# UNITED
STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

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# FORM 10-K/A

# Amendment No. 1 to ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

# For the fiscal year
ended December 31, 2006

# Commission File Number
1-7007

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BANDAG,
INCORPORATED(Exact name of registrant as specified in its charter)

|Iowa                            | 42-0802143         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification No.)

2905 North Highway
61Muscatine, Iowa 52761-5886   (Address of principal executive offices)

Registrants
telephone number, including area code: (563) 262-1400

Securities registered
pursuant to Section 12(b) of the Act:

|Common Stock - $1 Par Value          | New York Stock Exchange and                
|------------------------------------ | -------------------------------------------
|Class A Common Stock - $1 Par Value  | Chicago Stock Exchange                     
|Common Share Purchase Rights        
|Class A Common Share Purchase Rights
|(Title of Class)                     | (Name of each exchange on which registered)

Securities registered
pursuant to Section 12(g) of the Act: None

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes |_| No |X|

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes |_| No |X|

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
periods that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Act. (Check one):

Large accelerated filer |_|
 Accelerated filer |X|  Non-accelerated filer |_|

Indicate by check mark whether the
registrant is shell company (as defined in Rule 12b-2 of the Act).  Yes |_|  No |X|

The aggregate market value of the
voting and non-voting stock held by non-affiliates of the registrant as of June 30, 2006:
Common Stock, $236,952,659, Class A Common Stock (non-voting), $146,955,168, Class B
Common Stock, $524,115.

The number of shares outstanding of
the issuers classes of common stock as of January 31, 2007: Common Stock, 9,982,291
shares; Class A Common Stock, 9,520,791 shares. (On January 16, 2007, each share of Class B Common
Stock was automatically converted into one share of Common Stock.)

Documents Incorporated by
Reference: None.

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# EXPLANATORY NOTE

On March 16, 2007, the undersigned
registrant filed its Annual Report on Form 10-K for the fiscal year ended December 31,
2006. The registrant hereby amends the original Annual Report on Form 10-K by amending and
restating Part III and Part IV of the Form 10-K in their entirety to provide the
information that the registrant indicated it would incorporate by reference from its Proxy
Statement for the 2007 Annual Meeting of the Shareholders unless the Proxy Statement would
not be filed by April 30, in which case the registrant would amend the Form 10-K to
provide the omitted information.

This Amendment No. 1 to the Annual
Report on Form 10-K/A does not reflect events occurring after the filing of the original
Annual Report on Form 10-K and, other than amending and restating Part III and Part IV,
does not modify or update the disclosures in the original Annual Report on Form 10-K in
any way.

# PART III

# Item 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

# Board of Directors

The following sets forth certain
information concerning the Directors of the Company:

Martin G. Carver, age 58, was
elected Chairman of the Board effective June 23, 1981, Chief Executive Officer effective
May 18, 1982, and President effective May 25, 1983. Mr. Carver was also Vice Chairman of
the Board from January 5, 1981 to June 23, 1981. He is a member of the Executive
Committee. Mr. Carver has been a director since 1978.

Roy J. Carver, Jr., age 63.
Since June 1982, Mr. Carver has been Chairman of the Board of Directors of Carver Pump
Company, Muscatine, Iowa, a builder of centrifugal pumps. Mr. Carver is President of
Carver Aero, Inc., which operates fixed base operations at airports in Muscatine and
Davenport, Iowa, and President of Carver Hardware, Inc., which operates a chain of retail
hardware stores. Mr. Carver holds a directorship in Iowa First Bancshares Corp. Mr. Carver
was elected Vice Chairman of the Board in May 2006. He is a member of the Executive
Committee. Mr. Carver has been a director since 1982.

Gary E. Dewel, age 64,
retired. Mr. Dewel was Executive Vice President, Supply Chain, for Clarion Technologies,
Inc., Schaumburg, Illinois, an injection molding business supplier to the automotive
industry, until his retirement in April 2000. Previously, he was Vice President, Supply
Chain, for Solutia Inc., a spinoff of the chemical businesses of Monsanto Company
(1997-April 1999); Vice President, Supply Chain, of Monsanto Company (1994-August 1997)
and held several Vice President positions with Navistar International Corporation
(1979-1993). He is a member of the Management Continuity and Compensation Committee and
Nominating and Corporate Governance Committee. Mr. Dewel has been a director since 1997.

James R. Everline,age
65, is President of Everline & Co., a mergers and acquisitions/management
consulting company. Previously, Mr. Everline was President, Investment Banking Division,
of Henry & Company (1990-1991). Henry & Company is engaged in the venture capital
and investment banking business. Prior to Mr. Everlines employment by Henry &
Company, he was a Partner of Founders Court Investors Inc. (1988-1989) and served as Vice
President, Capital Markets Group, Bank of America (1981-1988). He is a member of the Audit
Committee, Executive Committee, Management Continuity and Compensation Committee, and the
Nominating and Corporate Governance Committee. Mr. Everline has been a director since
1982.

Phillip J. Hanrahan, age 68,
retired. Mr. Hanrahan retired from the law firm of Foley & Lardner LLP on January 31,
2007. Prior to that date, he had been for more than five years a partner in Foley &
Lardner LLP. In 2006, the Company paid fees for legal services to Foley & Lardner LLP,
and the Company anticipates that similar services may be provided by Foley & Lardner
LLP in the current fiscal year. Prior to Mr. Hanrahans retirement on January 31,
2007, his cash fees as a director were paid to Foley & Lardner LLP, which credited the
sums to the Companys legal services account. Mr. Hanrahan is a member of the
Executive Committee. Mr. Hanrahan has been a director since August 1997.

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Amy P. Hutton, age 44. On July
1, 2006, Ms. Hutton was appointed Associate Professor, Accounting Department, Carroll
School of Management at Boston College, Chestnut Hill, Massachusetts. Previously Ms.
Hutton was Associate Professor of Business Administration at Tuck School of Business at
Dartmouth College, Hanover, New Hampshire (July 1, 2003 to June 30, 2006). Ms. Hutton was
Associate Professor of Business Administration (July 1, 1997 to June 30, 2003) and an
Assistant Professor of Business Administration (July 1991 to June 30, 1997) at Harvard
Business School. Ms. Hutton was Visiting Scholar, Graduate School of Business, Stanford
University (January to June 2003) and Visiting Associate Professor of Business
Administration, Tuck School of Business at Dartmouth (July to December 2002). Ms. Hutton
is a member of the Audit Committee and the Nominating and Corporate Governance Committee.
Ms. Hutton has been a director since June 2003.

R.           Stephen Newman,
age 63. Since November 2001, Mr. Newman has served as Chief           Executive Officer
of Cision North America (formerly known as Observer North           America), an
operating unit of Cision AB (formerly known as Observer AB), listed           on the
Stockholm Stock Exchange. Prior to November 2001, Mr. Newman was           President and
Chief Executive Officer of Primedia Information, Inc., an           operating unit of
Primedia Inc. Mr. Newman continues as Chief Executive Officer           of Cision US,
Inc. (formerly known as Bacons Information, Inc.), where he served           as Chief
Executive Officer and President from 1994 to November 2001, and           President and
Chief Operating Officer from 1990 to 1994. Mr. Newman is a member           of the Audit
Committee and the Management Continuity and Compensation Committee.           Mr. Newman
has been a director since 1983.

# Executive Officers

In accordance with General
Instruction G to Form 10-K the information with respect to executive officers of the
Company required by Item 401 of Regulation S-K has been included in Part I hereof under
the heading Executive Officers of the Registrant.

# Section 16(a) Beneficial
Ownership Reporting Compliance

Section 16(a) of the Securities
Exchange Act of 1934 requires the Companys executive officers, directors and more
than 10% shareholders to file with the Securities and Exchange Commission reports on
prescribed forms of their beneficial ownership of the Companys stock and furnish
copies of such reports to the Company. Based solely on a review of the copies of such
forms furnished to the Company, or written representations that no Form 5 was required to
be filed, the Company believes that during the year ended December 31, 2006, all reports
required by Section 16(a) to be filed by the Companys insiders were filed on a
timely basis.

# Code of Ethics

The information concerning the
Companys code of ethics required by Item 406 of Regulation S-K has been included in
Part I hereof under the heading Available Information.

# Audit Committee

The Audit Committee of the
Companys Board of Directors consists of Ms. Hutton (Chairman) and Messrs. Everline
and Newman, each of whom is independent (as independence is defined in the listing
standards of the New York Stock Exchange). The Board of Directors has determined that Ms.
Hutton qualifies as an audit committee financial expert, as defined by the
Securities and Exchange Commission, based on her knowledge of financial and accounting
matters and years of experience as an Associate Professor, Accounting Department and
Associate Professor of Business Administration (see the description of her business
background above). Pursuant to its written charter, the major functions of the Audit
Committee are to assist the Board of Directors in its oversight of: (a) the integrity of
the Companys financial statements; (b) the independent auditors qualifications
and independence; (c) the Companys compliance with legal and regulatory
requirements; (d) the performance of the Companys internal audit function and of the
independent auditors; and (e) carrying out other functions which may, from time to time,
be assigned to the Audit Committee by the Board of Directors.

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# Item 11. EXECUTIVE
COMPENSATION

# Compensation Discussion
and Analysis

# Overview of Our
Executive Compensation Philosophy

We recognize the importance of maintaining
sound principles for the development and administration of our executive compensation and
benefit programs. Specifically, our executive compensation and benefit programs are
designed to achieve the following objectives:

| |  | Align
executive compensation and rewards with the interests of the Companys shareholders
by ensuring our executives own a significant stake in the Company.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Provide
focus and clarity about corporate strategies and Bandags execution of those
strategies.
| | - | ------------------------------------------------------------------------------------------------

| |  | Compensate
our executives at competitive levels to retain and attract individuals who achieve
results and significantly contribute to Bandags success and culture.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Align
actual compensation earned with Bandags short-term and long-term performance to
ensure executives are highly compensated only when shareholders receive value and
executives remain properly motivated to enhance shareholder value;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Recognize
and reward individuals for the role they have in making Bandag successful and allow them
to share in that success by providing our executives with the opportunity to earn
above-market compensation for above-market performance.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe that a disciplined focus
on these core objectives will benefit us, and ultimately our shareholders in the long-term
by ensuring that we can attract and retain highly qualified executives who are committed
to our long-term success.

# Role of Our Compensation
Committee

The Management Continuity and Compensation
Committee of the Board of Directors (the Compensation Committee) has overall
responsibility for approving and evaluating all executive officer compensation plans,
policies and programs of the Company, including compensation for our Chief Executive
Officer, the Chief Financial Officer and the other officers named in the Summary
Compensation Table (referred to as the named executive officers), and makes
all decisions regarding compensation of the Companys executive officers, including
the granting of equity-based awards. The Compensation Committee Charter is available under
Investor Relations at www.bandag.com.

The Compensation Committee is
comprised of three non-employee independent directors, each of whom meet the independence
requirements of the New York Stock Exchange and the Chicago Stock Exchange. Additionally,
no director may serve on the Compensation Committee unless he or she (a) is a
Non-Employee Director under the qualifications set forth in Rule 16b-3 of the
Securities Exchange Act of 1934, as amended, and (b) satisfies the requirements of an
outside director for purposes of Section 162(m)(4)(C) of the Internal Revenue
Code.

Members of the Compensation Committee
are appointed by the Board of Directors annually or as necessary to fill vacancies on the
recommendation of our Nominating and Corporate Governance Committee. The Compensation
Committee is currently comprised of the following individuals:

| | Gary
E. Dewel                 James R. Everline                 R. Stephen Newman, Chairman
| | -------------------------------------------------------------------------------------------

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The Compensation Committee meets at
least four times annually, or more frequently as circumstances dictate. The Committee
Chair is appointed by the Board of Directors and chairs all regular sessions of the
Compensation Committee and, in consultation with the Chairman of the Board of Directors,
sets the agendas for Compensation Committee meetings.

Our Compensation Committee has taken
the following steps to ensure our executive compensation and benefit programs are
consistent with corporate governance guidelines and the compensation objectives described
above:

| |  | Engaged
and directed Mercer HR Consulting to review the Companys executive compensation
program and seek recommendations on the following issues:
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------

| | - | Short-term
plan performance metrics and measures;
| | - | -------------------------------------------------

| | - | Long-term
plan performance metrics and measures;
| | - | ------------------------------------------------

| | - | Long-term
plan delivery vehicles (for example, restricted stock, stock options and performance
units); and
| | - | ----------------------------------------------------------------------------------------------------------

| | - | Provide
a high level assessment of the competitiveness of our overall executive compensation and
benefits program.
| | - | ------------------------------------------------------------------------------------------------------------------

| |  | Reviewed
the performance of our CEO (independent of input from him) and approved total
compensation for the CEO based on competitive levels and using the same philosophies as
stated above as measured against our comparator group (the composition of the comparator
group is discussed below).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Reviewed
the performance of our other named executive officers and other key employees with
assistance from our CEO and approved the proper total compensation based on competitive
levels as measured against our comparator group.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Reviewed
each element of compensation, both individually and in the aggregate, awarded to the
named executive officers.
| | - | -----------------------------------------------------------------------------------------------------------------------

# Total Direct
Compensation

The Compensation Committee
establishes total direct compensation (TDC) targets for each of our named executive
officers. TDC is the sum of the base salary and short-term and long-term award
opportunities (combination of cash and/or stock) available to an executive. TDC is
structured to ensure that there is an appropriate balance between short-term (annual)
performance and long-term performance. TDC is designed to compensate our executives at
competitive levels, with the opportunity to earn above-market pay for above-market
performance, through a pay plan that emphasizes performance-based compensation in the form
of cash and equity.

Our desire is to compensate
executives fairly, from both an internal and external perspective. From an internal
perspective, executives are compensated fairly considering factors such as, among other
things, role in the organization, achievement of corporate results and individual
objectives, and experience. From an external perspective, our executive pay levels are
designed to be competitive in the markets in which we compete for executive talent. We
benchmark our compensation practices against companies in the manufacturing industry and
when appropriate all industries, with revenues between $750 million and $1.25 billion (our
comparator group). Compensation for our named executive officers is also benchmarked
periodically against the named executive officers at companies in our comparator group as
disclosed in proxy statements.

Based on recommendations from Mercer
HR Consulting, the Compensation Committee changed the TDC target from the market 60th
percentile to the market 50th percentile of competitive compensation, beginning in January
2006. We believe this change better aligns our pay targets with our comparator group and
the interests of our shareholders and is more reflective of our actual executive pay
practices.

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In addition to changing our target
TDC to the 50th percentile, the Compensation Committee also made the following changes for
2006 based on recommendations made by Mercer HR Consulting to better align our executive
pay program with the interests of our shareholders and pay practices in the marketplace:

| |  | Executive
base salary midpoints were established at the market 50th percentile using the same
revenue factors discussed above. As a result of this action, 2006 midpoints for executive
officers, including the Chief Executive Officer, were reduced from 2005 levels.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Any
pay-outs based on results achieved under our Short-Term (annual) Award Plan are to be
paid in cash rather than restricted stock with 3-year vesting.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Under
our Long-Term Award Plan, restricted stock was replaced with performance units to
increase the linkage of executive compensation earned to the long-term financial
performance of the Company.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For 2006, TDC opportunities for the
named executive officers were generally between the 40th and 50th percentile of TDC paid
to executives holding similar positions in our comparator group of companies. Messrs
Carver, Heidbreder, McErlane, Kopittke, and Tirona received increases of 3.5%, 12%, 43%,
7.5%, and 3.5%, respectively, in TDC opportunities for 2006, which includes any increases
in base salary as discussed below. Mr. Heidbreders TDC opportunity was increased
substantially to better align his compensation with that of executives performing
similar roles in our comparator group. Mr. McErlanes TDC opportunity was
significantly increased due to his assumption of increased responsibilities in his role
during 2006. Of the total amount of increase in TDC, approximately 94% is reflective of
additional performance-based compensation opportunities.

The actual level of TDC an executive
will achieve depends upon a variety of factors, including the responsibilities of the
position, experience of the executive, current level of total compensation relative to the
target level, the financial performance of the Company, national trends, and the
Companys competitive need to retain and recruit the very best and most capable
individuals. In reviewing the Companys financial performance, the Compensation
Committee considers the Companys revenues, net income and net income per share in
light of competitive and economic conditions during the fiscal year.

# Elements of Total Direct
Compensation

Base Salary

The base salaries of our named
executive officers are reviewed annually by our Compensation Committee. When determining
the amount of base salary for each of our named executive officers, the Compensation
Committee considers a variety of factors, including level of experience, individual
performance, Company and business unit financial performance and trends in salaried
employee compensation increases, as disclosed by published salary budget forecasts.

Our Compensation Committee strives to
establish competitive base salaries for our named executive officers and targets the
market 50th percentile of organizations using the revenue factors discussed above. This
helps establish a midpoint, or base salary target, under which an executive
officers base salary is then administered by the Compensation Committee. Midpoints
are used to calculate the annual increase for each executive officer by multiplying the
midpoint (not the current base salary) by the percentage increase established by the
Compensation Committee. In making its decision as to the specific percentage increase to
be provided, the Compensation Committee considers information from a variety of sources,
including, among other things, salary budget forecasts, consumer price index and Company
performance. The resulting amount is then added to the current base salary. During 2006,
the named executive officers, with the exception of Messrs. Kopittke and McErlane,
received a 3.5% increase in base salary based on the midpoint established for their
respective roles.

For Messrs. Carver, Heidbreder and
Tirona, this resulted in actual increases, as a percentage of base salary, of 4.0%, 3.1%,
and 3.4%, respectively. Messrs. Kopittke and McErlane received increases of 9.2% and 4.2%,
respectively, as a percentage of base salary, due to their assumption of additional
responsibilities during 2006.

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For Messrs Carver, Heidbreder,
McErlane, Kopittke, and Tirona, base salary represented approximately 43%, 50%, 44%, 64%,
and 60%, respectively, of each of their respective target TDC opportunities for 2006.

Short-Term Award Plan

Our Short-Term Award Plan provides
for the award of annual cash bonuses to our named executive officers based on achievement
of certain financial targets established by the Compensation Committee.

The Short-Term Award Plan is intended
to emphasize achievement of our corporate financial goals and reward the performance of
our executive officers in fulfilling their responsibilities. Consistent with our
compensation philosophy, cash award payments to our named executive officers are
contingent upon the achievement of specific performance targets during the applicable
performance period. Specific performance measures used in 2006 were a combination of
consolidated Earnings Before Tax (EBT) and specific business unit Earnings Before Interest
and Tax (EBIT).

Because of their overall role in the
Company, and because they are not affiliated with any one particular business unit,
performance was based only on consolidated EBT for Martin G. Carver, Chief Executive
Officer and Warren W. Heidbreder, Vice President and Chief Financial Officer. For the
remaining named executive officers, performance was based on achievement of a combination
of EBT (50%) and specific business unit EBIT (50%). For John C. McErlane, Vice President,
North America, business unit performance was based on the combined financial performance
of North America and Tire Distribution Systems, Inc., one of our wholly owned
subsidiaries. Under each performance measure, pay-out levels are established for
threshold, target, and superior performance. For 2007, performance measures used under the
Short-Term Award Plan are the same, except that for Frederico U. Kopittke, Vice President,
International, business unit performance will be based on the combined financial
performance of the International and Europe and Middle East Africa (EMEA) business units.

In addition to establishing
performance targets, the Compensation Committee also sets each named executive
officers target short-term award amount. This amount is determined by subtracting an
executives base salary from his/her TDC opportunity established by the Compensation
Committee. The remaining amount is then divided evenly to achieve the desired balance
between short-term and long-term compensation opportunities. The resulting values are then
used as the compensation targets under the Short-Term Award Plan and Long-Term Award Plan.

For 2006, Messrs. Carver, Heidbreder,
McErlane, Kopittke, and Tirona had a target short-term award amount of $423,000, $201,500,
$225,000, $99,000 and $89,000, respectively, which was to be paid upon the achievement of
the above described performance measures for each of such officers. For financial
performance achieved at the threshold level, cash awards represent 50% of the target
value, and for financial performance achieved at the superior level, cash awards represent
150% of the target award value. Arithmetic interpolation is used for financial performance
which falls in between the performance levels.

For 2006, the actual consolidated EBT
and the EBIT for each of the various business units, other than the International business
unit and Tire Distribution Systems, were below the threshold level of performance.
Therefore, Frederico U. Kopittke, Vice President, International, was the only named
executive officer who earned a cash award based on actual performance against the
EBIT component. The value of this cash award for the EBIT component was $34,155.

In addition to the award made to Mr.
Kopittke, the Compensation Committee, in its discretion, also granted short-term awards at
the threshold level to each of the remaining named executive officers under both the EBT
and EBIT components, as applicable. In reaching its decision, the Compensation Committee
recognized the significant organizational restructuring that took place during 2006 and
that the Short-Term Award Plan did call for restructuring expenses to be included in the
calculation of EBT and EBIT. The Compensation Committee also considered the following:

| |  | The
need to recognize the significant effort on the part of our named executives during 2006
in leading the Company through this restructuring, which was designed to increase
organizational competitiveness;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Restructuring
 expenses were a one-time charge and the impact did not accurately  reflect the operating
 results for the year;               and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
need for the Company to retain its executives and pay them competitively.
| | - | -----------------------------------------------------------------------------

Based on the Compensation
Committees decision, Messrs. Carver, Heidbreder, McErlane, and Tirona received total
cash awards under the 2006 Short-Term Award Plan of $211,500, $100,750, $112,500, and
$44,500, respectively, which represent the total award amounts under both the EBT and EBIT
components. The Compensation Committee also awarded Mr. Kopittke $24,750 at the threshold
level under the EBT component, in addition to the amount actuallyearned under the
EBIT component for his business unit, as explained above. Including the threshold award
under the EBT component, Mr. Kopittkes total cash award under the 2006 Short-Term
Award Plan was $58,905. In 2006, cash bonuses paid to Messrs. Carver, Heidbreder,
McErlane, Kopittke, and Tirona represented 16.7%, 14.4%, 16.4%, 11.6% and 11.1%,
respectively, of their TDC.

For the 2007 Short-Term Award Plan,
Messrs. Carver, Heidbreder, McErlane, Kopittke, and Tirona, have target short-term award
amounts of $436,000, $210,000, $233,000, $150,000 and $92,000, respectively, which is to
be paid upon the achievement of the above described performance measures for each of such
officers. Mr. Kopittkes short-term target award amount increased $51,000 from 2006
levels due to increased responsibilities and to better align his compensation
opportunities with executives performing similar roles in our comparator group.

Because of the relative importance of
our Short-Term Award Plan to TDC and its direct link to the achievement of specific
performance targets, we believe that the Short-Term Award Plan supports our objectives and
remains an important part of our overall compensation program.

Long-Term Award Plan

The objective of our Long-Term Award
Plan is to provide compensation opportunities to our executives, contingent upon the
long-term performance of the Company. Consistent with our overall compensation philosophy,
our Long-Term Award Plan ensures that our named executive officers have a continuing stake
in the long-term success of the Company. Because we believe that it is in the interests of
our shareholders to have an evenly balanced emphasis between short-term and long-term
performance, the target award values under the Long-Term Award Plan for each of our named
executive officers are the same as those under the Short-Term Award Plan.

To help achieve the desired focus on
long-term performance, equity and cash-based awards, including stock options, restricted
stock, performance units, and other equity-based awards can be granted under our 2004
Stock Grant and Awards Plan. Our Compensation Committee determines the relative mix of our
equity-based awards by considering various factors, including, among other things, the
competitive levels of such awards used in our comparator group, our stock price and our
financial performance. Consistent with our compensation objectives, our Compensation
Committee may grant awards contingent upon the achievement of additional performance
targets, similar to those used in the Short-Term Award Plan.

On February 21, 2006, our named
executive officers were granted a stock option to purchase shares of Class A Common Stock
at fair market value as of the date of award. In the past four years, our grants of
options to the named executive officers occurred on the first regularly scheduled meeting
of the Compensation Committee, which is generally the third or fourth Tuesday of the month
of February.

The options granted on February 21,
2006 are non-qualified stock options under the Internal Revenue Code. Stock options
awarded under this grant are exercisable at a rate of 25% per year, beginning February 21,
2007, and have an exercise period of 10 years. The size of the grant was based on the
estimated value of the options using the Black-Scholes option pricing model, and was made
considering the portion of the executives officers targeted long-term award value
that the Compensation Committee wanted to be dependent upon stock price. We believe that
having a portion of long-term term compensation linked to our stock price supports our
objective of aligning executive compensation with the interests of our shareholders. As a
result, stock options made up approximately 40% of an executive officers long-term
award.

8

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In previous years, we awarded
restricted stock with three-year vesting to our named executive officers. Under the
direction of the Compensation Committee, restricted stock was replaced with performance
units to increase the linkage of executive compensation earned to the specific long-term
financial performance of the Company and enhance shareholder value. Because the
Compensation Committee desired to place more emphasis on long-term financial performance
and increasing shareholder value (rather than stock price only), performance units were
also granted February 21, 2006, and made up the remaining 60% of an executive
officers long-term award.

The number of performance units
granted was based on the fair market value of shares of Class A Common Stock on the date
of the award. Vesting of the performance units is contingent upon achievement of
pre-established equally-weighted financial targets over a three-year period based upon:

| |  | Compound
Annual Growth Rate in consolidated Earnings Before Tax over the three year period ending
December 31, 2008, and
| | - | ------------------------------------------------------------------------------------------------------------------------

| |  | Three-year
average Return on Invested Capital.
| | - | ----------------------------------------------

The number of performance units
granted to each named executive officer represents the number of performance units that
could be potentially vested at the target level of performance under both performance
measures. At the threshold level of performance, the performance units vest at 50% of the
target award value, and at the superior level of performance, the performance units vest
at 200% of the target award value. Based on the actual level of performance achieved as
measured against the threshold, target, and superior performance levels, 50% of the value
of the performance units, based on the fair market value of Class A Common Stock at the
end of the performance period, is delivered to the participant in cash, and the remaining
50% is delivered in the form of shares of Class A Common Stock.

To ease the transition from
restricted stock to performance units, the Compensation Committee also determined that for
the 2006 grant of performance units, 20% will vest at the end of the three-year
performance period regardless of the level of performance achieved.

On February 21, 2006, we made the
following awards of non-qualified stock options (NQSOs) and performance units (PUs):

| |  | Mr.
Carver received 14,800 NQSOs and 7,080 PUs
| | - | ----------------------------------------------

| |  | Mr.
Heidbreder received 7,050 NQSOs and 3,370 PUs
| | - | -------------------------------------------------

| |  | Mr.
McErlane received 4,370 NQSOs and 2,090 PUs
| | - | -----------------------------------------------

| |  | Mr.
Kopittke received 3,460 NQSOs and 1,660 PUs
| | - | -----------------------------------------------

| |  | Mr.
Tirona received 3,110 NQSOs and 1,490 PUs.
| | - | ----------------------------------------------

In addition, on April 18, 2006, we made
a grant of 3,600 NQSOs and 1,720 PUs to Mr. McErlane based on increased responsibilities
in his role. This award of NQSOs and PUs carries the same attributes as the grants of
NQSOs and PUs described above.

# Other Benefits

We maintain certain other plans which
provide, or may provide compensation and benefits to our named executive officers. These
plans are principally our pension plan, supplemental pension plan, 401(k) profit-sharing
plan and supplemental profit-sharing plan.

Pension Plan

We maintained a traditional defined
benefit pension plan for all salaried employees including our named executive officers.
Compensation covered by our pension plan included the salary reported in the Summary
Compensation Table, but was limited to $220,000 per year in 2006. Upon termination of
employment, an employee may receive a lump-sum benefit, not to exceed $30,000, equal to
the actuarial present value of the pension benefit. If the benefit exceeds $30,000, the
employee may receive the benefit in the form of a monthly annuity. Under the pension plan,
we froze benefit accruals attributable to salary and service effective December 31, 2006.

9

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Salaried Profit-Sharing,
Retirement and Savings Plan {(401(k) Profit-sharing Plan}

We maintain a 401(k) Profit-Sharing
Plan for all salaried employees including our named executive officers. Under the 401(k)
Profit-Sharing Plan, we match 100% of the first 3% of compensation contributed by our
named executive officers. During the first quarter of each year, based on service in the
prior year, we also contribute an additional 2% of base salary to participant accounts,
including the accounts of our named executive officers, as well as four shares of Class A
Common Stock and four shares of Common Stock. In addition, salaried employees, including
our named executive officers, participate in a performance-based profit-sharing plan,
which provides for an additional Company contribution of 0-4% based on Company
performance.

Beginning January 1, 2007, we
discontinued the 2% company contribution to participant accounts, and implemented a 100%
match of the first 6% of compensation contributed by our named executive officers.

Supplemental Pension Plan

We maintain two supplemental
executive retirement plans for our named executive officers which supplement such
officers retirement income. The Supplemental Pension Plan I and Supplemental Pension
Plan II are designed to mirror the benefits under our pension plan for executive
compensation in excess of $220,000 per year, but not more than $500,000 per year. Each
plan served as a tool with which we could provide competitive compensation and benefits to
retain and attract talented individuals.

The Supplemental Pension Plan I was
frozen for future benefit accruals as of December 31, 2004 due to legislation that was
passed regarding non-qualified deferred compensation plans (namely, Section 409A of the
Internal Revenue Code, as amended). The Supplemental Pension Plan II was created to
conform to the new legislation.

To be consistent with the freeze of
our qualified pension plan and also due to increased matching contributions under the
401(k) Profit-Sharing and Supplemental Profit-Sharing Plan II (see below), our
Supplemental Pension Plan II was also frozen on December 31, 2006.

Supplemental
Profit-Sharing Plan

We maintain two supplemental
profit-sharing plans for our named executive officers which supplement such officers
retirement income. Under the Supplemental Profit-Sharing Plan I and Supplemental
Profit-Sharing Plan II, we provided a Company contribution of 5% on compensation over
$220,000, up to a salary of $500,000. In addition, an additional Company contribution of
0-4% based on Company performance is also possible. Each plan served as a tool with which
we could provide competitive compensation and benefits to retain and attract talented
individuals.

The Supplemental Profit-Sharing Plan
I was frozen to new contributions as of December 31, 2004 due to legislation that was
passed regarding non-qualified deferred compensation plans (namely, Section 409A). The
Supplemental Profit-Sharing Plan II was created to conform to the new legislation, and was
frozen on December 31, 2006.

# Compensation
Arrangements Related to Merger

On December 5, 2006, we entered into
a definitive merger agreement with Bridgestone Americas Holding, Inc. (referred to as
BSAH) and Grip Acquisition Corporation (referred to as Grip Acquisition), a wholly-owned
subsidiary of BSAH, pursuant to which Grip Acquisition will acquire the outstanding shares
of each class of our stock for US $50.75 per share in cash. Our Compensation Committee
believes that the proposed merger causes uncertainty among certain key employees about
future employment with us, without regard to each employees competence or past
contributions. It was determined that this uncertainty could result in the loss of the
services of certain employees, to our detriment and the detriment of our shareholders.

Based on the uncertainty related to
the proposed merger and the valuable services that our employees provide to the company,
the Compensation Committee determined that it is in the best interests of these employees
and Bandag and its shareholders to provide for the acceleration of outstanding equity
awards upon consummation of the merger, with the equity awards being cancelled and
representing solely the right to receive a cash payment provided for in the merger
agreement. See Disclosure Regarding Termination and Change in Control
Provisions for a more detailed description of the treatment of equity awards in the
merger.

10

---

In addition, the Compensation
Committee approved severance agreements for certain employees, including Mr. Kopittke. (In
1999, we had previously entered into severance agreements with Messrs. Carver, Heidbreder
and McErlane.) See Disclosure Regarding Termination and Change in Control
Provisions for a more detailed discussion of the severance agreements.

In addition to approving severance
agreements for certain employees, the Compensation Committee approved consulting
agreements with Messrs. Carver and Heidbreder, whose employment with us will terminate as
of the effective date of the merger. These consulting agreements will be triggered only if
consulting services are requested by us after the merger is consummated. The Compensation
Committee determined that it was advisable to enter into the consulting agreements because
Messrs. Carver and Heidbreder have expertise, knowledge and insight that might be useful
to enhancing or improving our strategic business, or to easing integration issues
following the merger. See Disclosure Regarding Termination and Change in Control
Provisions for a more detailed discussion of the consulting agreements.

# Summary Compensation
Table

Set forth below is information
regarding compensation earned by or paid or awarded to the named executive officers during
2006: (a) Martin G. Carver, our Chairman, President and Chief Executive Officer; (b)
Warren H. Heidbreder, our Chief Financial Officer and Secretary; (c) John C. McErlane, our
Vice President of North America, which includes responsibility for Tire Distribution
Systems; (d) Frederico U. Kopittke, our Vice President of our International business unit;
and (e) Michael A. Tirona, our Vice President of our EMEA business unit. Messrs. McErlane,
Kopittke, and Tirona represent our three other most highly compensated executive officers
whose total compensation exceeded $100,000. The identification of such named executive
officers is determined based on the individuals total compensation for 2006, as
reported below in the Summary Compensation Table, other than amounts reported as
above-market earnings on deferred compensation and the actuarial increase in pension
benefit accruals. The table sets forth for the named executive officers: (a) the dollar
value of base salary earned during 2006; (b) the dollar value of cash bonuses granted for
the year; (c) the dollar value of the compensation cost of all stock and option awards
recognized over the requisite service period, computed in accordance with Financial
Accounting Standards No. 123 (Revised 2004) (SFAS 123(R)); (d) the dollar value of
non-equity incentive plan compensation paid; (e) the change in pension value and
non-qualified deferred compensation earnings during the year; (f) all other compensation
for the year; and (g) the dollar value of total compensation for the year.

11

---

# 2006 Summary
Compensation Table

|Name and
Principal Position   | Year | Salary
(a) | Bonus
(b) | Stock
Awards
(c) | Option Awards
(c) | Non-Equity
Incentive
Plan
Compen-sation
(d) | Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
(e) | All Other
Compen-sation
(f) | Total
Compen-sation
(g)
|----------------------------- | ---- | ---------- | --------- | ---------------- | ----------------- | ------------------------------------------- | --------------------------------------------------------------------------- | --------------------------- | -----------------------
|Martin G. Carver              |      |            |           |                  |                   |                                             |                                                                             |                             |                        
|Chairman, CEO & President     | 2006 | $631,029   | $211,500  | $99,981          | $40,700           | $0                                          | $101,208                                                                    | $75,915                     | $1,160,333             
|Warren W. Heidbreder         
|Vice President, Chief        
|Financial Officer & Secretary | 2006 | 396,671    | 100,750   | 47,590           | 19,388            | 0                                           | 105,614                                                                     | 40,739                      | 710,752                
|John C.  McErlane            
|Vice President - North       
|America                       | 2006 | 341,594    | 112,500   | 53,803           | 21,648            | 0                                           | 43,259                                                                      | 44,505                      | 617,309                
|Frederico U. Kopittke        
|Vice President -             
|International                 | 2006 | 336,763    | 24,750    | 23,442           | 9,515             | 34,155                                      | 106,680                                                                     | 34,056                      | 569,361                
|Michael A. Tirona            
|Vice President - EMEA         | 2006 | 265,925    | 44,500    | 21,041           | 8,553             | 0                                           | 53,524                                                                      | 215,491                     | 609,034                

|(a) | The
dollar value of base salary earned during the fiscal year. For Frederico
                    Kopittke, $168,816 was paid in US dollars, and the remaining amount
of $167,947                     represents the value, in United States currency, of Mr.
Kopittkes salary                     which was paid in Brazil Real.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | As
discussed above in the Compensation Discussion and Analysis, our Compensation
                    Committee awarded discretionary bonuses to our named executive
officers for                     2006.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | These
amounts reflect the dollar value of the compensation cost of all
                    outstanding stock awards or option awards recognized over the
requisite service                     period, computed in accordance with SFAS 123(R).
The assumptions made in valuing                     the stock awards are included under
Note 1 of the Notes to Consolidated                     Financial Statements in the 2006
Annual Report of Form 10-K.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Represents
earnings in 2006 under the Companys Short-Term Award Plan based
                    financial performance using a combination of consolidated earnings
before tax                     and business unit earnings before interest and tax.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Represents
the aggregate change in the actuarial present value of accumulated
                    benefits under all qualified and non-qualified defined benefit and
actuarial                     pension plans from the plan measurement date used for
financial statement                     reporting purposes with respect to 2005 to the
plan measurement date used for                     financial statement reporting purposes
with respect to 2006. There were no                     above-market or preferential
earnings on non-tax-qualified deferred                     compensation.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | Of
the amounts shown in this column for 2006:
|--- | ---------------------------------------------

| |  | the
Companys contribution under its Salaried Profit Sharing, Retirement and Savings
Plan for the named executive officers is as follows: Martin G. Carver, $31,500; Warren W.
Heidbreder, $24,990; John C. McErlane, $22,905; Frederico U. Kopittke, $10,635; and
Michael A. Tirona, $16,753 (of which, because of limitations under the Internal Revenue
Code of 1986, as amended, $13,860 was paid into such Profit-sharing Plan for Messrs.
Carver, Heidbreder and Tirona; $14,914 for Mr. McErlane; and $10,635 for Mr. Kopittke and
the balance to be paid by the Company outside such Profit-sharing Plan);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

---

| |  | investment
earnings on the Companys non-tax qualified profit-sharing contributions for the
named executive officers are as follows: Martin G. Carver, $6,545; Warren W. Heidbreder,
$4,199; John C. McErlane, $2,438; and Michael A. Tirona, $665;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | dividends
earned on unvested awards of restricted stock are as follows: Martin G. Carver, $35,143;
Warren W. Heidbreder, $7,581; John C. McErlane, $11,428; Frederico U. Kopittke, $9,701;
and Michael A. Tirona, $4,460;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
imputed value of life insurance provided by the Company is as follows: Martin G. Carver,
$2,322; Warren W. Heidbreder, $3,564; John C. McErlane, $860; Frederico U. Kopittke,
$2,275; and Michael A. Tirona, $2,322; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | $405
is the Companys contribution to its Bandag Security Program, a combination defined
benefit and defined contribution plan, for Messrs. Carver, Heidbreder, McErlane, Kopittke
and Tirona.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
remainder of the amount shown for Mr. Kopittke in 2006 is $11,040 representing payments
to Mr. Kopittke for rent for an apartment in Muscatine, Iowa, the location of the Companys
headquarters. The remainder of the amount shown for Mr. Tirona in 2006 is $190,886
representing payments due to Mr. Tironas status as an expatriate in Belgium. The
remainder of the amount shown for Mr. McErlane in 2006 is $6,469 representing cash paid
in lieu of vacation to Mr. McErlane.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | The
dollar value of total compensation for 2006, equal to the sum of columns (a)
          through (f).
|--- | -------------------------------------------------------------------------------------------------------

# Grants of Plan-Based
Awards

We maintain our 2004 Stock Grant and
Awards Plan under which grants may be made to our named executive officers. The following
table presents information regarding all such awards that were made to the named executive
officers in 2006. The table below also highlights the estimated future payouts under the
Short-Term Award Plan at the time the awards were granted under the plan. As of the date
of this Annual Report, these non-equity incentive plan awards have either been earned or
paid out, or they were not earned, as discussed in more detail in the Compensation
Discussion and Analysis.

13

---

# Grants of Plan-Based
Awards in 2006

|           |           
|---------- | ----------
|Name       | Grant Date
|Mr.        |           
|Carver     |           
|           | 2/21/2006 
|           | 2/21/2006 
|Mr.       
|Heidbreder |           
|           | 2/21/2006 
|           | 2/21/2006 
|Mr.       
|McErlane   |           
|           | 2/21/2006 
|           | 2/21/2006 
|           | 2/21/2006 
|           |           
|           | 4/18/2006 
|           | 4/18/2006 
|Mr.       
|Kopittke   |           
|           | 2/21/2006 
|           | 2/21/2006 
|Mr.       
|Tirona     |           
|           | 2/21/2006 
|           | 2/21/2006 

| | (a) | Represents
the performance units awarded to our named executive officers, which
                    vest contingent upon the specified level of achievement of
pre-established                     equally-weighted financial targets over a three-year
period. Under the                     Companys Long-Term Award Plan for each of our
named executive officers,                     vesting of the performance units is based
on achievement of results against (i)                     Compound Annual Growth Rate in
Consolidated Earnings Before Tax (EBT) over the                     three year period
ending December 31, 2008, and (ii) Three-year average Return                     on
Invested Capital.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Mr.
McErlane received 2,406 shares of restricted stock based on performance
                    achieved under the 2005 Short-Term Award Plan. The performance
measures used                     were a combination of consolidated earnings per share
and Tire Distribution                     Systems, Inc. earnings before interest and tax.
While Messrs. Carver,                     Heidbreder, Kopittke and Tirona were
participants in the Short-Term Award Plan                     during 2005, their
performance targets were not achieved and therefore no grant                     of
restricted stock was made.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | The
non-qualified stock options awarded to our named executive officers on
                    February 21, 2006 have a Black-Scholes value of $11.00 per share
based on an                     exercise price of $35.85, and expire on February 16,
2016. The non-qualified                     stock option awarded to Mr. McErlane on April
18, 2006 has a Black-Scholes value                     of $10.70 per share based on a
grant price of $34.88 and expires on April 18,                     2016. Both awards vest
over four years at a rate of 25% per year. The stock                     options have an
estimated volatility of 36.5% and a dividend yield of 3.58%.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For a discussion of the treatment of
plan-based awards in the proposed merger with BSAH, see Disclosure Regarding
Termination and Change in Control Provisions.

14

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# Outstanding Equity
Awards at Fiscal Year-End

The following table sets forth
information on outstanding stock options, restricted stock, and performance units held by
the named executive officers as of December 31, 2006, including the number of shares
underlying both exercisable and unexercisable portions of each stock option as well as the
exercise price and expiration date of each outstanding option.

# Outstanding Equity
Awards at December 31, 2006

|              
|--------------
|Name          
|Mr. Carver    
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|Mr. Heidbreder
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|Mr. McErlane  
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              
|              

15

---

|            
|------------
|Mr. Kopittke
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            
|Mr. Tirona  
|            
|            
|            
|            
|            
|            
|            
|            
|            
|            

| | (a) | Represents
the number of securities underlying non-qualified stock options that
                    are not vested and non-exercisable. For Mr. Carver, 28,680, 14,080,
8,505 and                     3,700 securities will vest in the years 2007, 2008, 2009,
and 2010,                     respectively; for Mr. Heidbreder, 11,508, 5,908, 3,683, and
1,763 securities                     will vest in the years 2007, 2008, 2009, and 2010,
respectively; for Mr.                     McErlane, 10,493, 4,893, 3,343, and 1,993
securities will vest in the years                     2007, 2008, 2009, and 2010,
respectively; for Mr. Kopittke, 6,680, 3,280, 1,980,                     and 865
securities will vest in the years 2007, 2008, 2009, and 2010,
                    respectively; and for Mr. Tirona, 6,113, 2,963, 1,788, and 778
securities will                     vest in the years 2007, 2008, 2009, and 2010,
respectively.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Represents
unvested restricted stock awards made to the named executive officers
                    under the Companys Long-Term Award Plan. Awards of 2,972 and
5,005                     restricted shares made to Mr. Carver vest on February 24, 2007
and February 18,                     2008, respectively; awards of 1,189 and 2,000
restricted shares made to Mr.                     Heidbreder vest on February 24, 2007
and February 18, 2008, respectively; awards                     of 832 and 1,405
restricted shares made to Mr. McErlane vest on February 24,                     2007 and
February 18, 2008, respectively; awards of 691 and 1,160 restricted
                    shares made to Mr. Kopittke vest on February 24, 2007 and February
18, 2008,                     respectively; and awards of 624 and 1,050 restricted shares
made to Mr. Tirona                     vest on February 24, 2007 and February 18, 2008,
respectively.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Represents
the aggregate market value of shares of restricted stock that have
                    not vested based on the closing price of a share of Class A Common
Stock on                     December 29, 2006, which was $49.96.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Represents
unvested restricted stock awarded based on achievement of goals
                    established under Companys Short-Term Award Plan, and unvested
performance                     units held by the named executive officers under the
Long-Term Award Plan.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Awards
of 9,992 and 5,475 restricted shares made to Mr. Carver vest on February
                    24, 2007 and February 18, 2008, respectively; awards of 3,837 and
2,190                     restricted shares made to Mr. Heidbreder vest on February 24,
2007 and February                     18, 2008, respectively; awards of 4,047, 1,965, and
2,406 restricted shares made                     to Mr. McErlane vest on February 24,
2007, February 18, 2008, and February 21,                     2009, respectively; awards
of 2,638 and 2,339 restricted shares made to Mr.                     Kopittke vest on
February 24, 2007 and February 18, 2008, respectively; and                     awards of
1,079 and 575 restricted shares made to Mr. Tirona vest on February
                    24, 2007 and February 18, 2008, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Awards
of performance units granted in 2006 vest on January 1, 2009 based on achievement of
performance targets established by the Compensation Committee for the three-year period
ending December 31, 2008 as discussed above. Based on achievement at the threshold level
of performance, 3,540 units would vest for Mr. Carver; 1,685 units would vest for Mr.
Heidbreder; 1,905 units would vest for Mr. McErlane; 830 units would vest for Mr.
Kopittke; and 745 units would vest for Mr. Tirona.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

---

| | (e) | Represents
the aggregate market value of performance units at the threshold
                    level of performance that have not vested, based on the closing price
of a share                     of Class A Common Stock on December 29, 2006, which was
$49.96.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Option Exercises and
Stock Vested

The following table sets forth
information regarding each exercise of stock options and vesting of restricted stock that
occurred during 2006 for each of our named executive officers on an aggregated basis:

# Option Exercises and
Stock Vested During 2006

|Name           | Number of Shares
Acquired on Exercise | Value Realized on Exercise | Number of Shares Acquired on
Vesting
(a) | Value Realized on
Vesting
(b)
|-------------- | ------------------------------------- | -------------------------- | ---------------------------------------- | -----------------------------
|Mr. Carver     | --                                    | --                         | 11,129                                   | $410,382                     
|Mr. Heidbreder | --                                    | --                         | 4,197                                    | 154,764                      
|Mr. McErlane   | --                                    | --                         | 1,112                                    | 41,005                       
|Mr. Kopittke   | --                                    | --                         | 1,687                                    | 62,208                       
|Mr. Tirona     | --                                    | --                         | --                                       | --                           

| | (a) | Represents
number of restricted shares of Class A Common Stock awarded on
                    February 25, 2003, which vested on February 25, 2006.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Represents
the aggregate dollar value realized upon vesting based on the fair
                    market value of $36.875 for a share of Class A Common Stock of on the
day of                     vesting (namely, the number of shares times the market price
of the underlying                     shares on the vesting date).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Pension Benefits

The following table sets forth the
actuarial present value of each named executive officers accumulated benefits under
our pension plan and supplemental executive retirement plan, assuming benefits are paid at
normal retirement age based on current levels of compensation. The table also shows the
number of years of credited service under each such plan.

17

---

# Pension Benefits as of
December 31, 2006

|Name           | Plan Name
(a)             | Number of Years Credited
Service
(b) | Present Value of
Accumulated Benefits
(c) | Payments During Last Fiscal
Year
|-------------- | ------------------------- | ------------------------------------ | ----------------------------------------- | --------------------------------
|Mr. Carver     | Bandag Pension Plan       | 27.48                                | $555,430                                  | $0                              
|               | Bandag, Incorporated      | 27.48                                | 738,115                                   | 0                               
|               | Supplemental Pension Plan
|Mr. Heidbreder | Bandag Pension Plan       | 24.33                                | $541,727                                  | $0                              
|               | Bandag, Incorporated      | 24.33                                | 445,800                                   | 0                               
|               | Supplemental Pension Plan
|Mr. McErlane   | Bandag Pension Plan       | 21.78                                | $321,699                                  | $0                              
|               | Bandag, Incorporated      | 21.78                                | 226,390                                   | 0                               
|               | Supplemental Pension Plan
|Mr. Kopittke   | Bandag Pension Plan       | 12.47                                | $212,843                                  | $0                              
|               | Unfunded liability        | 12.47                                | 486,036                                   | 0                               
|Mr. Tirona     | Bandag Pension Plan       | 21.37                                | $395,175                                  | $0                              
|               | Bandag, Incorporated      | 21.37                                | 87,897                                    | 0                               
|               | Supplemental Pension Plan

|(a) | The
name of each defined benefit plan administered by the Company is provided.
                    For Mr. Kopittke, the Bandag Pension Plan covers service and earnings
in the                     United States up to the IRS compensation limit of $220,000,
the same as for the                     other named executive officers. In addition, he
accrues pension benefits based                     on his service and salary earned in
Brazil as well as the grant date value of                     awards of restricted stock,
which are not covered under the Bandag Pension Plan                     (as it is a
qualified plan) or the Supplemental Pension Plan. Therefore it is
                    shown as an unfunded liability, the actuarial present value of which
is shown in                     the table.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Represents
the number of years of service credited to the named executive
                    officer under each plan, computed as of December 31, 2006, the same
pension plan                     measurement date used for financial statement reporting
purposes with respect to                     the Companys audited financial
statements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Represents
the actuarial present value of the named executive officers
                    accumulated benefit under each plan, computed as December 31, 2006,
the same                     pension plan measurement date used for financial statement
reporting purposes                     with respect to the Companys audited
financial statements. As such, the                     lump sum values were calculated
using an interest rate of 5.75% and the RP2000                     White Collar Mortality
Table projected to 2005 for Males.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Amounts
indicated under the Bandag Pension Plan include accrued benefits from Bandags
Security Program, a component of the Bandag Pension Plan that provides a benefit for
service prior to January 1, 1993.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Amounts
indicated for our Supplemental Pension Plan include accrued benefits for both the
Supplemental Pension Plan I and Supplemental Pension Plan II. Benefits under the
Supplemental Pension Plan I were frozen effective December 31, 2004, and benefits
provided under the Supplemental Pension Plan II were frozen effective December 31, 2006.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18

---

Bandag Pension Plan

Our pension plan is a defined benefit
plan which provides a monthly benefit payable to Messrs. Carver, Heidbreder, McErlane,
Kopittke, and Tirona based on the formula below. Employees become vested in plan benefits
after five years of service, and normal retirement age under the plan is 65, but employees
are eligible for early retirement with reduced benefits as early as age 55 with 10 years
of service.

|1/2% of average monthly earnings |      | 1% of average monthly earnings |      |                                       
|-------------------------------- | ---- | ------------------------------ | ---- | --------------------------------------
|times                            |      | times                          |      | 10% of average monthly earnings that  
|Credited service through         | plus | Credited service on and after  | plus | exceed covered compensation (pro-rated
|12-31-1969                       |      | 1-1-1970                       |      | for less than 16 years of service)    

For purposes of our pension plan,
earnings consists of income included on an individuals W-2 form, which would include
salary, bonuses as well as any before-tax contributions made to plans sponsored by the
Company.

Average monthly earnings are
determined by adding earnings during an employees five highest consecutive earnings
years of service with the Company and dividing the total by 60 (excluding compensation
deferred pursuant to our supplemental plan).

Our pension plan was frozen as of
December 31, 2006 for benefit accruals attributable to salary and service. Therefore,
credited service consists of the total period of employment through December 31, 2006.

For purposes of our pension plan,
Covered Compensation is the wages with respect to which Social Security
benefits would be provided if an employee earned the highest amount covered through age
65. This is determined in accordance with IRS tables as of December 31, 2006.

In addition, our Bandag Security
Program also provides a monthly defined benefit payable to Messrs. Carver, Heidbreder,
McErlane, and Tirona. The amount of the benefit is $4.33 for each month of service
completed with the Company prior to January 1, 1993, payable at age 62 as a monthly
annuity or lump sum. The annual amount of the benefit is fixed for each of the following
named executive officers as follows: Mr. Carver, $700; Mr. Heidbreder, $542; Mr. McErlane,
$404; and Mr. Tirona, $384.

Bandag Supplemental
Pension Plan

Our named executive officers also
participate in our supplemental executive retirement plan under which benefits are subject
to the same vesting schedule as that of our pension plan. Our Supplemental Pension Plan is
comprised of the Supplemental Pension Plan I and Supplemental Pension Plan II, and is
designed to mirror the benefits under our pension plan for executive compensation in
excess of $220,000 per year, up to a maximum salary of $500,000.

Benefits payable under the
Supplemental Pension Plan I are in the form of a monthly annuity, and was frozen for
future accruals effective December 31, 2004. Benefits payable under our Supplemental
Pension Plan II are in the form of a lump sum payment, payable in the seventh month after
separation from the Company. The Supplemental Pension Plan II was also frozen to future
benefit accruals effective December 31, 2006.

# Non-Qualified Deferred
Compensation

The following table sets forth annual
executive and company contributions under non-qualified defined contribution and other
deferred compensation plans, as well each named executive officers withdrawals,
earnings and year end balances in those plans:

19

---

# Non-Qualified Deferred
Compensation for 2006

|Name           | Executive
Contributions in
2006 | Registrant
Contributions in 2006
(a) | Aggregate Earnings in
2006
(b) | Aggregate
Withdrawals/
Distributions in
2006 | Aggregate Balance at
December 31, 2006
|-------------- | ------------------------------- | ------------------------------------ | ------------------------------ | -------------------------------------------- | --------------------------------------
|Mr. Carver     | $0                              | $17,640                              | $6,545                         | $0                                           | $173,256                              
|Mr. Heidbreder | 0                               | 11,130                               | 4,199                          | 0                                            | 110,956                               
|Mr. McErlane   | 0                               | 7,991                                | 2,438                          | 0                                            | 65,959                                
|Mr. Kopittke   | 0                               | 0                                    | 0                              | 0                                            | 0                                     
|Mr. Tirona     | 0                               | 2,893                                | 665                            | 0                                            | 18,714                                

|(a) | Represents
the aggregate dollar amount of Company contributions during 2006, the
                    amounts of which are included under the All Other Compensation                    column
in the Summary Compensation Table.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Represents
the aggregate dollar amount of interest or other earnings accrued
                    during the Companys last fiscal year, the amounts of which are
included                     under the All Other Compensation column in the
Summary Compensation                     Table.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Disclosure Regarding
Termination and Change in Control Provisions

As discussed previously, on December
5, 2006, we entered into a definitive merger agreement with BSAH and a subsidiary thereof
pursuant to which BSAH will acquire the outstanding shares of each class of our stock for
US $50.75 per share in cash. In connection with the proposed merger, the named executive
officers will receive the payments discussed below.

At the effective time of the merger,
all options to purchase stock outstanding under our equity incentive plans, whether or not
vested, will be cancelled (subject to the rights of the holders thereof) and will
represent solely the right to receive a cash payment equal to the option consideration.
The option consideration is equal to the product of (1) the excess, if any, of
(a) the merger consideration or, with respect to stock options granted under the
Bandag, Incorporated 2004 Stock Grant and Awards Plan (which we refer to as the 2004 Award
Plan), the Change of Control Price, as defined in the 2004 Award Plan, if
greater than the merger consideration over (b) the exercise price per share of stock
subject to the stock option, multiplied by (2) the number of shares of stock for
which such stock option has not theretofore have been exercised.

At the effective time of the merger,
all shares of restricted stock outstanding under our equity incentive plans, whether or
not vested, will be cancelled (subject to the rights of the holders thereof) and the
holders thereof will be entitled to receive a cash payment with respect to each share
subject to any such award equal to the merger consideration or, with respect to restricted
stock or restricted stock units granted under the 2004 Award Plan, the Change of
Control Price as defined therein if greater than the merger consideration.

At the effective time of the merger,
all unvested PUs outstanding immediately prior to the effective time will be cancelled
(subject to the rights of the holders thereof) and the holder thereof will be entitled to
receive performance award consideration. The performance award consideration is equal to
the product of (1) the merger consideration or the Change of Control
Price, as defined in the 2004 Award Plan, if greater than the merger consideration,
without interest, in respect of each cancelled PU, multiplied by (2) a fraction the
numerator of which is the number of whole months that have elapsed from the beginning of
the performance period to which the PU is subject to the date of the effective time and
the denominator of which is the number of whole months in such performance period.

20

---

The following table indicates the
number of options held by the named executive officers on December 31, 2006, the
weighted-average exercise prices of those options, those options vested as of December 31,
2006, those options that will vest prior to or as a result of the merger, and the amounts
the named executive officers are estimated to receive in settlement of their respective
options if the merger is completed:

|Officer               | Total
Options | Weighted-
Average
Exercise
Price ($) | Options
Currently
Vested | Options to Vest
Prior to or
as a Result
of the Merger | Total
Amount to be
Received ($)
|--------------------- | ------------- | ------------------------------------ | ------------------------ | ----------------------------------------------------- | -------------------------------
|Martin G. Carver      | 278,220       | $29.89                               | 223,255                  | 54,965                                                | $5,804,270                     
|Warren W. Heidbreder  | 107,430       | 30.09                                | 84,570                   | 22,860                                                | 2,219,293                      
|Frederico U. Kopittke | 61,620        | 29.30                                | 48,815                   | 12,805                                                | 1,321,625                      
|John C. McErlane      | 102,270       | 29.44                                | 81,550                   | 20,720                                                | 2,179,720                      
|Michael A. Tirona     | 49,550        | 30.09                                | 37,910                   | 11,640                                                | 1,023,608                      

As of December 31, 2006, the number
and value of the aggregate restricted stock holdings (based on the merger consideration of
$50.75 per share) for the named executive officers were as follows:

|Officer               | Number of Restricted
Shares | Amount to be
Received ($)
|--------------------- | --------------------------- | -------------------------
|Martin G. Carver      | 23,444                      | $1,189,783               
|Warren W. Heidbreder  | 9,216                       | 467,712                  
|Frederico U. Kopittke | 6,818                       | 346,014                  
|John C. McErlane      | 10,656                      | 540,792                  
|Michael A. Tirona     | 3,328                       | 168,896                  

21

---

The table below shows the number and
value of the aggregate PU holdings (based on the merger consideration of $50.75 per share)
for the named executive officers, assuming for purposes of the table only that the merger
was consummated on March 31, 2007:

|Officer               | Number of Performance
Units | Amount to be
Received ($)
|--------------------- | --------------------------- | -------------------------
|Martin G. Carver      | 7,080                       | $149,713                 
|Warren W. Heidbreder  | 3,370                       | 71,261                   
|Frederico U. Kopittke | 1,660                       | 35,102                   
|John C. McErlane      | 3,810                       | 80,566                   
|Michael A. Tirona     | 1,490                       | 31,507                   

Severance Agreements

Under severance agreements, entered
into in 1999, certain of our executive officers (Martin G. Carver, Warren W. Heidbreder
and John C. McErlane) are entitled to receive severance benefits equal to the greater of a
specified dollar amount ($1,000,000 for Mr. Carver; $650,000 for Mr. Heidbreder; and
$610,000 for Mr. McErlane) or an amount equal to 24 months base salary if their employment
is involuntary terminated or they voluntarily terminate their employment for good reason,
except for death, disability or retirement.  For purposes of these severance
agreements, good reason means (1) a 15% or greater reduction in the
executives base pay, (2) a materially adverse change, without the executives
prior written consent, in the nature or scope of the executives title or
responsibilities, or (3) the relocation of the executives principal place of
employment by more than fifty (50) miles.  The severance agreements restrict the
executive officers from competing with us for twenty-four months following the termination
of employment and also contain extensive restrictions on disclosure of our confidential
information.  In connection with entering into the consulting agreements discussed
below, the employment of Martin G. Carver and Warren W. Heidbreder will be terminated as
of the effective date of the merger with BSAH, thereby triggering our obligation to make
severance payments to them under these agreements.

Mr.           Frederico U. Kopittke
is a party to a severance agreement entered into in           connection with the merger
agreement with BSAH which provides for a severance           payment of two years
base salary for Mr. Kopittke in the event that,           within one year following a
change of control of the company, Mr. Kopittke is           terminated without cause or
Mr. Kopittke terminates his or her           employment for good reason (namely,
a reduction in salary and           benefits to amounts which are not substantially the
same as those in effect as           of the date of the agreement, or the relocation of
Mr. Kopittkes principal           place of employment to a location more than 50
miles from Mr. Kopittkes           principal place of employment as of the date of
the agreement).  The 2007           base salary for Mr. Kopittke is $361,000.

Consulting Agreements

Each of Martin G. Carver, Chairman of
the Board, President and Chief Executive Officer, and Warren W. Heidbreder, Vice
President, Chief Financial Officer and Secretary, whose employment with us will terminate
as of the effective date of the merger, entered into a consulting agreement with us, to be
effective as of the effective date of the merger, pursuant to which Messrs. Carver and
Heidbreder will provide certain consulting and other related services to us in accordance
with the terms and conditions contained therein, if requested by us.  If we request
that Mr. Carver provide consulting services during the nine months following the effective
date of the merger, we will make a payment to Mr. Carver in an amount equal to $3,000 for
each full day that Mr. Carver provides consulting services (we are not required to request
any such services of Mr. Carver).  In addition, for the first three months after the
effective date of the merger, we will reimburse Mr. Carver for payments for the
continuation of his coverage under our group health plan.  The consulting agreement
with Mr. Carver is terminable by us upon 30 days prior written notice.  In
consideration of Mr. Heidbreders performance of the consulting services on a
substantially full-time basis during the six months following the effective date of the
merger we will make a monthly payment to Mr. Heidbreder in an amount equal to $41,000 and
will reimburse Mr. Heidbreder for payments for the continuation of his coverage under our
group health plan.

22

---

Pension Benefits

Messrs.           Carver,
Heidbreder, McErlance, Kopittke and Tirona participate in Bandags           Pension
Plan and Supplemental Pension Plan. Upon their termination of employment           with
us, Messrs. Carver and Heidbreder will be eligible to receive pension           benefits,
as described under Pension Benefits. There were no           modifications to
the pension plans as a result of entering into the merger           agreement with BSAH.

# Director Compensation

The following table sets forth
information regarding the compensation received by each of our non-employee directors
during 2006 (Mr. Martin G. Carver receives no compensation for service as a director):

# Director Compensation
for 2006

|Name                    | Fees Earned or Paid in
Cash
(b) | Stock Awards
(c) | Option Awards
(c) | Total   
|----------------------- | ------------------------------- | ---------------- | ----------------- | --------
|Robert T. Blanchard (a) | $37,500                         | $23,386          | $14,960           | $75,846 
|Roy J. Carver, Jr.      | 51,250                          | 23,386           | 14,960            | $89,596 
|Gary E. Dewel           | 71,375                          | 23,386           | 14,960            | $109,721
|James R. Everline       | 92,750                          | 23,386           | 14,960            | $131,096
|Phillip J. Hanrahan     | 51,500                          | 23,386           | 14,960            | $89,846 
|Amy P. Hutton           | 84,250                          | 23,386           | 14,960            | $122,596
|Edward D. Jannotta (a)  | 30,000                          | 23,386           | 14,960            | $68,346 
|R. Stephen Newman       | 90,250                          | 23,386           | 14,960            | $128,596

|(a) | Messrs.
Blanchard and Jannotta retired from our Board of Directors on May 6,
                    2006.
|--- | ------------------------------------------------------------------------------------------------------

|(b) | Represents
the aggregate dollar amount of all fees earned or paid in cash for
                    services as a director, including annual retainer fees, committee
and/or                     chairmanship fees, and meeting fees. The following is the
number of meetings                     held during 2006 by our Board of Directors and
Committees: There were 13                     meetings of our Board of Directors; our
Audit Committee held 13 meetings; our                     Management Continuity and
Compensation Committee held 7 meetings, and our                     Nominating and
Corporate Governance Committee held 5 meetings.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | These
amounts reflect the dollar value of the compensation cost of all
                    outstanding stock awards recognized over the requisite service
period, computed                     in accordance with SFAS 123(R). The assumptions made
in valuing the stock awards                     are included in Note 1 of the Notes to
Consolidated Financial Statements in the                     2006 Annual Report on Form
10-K and such information is incorporated herein by                     reference. The
total number of outstanding restricted shares as of December 31,                     2006
for each of our non-employee directors is as follows: Mr. Carver, 1,411;
                    Mr. Dewel, 1,411; Mr. Everline, 1,411; Mr. Hanrahan, 1,411; Ms.
Hutton, 1,411;                     and Mr. Newman, 1,411. The total number of outstanding
stock options as of                     December 31, 2006 for each of our non-employee
directors is as follows: Mr.                     Carver, 12,935; Mr. Blanchard 6,010; Mr.
Dewel, 12,935; Mr. Everline, 12,935;                     Mr. Hanrahan, 12,935; Ms.
Hutton, 4,210; Mr. Jannotta, 12,935; and Mr. Newman,                     12,935.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23

---

Retainer and Meeting Fees

Our directors, other than our CEO,
are compensated according to the following schedule:

| | Annual
Retainer
| | ---------------

| | Committee
Chair and Vice Chairman of the Board  $34,500
| | --------------------------------------------------------

| | Other
Directors - $32,000
| | -------------------------

| | Board
Meeting Attendance
| | ------------------------

| | All
Directors - $1,500 per meeting
| | ----------------------------------

| | Committee
Meeting Attendance
| | ----------------------------

| | Committee
Chair - $1,750 per meeting
| | ------------------------------------

| | Other
Directors - $1,500 per meeting
| | ------------------------------------

Awards of Stock Options
and Restricted Stock

Stock Options. Each
non-employee director was awarded a stock option to purchase 1,370 shares of Class A
Common Stock on March 13, 2006. The exercise price of the stock option is $35.60 per
share, which is the fair market value of the Class A Common Stock on the day of grant. The
options are immediately exercisable and expire 10 years from the date of grant.

Restricted Stock. Each
non-employee director was awarded 657 shares of Class A Common Stock on March 13, 2006.
The shares are restricted and vest in three years based upon continued service as a
director, or earlier in the event of death, disability, or retirement from the Board of
Directors after age 60 with at least 10 years of continuous service as a director. Prior
to vesting, our directors are entitled to receive dividends on the shares.

# Compensation Committee
Report

The Compensation Committee has
reviewed and discussed the above Compensation Discussion and Analysis with management and,
based on such review and discussion, has recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this Annual Report.

Mr. R. Stephen Newman, ChairmanGary
E. DewelJames R. Everline

(This compensation committee report
is not deemed to be soliciting material or to be filed with the
Securities and Exchange Commission or subject to Regulation 14A or 14C under the
Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, and will not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Act of 1934, except to the
extent it is specifically incorporated by reference into such filing.)

# Compensation Committee
Interlocks and Insider Participation

No person who served as a member of
the Compensation Committee during 2006 was a current or former officer or employee of the
Company. None of the members engaged in certain transactions with the Company which were
required to be disclosed by regulations of the Securities and Exchange Commission.
Additionally, there were no compensation committee interlocks during 2006,
which generally means that no executive officer of the Company served as a director or
member of the compensation committee of another entity, one of whose executive officers
served as a director or member of Bandags Compensation Committee.

24

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|Item 12. | SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

# Security Ownership

Ownership by Directors and
Executive Officers. The following table sets forth information as to the Common Stock
and Class A Common Stock beneficially owned as of January 31, 2007 by each director, the
named executive officers, and by all directors and executive officers as a group as of
January 31, 2007:

|                                          
|------------------------------------------
|Directors, Nominees
and Executive Officers
|Martin G. Carver[3][4]                    
|Common Stock                              
|Class A Common Stock                      
|                                          
|Roy J. Carver, Jr.[6]                     
|Common Stock                              
|Class A Common Stock                      
|                                          
|Gary E. Dewel                             
|Common Stock                              
|Class A Common Stock                      
|                                          
|James R. Everline                         
|Common Stock                              
|Class A Common Stock                      
|                                          
|Phillip J. Hanrahan                       
|Common Stock                              
|Class A Common Stock                      
|                                          
|Amy P. Hutton                             
|Common Stock                              
|Class A Common Stock                      
|                                          
|R. Stephen Newman                         
|Common Stock                              
|Class A Common Stock                      
|                                          
|Frederico U. Kopittke                     
|Common Stock                              
|Class A Common Stock                      
|                                          
|Warren W. Heidbreder                      
|Common Stock                              
|Class A Common Stock                      
|                                          
|John C. McErlane                          
|Common Stock                              
|Class A Common Stock                      
|                                          
|Michael A. Tirona                         
|Common Stock                              
|Class A Common Stock                      
|                                          
|All Directors and Executive Officers      
|as a Group (14 Persons)                   
|Common Stock                              
|Class A Common Stock                      
|                                          

|* | Shares
owned constitute less than 1% of shares outstanding and less than 1% of votes entitled to
be cast.
|- | ---------------------------------------------------------------------------------------------------------

|** | Shares
of Class A Common Stock are non-voting, except as otherwise required by law.
|-- | -----------------------------------------------------------------------------------

25

---

|[1] | Beneficial
owners exercise both sole voting and sole investment power unless
                    otherwise stated.
|--- | ------------------------------------------------------------------------------------------------------------------

|[2] | Includes
the specified number of shares of Class A Common Stock which the
                    following individuals may acquire pursuant to the exercise of stock
options                     within 60 days after January 31, 2007: Martin G. Carver  251,935;
Roy                     J. Carver, Jr.  12,935; Gary E. Dewel  12,935;
James R.                     Everline - 12,935; Phillip J. Hanrahan - 12,935;
Amy P. Hutton                     4,210; R. Stephen Newman - 12,935; Warren W.
Heidbreder  96,077;                     Frederico U. Kopittke - 55,495;
John C. McErlane  91,142; and                     Michael A. Tirona -
44,022.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[3] | Does
not include 53,079 shares of Common Stock and 12,376 shares of Class A
                    Common Stock held by members of his family, beneficial ownership of
which is                     disclaimed.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[4] | Includes
6,991 shares of Common Stock and 8,944 shares of Class A Common Stock
                    indirectly owned by Carver Management LLC and 1,734,468 shares of
Common Stock                     and 2,218,780 shares of Class A Common Stock held by
Carver Partners LP,                     beneficial ownership of which is disclaimed.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[5] | Martin
G. Carver has sole voting and investment power over 530,060 directly held
                    shares of Common Stock and approximately 387 shares of Common Stock
held in his                     401(k) account, or 5.3% of the outstanding shares of
Common Stock, and shares                     voting and investment power with Roy J.
Carver, Jr. over 2,615,685 shares of                     Common Stock, or 26.2% of the
outstanding shares of Common Stock. He has sole                     investment power over
520,188 directly held shares of Class A Common Stock and
                    approximately 438 shares of Class A Common Stock held in his 401(k)
account, or                     5.2% of the outstanding shares of Class A Common Stock,
and shares investment                     power with Roy J. Carver, Jr. over 3,346,060
shares of Class A Common Stock, or                     35.3% of the outstanding shares of
Class A Common Stock.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[6] | Includes
6,991 shares of Common Stock and 8,944 shares of Class A Common Stock
                    indirectly owned by Carver Management LLC and 1,734,468 shares of
Common Stock                     and 2,218,780 shares of Class A Common Stock held by
Carver Partners LP,                     beneficial ownership of which is disclaimed.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[7] | Roy
J. Carver, Jr. has sole voting and investment power over 400,732 shares of
                    Common Stock, or 4.0% of the outstanding shares of Common Stock, and
shares                     voting and investment power with Martin G. Carver over
2,615,685 shares of                     Common Stock, or 26.2% of the outstanding shares
of Common Stock. He has sole                     investment power over 163,411 shares of
Class A Common Stock, or 1.7% of the                     outstanding shares of Class A
Common Stock, and shares investment power with                     Martin G. Carver over
3,346,060 shares of Class A Common Stock, or 35.3% of the                     outstanding
shares of such class.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[8] | Mr.
Heidbreder shares voting and investment power over 136 shares with his wife.
|--- | --------------------------------------------------------------------------------

|[9] | Mr.
Heidbreder shares investment power over 5,390 shares with his wife.
|--- | -----------------------------------------------------------------------

|[10] | Mr.
McErlane shares voting and investment power over 403 shares with his wife.
|---- | ------------------------------------------------------------------------------

|[11] | Mr.
McErlane shares investment power over 544 shares with his wife.
|---- | -------------------------------------------------------------------

|[12] | In
order to avoid overstatement, the number of shares of Common Stock and Class
                    A Common Stock which is the subject of shared voting or investment
power is only                     counted once.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26

---

Shareholders Owning More Than Five
Percent of the Common Stock. The following table provides information concerning
persons known by us to beneficially own more than five percent of our Common Stock as of
January 31, 2007, based on Schedule 13D or Schedule 13G filings by such persons, other
than the ownership of Martin G. Carver and Roy J. Carver, Jr., which is
contained in the previous table:

|                                  
|----------------------------------
|Name and Address                  
|Third Avenue Management LLC[1]    
|622 Third Avenue                  
|32nd Floor                        
|New York, NY 10017                
|                                  
|Dimensional Fund Advisors Inc.[2] 
|1299 Ocean Avenue                 
|Santa Monica, CA 90401            
|                                  
|Barclays Global Investors, N.A.[3]
|45 Fremont Street                 
|5th Floor                         
|San Francisco, CA 94105           
|                                  
|Advisory Research, Inc.[4]        
|180 North Stetson St.             
|Suite 5500                        
|Chicago, IL 60601                 
|                                  

|[1] | Information
shown is based on an amended Schedule 13G filed with the
                    Securities and Exchange Commission. The amended Schedule 13G
indicates that                     such party has sole voting power over 2,023,948 of
such shares and sole                     dispositive power over 2,047,698 of such shares
and shares voting and                     dispositive power over none of such shares.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[2] | Information
shown is based on an amended Schedule 13G filed with the
                    Securities and Exchange Commission. The amended Schedule 13G
indicates that                     such party has sole voting and dispositive power over
all of the shares.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[3] | Information
shown is based on a jointly filed Schedule 13G filed with the
                    Securities and Exchange Commission by Barclays Global Investors,
N.A.; Barclays                     Global Fund Advisors; Barclays Global Investors,
Ltd.; Barclays Global                     Investors Japan Trust and Banking Company
Limited; and Barclays Global Investors                     Japan Limited. The Schedule 13G
indicates that such parties have sole                     voting power over 537,575 of
such shares and sole dispositive power over 598,683                     of such shares
and share voting and dispositive power over none of such shares.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[4] | Information
shown is based on an amended Schedule 13G filed with the
                    Securities and Exchange Commission. The amended Schedule 13G
indicates that                     such party has sole voting and dispositive power over
all of the shares.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27

---

Shareholders Owning More Than Five
Percent of the Class A Common Stock. The following table provides information
concerning persons known by us to beneficially own more than five percent of our Class A
Common Stock as of January 31, 2007, based on Schedule 13D or Schedule 13G filings by such
persons, other than the ownership of Martin G. Carver and Roy J. Carver, Jr.,
which is contained in the previous table:

|                                   
|-----------------------------------
|Name and Address                   
|Private Capital Management, L.P.[1]
|8889 Pelican Bay Blvd.             
|Naples, FL 34108                   
|                                   
|Royce & Associates, LLC[2]         
|1414 Avenue of the Americas        
|New York, NY 10019                 
|                                   

|[1] | Information
shown is based on a joint amended Schedule 13G filed with the
                    Securities and Exchange Commission by Private Capital Management,
L.P., Bruce S.                     Shearman, the Chief Executive Officer of Private
Capital Management, and Gregg                     J. Powers, the President of Private
Capital Management. The amended                     Schedule 13G indicates that such
party has shared voting power and                     dispositive power over the
1,467,490 shares of Class A Common Stock.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[2] | Information
shown is based on an amended Schedule 13G filed with the
                    Securities and Exchange Commission. The amended Schedule 13G
indicates that                     such party has sole voting and dispositive power over
the 723,100 shares of                     Class A Common Stock.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Change in Control

As discussed previously, on December
5, 2006, we entered into a definitive merger agreement with BSAH and Grip Acquisition,
pursuant to which Grip Acquisition will acquire the outstanding shares of each class of
our stock for US $50.75 per share in cash. In connection with the merger agreement, each
of Martin G. Carver, Roy J. Carver, Jr. and Carver Partners LP (referred to as the
principal shareholders) entered into a voting agreement, dated as of December
5, 2006, with Grip Acquisition pursuant to which the principal shareholders have each
agreed to vote the 3,546,477 shares of Common Stock, representing 35.5% of the Common
Stock, and the 4,029,659 shares of Class A Common Stock, representing 42.5% of the Class A
Common Stock, that the principal shareholders beneficially own, as well as any shares of
which they acquire beneficial ownership, in favor of the merger agreement and the
transactions contemplated thereby and against, among other things, any proposal made in
opposition to, or in competition or inconsistent with, the merger agreement or the merger.

Each of the principal shareholders,
in their capacity as shareholders, also agreed that they will not, and will not permit or
authorize any of their representatives to, directly or indirectly:

| |  | initiate,
solicit or knowingly encourage (including by way of providing information) or facilitate
any inquiries, proposals or offers with respect to, or the making, or the completion of,
a takeover proposal;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | participate
or engage in any discussions or negotiations with, or furnish or disclose any non-public
information relating to us or any of our subsidiaries to, or otherwise cooperate with or
assist any person in connection with a takeover proposal;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | approve,
endorse or recommend any takeover proposal;
| | - | ----------------------------------------------------

| |  | enter
into any letter of intent, agreement in principle, merger agreement, acquisition
agreement, option agreement or other similar agreement relating to a takeover proposal;
or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | resolve,
propose or agree to do any of the foregoing, including any agreement with respect to
their potential investment in connection with any transaction or resulting entity.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28

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Each of the principal shareholders
also waived any rights of appraisal or rights to dissent from the merger that they may
have.

# Equity Compensation Plan
Information

The following table provides
information as of December 31, 2006 about shares of Class A Common Stock that are
authorized for issuance (no Common Stock is so authorized) under all of the Companys
existing equity compensation plans, consisting solely of the Companys Stock Award
Plan and 2004 Award Plan.

# Equity Compensation
Plan Information as of December 31, 2006

|Plan Category                 | Number of Securities to be
Issued upon Exercise of
Outstanding Options, Warrants
and Rights(a) | Weighted- Average
Exercise Price of
Outstanding Options,
Warrants and Rights(b) | Number of Securities Remaining
Available for Future Issuance
under Equity Compensation Plans
[excluding Securities reflected
in
Column (a)] (c)
|----------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans     |                                                                                                |                                                                                 |                                                                                                                                                
|approved by shareowners       | 1,105,729[1]                                                                                   | $30.57                                                                          | 1,739,138[2]                                                                                                                                   
|Equity compensation plans not
|approved by shareowners       | --                                                                                             | --                                                                              | --                                                                                                                                             
|                              |                                                                                                |                                                                                 |                                                                                                                                                
|Total                         | 1,105,729[1]                                                                                   | $30.57                                                                          | 1,739,138[2]                                                                                                                                   

|[1] | Represents
959,669 outstanding options under the Stock Award Plan, 141,220
                    outstanding options under the 2004 Award Plan, and 4,840 stock
appreciation                     rights under the 2004 Award Plan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[2] | Consists
of 1,739,138 shares of Class A Common Stock available for future
                    issuance under the 2004 Award Plan, of which no more than 701,757
shares may be                     in the form of restricted stock awards.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 13. | CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

# Certain Relationships
and Related Transactions

Roy J. Carver, Jr., brother of Martin
G. Carver, owns 100% of Carver Aero, Inc., which operates fixed base operations at
airports in Muscatine, Iowa; and Davenport, Iowa. During 2006, it sold $122,707 of
aviation fuel and charter services to the Company at competitive prices based on volume
purchased and services utilized. Phillip J. Hanrahan, a director, retired January 31, 2007
as a partner of the law firm of Foley & Lardner LLP, Milwaukee, Wisconsin, which has
provided legal services to the corporation for several years, including 2006, and expects
to provide legal services in 2007. Mr. Jannotta, a former director who retired from our Board
in May 2006, is Chairman of William Blair & Company, L.L.C. and Chairman of that firms
Executive Committee. William Blair & Company, L.L.C. has provided investment
banking services to the Company for several years, including 2006, and may provide services in 2007 if requested by
the Company.

Our Board of Directors has adopted
policies and procedures regarding related person transactions. For purposes of these
policies and procedures: (a) a related person means any of our directors,
executive officers or nominees for director or any of their immediate family members; and
(b) a related person transaction generally is a transaction (including any
indebtedness or a guarantee of indebtedness) in which we were or are to be a participant
and the amount involved exceeds $100,000, and in which a related person had or will have a
direct or indirect material interest.

29

---

Each of our executive officers,
directors or nominees for director is required to disclose to the Audit Committee certain
information relating to related person transactions for review, approval or ratification
by the Audit Committee. Disclosure to the Audit Committee should occur before, if
possible, or as soon as practicable after the related person transaction is effected, but
in any event as soon as practicable after the executive officer, director or nominee for
director becomes aware of the related person transaction. The Audit Committees
decision whether or not to approve or ratify a related person transaction is to be made in
light of the Audit Committees determination that consummation of the transaction is
not or was not contrary to our best interests. Any related person transaction must be
disclosed to the full Board of Directors. Certain types of related person transactions
have been pre-approved, including a transaction with a related person that is made in the
ordinary course of business on terms no less favorable to the Company than those generally
available from an unaffiliated third-party under the same or similar circumstances.

# Director Independence

The Companys Board of Directors
has affirmatively determined that all of the Companys directors (other than Martin
G. Carver, Roy J. Carver, Jr. and Phillip J. Hanrahan and our former director Mr.
Jannotta), including our former director Mr. Blanchard, as well as each of the members of
the Boards Audit, Management Continuity and Compensation, and Nominating and
Corporate Governance Committees, are independent as defined in the New York
Stock Exchanges corporate governance listing standards, as they meet the categorical
standards of independence adopted by the Board and have no other material relationships
with the Company. In addition, the Board determined that Ms. Hutton (Chairman) and Messrs.
Everline and Newman meet the additional independence standards for Audit Committee
members. The categorical standards of independence are as follows:

A director who at all times during
the previous three years has met all of the following categorical standards (the
Categorical Standards) and has no other material relationships with the
Company shall be deemed to be independent:

| | 1. | The
Company has not employed the director, and has not employed (except in a
                    non-executive officer capacity) any of his or her immediate family
members.                     Employment as an interim Chairman or Chief Executive Officer
or other executive                     officer shall not disqualify a director from being
considered independent                     following that employment.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Neither
the director, nor any of his or her immediate family members, has
                    received more than $100,000 during any twelve-month period in direct
                    compensation from the Company, other than director and committee fees
and                     pension or other forms of deferred compensation for prior service
(provided such                     compensation is not contingent in any way on continued
service). Compensation                     received by a director for former service as
an interim Chairman or Chief                     Executive Officer or other executive
officer need not be considered in                     determining independence under this
test. Compensation received by an immediate                     family member for service
as a non-executive employee of the Company need not be                     considered in
determining independence under this test.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Neither
the director, nor one of his or her immediate family members, is a
                    current partner of a firm that is the Companys internal or
external                     auditor; the director is not a current employee of such a
firm; the director                     does not have an immediate family member that is a
current employee of such a                     firm participating in the firms
audit, assurance or tax compliance (but                     excluding tax planning)
practice; nor was the director or one of his or her                     immediate family
members, within the last three years, a partner or employee of                     such a
firm that personally worked on the Companys audit within that time.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | Neither
the director, nor any of his or her immediate family members, has been
                    part of an interlocking directorate in which any of the
                    Companys present executives serve on the compensation (or
equivalent)                     committee of another company that employs the director or
any of his or her                     immediate family members in an executive officer
capacity.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | Neither
the director, nor any of his or her immediate family members (except in
                    a non-executive officer capacity), has been employed by a company
that makes                     payments to, or receives payments from, the Company for
property or services in                     an amount which, in any single fiscal year,
exceeds the greater of                     $1 million, or 2% of such other companys
consolidated gross revenues.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30

---

| | 6. | Neither
the director, nor any of his or her immediate family members, has had a
                    personal services contract with the Company, its Chairman and Chief
Executive                     Officer or other executive officer, or any affiliate of the
Company.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7. | Neither
the director, nor any of his or her immediate family members, has been
                    an employee, officer or director of a foundation, university or other
non-profit                     organization to which the Company gives directly, or
indirectly through the                     provision of services, more than $100,000 per
annum or 10% of the total annual                     donations received (whichever is
less).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 8. | Neither
the director, nor any of his or her immediate family members, has been
                    employed by (or affiliated with) a significant lender of the Company.
For the                     purposes of this categorical standard, a lender shall be
considered significant                     if the credit extended is more than 10% of the
consolidated assets of the                     Company.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 9. | The
director is an executive officer of an entity which is indebted to the
                    Company, or to which the Company is indebted, and the total amount of
                    eithers indebtedness to the other is less than 10% of its own
total                     consolidated assets, measured as of the last fiscal year-end.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10. | Neither
the director, nor any of his or her immediate family members, is or is
                    affiliated with a firm that is an attorney, investment bank,
consultant or                     similar advisor to the Company.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Presiding Director and
Meetings of Independent Directors

The Company requires its
non-management directors to meet in executive session at the end of each regularly
scheduled meeting of the Board of Directors, not including routine telephonic meetings,
and at such other times as any of the non-management directors determine necessary or
appropriate. The chairmen of the Audit Committee, the Management Continuity and
Compensation Committee and the Nominating and Corporate Governance Committee alternate as
the presiding director of the executive sessions of the non-management directors. In
addition, the directors who have been determined to be independent by the Board of
Directors are required to meet at least once a year in executive session.

# Availability of Certain
Corporate Governance Documents

The Board of Directors has adopted
corporate governance guidelines, a global ethics policy and a written charter for each of
the Audit Committee, Management Continuity and Compensation Committee and Nominating and
Corporate Governance Committee. The corporate governance guidelines, global ethics policy
and the charters are available on the Companys website at www.bandag.com under
Investor Relations  Corporate Governance. All of these documents are
also available in print upon written request directed to Warren W. Heidbreder, Secretary,
Bandag, Incorporated, 2905 North Highway 61, Muscatine, IA 52761-5886.

# Communications with
Board of Directors

Shareholders may communicate with the
Board of Directors by writing to the Board of Directors (or, at the shareholders
option, to a specific director or group of directors), in care of the Assistant to the
Board of Directors at the Companys Headquarters in Muscatine, Iowa. The Assistant to
the Board of Directors will ensure that this communication (assuming it is properly marked
to Board of Directors or a specific director or a group of directors) is delivered to the
Board of Directors or the specified director or group of directors, as the case may be.

|Item 14. | PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

Selection of Independent Auditors.The Audit Committee has selected Ernst & Young LLP as the Companys
independent auditors for the fiscal year ending December 31, 2007. Ernst & Young LLP
served as the Companys independent auditors for the fiscal year ended December 31,
2006.

Audit Fees.The aggregate fees
billed by Ernst & Young LLP for professional services rendered for the audit of the
Companys annual financial statements, the review of the financial statements
included in the Companys Form 10-Qs and services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements for the
fiscal years ended December 31, 2006 and 2005 were $2,042,700 and $1,947,000,
respectively.

31

---

Audit Related Fees.The
aggregate fees billed by Ernst & Young LLP for assurance and related services
principally related to the performance of the audit of the Companys financial
statements, other than the audit fees described above, for the fiscal years ended December
31, 2006 and 2005 were $96,000 and $85,700, respectively. The services primarily consisted
of services in connection with pension audits and various miscellaneous matters.

Tax Fees.For the fiscal years
ended December 31, 2006 and 2005, Ernst & Young LLP did not perform any professional
services for the Company relating to tax compliance, tax advice or tax planning.

All Other Fees.Other than the
foregoing described fees and services, Ernst & Young LLP received no fees nor provided
any services in either 2006 or 2005.

Audit Committee Pre-approval
Polices and Procedures.The policy of the Audit Committee requires pre-approval of all
audit, audit-related, tax and other services to be provided by Ernst & Young LLP,
subject to de minimis exceptions for the providing of non-audit services, which services
must be approved by the Audit Committee prior to completion of the audit and must
otherwise comply with Section 10A(i)(B) of the Securities Exchange Act of 1934.

All of the audit-related services
described above were pre-approved by the Audit Committee to the extent required by
applicable law.

# PART IV

# Item 15. EXHIBITS AND
FINANCIAL STATEMENTS SCHEDULES

|(1) | Financial
Statements
|--- | --------------------

| | The
following consolidated financial statements are included in Part II, Item 8 (page
references are to the original Annual Report on Form 10-K):
| | -------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                           
|-------------------------------------------------------------------------------------------
|Report of Management                                                                       
|Report of Independent Registered Public Accounting Firm - Internal Control Over            
|Financial Reporting                                                                        
|Report of Independent Registered Public Accounting Firm - Consolidated Financial Statements
|Consolidated Balance Sheets as of December 31, 2006 and 2005                               
|Consolidated Statements of Earnings for the Years Ended December 31, 2006, 2005 and 2004   
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004 
|Consolidated Statements of Changes in Shareholders Equity for the Years Ended             
|December 31, 2006, 2005 and 2004                                                           
|Notes to Consolidated Financial Statements                                                 

32

---

|(2) | Financial
Statement Schedule
|--- | ----------------------------

| | Schedule
II  Valuation and qualifying accounts and reserves.
| | -------------------------------------------------------------

| | All
other schedules for which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Exhibits
|--- | --------

|Exhibit No. | Description
|----------- | -----------

| | 2.1 | Agreement
and Plan of Merger, dated as of December 5, 2006, by and among Bandag, Incorporated, Grip
Acquisition                       Corporation and Bridgestone Americas Holding, Inc.
 (Incorporated by reference to the Companys Form 8-K dated                       as of
December 5, 2006.)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.1 | Bylaws:
As amended November 8, 2005.  (Incorporated by reference to Exhibit No. 3.1 to the
Companys Form 10-K                       for the year ended December 31, 2005.)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2 | Restated
Articles of Incorporation, effective December 30, 1986.  (Incorporated by reference to
Exhibit No. 3.2                       to the Companys Form 10-K for the year ended
December 31, 1992.)
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.3 | Articles
of Amendment to Bandag, Incorporateds Articles of Incorporation, effective May 6, 1992.
                      (Incorporated by reference to Exhibit No. 3.3 to the Companys Form
10-K for the year ended December 31, 1992.)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.4 | Articles
of Amendment to Bandag, Incorporateds Restated Articles of Incorporation, effective May
15, 2002.                       (Incorporated by reference to Exhibit 3(i) to the
Companys Form 10-Q for the quarter ended June 30, 2002.)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.1 | Instruments
defining the rights of security holders.  (Incorporated by reference to Exhibit Nos. 3.2
and 3.3 to                       the Companys Form 10-K for the year ended December 31,
1992.)
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2 | Note
Purchase Agreement dated December 15, 1997 for $40,000,000 of 6.50% Senior Notes due
December 15, 2007.                       (Incorporated by reference to Exhibit 4.3 to the
Companys Form 10-K for the year ended December 31, 1997.)
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.3 | Rights
Agreement dated as of August 21, 2006, between Bandag, Incorporated and Computershare
Trust Company,                       N.A.  (Incorporated by reference to the Companys
Form 8-A dated as of August 22, 2006.)
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.4 | Amendment
to Rights Agreement, dated as of December 5, 2006, between Bandag, Incorporated and
Computershare                       Trust Company, N.A.  (Incorporated by reference to
the Companys Form 8-A/A dated as of December 6, 2006.)
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1* | Bandag,
Incorporated Restricted Stock Grant Plan, as amended August 24, 1999.  (Incorporated by
reference to                       Exhibit No. 10.1 to the Companys Form 10-K for the
year ended December 31, 1999.)
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 | U.S.
Bandag System Franchise Agreement Truck and Bus Tires.  (Incorporated by reference to
Exhibit No. 10.2 to                       the Companys Form 10-K for the year ended
December 31, 1993.)
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2(a) | U.S.
Bandag System Franchise Agreement Truck and Bus Tires, as revised April 1996.
 (Incorporated by reference                       to Exhibit No. 10.2(a) to the Companys
Form 10-K for the year ended December 31, 1996.)
| | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2(b) | Bandag
System Franchise Agreement, as revised November 1998.  (Incorporated by reference to
Exhibit 10.2(a) to                       the Companys form 10-K for the year ended
December 31, 1998.)
| | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2(c) | Form
of Bandag Dealer Franchise Agreement.  (Incorporated by reference to Exhibit 10.2(c) to
the Companys Form                       10-K for the year ended December 31, 2001.)
| | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2(d) | Form
letter to the Companys U.S. franchisees.  (Incorporated by reference to Exhibit 99.1 to
the Companys                       Form 8-K dated June 14, 2002.)
| | ------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2(e) | Current
Form of Bandag Dealer Franchise Agreement.  (Incorporated by reference to Exhibit 10.2(e)
to the                       Companys Form 10-K for the year ended December 31, 2004.)
| | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3* | Miscellaneous
Fringe Benefits for Executives.  (Incorporated by reference to Exhibit No. 10.3 to the
Companys                       Form 10-K for the year ended December 31, 2001.)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

33

---

| | 10.4* | Form
of Participation Agreement under the Bandag, Incorporated Restricted Stock Grant Plan.
 (Incorporated by                       reference as Exhibit 10.7 to the Companys Form
10-K for the year ended December 31, 1994.)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5* | Severance
Agreement, dated as of May 4, 1999, by and between Bandag, Incorporated and Martin G.
Carver.                       (Incorporated by reference to Exhibit 10.1 to the Companys
Form 10-Q/A for the quarter ended June 30, 1999.)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6* | Severance
Agreement, dated as of May 4, 1999, by and between Bandag, Incorporated and Nathaniel L.
Derby, II.                       (Incorporated by reference to Exhibit 10.2 to the
Companys Form 10-Q/A for the quarter ended June 30, 1999.)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7* | Severance
Agreement, dated as of May 4, 1999, by and between Bandag, Incorporated and Warren W.
Heidbreder.                       (Incorporated by reference to Exhibit 10.4 to the
Companys Form 10-Q/A for the quarter ended June 30, 1999.)
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8* | Severance
Agreement, dated as of May 4, 1999, by and between Bandag, Incorporated and John C.
McErlane.                       (Incorporated by reference to Exhibit 10.5 to the
Companys Form 10-Q/A for the quarter ended June 30, 1999.)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9* | Bandag,
Incorporated Stock Award Plan, as amended March 12, 2002.  (Incorporated by reference to
Exhibit 10.9 to                       the Companys Form 10-K for the year ended December
31, 2001.)
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.10* | Form
of Nonqualified Stock Option Agreement under the Bandag, Incorporated Stock Award Plan.
 (Incorporated by                       reference to Exhibit 10.15 to the Companys Form
10-K for the fiscal year ended December 31, 2000.)
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.11* | Form
of Restricted Stock Award Agreement under the Bandag, Incorporated Stock Award Plan.
 (Incorporated by                       reference to Exhibit 10.11 to the Companys Form
10-K for the year ended December 31, 2001.)
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.12* | Description
of Short-term Compensation Plan.  (Incorporated by reference to Exhibit No. 10.12 to the
Companys                       Form 10-K for the year ended December 31, 2005.)
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.13* | Bandag,
Incorporated 2004 Stock Grant and Awards Plan.  (Incorporated by reference to Appendix A
to the                       Companys definitive proxy statement for its 2004 annual
meeting of shareholders filed on March 31, 2004.)
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14* | Form
of Stock Appreciation Rights Agreement under the Bandag, Incorporated 2004 Stock Grant
and Awards Plan.                       (Incorporated by reference to Exhibit 4.2 to the
Companys Registration Statement on Form S-8, Registration No.
                      333-115369, filed on May 11, 2004.)
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15* | Form
of Restricted Stock Unit Agreement under the Bandag, Incorporated 2004 Stock Grant and
Awards Plan.                       (Incorporated by reference to Exhibit 4.3 to the
Companys Registration Statement on Form S-8, Registration No.
                      333-115369, filed on May 11, 2004.)
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16* | Form
of Restricted Stock Award Agreement under the Bandag, Incorporated 2004 Stock Grant and
Awards Plan.                       (Incorporated by reference to Exhibit 99.1 to the
Companys Current Report on Form 8-K filed on February 25,                       2005.)
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.17* | Form
of Nonqualified Stock Option Award Agreement under the Bandag, Incorporated 2004 Stock
Grant and Awards                       Plan.  (Incorporated by reference to Exhibit 99.3
to the Companys Current Report on Form 8-K filed on March                       17,
2005.)
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.18* | Form
of Restricted Stock Award Agreement for Non-Employee Directors.  (Incorporated by
reference to Exhibit                       99.1 to the Companys Current Report on Form
8-K filed on March 17, 2005.)
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.19* | Form
of Nonqualified Stock Option Award Agreement for Non-Employee Directors.  (Incorporated
by reference to                       Exhibit 99.2 to the Companys Current Report on
Form 8-K filed on March 17, 2005.)
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.20 | Voting
Agreement, dated as of December 5, 2006, by and between Martin G. Carver and Grip
Acquisition                       Corporation.  (Incorporated by reference to the
Companys Form 8-K dated as of December 5, 2006.)
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.21 | Voting
Agreement, dated as of December 5, 2006, by and between Roy J. Carver and Grip
Acquisition Corporation.                       (Incorporated by reference to the
Companys Form 8-K dated as of December 5, 2006.)
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.22 | Voting
Agreement, dated as of December 5, 2006, by and between Carver Partners LP and Grip
Acquisition                       Corporation.  (Incorporated by reference to the
Companys Form 8-K dated as of December 5, 2006.)
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

34

---

| | 10.23* | Consulting
Agreement, dated as of the effective date of the merger, by and between Martin G. Carver
and Bandag,                       Incorporated.  (Incorporated by reference to the
Companys Form 8-K dated as of December 5, 2006.)
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.24* | Consulting
Agreement, dated as of the effective date of the merger, by and between Warren W.
Heidbreder and                       Bandag, Incorporated.  (Incorporated by reference to
the Companys Form 8-K dated as of December 5, 2006.)
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.25* | Severance
Agreement, dated as of December 14, 2006, by and between Frederico U. Kopittke and
Bandag,                       Incorporated.  (Incorporated by reference to the Companys
Form 8-K dated as of December 14, 2006.)
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.26* | Form
of Severance Agreement.  (Incorporated by reference to the Companys Form 8-K dated as of
December 14,                       2006.)
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------

| | 21 | Subsidiaries
of Registrant. +
| | -- | -----------------------------

| | 23 | Consent
of Independent Auditors. +
| | -- | ----------------------------------

| | 31.1 | Certification
of the Chief Executive Officer.
| | ---- | ---------------------------------------------

| | 31.2 | Certification
of the Chief Financial Officer.
| | ---- | ---------------------------------------------

| | 32.1 | Written
Statement of the Chairman of the Board, Chief Executive Officer and President of Bandag,
Incorporated                       Pursuant to 18 U.S.C.ss.1350.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 | Written
Statement of the Vice President, Chief Financial Officer and Secretary of Bandag,
Incorporated Pursuant                       to 18 U.S.C.ss.1350.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

*Represents a management
compensatory plan or arrangement.   + Previously filed.

SCHEDULE II 
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

BANDAG, INCORPORATED
AND SUBSIDIARIES

|COL. A                          | COL. B                         | ADDITIONS
COL. C              | DEDUCTIONS
COL. D                      | COL. E                       
|------------------------------- | ------------------------------ | ----------------------------- | -------------------------------------- | -----------------------------
|DESCRIPTION                     | Balance at
Beginning of
Period | Charged to Costs and
Expenses | (1)
Uncollectible
Accounts
Written-Off | Foreign
Exchange
Fluctuations
|Year ended December 31, 2006:   | $13,782,000                    | $1,075,000                    | $2,579,000                             | $701,000                     
|Allowance for doubtful accounts
|Year ended December 31, 2005:  
|Allowance for doubtful accounts | $14,734,000                    | $1,816,000                    | $2,007,000                             | $(761,000)                   
|Year ended December 31, 2004:  
|Allowance for doubtful accounts | $16,350,000                    | $788,000                      | $3,324,000                             | $(920,000)                   

|(1) | Uncollectible
accounts written off, net of recoveries.
|--- | ------------------------------------------------------

35

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SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to the Annual Report on Form 10K/A to be
signed on its behalf by the undersigned, thereunto duly authorized.

| | BANDAG, INCORPORATED                 
| | -------------------------------------
| | By  /s/ Martin G. Carver             
| | Martin G. Carver                     
| | Chairman of the Board,               
| | Chief Executive Officer and President
| | (Principal Executive Officer)        

Date: April 27, 2007

36

---

EXHIBIT INDEX

|Exhibit No. | Description
|----------- | -----------

| | 2.1 | Agreement
and Plan of Merger, dated as of December 5, 2006, by and among Bandag, Incorporated, Grip
Acquisition                       Corporation and Bridgestone Americas Holding, Inc.
 (Incorporated by reference to the Companys Form 8-K dated                       as of
December 5, 2006.)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.1 | Bylaws:
As amended November 8, 2005.  (Incorporated by reference to Exhibit No. 3.1 to the
Companys Form 10-K                       for the year ended December 31, 2005.)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2 | Restated
Articles of Incorporation, effective December 30, 1986.  (Incorporated by reference to
Exhibit No. 3.2                       to the Companys Form 10-K for the year ended
December 31, 1992.)
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.3 | Articles
of Amendment to Bandag, Incorporateds Articles of Incorporation, effective May 6, 1992.
                      (Incorporated by reference to Exhibit No. 3.3 to the Companys Form
10-K for the year ended December 31, 1992.)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.4 | Articles
of Amendment to Bandag, Incorporateds Restated Articles of Incorporation, effective May
15, 2002.                       (Incorporated by reference to Exhibit 3(i) to the
Companys Form 10-Q for the quarter ended June 30, 2002.)
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.1 | Instruments
defining the rights of security holders.  (Incorporated by reference to Exhibit Nos. 3.2
and 3.3 to                       the Companys Form 10-K for the year ended December 31,
1992.)
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.2 | Note
Purchase Agreement dated December 15, 1997 for $40,000,000 of 6.50% Senior Notes due
December 15, 2007.                       (Incorporated by reference to Exhibit 4.3 to the
Companys Form 10-K for the year ended December 31, 1997.)
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.3 | Rights
Agreement dated as of August 21, 2006, between Bandag, Incorporated and Computershare
Trust Company,                       N.A.  (Incorporated by reference to the Companys
Form 8-A dated as of August 22, 2006.)
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.4 | Amendment
to Rights Agreement, dated as of December 5, 2006, between Bandag, Incorporated and
Computershare                       Trust Company, N.A.  (Incorporated by reference to
the Companys Form 8-A/A dated as of December 6, 2006.)
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1* | Bandag,
Incorporated Restricted Stock Grant Plan, as amended August 24, 1999.  (Incorporated by
reference to                       Exhibit No. 10.1 to the Companys Form 10-K for the
year ended December 31, 1999.)
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 | U.S.
Bandag System Franchise Agreement Truck and Bus Tires.  (Incorporated by reference to
Exhibit No. 10.2 to                       the Companys Form 10-K for the year ended
December 31, 1993.)
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2(a) | U.S.
Bandag System Franchise Agreement Truck and Bus Tires, as revised April 1996.
 (Incorporated by reference                       to Exhibit No. 10.2(a) to the Companys
Form 10-K for the year ended December 31, 1996.)
| | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2(b) | Bandag
System Franchise Agreement, as revised November 1998.  (Incorporated by reference to
Exhibit 10.2(a) to                       the Companys form 10-K for the year ended
December 31, 1998.)
| | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2(c) | Form
of Bandag Dealer Franchise Agreement.  (Incorporated by reference to Exhibit 10.2(c) to
the Companys Form                       10-K for the year ended December 31, 2001.)
| | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2(d) | Form
letter to the Companys U.S. franchisees.  (Incorporated by reference to Exhibit 99.1 to
the Companys                       Form 8-K dated June 14, 2002.)
| | ------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2(e) | Current
Form of Bandag Dealer Franchise Agreement.  (Incorporated by reference to Exhibit 10.2(e)
to the                       Companys Form 10-K for the year ended December 31, 2004.)
| | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3* | Miscellaneous
Fringe Benefits for Executives.  (Incorporated by reference to Exhibit No. 10.3 to the
Companys                       Form 10-K for the year ended December 31, 2001.)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4* | Form
of Participation Agreement under the Bandag, Incorporated Restricted Stock Grant Plan.
 (Incorporated by                       reference as Exhibit 10.7 to the Companys Form
10-K for the year ended December 31, 1994.)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5* | Severance
Agreement, dated as of May 4, 1999, by and between Bandag, Incorporated and Martin G.
Carver.                       (Incorporated by reference to Exhibit 10.1 to the Companys
Form 10-Q/A for the quarter ended June 30, 1999.)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6* | Severance
Agreement, dated as of May 4, 1999, by and between Bandag, Incorporated and Nathaniel L.
Derby, II.                       (Incorporated by reference to Exhibit 10.2 to the
Companys Form 10-Q/A for the quarter ended June 30, 1999.)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

37

---

| | 10.7* | Severance
Agreement, dated as of May 4, 1999, by and between Bandag, Incorporated and Warren W.
Heidbreder.                       (Incorporated by reference to Exhibit 10.4 to the
Companys Form 10-Q/A for the quarter ended June 30, 1999.)
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8* | Severance
Agreement, dated as of May 4, 1999, by and between Bandag, Incorporated and John C.
McErlane.                       (Incorporated by reference to Exhibit 10.5 to the
Companys Form 10-Q/A for the quarter ended June 30, 1999.)
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9* | Bandag,
Incorporated Stock Award Plan, as amended March 12, 2002.  (Incorporated by reference to
Exhibit 10.9 to                       the Companys Form 10-K for the year ended
December 31, 2001.)
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.10* | Form
of Nonqualified Stock Option Agreement under the Bandag, Incorporated Stock Award Plan.
 (Incorporated by                       reference to Exhibit 10.15 to the Companys
Form 10-K for the fiscal year ended December 31, 2000.)
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.11* | Form
of Restricted Stock Award Agreement under the Bandag, Incorporated Stock Award Plan.
 (Incorporated by                       reference to Exhibit 10.11 to the Companys
Form 10-K for the year ended December 31, 2001.)
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.12* | Description
of Short-term Compensation Plan.  (Incorporated by reference to Exhibit No. 10.12 to the
Companys                       Form 10-K for the year ended December 31, 2005.)
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.13* | Bandag,
Incorporated 2004 Stock Grant and Awards Plan.  (Incorporated by reference to Appendix A
to the                       Companys definitive proxy statement for its 2004
annual meeting of shareholders filed on March 31, 2004.)
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14* | Form
of Stock Appreciation Rights Agreement under the Bandag, Incorporated 2004 Stock Grant
and Awards Plan.                       (Incorporated by reference to Exhibit 4.2 to the
Companys Registration Statement on Form S-8, Registration No.
                      333-115369, filed on May 11, 2004.)
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15* | Form
of Restricted Stock Unit Agreement under the Bandag, Incorporated 2004 Stock Grant and
Awards Plan.                       (Incorporated by reference to Exhibit 4.3 to the
Companys Registration Statement on Form S-8, Registration No.
                      333-115369, filed on May 11, 2004.)
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.16* | Form
of Restricted Stock Award Agreement under the Bandag, Incorporated 2004 Stock Grant and
Awards Plan.                       (Incorporated by reference to Exhibit 99.1 to the
Companys Current Report on Form 8-K filed on February 25,
                      2005.)
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.17* | Form
of Nonqualified Stock Option Award Agreement under the Bandag, Incorporated 2004 Stock
Grant and Awards                       Plan.  (Incorporated by reference to Exhibit 99.3
to the Companys Current Report on Form 8-K filed on March
                      17,2005.)
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.18* | Form
of Restricted Stock Award Agreement for Non-Employee Directors.  (Incorporated by
reference to Exhibit                       99.1 to the Companys Current Report on
Form 8-K filed on March 17, 2005.)
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.19* | Form
of Nonqualified Stock Option Award Agreement for Non-Employee Directors.  (Incorporated
by reference to                       Exhibit 99.2 to the Companys Current Report
on Form 8-K filed on March 17, 2005.)
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.20 | Voting
Agreement, dated as of December 5, 2006, by and between Martin G. Carver and Grip
Acquisition                       Corporation.  (Incorporated by reference to the Companys
Form 8-K dated as of December 5, 2006.)
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.21 | Voting
Agreement, dated as of December 5, 2006, by and between Roy J. Carver and Grip
Acquisition Corporation.                       (Incorporated by reference to the Companys
Form 8-K dated as of December 5, 2006.)
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.22 | Voting
Agreement, dated as of December 5, 2006, by and between Carver Partners LP and Grip
Acquisition                       Corporation.  (Incorporated by reference to the Companys
Form 8-K dated as of December 5, 2006.)
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.23* | Consulting
Agreement, dated as of the effective date of the merger, by and between Martin G. Carver
and Bandag,                       Incorporated.  (Incorporated by reference to the Companys
Form 8-K dated as of December 5, 2006.)
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.24* | Consulting
Agreement, dated as of the effective date of the merger, by and between Warren W.
Heidbreder and                       Bandag, Incorporated.  (Incorporated by reference to
the Companys Form 8-K dated as of December 5, 2006.)
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.25* | Severance
Agreement, dated as of December 14, 2006, by and between Frederico U. Kopittke and
Bandag,                       Incorporated.  (Incorporated by reference to the Companys
Form 8-K dated as of December 14, 2006.)
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

38

---

| | 10.26* | Form
of Severance Agreement.  (Incorporated by reference to the Companys Form 8-K dated
as of December 14,                       2006.)
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------

| | 21 | Subsidiaries
of Registrant. +
| | -- | -----------------------------

| | 23 | Consent
of Independent Auditors. +
| | -- | ----------------------------------

| | 31.1 | Certification
of the Chief Executive Officer.
| | ---- | ---------------------------------------------

| | 31.2 | Certification
of the Chief Financial Officer.
| | ---- | ---------------------------------------------

| | 32.1 | Written
Statement of the Chairman of the Board, Chief Executive Officer and President of Bandag,
Incorporated                       Pursuant to 18 U.S.C.ss.1350.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 | Written
Statement of the Vice President, Chief Financial Officer and Secretary of Bandag,
Incorporated Pursuant                       to 18 U.S.C.ss.1350.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

*Represents a management
compensatory plan or arrangement. + Previously filed.

39