and in good standing as would not have a Company Material Adverse Effect. The Company does not beneficially own any equity interest in any entity, and the Company is not a party to any joint venture, partnership, or similar arrangement. For the purposes of this Agreement, "Company Material Adverse Effect" means any change or effect that, individually or when taken together with all such other changes or effects, would be materially adverse to the condition (financial or other), business, operations, properties, assets, liabilities, prospects, or results of operations of the Company. 3.2 Authorized Capital. The authorized capital stock of the Company consists solely of 18,000,000 shares of common stock, par value $.01 per share, of which 5,072,255 shares were outstanding as of February 28, 1999, and 2,000,000 shares of preferred stock, $.01 par value per share, of which no shares were outstanding as of February 28, 1999. All of the outstanding Shares have been duly authorized and are validly issued, fully paid, nonassessable, and free of preemptive rights. Schedule 3.2 lists each outstanding stock option of the Company (the "Employee Options"), the number of shares covered by such Employee Options, the exercise prices, and the exercise dates. Except for the Rights, as set forth above or on Schedule 3.2, there are no preemptive rights nor any outstanding subscriptions, options, warrants, rights, convertible securities, or other agreements or commitments of any character relating to the issued or unissued capital stock or other securities of the Company. 3.3 Corporate Authorization. The Company has the full corporate power and authority to execute and deliver this Agreement and, subject to any necessary stockholder approval of the Merger, to consummate the transactions contemplated by this Agreement. The execution, delivery, and performance by the Company of this Agreement and the consummation by the Company of the Merger and the other transactions contemplated by this Agreement have been duly and validly authorized by all necessary corporate action and, except for any required approval of the Merger and any adoption of this Agreement by the stockholders of the Company in connection with the consummation of the Merger, no other corporate proceedings on the part of 6 55 the Company are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 3.4 Approvals; No Violations. Except for applicable requirements of the Exchange Act and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and the filing of the Certificate of Merger as required by the DGCL, no filing with, and no permit, authorization, consent, or approval of, any foreign or domestic public body or authority is necessary for the consummation by the Company of the transactions contemplated by this Agreement. Except as set forth on Schedule 3.4, the execution and delivery of this Agreement by the Company, the consummation by the Company of the transactions contemplated by this Agreement and the compliance by the Company with any of the provisions of this Agreement will not (a) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws of the Company; (b) result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, or acceleration) under, any of the terms, conditions, or provisions of any note, bond, mortgage, indenture, license, lease, contract, agreement, or other instrument or obligation to which the Company is a party or by which any of its properties or assets may be bound; or (c) violate any order, writ, injunction, decree, statute, rule, or regulation applicable to the Company or any of its properties or assets; except such violations, conflicts, breaches, defaults, terminations, or accelerations referred to in subsections (b) and (c) of this Section 3.4 as would not have a Company Material Adverse Effect or materially adversely affect the ability of any party to perform its obligations under this Agreement. 3.5 SEC Filings; Financial Statements. Since December 31, 1995, the Company has timely filed with the SEC all forms, reports, statements, and documents required to be filed by it pursuant to the Securities Act of 1933, as amended (the "Securities Act") and the rules and regulations promulgated thereunder, and the Exchange Act, and the rules and regulations promulgated thereunder (collectively, and including, when filed, the Schedule 14D-9, the "Company Reports") and has otherwise complied in all material respects with the requirements of the Securities Act and the Exchange Act. To the knowledge of the Special Committee, as of their respective dates, the Company Reports did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were or will be made, not misleading. Each of the historical balance sheets as of its date included in or incorporated by reference into the Company Reports and the audited financial statements of the Company for the year ended December 31, 1998, a copy of which has been delivered to Parent (the "1998 Audit") and each of the historical statements of operations, stockholders' equity, and cash flows included in or incorporated by reference into the Company Reports and the 1998 Audit (including any related notes and schedules) fairly presents or will fairly present the financial condition, results of operations, stockholders' equity, and cash flows, as the case may be, of the Company for the periods set forth, in each case in accordance with generally accepted accounting principles consistently applied during the periods involved. 3.6 Absence of Undisclosed Liabilities. To the knowledge of the Special Committee, except as set forth in the 1998 Audit (or the notes thereto), the Company does not have any liabilities or obligations of any nature, whether or not accrued, contingent, or otherwise, that would be required to be included on a balance sheet of the Company as of December 31, 1998 (or disclosed in the notes thereto) prepared in accordance with generally accepted accounting principles, and that would have a Company Material Adverse Effect. Since December 31, 1998, the Company has conducted its businesses in a manner consistent with past practices, and the Company has not become subject to any liabilities or obligations that would be required to be included on a balance sheet of the Company (or disclosed in notes) prepared in accordance with generally accepted accounting principles and that would have a Company Material Adverse Effect, other than liabilities or obligations incurred in the ordinary course of business consistent with past practices or incurred in connection with the Offer, this Agreement, or the Merger and disclosed in the Company Reports. 3.7 Finders and Investment Bankers. Neither the Company nor any of its officers or directors has employed any investment banker, business consultant, financial advisor, broker or finder in connection with 7 56 the transactions contemplated by this Agreement, except for the Advisor, or incurred any liability for any investment banking, business consultancy, financial advisory, brokerage or finders' fees or commissions in connection with the transactions contemplated hereby, except for fees payable to the Advisor (as reflected in the agreement between such firm and the Company, a copy of which has been delivered to Parent). ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND NEWCO Each of Parent and Newco represents and warrants to the Company as follows: 4.1 Organization and Qualification. Each of Parent and Newco is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority and any necessary governmental authority to carry on its business as now conducted. Each of Parent and Newco is duly qualified or licensed to do business, and is in good standing, in each jurisdiction where the character of its properties owned or leased or the nature of its activities makes such qualification or licensing necessary, except for failures to be so duly qualified or licensed and in good standing as would not have a Parent Material Adverse Effect. For the purposes of this Agreement, "Parent Material Adverse Effect" means any change or effect that, individually or when taken together with all such other changes or effects, would be materially adverse to the condition (financial or other), business, operations, properties, assets, liabilities, prospects, or results of operations of Parent and its subsidiaries, taken as a whole. 4.2 Corporate Authorization. Each of Parent and Newco has the full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement. The execution, delivery, and performance by each of Parent and Newco of this Agreement and the consummation by Parent and Newco of the Merger and of the other transactions necessary for such consummation have been duly and validly authorized by Parent as sole stockholder of Newco and by the Board of Directors of each of Parent and Newco and no other corporate proceedings on the part of Parent or Newco are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement. This Agreement has been duly and validly executed and delivered by each of Parent and Newco and constitutes a valid and binding obligation of each of Parent and Newco, enforceable in accordance with its terms. 4.3 Approvals; No Violations. Except for applicable requirements of the Exchange Act and the HSR Act and the filing and recordation of the Certificate of Merger as required by the DGCL, no filing with, and no permit, authorization, consent, or approval of any foreign or domestic public body or authority is necessary for the consummation by Parent and Newco of the transactions contemplated by this Agreement. Except as set forth on Schedule 4.3, neither the execution and delivery of this Agreement by Parent and Newco nor the consummation by Parent and Newco of the transactions contemplated by this Agreement nor compliance by them with any of the provisions of this Agreement will (a) conflict with or result in any breach of any provision of the organizational documents or bylaws of Parent or Newco; (b) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation, or acceleration under), any of the terms, conditions, or provisions of any note, bond, mortgage, indenture, license, lease, contract, agreement, or other instrument or obligation to which Parent or Newco is a party or by which either of them or any of their respective properties or assets may be bound; or (c) violate any order, writ, injunction, decree, statute, rule, or regulation applicable to Parent or Newco or any of their respective properties or assets; except such violations, conflicts, breaches, defaults, terminations, or accelerations referred to in subsections (b) or (c) of this Section 4.3 as would not have a Parent Material Adverse Effect. 4.4 No Prior Activities. Except for obligations or liabilities incurred in connection with its incorporation or organization, the Offer, or the negotiation and consummation of this Agreement and the transactions contemplated by this Agreement, Newco has not incurred any obligations or liabilities, nor has it engaged in any business or activities of any type or kind whatsoever or entered into any agreements or arrangements with any person. 8 57 4.5 Information Supplied. None of the information supplied or to be supplied by Parent or Newco for inclusion or incorporation by reference in the Offer Documents, the Schedule 13E-3 and 14D-1, or the Proxy Statement (as defined below) will, in the case of the Offer Documents and the Schedule 13E-3 and 14D-1, at the respective times the Offer Documents and the Schedule 13E-3 and 14D-1 are filed with the SEC or first published, sent, or given to the stockholders of the Company, or, in the case of the Proxy Statement, at the date the Proxy Statement is first mailed to the stockholders of the Company or at the time of the meeting of the stockholders of the Company held to vote on approval and adoption of this Agreement and the Merger, 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 misleading. Parent and Newco agree to promptly correct any information supplied by Parent or Newco for inclusion in such documents that becomes false or misleading in any material respect. The Offer Documents will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder, except that no representation or warranty is made by Parent or Newco with respect to statements made or incorporated by reference in the Offer Documents based on information supplied by the Company for inclusion or incorporation by reference in the Offer Documents. 4.6 Financing. Parent intends to fund the aggregate purchase price for the Shares from borrowings under its existing bank credit agreement. As of the date hereof, Parent has taken all actions and satisfied all conditions necessary to borrow the funds necessary to consummate the Offer and the Merger. Parent will take all actions necessary to continue to have such funds available upon the closing of the Offer or the Merger, as the case may be, and will avoid any actions that would result in the unavailability of such funds. 4.7 Company Reports. (a) To the knowledge of Parent, as of their respective dates, the Company Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. (b) As of the date hereof, Parent has no knowledge of any discussions or negotiations between it, the Company or any of their respective affiliates and any other entity that would result in a Third Party Acquisition (as defined in Section 7.3 hereof). 4.8 Company Compliance. As of the date hereof, Parent knows of no event or circumstance that would limit Company's compliance with its obligations hereunder, including obligations of the Company contained in Section 5. ARTICLE V COVENANTS 5.1 Conduct of Business of the Company. (a) Except as expressly contemplated by this Agreement, during the period from the date of this Agreement to the Effective Time: (i) The Company will conduct its business solely in the ordinary course consistent with past practices. (ii) The Company will not intentionally take or willfully omit to take any actions that results in or would result in a Company Material Adverse Effect. (iii) The Company will use its reasonable best efforts to preserve intact the business organization of the Company, to keep available the services of its and their present officers and key employees and consultants, and to maintain satisfactory relationships with customers, agents, reinsurers, suppliers, and other persons having business relationships with the Company. 9 58 (b) Without limiting the provisions of Section 5.1(a) or as otherwise expressly provided in this Agreement, the Company will not, without Parent's prior written consent, during the period from the date of this Agreement to the Effective Time: (i) issue, sell, or dispose of additional shares of capital stock of any class (including the Shares) of the Company, or securities convertible into or exchangeable for any such shares or securities, or any rights, warrants, or options to acquire any such shares or securities, other than Shares issued upon exercise of options disclosed in Schedule 3.2, in each case in accordance with the terms disclosed on Schedule 3.2; (ii) redeem, purchase, or otherwise acquire, or propose to redeem, purchase, or otherwise acquire, any of its outstanding capital stock, or other securities of the Company; (iii) split, combine, subdivide, or reclassify any of its capital stock or declare, set aside, make, or pay any dividend or distribution on any shares of its capital stock; (iv) sell, pledge, dispose of, or encumber any of its assets, except for sales, pledges, dispositions, or encumbrances in the ordinary course of business consistent with past practices; (v) incur or modify any indebtedness or issue or sell any debt securities, or assume, guarantee, endorse, or otherwise as an accommodation become absolutely or contingently responsible for obligations of any other person, or make any loans or advances, other than in the ordinary course of business consistent with past practices; (vi) adopt or amend any bonus, profit sharing, compensation, severance, termination, stock option, pension, retirement, deferred compensation, employment or other employee benefit agreements, trusts, plans, funds, or other arrangements for the benefit or welfare of any director, officer, or employee, or (except for normal increases in the ordinary course of business that are consistent with past practices and that, in the aggregate, do not result in a material increase in benefits or compensation expense to the Company) increase in any manner the compensation or fringe benefits of any director, officer, or employee or pay any benefit not required by any existing plan or arrangement (including, without limitation, the granting or vesting of stock options or stock appreciation rights) or take any action or grant any benefit not expressly required under the terms of any existing agreements, trusts, plans, funds, or other such arrangements or enter into any contract, agreement, commitment, or arrangement to do any of the foregoing; or make or agree to make any payments to any directors, officers, agents, contractors, or employees relating to a change or potential change in control of the Company; (vii) acquire by merger, consolidation, or acquisition of stock or assets any corporation, partnership, or other business organization or division or make any 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 person; (viii) except as required by this Agreement, adopt any amendments to its Certificate of Incorporation or Bylaws; (ix) take any action other than in the ordinary course of business and consistent with past practices, to pay, discharge, settle, or satisfy any claim, liability, or obligation (absolute or contingent, accrued or unaccrued, asserted or unasserted, or otherwise); (x) change any method of accounting or accounting practice used by the Company, except for any change required by reason of a concurrent change in generally accepted accounting principles; (xi) revalue in any respect any of its assets, including, without limitation, writing down the value of its portfolio or writing off notes or accounts receivable other than in the ordinary course of business consistent with past practices; (xii) authorize any unbudgeted capital expenditure or expenditures that, individually, is in excess of $300,000 or, in the aggregate, are in excess of $500,000; 10 59 (xiii) make any tax election, settle or compromise any federal, state, or local tax liability or consent to the extension of time for the assessment or collection of any federal, state, or local tax; (xiv) settle or compromise any pending or threatened suit, action, or claim material to the Company or relevant to the transactions contemplated by this Agreement; (xv) enter into any agreement, arrangement, or understanding to do any of the foregoing actions in this Section 5.1, including any agreement, arrangement, or understanding resulting in or providing for a sale of any assets of the Company (other than a sale of assets in the ordinary course of business and consistent with past practices) or a merger or other liquidation, sale, or disposition of the Company; or (xvi) voluntarily take any action or willfully omit to take any action that would make any representation or warranty in Article III untrue or incorrect in any material respect at any time, including as of the date of this Agreement and as of the time of consummation of the Offer and the Effective Time, as if made as of such time. Parent will not and will not permit any if its affiliates (other than the Company) to take any action for the purpose of causing the Company to violate any of the Company's obligations under this Agreement including its obligations under this Section 5.1. The Parent will, and will cause each of its affiliates (other than the Company), to take all action reasonably necessary to allow the Company to comply with all its obligations in this Agreement, including the obligations of the Company contained in this Section 5.1. 5.2 Proxy Statement. Promptly after the execution of this Agreement, the Company and Parent will cooperate with each other and use all reasonable efforts to prepare, and the Company and Parent will file with the SEC, as soon as is reasonably practicable after completion of the Offer, a proxy statement, together with a form of proxy, or information statement, with respect to the Special Meeting (as defined in Section 5.3), if such Special Meeting is required to be held pursuant to Section 5.3. For the purposes of this Agreement, the term "Proxy Statement" means such proxy or information statement filed in final form with the SEC at the time it initially is mailed to the stockholders of the Company and all amendments or supplements thereto, if any, similarly filed and mailed. The parties will use all reasonable efforts to have the Proxy Statement cleared by the SEC as promptly as practicable after filing and, as promptly as practicable after the Proxy Statement has been so cleared, will mail the Proxy Statement to the stockholders of the Company as of the record date for the Special Meeting. The Company represents that none of the information provided or to be provided by it, and Parent and Newco represent that none of the information provided or to be provided by them, for use in the Proxy Statement will, on the date the Proxy Statement is first mailed to the stockholders of the Company and on the date of the Special Meeting, be false or misleading with respect to any 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 misleading, and Parent, Newco, and the Company each agrees to correct any information provided by it for use in the Proxy Statement that has become false or misleading in any material respect and file such amendments and supplements as are necessary. The Proxy Statement will comply as to form in all material respects with all applicable requirements of federal securities laws and applicable state laws. 5.3 Action of Stockholders of the Company; Voting and Disposition of the Shares. (a) Promptly after completion of the Offer and if required by applicable law in order to consummate the Merger, the Company will take all action necessary in accordance with the DGCL and the Certificate of Incorporation and Bylaws of the Company, to call a meeting of its stockholders (the "Special Meeting") with a record date as of which Parent is the record owner of the Shares purchased pursuant to the Offer at which the stockholders of the Company will consider and vote upon the Merger and this Agreement. Unless the fiduciary duties of the Special Committee or the Board under applicable law require otherwise, the Proxy Statement will contain the unanimous recommendation of the Special Committee and the Board that the stockholders of the Company vote to adopt and approve the Merger and this Agreement. The Company will, at the request of Parent, use all reasonable efforts to obtain from its stockholders proxies in favor of such adoption and approval and to take all other action necessary, or, in the reasonable judgment of the Company and Parent, helpful to secure the vote or consent of stockholders required by the DGCL to effect the Merger. 11 60 Notwithstanding the foregoing, in the event that Parent determines to effect the Merger without a meeting of the stockholders of the Company pursuant to sec. 228 or sec. 253 of the DGCL, the parties will take all necessary or appropriate action to cause the Merger to become effective as soon as practicable after expiration of the Offer without a meeting of stockholders, in accordance with either such section of the DGCL. (b) At the Special Meeting, Parent, its subsidiaries and affiliates (other than those affiliates who are natural persons) will vote, or cause to be voted (other than those affiliates who are natural persons), all of the Shares (i) then owned by any of them or (ii) as to which a proxy or power of attorney is held by any of them in favor of the Merger. 5.4 Additional Agreements. Subject to the terms and conditions of this Agreement and to the fiduciary obligations of the Special Committee or the Board under applicable law, each of the parties agrees to use their respective reasonable best efforts to take, or cause to be taken, all actions 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 (including consummation of the Offer and the Merger) and to cooperate with each other in connection with the foregoing, including, without limitation, using their respective reasonable best efforts (a) to obtain all necessary waivers, consents, and approvals from other parties to loan agreements, leases, and other 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 lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated by this Agreement, (d) to prepare and effect all necessary registrations and filings, and (e) to fulfill all conditions to and covenants contained in this Agreement. If, after the Effective Time, any action is necessary to effect the purposes of this Agreement, the proper officers and directors of each party will take all such necessary action. 5.5 Notification of Certain Matters. The Company will give prompt written notice to Parent and Newco, and Parent and Newco will give prompt written notice to the Company, of (a) the occurrence, or failure to occur, of any event, which occurrence or failure would cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at any time, (b) any material failure of the Company, Parent, or Newco, as the case may be, or of any officer, director, employee, or agent of the Company, Parent, or Newco, to comply with or satisfy any covenant, condition, or agreement to be complied with or satisfied by it under this Agreement, (c) any act, omission to act, event, or occurrence that, with notice, the passage of time, or otherwise, would result in a Company Material Adverse Effect, and (d) any material contingent liability of the Company for which it reasonably believes it will, with the passage of time or otherwise, become liable. No such notification will affect the representations or warranties of the parties or the conditions to the obligations of the parties under this Agreement. Parent will promptly notify the Company and the Advisor of (i) any information it obtains that would make the representations and warranties contained in Section 4.7 untrue or inaccurate in any material respect and (ii) any bona fide proposal received by Parent for a Third Party Acquisition (as defined in Section 7.3 hereof). 5.6 Access to Information. (a) From the date of this Agreement to the Effective Time, the Company will, and will cause its officers, directors, employees, and agents upon reasonable notice to, afford to officers, employees, and agents of Parent, Newco and their affiliates and the banks, other financial institutions, and investment bankers working with Parent or Newco, and their respective officers, employees, and agents, complete access at all reasonable times to its officers, employees, agents, properties, books, records, and contracts, and will furnish Parent, Newco and their affiliates and the banks, other financial institutions, and investments bankers working with Parent or Newco, all financial, operating, and other data and information as they reasonably request. (b) Each of Parent and Newco will hold and will cause its directors, officers, agents, employees, consultants, and advisors to hold in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all documents and information concerning the Company furnished to such persons in connection with the transactions contemplated by this Agreement (except to the extent that such information can be shown to have been (i) previously known by such persons from sources other than the Company, or its directors, officers, representatives, or affiliates, (ii) in the public domain through no fault of 12 61 such persons, or (iii) later lawfully acquired by such persons on a non-confidential basis from other sources who are not known by Parent or Newco to be bound by a confidentiality agreement or otherwise prohibited from transmitting the information to Parent or Newco by a contractual, legal, or fiduciary obligation) and will not release or disclose such information to any other person, except its directors, officers, agents, employees, consultants, and advisors, in connection with this Agreement who need to know such information. If the transactions contemplated by this Agreement are not consummated, such confidence shall be maintained and, if requested by or on behalf of the Company, Parent and Newco will, and will use all reasonable efforts to cause their auditors, attorneys, financial advisors, and other consultants, agents, and representatives to, return to the Company or destroy all copies of written information furnished by the Company to Parent and Newco or their agents, representatives, or advisors. It is understood that Parent and Newco will be deemed to have satisfied their obligation to hold such information confidential if they exercise the same care as they take to preserve confidentiality for their own similar information. (c) No investigation pursuant to this Section 5.6 will affect any representations or warranties of the parties in this Agreement or the conditions to the obligations of the parties to this Agreement; provided, however, that the Company shall not be deemed to have breached a representation or warranty herein to the extent that such breach was known to Parent as of the date hereof. 5.7 Public Announcements. Parent and Newco on the one hand and the Special Committee on the other hand will consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement, the Offer, the Merger, or the other transactions contemplated by this Agreement, and will not issue any such press release or make any such public statement prior to such consultation, except as may be required by law or the listing requirements of any securities exchange. 5.8 Officers' and Directors' Indemnification. (a) Parent and Newco agree that all rights to indemnification now existing in favor of the directors or officers of the Company as provided in the Company's Certificate of Incorporation or Bylaws will, to the extent such rights are in accordance with applicable law, survive the Merger and stay in effect in accordance with their respective terms for a period of not less than six years after the Effective Time. (b) In the event any action, suit, proceeding, or investigation relating to this Agreement or to the transactions contemplated by this Agreement is commenced by a third party, whether before or after the Effective Time, the parties to this Agreement agree, subject to the fiduciary duties of the respective Directors of the Company and Parent, to cooperate and use all reasonable efforts to defend against and respond to such action, suit, proceeding, or investigation. (c) For a period of six years after the Effective Time, Parent shall cause the Surviving Corporation to maintain officers' and directors' liability insurance for all persons currently covered under the Company's officers' and directors' liability insurance policies, in their capacities as officers and directors, on terms no less favorable to the covered persons than such existing insurance; provided, however, that Parent shall not be required in order to maintain or procure such coverage to pay an annual premium in excess of 150% of the current annual premium paid by the Company for its existing coverage (the "Cap"); and provided, further, that if equivalent coverage cannot be obtained, or can be obtained only by paying an annual premium in excess of the Cap, Parent shall only be required to obtain as much coverage as can be obtained by paying an annual premium equal to the Cap. (d) If Parent or any of its successors or assigns (i) shall merge or consolidate with or merge into any other corporation or entity and shall not be the surviving or continuing corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any individual, corporation or other entity, then in each such case, proper provisions shall be made so that the successors or assigns of the Parent shall assume all of the obligations set forth in this Section 5.8. 5.9 Employee Options; Performance Award Units. The Company will cooperate with Parent to terminate the 1991 Stock Option Plan and 1995 Performance Award Program of the Company in accordance with their respective terms. 13 62 5.10 Other Actions by the Company. If any "fair price," "moratorium," "control share acquisition," or other form of antitakeover statute, regulation, charter provision, or contract is or becomes applicable to the transactions contemplated by this Agreement, the Company will use its best efforts to grant such approvals and take such actions as are necessary under such laws, provisions, or contracts so that the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise act to eliminate or minimize the effects of such statute, regulation, provision or contract on the transactions contemplated by this Agreement. ARTICLE VI CONDITIONS TO CONSUMMATION OF THE MERGER The respective obligations of each party to effect the Merger are subject to the satisfaction prior to the Effective Time of the following conditions: 6.1 Stockholder Approval. This Agreement will have been adopted and approved by the affirmative vote of the stockholders of the Company in accordance with the Certificate of Incorporation and Bylaws of the Company and with applicable law, unless no stockholder vote is required by law. 6.2 No Injunction. No federal or state statute, rule, regulation, injunction, decree, or order will be enacted, promulgated, entered, or enforced that would (i) prohibit consummation of the Merger or of the other transactions contemplated by this Agreement or (ii) impose any limitation on the ability of Parent to exercise all rights of ownership with respect to the shares of Common Stock it owns that will result in a Parent Material Adverse Effect; provided that the parties to this Agreement agree to use their respective reasonable best efforts to have any such injunction, decree, or order lifted. 6.3 Offer. Parent will have purchased Shares pursuant to the Offer (except that Parent in its sole discretion may waive conditions to the Offer). 6.4 Governmental Consents. The waiting period applicable to the consummation of the Merger under the HSR Act will have expired or been terminated and all filings required to be made prior to the Effective Time with, and all consents, approvals, permits, and authorizations required to be obtained prior to the Effective Time from, governmental and regulatory authorities in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will have been made or obtained (as the case may be) except for such filings, consents, approvals, permits and authorizations that the failure to make or obtain would not result in a Company or Parent Material Adverse Effect. ARTICLE VII TERMINATION; AMENDMENT; WAIVER 7.1 Termination. This Agreement may be terminated and the Offer and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any approval by the stockholders of the Company of the Merger): (a) by mutual written consent of Parent, Newco, and the Company (upon recommendation of the Special Committee); (b) by Parent and Newco or the Company if any court of competent jurisdiction or other governmental body has issued a final order, decree, or ruling or taken any other final action restraining, enjoining, or otherwise prohibiting the Merger and such order, decree, ruling, or other action is or has become nonappealable; (c) by Parent and Newco if due to an occurrence or circumstances that would result in a failure to satisfy any conditions set forth in Annex A, Parent has (i) failed to commence the Offer within five business days following the date of the initial public announcement of the Offer, (ii) terminated the Offer, or (iii) failed to pay for the Shares pursuant to the Offer by July 31, 1999; 14 63 (d) by the Company if (i) there has not been a breach of any material representation, warranty, covenant, or agreement on the part of the Company, and Parent has (A) failed to commence the Offer within five business days following the date of the initial public announcement of the Offer, (B) terminated the Offer or (C) failed to pay for the Shares pursuant to the Offer by July 31, 1999 or (ii) prior to the purchase of Shares pursuant to the Offer, a person or group has made a bona fide offer that the Special Committee or the Board by a majority vote determines in its good faith judgment and in the exercise of its fiduciary duties, after consultation with its financial and legal advisors, is more favorable to the stockholders of the Company than the Offer and the Merger; (e) by Parent and Newco if prior to the purchase of Shares pursuant to the Offer (i) there has been a breach (which breach is not cured or not capable of being cured prior to the earlier of (A) 30 days following notice to the Company by Parent of such breach or (B) two business days prior to the expiration date of the Offer, as extended from time to time pursuant to the terms of this Agreement) of any representation or warranty on the part of the Company having a Company Material Adverse Effect or materially adversely affecting or delaying the ability of Parent to consummate the Offer and the Merger, (ii) there has been a breach (which breach is not cured or not capable of being cured prior to the earlier of (A) 30 days following notice to the Company by Parent of such breach or (B) two business days prior to the expiration date of the Offer, as extended from time to time pursuant to the terms of this Agreement) of any covenant or agreement on the part of the Company resulting in a Company Material Adverse Effect or materially adversely affecting or delaying the ability of Parent to consummate the Offer and the Merger, (iii) the Special Committee engages in negotiations with any person or group (other than Parent or Newco) that has proposed a Third Party Acquisition (as defined in Section 7.3) except to the extent permitted by Section 8.8; (iv) the Company enters into an agreement, letter of intent, or arrangement with respect to a Third Party Acquisition, (v) the Special Committee or the Board has withdrawn or modified (including by amendment of the Schedule 14D-9) in a manner adverse to Parent, its approval or recommendation of the Offer, this Agreement, or the Merger or has recommended another offer, or has adopted any resolution to effect any of the foregoing, or (vi) the Minimum Condition has not been satisfied by the expiration date of the Offer and on or prior to such date (A) any person or group (other than Parent or Newco) has made and not withdrawn a public announcement with respect to a Third Party Acquisition or (B) any person or group (including the Company) other than Parent, its affiliates (other than the Company) or Shapiro Capital Management Company, Inc. has become the beneficial owner of 19.9% (except in bona fide arbitrage transactions) or more of the Shares; or (f) by the Company if (i) there has been a breach of any representation or warranty on the part of Parent or Newco that materially adversely affects (or materially delays) the consummation of the Offer or the Merger or (ii) there has been a material breach of any covenant or agreement on the part of Parent or Newco that materially adversely affects (or materially delays) the consummation of the Offer or the Merger. 7.2 Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to Section 7.1, this Agreement will become void and have no effect, without any liability on the part of any party to this Agreement or its affiliates, directors, officers, or stockholders, other than the provisions of this Section 7.2 and Sections 5.6(b), 5.8, and 7.3. Nothing contained in this Section 7.2 will relieve any party from liability for any breach of this Agreement. 7.3 Fees and Expenses. (a) If (i) Parent and Newco terminate this Agreement pursuant to Section 7.1(e)(v) or (ii) the Company (with the recommendation of the Special Committee) terminates this Agreement pursuant to Section 7.1(d)(ii), then in either case the Company will pay to Parent, within one business day following such termination, a fee, in cash, of $675,000 (inclusive of any and all expenses incurred by Parent, Newco and their affiliates in connection with the Offer and the Merger and the consummation of the transactions contemplated by this Agreement). For the purposes of this Agreement, "Third Party Acquisition" means the occurrence of any of the following events (i) the acquisition of the Company by merger or otherwise by any person or group other than Parent, Newco, or any affiliate of Parent (other than the Company) or Shapiro Capital Management Company, Inc. (a "Third Party"); (ii) the acquisition by a Third Party of more than 19.9% of the total assets 15 64 of the Company; (iii) the acquisition by a Third Party of 19.9% or more of the outstanding Shares from the Company or in a transaction or series of related transactions that results in a change of control of the Company; (iv) the adoption by the Company of a plan of liquidation or the declaration or payment of an extraordinary dividend; or (v) the acquisition by the Company of more than 19.9% of the outstanding Shares. (b) Except as specifically provided in Section 1.2(b) or this Section 7.3, each party will bear its own expenses in connection with this Agreement and the transactions contemplated by this Agreement. 7.4 Amendment. This Agreement may not be amended except in an instrument in writing signed on behalf of all of the parties to this Agreement; provided, however, that after approval of the Merger by the stockholders of the Company, no amendment that would either decrease the Merger Consideration or change any other term or condition of this Agreement, if any such change, alone or in the aggregate, would materially and adversely affect the stockholders of the Company, may be made without the further approval of the stockholders of the Company; provided, further, that, after purchase of the Shares pursuant to the Offer, no amendment may be made to Section 5.8 without the consent of the indemnified persons. 7.5 Waiver. At any time prior to the Effective Time, whether before or after the Special Meeting, any party to this Agreement may (i) subject to the proviso contained in Section 7.4, extend the time for the performance of any of the obligations or other acts of any other party or parties to this Agreement, (ii) subject to the proviso contained in Section 7.4 of this Agreement, waive any inaccuracies in the representations and warranties contained in this Agreement by any other applicable party or in any documents, certificate, or writing delivered pursuant to this Agreement by any other applicable party, or (iii) subject to the proviso contained in Section 7.4 of this Agreement, 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 to this Agreement to any such extension or waiver will be valid only if set forth in an instrument in writing signed on behalf of such party by a duly authorized officer. ARTICLE VIII MISCELLANEOUS 8.1 Survival of Representations, Warranties, and Agreements. The representations and warranties made in this Agreement will not survive beyond the Effective Time or the termination of this Agreement, as the case may be. No investigation made, or information received by, any party to this Agreement will affect any representation or warranty made by any other party to this Agreement. The covenants and agreements of the parties to this Agreement will survive in accordance with their terms. 8.2 Brokerage Fees and Commissions. Except as disclosed in the Offer Documents, the Company hereby represents and warrants to Parent with respect to the Company, and Parent and Newco hereby represent and warrant to the Company with respect to Parent or any of its subsidiaries that, no person is entitled to receive from the Company, Parent, Newco or any of their subsidiaries, any investment banking, brokerage, or finder's fee or fees in connection with this Agreement or any of the transactions contemplated by this Agreement. 8.3 Entire Agreement; Assignment. This Agreement, together with all the Schedules and Annexes hereto, (a) constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all other prior written agreements and understandings and all prior and contemporaneous oral agreements and understandings between the parties to this Agreement or any of them with respect to the subject matter of this Agreement and (b) will not be assigned by operation of law or otherwise, provided that Parent may assign its rights and obligations under this Agreement, or those of Newco, including, without limitation, the right to substitute in place of Newco a subsidiary as one of the constituent corporations to the Merger as provided in Section 2.1 to any direct or indirect subsidiary of Parent, but no such assignment will relieve the assigning party of its obligations under this Agreement. Any purported assignment of this Agreement not made in accordance with this Section 8.3 will be null, void, and of no effect. No party to this Agreement has relied upon any representation or warranty, oral or written, of any other party to this 16 65 Agreement or any of their officers, directors, or stockholders except for the representations and warranties contained in this Agreement. 8.4 Severability. If any term or other provision of this Agreement is invalid, illegal, or incapable of being enforced by any rule of law or public policy, all other terms and provisions of this Agreement will nevertheless remain in full force and effect. Upon any final judicial determination that any term or other provision is invalid, illegal, or incapable of being enforced, the parties to this Agreement will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement be consummated to the extent possible. 8.5 Notices. All notices, requests, claims, demands and other communications under this Agreement will be in writing and will be deemed to have been duly given when delivered in person, by cable, telegram or telex, facsimile or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows: (a) if to Parent or Newco, to: Arkansas Best Corporation Treadco Acquisition Corporation 3801 Old Greenwood Road Fort Smith, Arkansas 72903 Attention: Richard F. Cooper Fax: (501) 785-6124 with a copy to: Hughes & Luce, L.L.P. 1717 Main Street, Suite 2800 Dallas, Texas 75201 Attention: Alan J. Bogdanow Fax: (214) 939-5849 (b) if to the Company, to: Treadco, Inc. 1101 South 21st Street Fort Smith, Arkansas 72901 Attention: John R. Meyers Fax: (501) 788-6486 with copies to: Special Committee of the Board of Directors Treadco, Inc. 1101 South 21st Street Fort Smith, Arkansas 72901 Attention: Robert B. Gilbert and Nicolas M. Georgitsis Fax: (501) 788-6486 and Kutak Rock Suite 1100 425 West Capitol Avenue Little Rock, Arkansas 72201-3409 Attention: Richard N. Massey Fax: (501) 975-3001 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above (provided that notice of any change of address will be effective only upon receipt). 17 66 8.6 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflict of laws. 8.7 Specific Performance. Each of the parties to this Agreement acknowledges and agrees that the other parties to this Agreement would be irreparably damaged in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties to this Agreement agrees that each of them will be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions of this Agreement in any action instituted in any court of the United States or any state having subject matter jurisdiction, in addition to any other remedy to which such party may be entitled, at law or in equity. 8.8 Other Potential Bidders. The Company, its affiliates, and their respective officers, directors, employees, representatives, and agents will immediately cease any existing discussions or negotiations, if any, with any person or group conducted heretofore with respect to any acquisition of all or any material portion of the assets of, or any equity interest in, the Company or any business combination with the Company. The Company may, directly or indirectly, furnish information and access, in each case only in response to unsolicited requests therefor, to any person or group made after the date of this Agreement that was not encouraged, solicited, or initiated by the Company or any of its affiliates, or their respective officers, directors, agents, or representatives after the date of this Agreement, pursuant to appropriate confidentiality agreements, and may participate in discussions and negotiate with such person or group concerning any merger, sale of assets, sale of shares of capital stock, or similar transaction involving the Company, if such person or group has submitted a written proposal to the Special Committee or the Board relating to any such transaction and failing to take such action would constitute a breach of fiduciary duty under applicable law. The Special Committee or the Board will provide a written copy of such proposal to Parent immediately after receipt and will keep Parent promptly advised of any development with respect to such matters. Except as set forth above, neither the Company nor any of its affiliates, nor any of its or their respective officers, directors, employees, representatives, or agents, will, directly or indirectly, for the account of the Company or for their own account, encourage, solicit, participate in, or initiate discussions or negotiations with, or provide any information to, any person or group (other than Parent and Newco, any affiliate of Parent and Newco, or any designees of Parent and Newco) concerning any merger, sale of assets, sale of shares of capital stock, or similar transaction involving the Company; provided, however, that nothing in this Agreement will prevent the Board from taking, and disclosing to the stockholders of the Company, a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any tender offer; provided, further, that the Special Committee and the Board will not recommend that the stockholders of the Company tender their Shares in connection with any such tender offer unless failing to take such action would constitute a breach of fiduciary duty under applicable law. The Company will not waive, or release any person from, any provision of any confidentiality or standstill agreement to which the Company is a party. 8.9 Descriptive Headings; References. The descriptive headings in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. References in this Agreement to Sections, Annexes, and Schedules are references to the Sections, Annexes, and Schedules of this Agreement unless the context indicates otherwise. 8.10 Parties in Interest. This Agreement will be binding upon and inure solely to the benefit of each party to this Agreement, and, except as provided in Sections 5.8 and 8.11, nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. 8.11 Beneficiaries. Parent hereby acknowledges that Section 5.8 is intended to benefit the indemnified parties referred to in Section 5.8, any of whom will be entitled to enforce Section 5.8 against the Surviving Corporation or the Company, as the case may be. 8.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed to be an original, but all of which will constitute one and the same agreement. 18 67 8.13 Obligations. Parent will perform or cause Newco to perform all of the obligations of Newco under this Agreement, including consummation of the Merger, in accordance with the terms of this Agreement. 8.14 Certain Definitions. For the purposes of this Agreement: (a) the term "subsidiary" means each person in which a person owns or controls, directly or through one or more subsidiaries, 50 percent or more of the stock or other interests having general voting power in the election of directors or persons performing similar functions or more than 50% of the equity interests; (b) the term "person" will be broadly construed to include any individual, corporation, company, partnership, trust, joint stock company, association, or other private or governmental entity; (c) the term "group" has the meaning given in sec.13(d)(3) of the Exchange Act; (d) the term "affiliate" has the meaning given in Rule 144(a)(1) under the Securities Act; (e) the term "business day" has the meaning given in Rule 14d-1(c)(6) under the Exchange Act; and (f) the term "knowledge" or "knows" or words of similar import mean (i) with respect to Parent, the actual knowledge of its executive officers and its officers or employees who are officers or directors of the Company, without inquiry or investigation and (ii) with respect to the Special Committee or the Company, the actual knowledge of the members of the Special Committee, without inquiry or investigation. IN WITNESS WHEREOF, each of the parties to this Agreement has caused this Agreement to be executed on its behalf by its duly authorized officers, all as of the day and year first above written. ARKANSAS BEST CORPORATION By: /s/ ROBERT A. YOUNG, III ---------------------------------- Robert A. Young, III President and CEO TREADCO ACQUISITION CORPORATION By: /s/ ROBERT A. YOUNG, III ---------------------------------- Robert A. Young, III Chairman TREADCO, INC. By: /s/ JOHN R. MEYERS ---------------------------------- John R. Meyers President and CEO 19 68 Annex A Terms used in this Annex A have the meanings ascribed to them in the Agreement and Plan of Merger dated as of March 15, 1999 (the "Merger Agreement"). Notwithstanding any other provisions of the Offer, Parent will not be required to accept for payment or (subject to any applicable rules and regulations of the SEC, including Rule 14e-l(c) relating to the obligation of Parent to pay for or return tendered Shares promptly after the termination or withdrawal of the Offer) to pay for tendered Shares, or may terminate or amend the Offer as provided in the Agreement, or may postpone the acceptance for payment of, or payment for, Shares (whether or not any other Shares have been accepted for payment or paid for pursuant to the Offer) if prior to the expiration of the Offer (i) the Minimum Condition has not been satisfied; (ii) the waiting period under the HSR Act has not expired or been terminated with respect to purchase of the Shares; or (iii) if at any time on or after the date of the Merger Agreement, and at any time before the time of acceptance for payment of any such Shares, any of the following occurs: (a) any of the representations or warranties of the Company contained in the Merger Agreement is not true and correct at and as of any date prior to the expiration date of the Offer as if made at and as of such time, except for (i) failures to be true and correct as would not have a Company Material Adverse Effect or were known to Parent as of the date of the Merger Agreement; and (ii) failures to comply as are capable of being and are cured prior to the earlier of (A) 10 days after written notice from Parent to the Company of such failure or (B) two business days prior to the expiration date of the Offer; (b) the Company has failed to comply with any of its obligations under the Merger Agreement, except for (i) failures to so comply as would not have a Company Material Adverse Effect or were known to Parent as of the date of the Merger Agreement; and (ii) failures to comply as are capable of being and are cured prior to the earlier of (A) 10 days after written notice from Parent to the Company of such failure or (B) two business days prior to the expiration date of the Offer; (c) the Special Committee or the Board has withdrawn or modified in any respect adverse to Parent its recommendation of the Offer or taken any position inconsistent with such recommendation; (d) the Merger Agreement has been terminated in accordance with its terms; (e) the Company has reached an agreement with Parent that the Offer or the Merger be terminated or amended; (f) any state, federal, or foreign government, or governmental authority has taken any action, or proposed, sought, promulgated, or enacted, or any state, federal, or foreign government or governmental authority or court has entered, enforced, or deemed applicable to the Offer or the Merger, any statute, rule, regulation, judgment, order, or injunction that would (i) make the acceptance for payment of, the payment for, or the purchase of, some or all of the Shares illegal or otherwise restrict, materially delay, prohibit consummation of, or make materially more costly, the Offer or the Merger, (ii) result in a material delay in or restrict the ability of Parent, or render Parent unable, to accept for payment, pay for or purchase some or all of the Shares in the Offer, (iii) require the divestiture by Parent, Newco, or the Company or any of their respective subsidiaries or affiliates of all or any material portion of the business, assets, or property of any of them or any Shares, or impose any material limitation on the ability of any of them to conduct their business and own such assets, properties, and Shares, (iv) impose material limitations on the ability of Parent to hold or to exercise effectively all rights of ownership of the Shares, including the right to vote any Shares on all matters properly presented to the stockholders of the Company, or (v) impose any limitations on the ability of Parent, Newco, or any of their respective subsidiaries or affiliates effectively to control in any material respect the business or operations of the Company, Parent, Newco, or any of their respective subsidiaries or affiliates; (g) any change (or any condition, event or development involving a prospective change) has occurred or been threatened in the business, properties, assets, liabilities, capitalization, stockholders' equity, financial condition, operations, licenses or franchises results of operations, or prospects of the Company, that would have a Company Material Adverse Effect; 69 (h) there has occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market or quotations for shares traded thereon as reported by the Nasdaq or otherwise, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory), (iii) any limitation (whether or not mandatory) by any governmental authority on the extension of credit by banks or other financial institutions, (iv) after the date of the Merger Agreement, an aggregate decline of at least 25% in the Dow Jones Industrial Average or Russell 2000 Index or a decline in either such index of 12 1/2% in any 24-hour period, or (v) in the case of any of the occurrences referred to in clauses (i) through (iv) existing at the time of the commencement of the Offer, in the reasonable judgment of Parent, a material acceleration or worsening thereof; or (i) any approval, permit, authorization, consent, or waiting period of any domestic or foreign, governmental, administrative, or regulatory entity (federal, state, local, provincial or otherwise) has not been obtained or satisfied on terms satisfactory to Parent in its reasonable discretion and the failure to obtain such consent, approval or authorization would have a Parent or Company Material Adverse Effect; that, in the good faith judgment of Parent and regardless of the circumstances (including any action or inaction by Parent, or any of its affiliates) giving rise to any such condition, makes it inadvisable to proceed with the Offer or with such acceptance for payment of, or payment for, Shares or to proceed with the Merger. The foregoing conditions are for the sole benefit of Parent and may be asserted by Parent regardless of the circumstances giving rise to any such condition or may be waived by Parent in whole or in part at any time and from time to time in its sole discretion (subject to the terms of the Merger Agreement). The failure by Parent at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances will not be deemed to waiver with respect to any other facts or circumstances, and each such right will be deemed an ongoing right that may be asserted at any time and from time to time. 70 ANNEX C DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND NEWCO 1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The name, business address, present principal occupation or employment and five-year employment history of each of the directors and executive officers of Parent are set forth below. Unless otherwise indicated, the business address of each such director and each such executive officer is 3801 Greenwood Road, Fort Smith, Arkansas 72903. Unless otherwise indicated below, each occupation set forth opposite an individual's name refers to employment with Parent. All directors and executive officers listed below are citizens of the United States.
POSITION WITH PARENT; PRINCIPAL OCCUPATION OR EMPLOYMENT; NAME AND BUSINESS ADDRESS 5-YEAR EMPLOYMENT HISTORY; OUTSIDE DIRECTORSHIPS ------------------------- --------------------------------------------------------- Frank Edelstein...................... Mr. Edelstein, age 73, has been a Director of Parent since November 1988. Mr. Edelstein currently provides consulting services to Stonecreek Capital. Mr. Edelstein served as a Vice President of Kelso & Company, Inc. from 1986 to March 1992. Prior to 1986, he served as Chairman and President of International Central Bank & Trust Company and CPI Pension Services, Inc., as well as Senior Vice President, Financial Services Group, at Continental Insurance Corporation. He also has held positions as Corporate Vice President, Automatic Data Processing, Inc. and Executive Vice President of Olivetti Corporation of America. Mr. Edelstein also is a Director of Ceradyne, Inc., and IHOP Corp. Robert A. Young, III................. Mr. Young, age 58, has been a Director of Parent since 1970 and Chief Executive Officer of Parent since August 1988, President since 1973 and was Chief Operating Officer from 1973 to 1988. Mr. Young has been a Director of the Company since June 1991. Mr. Young has been the President and a Director of Newco since it was formed in February 1999. Mr. Young also is a Director of Mosler, Inc. William A. Marquard.................. Mr. Marquard, age 79, has been Chairman of the Board and a Director of Parent since November 1988 and a Director of the Company since June 1991. In April 1992, Mr. Marquard was elected as a Director of the Board of Kelso & Company, Inc. From 1971 to 1983, Mr. Marquard was President and Chief Executive Officer of American Standard Inc. and from 1979 to 1985, he was Chairman of the Board of American Standard Inc. Mr. Marquard resumed his position as Chairman of the Board of American Standard Inc. in February 1989 until March 31, 1992 when he was named Chairman Emeritus. Mr. Marquard also became Chairman of the Board of ASI Holding Corporation in February 1989 until March 31, 1992, when he was named Chairman Emeritus. Mr. Marquard is Chairman of the Board of Mosler, Inc., and a Director of Earle M. Jorgensen Co., and EarthShell Container Corporation.
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POSITION WITH PARENT; PRINCIPAL OCCUPATION OR EMPLOYMENT; NAME AND BUSINESS ADDRESS 5-YEAR EMPLOYMENT HISTORY; OUTSIDE DIRECTORSHIPS ------------------------- --------------------------------------------------------- Alan J. Zakon, Ph.D.................. Dr. Zakon, age 62, has been a Director of Parent since February 1993. Dr. Zakon was a Managing Director of Bankers Trust Company through March, 1995, for which he previously served as Chairman, Strategic Policy Committee from 1989 to 1990. From 1980 to 1986, Dr. Zakon was President of Boston Consulting Group before being named its Chairman in 1986, having previously served as Consultant from 1967 to 1969 and Vice President from 1969 to 1980. Dr. Zakon is currently serving as a member of the Board of Directors of several companies, including MicroFinancial, and Chairman of the Executive Committee of the Board of Autotote Corporation, and is a former member of the Advisory Committee to the Stanford University Graduate School of Business. Arthur J. Fritz, Jr.................. Mr. Fritz, 58, has been a Director of Parent since April 1989. From 1971 to 1986, Mr. Fritz was President of Fritz Companies, Inc. and its Chairman from 1986 to 1988. Mr. Fritz has served as Chairman of JABAR Enterprises since October 1988 and is a Director of Intercargo Corporation. Mr. Fritz is former President and Chairman of the National Association of Customs Brokers and Freight Forwarders of America. John H. Morris....................... Mr. Morris, 55, has been a Director of Parent since July 1988 and a Director of the Company since June 1991. Mr. Morris currently serves as Co-Chairman of Stonecreek Capital. Mr. Morris is a Director of Outsourcing Services Group and Steelhorse Holdings, Inc. Mr. Morris served as a Managing Director of Kelso & Company, Inc. from March 1989 to March 1992, was a General Partner from 1987 to March 1989, and prior to 1987 was a Vice President. Prior to 1985, Mr. Morris was President of LBO Capital Corp. In February 1997, Merchant's Transportation & Logistics Company, and its subsidiaries, filed petitions under Chapter 11 of the federal bankruptcy laws. Mr. Morris served as a Director of such entities through January 1997 and briefly served as the President of such entities for about a two-week period in November 1995 before these entities became operating companies. Lary R. Scott........................ Mr. Scott, age 62, was appointed Parent's Executive Vice President in December 1995. Prior to its June 1997 merger into Parent, he was Chairman of the Board of WorldWay Corporation commencing in May 1994 and Vice Chairman and Chief Executive Officer of WorldWay commencing in 1993. WorldWay became a wholly owned subsidiary of Parent in August 1995; prior to that, it was a publicly traded company. For approximately two years prior to joining WorldWay, Mr. Scott served as a transportation consultant. Prior to that time, he was President and Chief Executive Officer of Consolidated Freightways, Inc. Mr. Scott serves on the board of directors of The Clorox Company.
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POSITION WITH PARENT; PRINCIPAL OCCUPATION OR EMPLOYMENT; NAME AND BUSINESS ADDRESS 5-YEAR EMPLOYMENT HISTORY; OUTSIDE DIRECTORSHIPS ------------------------- --------------------------------------------------------- David E. Loeffler.................... Mr. Loeffler, age 52, was appointed Vice President -- Chief Financial Officer and Treasurer of Parent and the Company in April 1997. From December 1995 to April 1997, he was the Vice President -- Treasurer of Parent and Treasurer of the Company. From 1992 to 1995, Mr. Loeffler was a private investor and in investment management. From 1983 to 1992, he was Senior Vice President -- Finance and Administration and Chief Financial Officer for Yellow Freight System, Inc. Mr. Loeffler has been the Vice President and Treasurer and a Director of Newco since it was formed in February 1999. Richard F. Cooper.................... Mr. Cooper, age 47, has been Vice President -- Administration since 1995, Vice President -- Risk Management of Parent from April 1991 to 1995 and Vice President -- General Counsel since 1986. Mr. Cooper has been Secretary since 1987. Mr. Cooper has been Secretary of the Company since June 1991. Mr. Cooper also has been Vice President and Secretary and a Director of Newco since it was formed in February 1999. J. Lavon Morton...................... Mr. Morton, age 48, was appointed Vice President -- Financial Reporting of Parent and of the Company in May 1997. Mr. Morton joined Parent as Assistant Treasurer in December 1996. From October 1984 until November 1996, Mr. Morton was a Partner in Ernst & Young LLP. From 1972 until 1984, Mr. Morton was employed by Ernst & Young LLP. Mr. Morton is a Certified Public Accountant. Judy R. McReynolds................... Ms. McReynolds, age 36, was appointed Controller of Parent in July 1998. Ms. McReynolds joined Parent as Director of Corporate Accounting in June 1997. During the period of June 1995 through May 1997, Ms. McReynolds was employed as Director of Financial Reporting and Taxation with P.A.M. Transportation Services, Inc. From December 1990 until June 1995, Ms. McReynolds was a senior manager employed with Ernst & Young LLP. Ms. McReynolds is a Certified Public Accountant. Jerry A. Yarbrough................... Mr. Yarbrough, age 60, has been Senior Vice President -- Corporate Development of the Parent since April 1998. From January 1995 through March 1998, Mr. Yarbrough was Chairman of Integrated Distribution, Inc. and Best Logistics, Inc. From 1979 through 1994, Mr. Yarbrough was ABF Freight System, Inc.'s Senior Vice President -- Operations and President of Data-Tronics Corp., a Parent subsidiary.
2. DIRECTORS AND EXECUTIVE OFFICERS OF NEWCO. The name, business address, present principal occupation or employment and five-year employment history of each of the directors and executive officers of Newco are set forth below. Unless otherwise indicated, the business address of each such director and each such executive officer is 3801 Greenwood Road, Fort Smith, Arkansas 72903. Unless otherwise indicated below, each occupation set forth opposite an individual's name refers to employment with Newco. All directors and executive officers listed below are citizens of the United States.
POSITION WITH NEWCO; PRINCIPAL OCCUPATION OR EMPLOYMENT NAME AND BUSINESS ADDRESS 5-YEAR EMPLOYMENT HISTORY; OUTSIDE DIRECTORSHIPS ------------------------- ------------------------------------------------------- Robert A. Young, III................. See above. David E. Loeffler.................... See above. Richard F. Cooper.................... See above.
C-3 73 ANNEX D DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The name, business address, present principal occupation or employment and five-year employment history of each of the directors and executive officers of the Company are set forth below. The business address of each such director and executive officer is 1101 South 21st Street, Fort Smith, Arkansas 72501. Unless otherwise indicated below, each occupation set forth opposite an individual's name refers to employment with the Company. All such directors and executive officers listed below are citizens of the United States.
POSITION WITH THE COMPANY; PRINCIPAL OCCUPATION OR EMPLOYMENT; NAME AND BUSINESS ADDRESS 5-YEAR EMPLOYMENT HISTORY; OUTSIDE DIRECTORSHIPS - ------------------------- -------------------------------------------------------------- Robert B. Gilbert......................... Mr. Gilbert, age 74, has been a Director of the Company since December 1991. From April 1985 to February 1991, Mr. Gilbert was President and Chief Executive Officer of Rheem Manufacturing Co. Since his February 1991 retirement, Mr. Gilbert has been an independent consultant. Nicolas M. Georgitsis..................... Mr. Georgitsis, age 63, has been a Director of the Company since it was formed in June 1991. Mr. Georgitsis has been an independent consultant since January 1991. From February 1986 to January 1991, Mr. Georgitsis was Senior Vice President of American Standard Inc. in charge of Transportation Products. Mr. Georgitsis is a Director of Mosler, Inc., and member of the Operating Board of Trust Company of the West (Latin America Fund). John R. Meyers............................ Mr. Meyers, age 51, was appointed the Company's President -- Chief Executive Officer in October 1995. Mr. Meyers served as Treasurer of the Company from June 1991 through October 1995. From 1979 through 1995 Mr. Meyers served as Vice President -- Treasurer of Parent. Daniel V. Evans........................... Mr. Evans, age 51, has served as Executive Vice President -- Chief Operating Officer since October 1995, and served as Vice President -- Administration of the Company from June 1991 through October 1995. Mr. Evans served as Vice President -- Administration of ABC-Treadco, Inc. from 1989 to 1991, and served as Director of Administration from 1977 to 1989. William A. Marquard....................... See ANNEX C. Robert A. Young, III...................... See ANNEX C. John H. Morris............................ See ANNEX C. David E. Loeffler......................... See ANNEX C. Richard F. Cooper......................... See ANNEX C. J. Lavon Morton........................... See ANNEX C.
D-1 74 ANNEX E DELAWARE GENERAL CORPORATION LAW APPRAISAL RIGHTS sec. 262. Appraisal rights. (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to sec. 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to sec. 251 (other than a merger effected pursuant to sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec. 264 of this title: (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of sec. 251 of this title. (2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph. (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under sec. 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. E-1 75 (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of his shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of his shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of his shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or (2) If the merger or consolidation was approved pursuant to sec. 228 or sec. 253 of this title, each constituent corporation, either before the effective date of the merger or consolidation or within ten days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section; provided that, if the notice is given on or after the effective date of the merger or consolidation, such notice shall be given by the surviving or resulting corporation to all such holders of any class or series of stock of a constituent corporation that are entitled to appraisal rights. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given. E-2 76 (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw his demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after his written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted his certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that he is not entitled to appraisal rights under this section. (i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as E-3 77 other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state. (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded his appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of his demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. E-4 78 The Depositary for the Offer is: HARRIS TRUST COMPANY OF NEW YORK By Hand/Overnight Courier: By Mail: Receive Window Wall Street Station Wall Street Plaza P.O. Box 1023 88 Pine Street, 19th Floor New York, New York 10268-1023 New York, New York 10005
By Facsimile: (212) 701-7636 Confirm by Telephone: (212) 701-7624 Questions and requests for assistance or for additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Information Agent at the telephone numbers and location listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, New York 10005 Banks and Brokers Call Collect: (212) 269-5550 All Others Call Toll Free (800) 829-6554 EX-99.(D)(2) 8 LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF TREADCO, INC. PURSUANT TO THE OFFER TO PURCHASE DATED MARCH 23, 1999 BY ARKANSAS BEST CORPORATION - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, APRIL 20, 1999, UNLESS EXTENDED. - -------------------------------------------------------------------------------- The Depositary for the Offer is: HARRIS TRUST COMPANY OF NEW YORK By Mail: By Hand/Overnight Delivery: Wall Street Station Receive Window P.O. Box 1023 Wall Street Plaza New York, New York 10268-1023 88 Pine Street, 19th Floor New York, New York 10005
By Facsimile: (212) 701-7636 Confirm by Telephone: (212) 701-7624 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or, unless an Agent's Message (as defined in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase) is utilized, if delivery of Shares (as defined below) is to be made by book-entry transfer to the account maintained by the Depositary at the Book-Entry Transfer Facility as defined in and pursuant to the procedures set forth in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase. Stockholders who deliver Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders" and other stockholders are referred to herein as "Certificate Stockholders." Stockholders whose certificates for Shares are not immediately available or who cannot deliver either the certificates for, or a Book-Entry Confirmation (as defined in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase) with respect to, their Shares and all other documents required hereby to the Depositary (or who are unable to complete the procedure for book-entry transfer on a timely basis) on or prior to the Expiration Date (as defined in "THE TENDER OFFER -- Terms of the Offer" of the Offer to Purchase) must tender their Shares in accordance with the guaranteed delivery procedure set forth in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase. See Instruction 2. 2 PLEASE SEE THE INSTRUCTIONS BEGINNING ON PAGE 8. [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution --------------------------------------------- Account Number ------------------------------------------------------------ Transaction Code Number --------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s) -------------------------------------------- Window Ticket Number (if any) --------------------------------------------- Date of Execution of Notice of Guaranteed Delivery ------------------------ Name of Institution which Guaranteed Delivery ----------------------------- -------------------------------------------------------------------------- Account Number ------------------------------------------------------------ Transaction Code Number --------------------------------------------------- 2 3 - ---------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - ---------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON SHARES TENDERED CERTIFICATE(S)) (ATTACH ADDITIONAL LIST IF NECESSARY) - ---------------------------------------------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES NUMBER CERTIFICATE REPRESENTED BY OF SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ TOTAL SHARES - ---------------------------------------------------------------------------------------------------------------------- * Need not be completed by Book-Entry Stockholders. ** If you desire to tender fewer than all Shares evidenced by any certificates listed above, please indicate in this column the number of Shares you wish to tender. Otherwise, all Shares evidenced by such certificates will be deemed to have been tendered. - ----------------------------------------------------------------------------------------------------------------------
3 4 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Arkansas Best Corporation, a Delaware corporation ("Parent"), the above-described shares of the outstanding common stock, par value $.01 per share (the "Common Stock"), including the associated common stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares") of Treadco, Inc. a Delaware corporation (the "Company"), pursuant to Parent's offer to purchase all outstanding Shares at a price of $9.00 per Share, net to the undersigned in cash, without interest thereon, in accordance with the terms and conditions of Parent's Offer to Purchase, dated March 23, 1999 (the "Offer to Purchase"), and this Letter of Transmittal (which together with any amendments or supplements thereto or hereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged. Capitalized terms used herein and not otherwise defined have the meaning given them in the Offer to Purchase. Upon the terms of the Offer, subject to, and effective upon, acceptance for payment of, and payment for, the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms or conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, Parent all right, title and interest in and to all the Shares tendered hereby (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after March 15, 1999) and irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and any such other Shares or securities or rights), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares (and any such other Shares or securities or rights) or transfer ownership of such Shares (and any such other Shares or securities or rights) on the account books maintained by the Book-Entry Transfer Facility, together, in any such case, with all accompanying evidence of transfer and authenticity, to, or upon the order of, Parent; (b) present such Shares (and any such other Shares or securities or rights) for transfer on the Company's books; and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any such other Shares or securities or rights), all in accordance with the terms of the Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the tendered Shares (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after March 15, 1999) and that, when the same are accepted for payment, Parent will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, claims, charges and encumbrances and the same will not be subject to any adverse claim. The undersigned will, upon request, execute any additional documents deemed by the Depositary or Parent to be necessary or desirable to complete the sale, assignment and transfer of the tendered Shares (and any such other Shares or securities or rights). All authority conferred or agreed to be conferred in this Letter of Transmittal shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. The undersigned hereby irrevocably appoints David E. Loeffler and Richard F. Cooper, in their respective capacities as officers of Parent, and any individual who shall hereafter succeed to any such office of Parent, and each of them, and any other designees of Parent, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to vote at any annual, special or adjourned meeting of the Company's stockholders or otherwise in such manner as each such attorney and proxy or his substitute shall in his sole discretion deem proper with respect to, to execute any written consent concerning any matter as each such attorney and proxy or his substitute shall in his sole discretion deem proper with respect to, and to otherwise act as each such attorney and proxy or his substitute shall in his sole discretion deem proper with respect to, all the Shares tendered hereby that have been accepted for payment by Parent prior to the time any such action is 4 5 taken and with respect to which the undersigned is entitled to vote (and with respect to any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after March 15, 1999). This appointment is effective when, and only to the extent that, Parent accepts for payment such Shares as provided in the Offer to Purchase. This power of attorney and proxy are irrevocable and are granted in consideration of the acceptance for payment of such Shares in accordance with the terms of the Offer. Such acceptance for payment shall, without further action, revoke all prior powers of attorney and proxies appointed by the undersigned at any time with respect to such Shares (and any such other Shares or securities or rights) and no subsequent powers of attorney or proxies will be appointed by the undersigned, or be effective, with respect thereto. The undersigned understands that the acceptance for payment by Parent of tenders of Shares pursuant to any one of the procedures described in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase and in accordance with the Instructions hereto will constitute a binding agreement between the undersigned and Parent upon the terms and subject to the conditions of the Offer. Unless otherwise indicated herein under "Special Payment Instructions," please issue the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered." In the event that either or both of the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or any certificates for Shares not tendered or accepted for payment (and any accompanying documents, as appropriate) in the name of, and deliver said check and/or return such certificates (and any accompanying documents, as appropriate) to, the person or persons so indicated. The undersigned recognizes that Parent has no obligation pursuant to the Special Payment Instructions to transfer any Shares from the name of the registered holder thereof if Parent does not accept for payment any of the Shares tendered hereby. Unless otherwise indicated herein under "Special Delivery Instructions," in the case of a book-entry delivery of Shares, please credit the account maintained at the Book-Entry Transfer Facility with any Shares not accepted for payment. 5 6 --------------------------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificates for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be issued in the name of someone other than the undersigned. Issue check and/or certificate(s) to: Name: --------------------------------------------------------------- (PLEASE PRINT) Address: ------------------------------------------------------------ --------------------------------------------------------------- (INCLUDE ZIP CODE) --------------------------------------------------------------- --------------------------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificates for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be sent to someone other than the undersigned or to the undersigned at an address other than that indicated above. Issue check and/or certificate(s) to: Name: --------------------------------------------------------------- (PLEASE PRINT) Address: ------------------------------------------------------------ --------------------------------------------------------------- (INCLUDE ZIP CODE) --------------------------------------------------------------- 6 7 SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (SIGNATURE(S) OF STOCKHOLDER(S)) Dated: , 1999 --------------------------- (Must be signed by registered holder(s) as name(s) appear(s) on the certificate(s) for the Shares or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s) - -------------------------------------------------------------------------------- (PLEASE PRINT) Capacity (full title) ----------------------------------------------------------- Address - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone No. ----------------------------------------------------- GUARANTEE OF SIGNATURE(S) (IF REQUIRED SEE INSTRUCTIONS 1 & 5) Authorized Signature ----------------------------------------------------------- Name: -------------------------------------------------------------------------- (PLEASE PRINT) Name of Firm Address -------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone No. ----------------------------------------------------- Dated: , 1999 --------------------------- 7 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Guarantee of Signature. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of a recognized Medallion Program approved by The Securities Transfer Association Inc. (each such entity an "Eligible Institution"). No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) of Shares tendered herewith, unless such holder(s) has completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the reverse hereof, or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. Requirements of Tender. This Letter of Transmittal is to be completed by stockholders either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if delivery of Shares is to be made pursuant to the procedures for book-entry transfer set forth in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase. For a stockholder validly to tender Shares pursuant to the Offer, either (a) a properly completed and duly executed Letter of Transmittal (or facsimile thereof), together with any required signature guarantees (or an Agent's Message) and any other required documents, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date and either (i) certificates for tendered Shares must be received by the Depositary at one of such addresses prior to the Expiration Date or (ii) Shares must be delivered pursuant to the procedures for book-entry transfer set forth herein and a Book-Entry Confirmation must be received by the Depositary prior to the Expiration Date or (b) the tendering stockholder must comply with the guaranteed delivery procedures set forth below and in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase. Stockholders whose certificates for Shares are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary or complete the procedures for book-entry transfer prior to the Expiration Date may tender their Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase. Pursuant to such procedures, (a) such tender must be made by or through an Eligible Institution, (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by Parent must be received by the Depositary prior to the Expiration Date, and (c) the certificates for all physically delivered Shares or a Book-Entry Confirmation with respect to all tendered Shares, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three New York Stock Exchange, Inc. trading days after the date of execution of the Notice of Guaranteed Delivery. THE METHOD OF DELIVERY OF SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering stockholders, by execution of this Letter of Transmittal (or facsimile thereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. Inadequate Space. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 4. Partial Tenders (Applicable to Certificate Stockholders Only). If fewer than all the Shares evidenced by any certificate submitted are to be tendered, fill in the number of Shares that are to be tendered in the box 8 9 entitled "Number of Shares Tendered." In any such case, new certificate(s) for the remainder of the Shares that were evidenced by the old certificate(s) will be sent to the registered holder, unless otherwise provided in the appropriate box on this Letter of Transmittal as soon as practicable after the expiration of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letters of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder of the Shares tendered hereby, the signature must correspond with the name as written on the face of the certificate(s) without any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to Parent of their authority so to act must be submitted. When this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to or certificates for Shares not tendered or accepted for payment are to be issued to a person other than the registered holder(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of certificates listed, the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates. Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. Stock Transfer Taxes. Parent will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificates for Shares not tendered or accepted for payment are to be registered in the name of, any persons other than the registered holder(s), or if tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s) or such person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF TRANSMITTAL. 7. Special Payment and Delivery Instructions. If a check is to be issued in the name of, and/or certificates for Shares not tendered or not accepted for payment are to be returned to, a person other than the signer of this Letter of Transmittal or if a check is to be sent and/or such certificates are to be returned to a person other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 8. Waiver of Conditions. Subject to the terms of the Offer, Parent reserves the absolute right in its sole discretion to waive any of the specified conditions of the Offer, in whole or in part, in the case of any Shares tendered. 9. 31% Backup Withholding. Under U.S. Federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary with such stockholder's correct taxpayer 9 10 identification number ("TIN") on Substitute Form W-9 below. If the Depositary is not provided with the correct TIN, the Internal Revenue Service may subject the stockholder or other payee to a $50 penalty. In addition, payments that are made to such stockholder or other payee with respect to Shares purchased pursuant to the Offer may be subject to a 31% backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, the stockholder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. If backup withholding applies, the Depositary is required to withhold 31% of any such payments made to the stockholder or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld, provided that the required information is given to the Internal Revenue Service. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Even if the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% on all payments made prior to the time a properly certified TIN is provided to the Depositary. However, such amounts will be refunded to such stockholder if a TIN is provided to the Depositary within 60 days. The stockholder is required to give the Depositary the TIN (i.e., social security number or employer identification number) of the record owner of the Shares or of the last transferee appearing on the transfers attached to, or endorsed on, the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 10. Requests for Assistance or Additional Copies. Requests for additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery, and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 should be directed to the Information Agent at its address set forth below. Questions or requests for assistance may also be directed to the Information Agent. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE COPY THEREOF (TOGETHER WITH CERTIFICATES FOR, OR A BOOK-ENTRY CONFIRMATION WITH RESPECT TO, TENDERED SHARES WITH ANY REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, PRIOR TO THE EXPIRATION DATE. 10 11 - ------------------------------------------------------------------------------------------------------------------------ PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT ---------------------------- SUBSTITUTE AND CERTIFY BY SIGNING AND DATING BELOW. SOCIAL SECURITY NUMBER FORM W-9 OR ---------------------------- EMPLOYER IDENTIFICATION NUMBER ---------------------------------------------------------------------------------------- DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE PART 2 -- CERTIFICATION -- UNDER PENALTIES OF PART 3 -- PERJURY, I CERTIFY THAT: AWAITING TIN [ ] (1) THE NUMBER SHOWN ON THIS FORM IS MY CORRECT TAXPAYER IDENTIFICATION (OR I AM WAITING FOR A NUMBER TO BE ISSUED FOR ME) AND (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE: (A) I AM EXEMPT FROM BACKUP WITHHOLDING, OR (B) I HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE (THE "IRS") THAT I AM SUBJECT TO THE BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS OR (C) THE IRS HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. ----------------------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS -- YOU MUST CROSS OUT ITEM (2) ABOVE IF YOU HAVE BEEN PAYER'S REQUEST FOR NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO BACKUP WITHHOLDING BECAUSE TAXPAYER IDENTIFICATION OF UNDERREPORTING INTEREST OR DIVIDENDS ON YOUR TAX RETURN. HOWEVER, IF AFTER NUMBER (TIN) BEING NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING, YOU RECEIVED ANOTHER NOTIFICATION FROM THE IRS THAT YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING, DO NOT CROSS OUT SUCH ITEM (2). SIGNATURE __________ DATE __________ - -----------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. - ----------------------------------------------------------------------------------------------------------------------- CERTIFICATE OF A PERSON AWAITING TAXPAYER IDENTIFICATION NUMBER I CERTIFY UNDER PENALTIES OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER HAS NOT BEEN ISSUED TO ME, AND EITHER (1) I HAVE MAILED OR DELIVERED AN APPLICATION TO RECEIVE A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE OR (2) I INTEND TO MAIL OR DELIVER AN APPLICATION IN THE NEAR FUTURE. I UNDERSTAND THAT IF I DO NOT PROVIDE A TAXPAYER IDENTIFICATION NUMBER BY THE TIME OF PAYMENT, 31% OF ALL REPORTABLE PAYMENTS MADE TO ME WILL BE WITHHELD, BUT THAT SUCH AMOUNTS WILL BE REFUNDED TO ME IF I THEN PROVIDE A TAXPAYER IDENTIFICATION NUMBER WITHIN SIXTY (60) DAYS.
SIGNATURE DATE - --------------------------------------------------------------------------------------------------------------------
11 12 Questions and requests for assistance or additional copies of the Offer to Purchase, this Letter of Transmittal and other tender offer materials may be directed to the Information Agent as set forth below. THE INFORMATION AGENT FOR THIS OFFER IS: D. F. KING & CO., INC. 77 Water Street New York, N.Y. 10005 Banks and Brokers Call Collect: (212) 269-5550 All Others Call Toll Free: (800) 829-6554 12 EX-99.(D)(3) 9 NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK AND ASSOCIATED COMMON STOCK PURCHASE RIGHTS OF TREADCO, INC. (NOT TO BE USED FOR SIGNATURE GUARANTEES) As set forth in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase (as defined below), this form or one substantially equivalent hereto must be used to accept the Offer (as defined below) if certificates representing shares of common stock, par value $.01 per share (the "Common Stock"), including the associated common stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Treadco, Inc., a Delaware corporation (the "Company"), are not immediately available or if the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date (as defined in "THE TENDER OFFER -- Terms of the Offer" of the Offer to Purchase). Such form may be delivered by hand or transmitted by telegram or facsimile transmission or mailed to the Depositary and must include a guarantee by an Eligible Institution (as defined in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase). See "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase. The Depositary for the Offer is: HARRIS TRUST COMPANY OF NEW YORK By Mail: By Hand/Overnight Delivery: Wall Street Station Receive Window P.O. Box 1023 Wall Street Plaza New York, New York 10268-1023 88 Pine Street, 19th Floor New York, New York 10005
By Facsimile: (212) 701-7636 Confirm by Telephone: (212) 701-7624 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. 2 Ladies and Gentlemen: The undersigned hereby tenders to Arkansas Best Corporation, a Delaware corporation ("Parent") upon the terms and subject to the conditions set forth in Parent's Offer to Purchase, dated March 23, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged, Shares pursuant to the guaranteed delivery procedures set forth in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase. ================================================================================ Number of Shares: Address(es): ------------------------------- ------------------------------------ ------------------------------------------------ Name(s) of Record Holder(s): -------------------- ------------------------------------------------ ------------------------------------------------ Zip Code (Please Print) Area Code and Tel. No.: ------------------------- Certificate Nos. (if available): ------------------------------------------------ Account Number: --------------------------------- ------------------------------------------------ Signature(s): ---------------------------------- ------------------------------------------------ Dated: ------------------------------------------
================================================================================ GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a commercial bank or trust company or savings institution having an office or correspondent in the United States or a member firm of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., hereby guarantees to deliver to the Depositary either the certificates representing the Shares tendered hereby, in proper form for transfer, or a Book-Entry Confirmation (as defined in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase) of a transfer of such Shares, in any such case together with a properly completed and duly executed Letter of Transmittal, or a manually signed facsimile thereof, with any required signature guarantees or an Agent's Message, and any other documents required by the Letter of Transmittal within three New York Stock Exchange, Inc. trading days after the date hereof. Name of Firm: ----------------------------------------- Address: ---------------------------------------------- - ------------------------------------------------------ Zip Code Area Code and Tel. No.: ------------------------------- - ------------------------------------------------------ (Authorized Signature) Title: ------------------------------------------------ Dated: ------------------------------------------------ NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 2 EX-99.(D)(4) 10 LETTER TO BROKERS, DEALERS, BANKS, TRUST COMPANIES 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF TREADCO, INC. AT $9.00 NET PER SHARE BY ARKANSAS BEST CORPORATION - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, APRIL 20, 1999, UNLESS EXTENDED. - -------------------------------------------------------------------------------- March 23, 1999 To Brokers, Dealers, Banks, Trust Companies and Other Nominees: We are enclosing the materials listed below in connection with the offer by Arkansas Best Corporation, a Delaware corporation ("Parent"), to purchase all the outstanding shares of the common stock, par value $.01 per share (the "Common Stock"), including the associated common stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), of Treadco, Inc., a Delaware corporation (the "Company") at $9.00 per Share, net to the Seller in cash, without interest, upon the terms and subject to the conditions set forth in Parent's Offer to Purchase dated March 23, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any supplements or amendments thereto, collectively constitute the "Offer"). Please furnish copies of the enclosed materials to those of your clients for whom you hold Shares registered in your name or in the name of your nominee. Enclosed herewith are copies of the following documents: 1. Offer to Purchase; 2. Letter of Transmittal to be used by stockholders of the Company accepting the Offer; 3. The Letter to Stockholders of the Company from the President and Chief Executive Officer of the Company accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9; 4. A printed form of letter that may be sent to your clients for whose account you hold Shares in your name or in the name of a nominee, with space provided for obtaining such client's instructions with regard to the Offer; 5. Notice of Guaranteed Delivery; 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 7. Return envelope addressed to the Depositary. 2 WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, APRIL 20, 1999, UNLESS EXTENDED. The Board of Directors of the Company (the "Board"), based, among other things, on the unanimous recommendation of a special committee of independent directors of the Board, has, by unanimous vote of all directors, approved the Offer and the Merger (as defined below) and determined that the Offer and the Merger, taken together, are fair to, and in the best interests of, the stockholders of the Company (other than Parent) and recommends that the stockholders of the Company accept the Offer and tender their Shares pursuant to the Offer. The Offer is being made pursuant to the Agreement and Plan of Merger dated as of March 15, 1999 (the "Merger Agreement"), among Parent, Treadco Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Parent ("Newco"), and the Company pursuant to which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, Newco will be merged with and into the Company, with the Company surviving the merger (as such, the "Surviving Corporation") as a wholly-owned subsidiary of Parent (the "Merger"). In the Merger, each outstanding Share (other than Shares owned by (i) Parent, the Company or any direct or indirect subsidiary of Parent or (ii) stockholders, if any, who are entitled to and who properly exercise dissenters' rights under Delaware law) will be converted into the right to receive $9.00 per Share, without interest, as set forth in the Merger Agreement and described in the Offer to Purchase. In order to accept the Offer, a duly executed and properly completed Letter of Transmittal with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry delivery of Shares, and any other required documents should be sent to the Depositary and either Share certificates representing the tendered Shares should be delivered to the Depositary, or such Shares should be tendered by book-entry transfer into the Depositary's account maintained at the Book-Entry Transfer Facility (as described in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase), all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. If holders of Shares wish to tender, but it is impracticable for them to forward their Share certificates or other required documents on or prior to the Expiration Date or comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures specified in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase. Parent will not pay any fees or commissions to any broker or dealer or other person (other than the Information Agent as described in the Offer to Purchase) in connection with the solicitation of tenders of Shares pursuant to the Offer. You will be reimbursed upon request for customary mailing and handling expenses incurred by you in forwarding the enclosed offering materials to your customers. Questions and requests for additional copies of the enclosed material may be directed to the Information Agent at the addresses and telephone numbers set forth on the back cover of the enclosed Offer to Purchase. Very truly yours, ARKANSAS BEST CORPORATION NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY OTHER PERSON THE AGENT OF PARENT, THE DEPOSITARY OR THE INFORMATION AGENT OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 2 EX-99.(D)(5) 11 FORM OF LETTER TO CLIENTS 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF TREADCO, INC. AT $9.00 NET PER SHARE BY ARKANSAS BEST CORPORATION - -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, APRIL 20, 1999 UNLESS EXTENDED. - -------------------------------------------------------------------------------- To Our Clients: Enclosed for your consideration is an Offer to Purchase dated March 23, 1999 (the "Offer to Purchase"), and a related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") relating to an offer by Arkansas Best Corporation, a Delaware corporation ("Parent"), to purchase all the outstanding shares (not owned by Parent) of the common stock, par value $.01 per share (the "Common Stock"), including the associated common stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares") of Treadco, Inc., a Delaware corporation (the "Company"), at $9.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer. Also enclosed is the Letter to Stockholders of the Company from the President and Chief Executive Officer of the Company accompanied by the Company's Solicitation/ Recommendation Statement on Schedule 14D-9. WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to tender any or all the Shares held by us for your account, pursuant to the terms and conditions set forth in the Offer. Your attention is invited to the following: 1. The tender price is $9.00 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer. 2. The Board of Directors of the Company (the "Board"), based, among other things, on the unanimous recommendation of a special committee of independent directors of the Board, has, by unanimous vote of all directors, approved the Offer and the Merger (as defined below) and determined that the Offer and the Merger, taken together, are fair to, and in the best interests of, the stockholders of the Company (other than Parent) and recommends that the stockholders of the Company accept the Offer and tender their Shares pursuant to the Offer. 2 3. The Offer is being made for all outstanding Shares. 4. The Offer is being made pursuant to the Agreement and Plan of Merger dated as of March 15, 1999 (the "Merger Agreement"), among Parent, Treadco Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Parent ("Newco"), and the Company pursuant to which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, Newco will be merged with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Parent (the "Merger"). In the Merger, each outstanding Share (other than Shares owned by (i) Parent, the Company or any direct or indirect subsidiary of Parent; or (ii) stockholders, if any, who are entitled to and who properly exercise dissenters' rights under Delaware law) will be converted into the right to receive $9.00 per Share, without interest, as set forth in the Merger Agreement and described in the Offer to Purchase. 5. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on Tuesday, April 20, 1999, unless the Offer is extended by Parent. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares (or timely Book-Entry Confirmation of a transfer of such Shares as described in "THE TENDER OFFER -- Procedure for Tendering Shares" of the Offer to Purchase), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry delivery and any other documents required by the Letter of Transmittal. 6. Parent will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer, except as otherwise provided in Instruction 6 of the Letter of Transmittal. If you wish to have us tender any of or all your Shares, please so instruct us by completing, executing, detaching and returning to us the instruction form set forth below. An envelope to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise specified below. Your instructions to us should be forwarded promptly to permit us to submit a tender on your behalf prior to the expiration of the Offer. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making or acceptance of the Offer would not be in compliance with the laws of such jurisdiction. 2 3 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF TREADCO, INC. The undersigned acknowledges receipt of your letter enclosing the Offer to Purchase dated March 23, 1999, of Arkansas Best Corporation, a Delaware corporation, and the related Letter of Transmittal, relating to shares of the common stock, par value $.01 per share (the "Common Stock"), including the associated common stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares") of Treadco, Inc., a Delaware corporation. This will instruct you to tender the number of Shares indicated below held by you for the account of the undersigned on the terms and conditions set forth in such Offer to Purchase and the related Letter of Transmittal. Dated: __________ , 1999 - --------------------------------------------------------- NUMBER OF SHARES TO BE TENDERED* ________ Shares - --------------------------------------------------------
------------------------------------ ------------------------------------ Signature(s) ------------------------------------ ------------------------------------ Please print name(s) ------------------------------------ ------------------------------------ Address (Include Zip Code) ------------------------------------ ------------------------------------ Area Code and Telephone No. ------------------------------------ ------------------------------------ Taxpayer Identification or Social Security No. - --------------- * Unless otherwise indicated, it will be assumed that all your Shares are to be tendered. 3 EX-99.(D)(6) 12 GUIDELINES FOR CERTIFICATION OF TAXPAYER ID 1 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
- ----------------------------------------------------------- GIVE THE SOCIAL SECURITY OP FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ----------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals (joint The actual owner of account) the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint The actual owner of account) the account or, if joint funds, either person(1) 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the account) minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor or guardian or committee for a incompetent person(3) designated ward, minor, or incompetent person 7. a. The usual revocable savings The grantor- trust account (grantor is trustee(1) also trustee) b. So-called trust account The actual owner(1) that is not a legal or valid trust under State law 8. Sole proprietorship account The owner(4) - -----------------------------------------------------------
- ----------------------------------------------------------- GIVE THE EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ----------------------------------------------------------- 9. A valid trust, estate, or The legal entity (Do pension trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title)(5) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in The partnership the name of the business 13. Association, club, or other The organization tax-exempt organization 14. A broker or registered nominee The broker or nominee 15. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - -----------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a), or an individual retirement. - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency, or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a). - An exempt charitable remainder trust, or a non-exempt trust described in Section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under Section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more, and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under Section 852). - Payments described in Section 6049(b)(5) to non-resident aliens. - Payments on tax-free covenant bonds under Section 1451. - Payments made by certain foreign organizations. - Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under Sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1994, payers must generally withhold 20% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.(D)(7) 13 PRESS RELEASE DATED 4/14/99 1 EXHIBIT (d)(7) TREADCO, INC. REPORTS 1999 FIRST QUARTER OPERATING RESULTS April 14, 1999 02:49 PM FORT SMITH, Ark., April 14 /PRNewswire/ -- Treadco, Inc. TRED today reported a net loss of $482,444, or $0.10 per common share (basic and diluted), for the 1999 first quarter, which includes non-recurring charges of approximately $0.06 per common share (basic and diluted). Without these non- recurring charges, Treadco's loss was approximately $172,444, or $0.04 per common share (basic and diluted). This compares to a net loss of $627,466, or a loss of $0.12 per common share (basic and diluted), for the first quarter of 1998. The non-recurring charges total approximately $310,000 and represent investment banking and legal expenses related to the fairness opinion provided to the special committee of independent directors of Treadco regarding the current $9.00 per share tender offer by Arkansas Best Corporation for the Treadco shares not already owned by Arkansas Best. The $310,000 non-tax deductible charge is included in other non-operating expense. During the quarter, Treadco had sales of $40.9 million which represents a 9.2% increase over the same period of 1998. Treadco's operating loss was $255,414 compared to a 1998 first quarter operating loss of $576,494. The foregoing release contains forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from current expectations due to a number of factors, including general economic conditions; competitive initiatives and pricing pressures; availability and cost of capital; shifts in market demand; weather conditions; government regulations; the performance and needs of industries served by Treadco; actual future costs of operating expenses such as the price of oil; self-insurance claims and employee wages and benefits; and the timing and amount of capital expenditures. The following table provides a breakdown of sales by category:
Three Months Ended March 31 1999 1998 Increase SALES Retread $16,125,552 $15,503,889 4.0% New Tires 20,255,206 18,289,075 10.8% Service 4,563,636 3,711,984 22.9% $40,944,394 $37,504,948 9.2%
2 TREADCO, INC. STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31 1999 1998 SALES Non-affiliates $40,460,114 $36,554,973 Affiliates 484,280 949,975 40,944,394 37,504,948 COSTS AND EXPENSES Materials and cost of new tires 26,551,866 24,676,323 Salaries and wages 7,994,496 7,010,541 Depreciation and amortization 1,659,701 1,487,801 Administrative and general 4,993,745 4,906,777 41,199,808 38,081,442 OPERATING LOSS (255,414) (576,494) OTHER INCOME Interest income 10,700 11,121 Gain on asset sales 311,188 22,725 Other --- 51,139 321,888 84,985 OTHER EXPENSES Tender offer response costs 310,000 --- Interest 176,098 299,010 Amortization of goodwill 115,497 115,497 Amortization of noncompete agreements --- 65,312 Other 516 --- 602,111 479,819 LOSS BEFORE INCOME TAXES (535,637) (971,328) FEDERAL AND STATE INCOME TAXES (CREDIT) Current 39,485 (295,965) Deferred (92,678) (47,897) (53,193) (343,862) NET LOSS $(482,444) $(627,466) LOSS PER COMMON SHARE (Basic and Diluted) $ (0.10) $ (0.12) AVERAGE COMMON SHARES OUTSTANDING (Basic and Diluted) 5,072,255 5,072,255 CASH DIVIDENDS PAID PER COMMON SHARE $ 0.00 $ 0.00
3 TREADCO, INC. CONDENSED BALANCE SHEETS (Unaudited)
March 31 December 31 1999 1998 ASSETS Current assets $56,435,223 $59,565,917 Property, plant and equipment (net) 36,059,728 34,313,351 Deferred income taxes 160,956 145,526 Other assets 1,400,219 1,113,431 Goodwill (less amortization) 12,116,667 12,232,164 $106,172,793 $107,370,389 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $29,602,151 $35,892,840 Long-term debt (less current portion) 11,733,229 6,159,351 Other liabilities 104,057 102,398 Stockholders' equity 64,733,356 65,215,800 $106,172,793 $107,370,389
TREADCO, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31 1999 1998 OPERATING ACTIVITIES Net cash provided (used) by operating activities $(274,518) $2,248,700 INVESTING ACTIVITIES Purchases of property, plant and equipment, less capitalized leases (4,835,841) (821,181) Construction in progress --- (641,671) Proceeds from asset sales 2,131,185 22,725 Net cash used in investing activities (2,704,656) (1,440,127) FINANCING ACTIVITIES Borrowings under revolving credit facility 19,600,000 14,400,000 Payments under revolving credit facilities (13,550,000) (15,400,000) Payments on long-term debt (597,782) (584,636) Net increase (decrease) in cash overdrafts (2,473,044) 776,063 Net cash provided (used) in financing activities 2,979,174 (808,573) NET DECREASE IN CASH AND CASH EQUIVALENTS --- --- Cash and cash equivalents at beginning of period --- --- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ --- $ ---
SOURCE Treadco, Inc. -----END PRIVACY-ENHANCED MESSAGE-----