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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________ .
Commission File Number: 0-9812
GREASE MONKEY HOLDING CORPORATION
---------------------------------
(Name of small business issuer
in its charter)
UTAH 87-0321320
----------------------------- ---------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
216 16TH STREET, SUITE 1100
DENVER, COLORADO 80202
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (303) 534-1660
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
$0.03 Par Value Common Stock
----------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 / /
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenue for its most recent fiscal year was: $20,142,793
The aggregate market value of the issuer's voting stock held as of
February 28, 1997, by nonaffiliates of the issuer was $4,469,410.
As of February 28, 1997, issuer had 4,394,576 shares of its $0.03 par
value common stock outstanding.
Transitional Small Business Disclosure Format. Yes / / No /X/
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GREASE MONKEY HOLDING CORPORATION
Annual Report on Form 10-KSB
December 31, 1996
Table of Contents
PART I PAGE
----
Item 1 - Description of Business. . . . . . . . . . . . . . . 1
Item 2 - Description of Property. . . . . . . . . . . . . . . 4
Item 3 - Legal Proceedings. . . . . . . . . . . . . . . . . . 5
Item 4 - Submission of Matters to a Vote of Security Holders. 5
PART II
Item 5 - Market for Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . 6
Item 6 - Management's Discussion and Analysis or Plan of
Operation. . . . . . . . . . . . . . . . . . . . . 7
Item 7 - Financial Statements. . . . . . . . . . . . . . . . 18
Item 8 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . 18
PART III
Item 9 - Directors, Executive Officers, Promoters and
Control Persons, Compliance with Section 16(a) of
the Exchange Act . . . . . . . . . . . . . . . . . 19
Item 10 - Executive Compensation. . . . . . . . . . . . . . . 24
Item 11 - Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . 27
Item 12 - Certain Relationships and Related Transactions. . . 28
Item 13 - Exhibits and Reports on Form 8-K . . . . . . . . . .29
ii
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PART I
Item 1. DESCRIPTION OF BUSINESS
Grease Monkey Holding Corporation ("GMHC") was incorporated on April 9,
1976. On April 22, 1980, GMHC acquired 100% of the issued and outstanding
shares of Grease Monkey International, Inc. ("GMI"). GMI is the operating
entity for GMHC and GMHC derives substantially all of its operating revenue
through GMI. GMI is engaged in the business of owning, operating, leasing,
managing and franchising automotive fast service lubrication and oil change
centers under the trade name of Grease Monkey ("Grease Monkey Centers" or
"Centers") in the United States. In addition, GMI began franchising Centers
in Mexico in 1993. GMHC and GMI are collectively referred to as the
"Company".
THE CONCEPT. Grease Monkey Centers provide the automobile user with
convenient preventative fluid maintenance services. In about ten minutes,
without an appointment, Grease Monkey service technicians change the oil,
install a new oil filter, lubricate the chassis, adjust tire pressure, wash
windows and vacuum the interior of an automobile. At the same time, all fluid
levels are checked and topped off, if necessary. The price for this basic
service is $21.99 to $30.99 in the United States ($12.00 to $15.00 in Mexico),
depending upon the location of the Center. Grease Monkey Centers also offer
transmission fluid changes, differential fluid changes, radiator flushes, air
conditioning recharges, automotive light bulb replacement, an oil additive
package, and will replace air filters and install new wiper blades.
Grease Monkey Centers are two or three bay drive-through buildings built to
the Company's specifications. Grease Monkey buildings utilize service basements
from which the underneath portion of the vehicle is serviced at the same time
other technicians service the vehicle from above. The buildings also include a
pleasant customer waiting area.
COMPANY-OWNED CENTERS. As of January 31, 1997, GMI owned and operated a
total of 31 Grease Monkey Centers. The Grease Monkey Centers owned by GMI
were either purchased from franchisees or opened (18 Centers), acquired as a
result of GMI's exercise of its right of first refusal (3 Centers), or taken
over from failed franchisees (10 Centers). The Company believes the
operation of Company-owned Centers is important to its overall success and
expects to continue to purchase and develop Company-owned Centers. The
Company does not expect the acquisition of failed franchisees' Centers to be
significant in the future.
THE FRANCHISE. GMI licenses franchisees to operate Grease Monkey
Centers pursuant to a franchise agreement with GMI. A franchisee is required
to pay a franchise fee totaling $28,000 for the initial license and $16,800
for each additional license.
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CENTERS. On January 31, 1997, GMI had a total of 216 Grease Monkey
Centers open. The following table provides certain information pertaining to
Grease Monkey Centers as of January 31, 1997:
Centers Open
Franchise -----------------------------
Applicants Franchises Sold (1) Franchised Company Total
---------- ------------------- -----------------------------
Arizona 4 3 1 4
California 2 19 13 2 15
Colorado 3 43 33 17 50
Florida 1 7 4 4
Georgia 2 2 2
Idaho 4 3 3
Illinois 3 3 3
Indiana 10 10 10
Iowa 7 6 6
Kansas 7 4 4
Kentucky 1 - - -
Maryland 6 5 5
Massachusetts 2 2 1 3
Missouri 2 2 2
Montana 1 - -
Nebraska 2 2 2
New Jersey 2 12 12 12
New Mexico 2 2 2
New York 1 3 2 2
North Carolina 1 7 6 6
Ohio 13 8 8
Pennsylvania 11 10 10
Rhode Island 1 1 1
South Carolina 11 10 10
Tennesse 3 2 2
Texas 1 4 4 1 5
Virginia 10 8 1 9
Washington 4 4 8 12
West Virginia 2 2 2
Wyoming 2 2 2
Mexico 6 32 20 20
-- --- --- -- ---
TOTALS: 18 236 185 31 216
-- --- --- -- ---
-- --- --- -- ---
(1) Does not include those Centers operated by the Company.
During 1996, twenty-seven franchise licenses were sold and eleven
franchised Grease Monkey Centers were opened. In 1996, five undeveloped
franchise licenses were terminated for non-performance, five franchise
agreements were canceled concurrently with GMI taking over the operations of
the Centers, and six franchises of open Grease Monkey Centers were
terminated, in accordance with the franchise agreement when the Centers were
closed or sold.
2
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PATENTS, TRADEMARKS AND LICENSES. The Company owns no patents or
concessions. As described above, the sale of franchises is materially
important to the operations and growth of the Company.
GMI is the owner of, and has registered with the United States Patent
and Trademark Office on the Principal Register, the following trademarks and
service marks: "GREASE MONKEY", "GREASE MONKEY, THE 10 MINUTE LUBE PROS",
"MONKEY TALK", "CARE PAK", and "SEYMORE MILES" (including variations
thereof), as well as various designs and logotypes associated with and used
in connection therewith.
The trademark and service mark registrations expire between 1997 and
2009 and may be renewed for successive periods of 10 years. GMI intends to
maintain the above stated registrations of its marks in the manner required
by applicable statute, namely, the Trademark Act of 1946, as amended.
The mark, "GREASE MONKEY, THE 10 MINUTE LUBE AND OIL PROS", was
registered in the State of Colorado and is effective to November of 2004.
GMI has also registered its mark "Grease Monkey" and design with the
Canadian Register of Trademarks, the United Kingdom Register of Trademarks,
the Belgian Register of Trademarks, the Mexico Register of Trademarks, and
the Trinidad Registrar General. These foreign registrations expire between
1997 and 2007.
COMPETITION. The Company experiences competition for customers at the
retail level and also experiences competition from other fast lube operators
for franchisees and sites for Centers.
At the retail level, the Centers experience competition from automobile
dealers, independent mechanic shops, other fast lube operations, department
store auto centers, and full service gas stations. The largest source of
competition, however, may be the do-it-yourself market.
The Company believes that the Grease Monkey Centers comprise the 4th
largest fast lube chain with 217 Grease Monkey Centers operating at February
28, 1997. The largest chain is Jiffy Lube International, Inc., owned by
Pennzoil, which has 1,402 centers open, followed by Ashland Oil Co. (d/b/a
Rapid Oil Co. or Valvoline Instant Oil Change) which has 500 open centers.
Quaker State Minit-Lube, Inc. (also d/b/a McQuicks Oilubes and Q Lubes),
owned by Quaker State Oil Company, follows with 477 centers open.
The Company recognizes that the barriers to enter the fast lubrication
business are significant, and in the future the Company may experience
additional direct competition from other companies with greater strength and
financial resources than those of the Company.
ENVIRONMENTAL REGULATIONS. GMI and its franchisees are subject to
various federal, state, and local provisions regarding the collection and
disposal of used lubricating oils and other automotive fluids and waste oil
filters. Each Grease Monkey Center is equipped with facilities for the
collection of waste products that comply with all applicable laws and
regulations. Waste products are sold to, or disposed with, fully qualified
and licensed collection services. Compliance with current and anticipated
future federal, state and local provisions regarding the collection and
disposal of these materials is not expected to materially affect capital
expenditures, earnings, or the competitive position of the Company.
3
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GMI and its franchisees are subject to federal, state or municipal
regulations regarding underground storage tanks ("UST's"). In those locales
where required, the operator of a Center must register the number and location
of UST's. The registration fee is not a significant capital expenditure and the
registration requirement does not place the Company at a competitive
disadvantage. In 1998, Federal regulations will require UST's either be removed
or equipped with leak monitoring devices. Effective in approximately 1988, it
was GMI's recommendation to its franchisees to discontinue installing UST's.
Removal of UST's at those Company-owned Centers which have UST's is not expected
to be a material cost to the Company.
The Environmental Protection Agency is now requiring insurance or proof of
the financial ability of the owner to cover any damage caused by leaking
underground storage tanks. The fee will vary from state to state. However, all
lubrication centers in the same state will be required to purchase the insurance
and, therefore, this requirement should not place the Company or its franchisees
at a competitive disadvantage.
Some states have passed regulations that designate used oil and oil filters
and their contents as hazardous waste. Such regulations require the Center
operator to first crush the filter and then dispose of it through use of a
regulated hazardous waste carrier. Other states are considering such
regulations. These regulations are imposed on all fast lube operators and do
not place the Company or its franchisees at a competitive disadvantage, but may
result in an increase in the cost of the service.
EMPLOYEES. At January 31, 1997, the Company had 36 full-time employees at
its corporate offices, 16 full-time employees at its field offices, and 215
full-time employees in its Company-owned Grease Monkey Centers division for a
total of 267 employees. From time to time the Company hires part-time employees
at its Company-owned Centers.
ITEM 2. DESCRIPTION OF PROPERTY
At January 31, 1997, GMI owned the buildings, on leased land, at nine
Grease Monkey Centers. Of the nine properties, one is leased to a franchisee,
and eight are used for Company-owned Centers.
In addition, GMI owns two parcels of real estate in St. Louis, Missouri,
and one parcel of real estate in Warwick, Rhode Island. Both of the properties
in Missouri are leased to non Grease Monkey operations, the property in Rhode
Island is leased to a franchisee.
The Company's offices and training facility are located at 216 16th Street,
Suite 1100, Denver, Colorado, 80202. The Company leases a total of 20,297
rentable square feet, which includes the offices and training facility, pursuant
to a lease from an unaffiliated entity. The lease expires on June 30, 1998.
Rent is approximately $18,000 per month.
The Company has guaranteed leases or leased and subleased real estate for
franchised Grease Monkey Centers. The Company or GMI is directly liable on the
leases at 30 locations if the franchisees do not make the lease payments. (See
Note F, Consolidated Financial Statements.)
4
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ITEM 3. LEGAL PROCEEDINGS
The Company is a party to legal proceedings including claims by franchisees
against the Company that arise in the ordinary course of business. In the
opinion of management, the outcome of these matters will not have a material
effect on the financial condition, results of operations, or cash flows of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Company's fourth fiscal quarter of the year ended December 31,
1996, no matter was submitted to a vote of the Company's security holders,
either by proxy solicitations or otherwise.
5
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) MARKET INFORMATION.
The Company's common stock trades on The Nasdaq SmallCap Market tier
of The Nasdaq Stock Market under the symbol GMHC. The following table reports
high and low sales prices:
Period High Trade Low Trade Last Trade
- ---------------- ---------- --------- ----------
1995:
First Quarter $2.50 $2.13 $2.13
Second Quarter $2.38 $1.25 $1.75
Third Quarter $1.94 $1.44 $1.56
Fourth Quarter $1.69 $1.00 $1.00
1996:
First Quarter $1.25 $1.00 $1.06
Second Quarter $1.31 $1.00 $1.13
Third Quarter $1.19 $1.00 $1.00
Fourth Quarter $0.94 $0.63 $0.84
Prices represent quotations between dealers and do not include retail mark-
ups, mark-downs, or commissions, and do not necessarily represent prices at
which actual transactions were, or could have been, effected.
(b) HOLDERS.
As of March 1, 1997, the Company had 2,440 shareholders of record.
(c) DIVIDENDS.
To date, the Company has not paid any cash dividends on its common
stock. Holders of the Company's common stock are entitled to receive dividends
when and as declared by the Board of Directors out of funds legally available.
All accrued and unpaid dividends on the Company's outstanding shares of Series C
Preferred stock must be paid before dividends are paid on common stock.
6
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
RESULTS OF OPERATIONS
The Company reported a net loss of $577,123 in 1996 compared to net income
of $238,190 in 1995 and net income of $139,566 in 1994.
The net loss reported in 1996 is in part due to costs of $550,608 related
to litigation and terminated projects. Similar costs in 1995 were $106,176 and
were $188,807 in 1994. 1996 ended with a net increase of three franchised
Centers and two Company-owned Centers over 1995. During 1996, the Company
opened 11 new Centers and terminated six Centers. This compares to the 18 new
Center openings in 1995 and 13 Center terminations. Franchise sales improved
significantly in 1996, with 27 new franchise licenses sold compared to seven new
franchise licenses sold in 1995. These sales, net of related costs, will be
recognized as revenue when the Centers open for business.
The Company ended 1995 with 181 franchised Centers and 29 Company-owned
Centers. This compares to 176 franchised Centers and 29 Company-owned Centers
at the end of 1994. Center openings for 1995 were comparable to 1994 with
eleven new U.S. Centers and seven new Mexico Centers. During 1995, thirteen
Centers were terminated. Those Centers which remained in the system and were
open at the end of 1994, realized a 3% growth in ticket average and a 3% growth
in sales, which contributed to the growth in royalty income. In addition to
growth in existing Centers, the Company positioned itself to increase the number
of total Centers open with the addition of a Vice President of Franchise
Development and a corresponding support staff.
During 1994, the Company focused on development in the Mexican market and
opened eight Centers, bringing the total number of Centers open in Mexico to
nine. Mexico expansion also continued with the ongoing sale of franchise
applications and licenses. U.S. development also realized growth with an
increase in franchised Center openings from five in 1993 to ten in 1994. In
conjunction with the Company's ongoing commitment to investing in franchise
support services, two additional assistant regional managers were added to U.S.
operations, and a regional manager was added to the Mexico region of the
Company's operations. Efforts begun in 1993 to raise additional equity capital
resulted in the successful completion of a preferred stock offering in the first
quarter of 1994. A portion of the proceeds raised from the offering were used
to consummate a settlement agreement with a landlord on four leases, three of
which pertained to sites which were operated as Company-owned Centers and one
which formerly was a franchised Center. Of the four Centers involved in the
settlement agreement, two Centers were refranchised and two Centers ceased
operations and were closed.
Operating revenue totaled $20,142,793 in 1996 compared to $18,668,143 in
1995 and $18,818,334 in 1994. The changes in revenue are due primarily to
increases or decreases in the number of Company-owned Centers operated, the
number of Center openings, and increases or decreases in royalty fees.
7
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Royalty fees are a percentage of gross sales (ranging from 3% to 5%) paid
monthly by all franchised Grease Monkey Centers. Royalty fee revenue decreased
by 2% in 1996 to $3,143,933 and increased 5% in 1995 to $3,211,716. The
decrease in royalty fees from 1995 to 1996 can be attributed to a net decrease
of mature Centers over the two year period. While these mature Centers were
replaced by new Centers, the new Centers are in the early stages of development
and do not generate the level of sales of a mature Center. On a same Center
basis, royalty income remained relatively constant which reflects a 3% decrease
in car counts, but an increase in the average sale per vehicle. Royalty fees in
1996 were also adversely affected by the acquisition by the Company of two high
performing franchised Centers. The Company has a "non-accrual" policy wherein
royalties are not accrued on certain financially troubled franchisees. In 1996
estimated royalties totaling $111,525 were not recognized as revenue pursuant to
this policy, as compared to $170,500 in 1995 and $133,215 in 1994. Any such
royalty subsequently collected is recorded as revenue in the period the funds
are received.
The Company has a royalty rebate program for franchisees under which
eligible franchisees can receive a rebate of royalties paid. To be eligible,
franchisees must be in compliance with their franchise agreement, must be
current on amounts owed the Company and pay all amounts coming due the Company
on time during the period of the royalty rebate program. Management implemented
this program to reward those franchisees who comply with their franchise
agreement, have paid the Company on a regular and consistent basis, to
accelerate cash flow, and to provide an incentive for franchisees to continue to
pay on a timely basis. During 1996, the Company paid a total of $259,133 to
franchisees under this program, as compared to $248,431 in 1995 and $245,625 in
1994. The rebate is recorded as a reduction of royalty revenue. The royalty
rebate program is not a requirement of the franchise agreement. Continuation of
the program is reviewed by management on an annual basis. The royalty rebate
program has been extended through December 31, 1997.
The following table presents the activity of operating Centers:
1996 1995 1994
---- ---- ----
Open at beginning
of year. . . . . . . . 210 205 194
Opened during year 11 18 19
Terminated . . . . . . (6) (13) (5)
Closed . . . . . . . . - - (3)
--- --- ---
Open at end of year . . 215 210 205
--- --- ---
--- --- ---
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The following table presents the number of Centers open, systemwide
retail sales, royalty fees, total vehicles serviced and average sale per
vehicle for the United States, Mexico and systemwide:
Centers Open: 1996 1995 1994
------- ------ ------
US . . . . . . . . . . . . 195 194 196
Mexico . . . . . . . . . . 20 16 9
------- ------ ------
Systemwide . . . . . . . . 215 210 205
------- ------ ------
------- ------ ------
Sales (000's):
US . . . . . . . . . . . . $88,910 89,254 88,760
Mexico . . . . . . . . . . 2,159 1,323 714
------- ------ ------
Systemwide . . . . . . . . $91,069 90,577 89,474
------- ------ ------
------- ------ ------
Percent growth in sales:
US . . . . . . . . . . . . - 1% 9%
------- ------ ------
------- ------ ------
Mexico . . . . . . . . . . 63% 85% 1,246%
------- ------ ------
------- ------ ------
Systemwide . . . . . . . . 1% 1% 10%
------- ------ ------
------- ------ ------
Royalty fees (000's):
US . . . . . . . . . . . . $ 3,078 3,153 3,020
Mexico . . . . . . . . . . 66 58 32
------- ------ ------
Systemwide . . . . . . . . $ 3,144 3,211 3,052
------- ------ ------
------- ------ ------
Percent growth in royalties:
US . . . . . . . . . . . . (2%) 4% 12%
------- ------ ------
------- ------ ------
Mexico . . . . . . . . . . 14% 80% 782%
------- ------ ------
------- ------ ------
Systemwide . . . . . . . . (2%) 5% 13%
------- ------ ------
------- ------ ------
Vehicles serviced (000's):
US . . . . . . . . . . . . 2,731 2,850 2,927
Mexico . . . . . . . . . . 103 63 26
------- ------ ------
Systemwide . . . . . . . . 2,834 2,913 2,953
------- ------ ------
------- ------ ------
Average sale per vehicle:
US . . . . . . . . . . . . $ 32.55 31.32 30.32
------- ------ ------
------- ------ ------
Mexico . . . . . . . . . . $ 21.04 21.05 27.99
------- ------ ------
------- ------ ------
Systemwide . . . . . . . . $ 32.14 31.09 30.30
------- ------ ------
------- ------ ------
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Franchise sales revenue represents initial payments received by the
Company from the buyers of its franchise. The fee is $28,000 (less for
franchises purchased prior to September 1992 and for additional franchises
purchased by existing franchisees) and is not refundable. Initial franchise
fees are deferred and recognized as revenue when the related Center opens for
business.
The following table presents the number of franchises issued including
related fees and costs, and the nature of franchise sales revenue recognized:
1996 1995 1994
-------- ------- -------
Franchise licenses issued:
US (1) . . . . . . . . . . . 20 4 4
Mexico . . . . . . . . . . . 7 1 16
-------- ------- -------
Total . . . . . . . . . . . 27 5 20
-------- ------- -------
-------- ------- -------
Franchise fees paid:
US . . . . . . . . . . . . . $386,600 116,800 124,000
Mexico . . . . . . . . . . . 154,800 12,200 369,000
-------- ------- -------
Total . . . . . . . . . . . $541,400 129,000 493,000
-------- ------- -------
-------- ------- -------
Franchise costs deferred:
US . . . . . . . . . . . . . $ 99,964 23,996 2,043
Mexico . . . . . . . . . . . 11,177 54,134 75,229
-------- ------- -------
Total . . . . . . . . . . . $111,141 78,130 77,272
-------- ------- -------
-------- ------- -------
Franchises opened:
US (1) . . . . . . . . . . . 6 11 10
Mexico . . . . . . . . . . . 4 7 8
-------- ------- -------
Total . . . . . . . . . . . 10 18 18
-------- ------- -------
-------- ------- -------
Franchise fees recognized
on openings:
US (2) . . . . . . . . . . . $104,900 234,110 185,219
Mexico . . . . . . . . . . . 78,400 196,000 200,000
-------- ------- -------
Total . . . . . . . . . . . $183,300 430,110 385,219
-------- ------- -------
-------- ------- -------
Franchise costs recognized
on openings:
US (3) . . . . . . . . . . . $ 11,683 27,677 18,666
Mexico . . . . . . . . . . . 21,160 72,094 61,529
-------- ------- -------
Total . . . . . . . . . . . $ 32,843 99,771 80,195
-------- ------- -------
-------- ------- -------
Undeveloped franchise
licenses/applications
cancelled . . . . . . . . . . 5 6 14
-------- ------- -------
-------- ------- -------
Income recognized on
cancellations . . . . . . . . $ 27,563 18,075 98,287
-------- ------- -------
-------- ------- -------
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(1) Excludes franchise licenses related to refranchised Company-owned Centers
during the year; five in 1996, two in 1995 and one in 1994.
(2) Excludes franchise fees related to refranchised Company-owned Centers;
$128,800 in 1996, $56,000 in 1995 and $3,100 in 1994.
(3) Excludes franchise costs related to refranchised Company-owned Centers;
$5,000 in 1996, $7,500 in 1995 and $704 in 1994.
At December 31, 1996, 50 franchises had been sold which were not open
and commitment fees for 21 franchises had been paid, representing $907,371 in
deferred franchise sales revenue, compared to 43 unopened franchises and
commitment fees for 18 franchises representing $655,553 in deferred franchise
sales revenue at the end of 1995.
The Company terminated five undeveloped licenses/applications in 1996,
six undeveloped licenses/applications in 1995 and fourteen undeveloped
licenses in 1994 for non-performance, representing income of $27,563, $18,075
and $98,287, respectively.
In 1996, the Company realized marketing allowances and gross margins on
product and equipment sales of $436,033, as compared to $463,184 in 1995 and
$505,382 in 1994. The gross margins on product and equipment sales are
affected by the opening of new Centers which decreased in 1996 from 1995 and
was relatively constant between 1995 and 1994. Marketing allowances are also
affected by the opening of new Centers, but were adversely affected by the
termination of six Centers in 1996 and thirteen Centers in 1995. Product and
equipment revenue represents the sale of fluid dispensing equipment and other
supplies to franchisees, and marketing allowances relate to the sale of oil
filters, air filters, oil additives and certain other products.
Company-owned Centers at December 31, 1996, include 17 Centers located
in Denver, Colorado, 8 Centers in Seattle, Washington, 2 Centers in
California and 1 Center each in Arizona, Virginia, Texas, and Massachusetts.
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The following table shows the Company's activity with respect to
Company-owned Centers over the past three years:
1996 1995 1994
---- ---- ----
Company-owned Centers at
the beginning of the year. . . . 29 29 32
New Centers built or
purchased. . . . . . . . . . . . 2 1 1
Centers acquired from
failed franchisees . . . . . . . 5 1 1
Centers refranchised . . . . . . . (5) (2) (2)
Centers closed . . . . . . . . . . - - (3)
---- ---- ----
Company-owned Centers at
the end of the year. . . . . . . 31 29 29
---- ---- ----
---- ---- ----
Average number of
Centers operated during
the year based on number
of months operated . . . . . . . 32 29 29
---- ---- ----
---- ---- ----
Company-owned Centers have become a significant portion of the Company's
business since 1990 and are expected to increase in the future.
Historically, Company-owned Centers were Centers relinquished by failed
franchisees, acquired from franchisees through the Company's exercise of its
right of first refusal, or purchased by the Company. In the future, the
Company expects to increase the number of Company-owned Centers by leasing
new built-to-suit Centers and by acquiring existing quick lubes from Grease
Monkey franchisees and independent operators. Centers which, in the past,
have been acquired from failed franchisees were acquired due to the failure
of the franchisee to pay amounts due the Company, principally rent and
royalties. The acquisition of Centers from failed franchisees is expected to
be limited in the future due to an overall improvement in performance of the
franchisees' Centers and improved compliance by the franchisees with the
terms of the Company's franchise agreements.
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The following table sets forth the results of operations from Centers
which were built or purchased by the Company as compared to the results of
operations from Centers acquired from failed franchisees:
<TABLE>
Year Ended December 31,
----------------------------------------
1996 1995 1994
----------- ---------- ---------
<S> <C> <C> <C>
Centers built or purchased:
Revenue . . . . . . . . . . . . . . . $11,262,863 10,258,432 9,801,533
Expenses . . . . . . . . . . . . . . 9,010,709 8,545,028 8,109,243
----------- ---------- ---------
Income (loss) before depreciation,
amortization and division
overhead . . . . . . . . . . . . . 2,252,154 1,713,404 1,692,290
----------- ---------- ---------
Centers acquired from failed
franchisees:
Revenue . . . . . . . . . . . . . . . 3,153,338 2,204,200 2,518,039
Expenses . . . . . . . . . . . . . . 3,394,063 2,272,279 2,475,607
----------- ---------- ---------
Income (loss) before depreciation,
amortization and division
overhead . . . . . . . . . . . . . (240,725) (68,079) 42,432
----------- ---------- ---------
Combined income (loss) before
depreciation, amortization and
division overhead . . . . . . . . . . 2,011,429 1,645,325 1,734,722
Depreciation . . . . . . . . . . . . . (565,490) (527,050) (506,346)
Amortization . . . . . . . . . . . . . (225,518) (144,465) (120,239)
Company-owned Centers division
overhead (1) . . . . . . . . . . . . (678,476) (564,719) (648,088)
----------- ---------- ---------
Operating income (loss) from
Company-owned Centers (2) . . . . . . $ 541,945 409,091 460,049
----------- ---------- ---------
----------- ---------- ---------
Number of Centers by category:
Built or purchased . . . . . . . . . 21 20 21
Failed franchises acquired . . . . . 10 9 8
----------- ---------- ---------
Total . . . . . . . . . . . . . . . 31 29 29
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
(1) Consists of management, accounting and administrative personnel and their
related expenses which are directly identifiable to the Company-owned
Centers division and is included in general and administrative expenses in
the Company's financial statements.
(2) Included in the above operating results are results from refranchised
centers through the date of sale.
13
<PAGE>
Leasing revenue represents revenue primarily derived from properties
subleased by the Company to franchisees. Leasing revenue, which includes rent
and interest income related to capital and operating leases, was $1,434,086 in
1996; $1,391,886 in 1995; and $1,671,234 in 1994.
Leasing expense represents leasing costs incurred in connection with
properties leased by the Company and then subleased to franchisees. Leasing
expense, which includes rent and interest expense related to capital and
operating leases, was $1,376,677 in 1996; $1,401,978 in 1995; and $1,588,918 in
1994.
The following table summarizes General and Administrative Expenses:
1996 1995 1994
---------- --------- ---------
Salaries, wages and personnel
expenses. . . . . . . . . . . . . . $2,007,997 1,992,406 1,980,837
Travel and entertainment
expenses. . . . . . . . . . . . . . 375,460 357,140 409,257
Office expenses. . . . . . . . . . . 648,552 611,998 656,563
Franchise development and
training expenses . . . . . . . . . 48,555 55,139 51,920
Franchise sales and promotional
expenses . . . . . . . . . . . . . 90,439 30,610 62,400
Terminated projects. . . . . . . . . 206,469 - -
Litigation, including legal fees
and related costs . . . . . . . . . 344,139 106,176 188,807
Professional fees - legal, tax and
accounting. . . . . . . . . . . . . 145,733 166,306 154,553
Company-owned Centers division
overhead . . . . . . . . . . . . . . 678,476 564,719 725,603
Other. . . . . . . . . . . . . . . . 194,561 225,672 145,723
---------- --------- ---------
Total general and
administrative expenses . . . $4,740,381 4,110,166 4,375,663
---------- --------- ---------
---------- --------- ---------
The 15% increase in general and administrative expenses from 1995 to 1996
is due primarily to litigation, including legal fees and costs related to
enforcement of certain franchise agreements, terminated projects, including
unsuccessful financing and acquisition costs, and Company-owned Centers division
overhead. The 6% decrease in general and administrative expenses from 1994 to
1995 was due primarily to decreases in litigation, including legal fees and
related costs, franchise sales and promotional expenses, and Company-owned
Centers division overhead.
14
<PAGE>
The provision for credit losses increased in 1996 to $206,221 from $151,800
in 1995 and increased from $112,509 in 1994. The increase in 1996 is due to
additional provisions on two non-performing franchisee accounts, two franchisees
who filed for bankruptcy and a provision for a note receivable. The increase in
1995 was attributable to the deterioration of five franchised center accounts.
In 1996, the Company took over the operations of three of these centers.
Depreciation expense totaled $694,241 in 1996 compared to $638,352 in 1995
and $619,047 in 1994. The increase in depreciation expense is due to an
increase in the average number of Company-owned Centers operated (32 in 1996,
and 29 in both 1995 and 1994) and capital expenditures. Amortization expense
totaled $245,454 in 1996 compared to $177,553 in 1995 and $152,603 in 1994. The
increase in amortization expense is due to the purchase of two Company-owned
Centers in 1996 and one Company-owned Center in 1995.
Gain (loss) on sale of Centers represents the net results of the
refranchising or disposal of Company-owned Centers. When the Company
refranchises a Center, a franchise license fee is included in the sales price
and included in the resulting gain or loss on sale. The loss of $83,780 in 1996
represents the refranchising of five Company-owned Centers. The gain of $31,705
in 1995 represents the refranchising of two Company-owned Centers and the
refranchising of one closed Center. The loss of $12,792 in 1994 represents the
refranchising of one Company-owned Center, plus additional losses of $5,686
incurred due to a settlement agreement with a landlord.
Interest expense includes interest on debt financing and interest recorded
on capital leases of Company-owned Centers. The increase in interest expense
from $562,105 in 1995 to $659,996 in 1996 is due primarily to an increase in the
number of Company-owned Centers that are leased due to acquisitions during the
year and an increase in debt to finance the acquisitions of two Centers. The
increase in interest expense from $545,881 in 1994 to $562,105 in 1995 is due
primarily to an increase in debt to finance the acquisition of one Center.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES
In May 1996, the Company entered into a Business Loan Agreement with a
major bank for a $2,000,000 three year line of credit. Funds drawn under the
line are restricted to the development of new Centers. The Company has the
right to select an optional interest rate as described in the agreement,
however, in no case will the interest rate exceed the bank's reference rate. In
exchange for a supply agreement on any Centers built utilizing the line of
credit, a motor oil supplier agreed to guarantee the line. As of December 31,
1996, the Company had drawn approximately $415,000 under this line of credit.
During April 1995, the Company entered into two agreements with a motor oil
supplier - a Loan Agreement and a Fast Lube Supply Agreement. Under the Loan
Agreement, a $2,400,000 line of credit was established. All loans drawn under
this line accrue interest at 9% per annum and are repaid in quarterly
installments over a ten year period from the date of disbursement. The line is
secured by the conditional assignment of leases and lubrication equipment of
certain Company-owned Centers. The Company had drawn approximately $2,056,000 of
which approximately $1,787,000 is outstanding as of December 31, 1996. The
balance of the funds available under the line are restricted to the acquisition
or construction of new fast lube Centers. Under the Fast Lube Supply Agreement,
the Company is required to purchase at least 85% of the petroleum products for
such Centers from the supplier, the Company is required to meet certain minimum
annual purchase requirements and the Company is required to feature its products
in such Centers.
Another motor oil supplier has provided financing for Company-owned Centers
where the Company agrees to feature its products. The amount of the financing
ranges from $30,000 to $45,000 per Center depending on the expected usage at the
Center. The advances are amortized based on the Company's purchases of its
products. Similar oil company financing is expected to be available for any new
Company-owned Centers acquired and existing Company-owned Centers where the
Company does not have a supply agreement or where the existing supply agreement
may be canceled.
The growth of the Grease Monkey system is dependent on the ability of GMI
and its franchisees to obtain real estate development capital. Historically,
Grease Monkey Centers have been built utilizing build-to-suit services, whereby
the land is purchased and the building is constructed to GMI's specifications,
then leased to GMI or to a franchisee, by a third party. Recently, franchisees
have moved toward purchasing and developing the real estate for their own
account, thereby creating greater value in their business.
LIQUIDITY
Cash provided by operations during 1996 was $775,108 as compared to
$238,398 provided by operations in 1995. The increase is primarily a result of
new franchise sales.
16
<PAGE>
Cash used for investing activities was $1,251,993 in 1996 and $825,966 in
1995. This consisted primarily of cash used for the acquisition of Centers of
$394,389 in 1996 and $870,388 in 1995, capital expenditures of $724,861 in 1996
and $218,041 in 1995 (which included computer systems and Center equipment in
both years). Also, in 1996, a parcel of land and a building in Warwick, Rhode
Island were purchased. The building is recorded as a direct financing lease.
In 1996, $415,000 was advanced to developers under the terms of notes receivable
from the developers. The notes are due when the Centers are completed and
permanent financing has been obtained. Cash provided by investing activities
included receipts on direct financing leases of $177,656 and $181,155 in 1996
and 1995, respectively.
Cash provided by financing activities was $416,463 in 1996 and $716,104 in
1995. Cash provided by financing activities in 1996 includes proceeds from
long-term debt of $1,257,000. Cash provided by financing activities in 1995
includes proceeds from long-term debt of $1,241,880 and the release of
restricted cash related to a settlement award. Cash used to reduce long-term
debt was $493,249 in 1996 and $350,372 in 1995 and cash used to reduce capital
lease obligations was $348,365 in 1996 and $307,669 in 1995.
The Company does not have any material commitments for capital expenditures
at December 31, 1996. The Company believes it has the capital resources and
liquidity necessary to meet all of the obligations, debt maturities, and
commitments of the Company during 1997.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
(SFAS 121) was issued in March 1995, by the Financial Accounting Standards
Board. It requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The adoption of SFAS 121 by the Company in the first quarter of
1996 had no effect on the Company's financial statements.
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-
BASED COMPENSATION (SFAS 123), was issued by the Financial Accounting Standards
Board in October 1995. SFAS 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans as well as transactions in
which an entity issues its equity instruments to acquire goods and services from
non-employees. This statement defines a fair value based method of accounting
for employee stock option or similar equity instruments, and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. Entities electing to remain with the accounting in Opinion 25 must
make pro forma disclosures on net income and, if presented, earnings per share,
as if the fair value based method of accounting defined by SFAS 123 had been
applied. The Company adopted SFAS 123 in the first quarter of 1996 and elected
to continue accounting for its employee stock compensation plans using the
accounting prescribed by APB Opinion 25.
17
<PAGE>
FORWARD-LOOKING STATEMENTS
The foregoing discussion contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created thereby. These statements include the plans and objectives of
management for future operations. Such statements are dependent on certain
risks and uncertainties including such factors among others as, obtaining
financing, construction delays that may be encountered in opening new Centers,
market or customer acceptance, market demand, competition, pricing, changing
regulatory environment, changing economic conditions, risks in new service
development, and other risk factors. The forward-looking statements included
herein are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Form 10-KSB will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
Item 7. FINANCIAL STATEMENTS
All financial statements required to be filed hereunder are attached hereto
following the signature page.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
18
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.
On February 6, 1997, Rex L. Utsler resigned as President and Chairman of
the Board of Directors. Charles E. Steinbrueck was named President and Chief
Executive Officer, and James B. Wallace was named Chairman of the Board of
Directors.
DIRECTORS.
The present term of office of each director will expire at the next Annual
Meeting of Shareholders. The name and position with the Company and age of each
director and the period during which each director has served are as follows:
Name and Position, if Director
any, in the Company Age Since
--------------------- ----------- --------------
James B. Wallace 68 1991
(Chairman of the Board)
Charles E. Steinbrueck 53 1994
(President and Chief
Executive Officer)
Jerry D. Armstrong 66 1991
Jim D. Baldwin 64 1994
Cortlandt S. Dietler 75 1995
Wayne H. Patterson 51 1994
George F. Wood 53 1991
There are no arrangements or understanding between any director and any other
person pursuant to which any director was selected as such.
19
<PAGE>
EXECUTIVE OFFICERS.
The executive officers of the Company are elected annually at the first
meeting of the Company's Board of Directors held after each annual meeting of
shareholders. Each executive officer will hold office until his or her
successor is duly elected and qualified or until his or her death or resignation
or until he or she shall have been removed in the manner provided in the
Company's Bylaws. The current executive officers of the Company are as follows:
Name of Executive Officer Officer
and Position in Company Age Since
----------------------- ------------ -------------
Charles E. Steinbrueck 53 1997
(Director, President and Chief
Executive Officer)
T. Timothy Kershisnik 39 1992
(Controller, Treasurer and
Corporate Secretary)
Darcy A. Erickson 45 1993
(Vice President-Marketing
and Communications)
Dennis R. McCarthy 45 1994
(Vice President -
Franchise Support Services)
Michael J. Brunetti 40 1995
(Vice President -
Franchise Development)
20
<PAGE>
BUSINESS EXPERIENCE.
The following is a brief account of the business experience for at least
the last five years of each director and executive officer of the Company:
<TABLE>
Name of Director
or Executive Officer Principal Occupation During the Last Five Years
-------------------- -----------------------------------------------
<S> <C>
Charles E. Steinbrueck President and Chief Executive Officer of Grease
Monkey Holding Corporation ("GMHC"), Grease Monkey
International, Inc. ("GMI"), and all other
wholly-owned subsidiaries of the Company, since
February 1997; Managing partner of Retail Venture
Partnership, a partnership specializing in investments
of emerging public companies, since 1993; Founder,
President, and CEO of Pace Membership Warehouse
from 1983 to 1993.
T. Timothy Kershisnik Controller and Treasurer of GMHC and GMI since 1992;
and Corporate Secretary of GMHC and GMI since April
1994; employed by KPMG Peat Marwick LLP, an accounting
firm, from 1980 to 1992, and Senior Manager at KPMG
Peat Marwick LLP from 1987 through 1992.
Darcy A. Erickson Vice President, Marketing and Communications of GMI
since August 1993; Marketing and Communications Director
of GMI from April 1992 to August 1993; Self-employed as
a marketing and training consultant from 1987 to 1992.
Dennis R. McCarthy Vice President, Franchise Support Services of GMI since
April 1994; Southeast Regional Manager of GMI from January
1994 to April 1994; employed by Mobil Corporation, a
diversified oil and gas company, from 1973 to December
1993, most recently as National Lubricants Manager.
Michael J. Brunetti Vice President, Franchise Development of GMI since July
1995; Director of Region Development - Western Region
for Moto Photo Inc., a franchisor of photography imaging
centers, from March 1993 to July 1995. Employed by Taco
Johns International, Inc., a franchisor of fast food
Mexican style restaurants, most recently as Vice President
of Franchise Development, from August 1987 to August 1992.
21
<PAGE>
Jerry D. Armstrong Partner in Brownlie, Wallace, Armstrong and Bander
Exploration (BWAB), an oil and gas company, since 1992;
Senior Vice President and member of the Board of
Directors of BWAB Incorporated from 1980 to 1992.
Jim D. Baldwin Retired President of King Soopers, a retail grocery store
chain owned by Dillon Companies, a subsidiary of The
Kroger Company, from 1979 to 1990. Mr. Baldwin was with
Dillon Companies for over 40 years.
Cortlandt S. Dietler Chairman, President, CEO and Director of TransMontaigne
Oil Company, an oil and gas company, since March 1995;
Chairman and CEO of Associated Natural Gas Corporation,
a gas gathering, processing and marketing company from
1980 to February 1995. Mr. Dietler is also on the Board
of Directors for the following public companies: Forest
Oil Corporation, Key Production Company, Inc., PanEnergy
Corporation and Hallador Petroleum Corporation.
Wayne H. Patterson Chairman, QuickPen International, a commercial software
and systems company, since December 1992; Principal,
Patterson Consulting, a management consulting firm, since
December 1991; Chairman, Live Entertainment, 1990 to 1991;
Chairman, Pace Membership Warehouse, from 1988 to 1990.
James B. Wallace Partner in Brownlie, Wallace, Armstrong and Bander
Exploration (BWAB) since 1992; President and member of the
Board of Directors of BWAB Incorporated from 1980 to 1992.
Mr. Wallace is also a member of the Board of Directors of
Tom Brown, Inc., (a public company).
George F. Wood Sole proprietor of Wood and Co., an investment counseling
firm, since 1982.
</TABLE>
22
<PAGE>
(b) IDENTIFICATION OF SIGNIFICANT EMPLOYEES; BUSINESS EXPERIENCE.
The following is a brief account of the business experience for at least
the last five years of each significant employee (not an officer) of the
Company:
Name of Employee Age Principal Occupation During the Last Five Years
---------------- --- -----------------------------------------------
Gary L. Wofford 53 Director of GMI's Company Center Operations since
December 1996; Consultant to GMI from August 1996
to December 1996; Vice President of Operations and
Franchise Services, Taco Johns International,
Inc., a franchisor of fast food Mexican style
restaurants, from June 1988 to July 1996.
Jeffrey D. Barkman 42 General Manager of GMI's Company Center Division,
from February 1993 to present; Coordinator of
Information Systems at GMI from August 1991 to
February 1993; Sales Manager for Sage
Microsystems, Inc., a software development
company, from June 1990 to July 1991.
(c) FAMILY RELATIONSHIPS. None
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS. None.
(e) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of the
Company's outstanding common stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten percent shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during and for the Company's fiscal year ended December
31, 1996, the directors, officers or more than 10% shareholders of the Company
who failed to timely file a Form 3, Form 4 or Form 5 were Michael J. Brunetti
who filed a late Form 3 for the grant of stock options on July 25, 1995, Dennis
R. McCarthy who filed a late Form 4 for the purchase of common stock on June 17,
1994, August 2, 1994 and December 26, 1996, and Charles E. Steinbrueck who filed
a late Form 4 for the grant of stock options on August 16, 1996.
23
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
(a) and (b) GENERAL AND SUMMARY COMPENSATION TABLE
The following table shows all plan and non-plan compensation paid by the
Company and its subsidiaries for services rendered for the fiscal year ended
December 31, 1996, to each of the most highly compensated executive officers of
the Company whose total cash compensation exceeded $100,000:
<TABLE>
Summary Compensation Table
--------------------------
Other Annual
Name Principal Position Year Salary Compensation(2)
---- ------------------ ---- ------ ---------------
<S> <C> <C> <C> <C>
Rex L. Utsler President and Chairman of the Board
of Directors of GMHC and GMI(1) 1996 $163,417 $ 11,450
1995 $157,842 $ 11,328
1994 $151,522 $ 10,922
</TABLE>
(1) Mr. Utsler became Chairman of the Board and President on March 4, 1991, and
resigned from such positions on February 6, 1997.
(2) Includes costs of a leased car and the Company's 401(k) matching
contribution.
Effective February 6, 1997, Charles E. Steinbrueck was named President and
Chief Executive Officer of the Company. Mr. Steinbrueck's compensation includes
an annual salary of $125,000 and the standard benefits provided to employees.
Mr. Steinbrueck was also granted five year options to purchase 100,000 shares of
the Company's common stock at $1.31 per share. In addition, Mr. Steinbrueck was
granted five year options to purchase 650,000 shares of the Company's common
stock at $1.31 per share which will vest upon certain performance criteria being
achieved. Mr. Steinbrueck also purchased 190,476 newly issued shares of the
Company's common stock for $250,000.
COMPENSATION UNDER PLANS
On May 4, 1992, GMI adopted the Grease Monkey International, Inc. 401(k)
Savings and Retirement Plan and Trust Agreement (the "Plan"), effective as of
April 1, 1992. Colorado National Bank Trust and Investment Group is Trustee
under the Plan. At present, the Company contributes to the Plan on a quarterly
basis in an amount equal to 50% of the employees' contribution, up to a maximum
of 6% of the employees' compensation. The Company's contribution is paid with
its $0.03 par value common stock valued at market on the date of the
contribution. During 1996, the Company contributed 40,616 shares to the Plan at
an average of $1.14 per share. During 1995, the Company contributed 11,542
shares to the Plan at an average of $1.82 per share.
24
<PAGE>
(c) and (d) STOCK OPTION, GRANTS AND EXERCISES.
STOCK OPTION PLANS
The Company adopted the 1986 Incentive Stock Option Plan ("1986 Plan")
which was approved by the shareholders on February 17, 1987, in which the
employees of the Company and its subsidiaries are eligible to participate. The
1986 Plan authorized the granting of options to purchase up to 66,667 shares of
the Company's common stock. No further options can be granted under the 1986
Plan.
The Company adopted the 1993 Incentive Stock Option Plan ("1993 Plan")
which was approved by the shareholders on June 30, 1993. All employees of the
Company and its subsidiaries are eligible to participate. The 1993 Plan
authorizes the granting of options to purchase 300,000 shares of the Company's
common stock.
The Company adopted the 1994 Stock Incentive Plan ("1994 Plan") which was
approved by the shareholders on July 11, 1994. All employees, officers,
directors and consultants of the Company and its subsidiaries are eligible to
participate. The 1994 Plan authorizes the granting of options to purchase
500,000 shares of the Company's common stock.
The 1986 and 1993 Plans are administered by an Option Committee of not less
than three persons appointed by the Board of Directors. The members of the
Option Committee for 1996 were Jerry D. Armstrong, Jim D. Baldwin and George F.
Wood. The Option Committee met once during 1996. All members were present at
the meeting. New members of the Option Committee will be selected after the
Annual Meeting of Shareholders.
The 1994 plan is administered by an Option Committee of not less than three
persons appointed by the Board of Directors. The members of the Option
Committee are Jack D. Rule, Jr., George H. Fancher, Jr. and Kermit L. Darkey.
The Option Committee met once during 1996. All members were present at the
meeting. New members of the Option Committee will be selected after the Annual
Meeting of Shareholders.
As a result of rule changes adopted by the Securities and Exchange
Commission under Section 16(b) of the Securities Exchange Act of 1934, the Board
of Directors amended the 1993 and 1994 Plans. This resulted in the elimination
of a separate Option Committee for the 1994 Plan. In 1997, the Option Committee
currently administering the 1986 and 1993 Plans will also administer the 1994
Plan.
The Option Committee selects the persons to whom options are granted,
determines the time or times when any option granted becomes exercisable,
determines the period within which it becomes exercisable and determines the
price per share at which the option is exercisable, provided that no option may
be exercised more than 10 years after it is granted and the exercise price must
be at least the fair market value of the Company's common stock on the date of
the grant. If an employee owns more than 10% of the Company's outstanding
common stock, then the Option Committee may grant an incentive option to such
employee only if the exercise price of the option is at least 110% of the fair
market value of the Company's common stock on the
25
<PAGE>
date of the grant. An incentive option granted to any employee owning more
than 10% of the Company's outstanding common stock may not be exercisable for
longer than five years from the date of the grant.
Payment for shares of common stock purchased upon exercise of any option
must be in full and in cash or, with certain restrictions, the surrender of
other shares of common stock of the Company owned by the employee at the time
the option is exercised.
Option/SAR Grants in Last Fiscal Year
Individual Grants
- ------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration
Name Granted(#) Fiscal Year ($/Sh) Date
- ------------------------------------------------------------------------------
Rex L. Utsler 12,500 12.5% $1.17 8-15-01
Mr. Utsler did not exercise any options during the year ended December 31, 1996.
(e) LONG-TERM INCENTIVE PLAN. None.
(f) COMPENSATION OF DIRECTORS.
Directors of the Company who are not employees or officers are granted
stock options as compensation. Options are granted for services provided as a
director, with additional options granted for committee participation. Options
for 5,000 shares are granted annually for service as a director, options for
2,500 shares are granted annually for service on the Option/Compensation and
Audit Committees and options for 5,000 shares are granted annually for service
on the Executive Committee.
Options to purchase 70,000 shares of common stock at $1.06 per share were
granted to non-employee, non-officer directors on August 16, 1996, for services
to be provided for the period from June 11, 1996, through the date of the next
Annual Meeting of Shareholders. The options were granted at the market value of
the Company's common stock on the date of grant (market value being the last
trade as of the close of business) and are exercisable for five years.
(g) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-
CONTROL ARRANGEMENTS. See "Item 12. Certain Relationships and Related
Transactions" for information pertaining to a consultant agreement with Rex L.
Utsler.
(h) REPORT ON REPRICING OF OPTIONS/SARS. None.
26
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) and (b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth as of February 28, 1997, the number of
shares of the Company's $0.03 par value common stock owned by each person who
owned of record, or was known to own beneficially, more than 5% of the number of
shares of the Company's outstanding common stock, sets forth the number of
shares of the Company's outstanding common stock beneficially owned by each of
the Company's directors, and sets forth the number of shares of the Company's
common stock beneficially owned by all of the Company's directors and officers
as a group:
<TABLE>
Shares Underlying
Shares Presently
Underlying Convertible
Shares of Presently Series C Preferred
Name of Common Exercisable Stock
Beneficial Stock Options and and Unpaid Beneficial Total Percent of
Owner(1) Owned Warrants(4) Dividends(5) Ownership Ownership Class(7)
- ------------------------- --------- ------------- ------------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
First of September
Corporation(2) 1,479,432 500,000 177,776 - 2,157,208 31.5%
Rex L. Utsler(2)(3)(6) 219,123 62,500 - 2,157,208 2,438,831 35.6%
Jerry D. Armstrong(2)(3) 179,260 30,000 47,818 2,157,208 2,414,286 35.3%
James B. Wallace(2)(3) 179,261 25,000 24,215 2,157,208 2,385,684 34.8%
Charles E. Steinbrueck(2) 190,476 130,000 35,405 - 355,881 5.2%
Cortlandt S. Dietler(2) 55,556 20,000 18,883 - 94,439 1.4%
George F. Wood(2) 38,639 25,000 4,721 - 68,360 1%
Wayne H. Patterson(2) - 35,000 23,603 - 58,603 .9%
Jim D. Baldwin(2) - 25,000 11,802 - 36,802 .5%
All officers and directors as
a group (11 persons) 651,792 500,000 175,888 2,157,208 3,766,511 55%
</TABLE>
- --------------------
To avoid duplication, the aggregate number of shares of common stock and total
percentage of all officers and directors as a group have been computed to
include only once the shares of common stock beneficially owned by First of
September Corporation.
(1) All beneficial owners listed have sole voting and/or investment power
with respect to the shares shown unless otherwise indicated.
27
<PAGE>
(2) The address for First of September Corporation and Rex L. Utsler is
216 16th Street, Suite 1100, Denver, Colorado 80202. The address for Messrs.
Armstrong and Wallace is 475 17th Street, Suite 1300, Denver, Colorado 80202.
The address for Charles E. Steinbrueck is 216 16th Street, Suite 1100, Denver,
Colorado 80202. The address for Cortlandt S. Dietler is 2750 Republic Plaza,
370 Seventeenth St., Denver, Colorado 80202. The address for George F. Wood is
55 Madison Street, Suite 680, Denver, Colorado 80206. The address for Wayne H.
Patterson is 384 Inverness Drive South, Suite 200, Englewood, Colorado 80112.
The address for Jim D. Baldwin is 901 Chestnut Trail, Greenwood Village,
Colorado 80121.
(3) Rex L. Utsler, Jerry D. Armstrong and James B. Wallace own a total of
64% of the outstanding stock of First of September Corporation. As such they
are deemed to be beneficial owners of the shares of common stock of the Company
which are beneficially owned by First of September Corporation.
(4) Represents shares of common stock underlying presently exercisable
options and warrants.
(5) Represents shares of common stock underlying shares of Series C, 6%
Preferred stock with a stated value of $100 per share plus accumulated unpaid
dividends, convertible into common stock at $2.50 per share.
(6) Does not include 3,100 shares held by Mr. Utsler's children, of which
he disclaims beneficial ownership.
(7) Assumes all options and warrants are exercised and all Series C
Preferred stock and accumulated dividends are converted.
(c) CHANGES IN CONTROL. None.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 5, 1997, the Company entered into a Consultant Agreement with
Rex L. Utsler, the Company's former Chairman of the Board, President and Chief
Executive Officer. The term of the agreement is from March 4, 1997 through March
3, 1999. The agreement requires Mr. Utsler to perform such duties and services
as may be assigned to him from time to time at the direction or request of the
Company's President and Chief Executive Officer. For these services, Mr. Utsler
will be paid a fee of $16,071 per month, be reimbursed for his expenses incurred
on behalf of the Company and receive the medical benefits provided generally to
the Company's employees.
On August 5, 1991, the Company issued warrants to First of September
Corporation to purchase 500,000 shares of its common stock for $1.50 per share.
In exchange, First of September Corporation provided the Company with a $750,000
line of credit which was repaid on March 23, 1994, and canceled. The warrants
were to expire on August 4, 1996, but were extended in March 1996 by the Board
of Directors to August 4, 1998, as consideration for First of September
Corporation's agreement to cooperate in an equity and debt financing, then under
consideration. The increase in the estimated fair value of the warrants of
$54,000 was recorded as an increase in stockholder's equity and deferred
offering costs. The offering costs were subsequently written off when the
proposed financing was abandoned.
28
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) (3) LIST OF EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B.
3. Articles of Incorporation and Bylaws.
(a) Bylaws, as amended through March 4, 1991,
incorporated by reference to the Annual Report on
Form 10-KSB for the fiscal year ended December 31,
1992.
(b) Restated Articles of Incorporation, filed
November 1, 1991, incorporated by reference to the
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.
(c) Articles of Amendment to Articles of Incorporation
filed June 29, 1992 incorporated by reference to
the Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1992.
(d) Articles of Amendment to the Articles of
Incorporation filed August 15, 1996, incorporated
by reference to the Quarterly Report on Form 10-
QSB for the period ended June 30, 1996.
4. Instruments Defining the Rights of Holders Including Indentures.
(a) Statement of Designation, Voting Powers,
Preferences, and Rights of the Series C Preferred
stock of Grease Monkey Holding Corporation
incorporated by reference to the Annual Report on
Form 10-KSB for the fiscal year ended December 31,
1993.
10. Material Contracts.
(a) 1986 Incentive Stock Option Plan, incorporated by
reference to the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993.
(b) 1993 Incentive Stock Option Plan, incorporated by
reference to the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994.
(c) Amendment to 1993 Incentive Stock Option Plan.
29
<PAGE>
(d) 1994 Stock Incentive Plan, incorporated by
reference to the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994.
(e) Amendment to 1994 Stock Incentive Plan.
(f) Lease Agreement dated August 20, 1991, between
Clarmont Enterprises, Inc., and Grease Monkey
International, Inc., incorporated by reference to
the Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.
(g) Amendment Number One dated May 5, 1993, to Lease
Agreement dated August 20, 1991, between Venture
West Investments Limited (f.k.a. Clarmont
Enterprises, Inc.) and Grease Monkey
International, Inc., incorporated by reference to
the Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994.
(h) Loan Documents for $2,400,000 line of credit,
incorporated by reference to the Quarterly Report
on Form 10-QSB for the period ended June 30, 1995.
(i) Loan documents for Preferred Risk Loan for
$200,000 incorporated by reference to the Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989:
1. Construction Loan Agreement
2. Promissory Note
3. Promissory Note Clarification
4. Deed of Trust
5. Assignment of Rents
6. Estoppel Certificate
7. Quaker State Guaranty
8. Guaranty Agreement by Quaker State for
benefit of Preferred Risk
(j) Current form of Grease Monkey Franchise Agreement
in effect since April 28, 1994, incorporated by
reference to the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994.
(k) Mobil Oil Company Supply Contract dated February
24, 1993, for Center #234 (similar contract form
used for all centers), incorporated by reference
to Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1992.
30
<PAGE>
(l) Business Loan Agreement with Bank of America for
$2,000,000 three year line of credit.
(m) Consultant Agreement between Grease Monkey Holding
Corporation and Rex L. Utsler.
11. Statement Re: Computation of Per Share Earnings
21. Subsidiaries of the Registrant
(a) Grease Monkey International, Inc., incorporated in
the State of Colorado (100% owned).
(b) GM Properties, Inc., incorporated in the State of
Colorado (100% owned).
23. Consent of Experts and Counsel.
(a) Consent of KPMG Peat Marwick LLP.
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K.
No Reports on Form 8-K were filed during the last quarter of the
period covered by this report.
31
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 27, 1997
GREASE MONKEY HOLDING CORPORATION,
a Utah corporation
By: /s/ Charles E. Steinbrueck
---------------------------------
Charles E. Steinbrueck, President
and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Date Name and Title Signature
---- -------------- ---------
March 27, 1997 CHARLES E. STEINBRUECK, /s/ Charles E. Steinbrueck
Director, President and -----------------------------
Chief Executive Officer Charles E. Steinbrueck
(Principal Executive
Officer)
March 27, 1997 T. TIMOTHY KERSHISNIK, /s/ T. Timothy Kershisnik
Controller, Treasurer and -----------------------------
Corporate Secretary T. Timothy Kershisnik
(Principal Financial and
Accounting Officer)
March 27, 1997 JAMES B. WALLACE, Director /s/ James B. Wallace
and Chairman of the Board -----------------------------
James B. Wallace
March 27, 1997 JERRY D. ARMSTRONG, /s/ Jerry D. Armstrong
Director -----------------------------
Jerry D. Armstrong
March 27, 1997 JIM D. BALDWIN, Director
-----------------------------
Jim D. Baldwin
March 27, 1997 CORTLANDT S. DIETLER, /s/ Cortlandt S. Dietler
Director -----------------------------
Cortlandt S. Dietler
March 27, 1997 WAYNE H. PATTERSON, /s/ Wayne H. Patterson
Director -----------------------------
Wayne H. Patterson
March 27, 1997 GEORGE F. WOOD, Director /s/ George F. Wood
-----------------------------
George F. Wood
32
<PAGE>
Independent Auditors' Report
THE BOARD OF DIRECTORS AND STOCKHOLDERS
GREASE MONKEY HOLDING CORPORATION:
We have audited the accompanying consolidated balance sheets of Grease Monkey
Holding Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ending December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Grease Monkey
Holding Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ending December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 7, 1997
F-1
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
-------------------------
1996 1995
----------- ----------
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . $ 324,745 385,167
Restricted cash including certificates of
deposit . . . . . . . . . . . . . . . . . . . . 34,927 32,232
Accounts receivable, net of allowance for
doubtful accounts of $252,795 in 1996
and $399,141 in 1995. . . . . . . . . . . . . . 1,042,259 1,123,267
Current portion of notes receivable, net of
allowance for uncollectible amounts (Note D). . 500,705 105,584
Current portion of net investment in
direct financing leases (Note F). . . . . . . . 225,053 187,195
Inventories. . . . . . . . . . . . . . . . . . . 887,203 697,383
Prepaid expenses and supplies. . . . . . . . . . 125,208 155,661
----------- ----------
TOTAL CURRENT ASSETS 3,140,100 2,686,489
----------- ----------
Property and Equipment, at Cost, Pledged
(Notes E and F):
Land. . . . . . . . . . . . . . . . . . . . . . 445,917 152,079
Buildings (including buildings under capital
leases). . . . . . . . . . . . . . . . . . . . 5,728,492 5,294,542
Furniture and fixtures. . . . . . . . . . . . . 562,235 486,648
Leasehold improvements. . . . . . . . . . . . . 662,001 630,073
Machinery and equipment . . . . . . . . . . . . 1,735,844 1,454,289
----------- ----------
9,134,489 8,017,631
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . (3,540,784) (3,061,632)
----------- ----------
NET PROPERTY AND EQUIPMENT 5,593,705 4,955,999
----------- ----------
Other Assets:
Net investment in direct financing leases
(Note F) . . . . . . . . . . . . . . . . . . . 3,499,162 3,331,596
Notes receivable, net of allowance for
uncollectible amounts (Note D) . . . . . . . . 270,761 99,036
Deferred franchising costs . . . . . . . . . . 211,849 159,788
Goodwill and covenants not to compete, net of
accumulated amortization of $966,729 in
1996 and $746,793 in 1995. . . . . . . . . . . 2,401,586 1,588,348
Real estate held for sale . . . . . . . . . . . - 173,500
Other assets, net of accumulated amortization
of $141,355 in 1996 and $120,713 in 1995 . . . 99,960 150,877
----------- ----------
TOTAL OTHER ASSETS 6,483,318 5,503,145
----------- ----------
$15,217,123 13,145,633
----------- ----------
----------- ----------
(continued on next page)
F-2
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31,
-------------------------
1996 1995
----------- ----------
Current Liabilities:
Accounts payable . . . . . . . . . . . . . $ 1,043,149 773,983
Accrued salaries and wages. . . . . . . . . 203,073 191,116
Other accrued liabilities . . . . . . . . . 347,158 218,426
Current portion of long-term debt (Note E). 1,066,283 420,887
Current portion of obligations under
capital leases (Note F). . . . . . . . . . 427,917 363,209
----------- ----------
TOTAL CURRENT LIABILITIES . . . . . . . . 3,087,580 1,967,621
----------- ----------
Long-Term Debt (Note E) . . . . . . . . . . . 3,126,148 2,223,817
Obligations Under Capital Leases (Note F) . . 6,649,017 6,374,027
Deferred Franchise Sales Revenue. . . . . . . 907,371 655,553
Stockholders' Equity (Note G):
Series C Preferred stock, stated value of
$100.00 per share, 20,896 and 20,958
shares issued and outstanding in 1996
and 1995, respectively . . . . . . . . . . 2,089,638 2,095,838
Common stock, par value $0.03, 20,000,000
shares authorized, 4,379,860 and
4,336,764 shares issued and outstanding
in 1996 and 1995, respectively . . . . . . 131,396 130,103
Capital in excess of par value . . . . . . 5,877,670 5,773,248
Accumulated deficit . . . . . . . . . . . . (6,651,697) (6,074,574)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . 1,447,007 1,924,615
Commitments and Contingencies
(Notes F and J). . . . . . . . . . . . . . .
----------- ----------
$15,217,123 13,145,633
----------- ----------
----------- ----------
See notes to the consolidated financial statements
F-3
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Operating Revenue:
Royalty fees . . . . . . . . . . . . . . . $ 3,143,933 3,211,716 3,052,044
Franchise sales - center openings . . . . . 183,300 430,110 385,219
Product and equipment revenue . . . . . . . 776,333 1,021,730 1,260,055
Sales by Company-owned Centers . . . . . . 14,416,201 12,462,632 12,319,572
Leasing revenue . . . . . . . . . . . . . . 1,434,086 1,391,886 1,671,234
Other . . . . . . . . . . . . . . . . . . . 188,940 150,069 130,210
----------- ---------- ----------
20,142,793 18,668,143 18,818,334
----------- ---------- ----------
Operating Expenses:
Franchise costs - center openings . . . . . 32,843 99,771 80,195
Product and equipment costs . . . . . . . . 340,300 558,546 754,673
Company-owned Centers . . . . . . . . . . . 12,404,772 10,817,307 10,584,850
Leasing expense . . . . . . . . . . . . . . 1,376,677 1,401,978 1,588,918
General and administrative expenses
(Note H) . . . . . . . . . . . . . . . . . 4,740,381 4,110,166 4,375,663
Provision for credit losses . . . . . . . . 206,221 151,800 112,509
Depreciation . . . . . . . . . . . . . . . 694,241 638,352 619,047
Amortization . . . . . . . . . . . . . . . 245,454 177,553 152,603
----------- ---------- ----------
20,040,889 17,955,473 18,268,458
----------- ---------- ----------
Operating income . . . . . . . . . . . . . . 101,904 712,670 549,876
----------- ---------- ----------
Other income (expense):
Gain (loss) on sale/disposition of centers. (83,780) 31,705 (12,792)
Undeveloped franchise licenses canceled . . 27,563 18,075 98,287
Interest income . . . . . . . . . . . . . . 37,186 37,845 50,076
Interest expense (Note F) . . . . . . . . . (659,996) (562,105) (545,881)
----------- ---------- ----------
(679,027) (474,480) (410,310)
----------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . $ (577,123) 238,190 139,566
----------- ---------- ----------
----------- ---------- ----------
Earnings (loss) per common share (Note B) . . $ (0.16) 0.03 *
----------- ---------- ----------
----------- ---------- ----------
Weighted average shares outstanding . . . . . 4,361,163 4,354,680 4,288,946
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
* Less than $.01 income per share.
See notes to the consolidated financial statements
F-4
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
Preferred Stock Common Stock
--------------------------------- --------------------------------
Number Capital in
Number of Subscriptions of Excess of Accumulated
Shares Amount Receivable Shares Amount Par Value Deficit Total
------ ---------- -------- --------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993........... 9,360 $ 936,000 789,000 4,253,691 $127,611 5,765,475 (6,452,330) 1,165,756
Issuance of common stock
pursuant to employee benefit plan..... - - - 12,981 389 29,131 - 29,520
Issuance of Series C Preferred
stock, net of offering costs.......... 13,000 1,300,000 (789,000) - - (162,100) - 348,900
Conversion of Series C
Preferred stock to common
stock, including payment
of accumulated dividends.............. (155) (15,500) - 6,199 186 14,412 - (902)
Issuance of common stock, pursuant
to the cancellation of undeveloped
franchise licenses.................... - - - 11,200 336 19,264 - 19,600
Issuance of common stock upon
exercise of employee stock options.... - - - 30,000 900 60,540 - 61,440
Common stock reacquired and canceled... - - - (8,712) (261) (19,340) - (19,601)
Net income............................. - - - - - - 139,566 139,566
------ ---------- -------- --------- -------- --------- ---------- ---------
Balance at December 31, 1994........... 22,205 2,220,500 - 4,305,359 129,161 5,707,382 (6,312,764) 1,744,279
Issuance of common stock pursuant
to employee benefit plan.............. - - - 11,542 346 20,682 - 21,028
Conversion of Series C Preferred
stock to common stock, including
payment of accumulated dividends...... (1,247) (124,662) - 49,863 1,496 113,224 - (9,942)
Offering costs of Series C
Preferred stock....................... - - - - - (7,500) - (7,500)
Common stock reacquired and canceled... - - - (30,000) (900) (60,540) - (61,440)
Net income............................. - - - - - - 238,190 238,190
------ ---------- -------- --------- -------- --------- ---------- ---------
Balance at December 31, 1995........... 20,958 2,095,838 - 4,336,764 130,103 5,773,248 (6,074,574) 1,924,615
Issuance of common stock pursuant
to employee benefit plan.............. - - - 40,616 1,219 45,025 - 46,244
Conversion of Series C Preferred stock
to common stock, including payment
of accumulated dividends.............. (62) (6,200) - 2,480 74 5,397 - (729)
Increase in fair value of
warrants extended..................... - - - - - 54,000 - 54,000
Net loss............................... - - - - - - (577,123) (577,123)
------ ---------- -------- --------- -------- --------- ---------- ---------
Balance at December 31, 1996........... 20,896 $2,089,638 - 4,379,860 $131,396 5,877,670 (6,651,697) 1,447,007
------ ---------- -------- --------- -------- --------- ---------- ---------
------ ---------- -------- --------- -------- --------- ---------- ---------
</TABLE>
See notes to the consolidated financial statements
F-5
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $(577,123) 238,190 139,566
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Increase in deferred franchise sales
revenue....................................... 541,400 129,000 493,000
Franchise sales revenue recognized -
center openings................................ (183,300) (430,110) (385,219)
Increase in deferred franchising costs.......... (111,141) (78,130) (77,272)
Franchise costs recognized - center
openings....................................... 32,843 99,771 80,195
Provision for credit losses..................... 206,221 151,800 112,509
Loss realized on retirement of property and
equipment..................................... 1,110 18,130 7,938
Depreciation and amortization................... 939,695 815,905 771,650
Loss (gain) on sale of centers.................. 58,421 (31,705) 12,792
Payments on settlement agreement................ - - (425,686)
Undeveloped franchise licenses canceled......... (27,563) (18,075) (98,287)
Interest on litigation award.................... - 20,723 22,081
Increase in fair value of warrants
extended....................................... 54,000 - -
Other, net...................................... 380 17,113 (70,252)
Change in assets and liabilities:
Increase in accounts receivable............... (448,549) (422,484) (279,576)
Decrease in notes receivable.................. 8,456 29,150 80,062
Decrease (increase) in inventories............ (153,658) (13,513) 76,614
Decrease (increase) in prepaid expenses
and supplies................................. 30,453 (30,634) 71,631
Increase (decrease) in accounts payable....... 273,797 (194,363) (103,493)
Increase (decrease) in accrued salaries
and wages and other accrued
liabilities.................................. 129,666 (62,370) 32,293
--------- -------- --------
Net cash provided by operating
activities................................ $ 775,108 238,398 460,546
--------- -------- --------
</TABLE>
(Continued on next page)
F-6
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Cash flows from investing activities:
Principal receipts on direct financing leases.... $ 177,656 181,155 204,098
Acquisition of centers........................... (394,389) (870,388) -
Sale of centers.................................. 75,354 123,233 21,050
Capital expenditures............................. (724,861) (218,041) (252,049)
Notes receivable from developers................. (415,000) - -
Decrease (increase) in other assets.............. 29,247 (41,925) (19,315)
----------- --------- ---------
Net cash used in investing activities.......... (1,251,993) (825,966) (46,216)
----------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt..................... 1,257,000 1,241,880 -
Principal payments on long-term debt............. (493,249) (350,372) (432,403)
Principal payments on capital lease
obligations..................................... (348,365) (307,669) (320,582)
Payments on notes payable to a related party..... - - (378,000)
Issuance of preferred stock, net of offering
costs........................................... - (7,500) 1,137,900
Payment of accumulated dividends upon
conversion of preferred stock to common
stock........................................... (729) (9,942) (902)
Settlement of lease obligations.................. - - (25,000)
Decrease (increase) in restricted cash........... (2,694) 149,407 (130,248)
Increase (decrease) in lease deposit
obligations..................................... 4,500 300 (21,560)
----------- --------- ---------
Net cash provided by (used in)
financing activities......................... 416,463 716,104 (170,795)
----------- --------- ---------
Net increase (decrease) in cash.................... (60,422) 128,536 243,535
Cash, beginning of year............................ 385,167 256,631 13,096
----------- --------- ---------
Cash, end of year.................................. $ 324,745 385,167 256,631
----------- --------- ---------
----------- --------- ---------
Supplemental disclosures of cash flow
information -
Cash paid during the year for interest........... $ 1,066,840 955,889 1,002,206
----------- --------- ---------
----------- --------- ---------
</TABLE>
See notes to the consolidated financial statements
F-7
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. DESCRIPTION OF BUSINESS
In 1980 Grease Monkey Holding Corporation (GMHC) acquired all of the
issued and outstanding common stock of Grease Monkey International, Inc. (GMI),
which operates, leases, manages and franchises automotive quick-service
preventive fluid maintenance Centers (Grease Monkey Centers or Centers). In
1987 GMHC established a wholly-owned subsidiary, GM Properties, Inc. (GMP), for
the purpose of acquiring (purchasing or leasing) real estate, which in turn is
leased to GMI franchisees. The three companies, collectively are referred to as
the "Company".
Grease Monkey Centers provide the automobile user with convenient
preventive fluid maintenance services. In about ten minutes, without an
appointment, Grease Monkey service technicians change the oil, install a new oil
filter, lubricate the chassis, adjust tire pressure, wash windows and vacuum the
interior of an automobile. At the same time, all fluid levels are checked and
topped off if necessary. Grease Monkey Centers also offer transmission fluid
changes, differential fluid changes, radiator flushes, air conditioning
recharges, automotive light bulb replacement, and oil additive packages, and
will replace air filters and install new wiper blades.
The principal markets in which Grease Monkey operates include twenty-eight
states and Mexico with concentrations in California, Colorado, Iowa, Indiana,
North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Virginia
and Washington.
The following table summarizes the number of Grease Monkey Centers in
operation during the last three fiscal years:
December 31,
------------------------
1996 1995 1994
---- ---- ----
Franchised Grease Monkey Centers . . . . 184 181 176
Company-owned Grease Monkey Centers . . . 31 29 29
--- --- ---
Total Grease Monkey Centers in operation
at year end. . . . . . . . . . . . . . . 215 210 205
--- --- ---
--- --- ---
Included in Franchised Grease Monkey Centers are twenty centers in 1996, sixteen
centers in 1995 and nine centers in 1994 located in Mexico.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of GMHC and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
F-8
<PAGE>
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
RESTRICTED CASH - Included in restricted cash at December 31, 1996 and
1995, is a certificate of deposit pledged to secure long-term debt with a
balance of $33,000 and $32,000, respectively.
INVENTORIES - Inventories are stated at the lower of cost, determined by
the first-in, first-out (FIFO) method, or market. Inventories consist primarily
of automotive service products and promotional materials.
NET INVESTMENT IN DIRECT FINANCING LEASES AND OBLIGATIONS UNDER CAPITAL
LEASES - The Company has entered into leasing arrangements with franchisees of
Grease Monkey Centers. In some cases, the Company leases the property from an
outside party and, in turn, sublets the property to the franchisee. Certain of
these leases and subleases meet the criteria of capitalized leases and direct
financing leases. In addition, the Company leases buildings at certain Company-
owned Grease Monkey Centers. Certain of these leases are capital leases.
Capital leases are recorded at the lesser of the building's fair market value at
the inception of the lease or the net present value of the minimum lease
payments.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the following estimated useful
lives:
Buildings accounted for
as capitalized leases. . . term of the lease (generally 15 to 20 years)
Buildings . . . . . . . . . 20 years
Furniture and fixtures. . . 10 years
Leasehold improvements. . . term of the lease (generally 15 to 20 years)
Machinery and equipment . . 5 to 10 years
INTANGIBLE ASSETS - The cost of Grease Monkey Centers acquired in excess of
the fair value of tangible assets acquired at the date of acquisition is
recorded as goodwill and covenants not to compete. Goodwill is amortized on a
straight-line basis over the remaining term of the underlying lease (15-20
years). The covenants not to compete are amortized on a straight-line basis
over the period of the agreements.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF -
The Company reviews its long-lived assets and intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of the asset to the future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be
F-9
<PAGE>
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.
MARKETING COSTS - The Company participates in various advertising and
marketing programs, individually and in conjunction with product suppliers.
Certain of the Company's costs incurred in connection with these programs are
reimbursed. All costs related to marketing and advertising are expensed in the
period incurred.
AREA DEVELOPMENT FEES, INITIAL FRANCHISE FEES AND RELATED FRANCHISE COSTS -
Prior to April 1988, the Company entered into area development agreements which
granted franchisees the exclusive right to develop and operate specific numbers
of Grease Monkey Centers within territories for a fee. The agreements further
provided for a license fee for each Grease Monkey Center. The area development
fee, the license fee and initial franchise fees are deferred and recognized as
franchise sales when the Grease Monkey Centers open. Incremental development
costs are deferred, but not in excess of the deferred revenue, net of the
estimated cost to open the Grease Monkey Center, and are expensed when the
revenue is recognized.
ROYALTY FEES - Royalties as allowed by the franchise agreement are accrued
on a percentage of gross sales (ranging from 3% to 5%) as reported by
franchisees.
Based upon many factors, including the age of amounts owed the Company, the
extent of collateralization, and historical performance, the Company may place
certain financially troubled franchisees on a non-accrual status. During 1996,
approximately $112,000 ($171,000 in 1995 and $133,000 in 1994) in estimated
royalty revenue was not recognized as a result of the non-accrual policy. The
Company actively pursues collection of all receivables, including receivables
that are not recognized as income until collected.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - The allowance for doubtful accounts is
maintained at amounts the Company deems adequate to cover estimated losses on
accounts and notes receivable. In determining the level to be maintained, the
Company evaluates many factors including the franchisees' ability to pay,
historical performance, the collateral value of the franchisees' Centers and any
undeveloped franchises owned by the franchisee, and prevailing and anticipated
economic conditions. In the opinion of the Company, the allowances are adequate
to absorb reasonably foreseeable losses. Charge-offs to the allowances are made
when accounts and notes receivable are considered uncollectible.
COMPANY-OWNED CENTERS - At December 31, 1996, the Company owned 31 Grease
Monkey Centers. The combined revenue and expenses (excluding depreciation,
amortization and interest expense) for those Grease Monkey Centers operated by
the Company are reported on the Consolidated Statements of Operations as
Company-owned Centers.
INCOME TAXES - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES
(Statement 109). Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
F-10
<PAGE>
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
STOCK OPTION PLAN - Prior to January 1, 1996, the Company accounted for its
stock option plans in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense was recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income (loss) and
pro forma earnings (loss) per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosures.
EARNINGS (LOSS) PER SHARE - Primary earnings (loss) per share is determined
based on the number of common and common equivalent shares outstanding and is
adjusted for the assumed conversion of shares issuable upon exercise of options
and warrants, after the assumed repurchase of common shares with the related
proceeds. Earnings (loss) per share for all periods was computed after
reduction for preferred stock dividend requirements ($125,766 in 1996, $126,632
in 1995 and $121,202 in 1994). The assumed conversion of preferred stock was
anti-dilutive for all periods presented.
RECLASSIFICATIONS - Certain amounts in the 1994 and 1995 financial
statements have been reclassed to conform to the 1996 presentation.
C. ACQUISITIONS
During 1996, the Company acquired seven Grease Monkey Centers from
franchisees (five foreclosed Centers and two purchased Centers). The Company
foreclosed on amounts due the Company, received a note receivable and assumed
liabilities resulting in total consideration of $260,158 for the five foreclosed
Centers, and paid cash and assumed liabilities for total consideration of
$1,604,521 for the two purchased Centers.
During 1995, the Company acquired one Grease Monkey Center from a
franchisee for total consideration of $870,388.
During 1994, the Company acquired one Grease Monkey Center from a
franchisee. The Company foreclosed on amounts due the Company and received a
note receivable resulting in total consideration of $59,201 for the Center.
The results of operations of the Grease Monkey Centers acquired are
included in the accompanying Consolidated Financial Statements from the date of
acquisition.
F-11
<PAGE>
D. NOTES RECEIVABLE
Notes Receivable consist of the following:
December 31
---------------------
1996 1995
--------- -------
Notes receivable from franchisees. Both
interest and non-interest bearing with
interest rates ranging from 6% to 8% at
December 31, 1996. Due in monthly
installments of approximately $7,200
including interest (maturities range
through March 2006). Generally
collateralized by franchise rights,
property and equipment of Grease Monkey
Centers, and undeveloped licenses . . . . . . . $ 304,714 191,401
Notes receivable from franchisees. Both
interest and non-interest bearing with
interest rates of 8% at December 31, 1996. Due
in monthly installments of approximately
$2,400 (maturities range through August
2001). Unsecured. . . . . . . . . . . . . . . . 52,006 64,315
Notes receivable from developers. Interest
at 9%. Monthly payments of interest only,
with principal due April 1997 . . . . . . . . . 415,000 -
Other notes receivable. Both interest and
non-interest bearing with interest rates
ranging from 7% to 8% at December 31, 1996
(maturities range through February 2006). . . . 145,190 35,533
--------- -------
916,910 291,249
Less allowance for uncollectible amounts. . . . . (145,444) (86,629)
Less current portion . . . . . . . . . . . . . . (500,705) (105,584)
--------- -------
$ 270,761 99,036
--------- -------
--------- -------
Maturities of notes receivable (excluding the allowance for uncollectible
amounts) are as follows:
Year Ended
December 31,
------------
1997. . . . . . . . . . . . . . . . . . $530,709
1998. . . . . . . . . . . . . . . . . . 83,294
1999. . . . . . . . . . . . . . . . . . 75,526
2000. . . . . . . . . . . . . . . . . . 66,600
2001. . . . . . . . . . . . . . . . . . 48,696
Thereafter. . . . . . . . . . . . . . . 112,085
--------
$916,910
--------
--------
F-12
<PAGE>
E. LONG-TERM DEBT
Long-term debt consists of the following:
December 31
-----------------------
1996 1995
----------- ---------
Notes payable under an aggregate line of credit
of $2,400,000 with interest at 9%, maturing
in June 2005, secured by conditional
assignment of leases and lubrication
equipment and restricted to the acquisition
or development of Grease Monkey Centers . . . . $ 1,787,312 1,572,878
Notes payable to oil suppliers which are non-
interest bearing and amortized based on
product purchases, maturing at various times
through August 2006, secured by lubrication
equipment at Grease Monkey Centers having a
net book value of $291,023 at December 31,
1996 . . . . . . . . . . . . . . . . . . . . . 402,447 416,742
Notes payable with interest rates ranging from
8.5% to 12%, maturing at various times through
July 2011, including a balloon payment of
$93,582 in August 1997, secured by mortgages
on real property and lubrication equipment
having a net book value of $1,137,552 at
December 31, 1996 . . . . . . . . . . . . . . . 619,464 386,031
Notes payable with interest rates ranging from
7.5% to 12%, maturing at various times through
April 2008, secured by assets at Grease Monkey
Centers having a net book value of $1,284,834
at December 31, 1996. . . . . . . . . . . . . . 784,051 165,137
Notes payable under a line of credit of
$2,000,000 guaranteed by a motor oil supplier
with interest at 9% (including a guarantee fee
of 3.3%) expires in May 1999, and is
restricted to the development of Grease Monkey
Centers . . . . . . . . . . . . . . . . . . . . 415,000 -
Other long-term debt. . . . . . . . . . . . . . . 184,157 103,916
----------- ---------
4,192,431 2,644,704
Less current portion. . . . . . . . . . . . . . . (1,066,283) (420,887)
----------- ---------
$ 3,126,148 2,223,817
----------- ---------
----------- ---------
F-13
<PAGE>
E. LONG-TERM DEBT (CONTINUED)
Aggregate maturities of long-term debt as of December 31, 1996, are as follows:
Year Ended
December 31,
------------
1997. . . . . . . . . . . . . . . . $1,066,283
1998. . . . . . . . . . . . . . . . 407,995
1999. . . . . . . . . . . . . . . . 492,003
2000. . . . . . . . . . . . . . . . 338,051
2001. . . . . . . . . . . . . . . . 341,571
Thereafter . . . . . . . . . . . . 1,546,528
----------
$4,192,431
----------
----------
F. LEASES
The Company is a party to a number of leases, as described below.
As lessee, the Company leases certain Grease Monkey Center sites and office
space under operating lease agreements. Lease terms range from one to twenty
years. The Company pays the property taxes, insurance, and maintenance costs
related to the leased property where applicable. Rent expense under operating
leases was $2,524,578 for 1996, $2,274,542 for 1995 and $2,379,746 for 1994.
The Company also leases additional Grease Monkey Center sites under capital
lease agreements. These sites are either sublet to franchisees or operated as
Company-owned Centers. The typical lease period is 15 to 20 years and some
leases contain renewal options. These leases are accounted for as capital
leases and are capitalized using interest rates appropriate at the inception of
each lease.
As lessor, the Company sublets 27 Grease Monkey Center sites to
franchisees. The typical sublease period coincides with the primary lease term,
and some leases contain renewal options. The franchisees pay the property taxes,
insurance and maintenance costs related to the leased property. Certain of the
subleases are accounted for as direct financing leases. In those cases where
the Company subleases only land, or the lease or sublease does not meet the
criteria for capitalization, the sublease is accounted for as an operating
lease.
The Company has guaranteed leases for four of its franchisees. At December
31, 1996, the aggregate contingent liability under the lease guarantees amounted
to approximately $1,139,000.
F-14
<PAGE>
F. LEASES (CONTINUED)
Future minimum commitments under leasing arrangements for Grease Monkey
Centers at December 31, 1996, are as follows:
<TABLE>
Payable as Lessee Receivable as Lessor
---------------------------- -----------------------------
Years Ended Capital Operating Capital Operating
December 31, Leases Leases Leases Leases
------------ ----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
1997. . . . . . . . . . . . . $ 1,208,086 2,247,014 644,217 1,166,479
1998. . . . . . . . . . . . . 1,240,642 2,045,389 659,172 935,595
1999. . . . . . . . . . . . . 1,198,414 1,935,337 631,862 841,437
2000. . . . . . . . . . . . . 1,211,794 1,881,699 639,524 856,957
2001. . . . . . . . . . . . . 1,221,393 1,759,887 649,976 855,936
Thereafter. . . . . . . . . . 6,034,774 8,136,490 3,247,107 3,669,608
----------- ----------- ----------- ----------
Total minimum commitments . . 12,115,103 $18,005,816 6,471,858 $8,326,012
----------- ----------
----------- ----------
Less portion representing
interest. . . . . . . . . . (5,038,169) (2,747,643)
----------- -----------
Present value of net
minimum commitments . . . . 7,076,934 3,724,215
Less current portion . . . . (427,917) (225,053)
----------- -----------
Non-current portion . . . . . $ 6,649,017 $ 3,499,162
----------- -----------
----------- -----------
</TABLE>
Amounts capitalized for Centers under capital leases are included in buildings
(primarily representing Company Centers) and as the net investment in direct
financing leases (representing centers subleased to franchisees). The following
is a summary of Grease Monkey Centers under capital leases included in
buildings:
December 31,
---------------------------
1996 1995
----------- ----------
Buildings . . . . . . . . . . . . . . $ 3,877,414 3,466,964
Less accumulated depreciation . . . . (1,209,035) (1,141,482)
----------- ----------
$ 2,668,379 2,325,482
----------- ----------
----------- ----------
Interest expense attributable to leases for Centers sublet to franchisees
is included in leasing expense in the accompanying financial statements.
Interest expense attributable to capital leases of Company Centers is included
in interest expense in the accompanying financial statements and amounted to
$364,041 $360,783 and $383,429 in 1996, 1995 and 1994, respectively.
F-15
<PAGE>
F. LEASES (CONTINUED)
The Company leases its office space and training facility under a lease
expiring in June 1998. Rent under the lease is approximately $18,000 per month.
G. STOCKHOLDERS' EQUITY
On June 11, 1996, at the Annual Meeting of Shareholders, the Company's
shareholders voted to amend Article IV of the Company's Articles of
Incorporation to increase the authorized shares of common stock with a par value
of $0.03 per share to 20,000,000 shares.
On February 28, 1994 and March 15, 1994, the Company issued 13,000 shares
of Series C Preferred stock for $1,300,000, of which $789,000 was subscribed to
as of December 31, 1993.
The Company's Series C, 6% cumulative, Preferred stock is redeemable at the
option of the Company upon 60 days prior written notice after December 31, 1996.
At the option of the holder, at any time prior to the close of business on the
redemption date, each share of Series C Preferred stock, plus any accumulated
unpaid dividends, may be converted into shares of common stock at a conversion
price of $2.50 per share of common stock. In December of 1994, 155 shares of
Series C Preferred stock were converted into 6,199 shares of common stock and
related dividends of $902 were paid in cash. During 1995, 1,247 shares of
Series C Preferred stock were converted into 49,863 shares of common stock and
related dividends of $9,942 were paid in cash. During 1996, 62 shares of Series
C Preferred stock were converted into 2,480 shares of common stock and related
dividends of $729 were paid in cash. As of December 31, 1996, accumulated
unpaid dividends totaled $381,567.
On August 5, 1991, the Company issued warrants to purchase 500,000 shares
of its common stock for $1.50 per share to First of September Corporation, the
Company's majority shareholder. In exchange, First of September Corporation
provided the Company with a $750,000 line of credit which was repaid on March
23, 1994, and canceled. The warrants were to expire on August 4, 1996, but were
extended in March 1996 by the Board of Directors to August 4, 1998, as
consideration for First of September Corporation's agreement to cooperate in an
equity and debt financing, then under consideration. The increase in the
estimated fair value of the warrants of $54,000 was recorded as an increase in
stockholder's equity and deferred offering costs. The offering costs were
subsequently written off when the proposed financing was abandoned.
The Company has an employee deferred compensation 401(k) plan and matches
employee contributions to this plan in an amount equal to 50% of the employees'
contribution, up to a maximum of 6% of the employees' compensation. The
Company's contribution is paid with its $0.03 par value common stock (net of
forfeitures) valued at market on the date of the contribution. During 1996,
1995 and 1994, the Company contributed 40,616, 11,542 and 12,981 shares to this
plan at an average of $1.14, $1.82 and $2.27 per share, respectively.
At December 31, 1996, the Company has three stock-based compensation plans.
Under the terms of the 1986 and 1993 Plans, the Company may grant incentive
stock options to officers and employees on terms and conditions determined by
the Option Committee. Options are granted at an exercise price equal to market
value on the date of the grant, are exercisable immediately, expire five years
from the date of grant
F-16
<PAGE>
G. STOCKHOLDERS' EQUITY (CONTINUED)
and expire upon termination of employment. The 1986 Plan reserved 66,667 shares
and the 1993 Plan reserved 300,000 shares for grant under the Plan. No further
options can be granted under the 1986 Plan. Under the terms of the 1994 Plan,
the Company may grant to officers, directors, consultants and employees, on
terms and conditions determined by the Option Committee, incentive stock
options, cash awards, stock bonuses or stock appreciation rights. Options
granted under the 1994 Plan cannot be exercisable for more than ten years and
the exercise price must be at least 100% of the fair market value of the
Company's common stock on the date of the grant. The 1994 Plan reserved 500,000
shares for grant or awards under the Plan.
The Company applies APB Opinion No. 25 and the related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. Had compensation cost for the Company's
stock-based compensation plans been determined consistent with FASB No. 123, the
Company's net income (loss) and earnings (loss) per share would have been
reduced to the proforma amounts indicated below:
1996 1995
--------- --------
Net income (loss) As Reported (net $(702,889) $111,558
of preferred
stock dividends)
Pro forma $(750,717) $ 3,246
Earnings (loss) per
common share As Reported $ (0.16) $ 0.03
Pro forma $ (0.17) $ *
* Less than $.01 per share
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996; no dividend yield; expected
volatility ranging from 25 to 32 percent; risk free interest rate of
approximately 6 percent; and expected lives of five years.
F-17
<PAGE>
G. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the status of the Company's three fixed stock option plans
as of December 31, 1996, 1995 and 1994, and changes during the years ended on
those dates is presented below:
<TABLE>
Shares
Outstanding Weighted
Shares and Average
Reserved Exercisable Exercise Price
-------- ----------- --------------
<S> <C> <C> <C>
Balances at December 31, 1993 . . . . 363,333 42,035 2.08
Additional shares reserved . . . . 500,000
Granted . . . . . . . . . . . . . . - 332,000 2.19
Exercised . . . . . . . . . . . . . (30,000) (30,000) 2.05
Canceled . . . . . . . . . . . . . - (52,268) 2.17
------- -------- ----
Balances at December 31, 1994 . . . . 833,333 291,767 2.19
Granted . . . . . . . . . . . . . . - 577,666 1.82
Canceled . . . . . . . . . . . . . - (332,767) (1) 2.20
------- -------- ----
Balances at December 31, 1995 . . . . 833,333 536,666 1.79
Granted . . . . . . . . . . . . . . - 182,200 1.07
Canceled . . . . . . . . . . . . . - (52,633) 1.62
Expired . . . . . . . . . . . . . . (133)
------- -------- ----
Balances at December 31, 1996 . . . . 833,200 666,233 1.60
------- -------- ----
------- -------- ----
1996 1995
------- --------
Weighted-average fair value of
options granted during the year . . . $0.42 $0.68
</TABLE>
(1) Includes 291,666 of previously granted options with exercise prices of $1.88
to $2.53 per share, which were canceled and a corresponding number of options
granted at $1.75 per share.
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
Options Outstanding and Exercisable
----------------------------------------------
Number Weighted-
Outstanding Average
Range of and Remaining Weighted-
Exercise Exercisable Contractual Average
Prices at 12/31/96 Life Exercise Price
- ------------ ----------- ----------- --------------
$1.06 - 1.17 172,200 4.63 years $1.07
1.59 - 1.75 424,033 3.57 1.72
2.22 70,000 3.30 2.22
-------
1.06 - 2.22 666,233 3.82 1.60
-------
-------
F-18
<PAGE>
H. GENERAL AND ADMINISTRATIVE EXPENSES
The following is a summary of general and administrative expenses:
Years Ended December 31,
--------------------------------------
1996 1995 1994
---------- --------- ---------
Salaries, wages and
personnel expenses . . . . . . $2,007,997 1,992,406 1,980,837
Travel and entertainment
expenses . . . . . . . . . . . 375,460 357,140 409,257
Office expenses . . . . . . . . . 648,552 611,998 656,563
Franchise development and
training expenses . . . . . . . 48,555 55,139 51,920
Franchise sales and
promotional expenses . . . . . 90,439 30,610 62,400
Terminated projects . . . . . . . 206,469 - -
Litigation, including
legal fees and related
costs . . . . . . . . . . . . . 344,139 106,176 188,807
Professional fees - legal,
tax and accounting . . . . . . 145,733 166,306 154,553
Company-owned Centers
division overhead . . . . . . . 678,476 564,719 725,603
Other . . . . . . . . . . . . . . 194,561 225,672 145,723
---------- --------- ---------
Total general and
administrative expenses . . . $4,740,381 4,110,166 4,375,663
---------- --------- ---------
---------- --------- ---------
F-19
<PAGE>
I. INCOME TAXES
In 1996, the deferred tax benefit that otherwise would have been
provided for was offset by an increase in the valuation allowance of
$184,000. In 1995 and 1994, deferred income taxes that would otherwise have
been provided for were offset by recognizing the benefit of a portion of the
existing net deferred tax assets and reducing the valuation allowance by
$116,000 in 1995 and $87,000 in 1994.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995, are presented below:
<TABLE>
December 31,
---------------------------
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts and notes receivable, principally
due to the allowance for doubtful accounts. . . $ 49,000 96,000
Property and equipment, principally due to
differences in basis and depreciation . . . . . 570,000 513,000
Goodwill . . . . . . . . . . . . . . . . . . . . 215,000 182,000
Deferred franchise sales revenue, due to
deferral for financial reporting purposes . . . 340,000 246,000
Other . . . . . . . . . . . . . . . . . . . . . . 62,000 -
Net operating loss carry-forwards . . . . . . . . 1,474,000 1,481,000
----------- ----------
Total gross deferred tax assets . . . . . . . . 2,710,000 2,518,000
Less valuation allowance . . . . . . . . . . . (2,631,000) (2,447,000)
----------- ----------
Net deferred tax assets . . . . . . . . . . . . 79,000 71,000
----------- ----------
Deferred tax liabilities:
Deferred franchising costs, due to deferral
for financial reporting purposes . . . . . . . (79,000) (60,000)
Other . . . . . . . . . . . . . . . . . . . . . . - (11,000)
----------- ----------
Total gross deferred tax liabilities . . . . . (79,000) (71,000)
----------- ----------
Net deferred tax liability . . . . . . . . . . $ - -
----------- ----------
----------- ----------
</TABLE>
The valuation allowance as of December 31, 1996 and 1995 represents
deferred tax assets that, based on the Company's earnings history and
uncertainty regarding the timing of recognition, may not be realized.
The Company has net operating loss carry-forwards at December 31, 1996,
of approximately $3,900,000 for income tax purposes. As a result of change
in control of the Company in March of 1991, approximately $900,000 of the net
operating loss carry-forward is subject to limitations. The Company is
limited to utilizing approximately $50,000 of such carry-forward annually.
The Company had deducted approximately $1,692,000 related to the
exercise of non-qualified stock options from 1987 to 1989, which is included
in the net operating loss carry-forward for income tax purposes. If the
$1,692,000 in deductions are realized, the tax benefit will be credited to
capital in excess of par value.
F-20
<PAGE>
J. LITIGATION
The Company is a party to legal proceedings including claims by
franchisees against the Company that arise in the ordinary course of business.
In the opinion of management, the outcome of these matters will not have a
material effect on the financial condition, results of operations, or cash flows
of the Company.
K. SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION
The following table sets forth, by period, the amount and nature of
amounts paid and received for the acquisition and sale (refranchising) of
Company-owned Centers:
Years Ended December 31,
-------------------------------------------
1996 1995 1994
----------- ---------- ---------
Acquisition of Centers:
Number of Centers purchased 2 1 -
----------- ---------- ---------
----------- ---------- ---------
Number of Centers foreclosed 5 - 1
----------- ---------- ---------
----------- ---------- ---------
Receivables applied (net of
related allowance). . . . . . . . $ 251,328 - 59,201
Liabilities assumed . . . . . . . . 1,218,962 - -
Cash paid . . . . . . . . . . . . 394,389 870,388 -
----------- ---------- ---------
Cost of assets acquired . . . . . . $ 1,864,679 870,388 59,201
----------- ---------- ---------
----------- ---------- ---------
Sales:
Number of Centers refranchised. . . 5 3 1
----------- ---------- ---------
----------- ---------- ---------
Cash received . . . . . . . . . . . $ 75,354 123,233 21,050
Notes received . . . . . . . . . . 124,777 41,993 37,351
Liabilities assumed by purchaser. . 39,750 40,000 14,263
Loss (gain) on sale . . . . . 58,421 (31,705) 7,106
Operating and marketing subsidies
granted to purchaser. . . . . . . (97,750) - -
Franchise fees . . . . . . . . . . 28,000 53,000 3,100
Franchise costs . . . . . . . . . . (5,000) (7,500) (704)
Liability assumed by seller . . . . - (5,000) -
Undeveloped licenses applied, net
of deferred franchise costs. . . . - - 4,793
----------- ---------- ---------
Net book value of Centers
refranchised . . . . . . . . . . . $ 223,552 214,021 86,959
----------- ---------- ---------
----------- ---------- ---------
In 1995, the Company assumed temporary operations of a franchised center,
resulting in a direct financing lease being cancelled and a capital lease
building being recorded in the amount of $184,524.
F-21
<PAGE>
K. SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION (CONTINUED)
During the year ended December 31, 1996, there were the following non-cash
transactions: the Company issued 40,616 shares of stock at an average value of
$1.14 per share in accordance with its matching requirement under the Company's
401(k) plan; the Company entered into a settlement agreement with a franchisee,
who owned two Centers, whereby $109,439 of receivables, $7,000 of lease deposits
and one undeveloped license of $16,312 were exchanged for a non-interest bearing
note receivable discounted to $86,127 upon the sale of the Centers to a new
franchisee; franchise licenses in the amount of $15,392, net of deferred costs
of $2,222, were canceled and applied to franchisees' obligations to the Company;
a parcel of land and a building were transferred from Real Estate Held for Sale
to Property and Equipment; and a capital lease obligation of $368,000 was
recorded for a Company-owned Center.
During the year ended December 31, 1995, there were the following non-cash
transactions: the Company issued 11,542 shares of stock at an average value of
$1.82 per share in accordance with its matching requirement under the Company's
401(k) plan; $11,612 of lease deposits were applied to past due accounts
receivable, and $312,144 of restricted cash was released to fund a previously
recorded litigation award.
During the year ended December 31, 1994, there were the following non-cash
transactions: the Company issued 12,981 shares of stock at an average value of
$2.27 per share in accordance with its matching requirement under the Company's
401(k) plan; a franchisee applied the cancellation of 8,712 shares of common
stock of the Company, at a market value of $2.25 per share, to his accounts
receivable and notes receivable balances; the Company's debt of $354,381 was
assumed by a third party in exchange for amounts owed the Company of $354,914;
and the Company, three franchisees, and one landlord entered into transactions
which relieved the Company of capital lease obligations of $842,737, reduced
direct financing lease receivables by $618,725, increased long-term debt by
$170,000 and resulted in a net gain of $29,012.
F-22
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT PAGE
3. Articles of Incorporation and Bylaws.
(a) Bylaws, as amended through March 4, 1991,
incorporated by reference to the Annual Report on
Form 10-KSB for the fiscal year ended December 31,
1992. N/A
(b) Restated Articles of Incorporation, filed
November 1, 1991, incorporated by reference to the
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991. N/A
(c) Articles of Amendment to Articles of Incorporation
filed June 29, 1992 incorporated by reference to
the Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1992. N/A
(d) Articles of Amendment to the Articles of
Incorporation filed August 15, 1996, incorporated
by reference to the Quarterly Report on form 10-
QSB for the period ended June 30, 1996. N/A
4. Instruments Defining the Rights of Holders Including Indentures.
(a) Statement of Designation, Voting Powers,
Preferences, and Rights of the Series C Preferred
stock of Grease Monkey Holding Corporation
incorporated by reference to the Annual Report on
Form 10-KSB for the fiscal year ended December 31,
1993. N/A
10. Material Contracts.
(a) 1986 Incentive Stock Option Plan, incorporated by
reference to the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993. N/A
(b) 1993 Incentive Stock Option Plan, incorporated by
reference to the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994. N/A
(c) Amendment to 1993 Incentive Stock Option Plan. ---
i
<PAGE>
(d) 1994 Stock Incentive Plan, incorporated by
reference to the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994. N/A
(e) Amendment to 1994 Stock Incentive Plan. ---
(f) Lease Agreement dated August 20, 1991, between
Clarmont Enterprises, Inc., and Grease Monkey
International, Inc., incorporated by reference to
the Annual Report on Form 10-K for the fiscal year
ended December 31, 1991. N/A
(g) Amendment Number One dated May 5, 1993, to Lease
Agreement dated August 20, 1991, between Venture
West Investments Limited (f.k.a. Clarmont
Enterprises, Inc.) and Grease Monkey
International, Inc., incorporated by reference to
the Annual Report on form 10-KSB for the fiscal
year ended December 31, 1994. N/A
(h) Loan Documents for $2,400,000 line of credit,
incorporated by reference to the Quarterly Report
on Form 10-QSB for the period ended June 30,
1995. N/A
(i) Loan documents for Preferred Risk Loan for
$200,000 incorporated by reference to the Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989: N/A
1. Construction Loan Agreement
2. Promissory Note
3. Promissory Note Clarification
4. Deed of Trust
5. Assignment of Rents
6. Estoppel Certificate
7. Quaker State Guaranty
8. Guaranty Agreement by Quaker State for
benefit of Preferred Risk
(j) Current form of Grease Monkey Franchise Agreement
in effect since April 28, 1994, incorporated by
reference to the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994. N/A
(k) Mobil Oil Company Supply Contract dated February
24, 1993, for Center #234 (similar contract form
used for all centers), incorporated by reference
to Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1992. N/A
ii
<PAGE>
(l) Business Loan Agreement with Bank of America for
$2,000,000 three year line of credit. ---
(m) Consultant Agreement between Grease Monkey Holding
Corporation and Rex L. Utsler. ---
11. Statement Re: Computation of Per Share Earnings. ---
21. Subsidiaries of the Registrant.
(a) Grease Monkey International, Inc., incorporated in
the State of Colorado (100% owned).
(b) GM Properties, Inc., incorporated in the State of
Colorado (100% owned).
23. Consent of Experts and Counsel.
(a) Consent of KPMG Peat Marwick LLP. ---
27. Financial Data Schedule. ---
iii
<PAGE>
EXHIBIT 11
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Net income (loss) . . . . . . . . $(577,123) 238,190 139,566
Dividends on preferred stock . . (125,766) (126,632) (121,202)
-------------- -------------- ------------
Net income (loss) applicable to
common stock . . . . . . . . . . $(702,889) 111,558 18,364
-------------- -------------- ------------
-------------- -------------- ------------
Common shares outstanding . . . . 4,379,860 4,336,764 4,305,359
Effect of using weighted average
common and common equivalent
shares outstanding . . . . . . . (18,697) 17,916 (16,413)
Effect of shares issuable under
common stock warrants using the
treasury stock method . . . . . . * - 192,623
Effect of shares issuable under
stock options using the
treasury stock method . . . . . . * - 32,970
-------------- -------------- ------------
Shares used in computing primary
earnings per share . . . . . . . 4,361,163 4,354,680 4,514,539
-------------- -------------- ------------
-------------- -------------- ------------
Primary earnings (loss) per common
share . . . . . . . . . . . . . . $ (0.16) 0.03 **
-------------- -------------- ------------
-------------- -------------- ------------
FULLY DILUTED EARNINGS PER SHARE
Net income (loss) . . . . . . . . $ (577,123) 238,190 139,566
Dividends on preferred stock. . . (125,766) (126,632) (121,202)
-------------- -------------- ------------
Net income (loss) applicable to
common stock . . . . . . . . . . (702,889) 111,558 18,364
-------------- -------------- ------------
-------------- -------------- ------------
Shares used in computing primary
earnings per share. . . . . . . . 4,361,163 4,354,680 4,514,539
Effect of shares issuable upon
conversion of preferred stock . . * * *
-------------- -------------- ------------
Shares used in computing fully
diluted earnings per share . . . 4,361,163 4,354,680 4,514,539
-------------- -------------- ------------
-------------- -------------- ------------
Fully diluted earnings (loss) per
common share . . . . . . . . . . $ (0.16) 0.03 **
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>
* Antidilutive
** Less than $.01 per share
<PAGE>
EXHIBIT 23.1
THE BOARD OF DIRECTORS
GREASE MONKEY HOLDING CORPORATION:
We consent to incorporation by reference in the registration statement (No.
33-80376) on Form S-8 and the registration statement (No. 33-79616) on Form
S-3 of Grease Monkey Holding Corporation of our report dated March 7, 1997,
relating to the consolidated balance sheets of Grease Monkey Holding
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996,
which report appears in the December 31, 1996, annual report on Form 10-KSB
of Grease Monkey Holding Corporation.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 25, 1997
<PAGE>
FIRST AMENDMENT TO
GREASE MONKEY HOLDING CORPORATION
1993 INCENTIVE STOCK OPTION PLAN
THIS FIRST AMENDMENT ("Amendment") is made as of this 17th day of March,
1997 to the Grease Monkey Holding Corporation ("Company") 1993 Incentive
Stock Option Plan ("Plan"). In the event of any conflict between the terms
of this Amendment and the terms of the Plan, the terms of this Amendment
shall control. All capitalized terms not defined in this Amendment shall have
their respective meanings set forth in the Plan.
The Plan is amended by amending Section C so that as amended Section C
reads as follows:
"C. ADMINISTRATION. This Plan shall be administered by the
Board of Directors or a committee appointed by the Board of
Directors consisting solely of two or more Non-Employee Directors
(as defined below). The Board of Directors or such committee
shall hereinafter be referred to as the "Committee." A "Non-
Employee Director" shall mean a director who:
(i) Is not currently an officer (as defined in Section
16a-1(f) of the Securities Exchange Act of 1934, as amended)
of the Company, or otherwise currently employed by the Company.
(ii) Does not receive compensation, either directly or
indirectly, from the Company, for services rendered as a
consultant or in any capacity other than as a director,
except for an amount that does not exceed the dollar amount
for which disclosure would be required pursuant to Item
404(a) of Regulation S-K adopted by the United States
Securities and Exchange Commission.
(iii) Does not possess an interest in any other transaction
for which disclosure would be required pursuant to Item
404(a) of Regulation S-K adopted by the United States
Securities and Exchange Commission.
The decision of a majority of those present at any meeting
of the Committee where a quorum consisting of a majority of the
Committee is present shall constitute the decision of the
Committee. The Committee is authorized and empowered to
administer the Plan and, consistent with the terms of the Plan,
to (a) select the employees to whom options are to be granted and
to fix the number of shares and
<PAGE>
other terms and conditions of the options to be granted; (b)
determine the date upon which options shall be granted and the
terms and conditions of the granted options in a manner consistent
with the Plan, which terms need not be identical as between options
or employees; (c) interpret the Plan and the options granted under
the Plan; (d) adopt, amend and rescind rules and regulations for
the administration of the Plan; and (e) direct the Company to
execute option agreements pursuant to the Plan. All such actions
of the Committee shall be binding upon all participants in the
Plan."
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Amendment effective as of the date first set forth above.
GREASE MONKEY HOLDING CORPORATION,
a Utah corporation
By: /s/Charles E. Steinbrueck
-------------------------------------
Charles E. Steinbrueck,
President and Chief Executive Officer
2
<PAGE>
FIRST AMENDMENT TO
GREASE MONKEY HOLDING CORPORATION
1994 STOCK INCENTIVE PLAN
THIS FIRST AMENDMENT ("Amendment") is made as of this 17th day of March,
1997 to the Grease Monkey Holding Corporation ("Company") 1994 Stock Incentive
Plan ("Plan"). In the event of any conflict between the terms of this Amendment
and the terms of the Plan, the terms of this Amendment shall control. All
capitalized terms not defined in this Amendment shall have their respective
meanings set forth in the Plan.
The Plan is amended as follows:
by amending Section 2(d) so that as amended Section 2(d) reads as follows:
"2.
(d) "Board" shall mean the Committee, if one has been
appointed, or the Board of Directors of the Company if no
Committee is appointed."
And, by amending Section 2(g) so that as amended Section 2(g) reads as
follows:
"2.
(g) "Committee" shall mean the Committee appointed by the
Board in accordance with Section 4 of this Plan, if one is
appointed, or the Board if no Committee is appointed."
And, by deleting Section 2(j) and amending the Plan so that Sections
2(k), 2(l), 2(m), 2(n), 2(o), 2(p), 2(q) become Sections 2(j), 2(k)
2(l), 2(m), 2(n), 2(o), 2(p) respectively.
And, by inserting a new Section 2(q) that reads as follows:
"2.
(q) "Non-Employee Director" shall mean a director who:
(i) Is not currently an officer (as defined in Section
16a-1(f) of the Securities Exchange Act of 1934, as
amended) of the Company, or otherwise currently
employed by the Company.
(ii) Does not receive compensation, either directly or
indirectly, from the Company, for services rendered as
a consultant or in any capacity other than as a
director, except for an amount
<PAGE>
that does not exceed the dollar amount for which
disclosure would be required pursuant to Item 404(a)
of Regulation S-K adopted by the United States Securities
and Exchange Commission.
(iii) Does not possess an interest in any other
transaction for which disclosure would be required
pursuant to Item 404(a) of Regulation S-K adopted by
the United States Securities and Exchange Commission.
And, by amending Section 4 so that as amended the first paragraph of
Section 4 reads as follows:
"This Plan shall be administered by the Board or a Committee
appointed by the Board consisting solely of two or more Non-
Employee Directors. The Board or such Committee shall
hereinafter be referred to as the Committee."
And, by amending Section 6(xvi) so that as amended the first sentence of
Section 6(xvi) reads as follows:
"Unless permitted by the Code, no Option granted under this Plan will
be transferable by the optionee other than by will or the laws of
descent and distribution."
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Amendment effective as of the date first set forth above.
GREASE MONKEY HOLDING CORPORATION,
a Utah corporation
By: /s/ Charles E. Steinbrueck
-------------------------------------
Charles E. Steinbrueck,
President and Chief Executive Officer
2
<PAGE>
Bank of America Business Loan Agreement
NATIONAL TRUST AND SAVINGS ASSOCIATION
This Agreement dated as of May 31, 1996, is between BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION (the "Bank") and GREASE MONKEY INTERNATIONAL,
INC. (the "Borrower").
1. LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Commitment') is Two Million Dollars ($2,000,000).
(b) This is a revolving line of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) Each advance must be for at least One Hundred Thousand Dollars ($100,000),
subject to Section 1.7(b), or for the amount of the remaining available
line of credit, if less.
(d) The Borrower agrees not to permit the outstanding principal balance of the
line of credit to exceed the Commitment.
1.2 AVAILABILITY PERIOD. The line of credit is available between the date of
this Agreement and April 1, 1999 (the "Expiration Date") unless the Borrower is
in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as described below,
the interest rate is the Bank's Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from time to
time by the Bank in San Francisco, California, as its Reference Rate. The
Reference Rate is set by the Bank based on various factors, including the
Bank's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans. The Bank
may price loans to its customers at, above, or below the Reference Rate.
Any change in the Reference Rate shall take effect at the opening of
business on the day specified in the public announcement of a change in the
Bank's Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on May 1, 1996, and then monthly thereafter
until payment in full of any principal outstanding under this line of
credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than January
1, 2000.
(c) Any amount bearing interest at an optional interest rate (as described
below) may be repaid at the end of the applicable interest period, which
shall be no later than January 1, 2000.
1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect to have all or portions of the line of
credit bear interest at the rate(s) described below during an interest period
1
<PAGE>
agreed to by the Bank and the Borrower. Each interest rate is a rate per
year. Interest will be paid on the last day of each interest period, and on
the first day of each calendar month during the interest period. At the end
of any interest period, the interest rate will revert to the rate based on
the Reference Rate, unless the Borrower has designated another optional
interest rate for the portion.
1.6 OFFSHORE RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Offshore Rate
plus 0.20 percentage points.
Designation of an Offshore Rate portion is subject to the following
requirements:
(a) The interest period during which the Offshore Rate will be in effect will
be one month, two months, three months or six months (or longer subject to
availability as determined by the Bank). The last day of the interest
period will be determined by the Bank using the practices of the offshore
dollar inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less than One Hundred
Thousand Dollars ($100,000). The Borrower shall irrevocably request an
Offshore Rate portion no later than 9:00 a.m. San Francisco Time three (3)
banking days before the commencement of the interest period.
(c) The "Offshore Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts
in the calculation will be determined by the Bank as of the first day of
the interest period.)
Offshore Rate= Grand Cayman Rate
-----------------
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which the Bank's Grand Cayman
Branch, Grand Cayman, British West Indies, would offer U.S. dollar
deposits for the applicable interest period to other major banks in
the offshore dollar inter-bank markets.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as
defined in the Federal Reserve Board Regulation D, rounded upward to
the nearest 1/100 of one percent. The percentage will be expressed
as a decimal, and will include, but not be limited to, marginal,
emergency, supplemental, special, and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to any portion of
the principal balance of the line of credit which is scheduled to be repaid
before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already bearing
interest at the Offshore Rate will not be converted to a different rate
during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid, and a prepayment fee equal to the amount
(if any) by which
(i) the additional interest which would have been payable on the amount
prepaid had it not been paid until the last day of the interest
period, exceeds
2
<PAGE>
(ii) the interest which would have been recoverable by the Bank by placing
the amount prepaid on deposit in the offshore dollar market for a
period starting on the date on which it was prepaid and ending on the
last day of the interest period for such portion.
(g) The Bank will have no obligation to accept an election for an Offshore Rate
portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal to the
interest period, of an Offshore Rate portion are not available in the
offshore dollar inter-bank markets; or
(ii) the Offshore Rate does not accurately reflect the cost of an Offshore
Rate portion.
1.7 LIBOR RATE. The Borrower may elect to have all or portions of the
principal balance bear interest at the LIBOR Rate plus 0.20 percentage points.
Designation of a LIBOR Rate portion is subject to the following requirements:
(a) The interest period during which the LIBOR Rate will be in effect will be
one month, two months, three months or six months or longer subject to
availability as determined by the Bank. The last day of the interest
period will be determined by the Bank using the practices of the London
inter-bank market.
(b) Each LIBOR Rate portion will be for an amount not less than Five Hundred
Thousand Dollars ($500,000).
(c) The Borrower shall irrevocably request a LIBOR Rate portion no later than
9:00 a.m. San Francisco Time three (3) banking days before the commencement
of the interest period.
(d) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts
in the calculation will be determined by the Bank as of the first day of
the interest period.)
LIBOR Rate London Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Rate" means the interest rate (rounded upward to the nearest
1/16th of one percent) at which the Bank's London Branch, London,
Great Britain, would offer U. S. dollar deposits for the applicable
interest period to other major banks in the London inter-bank market
at approximately 11:00 a.m. London time two (2) banking days before
the commencement of the interest period.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as
defined in Federal Reserve Board Regulation D, rounded upward to the
nearest 1/100 of one percent. The percentage will be expressed as a
decimal, and will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
(e) The Borrower may not elect a LIBOR Rate with respect to any principal
amount which is scheduled to be repaid before the last day of the
applicable interest period.
(f) Any portion of the principal balance already bearing interest at the LIBOR
Rate will not be converted to a different rate during its interest period.
3
<PAGE>
(g) Each prepayment of a LIBOR Rate portion whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid and a prepayment fee as described below. A
"prepayment" is a payment of an amount on a date earlier than the scheduled
payment date for such amount as required by this Agreement. The prepayment
fee shall be equal to the amount (if any) by which:
(i) the additional interest which would have been payable during the
interest period on the amount prepaid had it not been prepaid, exceeds
(ii) the interest which would have been recoverable by the Bank by placing
the amount prepaid on deposit in the London inter-bank market for a
period starting on the date on which it was prepaid and ending on the
last day of the interest period for such portion (or the scheduled
payment date for the amount prepaid, if earlier).
(h) The Bank will have no obligation to accept an election for a LIBOR Rate
portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal to the
interest period, of a LIBOR Rate portion are not available in the
London Inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR Rate
portion.
2. FEES AND EXPENSES
2.1 UNUSED COMMITMENT FEE. The Borrower agrees to pay a fee on any
difference between the Commitment and the amount of credit it actually uses,
determined by the weighted average loan balance maintained during the
specified period. The fee will be calculated at 0.07% per year. This fee is
due on July 1, 1996, and on the first day of each following quarter until the
expiration of the availability period.
2.2 EXPENSES. The Borrower agrees to reimburse the Bank for any
expenses it incurs in the preparation of this Agreement and any agreement or
instrument required by this Agreement. Expenses include, but are not limited
to, reasonable attorneys' fees, including any allocated costs of the Bank's
in-house counsel.
3. DISBURSEMENTS, PAYMENTS AND COSTS
3.1 REQUESTS FOR CREDIT. Each request for an extension of credit will
be made in writing evidenced by a document executed by an authorized officer
of the Borrower together with an authorized representative of Mobil
Corporation in a manner acceptable to the Bank. The Bank shall be entitled
to rely on the authority of any person purporting to be authorized in
accordance with the preceding sentence hereof by the Borrower or Mobil
Corporation to give such request, and the Bank shall not have any liability
to the Borrower or Mobil Corporation or any other person on account of any
action taken or not taken in reliance upon such request.
3.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from time
to time;
(c) made in immediately available funds, or such other type of funds selected
by the Bank;
(d) evidenced by records kept by the Bank.
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3.3 DIRECT DEBIT.
(a) The Borrower agrees that interest and principal payments and any fees will
be deducted automatically
on the due date from checking account number _________________, or such
other of the Borrower's accounts with the Bank as designated in writing by
the Borrower.
(b) The Bank will debit the account on the dates the payments become due. If a
due date does not fall on a banking day, the Bank will debit the account on
the first banking day following the due date.
(c) The Borrower will maintain sufficient funds in the account on the dates the
Bank enters debits authorized by this Agreement. If there are insufficient
funds in the account on the date the Bank enters any debit authorized by
this Agreement, the debit will be reversed.
3.4 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day
is a day other than a Saturday or a Sunday on which the Bank is open for
business in California. All payments and disbursements which would be due on a
day which is not a banking day will be due on the next banking day. AlI
payments received on a day which is not a banking day will be applied to the
credit on the next banking day.
For amounts bearing interest at a LIBOR Rate, a banking day is a day other than
a Saturday or a Sunday on which the Bank is open for business in California, New
York and London and dealing in offshore dollars. For amounts bearing interest
at an Offshore Rate, a banking day is a day other than a Saturday or a Sunday on
which the Bank is open for business in California, New York and Grand Cayman and
dealing in offshore dollars.
3.5 TAXES. The Borrower will not deduct any taxes from any payments it makes
to the Bank. If any government authority imposes any taxes on any payments made
by the Borrower, the Borrower will pay the taxes and will also pay to the Bank,
at the time interest is paid, any additional amount which the Bank specifies as
necessary to preserve the after-tax yield the Bank would have received if such
taxes had not been imposed. Upon request by the Bank, the Borrower will confirm
that it has paid the taxes by giving the Bank official tax receipts (or
notarized copies) within 30 days after the due date. However, the Borrower will
not pay the Bank's net income taxes.
3.6 Additional Costs. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments for
credit.
3.7 INTEREST CALCULATION. Interest on portions of the line of the credit based
on the Reference Rate will be computed on the basis of a 365-day year and the
actual number of days elapsed. Except as otherwise stated in this Agreement,
all interest and fees, if any, will be computed on the basis of a 360-day year
and the actual number of days elapsed. This results in more interest or a
higher fee than if a 365-day year is used.
3.8 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance, any
amount not paid when due under this Agreement (including interest) shall bear
interest from the due date at the Bank's Reference Rate plus 2.00 percentage
points, This may result in compounding of interest.
3.9 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 2.00 percentage point(s)
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any default.
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4. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:
4.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by
the Borrower (and any guarantor) of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
4.2 GUARANTY. Guaranty signed by Mobil Corporation in the principal amount of
Two Million Dollars ($2,000,000) in form and substance satisfactory to the Bank.
4.3 OTHER ITEMS. Any other items that the Bank reasonably requires.
5. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.
5.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
5.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
5.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
5.4 GOOD STANDING. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
5.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
5.6 FINANCIAL INFORMATION. All financial and other information that has been
or will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the Borrower's
(and any guarantor's) financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
5.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
5.8 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
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5.9 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
5.10 INCOME TAX RETURNS. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.
5.11 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse
of time or both would be, a default under this Agreement.
5.12 ERISA PLANS.
(a) The Borrower has fulfilled its obligations, if any, under the minimum
funding standards of ERISA and the Code with respect to each Plan and is in
compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA for which
the PBGC requires 30 day notice.
(c) No action by the Borrower to terminate or withdraw from any Plan has been
taken and no notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under Section 4042
of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(ii) "ERISA" means the Employee Retirement Income Act of 1974, as amended
from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by the Borrower and insured by the Pension Benefit
Guaranty Corporation under Title IV of ERISA.
5.13 LOCATION OF BORROWER. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
6. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
6.1 USE OF PROCEEDS. To use the proceeds of the credit only for the
development of the Borrower's locations.
6.2 FINANCIAL INFORMATION. To provide the following financial information and
statements and such additional information as requested by the Bank from time to
time:
(a) Within 120 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements may be Borrower prepared.
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(b) Within 45 days of the period's end, the Borrower's quarterly financial
statements. These financial statements may be Borrower prepared.
6.3 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
debts or lease obligations (other than those to the Bank), or become liable
for the debts of others without the Bank's written consent. This does not
prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Additional debts for business purposes which do not exceed a total
principal amount of Three Million Dollars ($3,000,000) outstanding at any
one time.
(e) Debt for purchase of property as contemplated by the Supply Agreement
defined as that agreement as entered into between Borrower and Mobil Oil
Corporation (or any successor) dated as of May 20, 1996, (the "Supply
Agreement").
6.4 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over Two Hundred Fifty Thousand Dollars ($250,000) against the
Borrower.
(b) any substantial dispute between the Borrower and any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any guarantors) financial
condition or operations.
(e) any change in the Borrower's name, legal structure, place of business, or
chief executive office if the Borrower has more than one place of business.
6.5 BOOKS AND RECORDS. To maintain adequate books and records.
6.6 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
6.7 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
6.8 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges,
and franchises the Borrower now has.
6.9 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or replacements
to keep the Borrower's properties in good working condition.
6.10 COOPERATION. To take any action requested by the Bank to carry out the
intent of this Agreement.
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6.11 GENERAL BUSINESS INSURANCE. To maintain insurance as is usual for the
business it is in.
6.12 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate, or
other combination.
(d) lease, or dispose of all or a substantial part of the Borrower's business
or the Borrower's assets.
6.13 ERISA PLANS. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of ERISA for
which the PBGC requires 30 day notice.
(b) Any action by the Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan under Section 4041
(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under Section
4042 of ERISA.
7. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply
whether the hazardous substance is on, under or about the Borrower's property
or operations or property leased to the Borrower. The indemnity includes but
is not limited to attorneys' fees (including the reasonable estimate of the
allocated cost of in-house counsel and staff). The indemnity extends to the
Bank, its parent, subsidiaries and all of their directors, officers,
employees, agents, successors, attorneys and assigns. For these purposes,
the term "hazardous substances" means any substance which is or becomes
designated as "hazardous" or "toxic" under any federal, state or local law.
This indemnity will survive repayment of the Borrower's obligations to the
Bank.
8. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.
8.1 FAILURE TO PAY. The Borrower fails to make a payment under this Agreement
when due.
8.2 FALSE INFORMATION. The Borrower (or any guarantor) has given the Bank
false or misleading information or representations.
8.3 BANKRUPTCY. The Borrower (or any guarantor) files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower (or any guarantor), or the
Borrower (or any guarantor) makes a general assignment for the benefit of
creditors.
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8.4 RECEIVERS. A receiver or similar official is appointed for the Borrower's
(or any guarantor's) business, or the business is terminated.
8.5 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more trade
creditors against the Borrower in an aggregate amount of Two Hundred Fifty
Thousand Dollars ($250,000) or more in excess of any insurance coverage.
8.6 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower, or the Borrower enters into any settlement agreements with respect to
any litigation or arbitration, in an aggregate amount of Two Hundred Fifty
Thousand Dollars ($250,000) or more in excess of any insurance coverage.
8.7 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's (or any guarantor's)
financial condition or ability to repay.
8.8 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's (or any guarantor's) financial condition, properties or prospects, or
ability to repay the loan.
8.9 CROSS-DEFAULT. Any default occurs under any agreement in connection with
any credit the Borrower (or any guarantor) has obtained from anyone else or
which the Borrower (or any guarantor) has guaranteed and which, only in the case
of any guarantor, has resulted in the acceleration of the maturity of
indebtedness in an aggregate principal amount exceeding Twenty-Five Million
Dollars ($25,000,000), or arises from such guarantor in failure to pay when due
any principal of or premium or interest on any indebtedness in excess of Twenty-
Five Million Dollars ($25,000,000).
8.10 DEFAULT UNDER RELATED DOCUMENTS. The Supply Agreement or any guaranty or
other document required by this Agreement is violated or no longer in effect.
8.11 OTHER BANK AGREEMENTS. The Borrower (or any guarantor) fails to meet the
conditions of, or fails to perform any obligation under any other agreement the
Borrower (or any guarantor) has with the Bank or any affiliate of the Bank,
including without limitation the Revolving Credit Agreement dated as of November
1, 1985 between Mobil Corporation and the Bank as amended and in effect on
January 1, 1996 without regard to any termination of such agreement.
8.12 ERISA Plans. The occurrence of any one or more of the following events
with respect to the Borrower, provided such event or events could reasonably be
expected, in the judgment of the Bank, to subject the Borrower to any tax,
penalty or liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial condition of
the Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan which is, in the
reasonable judgment of the Bank likely to result in the termination of such
Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to terminate a Plan)
or the Borrower's full or partial withdrawal from a Plan.
8.13 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the conditions
of, or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article.
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS
9.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all
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financial covenants will be made under generally accepted accounting
principles, consistently applied.
9.2 CALIFORNIA LAW. This Agreement is governed by California law.
9.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may not assign
this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees; provided
that such actual or potential participants or assignees shall agree to treat all
financial information exchanged as confidential. If a participation is sold or
the loan is assigned, the purchaser will have the right of set-off against the
Borrower.
9.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those that
arise from:
(i) This Agreement (including any renewals, extensions or modifications
of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted between
the Borrower and the Bank, including claims for injury to persons,
property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though
this Agreement provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
(d) For purposes of the application of the statute of limitations, the filing
of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated
under this paragraph is subject to any applicable statute of limitations.
The arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss
the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the arbitrators
will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be submitted
to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or claim,
at the time of the proposed submission to arbitration, arises from or
relates to an obligation to the Bank secured by real property located in
California. In this case, both the Borrower and the Bank must consent to
submission of the claim or controversy to arbitration. If both parties do
not consent to arbitration, the controversy or claim will be settled as
follows:
(i) The Borrower and the Bank will designate a referee (or a panel of
referees) selected under the
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auspices of the American Arbitration Association in the same manner
as arbitrators are selected in Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be appointed
by a court as provided in California Code of Civil Procedure Section
638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be an active
attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or the
panel) will be entered as a judgment in the court that appointed the
referee, in accordance with the provisions of California Code of
Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property collateral;
or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including the
suing party, to submit the controversy or claim to arbitration if the other
party contests the lawsuit. However, if the controversy or claim arises
from or relates to an obligation to the Bank which is secured by real
property located in California at the time of the proposed submission to
arbitration, this right is limited according to the provision above
requiring the consent of both the Borrower and the Bank to seek resolution
through arbitration.
(j) If the Bank forecloses against any real property securing this Agreement,
the Bank has the option to exercise the power of sale under the deed of
trust or mortgage, or to proceed by judicial foreclosure.
9.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.
9.6 ATTORNEY'S' FEES. The Borrower shall reimburse the Bank for any reasonable
costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement. In the
event of a lawsuit or arbitration proceeding, the prevailing party is entitled
to recover costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or arbitrator. As
used in this paragraph, "attorneys' fees" includes the allocated costs of in-
house counsel.
9.7 ONE AGREEMENT. This Agreement and any related security or other agreements
required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank and
the Borrower concerning this credit; and
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(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
9.8 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
9.9 HEADINGS. Article and paragraph headings are for reference only and shall
not affect the interpretation or meaning of any provisions of this Agreement.
9.10 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION GREASE MONKEY INTERNATIONAL, INC.
X /s/ ARTHUR P. CARTER X /s/ T. TIMOTHY KERSHISNIK
---------------------------------- ---------------------------------
BY: Arthur P. Carter BY: T. T. Kershisnik
TITLE: Vice President TITLE: Controller, Treasurer and
Secretary
X
--------------------------------
BY:
TITLE:
ADDRESS WHERE NOTICES TO THE BANK ADDRESS WHERE NOTICES TO THE
ARE TO BE SENT: BORROWER ARE TO BE SENT:
3233 Park Center Drive, 2nd Floor 216 16th Street, Suite 1100
Costa Mesa, California 92626 Denver, CO 80202
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CONSULTANT AGREEMENT
BETWEEN
GREASE MONKEY HOLDING CORPORATION,
A UTAH CORPORATION
AND
REX L. UTSLER
THIS CONSULTANT AGREEMENT is entered into February 5, 1997 by and between
Rex L. Utsler, an individual ("Utsler") and Grease Monkey Holding Corporation, a
Utah corporation ("Grease Monkey").
1. CONSULTATION SERVICES. Grease Monkey hereby engages Utsler to perform such
duties and services as may be assigned to him from time to time at the direction
or request of the President and CEO of Grease Monkey, provided that Utsler shall
be obligated to perform only such services as do not materially interfere with
Utsler's ability to secure full-time employment with another company or business
endeavor.
2. TIME DEVOTED BY UTSLER. Utsler shall have sole control and discretion over
the time devoted to fulfilling his obligations under this Agreement; provided,
however, he shall devote such time as reasonably necessary to fulfill his duties
and services hereunder.
3. CONSULTING FEES. Grease Monkey will pay Utsler a monthly consulting fee of
$16,071.00 at the end of each month. Grease Monkey shall report the consulting
fee on IRS form 1099.
4. EXPENSES. Grease Monkey will reimburse Utsler at the end of each month for
reasonable business expenses which Grease Monkey determines were incurred by
Utsler in connection with the performance of Utsler's duties and services
hereunder.
5. BENEFITS. As additional compensation hereunder, Grease Monkey shall
provide to Utsler the medical benefits provided generally to Grease Monkey
employees. The consulting fee set forth in Paragraph 3 and the medical benefits
set forth in this Paragraph shall be the entire compensation payable to Utsler
for his services hereunder. Grease Monkey shall not provide to Utsler, any
additional benefits which Grease Monkey generally provides to its employees.
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6. INDEPENDENT CONTRACTOR. Both Grease Monkey and Utsler agree that Utsler
will act as an independent contractor in the performance of its duties under
this Agreement. Utsler shall be responsible for payment of all taxes including
Federal, State and local taxes arising out of his activities in accordance with
this Agreement, including by way of illustration but not limitation, Federal and
State income tax, Social Security tax, Unemployment Insurance taxes, and any
other taxes or business license fees as required. Utsler's only compensation
shall be as provided in this Agreement. Grease Monkey shall not provide Utsler
with any additional "fringe benefits" which may be available to its employees.
7. TERM OF AGREEMENT. The term of this Agreement shall be for two (2) years.
This Agreement will begin March 4, 1997 and will end March 3, 1999; provided,
however, Utsler may terminate this agreement at any time by delivering written
notice of such to Grease Monkey fifteen (15) days prior to the effectiveness of
such termination; and provided, further, that Grease Monkey may terminate this
agreement for cause by delivering written notice of such termination with
reference to the cause thereto to Utsler fifteen (15) days prior to the
effectiveness of such termination. "For cause" as such term is used in this
Paragraph, shall mean (i) a conviction of Utsler of a felony (whether or not
such conviction is subject to appeal), (ii) fraud (iii) misappropriation of any
property or business of Grease Monkey or intentional damage to any property or
business of Grease Monkey, (iv) default of any term or obligation of this
Agreement, (v) death of Utsler or illness or incapacity of Utsler for a period
of more than eight consecutive weeks, or (vi) dishonesty, gross neglect of duty,
disparagement of Grease Monkey or other intentional acts or omissions which
negatively and materially impact or impair Grease Monkey's ability to conduct
its ordinary business in its usual manner.
Notwithstanding the foregoing, Utsler shall not be deemed to have been
terminated for cause unless and until there shall have been delivered to him a
copy of a resolution adopted by the majority vote of not less than the entire
membership of the Board of Directors of Grease Monkey finding that in the good
faith opinion of the Board that Utsler is guilty of the conduct set forth above.
Utsler shall be given written notice of the meeting and grounds for possible
termination of this Agreement and together with his counsel shall be given the
opportunity to be heard before the Board.
Grease Monkey may terminate this Agreement at any time by delivering
written notice of such to Utsler fifteen (15) days prior to the effectiveness
of such termination, but any termination other than for cause shall require the
immediate payment of the entire balance of the consulting fees under this
Agreement from the date of termination to the end of the term of this Agreement.
8. OTHER BUSINESS OF UTSLER. It is recognized by Grease Monkey that Utsler
may conduct business or become employed by a company that is entirely separate
from Grease Monkey's business, and nothing in this agreement shall be construed
to limit Utsler's
2
<PAGE>
freedom to continue any other business; provided, however, Utsler shall
continue to devote his best efforts to the performance of his duties and
services hereunder and provided, further, such businesses or employment shall
not be in direct competition with Grease Monkey or otherwise violate the
terms of the non-competition covenant set forth below. Nothing in this
Agreement shall preclude Utsler from acquiring, becoming employed by, or
securing a franchise for the operation of one or more existing or future
Grease Monkey stores; provided, however, Utsler hereby acknowledges that no
agreements or understandings exist with respect to Utsler's acquiring,
becoming employed by, or securing a franchise for the operation of one or
more existing or future Grease Monkey stores.
9. PROPRIETARY INFORMATION. Utsler shall use his best efforts to preserve and
protect the confidentiality of all proprietary and confidential information
regarding Grease Monkey and its affiliates which he obtains or of which he
otherwise becomes aware during the course of providing the services described in
this Agreement or which he obtained or became aware of during the course of his
prior employment by Grease Monkey (other than information that is already
publicly available or which he may be required by law to disclose)
("Confidential Information"). Utsler shall not disclose any Confidential
Information to any entity other than (i) Grease Monkey's employees or its
designated agents, or (ii) other than as necessary in the ordinary course of
business. Utsler acknowledges that the Confidential Information is a unique and
valuable asset of Grease Monkey, represents a substantial investment of time and
expense by Grease Monkey, and that any disclosure or other use of such
information other than for the benefit of Grease Monkey would cause irreparable
harm.
10. RECORDS. Utsler will keep complete, accurate and authentic accounts,
notes, data and records ("Records") of his actions. The Records shall be the
property of Grease Monkey. Upon request, Utsler will promptly deliver the
Records to Grease Monkey. Upon termination of this Agreement, Utsler shall
deliver promptly to Grease Monkey all Records, manuals, books, blank forms,
documents, letters, memoranda, notes, notebooks, reports, data, tables,
calculations or copies thereof, which relate in any way to the business,
property, practices or techniques of Grease Monkey, including, but not limited
to, all documents which in whole or in part contain any Confidential
Information.
11. NON-COMPETITION COVENANT.
a. AGREEMENT NOT TO COMPETE. Utsler agrees that, during the term of this
Agreement he shall not, without the express written consent of Grease Monkey,
engage in competition with Grease Monkey, directly or indirectly, in any manner
or capacity (e.g., as an advisor, principal, agent, partner, officer, director,
stockholder, employee, member
3
<PAGE>
of any association, or otherwise) in any phase of any business of a type
conducted by Grease Monkey.
b. GEOGRAPHIC EXTENT OF COVENANT. The obligations of Utsler under this
section 10 shall apply to all counties in which a Grease Monkey store or
franchise is operated.
c. INDIRECT COMPETITION. Utsler further agrees that, during the term of
this Agreement, he will not, directly or indirectly, assist or encourage any
other person in carrying out, directly or indirectly, any activity that would be
prohibited by the above provisions of this Section 10 if such activity were
carried out by Utsler, either directly or indirectly.
d. FRANCHISE OPERATION. Nothing in this covenant not to compete shall
preclude Utsler from becoming an advisor, principal, agent, partner, officer,
director, stockholder, employee or otherwise associating with any present or
future franchisee for the operation of one or more Grease Monkey stores;
provided, however, Utsler hereby acknowledges that no agreements or
understandings exist with respect to Utsler's acquiring, becoming associated
with, or securing a franchise for the operation of one or more existing or
future Grease Monkey stores.
12. MUTUAL RELEASE. Utsler, for himself, his heirs, successors and assigns,
hereby releases and forever discharges Grease Monkey, its affiliated
corporation, successors and assigns, together with its respective agents,
servants, directors, officers (whether acting in their individual or official
capacities), members, employees, managers, shareholders, trustees, attorneys and
representatives, from any and all claims, actions, causes of action, suits,
demands, covenants, contracts or promises of every nature, character and
description, asserted or unasserted, known or unknown, which Utsler ever had,
now has or may have in the future, for or by reason of any act, omission,
matter, cause or thing whatsoever occurring or arising from his employment or
consulting relationship with Grease Monkey. Utsler agrees not to institute any
claim for damages, by charge or otherwise, nor authorize any other party,
governmental or otherwise, to institute any claim for damages via administrative
or legal proceedings against Grease Monkey, its affiliated corporation,
successors and assigns, together with its respective agents, servants,
directors, officers (whether acting in their individual or official capacities)
members, employees, managers, shareholders, trustees, attorneys and
representatives, for any such claims including, but not limited to, any claims
arising under or based upon any claim for wages, compensation or any other claim
arising under the Colorado Revised Statues, Title VII of the 1964 Civil Rights
Act (42 U.S.C. Section 2000, ET SEQ.), the Americans with Disability Act (42
U.S.C. Section 121 01, ET SEQ), or any contract, quasi contract or tort claims,
whether developed or undeveloped, arising from or related to Grease Monkey's
hiring of Utsler, Utsler's employment with Grease Monkey, and the cessation of
Utsler's employment with Grease Monkey. Similarly, Grease Monkey and any other
person or entity released under this Agreement, covenants not to commence any
action for damages or losses for any reason
4
<PAGE>
or theory whatsoever, based upon any acts of Utsler occurring prior to the
date of this Agreement. The provisions of this Paragraph 12 shall survive
any termination of this Agreement.
13. SHAREHOLDER RIGHTS. Nothing in this Agreement shall impair, limit or
infringe upon Utsler's rights as a shareholder of Grease Monkey. All options or
rights previously granted to Utsler with respect to Grease Monkey stock shall
remain in effect throughout the term of this Agreement. Further, all employee
benefits such as 401 (k) plans or otherwise which would fully or partially vest
with the passage of time shall continue to vest in accordance with the plan
terms as if Utsler were in the employ of the company throughout the term of this
Agreement.
14. ARBITRATION. Any dispute or the application of interpretation of this
Agreement shall be resolved pursuant to final and binding arbitration. The
arbitration shall be conducted pursuant to the American Arbitration Association
rules governing labor arbitration. The decision of the arbitrator shall be
final and binding on both parties and shall be appealable only pursuant to the
terms of the Colorado Arbitration Act, C.R.S. Section 13-22-201, ET SEQ. In
the event of an arbitration pursuant to this provision, the parties agree that
the loser will pay 100% of the arbitrator's fees plus reasonable attorneys' fees
and costs incurred by the winner. The determination of who is the winner and
the loser shall be made by the arbitrator and the arbitrator shall not have the
authority to declare neither or both sides the winner. Furthermore, the
determination of attorneys' fees and costs to be paid to the winner shall be
made by the arbitrator.
15. MISCELLANEOUS.
a. COUNTERPARTS. This Agreement may be executed in several counterparts,
and all so executed shall constitute one Agreement, binding on all parties
hereto, notwithstanding that all of the parties are not signatories to the
original or the same counterpart.
b. ASSIGNMENT. The agreement of Utsler to render services hereunder is
personal in nature and shall not be assignable by Utsler. The rights and
benefits of Utsler under this Agreement shall not be subject to voluntary or
involuntary alienation, assignment or transfer. The terms and provisions of
this Agreement shall be binding upon and shall inure to the benefit of the
successors and permissible assigns of the respective parties.
c. ENTIRE AGREEMENT. This Agreement is the entire agreement between
Utsler and Grease Monkey pertaining to the subject matter hereof and supersedes
any and all prior negotiations, agreements, understandings and dealings
pertaining to the subject matter hereof, whether written or oral.
d. AMENDMENTS AND MODIFICATIONS. This Agreement cannot be changed
orally,
5
<PAGE>
and no agreement shall be effective to waive, change, modify or discharge it
in whole or in part unless such agreement is in writing and is signed by the
parties against whom enforcement of any waiver, change, modification or
discharge is sought.
e. SEVERABILITY. If any provision of this Agreement is determined by a
court of competent jurisdiction to be invalid or unenforceable, the remainder of
this Agreement shall nonetheless remain in full force and effect.
f. EFFECT OF HEADINGS. Paragraph titles or captions contained in this
Agreement are inserted only as a matter of convenience and for reference. Such
titles and captions in no way define, limit, extend or describe the scope of
this Agreement nor the intent of any provision hereof.
g. GOVERNING LAW. The parties expressly agree that all the terms and
provisions hereof shall be construed in accordance with the substantive laws of
the State of Colorado.
h. NOTICES. All notices provided for hereunder shall be in writing and
shall be deemed given and received (a) when personally delivered; (b)
transmitted by facsimile transmission, provided sender obtains an electronic
confirmation and also delivers a copy by mail or personal delivery, or (c)
forty-eight (48) hours after the same are deposited in the United States mail,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the applicable party at the following address: (i) if to Utsler, to
7564 S. Salida Court, Aurora Colorado 80016 and (ii) if to Grease Monkey, then
to 216 16th Street, Suite 1100, Denver, Colorado 80202, or at such other
address as he may designate from time to time.
IN WITNESS WHEREOF, the parties have executed this Consultant Agreement as
of the day and year first above written.
Grease Monkey Holding Corporation, a
Utah corporation
By: /s/ JAMES B. WALLACE
---------------------------------
James B. Wallace, Chairman
By: /s/ REX L. UTSLER
---------------------------------
Rex L. Utsler
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES F-2 THROUGH F-4 OF THE COMPANY'S FORM 10-KSB FOR THE YEAR AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 324,745
<SECURITIES> 0
<RECEIVABLES> 2,066,520
<ALLOWANCES> 252,795
<INVENTORY> 887,203
<CURRENT-ASSETS> 3,140,100
<PP&E> 9,134,489
<DEPRECIATION> 3,540,784
<TOTAL-ASSETS> 15,217,123
<CURRENT-LIABILITIES> 3,087,580
<BONDS> 4,192,431
0
2,089,638
<COMMON> 131,396
<OTHER-SE> (774,027)
<TOTAL-LIABILITY-AND-EQUITY> 15,217,123
<SALES> 0
<TOTAL-REVENUES> 20,142,793
<CGS> 0
<TOTAL-COSTS> 20,040,889
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 206,221
<INTEREST-EXPENSE> 659,996
<INCOME-PRETAX> (577,123)
<INCOME-TAX> 0
<INCOME-CONTINUING> (577,123)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (577,123)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
