<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 26, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 01-13409
MIDAS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-4180556
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
225 North Michigan Avenue Chicago, Illinois 60601
(Address of principal executive offices) (Zip Code)
(312) 565-7500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
The registrant had 16,881,542 shares of common stock outstanding as of September
26, 1998.
<PAGE>
MIDAS, INC.
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed Statements Of Operations
Condensed Balance Sheets
Condensed Statements Of Cash Flows
Notes to Condensed Financial Statements
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Exhibit 2.1 Agreement For Strategic Alliance
Between Midas International Corporation and
Magneti Marelli, S.p.A.
Exhibit 2.2 License Agreement
Between Midas International Corporation and
Magneti Marelli, S.p.A.
Exhibit 10.1 Nonqualified Option Agreement to Purchase Restricted Stock
And Restricted Stock Award Agreement
Exhibit 27 Financial Data Schedule
SIGNATURE
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1: Financial Statements
MIDAS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In millions, except for earnings per share)
<TABLE>
<CAPTION>
For the Quarter For the Nine Months
Ended Ended
September September
--------------------- -----------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales and revenues.............................................. $ 138.6 $ 161.7 $ 411.6 $ 464.0
Cost of goods sold.............................................. 68.0 73.9 198.1 214.5
Selling, general, and administrative expenses................... 46.2 63.8 155.7 191.5
Disposition of U.S. Company-operated stores..................... - 35.5 - 35.5
Non-recurring charges........................................... - 32.1 - 32.1
------- ------- ------- -------
Operating income (loss)...................................... 24.4 ( 43.6) 57.8 ( 9.6)
------- ------- ------- -------
Whitman charges................................................. - ( 4.5) ( 1.1) ( 13.5)
------- ------- ------- -------
Interest expense:
Whitman....................................................... - ( 1.6) ( 0.5) ( 5.5)
Other......................................................... ( 3.0) ( 0.6) ( 9.7) ( 1.7)
------- ------- ------- -------
Total interest expense....................................... ( 3.0) ( 2.2) ( 10.2) ( 7.2)
------- ------- ------- -------
Other income (expense), net..................................... 0.6 0.2 1.4 0.7
------- ------- ------- -------
Income (loss) before taxes................................... 22.0 ( 50.1) 47.9 ( 29.6)
Income tax provisions........................................ 8.9 ( 13.7) 19.4 ( 4.9)
------- ------- ------- -------
Net income (loss)............................................ $ 13.1 ( 36.4) $ 28.5 (24.7)
======= ======= ======= =======
EARNINGS PER SHARE:
Basic........................................................ $ .77 $ 1.68
======= =======
Diluted...................................................... $ .76 $ 1.65
======= =======
Pro forma basic and diluted.................................. $ (2.10) $ (1.32)
======= =======
DIVIDENDS FOR COMMON SHARE...................................... $ .02 $ .04
======= =======
AVERAGE NUMBER OF SHARES:
Common shares outstanding.................................... 16.9 16.9
Equivalent shares on outstanding stock options............... .4 .4
Shares applicable to diluted earnings........................ 17.3 17.3
Pro forma common shares outstanding.......................... 17.0 17.0
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
MIDAS, INC.
CONDENSED BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
September December
1998 1997
------------- ------------
ASSETS: (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 17.3 $ 12.5
Receivables, net......................................... 71.3 65.7
Inventories.............................................. 74.5 79.8
Other current assets..................................... 20.2 30.8
------ ------
Total current assets................................ 183.3 188.8
Property and equipment, net................................ 179.8 198.2
Intangible assets, net..................................... 21.8 29.3
Other assets............................................... 22.8 26.8
------ ------
Total assets........................................ $407.7 $443.1
====== ======
LIABILITIES AND EQUITY:
Current liabilities:
Short-term debt.......................................... $ 5.4 $ 1.0
Short-term obligations under capital leases.............. 0.8 0.8
Accounts and dividends payable........................... 45.1 40.3
Other current liabilities................................ 63.7 64.9
------ ------
Total current liabilities........................... 115.0 107.0
Loans and advances from Whitman............................ - 55.5
Long-term debt............................................. 137.0 3.5
Obligations under capital leases........................... 11.2 14.6
Deferred income taxes and other liabilities................ 23.9 28.4
------ ------
Total liabilities................................... 287.1 209.0
------ ------
Shareholders' equity:
Common stock and capital in excess of par value
($.001 par value, 100 million shares authorized,
16.9 million shares outstanding September 1998)....... 27.3 -
Treasury stock, at cost, .1 million shares............... (2.2) -
Combined capital accounts................................ - 26.6
Retained income.......................................... 107.6 217.3
Accumulated other comprehensive income (loss)............ (12.1) (9.8)
------ ------
120.6 234.1
------ ------
Total liabilities and equity........................ $407.7 $443.1
====== ======
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
MIDAS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
<TABLE>
<CAPTION>
For the Nine
Months
Ended September
-----------------
1998 1997
------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 28.5 $ (24.7)
Adjustments reconciling net income to
net cash provided by operating activities:
Depreciation and amortization................................. 12.6 16.7
Non-recurring charges......................................... - 67.6
Changes in assets and liabilities............................. 8.9 (21.5)
------- ------
Net cash provided by (used in) operating activities............. 50.0 38.1
------- ------
Cash flows from investing activities:
Capital investments........................................... (10.0) (25.6)
Proceeds from sales of property and equipment................. 23.7 3.1
------- ------
Net cash provided by (used in) investing activities............. 13.7 (22.5)
------- ------
Cash flows from financing activities:
Long-term debt incurred....................................... 291.4 3.3
Short-term borrowings (repayments)............................ 0.3 ( 2.2)
Long-term debt repayments..................................... (154.4) -
Payment of obligations under capital leases................... (0.5) ( 0.9)
Purchase of Treasury Stock.................................... (4.6) -
Stock issued under stock option plans......................... 2.6 -
Net (decrease) in loans and advances from Whitman............. (55.5) (10.8)
Dividends to Whitman.......................................... (137.6) (2.4)
Dividends to shareholders..................................... (0.3) -
------- ------
Net cash provided by (used in) financing activities........... (58.6) (13.0)
------- ------
Effect of exchange rate changes on cash and cash equivalents.. (0.3) (1.5)
------- ------
Net change in cash and cash equivalents....................... 4.8 1.1
------- ------
Cash and cash equivalents at beginning of period.............. 12.5 18.2
------- ------
Cash and cash equivalents at end of period.................... $ 17.3 $ 19.3
======= ======
</TABLE>
See notes to condensed financial statements.
4
<PAGE>
MIDAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. Financial Statement Presentation
The condensed interim period financial statements presented herein do not
include all of the information and disclosures customarily provided in annual
financial statements and they have not been audited, as permitted by the rules
and regulations of the Securities and Exchange Commission. The condensed interim
period financial statements should be read in conjunction with the annual
financial statements included in the annual report on Form 10-K. The results of
operations for interim periods are not necessarily indicative of the results
that may be achieved on an annual basis.
The unaudited condensed financial statements for the nine months ended September
26, 1998 cover a 40-week period, while the statements for the quarter cover a
13-week period and present the consolidated financial statements of Midas and
its wholly-owned consolidated subsidiaries.
The nine months and quarter ended September 20, 1997 were also 40-week and
13-week periods, respectively. The statement of operations and cash flow
statement for this period and the balance sheet as of December 20, 1997 present
combined financial information for Midas, which was then comprised of wholly-
owned subsidiaries of Whitman Corporation ("Whitman"), including Midas
International Corporation ("Midas International") and its wholly-owned
subsidiaries and other Midas companies owned by Whitman but directly managed by
Midas International. In January 1998, these companies became wholly-owned
subsidiaries of Midas. (As required by the context, the terms "Midas" or the
"Company" refers to Midas, Inc. or to the group of companies that became wholly-
owned subsidiaries of Midas, Inc. in January 1998.) On January 30, 1998, as a
result of the spin-off by Whitman, Midas became an independent, publicly held
company.
Certain amounts for 1997 have been reclassified to conform with current period
classifications.
NOTE 2. Pro Forma Information
Pro forma basic and diluted earnings (loss) per share for the nine months and
quarter ended September 20, 1997 have been calculated on the assumption that the
17.0 million shares of common stock that were distributed on January 30, 1998
had been outstanding since the beginning of 1997. Pro forma adjustments have
been made to give effect to increases or decreases in costs that would have been
incurred by Midas as an independent, publicly held company, rather than a
subsidiary of Whitman. The pro forma adjustments for the third quarter and for
the nine months of fiscal 1997 are summarized as follows (in millions):
<TABLE>
<CAPTION>
For the
For the Quarter Nine Months
Ended Ended
September September
---------------- ----------------
<S> <C> <C>
Incremental administrative expenses
of an independent, publicly held company................... $(0.7) $ (2.1)
Elimination of Whitman charges................................ 4.5 13.5
Elimination of interest paid to Whitman....................... 1.6 5.5
Incremental interest expense of an independently-capitalized
Company.................................................... (4.2) (13.3)
Incremental income tax provision.............................. (0.4) (1.3)
----- ------
Increase in pro forma net income.............................. $ 0.8 $ 2.3
===== ======
</TABLE>
5
<PAGE>
MIDAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
NOTE 3. Supplemental Cash Flow Activity
Net cash provided by operating activities reflect cash payments and receipts for
interest and taxes as follows (in millions):
<TABLE>
<CAPTION>
For the Nine Months
Ended September
-------------------
1998 1997
------ -----
<S> <C> <C>
Interest paid - Whitman........................ $ 1.0 $ 5.6
Interest paid - other.......................... 6.6 1.7
Income tax (refunds)........................... (4.5) -
Income taxes paid.............................. 13.2 15.2
</TABLE>
NOTE 4. Comprehensive Income
In January 1998, Midas adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income." Midas comprehensive income consists of
(a) net income as reported in the statement of operations and (b) other
comprehensive income (loss), which is comprised solely of foreign currency
translation adjustments. Midas has not recorded income tax benefits on its
foreign currency translation adjustments. For the first nine months of 1998,
comprehensive income was $26.2 million, as compared to a comprehensive loss of
$32.7 million in the first nine months of 1997. The accumulated amount of other
comprehensive income (loss) through the date of each balance sheet is presented
as a component of shareholder equity. Comprehensive income will be reported in
a separate financial statement in each of the Company's future annual reports.
NOTE 5. Inventories
Inventories, summarized by major classification, were as follows (in millions):
<TABLE>
<CAPTION>
September December
1998 1997
--------- --------
(Unaudited)
<S> <C> <C>
Raw materials $ 4.3 $ 2.7
Work in process 1.2 1.1
Finished goods 69.0 76.0
----- -----
$74.5 $79.8
===== =====
</TABLE>
6
<PAGE>
MIDAS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
NOTE 6. Strategic Alliance Agreement
Midas, Inc. and Magneti Marelli, S.p.A., a member of the Fiat Group, formed a
strategic alliance to develop the Midas program in the business of fast auto
service repair in Europe and South America.
Magneti Marelli is an international leader in the design and production of high-
tech components, systems and modules for the automotive industry. With annual
net sales of more than $4.2 billion, 45 plants worldwide and a workforce of
33,500, including a research-and development staff of 2,200, Magneti Marelli
ranks among the major companies in the manufacture of automotive electronics,
instrument clusters, lighting, electronic fuel-injection systems, air
conditioning and engine cooling systems, fuel delivery systems, starters and
alternators, exhaust systems, rear view mirrors, shock absorbers and lubricants.
As part of the agreement, Midas sold its interests in its European operations to
Magneti Marelli on October 30, 1998 and entered into a long-term license
agreement; the aggregate consideration received by Midas was $100 million. Midas
will also receive on-going royalties throughout the term of the license
agreement, as the 437 automotive service stores in Europe will continue to
operate using the Midas name and Midas will continue to provide assistance to
Magnetic Marelli in developing the Midas system.
7
<PAGE>
Item 2. Management's Discussions and Analysis of Financial Condition and Results
of Operations.
LIQUIDITY AND CAPITAL RESOURCES
In anticipation of the January 30, 1998 spin-off from Whitman, Midas entities
entered into three new debt agreements in January 1998. Midas and its wholly-
owned subsidiary, Midas International, entered into a five year, unsecured
revolving credit facility with a syndicate of commercial banks and financial
institutions that enables Midas and Midas International to borrow funds at
variable interest rates up to an aggregate principal amount of $200 million.
Midas International also entered into a seven-year $50 million unsecured term
loan arrangement with an institutional investor. Midas France S.A. entered into
a loan agreement with a syndicate of financial institutions providing for a 100
million French franc, five-year amortizing term loan.
In January 1998, in order to settle its Whitman obligations of $210 million
($137.6 million dividend and $72.4 million of intercompany loans and advances),
and to provide for working capital on and after the spin-off, Midas
International borrowed $150 million under the revolving credit facility and $50
million under the term loan, while Midas France S.A. borrowed 100 million French
francs ($16.4 million) under the French term loan.
On April 15, 1998, Midas arranged a private placement of $75 million in
unsecured debt at a fixed rate of 6.89% with an investment grade (BBB) rating
from Duff & Phelps Credit Co. The maturity date of the debt is April 15, 2005.
The proceeds were used to retire the $50 million term loan and $25 million in
bank debt.
As more fully discussed in note 6 to the Company's financial statements for
the nine months ended September 1998, the Company sold its interests in European
operations for $100 million to Magneti Marelli as part of a broader strategic
alliance between the two companies to develop the Midas brand in Europe and
other parts of the world. Management expects that 50% or more of the after-tax
proceeds of the transaction will be used to pay down debt with the balance to be
used for general corporate purposes.
As the result of favorable operating and investing activities, which are
discussed in the following paragraphs, Midas reduced debt obligations by $17.8
million in the third quarter and management expects further substantial
reductions in the fourth quarter due to the sale of the European operations.
At September 1998, Midas had cash and cash equivalents of $17.3 million,
compared to $12.5 million at December 1997. Cash inflows from operating
activities amounted to $50.0 million in the first nine months of 1998, compared
to cash inflows of $38.1 million in the first nine months of 1997. This year-to-
year change principally resulted from improved results of operations and lower
working capital requirements.
Cash inflow from investing activities during the first nine months of 1998
amounted to $13.7 million compared to cash outflow of $22.5 million during the
first nine months of 1997. The variance between the nine-month periods was
principally due to proceeds from asset sales and lower capital investment
requirements.
Net cash used in financing activities for the nine months ended September 1998
increased $45.6 million, from the same period one year ago, to a total of $58.6
million. The increase was due to the use of cash inflows provided by operating
and investing activities to pay down debt.
Year 2000 Update. In 1997, the Company instituted a Year 2000 project to
evaluate and remediate Year 2000 issues. The project is divided into three
sections:
. The Company's computer hardware, hardware operating systems and application
software.
8
<PAGE>
. Franchisee computer hardware and application software, including point of
sale hardware and software.
. Supplier computer systems.
The Company's State of Readiness. With respect to the Company's application
hardware, hardware operating systems and application software, substantial
progress has been made, utilizing both internal and external resources in
remediating those systems deemed not to be Year 2000 compliant. Management
expects that by the end of third quarter of 1999 (September 1999) all of the
Company's internal computer systems will be Year 2000 compliant.
With respect to franchisee systems, the Company has conducted surveys and
engaged in discussions with current franchisee systems vendors and it has been
determined that a substantial number of the franchisee systems are not Year 2000
compliant. The Company is currently discussing solutions with both current and
potential new vendors to ensure compliance. Management believes that it may be
until the fourth quarter of 1999 before substantially all of the franchisee
systems are Year 2000 compliant.
With respect to the Company's suppliers, the Company initiated discussions
with major suppliers in the fourth quarter of 1998 to determine their state of
readiness and/or plans to become Year 2000 compliant.
The Cost to Address the Company's Year 2000 Issues. Through September 1998,
the Company has spent approximately $2.2 million in connection with the Year
2000 project. Management estimates that an additional $3.0 million will be
required to be spent to ensure all of the Company's systems are Year 2000
compliant. Management is unable to project at this time the cost to the Company,
if any, of ensuring that substantially all franchisee systems are Year 2000
compliant.
The Risks Associated with the Company's Year 2000 Issues. The failure to
correct a material Year 2000 problem could result in an interruption in, or a
failure of, normal business activities and operations. Such interruptions or
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of franchisees and third-party suppliers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Year 2000 project is expected to significantly reduce
the Company's level of uncertainty about the Year 2000 problem. The Company
believes that the Year 2000 project should reduce the possibility of significant
interruptions of normal operations.
Contingency Plans. The Company has not developed contingency plans as of this
date. The Company has engaged a third party to access the Company's readiness
for the Year 2000 issue. Should progress in completing the Year 2000 project
fall behind schedule, a contingency plan will be developed.
9
<PAGE>
RESULTS OF OPERATIONS
1998 Third Quarter Compared with 1997 Third Quarter
At the end of the third quarter of 1998, there were 2,733 Midas stores in
operation system-wide versus 2,711 one year ago. Stores in operation by business
segment were as follows:
System-Wide Stores in Operation
-------------------------------
<TABLE>
<CAPTION>
September September
------------- -------------
1998 1997 Change
------------- ------------- -------------
U.S. Operations:
<S> <C> <C> <C>
Franchise activities.......................................... 1,816 1,752 4%
Company-operated stores....................................... 59 146 (60)
----- -----
Total U.S.................................................. 1,875 1,898 (1)
----- -----
Non-U.S. Operations:
Europe........................................................ 437 402 9
Canada........................................................ 250 248 1
Other......................................................... 171 163 5
----- -----
Total Non-U.S............................................. 858 813 6
----- -----
Total..................................................... 2,733 2,711 1%
===== =====
</TABLE>
The increase over the past year in the number of U.S. franchised stores in
operation, and the corresponding decrease in the number of U.S. company-operated
stores was principally due to the franchising of company-operated stores. This
is the result of a company program adopted in the third quarter of 1997 to
franchise virtually all of its U.S. companyoperated stores in order to more
clearly focus on growing the franchised stores portion of the U.S. business.
The net decrease of 23 stores in operation at the end of the quarter was due to
the closing of stores deemed to have low retail sales potential.
The year-over-year growth in non-U.S. stores in operation was due to growth in
Europe, or more specifically, store additions in France and Spain.
10
<PAGE>
Midas System-Wide Retail Sales. Midas system-wide retail sales in the
third quarter (including both franchised and company-operated stores) decreased
$20.7 million, or 5% to $403.4 million. Retail sales as measured in U.S. dollars
would have been approximately $5.0 million higher if currency exchange rates had
remained the same in 1998 as in 1997. Following is a summary of Midas system-
wide retail sales for the quarters ended September 1998 and 1997, by business
segment (in millions):
System-Wide Retail Sales
<TABLE>
<CAPTION>
For the Quarter
Ended September
---------------
1998 1997 Change
------ ------ ------
<S> <C> <C> <C>
U.S. Operations:
Franchise activities .......................... $284.2 $286.9 (1)%
Company-operated stores ....................... 9.7 25.4 (62)
------ ------
Total U.S. ................................ 293.9 312.3 (6)
------ ------
Non-U.S. Operations:
Europe ........................................ 66.2 62.6 6
Canada ........................................ 32.2 35.8 (10)
Other ......................................... 11.1 13.4 (17)
------ ------
Total Non-U.S. ............................ 109.5 111.8 (2)
------ ------
Total ..................................... $403.4 $424.1 (5)%
====== ======
</TABLE>
Midas system-wide retail sales in the U.S. declined 6% in the third quarter
or $18.4 million to a total of $293.9 million. The decrease was the result of
lower retail customer traffic due in part to the closing of (net) 23 low retail
potential stores over the past twelve months, and lower customer traffic at the
remaining company-operated stores. The decrease in retail sales from company-
operated stores in the quarter was due to a net decrease of 87 stores in
operation versus a year ago. Of the decrease of 87 stores, 12 stores were closed
and 75 were franchised under a divestiture program adopted in the third quarter
of 1997. The number of company-operated stores in the U.S. is expected to
decline further in the fourth quarter of 1998 as additional stores are
franchised.
Midas system-wide retail sales in Europe were up 6% for the quarter or $3.6
million to $66.2 million. The increase was primarily due to an increase in the
number of stores in operation. Fluctuations in foreign currency exchange rates
did not materially effect the quarter results in Europe.
Midas system-wide retail sales in Canada were $32.2 million for the
quarter, down $3.6 million or 10% below the 1997 third quarter. Approximately
80% of the decrease was the result of fluctuations in currency exchange rates.
Retail sales from other non-U.S. operations were down 17% or $2.3 million
to $11.1 million for the quarter. Had currency exchange rates remained at 1997
levels, retail sales from these operations would have been even with the year
ago quarter.
11
<PAGE>
Midas Sales and Revenues. Sales and revenues in the third quarter
decreased by $23.1 million or 14% to a total of $138.6 million. Sales and
revenues for the quarter would have been approximately $1.4 million higher if
currency exchange rates had remained the same in 1998 as in 1997. Following is a
summary of sales and revenues for the quarters ended September 1998 and 1997, by
business segment (in millions):
Sales and Revenues
<TABLE>
<CAPTION>
For the Quarter
Ended September
---------------
1998 1997 Change
------ ------ ------
<S> <C> <C> <C>
U.S. Operations:
Franchise activities .......................... $ 83.2 $ 86.5 (4)%
Company-operated stores ....................... 9.7 25.4 (62)
------ ------
Total U.S. ................................ 92.9 111.9 (17)
------ ------
Non-U.S. Operations:
Europe ........................................ 31.6 31.5 -
Canada ........................................ 12.5 15.8 (21)
Other ......................................... 1.6 2.5 (36)
------ ------
Total Non-U.S. ............................ 45.7 49.8 (8)
------ ------
Total ..................................... $138.6 $161.7 (14)%
====== ======
</TABLE>
Sales and revenues from U.S. Operations decreased by $19.0 million or 17%
in the second quarter to a total of $92.9 million. Sales and revenues from U.S.
franchise activities declined $3.3 million or 4% to a total of $83.2 million.
This decline was primarily due to: elimination of several inefficient
distribution points and programs, lower wholesale replacement part selling
prices to franchisees reflecting a pass through of cost reductions received by
the Company from outside vendors, and closed stores. There were 87 fewer
company-operated stores in operation at the end of September 1998 versus one
year ago, which was the primary factor in lower third quarter sales from U.S.
company-operated stores.
European sales and revenues were virtually even with one year ago at $31.6
million. Fluctuations in foreign currencies was not a factor in the results for
the quarter.
Canadian sales and revenues decreased $3.3 million or 21% to a total of
$12.5 million for the quarter. Fluctuations in foreign currency exchange rates
accounted for approximately $1.1 million of the decrease. The balance of the
decrease was due to the franchising of a number of former company-operated
stores.
Sales and revenues from other non-U.S. Operations declined due to a
combination of currency exchange rate fluctuations and the franchising of former
company-operated stores in Australia.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (excluding non-recurring charges that affected 1997
results) decreased $17.6 million or 18% to a total of $46.2 million for the
quarter. Approximately 75% of the decrease in operating expenses were due to a
decline in the number of company-operated stores in the U.S. and Canada. The
remainder of the decrease was spread across all of the company's business
segments. Operating expenses in relation to sales and revenues (excluding non-
recurring charges from 1997 results) decreased 6 percentage points to 33%.
12
<PAGE>
Operating Income. Operating income in the quarter (excluding non-recurring
charges in the third quarter of 1997) increased $0.4 million to a total of $24.4
million. The following is a summary of operating income for the quarters ended
September 1998 and 1997, by business segment (in millions):
Operating Income
<TABLE>
<CAPTION>
For the Quarter
Ended September
---------------
1998 1997 Change
---- ---- ------
<S> <C> <C> <C>
U.S. Operations:
Franchise activities.......................................... $21.1 $ 19.8 7%
Company-operated stores....................................... (0.1) 1.3 *
----- ------
Total U.S.................................................. 21.0 21.1 *
----- ------
Non-U.S. Operations:
Europe........................................................ 3.9 3.5 11
Canada........................................................ 1.5 1.5 -
Other......................................................... (0.3) (0.3) -
----- ------
Total Non-U.S............................................. 5.1 4.7 9
----- ------
Total segment operating income............................ 26.1 25.8 1
Corporate administrative expenses............................... (1.7) (1.8) 6
----- ------
Operating income before special charges..................... 24.4 24.0 2
Disposition of U.S. company-operated stores..................... - (35.5)** *
Non-recurring charges........................................... - (32.1)** *
----- ------
Operating income after special charges.......................... $24.4 $(43.6) *
===== ======
</TABLE>
*Not meaningful.
**In the third quarter of 1997, Midas recorded charges of $35.5 million ($23.7
million on an after-tax basis) related to the disposition of its U.S. company-
operated stores and non-recurring charges of $32.1 million ($22.5 million on
an after-tax basis). These charges were recorded in the following segments:
U.S. franchise activities -- $25.4 million; U.S. company-operated stores --
$35.5 million; Europe -- $5.3 million, and other non-U.S. operations -- $1.4
million.
Operating income from U.S. franchise activities increased 7% to a total of
$21.1 million for the quarter. This improvement was due to lower operating
expenses. U.S. company-operated stores reported an operating loss for the
quarter versus positive results one year ago. This decline was due to the
franchising of profitable company-operated stores over the past twelve months.
Operating income from non-U.S. operations in the third quarter increased
$0.4 million or 9% to a total of $5.1 million. This increase was principally due
to improved results at the Company's Spanish operations.
Whitman Charges. There were no Whitman charges in the third quarter of
1998, since the spin-off occurred in the first quarter on January 30, 1998, as
compared to $4.5 million of Whitman charges in the third quarter of 1997.
Interest Expense. Interest expense for the third quarter increased $0.8
million, or 36% to a total of $3.0 million. The increase in interest expense was
due to a substantial increase in the Company's long-term debt to enable the
Company to repay $72.4 million of loans and advances from Whitman Corporation
and a special dividend to Whitman of $137.6 million in connection with the spin-
off. Partially offsetting the effect of higher debt levels were lower interest
rates on the new debt.
13
<PAGE>
First Nine Months of 1998 Compared with First Nine Months of 1997
Midas System-Wide Retail Sales. Midas system-wide retail sales for the
first nine months of 1998 (including both franchised and company-operated
stores) decreased $54.0 million or 4% to $1,155.0 million. Retail sales as
measured in U.S. dollars would have been approximately $20.8 million higher if
currency exchange rates had remained the same in 1998 as in 1997. Following is a
summary of Midas system-wide retail sales for the nine months ended September
1998 and 1997, by business segment (in millions):
System-Wide Retail Sales
<TABLE>
<CAPTION>
For the Nine Months
Ended September
--------------------------
1998 1997 Change
------------ ------------ -------------
<S> <C> <C> <C>
U.S. Operations:
Franchise activities.......................................... $ 811.8 $ 825.6 (2)%
Company-operated stores....................................... 39.7 70.4 (44)
-------- --------
Total U.S.................................................. 851.5 896.0 (5)
-------- --------
Non-U.S. Operations:
Europe........................................................ 175.9 172.2 2
Canada........................................................ 91.5 99.9 (8)
Other......................................................... 36.1 40.9 (12)
-------- --------
Total Non-U.S............................................. 303.5 313.0 (3)
-------- --------
Total..................................................... $1,155.0 $1,209.0 (4)%
======== ========
</TABLE>
Midas system-wide retail sales in the U.S. declined 5% or $44.5 million in
the first nine months of the year to a total of $851.5 million. The decrease was
due to lower retail customer traffic due in part to: a major national retail
promotion during the first quarter of 1997 and the absence of a similar
promotion in 1998, the closing of (net) 23 stores deemed to have limited retail
sales potential and lower retail sales at remaining company-operated stores. The
decrease in retail sales from company-operated stores was also due to a decrease
of 87 stores in operation versus one year ago. Of the decrease of 87 stores, 12
stores were closed and 75 stores were franchised in 1998 under a divestiture
program adopted in the third quarter of 1997. The number of company-operated
stores in the U.S. is expected to decline further in the fourth quarter of the
year as additional stores are franchised.
Midas system-wide retail sales in Europe increased 2% in the first nine
months of the year to a total of $175.9 million. Had currency exchange rates
remained the same in 1998 as in 1997, nine months' retail sales in Europe would
have been $184.6 million or 7% above the prior year, primarily due to an
increase in the number of stores in operation.
Midas system-wide retail sales in Canada were $91.5 million for the nine
months ended September 1998, down $8.4 million or 8%. Had currency exchange
rates remained the same in 1998 as in 1997, the year-over-year decrease would
have been 3%.
Retail sales from other non-U.S. operations were down $4.8 million or 12%
for the first nine months due exclusively to currency exchange rate
fluctuations.
14
<PAGE>
Midas Sales and Revenues. Sales and revenues decreased by $52.4 million or
11% to a total of $411.6 million for the nine months ended September 1998. Sales
and revenues as measured in U.S. dollars would have been approximately $7.6
million higher if currency exchange rates had remained the same in 1998 as in
1997. Following is a summary of sales and revenues for the nine months ended
September 1998 and 1997, by business segment (in millions):
Sales and Revenues
<TABLE>
<CAPTION>
For the Nine Months
Ended September
--------------------------------
1998 1997 Change
------ ------ ------
<S> <C> <C> <C>
U.S. Operations:
Franchise activities ....................... $243.5 $254.9 (4)%
Company-operated stores .................... 39.7 70.4 (44)
------ ------
Total U.S. ............................. 283.2 325.3 (13)
------ ------
Non-U.S. Operations:
Europe ..................................... 84.5 86.3 (2)
Canada ..................................... 38.6 44.6 (13)
Other ...................................... 5.3 7.8 (32)
------ ------
Total Non-U.S. ......................... 128.4 138.7 (7)
------ ------
Total .................................. $411.6 $464.0 (11)%
====== ======
</TABLE>
Sales and revenues from U.S. Operations decreased $42.1 million in the nine
months ended September versus one year ago, or 13% to a total of $283.2 million.
Approximately 73% of the decline was due to company-operated stores and the
closing or franchising of 87 stores as noted in the discussion of retail sales
trends. The balance of the decrease was due to a combination of: lower shipments
of wholesale replacement parts because of the elimination of several inefficient
distribution points and programs, lower wholesale selling prices, closed stores
and lower retail traffic.
European sales and revenues decreased $1.8 million or 2% to a total of
$84.5 million for the nine months ended September 1998. Had currency exchange
rates remained at 1997 levels, sales and revenues from European operations would
have increased approximately $2.4 million or 3% primarily due to an increase in
the number of stores in operation.
Canadian sales and revenues decreased $6.0 million or 13% to a total of
$38.6 million for the nine months ended September 1998. Approximately 40% of the
decrease was due to fluctuations in currency exchange rates with the balance due
to the franchising of a number of former company-operated stores and lower
retail traffic.
Sales and revenues from other non-U.S. Operations declined due to a
combination of currency exchange rate fluctuations and the franchising of former
company-operated stores in Australia.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, excluding non-recurring charges in 1997, decreased
$35.8 million or 19% to a total of $155.7 million for the nine months ended
September 1998. Approximately 60% of the decrease in operating expenses resulted
from the decline in the number of U.S. company-operated stores. The remainder of
the decrease was spread across virtually all of the Company's major expense
categories and business segments. Operating expenses in relation to sales and
revenues decreased more than 3 percentage points to 38%.
15
<PAGE>
Operating Income. Operating income for the nine months ended September 1998
excluding non-recurring charges in 1997 was within $0.2 million of one year ago
at $57.8 million. The following is a summary of operating income for the nine
months ended September 1998 and 1997, by business segment (in millions):
Operating Income
<TABLE>
<CAPTION>
For the Nine Months
Ended September
-------------------
1998 1997 Change
----- ------ ------
<S> <C> <C> <C>
U.S. Operations:
Franchise activities.......................................... $57.8 $ 55.9 3%
Company-operated stores....................................... (1.0) 0.2 *
----- ------
Total U.S.................................................. 56.8 56.1 1
----- ------
Non-U.S. Operations:
Europe........................................................ 4.1 4.5 (9)
Canada........................................................ 2.5 2.7 (7)
Other......................................................... (0.4) (0.7) 43
----- ------
Total Non-U.S............................................. 6.2 6.5 (5)
----- ------
Total segment operating income............................ 63.0 62.6 *
Corporate administrative expenses............................... (5.2) (4.6) (13)
----- ------
Operating income before special charges..................... 57.8 58.0 -
Disposition of U.S. company-operated stores..................... - (35.5)** *
Non-recurring charges........................................... - (32.1)** *
----- ------
Operating income after special charges.......................... $57.8 $ (9.6) *
===== ======
</TABLE>
*Not meaningful.
**In the third quarter of 1997, Midas recorded charges of $35.5 million ($23.7
million on an after-tax basis) related to the disposition of its U.S.
company-operated stores and non-recurring charges of $32.1 million ($22.5
million on an after-tax basis). These charges were recorded in the following
segments: U.S. franchise activities -- $25.4 million; U.S. company-operated
stores -- $35.5 million; Europe -- $5.3 million, and other non-U.S.
operations -- $1.4 million.
Operating income from U.S. operations increased 1% in the first nine months of
the year to $56.8 million. Operating income from U.S. franchise activities
increased $1.9 million or 3% to $57.8 million due to lower operating expenses.
U.S. company-operated stores reported an operating loss of $1.0 million for the
nine months due to the franchising of a large number of profitable stores over
the past year and lower retail sales at the remaining company-operated stores.
Operating income from non-U.S. Operations for the nine months ended September,
decreased $0.3 million or 5% to $6.2 million. Had foreign currency exchange
rates remained the same in 1998 as in 1997, operating income from non-U.S.
Operations would have increased $0.1 million over one year ago for the nine
months.
Whitman Charges. Whitman charges for the nine months in 1998 were $1.1 million
versus $13.5 million one year ago or a decrease of $12.4 million. The reduction
in charges in the current year reflects one month of charges in 1998 (due to the
January 30, 1998 spin-off) compared to nine months of charges in 1997.
16
<PAGE>
Interest Expense. Interest expense for the nine months increased $3.0
million, or 42% to a total of $10.2 million. The increase in interest expense
was due to a substantial increase in the Company's long-term debt to enable the
Company to repay $72.4 million of loans and advances from Whitman Corporation
and a special dividend to Whitman of $137.6 million in connection with the spin-
off. Partially offsetting the effect of higher debt levels were lower interest
rates on the new debt.
Forward Looking Statements. This report contains, and certain of the
Company's other public documents and statements and oral statements contain and
will contain, forward-looking statements that reflect management's current
assumptions and estimates of future performance and economic conditions using
information currently available. Such statements are made in reliance upon the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The Company cautions investors that any forward-looking statements are subject
to risks and uncertainties that may cause actual results and future trends to
differ materially from those projected, stated, or implied by the forward-
looking statements.
The Company's consolidated results and the forward-looking statements could
be affected by, among other things: general economic conditions in the markets
in which the Company operates; economic developments that have a particularly
adverse effect on one or more of the markets served by the Company; the ability
to execute management's internal operating plans; the timing and magnitude of
capital expenditures; economic and market conditions in the U.S. and worldwide;
currency exchange rates; changes in consumer spending levels and demand for new
products and services; cost and availability of raw materials; and overall
competitive activities.
The Company disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
17
<PAGE>
Exhibit 27, Financial Data Schedule, was filed only electronically with the
Securities and Exchange Commission.
18
<PAGE>
MIDAS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIDAS, INC.
Date: November 10, 1998 By: /s/ EDWIN A. GRELL
------------------------------------
Edwin A. Grell
Vice President and Controller
(As Chief Accounting Officer and
Duly Authorized Officer of
Midas, Inc.)
19
<PAGE>
EXHIBIT 2.1
AGREEMENT FOR STRATEGIC ALLIANCE
--------------------------------
made as of this 1st day of October 1998, by and between
MIDAS, International Corporation, having its corporate seat in 225, North
Michigan Avenue, Chicago, Illinois, USA
("MIDAS")
and
MAGNETI MARELLI S.p.A., having its corporate seat in Via Griziotti 4, Milano
("MARELLI")
hereinafter collectively referred to as the "Parties" or singularly as a
"Party".
WHEREAS:
a) MIDAS owns certain famous trademarks, valuable goodwill and know-how (the
"Midas System") in the field of limited menu fast service auto repair (the
"Business") which it uses for the developement of Midas Shops around the
world;
b) developement of the Business is very foreseeable in the future and will
lead to an increase in demand by the customers especially in Europe and
South America, and such developement will require substantial investments
by the developers;
<PAGE>
2
c) MARELLI, which is not actually present in the Business, desires to enter
into the Business with the Midas System, and is envisaging to invest a
substantial amount of financial and operational resources for the next
twenty years in the Midas System by improving the present Midas franchisee
network in the Territories and by establishing new franchisee networks for
the Midas System in other countries;
d) MIDAS and MARELLI believe that a long-term cooperation which will encompass
the Parties' common developements and improvements in the performance of
the Midas System is necessary in order to offer to European and South
American consumers the most advanced products/services and to achieve a
satisfactory return on the substantial investment which will be made by
MARELLI;
e) the Parties therefore wish to establish a long-term strategic alliance and
cooperation for the developement of the Midas System throughout the world;
f) MIDAS, either directly or through subsidiaries, owns certain assets in
Europe and Brasil and companies in Europe or companies involved in the
European business of MIDAS by which it is developing the Midas System
through company-owned and franchised Midas Shops;
g) in the framework and as a first step of the alliance and cooperation
mentioned above, MARELLI desires to acquire and MIDAS desires to sell the
Midas Companies to MARELLI, and in addition MIDAS desires to transfer to
MARELLI a long-term license for the Midas System in Europe and South
America and to further provide support and assistance as detailed
hereinafter.
NOW THEREFORE, and in consideration thereof, it is hereby agreed as follows:
I. DEFINITIONS
-----------
- "Accounting Principles" means the generally accepted accounting
principles in the United States of America, consistently applied.
<PAGE>
3
- "Accounts" means the last available financial statements of the Midas
Companies.
- "Agreement" means this agreement and all its annexes.
- "Assets" means the assets of the Midas Companies as of the Closing Date.
- "Closing Date" means the date of transfer of the Midas Companies in
accordance with clause III.2.2 hereinafter.
- "Environmental Rules" has the meaning set forth in clause III.12.10.1
hereinafter.
- "Intellectual Property" has the meaning set forth in clause III.12.6.1
hereinafter.
- "Liabilities" means any payment, damages, loss, liabilities,
obligations, deficiencies and expenses (including attorney's fees), or
the like, incurred by MARELLI or the Midas Companies resulting in whole
or in part from or in connection with the fact that one or more of the
representations and warranties of MIDAS set forth herein, and in any
statement or instrument delivered to MARELLI pursuant to or in relation
to this Agreement is incorrect, untrue or incomplete in any respect, or
which arise out of acts or omissions by MIDAS or the Midas Companies
occurring prior to the Closing Date, and are not duly accounted or
reserved for in the Accounts.
- "License Agreement" means the agreement form of which is hereattached as
Annex C.
- "Midas Companies" means the companies listed in Annex A.
- "Net Invested Capital" means the presentation (although not necessarily
the specific numbers shown) in Annex B.
<PAGE>
4
- "TERRITORIES" means Austria, Brasil, Belgium, France, Italy, Monaco,
Poland, Portugal, Spain, and Switzerland.
II. THE STRATEGIC ALLIANCE AND COOPERATION
--------------------------------------
1. For a period of 15 years starting from the date hereof the Parties
hereby establish a strategic alliance and cooperation for the
worldwide developement of the Midas System, on the basis of the
following rules and obligations.
2. Cooperation in Developement of the Midas System
-----------------------------------------------
As long as the License Agreement remains in full force and effect
MIDAS and MARELLI agree to cooperate in the continued improvement of
the Midas System.
2.1 As long as the License Agreement remains in full force and effect,
MIDAS will provide support to MARELLI with advice in the following
areas:
(i) commercial, management and technical training of MARELLI's
trainers;
(ii) marketing and pricing;
(iii) franchisee recruitment;
(iv) real estate selection;
(v) shop development (including image, facility, equipment, etc.);
(vi) operations management;
(vii) purchasing;
(viii) documentation;
(ix) software unique to the Midas System;
(x) human resource selection;
(xi) finance and accounting;
(xii) material handling, warehouse management and logistics.
Such advice shall be at no cost to MARELLI.
<PAGE>
5
2.2 MIDAS' standard training programs will be available to MARELLI in
Chicago, USA, and on a limited basis in Europe, as may be agreed upon
by the Parties. As a general rule, training will be conducted in the
language of the country in which the training is conducted.
Advanced scheduling will be required to coordinate dedicated training
classes.
There will be no additional fees for this training; however,
transportation, food, lodging and other expenses will be the sole
expense of the party attending training.
The European training may be in English at MIDAS' option, based upon
availability of multi-lingual trainers.
2.3 Before the Closing Date, MIDAS will support MARELLI in identifying the
key managers within the present European MIDAS organization and
arrange with them, to any extent possible or legally feasible,
appropriate agreements in agreement with MARELLI for the retention of
such key managers and at no extra-cost to MIDAS.
2.4 As long as the License Agreement remains in full force and effect,
MARELLI will communicate to MIDAS any material experience gained in
exploiting the Midas System and MARELLI, if appropriate, is prepared
to grant it a license with respect thereof upon terms and conditions
to be agreed upon by the Parties from time to time.
2.5 It is hereby agreed that, in the framework of the strategic alliance
contemplated herein, quarterly meetings will be held between MIDAS and
MARELLI representatives for an exchange of views on the development
and performance of the Business.
In no event the information exchanged in those connections will
include any information which are particularly sensitive to the
respective businesses, such as pricing, margins and other topics which
could create antitrust concerns, or infringe any other law to which
the Parties are bound.
<PAGE>
6
2.6 The Parties will exchange monthly a report on the performance of the
respective businesses. The items of such a report will be agreed upon
by the Parties as soon as practical after the signature of this
Agreement, but they will not encompass any information which could
violate any law to which the Parties are bound.
2.7 A joint committee (the "Joint Committee") will be established. Two of
the top managers from each Party will be appointed as members of the
Joint Committee and shall convene at least twice a year, in order to
discuss and monitor the developments of the strategic alliance between
MIDAS and MARELLI.
3. Transfer of intellectual property of the Midas System
3.1 For the Territories MIDAS will license to MARELLI its trademark, and
the technology and know-how and any development and improvement
thereto relevant to the Midas System according to the License
Agreement to be signed at Closing.
MIDAS shall not be entitled to any other fee at any title whatsoever,
other than the Purchase Price set forth in section III.2.1 of this
Agreement, as may be adjusted, and the fees and royalties set forth in
the License Agreement.
3.2 If at any time during the term of the License Agreement, MIDAS stops
its activities with respect to the Midas System, then no royalties
will be due to MIDAS.
4. Developement in the Territories
No restrictions, except those contained in the existing franchising
contracts, will apply to the development of the Midas System as
defined in the License Agreement in the Territories pursuant to the
License Agreement provided that MARELLI (or any MARELLI affiliate or
FIAT affiliate), for the period of the non-competition clause set
forth in clause II.8.1 hereinafter, can only
<PAGE>
7
use the Midas System to conduct the Business in the Territories,
except as provided for in clause II.8.2 hereinafter.
5. Rights of first refusal and option rights
5.1 MIDAS agrees that for two years after the signature of this Agreement
it shall refrain from developing the Midas System in any New
Countries. At any time, after the second anniversary of the signature
of this Agreement, if MIDAS wishes to develop the Midas System in a
New Country, it shall request MARELLI to enter into such New Country
with the Midas System and MARELLI shall have 180 days time to agree or
reject such request. In case of rejection, MIDAS shall be entitled to
introduce the Midas System in such New Country directly or through
third parties.
5.2 In the event that MIDAS will decide to introduce the Midas System
through other parties in countries not included in the Territories and
listed in Annex D hereattached (the "New Countries"), then MARELLI
will have rights of first refusal to be exercised within 120 days from
the notification by MIDAS of such occurrence.
5.3 In both events, the Purchase Price for MARELLI for the development
rights for each New Country will be US $ 10.000 times the number of
potential shops calculated on the basis of the AAMA Data Vehicle
latest available on the car population in the concerned country. The
80% of such number will be divided by 50.000 and the result will be
the number of potential shops in such country.
5.4 A License Agreement in the form attached as Annex C will be issued for
each New Country which MARELLI develops with the Midas System.
5.5 MIDAS shall have rights of first option and first refusal as well to
acquire from MARELLI the assets and rights relevant to the Midas
System in any country if MARELLI ever wishes to no longer operate the
Midas System in
<PAGE>
8
a particular country, other than through a majority owned affiliate of
FIAT S.p.A.
If MIDAS, however, does not exercise the right of first option hereby
granted to it within 60 days after notification by MARELLI, MARELLI
can seek to sell those assets and rights provided that the buyer is
not a critical competitor for MIDAS in the Business and has US $ 25
million net worth. If MARELLI obtains an offer from a buyer, MIDAS
shall then have 60 days from notification to exercise its right of
first refusal on the same terms.
6 Supplies
6.1 If MIDAS enters into a business in the supply chain (manufacturing,
supplying or distribution) in any country in which MARELLI is engaged
in the Midas System, with products that are not being supplied by
MARELLI to the Midas System, MARELLI will grant MIDAS a preferred
supplier status so long as MIDAS products are of equal quality and
competitively priced.
6.2 MIDAS, as well, and upon same terms and conditions hereby grants to
MARELLI a preferred supplier status for the Midas System in North
America, for products that are not being supplied by MIDAS to the
Midas System in North America.
7 Distribution
If MARELLI decides to initiate distribution or to extend its
distribution network in the automotive after-market parts business in
new or existing countries where MIDAS is or will be present, and to
that purpose will require or desire a partner or an investor, MARELLI
is hereby assuring MIDAS that MIDAS will be considered for such
participation.
<PAGE>
9
8 Non-competition
8.1 In order to preserve the investments by MARELLI, MIDAS and franchisees
in the Midas System and the Business of the franchisees of the Midas
System, MARELLI and MIDAS agree not to compete with each other with
the Midas System in the Territories, or in other countries where the
Midas System exists, or in the New Countries for which MARELLI
exercised the rights provided for in clause II.5, for the period of
cooperation stated in clause II.1 and for 5 years thereafter.
8.2 MIDAS represents that for the Brasilian market Midas Silenciador SA
already granted an exclusive Master Franchise to Wheist.
Notwithstanding anything to the contrary above, should Wheist not
waive its exclusivity rights under the Master Franchise nor reach an
agreement with MARELLI, satisfactory to MARELLI, then MIDAS will not
prevent MARELLI from entering into the Brasilian market with its own
or anybody else's system.
In any event MIDAS will support MARELLI in its negotiations with
Wheist.
III. SALE AND PURCHASE OF MIDAS COMPANIES
1. Upon Closing Date MARELLI will acquire the MIDAS assets, interests and
Midas Companies in the Territories according to the following
provisions.
2. The transaction
2.1 The Purchase Price for the acquisition of MIDAS assets, interests and
Midas Companies in the Territories, will be US $ 84 million, pursuant
to Annex A on the assumption that the Net Invested Capital is and
will be no less than US $ 49 million.
2.2 Upon execution of this Agreement, and upon fullfilment of the
conditions precedent set forth in clause III.9 hereinafter, MARELLI
will acquire from
<PAGE>
10
MIDAS or Midas Companies all MIDAS assets, interests and Midas
Companies in the Territories at a Purchase Price, subject to clause
III.3, of US $ 84 million.
MIDAS hereby represents that its Austrian subsidiary is the Master
Franchisor and owns 49% equity interest in Midas Poland, and therefore
through the acquisition of the Austrian subsidiary, MARELLI will
indirectly acquire any and all title, rights and interests of MIDAS in
Poland at no extra cost.
The Parties anticipate that MIDAS, through its Austrian subsidiary,
will acquire the other 51% of the Polish joint venture prior to
Closing. In that case, MARELLI will pay MIDAS an additional amount
equal to MIDAS' purchase price of the 51% interest.
Furthermore MIDAS represents that its Spanish subsidiary is the Master
Franchisor for Brasil and therefore through the acquisition of the
Spanish subsidiary MARELLI will indirectly acquire all MIDAS rights
and interests in Brasil at no extra cost.
2.3 The transfer of MIDAS interests in each country concerned, will occur
by means of a stock sale of the relevant MIDAS subsidiaries and not
merely as a transfer of assets.
2.4 On or before any stock transfer contemplated herein MIDAS will settle
all intercompany and third parties loans relevant to the Midas
Companies involved.
2.5 All payments contemplated in this Agreement will be effected in US
dollars.
3. Adjustments of Purchase Price
3.1 The overall Purchase Price of MIDAS interests referred to in clause
III.2.1 has been established by the Parties on the assumption that the
Net Invested Capital of MIDAS in the business which is the object of
the Transaction is US $ 49 million, according to the criteria and
calculation of Net Invested Capital enclosed as Annex B hereto.
<PAGE>
11
3.2 Immediately after the signature of this Agreement, MARELLI will
perform a due diligence investigation including but not limited to the
Net Invested Capital of MIDAS in such activities, legal, tax,
accounts, real estate, labor matters.
The due diligence investigation will be performed within 30 days from
the date hereof.
3.3 If a deficiency in Net Invested Capital will result, unless contested
by MIDAS in which event clause III.3.5 will apply, and subject to the
provisions of section III.3.5, MARELLI will be entitled to an
adjustment of the relevant Purchase Price for an equal amount.
3.4 If a surplus in Net Invested Capital will result, then MIDAS will be
entitled to an adjustment for an equal amount.
3.5 In the event that MIDAS will contest a deficiency in Net Invested
Capital shown by the results of the due diligence investigation
performed by MARELLI under clauses III.3.2, III.3.3 and III.3.4 above,
then within 10 days the Parties shall appoint an independent auditor
(the "Independent Auditor"). The Independent Auditor within 15 days
from its appointment shall deliver its determinations of Net
Invested Capital to the Parties, which determinations shall be final
and binding on the Parties. If a deficiency of Net Invested Capital
arises which is US $ 5 million or less, MARELLI shall be entitled to
an adjustment of the Purchase Price as provided in section III.3.3. If
a deficiency of Net Invested Capital arises which is over and above
US $ 5 million, the Parties shall negotiate with respect to any amount
which is in excess of the US $ 5 million. Failing an agreement about
the payment of such excess amount either Party shall have the right
to terminate this Agreement. Fees, costs and expenses of the
Independent Auditor shall be equally shared between the Parties.
<PAGE>
12
4. Covenants
MIDAS, during the period between the date hereof and the Closing Date,
except as expressly contemplated by this Agreement or otherwise
consented to by MARELLI in writing, agrees to the following.
4.1 The Midas Companies shall be conducted only in the ordinary course of
business and in accordance with past practices, which were in
accordance with the law, prudent and customary in all material
respects under the circumstances, and no liability unrelated to the
ordinary course of business shall be incurred.
4.2 No action shall be taken by MIDAS, and/or the Midas Companies, that
may affect or modify the business or the organization of the Midas
Companies, except for those certain shareholder and corporate
structure changes which have been disclosed to MARELLI.
No employees, consultants, commercial agents or representatives of the
Midas Companies shall be hired or dismissed; none or the respective
rights and obligations thereof shall be modified, except in the
ordinary course of business in accordance with past practices or as
mandated by law or applicable national collective bargaining
agreements.
4.3 No leases, real estate conveyances, major contracts (including
licensing or distribution agreements, mortgages, pledges, joint
venture agreements, loans or credit agreements) of any of the Midas
Companies shall be made, amended or terminated.
4.4 No contracts or commitments shall be entered into by or on behalf of
any of the Midas Companies that extend beyond the Closing Date, or
involve the purchase, sale, or encumbrance of fixed assets, except
commitments which are normal in the ordinary course of the business.
4.5 None of the Midas Companies shall commence any litigation, except for
those which are necessary to preserve their business or their rights,
provided
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13
that MARELLI shall be immediately informed thereof and kept fully
informed of any development; in addition, none of the Midas Companies
shall settle any threatened or pending litigation without the prior
consent of MARELLI.
4.6 No transaction shall take place between any of the Midas Companies,
MIDAS and their respective shareholders, or any subsidiary or
affiliated company thereof, except transactions at arm's length or
transactions which were not and shall not be detrimental to the Midas
Companies.
5. Representation and warranties by MIDAS
MIDAS acknowledges that MARELLI is entering into the Agreement in full
reliance upon its representations and warranties. Therefore, MIDAS
hereby represents and warrants to MARELLI as follows:
5.1 Midas Companies
5.1.1 The Midas Companies are duly organized, validly existing and
in good standing under relevant laws. The Midas Companies
have all the requisite power and authority to carry out
their activities and have always observed the corporate law
requirements and the regulations regarding the corporate
books, and any other documents necessary for the regular
performance of the Midas Companies' activity.
5.1.2 The Midas Companies are not insolvent nor have been declared
bankrupt, and no action or request is pending to declare the
Midas Companies bankrupt or to make the Midas Companies
subject to any proceeding contemplated by their relevant
bankruptcy law.
5.1.3 The Midas Companies collectively are capable of operating
and fully equipped to operate on a self-sufficient basis,
and no
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14
services provided for by MIDAS and/or any of its
subsidiaries or affiliated companies outside the Midas
Companies, are necessary for the orderly operations of the
Midas Companies.
5.2 Corporate Capital
5.2.1 The corporate capital of the Midas Companies is duly and
validly issued, fully paid in.
5.2.2 The shares held by MIDAS in the Midas Companies are the
exclusive property of MIDAS or other MIDAS subsidiaries.
There are no capital increases, issuance of shares or other
operations relating to the capital of the Midas Companies
pending or authorized, except those mentioned in clause
III.4.2.
5.2.3 All the shares of the Midas Companies are free from any and
all pledges, restrictions, obligations, sequestration,
privileges, claims, options, usufruct, burdens or
encumbrances, rights or claims of third parties for the
acquisition of the shares or any interest therein, or for
the issuance of other shares or quotas of the Midas
Companies.
5.2.4 MIDAS may enter into and perform this Agreement without the
necessity of obtaining the consent, authorization, or
approval from any third parties or public authorities,
except as indicated in this Agreement. The drafting of this
Agreement, and the carrying out of the transactions
contemplated herein, shall not violate the deed of
incorporation or the by-laws of the Midas Companies, or
constitute a breach of any agreement or contract which
MIDAS, and/or the Midas Companies are a party to.
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15
5.3 Accounts
5.3.1 The Accounts are true, accurate, and complete, and were
drafted in compliance with the Accounting Principles and
fairly presents the situation of the Midas Companies on such
dates.
5.3.2 The Liabilities in the Accounts are fairly presented.
5.4 Assets and Liabilities
5.4.1 The Midas Companies have, or shall have, on the Closing
Date, full title, exclusive possession and use of all the
material and immaterial assets utilized in their activity,
free from any and all mortgages, pledges, encumbrances,
privileges, registrations, and rights of third parties.
5.4.2 The Midas Companies have, or shall have on the Closing Date
all the authorizations, licenses, concessions, permits,
certifications and registrations necessary and advisable for
the carrying out of their respective activities, and for the
regular use of their assets.
5.4.3 None of the Midas Companies has agreed to make any material
investment in any project which will not be disclosed to
MARELLI.
5.4.4 To the best of MIDAS knowledge and belief, the Midas
Companies (and MIDAS, as far as its activity may have any
impact on the Midas Companies, their properties and
businesses) have materially complied and are in material
compliance with all applicable laws, statutes, rules,
regulations, orders, authorizations, licenses, or decrees
promulgated by any supranational, national, regional or
local governmental authority, or department, bureau, board,
agency, or division
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16
thereof, relating to the operations and conduct of their
respective properties and businesses.
In particular, as of today's date and until the Closing
Date, there are no facts that have taken place or may take
place which would make any of the Midas Companies
responsible for material violations of third party rights,
and in general, violations of provisions in the matters of
zoning, safety, hygiene, health, environmental protection
and pollution.
Neither the Midas Companies nor MIDAS (as far as the
operations or properties of the Midas Companies may be
affected) are currently in receipt of any notice of alleged
material violations of any laws, statutes, rules,
regulations, orders, authorizations, licenses, or decrees.
5.4.5 The Assets utilized by the Midas Companies, including real
estate, plants, machinery, equipment and any other movable
property are in a good state of preservation and efficiency,
except for the wear and tear due to normal use; the Assets
comply with all the applicable regulations as required by
law for the performance and continuation of the Midas
Companies' activities with respect to, among others,
manufacturing, safety, hygiene, health, environmental
protection and pollution.
5.4.6 The accounts receivable and notes reflected on the assets
side of the Accounts of the Midas Companies are valid,
existing and collectable in accordance with their terms and
past practice (with the exception of the reserves set aside
in the Accounts for such purpose), and are not subject to
any dispute or right of cancellation.
5.4.7 The inventory of the Midas Companies is reflected in the
Accounts, is preserved in normal condition, free from
defects, and has been evaluated in a manner consistent with
the Accounting Principles.
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17
5.4.8 Except to the extent reflected or reserved for in full in
the Accounts or disclosed to MARELLI, the Midas Companies
shall have no material Liabilities of any nature, including
labor, tax, social security, customs, environmental or other
Liabilities, which were incurred by them on or prior to the
Closing Date, or arose or arise out of transactions entered
into, or facts, acts or omissions occurring on or prior to
that date.
At present, and on the Closing Date, the Liabilities
mentioned above are and shall be duly indicated in the Midas
Companies' books and those created between the date hereof
and the Closing Date are and shall be the consequence of the
ordinary, day-to day business activity carried out by the
Midas Companies. There are no laws, statutes, rules,
regulations, orders, authorizations, licenses or decrees in
existence or, to the best knowledge of MIDAS and the Midas
Companies, proposed, which require or would require
extraordinary actions or material expenditures by or on
behalf of the Midas Companies.
5.5 Taxes and Social Security
Except as disclosed to MARELLI, the Midas Companies and, as far as the
operations or properties of the Midas Companies may be affected,
MIDAS:
(i) have fully and timely complied with all requirements in the
matters of tax, social security and customs charges,
withholdings, and other contributions;
(ii) have duly and timely filed accurate and complete tax, social
security, customs and any other report, notice, or
documentation with the competent tax, social security and
customs authority;
(iii) have regularly and timely made all payments and withholdings
with respect to taxes, social security and other
contributions, and customs duties;
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18
(iv) have duly indicated in the Accounts all credits, obligations
or Liabilities related to taxes, social security or other
contributions and customs matters; and
(v) have not received any past due assessment, injunction, request
for payment, or any other communication from tax, social
security, or customs authorities over the last 5 years, which
are still pending.
5.6 Intellectual Property Rights
5.6.1 Except as otherwise disclosed to MARELLI, the Midas
Companies hold exclusive and full title to all the patents,
trademarks, commercial trade names, formulas, inventions,
copyright, know-how or any other right of intellectual or
commercial property utilized in their activity (the
"Intellectual Property"). The Intellectual Property will be
fully disclosed to MARELLI during the due diligence
investigation, is valid, effective, and in existence under
relevant laws and the Intellectual Property may be utilized
without violation of third parties' rights, except to the
extent licensed in franchise contracts which are being
acquired by MARELLI. To the best knowledge of MIDAS and the
Midas Companies, the rights of any of the Midas Companies
have not been violated by acts of third parties.
5.6.2 Except as will be disclosed to MARELLI, there does not exist
any agreement, contract, nor obligation which grants,
reserves, or guarantees to any third parties, the license or
right to use the Intellectual Property in the Territories;
in the same manner, the Midas Companies have no obligations
with respect to third parties for royalties or any other
obligations in relation to the utilization of the
Intellectual Property.
5.6.3 The software programs presently used by the Midas Companies
are all those necessary for the operations, management and
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19
administration of the Midas Companies and are the property
of the Midas Companies, which hold the source code of such
programs, except as otherwise will be disclosed to MARELLI.
5.7 Labor Relations
5.7.1 The employees of the Midas Companies (divided by category)
are reported in Annex E.
The general terms and conditions of their employment will be
communicated to MARELLI in connection with the due
diligence.
There are no facts based on acts or omissions of any of the
Midas Companies from which a material claim by any of the
respective employees can be derived.
5.7.2 No key manager or employee has officially expressed his/her
intention to resign from his/her position with any of the
Midas Companies.
5.7.3 The consultants of the Midas Companies, as well as the terms
and conditions of their relationship with the Midas
Companies, have been communicated to MARELLI. The Midas
Companies do not have any agent and there is no person who
may claim the status of agent from any of the Midas
Companies. There are no facts based on acts or omissions of
any of the Midas Companies from which a claim by any
consultants can be derived.
5.7.4 Contracts or understandings between any of the Midas
Companies and their employees or managers, and which contain
(or shall contain at the Closing Date) provisions that are
more favorable than those required by law or by the
applicable national collective bargaining agreements, will
be disclosed to MARELLI in connection with the due
diligence.
<PAGE>
20
5.8 Relevant Contracts and Obligations
5.8.1 All the existing Franchise Agreements that MIDAS or the
Midas Companies hold with franchisees in the Territories are
valid and binding between the parties and none of them is
terminable as a consequence of the present Transaction.
5.8.2 Except for the Franchise Agreements referred to in clause
III.5.8.1 above, leases for Midas Shops in the normal course
of business, and except for the contracts listed in Annex F
(to be provided by MIDAS on or before the Closing Date),
there does not exist any contract in the course of
performance between any of the Midas Companies and third
parties, whether oral or written, that holds any of the
Midas Companies liable for an amount more than US $50,000,
or which contains provisions for any indeterminate time
without the right of the Midas Companies to withdraw or give
the Midas Companies the right of withdrawal by means of a
notice period of more than twelve (12) months (except for
contracts necessary for the ordinary administration of the
Midas Companies, such as telephone, water, and electricity
supplies). All contracts which the Midas Companies are a
party to are valid, and are being regularly and timely
fulfilled by the Parties.
5.8.3 Except as will be disclosed to MARELLI, the Midas Companies
have not issued any guarantee in favor or in the interest of
any third parties, including MIDAS or other Midas
subsidiaries, or affiliates.
5.8.4 The Midas Companies are not a party to contracts beyond the
normal course of business.
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21
5.8.5 All transactions between the Midas Companies, MIDAS and/or
any subsidiary or affiliated company of MIDAS shall be at
arm's length.
5.9 Litigation
Except as will be disclosed to MARELLI, none of the Midas Companies is
engaged in any arbitration, civil, criminal, administrative or fiscal
proceedings, and there are no threatened proceedings of such nature
which may result in liabilities or have a negative effect on the
activity and use of their Assets by the Midas Companies.
5.10 Environmental, Health and Safety Matters
5.10.1 None of the Midas Companies is in material violation of any
environmental, health and safety statute, decree,
regulation, rule, order, license, permit, approval, or
authorization in force from time to time (the "Environmental
Rules").
5.10.2 All necessary licenses, permits, approvals and
authorizations for the performance of the activities of the
Midas Companies are, or will be at Closing, in full force
and effect and have not been suspended, canceled, revoked,
or non-renewed for any reason whatsoever.
5.10.3 The Midas Companies have made all modifications and
investments necessary to remain in material compliance with
the Environmental Rules.
5.10.4 The Midas Companies have paid or accrued all duties, levies,
taxes and fees, if any, especially those concerning waste
disposal or water discharges, as well as all other duties,
levies or taxes imposed on its activities, if any.
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22
5.10.5 The Midas Companies have satisfied their obligations, if
any, to keep books and registers for dangerous substances
and any other books and registers that are mandatory under
the Environmental Rules.
5.10.6 The Midas Companies have made all filings required by the
Environmental Rules.
5.10.7 There are no inspections pending by any governmental agency.
5.10.8 The Midas Companies have not received notice and have no
knowledge of any dangerous substance, waste or any other
pollutant, contaminant, or chemical, as regulated by the
Environmental Rules, which has been illegally disposed of or
arranged for disposal at, or found at a site where there is
a release or a threatened release of those substances.
5.11 Insurance
The Midas Companies carry the necessary insurance coverage for the
performance of their activities; payment for the relative premiums
have been regularly made until present and shall be made until the
Closing Date. No claims of liability have been brought forward in
relation to such policies which are still pending.
5.12 Claims by Third Parties
The signing and execution of the Agreement shall not give third
parties, that have or may have relations with MIDAS or the Midas
Companies, the right to demand the advance payment of accounts
receivable, guarantees, to withdraw or terminate contracts or to
modify existing relations with the Midas Companies.
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23
5.13 Miscellaneous
5.13.1 The declarations and warranties set forth herein shall be
true, accurate, complete and not misleading on the Closing
Date, even if not expressly repeated. MIDAS undertakes to
promptly communicate to MARELLI, on or after the Closing
Date and for the entire duration of their Liability under
the Agreement, any and all material circumstances - which
have taken place on or before the Closing Date - that are
susceptible of rendering untrue, inaccurate, or incomplete
the above-mentioned declarations or warranties.
5.13.2 No information supplied to MARELLI, nor declaration or
warranty of MIDAS contained in the Agreement, and/or other
documents shall contain any material untrue, inaccurate or
incomplete statements or facts. MIDAS has not failed to
deliver any documents, or failed to make reference to any
fact or data, in such a manner as to modify in substance
and/or to render deceptive or misleading, the
representations, warranties, and information contained
herein.
5.13.3 MIDAS has all requisite power and authority to execute and
perform the Agreement and carry out the transactions
contemplated thereby, and when executed, shall constitute a
valid and binding obligation of MIDAS, enforceable in
accordance with its terms.
5.13.4 There is no firm, corporation, or person that is entitled to
a finder's fee or any type of brokerage commission in
relation to or in connection with the transactions
contemplated by the Agreement as a result of any agreement
or understanding with MIDAS, that may claim a brokerage or
other commission from MARELLI.
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24
6. Representations and warranties by MARELLI
MARELLI represents and warrants to MIDAS as follows:
6.1 MARELLI is a corporation duly organized, validly existing and in good
standing under the laws of the Republic of Italy.
6.2 MARELLI is not insolvent nor has been declared bankrupt, and no action
or request is pending to declare MARELLI bankrupt or to make MARELLI
subject to any proceeding contemplated by the bankruptcy law of the
Republic of Italy.
6.3 MARELLI has all requisite power and authority to execute and perform
the Agreement and carry out the transactions contemplated thereby,
when executed, shall constitute a valid and binding obligation of
MARELLI enforceable in accordance with its terms.
6.4 There is no firm, corporation, or other person that is entitled to a
finder's fee or any type of brokerage commission in relation to or in
connection with the transactions contemplated herein as a result of
any agreement or understanding or dealing with MARELLI that may claim
a brokerage or other commissions from MIDAS.
6.5 MARELLI may enter into the Agreement without the necessity of
obtaining the consent, authorization, or approval from any third
parties or public authorities, except as indicated in the Agreement.
The drafting of the Agreement, and the carrying out of the
transactions contemplated therein, shall not violate the deed of
incorporation nor the by-laws of MARELLI, nor constitute a breach of
any agreement or contract of which MARELLI is a party to.
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25
7. Obligations of MARELLI
7.1 MARELLI agrees that no portion of the net operating loss carryovers
generated through the date of acquisition of Midas Spain, Inc,
(sucursal en Espana) and Midas Italia Srl, will be used to offset the
income of another person under the laws of Spain and Italy,
respectively.
7.2 MARELLI will provide annual certification to MIDAS that the net
operating loss carryovers generated through the date of acquisition of
Midas Spain, Inc. (sucursal en Espana) and Midas Italy, Srl, were not
used to offset the income of another person under the laws of Spain
and Italy, respectively. The annual certification will be required
through the last year that the net operating loss carryover is
available to offset the income in the respective country.
7.3 MARELLI will cooperate with MIDAS and provide the necessary
information to allow MIDAS to prepare Form 5471, Annual Return of
Controlled Foreign Corporation, for the year ended including the year
of the acquisition. MARELLI will provide the information in the format
used in prior years and provide the information within 4 months
following the closing of the Transaction.
7.4 In the event that any amounts payable by MARELLI to MIDAS are subject
to withholding or other taxes that MARELLI is required to deduct from
such payments, MARELLI shall promptly deliver to MIDAS receipts of
applicable governmental authorities for all such taxes withheld or
paid. MARELLI shall be responsible for and shall indemnify and hold
MIDAS harmless against any penalties, interest and expenses incurred
by MARELLI for failure to withhold and timely remit the taxes to the
appropriate taxing authority.
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26
8. Indemnification by MIDAS
8.1 Without in any way limiting any other obligation imposed upon it in
accordance with the law or the terms of this Agreement, as an
inducement to MARELLI to enter into this Agreement and in
consideration of MARELLI's undertakings hereunder, MIDAS agrees to
hold harmless and indemnify MARELLI or, at the option of MARELLI, the
Midas Companies, and their respective successors (by operation of law
or pursuant to an assignment permitted under the terms of this
Agreement), if any, from and against any Liabilities existing on the
Closing Date relating to the Midas Companies' operations which are
caused by MIDAS or the Midas Companies. Notwithstanding anything
contained herein to the contrary, MIDAS shall not be required to
indemnify MARELLI with respect to, and MARELLI shall assume full
responsibility for, any and all Liabilities that either (i) are
reflected or reserved against on the books and Accounts of the Midas
Companies, or (ii) were otherwise accurately disclosed or known to
MARELLI at any time on or prior to the Closing Date. The Parties agree
that the indemnity provided for in this clause III.8 shall be the
exclusive remedy of MARELLI and/or the Midas Companies for violations
by MIDAS of the representations and warranties set forth in clause
III.5 herein, to the exclusion of any other remedy provided by law or
otherwise.
8.2 The representations and warranties of MIDAS set forth in clause
III.5.1 (Companies), III.5.2 (Corporate Capital), III.5.5 (Taxes and
Social Security), III.5.7 (Labor Relations), shall last for the period
of the statute of limitations applicable to the underlying claims.
The representations and warranties of MIDAS set forth in clause
III.5.10 (Environmental, Health and Safety Matters) shall last for a
period of seven years from the Closing Date.
All the other representations and warranties of MIDAS set forth in
clause III.5 shall last for a period of three years from the Closing
Date.
In any event, the representations and warranties by MIDAS shall
continue until final adjudication of any claim or demand brought by
MARELLI against MIDAS prior to the expiration of such periods.
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27
8.3 The liability of MIDAS under this clause shall be subject to an
aggregate deductible of US $ 500,000, so that MARELLI and/or the Midas
Companies shall have no indemnification rights until the liability of
MIDAS under this clause has reached, in the aggregate, such amount and
the obligation of MIDAS to indemnify MARELLI and/or the Midas
Companies shall be limited to any sum in excess of that amount.
In no event will the responsibility of MIDAS under this clause III.8
exceed US $ 51 million.
The indemnity provided for in this clause III.8 shall be limited to
the after-tax amount of any Liability, if and to the extent any such
Liability is tax deductible for the Midas Companies or their
affiliates or shareholders, and indeed reduces the amount of corporate
income tax payable by the Midas Companies or their affiliates or
shareholders in the year in which the Liability is incurred or in any
subsequent year.
8.4 If MARELLI is of the opinion that MIDAS is liable on the basis of the
proceeding provisions, it shall address in a reasonably timely fashion
its request to MIDAS, by registered letter return receipt requested,
indicating the reasons and the amount, if known, of such request.
8.5 Within thirty business days after receipt of the aforesaid registered
letter, MIDAS shall notify MARELLI by means of registered letter
return receipt requested, of any objection (explaining the reasons and
the grounds thereof) that it might have in connection with the request
submitted by MARELLI; in the event that MIDAS agrees or fails to
object within the above time limit, MIDAS shall pay promptly to
MARELLI the entire amount requested by the latter (with value date
to be the day upon which the Liability is actually paid or accrued by
MARELLI or the Midas Companies), as the case may be.
In the event, instead, that MIDAS duly objects to MARELLI's request,
the dispute shall be resolved by arbitration pursuant to section V
below. The amounts due by MIDAS to MARELLI, under each arbitration
procedure,
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28
shall be paid in full within five working days of the receipt of the
arbitration award.
8.6 In the event of a Liability as a consequence of the actions or claims
by third parties (including administrative and tax authorities),
MARELLI and/or the Midas Companies shall diligently and timely oppose
the proposed claims; MIDAS shall be entitled to appoint a lawyer or
consultant of its own who will join those appointed by MARELLI or the
Midas Companies, it being understood that MARELLI and/or the Midas
Companies will not be entitled to waive any right or settle any
controversy without MIDAS's prior consent, which cannot be
unreasonably withheld.
9. Conditions precedent
The obligations of MARELLI as provided in this Agreement are subject
to the satisfaction, on or before the Closing Date, of all of the
conditions in its favor set forth in this Agreement and, in
particular, in this clause III.9. MARELLI may in writing waive any or
all of said conditions, in whole or in part, without prior notice;
provided, however, that no such waiver of a condition shall constitute
a waiver by MARELLI of any other condition or right or action under
this Agreement. The conditions precedent in favor of MARELLI shall be
the following and shall be fully and exactly fulfilled also on the
Closing Date:
9.1 All representations and warranties by MIDAS contained in this
Agreement, or in any written statement or instrument delivered to
MARELLI pursuant to this Agreement shall be true, correct and not
misleading in all material respect on and as of the Closing Date as
though such representations and warranties were made at and as of such
date.
9.2 MIDAS shall have in all material respects performed, satisfied, and
complied with all covenants and agreements, and satisfied all
conditions that it is respectively required by this Agreement to
perform, comply with, or satisfy, on or before the Closing Date.
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29
9.3 During the period between the date hereof and the Closing Date, there
shall not have been any material adverse change in the results of the
operations of the Midas Companies taken as a whole, and the Midas
Companies shall not have sustained any material loss or damage,
whether or not insured, that affects their ability to conduct a part
of their business, or results in a diminution in the value of their
business, taken as a whole.
9.4 No action or proceeding shall be pending or threatened by or before
any court, administrative agency, or any other entity, seeking to
restrain or prevent or declare unlawful, or seeking damages in
connection with, any of the transactions contemplated by this
Agreement or any aspect thereof, or the acquisition of a controlling
interest in the Midas Companies.
9.5 MAPELLI and MIDAS shall have received all approvals necessary for the
completion of the transactions contemplated herein.
9.6 The Parties hereto shall use their best efforts to satisfy all
conditions precedent contained in this Agreement, and shall cooperate
with each other in every way in carrying out the transactions
contemplated by this Agreement, in obtaining any and all required
approvals, permits, and authorizations, in filing the notifications
and reports, if any, which may be required, and in executing and
delivering all documents, instruments, and copies thereof necessary or
useful to the other Party.
9.7 Should the conditions precedent provided for herein not have been
fulfilled (or waived by the interested Party) on or before December
31, 1998, either Party shall have the right to terminate this
Agreement by notice to the other Party by registered letter, return
receipt requested. Such terminations shall not give the right to
either Party to claim damages, except in case of willful misconduct or
gross negligence or breach of this Agreement.
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IV. MISCELLANEOUS PROVISIONS
1. The Parties agree that clause I and clause 8.1 of section II and the
terms and conditions of the License Agreement are of the essence to
this Agreement.
The Parties further agree to seek comfort from the Commission of the
European Community that the provisions of this Agreement and of the
License Agreement do not contravene Article 85(1) EC or would qualify
for an exemption under Article 85(3) EC.
If all or a portion of clause 1 and clause 8.1 of section II or the
License Agreement is adversely affected to the detriment of MIDAS or
MARELLI as the result of any action taken by any governmental,
judicial, administrative or other body having jurisdiction over the
transactions contemplated by this Agreement, including the Commission
of the European Community, then the Parties agree to renegotiate in
good faith the terms of this Agreement and the License Agreement to
reflect the change in the terms of clause 1 and clause 8.1 of section
II or the License Agreement.
2. Confidentiality
MARELLI and MIDAS shall keep, and shall cause their officers,
directors, employees and consultants to keep, secret and confidential
the terms and conditions of this Agreement, provided that neither
Party shall be in breach of this provision by virtue of any disclosure
required by law or regulatory authorities, or made pursuant to an
arbitration proceeding under clause V.2 below, or if necessary to
enforce performance of this Agreement.
3. Right to Designate
MARELLI may designate one or more persons to purchase the Midas
Companies provided that such designation is notified in writing to
MIDAS on or before the Closing Date and each designee is a majority
owned subsidiary of FIAT SpA, and provided that no such designation
shall relieve MARELLI from any of its obligations hereunder.
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4. Right to Assign
MARELLI shall have the right to assign this Agreement, in whole or in
part, including any rights and claims arising thereunder, without
relief of its obligations to any majority owned subsidiary of FIAT
SpA, and MIDAS hereby consents to such assignment.
5. No Waiver
No waiver of any right, breach or default hereunder shall be
considered valid unless expressly made in writing and executed by the
Party giving such waiver, and no waiver shall be deemed a waiver of a
subsequent breach or default, whether or not of the same or similar
nature.
6. Entire Agreement
This Agreement, including Annexes and the License Agreement to be
executed at the Closing, constitutes the entire agreement between the
Parties with respect to the transactions contemplated by the Agreement
and supersede any prior understanding, written or oral, with respect
to such transactions or any other matter peripheral or ancillary
thereto.
7. Changes in Writing
No amendment of or supplement to the Agreement shall be valid or
effective unless in writing and executed by the Parties hereto or
their successors.
8. Headings
The article headings contained in this Agreement are for the purpose
of convenience only and do not constitute a part of the text of the
Agreement.
<PAGE>
32
9. Partial Invalidity
In the event of invalidity, ineffectiveness, or unacceptability to any
competent supervisory or regulatory authority of any non-essential
provision of this Agreement, or portions thereof, the remaining
portions of this Agreement shall not be affected thereby but the
Parties agree to negotiate in good faith to replace such provision, or
portions thereof, with other valid and effective agreements having, as
far as legally permissible, substantially the same effect, having
regard to the subject matter and purposes of this Agreement.
10. Expenses
Each Party shall bear all costs and expenses for legal, accounting or
other purposes, incurred by it in connection with the negotiation,
preparation, execution of, and performance under this Agreement.
11. Notices
Notices or communication required or permitted to be given hereunder
shall be in writing, in English and, except as otherwise specifically
provided for in this Agreement, shall be sent by telex, hand
delivered letter, telecopier (confirmed by registered mail) or by
registered mail, return receipt requested, addressed as follows:
As to MIDAS: MIDAS INTERNATIONAL CORPORATION
225 North MICHIGAN AVENUE
Chicago, Illinois 60601
Fax: (312)565-3994
Attn.: Chief Executive Officer
Copy to: General Counsel
<PAGE>
33
As to MARELLI: MAGNETI MARELLI S.p.A.
V.le Borletti 61/63
20011 Corbetta (Milano) - Italia
Fax: (02)972.27754
Attn. Chief Executive Officer
----
Copy to: General Counsel
-------
The Parties shall have the right to amend, by written communication
pursuant hereto, the above respective addresses. All notices shall be
deemed received when actually received at the above addresses.
V. APPLICABLE LAW AND ARBITRATION
------------------------------
1. Applicable law
--------------
This Agreement shall be governed by, and construed and enforced in
accordance with Swiss law.
2. Arbitration
-----------
The Parties shall use their best good faith efforts to settle in an
amicable way any dispute that might arise between or among them in
connection with this Agreement or the carrying out of the transactions
contemplated herein. Should any Party consider it not possible to
reach an amicable settlement, then the dispute shall be settled by
arbitration in Geneva under the UNCITRAL Arbitration Rules by a panel
of three arbitrators, one to be appointed by each of MIDAS and
MARELLI, and the other to be appointed by agreement between MIDAS and
MARELLI, or, failing such agreement, in accordance with the UNCITRAL
Rules. The Appointing Authority shall be the President (for the time
being) of the Tribunal of Geneva. The language of the arbitration
shall be English.
The arbitration award shall be final and binding between the Parties.
<PAGE>
34
MARELLI and/or the Midas Companies may involve MIDAS in any law suit
brought by a third party against any of the Midas Companies in order
to enforce MIDAS indemnification provided for in this Agreement.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
by their respective officers or representatives thereunto duly authorized, all
in the place and as of the date first above written.
FOR MIDAS INTERNATIONAL CORPORATION FOR MAGNETI MARELLI S.p.A.
By: /s/ Wendel H. Province /s/ By: Domenico Bordone
...................... ........................
WENDEL H. PROVINCE DOMENICO BORDONE
CHAIRMAN AND PRESIDENT AND
CHIEF EXECUTIVE OFFICER CHIEF EXECUTIVE OFFICER
<PAGE>
Annex A
-------
<TABLE>
<CAPTION>
Midas Companies Price (000-US$)
-----
<S> <C>
Midas Spain, Inc. (US) - Spain 500
Midas Italy, Inc. (US) - Owns 90% of Midas Italia 630
Midas Euro, Inc. (US) - Owns 10% of Midas Italia 70
Midas Europe, SAM (Monaco) 200
Midas Silenciador, SA - Spain 14,000
Midas Autoservice GmbH - Austria 4,300
Midas Schweiz AG - Switzerland 500
Midas France, SA - France 54,000
Midas SA - Belgium 5,800
Carex Uitlaacenter NV - Belgium 4,000
- ----------------------------------------------------------------------
Total Purchase Price 84,000
</TABLE>
<PAGE>
Annex B
-------
Midas, Inc.
Balance Sheets as of July 31, 1998
U.S. Dollars Based on Exchange Rates as of Balance Sheet Date
<TABLE>
<CAPTION>
European Operations
---------------------------------------------------------------- European Total
French Belgium Spanish Italian Austrian Swiss HQ Europe
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash $ 6,076 $ 793 $ 1,409 $ 458 $ 338 $176 $ - $ 9,250
Receivables 15,739 1,869 2,323 119 56 7 557 20,670
Inventory 6,788 2,600 1,777 107 452 144 - 11,868
Other Current assets 2,8O6 175 209 13 24 40 11 3,278
--------------------------------------------------------------------------------------
Total Current assets 31,409 5,437 5,718 697 870 367 568 45,066
Investments in joint venture - - - - 360 - - 360
Fixed assets 14,413 4,182 4,440 403 658 73 120 24,289
Intangibles 8,275 75 224 4 61 - 6 8,645
Other assets 3,707 100 724 84 - - 15 4,630
--------------------------------------------------------------------------------------
Total assets 57,804 9,794 11,106 1,188 1,949 440 709 82,990
--------------------------------------------------------------------------------------
Liabilities:
Accounts payable 17,595 1,651 2,342 215 192 39 68 22,102
Income taxes payable 1,115 - (12) (10) - - - 1,093
Accrued wages payable 2,391 1,221 163 245 132 5 253 4,410
Accrued taxes other than income taxes 3,385 219 187 39 49 7 179 4,065
Accrued interest 698 - - - - - - 698
Accrued expenses 435 542 145 283 165 21 410 2,001
--------------------------------------------------------------------------------------
Total Liabilities 25,619 3,633 2,825 772 538 72 910 34,369
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Net Invested Capital (1) $32,185 $6,161 $ 8,281 $ 416 $1,411 $368 $(201) $48,621
======================================================================================
</TABLE>
(1) As defined per agreement. All intercompany and third party debt has been
eliminated.
<PAGE>
Annex C
-------
LICENSE AGREEMENT
-----------------
Midas International Corporation ("Midas") for, and in consideration
of, the promises and covenants herein contained, hereby grants to Magneti
Marelli, S.p.A ("Licensee") the exclusive right, license and privilege (the
"License") to use and authorize others to use the Midas System and the
Licensed Marks (both as defined in Exhibit A, and collectively referred to as
the "Intellectual Property") in the Territory solely in connection with the
performance of services in the automotive aftermarket repair and service
industry.
Territory: The License is limited to those countries and territories listed
on Exhibit A (the "Territory"). Licensee agrees that it will not make, or
authorize, any use, direct or indirect, of the Intellectual Property in any
other area.
Term: The term of this License as it applies to the Licensed Marks shall be
for a period of thirty (30) years beginning on the date indicated immediately
above the signatures to this License, with an option by Licensee to extend such
License for additional thirty (30) year periods on the same terms and
conditions. The term of this License as it applies to the Midas System shall be
fifteen (15) years from the date hereof. Thereafter, MARELLI's (including its
successors and assigns, if any) use of the Midas System will be on a non-
exclusive basis.
Fee and Royalty: Licensee is paying Midas at the signing of this Agreement
a License Fee of Sixteen Million Dollars (US$16,000,000). In addition, Licensee
shall pay Midas a monthly royalty based upon the total Gross Revenue (as defined
in Exhibit A) of all retail shops using the Intellectual Property in the
Territory pursuant to the Royalty Schedule (as defined in Exhibit A).
Payment: Royalty payments for each month shall be made in U.S. currency and
shall be received by Midas by the 20th day of the following month, accompanied
by a statement certified to be accurate by Licensee showing the Gross Revenues
for the preceding month. Midas shall have the right upon reasonable notice, to
examine and copy Licensee's books of account and records insofar as they
relate to the Gross Revenues reported to Midas.
Exclusive Property of Midas: Licensee acknowledges that the Intellectual
Property belongs exclusively to Midas and that upon expiration or termination of
this License, Licensee shall cease all use of the Intellectual Property promptly
and will not use the same thereafter. Licensee agrees not to misuse or harm or
bring into public disrepute the Intellectual Property. Licensee agrees to
cooperate fully and in good faith with Midas for the purpose of securing and
preserving Midas' rights in and to the Intellectual Property.
Notices: All notices, requests, approvals, disapprovals, consents and
statements and all payments made hereunder shall be given or made at the
respective addresses of Midas and Licensee set forth on Exhibit A unless
notification of a change of address is given in writing.
No Assignment: This Agreement and any rights granted herein shall not be
assigned by Licensee without written consent of Midas, except that no consent
will be required if the assignment is to a majority owned subsidiary company.
Governing Law and Forum: This Agreement, including all matters relating to
the validity, construction, performance and enforcement thereof shall be
governed by United States law. The only proper forums for the resolution of
disputes arising under this Agreement shall be Chicago, Illinois, USA
and_____________.
This Agreement is entered into as of _______________, 1998.
Midas International Corporation Magneti Marelli S.p.A.
By:_____________________________ By:______________________________
Wendel H. Province Domenico Bordone
Chairman and Chief Executive President and Chief Executive
Officer Officer
Witness:________________________ Witness:_________________________
<PAGE>
38
EXHIBIT A
--------
Midas System means Midas' unique system for the establishment, management
and operation of automotive specialty shops known as "Midas Shops", which engage
in the sale and installation of products and services in the automotive
aftemarket repair and service industry. The Midas System includes proprietary
know-how relating to site selection, shop construction and layout, equipment
selection and installation, purchasing and inventory control methods, accounting
methods, merchandising, advertising, sales, and promotional techniques,
installation techniques, personnel training, and other matters relating to the
efficient and successful operation of said Midas Shops and the maintenance of
high standards of quality.
Licensed Marks means all presently registered trademarks and service marks,
together with any trademarks or service marks which may be registered by Midas
in the future, in the Territory.
Territory shall mean the countries of Italy, Spain, Brazil, Portugal,
Austria, Poland, Switzerland, France, Belgium, and Monaco.
Gross Revenue means the total retail sales derived from the operation of a
shop(s) using the Intellectual Property, whether the sales are for cash or
credit, and irrespective of collection, including sales of both merchandise and
services, less any bona fide consumer refunds, rebates and discounts.
Royalty Schedule means 2.5% of Gross Revenue for the first 6 years
beginning on the date of signing of this agreement; 2% of Gross Revenue for the
following 4 years; and 1.25% of Gross Revenue for the remainder of the term.
Addresses of the Parties:
-------------------------
As to Midas: MIDAS INTERNATIONAL CORPORATION
225 North Michigan Avenue
Chicago, Illinois 60601
Fax: (312)565-3994
As to Licensee: MAGNETI MARELLI S.p.A.
Viale Aldo Borletti 61/63
20011 Corbetta (Milano) -- Italia
Fax: (02)972.27754
Attn: Chief Executive Officer
Copy to: General Counsel
<PAGE>
Annex D
-------
EUROPE
EUROPEAN COUNTRIES
------------------
1. Albania
2. Austria
3. Belarus
4. Belgium
5. Bosnia and Herzegovina
6. Bulgaria
7. Croatia
8. Czech Republic
9. Denmark
10. Estonia
11. Finland
12. France
13. F.Y.R.O. Macedonia
14. Germany
15. Great Britain
16. Greece
17. Hungary
18. Iceland
19. Ireland
20. Italy
21. Latvia
22. Lithuania
23. Moldova
24. Netherlands
25. Norway
26. Poland
27. Portugal
28. Romania
29. Russia
30. Slovakia
31. Slovenia
32. Spain
33. Sweden
34. Switzerland
3S. Ukraine
36. Yugoslavia
<PAGE>
2
Annex D
------
SOUTH AMERICA
SOUTH AMERICAN COUNTRIES
------------------------
1. Argentina
2. Bolivia
3. Brasil
4. Chile
5. Colombia
6. Ecuador
7. French Guiana
8. Guyana
9. Paraguay
10. Peru
11. Suriname
12. Uruguay
13. Venezuela
<PAGE>
3
Annex D
-------
ASIA
ASIAN COUNTRIES
---------------
1. China
2. India
3. Turkey
<PAGE>
Annex E
EMPLOYEES
---------
AS OF 8/31/1998
---------------
<TABLE>
Salaried Hourly Part-Time TOTAL
-------- ------ --------- -----
<S> <C> <C> <C> <C>
FRANCE 125 580 13 718
BELGIUM 94 98 1 193
AUSTRIAN 6 34 0 40
SWISS 0 7 0 7
SPAIN 38 160 0 198
ITALY 9 11 0 20
EUROP.HEAD. 11 0 0 11
--- --- -- -----
TOTAL 283 890 14 1,187
</TABLE>
<PAGE>
Annex F
MATERIAL CONTRACTS
------------------
<PAGE>
EXHIBIT 2.2
LICENSE AGREEMENT
-----------------
Midas International Corporation ("Midas") for, and in consideration
of, the promises and covenants herein contained, hereby grants to Magneti
Marelli, S.p.A ("Licensee") the exclusive right, license and privilege (the
"License") to use and authorize others to use the Midas System and the Licensed
Marks (both as defined in Exhibit A, and collectively referred to as the
"Intellectual Property") in the Territory solely in connection with the
performance of services in the automotive aftermarket repair and service
industry.
Territory: The License is limited to those countries and territories
listed on Exhibit A (the "Territory"). Licensee agrees that it will not make, or
authorize, any use, direct or indirect, of the Intellectual Property in any
other area.
Term: The term of this License as it applies to the Licensed Marks shall
be for a period of thirty (30) years beginning on the date indicated immediately
above the signatures to this License, with an option by Licensee to extend such
License for additional thirty (30) year periods on the same terms and
conditions. The term of this License as it applies to the Midas System shall be
fifteen (15) years from the date hereof. Thereafter, MARELLI's (including its
successors and assigns, if any) use of the Midas System will be on a non-
exclusive basis.
Fee and Royalty: Licensee is paying Midas at the signing of this Agreement
a License Fee of Sixteen Million Dollars (US$16,000,000). In addition, Licensee
shall pay Midas a monthly royalty based upon the total Gross Revenue (as defined
in Exhibit A) of all retail shops using the Intellectual Property in the
Territory pursuant to the Royalty Schedule (as defined in Exhibit A).
Payment: Royalty payments for each month shall be made in U.S. currency
and shall be received by Midas by the 20th day of the following month,
accompanied by a statement certified to be accurate by Licensee showing the
Gross Revenues for the preceding month. Midas shall have the right upon
reasonable notice, to examine and copy Licensee's books of account and records
insofar as they relate to the Gross Revenues reported to Midas.
Exclusive Property of Midas: Licensee acknowledges that the Intellectual
Property belongs exclusively to Midas and that upon expiration or termination of
this License, Licensee shall cease all use of the Intellectual Property promptly
and will not use the same thereafter. Licensee agrees not to misuse or harm or
bring into public disrepute the Intellectual Property. Licensee agrees to
cooperate fully and in good faith with Midas for the purpose of securing and
preserving Midas' rights in and to the Intellectual Property.
Notices: All notices, requests, approvals, disapprovals, consents and
statements and all payments made hereunder shall be given or made at the
respective addresses of Midas and Licensee set forth on Exhibit A unless
notification of a change of address is given in writing.
No Assignment: This Agreement and any rights granted herein shall not be
assigned by Licensee without written consent of Midas, except that no consent
will be required if the assignment is to a majority owned subsidiary company.
Governing Law and Forum: This Agreement, including all matters relating to
the validity, construction, performance and enforcement thereof shall be
governed by United States law. The only proper forums for the resolution of
disputes arising under this Agreement shall be Chicago, Illinois, USA and Milan,
Italy.
This Agreement is entered into as of October 30, 1998.
----------
Midas International Corporation Magneti Marcelli S.p.A.
By: /s/ Wendel H. Province By: /s/ Domenico Bordone
---------------------- --------------------
Wendel H. Province Domenico Bordone
Chairman and Chief President and Chief
Executive Officer Executive Officer
Witness: /s/ Witness: /s/
---------------------- -------------------------
<PAGE>
EXHIBIT A
---------
Midas Svstem means Midas' unique system for the establishment, management
and operation of automotive specialty shops known as "Midas Shops", which engage
in the sale and installation of products and services in the automotive
aftermarket repair and service industry. The Midas System includes proprietary
know-how relating to site selection, shop construction and layout, equipment
selection and installation, purchasing and inventory control methods, accounting
methods, merchandising, advertising, sales, and promotional techniques,
installation techniques, personnel training, and other matters relating to the
efficient and successful operation of said Midas Shops and the maintenance of
high standards of quality.
Licensed Marks means all presently registered trademarks and service marks,
together with any trademarks or service marks which may be registered by Midas
in the future, in the Territory.
Territory shall mean the countries of Italy, Spain, Brazil, Portugal,
Austria, Poland, Switzerland, France, Belgium, and Monaco.
Gross Revenue means the total retail sales derived from the operation of a
shop(s) using the Intellectual Property, whether the sales are for cash or
credit, and irrespective of collection, including sales of both merchandise and
services, less any bona fide consumer refunds, rebates and discounts.
Royalty Schedule means 2.5% of Gross Revenue for the first 6 years
beginning on the date of signing of this agreement; 2% of Gross Revenue for the
following 4 years; and 1.25% of Gross Revenue for the remainder of the term.
Addresses of the Parties:
As to Midas: MIDAS INTERNATIONAL CORPORATION
225 NORTH MICHIGAN AVENUE
CHICAGO, ILLINOIS 60601
Fax: (312)565-3994
As to Licensee: MAGNETI MARELLI S.p.A.
Viale Aldo Borletti 61/63
20011 Corbetta (Milano) - Italia
Fax: (02)972.27754
Attn: Chief Executive Officer
Copy to: General Counsel
Page 2
<PAGE>
NONQUALIFIED OPTION AGREEMENT TO PURCHASE RESTRICTED STOCK
The attached form Nonqualified Option Agreement To Purchase Restricted Stock has
been granted to the following officers of the Company in the amounts indicated:
Wendel H. Province 113,636 shares
Chairman and Chief Executive Officer
R. Lee Barclay 36,364 shares
Executive Vice President and
Chief Financial Officer
Ronald J. McEvoy 36,364 shares
Executive Vice President and
Chief Information Officer
John A. Warzecha 18,182 shares
Senior Vice President and
General Manager, Midas U.S.
James D. Hamrick 18,182 shares
Senior Vice President, Merchandising
Gerard M. Klaisle 18,182 shares
Senior Vice President, Human Resources
D. Bruce Hutchison 18,182 shares
Vice President, Marketing
Robert H. Sorensen 18,182 shares
Vice President, General Counsel
and Secretary
<PAGE>
MIDAS, INC.
NONQUALIFIED OPTION AGREEMENT
TO PURCHASE RESTRICTED STOCK
NONQUALIFIED OPTION AGREEMENT TO PURCHASE RESTRICTED STOCK dated as of September
17, 1998, between MIDAS, INC., a Delaware corporation (the "Corporation"), and
__________________, an employee of the Corporation or one of its subsidiaries
(the "Holder").
WHEREAS, the Corporation desires, by affording the Holder an opportunity to
purchase shares of the Corporation's Common Stock as hereinafter provided, to
carry out the purposes of the Corporation's Stock Incentive Plan (the "Plan");
WHEREAS, the Compensation Committee of the Board of Directors of the Corporation
(the "Committee") has duly made all determinations necessary or appropriate to
the grant hereof;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth and for other good and valuable consideration, receipt of
which is hereby acknowledged, the parties hereto have agreed, and do hereby
agree, as follows:
1. The Corporation hereby irrevocably grants to the Holder, as a matter of
separate agreement and not in lieu of salary or any other compensation for
services, the right and option (the "Option"), to purchase up to ____________
shares of Common Stock of the Corporation on the terms and conditions herein set
forth. All of the shares of Common Stock purchased by the Holder pursuant to
this Option shall be issued subject to a Restricted Stock Award Agreement
substantially in the form of Exhibit A.
2. For each of said shares purchased, the Holder shall pay to the Corporation
$22.00 per share (the "Option Price").
3. Subject to paragraph 6 hereof, this Option shall become exercisable as to
100 percent (100%) of the shares covered by this Option on March 17, 1999 and
shall expire at 5:00 p.m., Chicago time, on September 17, 1999 (the "Expiration
Time"). This Option may not be exercised unless the Holder shall, at the time
of exercise, be a full-time employee of the Corporation or one of its
subsidiaries.
4. This Option may be exercised only once in writing, which notice shall be
accompanied by payment by cash (including wire transfer) or check to the
Corporation in an amount equal to the aggregate Option Price of the total number
of whole shares then being purchased. The notice and payment shall be delivered
to the Treasurer of the Corporation, at the principal office of the Corporation
or, at the risk of the Holder, mailed to the Treasurer at said office. To the
extent, if any, this Option is not fully exercised at the time the Holder gives
notice of the exercise of this Option, this Option shall to such extent
terminate automatically as of the date of such notice and exercise.
<PAGE>
5. This Option is not transferable by the Holder and may be exercised only by
the Holder.
6. In the event of the termination of employment of the Holder with the
Corporation or one of its subsidiaries for any reason, this Option shall
terminate automatically on the effective date of the Holder's termination of
employment and this Agreement shall be of no further force or effect and all
rights of the Holder under this Option shall thereupon cease.
7. Prior to the termination of this Option, in the event of a stock split,
stock dividend, reverse stock split, spin-off, split-up, recapitalization,
merger, consolidation, combination, exchange of shares or the like, then the
aggregate number and class of shares thereafter subject to this Option and the
Option Price thereof, and the number and class of shares reserved for issuance
pursuant to exercise hereof, shall be appropriately adjusted in such manner as
the Committee shall in its sole discretion determine to be equitable and
consistent with the purposes of the Plan. Such determination shall be
conclusive for all purposes of this Option.
8. This Option and each and every obligation of the Corporation hereunder are
subject to the requirement that if at any time the Corporation shall determine,
upon advice of counsel, that the listing, registration, or qualification of the
shares covered hereby upon any securities exchange or under any state or Federal
law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of or in connection with the granting of
this Option or the purchase of shares hereunder, this Option may not be
exercised in whole or in part unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors of the Corporation.
9. In the event of a "change in control" or a "Pooling Transaction", as those
terms are defined in the Plan, the Holder shall have all of the rights specified
in Paragraph 10(B) and, if applicable, Paragraph 10(D) of the Plan.
10. Nothing herein contained shall confer on the Holder any right to continue
in the employment of the Corporation or any of its subsidiaries or interfere in
any way with the right of the Corporation or any subsidiary to terminate the
Holder's employment at any time; confer on the Holder any of the rights of a
shareholder with respect to any of the shares subject to this Option until such
shares shall be issued upon the exercise of this Option; affect the Holder's
right to participate in and receive benefits under and in accordance with the
provisions of any pension, profit-sharing, insurance, or other employee benefit
plan or program of the Corporation or any of its subsidiaries; or limit or
otherwise affect the right of the Board of Directors of the Corporation (subject
to any required approval by the shareholders) at any time or from time to time
to alter, amend, suspend or discontinue the Plan and the rules for its
administration; provided, however, that no termination or amendment of the Plan
may, without the consent of the Holder, adversely affect the Holder's rights
under this Option.
11. The Committee shall have the right to resolve all questions which may arise
in connection with this Option. Any interpretation, determination or other
action made or
2
<PAGE>
taken by the Committee regarding the Plan or this Option shall be final, binding
and conclusive.
12. This Option is subject to the provisions of the Plan and shall be
interpreted in accordance therewith. The Holder hereby acknowledges receipt of
a copy of the Plan.
13. As used herein, employment by the Corporation shall include employment by
a corporation which is a "subsidiary corporation" of the Corporation, as such
term is defined in section 424 of the Internal Revenue Code of 1986. References
in this Agreement to sections of the Code shall be deemed to refer to any
successor section of the Code or any successor internal revenue law.
14. All notices, requests or other communications provided for in this Option
shall be made, if to the Corporation, to Midas, Inc., 225 North Michigan Avenue,
Chicago, Illinois 60601, Attention: General Counsel, and if to the Holder, to
the last address of the Holder listed in the Corporation's records. All
notices, requests or other communications provided for in this Option shall be
made in writing either (a) by personal delivery to the party entitled thereto,
(b) by facsimile with confirmation of receipt, (c) by mailing in the United
States mails to the last known address of the party entitled thereto or (d) by
express courier service. The notice, request or other communication shall be
deemed to be received upon personal delivery, upon confirmation of receipt of
facsimile transmission, or upon receipt by the party entitled thereto if by
United States mail or express courier service; provided, however, that if a
notice, request or other communication is not received during regular business
hours, it shall be deemed to be received on the next succeeding business day of
the Corporation.
15. This Option and all determinations made and actions taken pursuant hereto,
to the extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Delaware and construed in accordance
therewith without giving effect to conflicts of laws principles.
IN WITNESS WHEREOF, this Nonqualified Option Agreement To Purchase Restricted
Stock has been duly executed by the Corporation and the Holder as of the day and
year first above written.
MIDAS, INC.: HOLDER:
By:_________________________ __________________________
Name:
Title:
3
<PAGE>
Exhibit A
---------
MIDAS, INC.
RESTRICTED STOCK AWARD AGREEMENT
RESTRICTED STOCK AWARD AGREEMENT dated as of ____________, 1999 (the "Grant
Date") between Midas, Inc., a Delaware corporation (the "Corporation"), and
____________________ (the "Holder") pursuant to the Corporation's Stock
Incentive Plan (the "Plan"). Capitalized terms not defined herein shall have
the meanings specified in the Plan.
WHEREAS, the Corporation desires to carry out the purposes of the Plan;
[WHEREAS, the Holder has executed a promissory note (the "Note") in favor of
____________________ the "Lender") in connection with the purchase by the Holder
of the ________ shares of the Corporation's Common Stock ("Stock") subject to
this restricted stock award (the "Award")];
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth and for other good and valuable consideration, receipt of
which is hereby acknowledged, the parties hereto have agreed, and do hereby
agree, as follows:
1. The Holder shall accept this Award by executing it in the space provided
below and returning it to the Corporation. The shares of Stock subject to this
Award shall be issued and outstanding shares that are issued in a name other
than the Holder's name, as determined solely by the Corporation.
2. The Holder shall have the right to vote the shares of Stock subject to this
Award and to receive dividends and other distributions on such shares unless and
until such shares are forfeited pursuant to Paragraph 3 hereof.
3. (a) Subject to paragraph 3(c) hereof, this Award shall vest (i) with
respect to 100 percent (100%) of the shares of Stock subject to this Award at
5:00 p.m., Chicago time, on _______________, 2002 (the "Vesting Date") or (ii)
prior to the Vesting Date pursuant to Section 3(b) or 3(c)(2) hereof or in
accordance with Section 10 of the Plan (the "Restriction Period"). Subject to
paragraph 6, as soon as practicable after the vesting of this Award, the
Corporation shall deliver or cause to be delivered one or more certificates
issued in the Holder's name representing the number of vested shares of Stock.
The Corporation shall pay all original issue or transfer taxes and all fees and
expenses incident to such delivery, except as otherwise provided in paragraph 6.
(b) If, during the Restriction Period, the Holder's employment with the
Corporation terminates for any reason other than unilateral resignation of
employment by the Holder, this Award shall vest with respect to 100 percent
(100%) of the shares of Stock subject to this Award as of the effective date of
the Holder's termination of employment.
4
<PAGE>
(c) If, during the Restriction Period, the Holder's employment with the
Corporation terminates by reason of unilateral resignation of employment by the
Holder or termination of the Holder by the Corporation for cause, the
Corporation shall continue to hold the shares of Stock subject to this Award for
the period commencing on the effective date of the Holder's termination of
employment and ending on the earlier of (i) 5:00 p.m., Chicago time, on the date
which is six months after the effective date of the Holder's termination of
employment and (ii) the Vesting Date (such period being referred to as the
"Holding Period").
(1) If, during the Holding Period, the Holder becomes an employee of,
performs services for, or works in any capacity, directly or indirectly (in
each case, whether alone or together with or on behalf of or through any
corporation, firm, association, trust, venture or entity (a "Person"),
whether as an individual, partner, stockholder, agent, officer, director,
employee, adviser, lender, trustee, representative, beneficiary or
otherwise), for any Person, the shares of Stock subject to this Award shall
be forfeited and the Corporation shall, no later than 15 calendar days
after the expiration of the Holding Period, repurchase 100 percent (100%)
of the shares of Stock subject to this Award at a purchase price per share
equal to the lesser of (i) $22.00 and (ii) the fair market value of a share
of Stock at the end of the last day of the Holding Period (the "Repurchase
Price"). Insert the following if the Holder executes a promissory note:
[The Corporation and the Holder agree that up to 100 percent (100%) of the
aggregate Repurchase Price shall be transmitted by the Corporation to the
Lender no later than 15 calendar days after the expiration of the Holding
Period to be applied to the repayment of principal and accrued interest, if
any, in respect of the Note.] Insert the following if the Holder does not
execute a promissory note: [The Corporation shall deliver the aggregate
Repurchase Price to the Holder no later than 15 calendar days after the
expiration of the Holding Period by check made payable to the Holder or by
wire transfer to an account specified in writing by the Holder.]
(2) If, during the Holding Period, the Holder does not become an
employee of, perform services for, or work in any capacity, directly or
indirectly (in each case, whether alone or together with or on behalf of or
through any Person, whether as an individual, partner, stockholder, agent,
officer, director, employee, adviser, lender, trustee, representative,
beneficiary or otherwise), for any Person, this Award shall vest with
respect to 100 percent (100%) of the shares of Stock subject to this Award
as of the end of the last day of the Holding Period.
4. In the event that the Holder shall forfeit any shares of Stock subject to
this Award, the Holder shall, upon the Corporation's request, promptly return
this Agreement to the Corporation for full or partial cancellation, as the case
may be. Such cancellation shall be effective regardless of whether the Holder
returns this Award.
5
<PAGE>
5. During the Restriction Period, the shares of Stock subject to this Award
may not be transferred by the Holder other than by will, the laws of descent and
distribution or pursuant to beneficiary designation procedures approved by the
Corporation. Except to the extent permitted by the foregoing, during the
Restriction Period, the shares of Stock subject to this Award and not then
vested may not be sold, transferred, assigned, pledged, hypothecated, encumbered
or otherwise disposed of (whether by operation of law or otherwise) or be
subject to execution, attachment or similar process. Any attempt to so sell,
transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such
shares, shall be null and void.
6. (a) As a condition precedent to the delivery to the Holder of any shares of
Stock subject to this Award, the Holder shall, upon request by the Corporation,
pay to the Corporation such amount of cash as the Corporation may be required,
under all applicable federal, state, local or other laws or regulations, to
withhold and pay over as income or other withholding taxes (the "Required Tax
Payments") with respect to this Award. If the Holder shall fail to advance the
Required Tax Payments after request by the Corporation, the Corporation may, in
its discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Corporation to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance the
Required Tax Payments by any of the following means: (1) a cash payment
(including a check) to the Corporation, (2) delivery (either actual delivery or
by attestation procedures established by the Corporation) to the Corporation of
previously owned whole shares of Stock (which the Holder has held for at least
six months prior to the delivery of such shares or which the Holder purchased on
the open market and for which the Holder has good title, free and clear of all
liens and encumbrances) having a fair market value, determined as of the date
the obligation to withhold or pay taxes first arises in connection with this
Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
Corporation to withhold from the shares of Stock otherwise to be delivered to
the Holder pursuant to this Award, a number of whole shares of Stock having a
fair market value, determined as of the Tax Date, equal to the Required Tax
Payments, (4) a cash payment by a broker-dealer acceptable to the Corporation
through whom the Holder has sold shares with respect to which the Required Tax
Payments have arisen or (5) any combination of (1), (2) and (3). The Committee
shall have sole discretion to disapprove of an election pursuant to any of
clauses (2)-(5). Shares of Stock to be delivered or withheld may not have a
fair market value in excess of the minimum amount of the Required Tax Payments.
Any fraction of a share of Stock which would be required to satisfy such an
obligation shall be disregarded and the remaining amount due shall be paid in
cash by the Holder. No certificate representing a share of Stock shall be
delivered until the Required Tax Payments have been satisfied in full.
7. In the event of a stock split, stock dividend, reverse stock split, spin-
off, split-up, recapitalization, merger, consolidation, combination, exchange of
shares or the like, or any distribution to holders of Stock other than a regular
cash dividend, the number and class of securities subject to this Award shall be
appropriately adjusted in such manner as the Committee shall in its sole
discretion determine to be equitable and consistent
6
<PAGE>
with the purposes of the Plan. If any adjustment would result in a fractional
security being subject to this Award, the Corporation shall pay the Holder in
connection with the vesting, if any, of such fractional security, an amount in
cash determined by multiplying (i) such fraction (rounded to the nearest
hundredth) by (ii) the fair market value of the Common Stock at the end of the
vesting date. The decision of the Committee regarding any such adjustment shall
be final, binding and conclusive.
8. This Award and each and every obligation of the Corporation hereunder are
subject to the requirement that if at any time the Corporation shall determine,
upon advice of counsel, that the listing, registration, or qualification of the
shares covered hereby upon any securities exchange or under any state or Federal
law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of or in connection with the vesting or
delivery of shares hereunder, the shares of Stock subject to this Award shall
not vest or be delivered, in whole or in part, unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of Directors of the
Corporation. The Corporation agrees to use reasonable efforts to effect or
obtain any such listing, registration, qualification, consent or approval.
9. In the event of a "change in control" or a "Pooling Transaction", as those
terms are defined in the Plan, the Holder shall have all of the rights specified
in Paragraph 10(B) and, if applicable, Paragraph 10(D) of the Plan.
10. Nothing herein contained shall confer on the Holder any right to continue
in the employment of the Corporation or any of its subsidiaries or interfere in
any way with the right of the Corporation or any subsidiary to terminate the
Holder's employment at any time; affect the Holder's right to participate in and
receive benefits under and in accordance with the provisions of any pension,
profit-sharing, insurance, or other employee benefit plan or program of the
Corporation or any of its subsidiaries; or limit or otherwise affect the right
of the Board of Directors of the Corporation (subject to any required approval
by the shareholders) at any time or from time to time to alter, amend, suspend
or discontinue the Plan and the rules for its administration; provided, however,
that no termination or amendment of the Plan may, without the consent of the
Holder, adversely affect the Holder's rights under this Award.
11. The Committee shall have the right to resolve all questions which may arise
in connection with this Award. Any interpretation, determination or other
action made or taken by the Committee regarding the Plan or this Award shall be
final, binding and conclusive.
12. This Award is subject to the provisions of the Plan and shall be
interpreted in accordance therewith. The Holder hereby acknowledges receipt of
a copy of the Plan.
13. As used herein, the term "vest" shall mean no longer subject to forfeiture.
As used herein, employment by the Corporation shall include employment by a
corporation which is a "subsidiary corporation" of the Corporation, as such term
is defined in section 424 of the Code. References in this Award to sections of
the Code shall be
7
<PAGE>
deemed to refer to any successor section of the Code or any successor internal
revenue law.
14. All notices, requests or other communications provided for in this Award
shall be made, if to the Corporation, to Midas, Inc., 225 North Michigan Avenue,
Chicago, Illinois 60601, Attention: General Counsel, and if to the Holder, to
the last address of the Holder listed in the Corporation's records. All
notices, requests or other communications provided for in this Award shall be
made in writing either (a) by personal delivery to the party entitled thereto,
(b) by facsimile with confirmation of receipt, (c) by mailing in the United
States mails to the last known address of the party entitled thereto or (d) by
express courier service. The notice, request or other communication shall be
deemed to be received upon personal delivery, upon confirmation of receipt of
facsimile transmission, or upon receipt by the party entitled thereto if by
United States mail or express courier service; provided, however, that if a
notice, request or other communication is not received during regular business
hours, it shall be deemed to be received on the next succeeding business day of
the Corporation.
15. This Award and all determinations made and actions taken pursuant hereto,
to the extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Delaware and construed in accordance
therewith without giving effect to conflicts of laws principles.
IN WITNESS WHEREOF, this Restricted Stock Award Agreement has been duly executed
by the Corporation and the Holder as of the Grant Date.
MIDAS, INC.: HOLDER:
By:_________________________ __________________________
Name:
Title:
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-21-1997
<PERIOD-END> SEP-26-1998
<CASH> 17,300
<SECURITIES> 0
<RECEIVABLES> 74,700
<ALLOWANCES> 3,400
<INVENTORY> 74,500
<CURRENT-ASSETS> 183,300
<PP&E> 311,400
<DEPRECIATION> 131,600
<TOTAL-ASSETS> 407,700
<CURRENT-LIABILITIES> 115,000
<BONDS> 148,200<F1>
0
0
<COMMON> 27,300
<OTHER-SE> 93,000
<TOTAL-LIABILITY-AND-EQUITY> 407,700
<SALES> 411,600
<TOTAL-REVENUES> 411,600
<CGS> 198,100
<TOTAL-COSTS> 353,800<F2>
<OTHER-EXPENSES> (300)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,200
<INCOME-PRETAX> 47,900
<INCOME-TAX> 19,400
<INCOME-CONTINUING> 28,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,500
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.65
<FN>
<F1> INCLUDES: CAPITALIZED LEASE OBLIGATIONS AND LONG-TERM DEBT
OF $11,200 AND $137,000, RESPECTIVELY.
<F2> INCLUDES: COST OF GOODS SOLD AND S,G & A EXPENSES
OF $198,100 AND $155,700, RESPECTIVELY.
</FN>
</TABLE>
