<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
/ / TRANSITION REPORT PURSUANT TO 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
216 16th Street, Suite 1100
DENVER, COLORADO 80202
---------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 534-1660
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the 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 disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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: $21,169,314
The aggregate market value of the issuer's voting stock held as of February
27, 1998, by nonaffiliates of the issuer was $3,914,430.
As of February 27, 1998, the issuer had 4,646,805 shares of its $0.03 par
value common stock outstanding.
Transitional Small Business Disclosure Format. Yes / / No /X/
<PAGE>
GREASE MONKEY HOLDING CORPORATION
Annual Report on Form 10-KSB
December 31, 1997
Table of Contents
PART I PAGE
Item 1 - Description of Business . . . . . . . . . . . . . . . . . . . . . 1
Item 2 - Description of Property . . . . . . . . . . . . . . . . . . . . . 5
Item 3 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 4 - Submission of Matters to a Vote of Security Holders . . . . . . . 6
PART II
Item 5 - Market for Common Equity and Related Stockholder Matters . . . . 7
Item 6 - Management's Discussion and Analysis or Plan of Operation . . . . 8
Item 7 - Financial Statements . . . . . . . . . . . . . . . . . . . . . . 20
Item 8 - Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . 20
PART III
Item 9 - Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act . . . . . . 21
Item 10 - Executive Compensation . . . . . . . . . . . . . . . . . . . . . 26
Item 11 - Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 30
Item 12 - Certain Relationships and Related Transactions . . . . . . . . . 31
Item 13 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 34
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 primary 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 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.
In addition, GMI began franchising Centers in Mexico in 1993. On June 30, 1997,
Grease Monkey de Mexico SA de CV ("GMM") was formed and is the operating entity
for Mexico. GMM is a wholly-owned subsidiary of GMHC. GMHC, GMI, GMP and GMM 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 $22.99 to $30.99 in the United States ($11.65 to $19.50 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, 1998, the Company owned and
operated a total of 31 Grease Monkey Centers. The Grease Monkey Centers owned by
the Company were either purchased from franchisees or opened (21 Centers),
acquired as a result of the Company's exercise of its right of first refusal (3
Centers), or taken over from failed franchisees (7 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. The Company licenses franchisees to operate Grease
Monkey Centers pursuant to a franchise agreement with the Company. A franchisee
is required to pay a franchise fee totaling $28,000 for the initial license and
$16,800 for each additional license. If three or more licenses are purchased
concurrently, an Exclusive Territory Development Agreement ("ETD Agreement") may
be executed. When an ETD Agreement is executed, the franchisee pays a
development fee equal to $28,000 for the first Center to be developed and $8,400
for the second and each subsequent Center to be developed. The development
fee is
1
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nonrefundable. The initial franchise fee of $28,000 is charged for the first
franchise and $16,800 for the second and each subsequent franchise acquired
under the ETD Agreement. The portion of the development fee paid for each Center
to be developed is applied toward the initial franchise fee for that franchise.
The Company also offers to select qualified persons the opportunity to acquire a
larger nonexclusive area ("Development Area") than under the ETD Agreement. If a
Development Area is purchased, an Area Development Agreement ("AD Agreement") is
executed. When an AD Agreement is executed, the franchisee pays an area
development fee equal to $5,000 times the estimated number of franchises which
may be established in the Development Area. The initial franchise fee of $28,000
is charged for the first franchise and $16,800 for the second and each
subsequent franchise acquired under the AD Agreement.
2
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CENTERS. On January 31, 1998, the Company had a total of 214 Grease
Monkey Centers open. The following table provides certain information pertaining
to Grease Monkey Centers as of January 31, 1998:
<TABLE>
<CAPTION>
CENTERS OPEN
FRANCHISE --------------------------------------
APPLICANTS FRANCHISES SOLD (1) FRANCHISED COMPANY-OWNED TOTAL
---------- ------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
Arizona 2 4 3 1 4
California 2 17 13 2 15
Colorado 4 40 33 19 52
Florida 5 3 3
Georgia 2 2 2
Idaho 3 3 3
Illinois 1 1 1
Indiana 10 10 1 11
Iowa 7 6 6
Kansas 7 5 5
Kentucky 1 1 1
Maryland 6 5 5
Massachusetts 2 2 2
Missouri 4 4 2 2
Montana 1 1 1
Nebraska 2 2 2
New Jersey 9 8 8
New Mexico 1 1 1
New York 3 2 2
North Carolina 8 6 6
North Dakota 1 1 1
Ohio 12 8 8
Pennsylvania 10 9 9
Rhode Island 1 1 1
South Carolina 12 12 12
Tennessee 2 1 1
Texas 1 5 5 5
Virginia 10 8 8
Washington 5 4 8 12
West Virginia 2 2 2
Wyoming 2 2 2
Mexico 8 36 21 21
--- ---- ---- ----
TOTALS: 21 231 183 31 214
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
(1) Does not include those Centers operated by the Company.
During 1997, fourteen franchise licenses were sold and fifteen
franchised Grease Monkey Centers were opened. In 1997, six franchise agreements
were terminated for non-performance, three franchise agreements were canceled
concurrently with the Company taking over the operations of the Centers, and
five franchises of open Grease Monkey Centers were terminated, in accordance
with the franchise agreement when the Centers were closed or sold.
3
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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.
The Company 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"
(including variations thereof), "MONKEY TALK", "SEYMORE MILES" and "MONKEY
SHINE", as well as various designs and logotypes associated with and used in
connection therewith. The trademark and service mark registrations expire
between 2001 and 2009 and may be renewed for successive periods of 10 years. The
Company intends to maintain the above stated registrations in the manner
required by applicable statute, namely, the Trademark Act of 1946, as amended.
The mark, "GREASE MONKEY, 10 MINUTE LUBE & OIL PROS" and Design, was
registered in the State of Colorado and is effective until November of 2004. The
mark "GREASE MONKEY, THE TEN MINUTE LUBE PROS" was registered in the State of
Colorado and is effective to March 1999.
The Company has also registered its mark "GREASE MONKEY, THE 10 MINUTE
LUBE PROS" and Design with the Canadian Register of Trademarks, its mark "GREASE
MONKEY" and Design with the Mexico Register of Trademarks and the Trinidad and
Tobago Register of Trademarks, and the monkey design with the United Kingdom
Register of Trademarks. These foreign registrations expire between 1999 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 213 Grease Monkey Centers operating at February 28,
1998. The largest chain is Jiffy Lube International, Inc., owned by Pennzoil,
which has 1,541 centers open, followed by Quaker State Minit-Lube, Inc. (also
d/b/a Q Lube), owned by Quaker State Oil Company with 581 centers open. Ashland
Oil Co. (d/b/a Rapid Oil Co. or Valvoline Instant Oil Change) follows with 535
open centers.
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. The Company and its franchisees are subject
to various federal, state, and local provisions regarding the storage and
disposal of waste materials, including 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 materials
that comply with all applicable laws and regulations. Waste materials are
disposed of with fully qualified and licensed collection services. Some used oil
and used filters are sold to recyclers. Compliance with current and anticipated
future federal, state and local requirements regarding the
4
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collection and disposal of these materials and storage and transfer of used
oil and used oil filters to recyclers is not expected to materially affect
capital expenditures, earnings, or the competitive position of the Company.
The Company (with respect to any Center it owns or operates) and its
franchisees are subject to federal, state or local regulations regarding the
design, construction, operation and closure of storage tanks, including
regulations applicable to 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 the Company's recommendation to its franchisees to discontinue installing
UST's. Costs associated with the removal or upgrade of UST's at Company-owned
Centers and at franchised Centers which have UST's where the Company is on the
lease is not expected to exceed $300,000, which includes replacement tank
related costs.
The regulations issued by the Environmental Protection Agency and the
parallel state regulations require insurance or proof of the financial ability
of the owner or operator of an underground storage tank to cover any damage
caused by leaks from the 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, but may result in an
increase in the cost of the service.
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 and the used
oil 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, 1998, the Company had 40 full-time employees
at its corporate offices, 15 full-time employees at its field offices, and 229
full-time employees in its Company-owned Grease Monkey Centers for a total of
284 employees. From time to time the Company hires part-time employees at its
Company-owned Centers.
ITEM 2. DESCRIPTION OF PROPERTY
At January 31, 1998, the Company 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, the Company owns one parcel of real estate in St. Louis,
Missouri, one parcel of real estate in Littleton, Colorado, and one parcel of
real estate in Warwick, Rhode Island. The property in Missouri is vacant and for
sale, the property in Colorado houses a Company-owned Center, and the property
in Rhode Island is leased to a franchisee.
5
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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 is directly liable on the
leases at 30 locations if the franchisees or third parties do not make the lease
payments. (See Note F, Consolidated Financial Statements.)
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, 1997, no matter was submitted to a vote of the Company's security holders,
either by proxy solicitation or otherwise.
6
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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, low and last sales prices of the common stock as reported by
Nasdaq for the periods indicated:
<TABLE>
<CAPTION>
PERIOD HIGH TRADE LOW TRADE LAST TRADE
- --------------------- ---------- --------- ----------
<S> <C> <C> <C>
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
1997:
First Quarter $2.13 $1.63 $1.75
Second Quarter $2.06 $1.75 $1.75
Third Quarter $2.06 $1.63 $1.63
Fourth Quarter $1.44 $1.19 $1.19
</TABLE>
Prices represent quotations between dealers and do not include retail
mark-ups, mark-downs, or commissions.
(b) HOLDERS.
As of February 27, 1998, the Company had 2,357 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 the
Company's common stock.
7
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
RESULTS OF OPERATIONS
The Company reported a net loss of $1,158,586 in 1997 compared to a net
loss of $577,123 in 1996 and net income of $238,190 in 1995.
The net loss reported in 1997 is in part due to costs associated with:
the sale, disposition and closure of Centers of approximately $368,000; the
accrual of the Company's obligation under a Consultant Agreement with the
Company's former Chairman of the Board, President and Chief Executive Officer of
approximately $379,000; increases of approximately $435,000 in the general and
administrative areas of salaries, wages and personnel expenses, professional
fees, and Company-owned Center division overhead; and losses incurred and or
accrued for settlements related to employment, real estate and environmental
issues of approximately $176,000. These losses were offset by royalty revenue
and other revenue recognized due to a settlement agreement entered into with a
former franchisee of approximately $375,000. In addition, other income of
approximately $118,000 was recognized based on settlements with two franchisees.
1997 ended with a net increase of three franchised Centers while the number of
Company-owned Centers remained at 31 for both year ends. During 1997, the
Company opened 15 new franchised Centers and terminated 11 franchised Centers.
This compares to the 11 new franchised Center openings in 1996 and 6 franchised
Center terminations in 1996. In 1997, the Company also opened one new
Company-owned Center, purchased three Centers from franchisees, sold two Centers
and closed two Centers. Franchise sales were down in 1997 with 14 new franchise
licenses sold compared to 27 sold in 1996.
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. 1996 ended with a net increase of three franchised Centers and two
Company-owned Centers over 1995. During 1996, the Company opened 11 new
franchised Centers and terminated six franchised Centers. This compares to the
18 new franchised Center openings in 1995 and 13 franchised Center terminations
in 1995. 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.
8
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Operating revenue totaled $21,169,314 in 1997 compared to $20,142,793
in 1996 and $18,668,143 in 1995. 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. In
addition, an increase in other revenue was recognized in 1997 due primarily to
settlements with franchisees as discussed previously.
Royalty fees are a percentage of sales (ranging from 3% to 5%) paid
monthly by all franchised Grease Monkey Centers. Royalty fee revenue
increased by 10% in 1997 to $3,454,238 and decreased 2% in 1996 to
$3,143,933. The increase in royalty fees from 1996 to 1997 is due to the
recording of a settlement agreement with a former franchisee. Under the
settlement agreement, the Company recognized approximately $207,000 of
royalty fees not previously recognized and approximately $168,000 of other
income related to the reimbursement of costs previously expensed. In
addition, under the settlement agreement, the five Centers owned by the
franchisee re-entered the system for a brief period of time generating
approximately $31,000 in royalty revenue for the period. On a same Center
basis, royalty income remained relatively constant increasing 4% or
approximately $130,000 over the prior year. In addition new Centers generated
approximately $71,000 more in royalties over the prior year. These increases
were offset by the loss of royalties related to terminated centers and to
Centers purchased from franchisees of approximately $112,000. 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 1997 estimated royalties totaling $146,875 were not
recognized as revenue pursuant to this policy, as compared to $111,525 in
1996 and $170,500 in 1995. 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 1997, the Company paid a total of $233,486 to
franchisees under this program, as compared to $259,133 in 1996 and $248,431 in
1995. 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, 1998.
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The following table presents the activity of operating Centers:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Open at beginning of year . . . . 215 210 205
Opened during year . . . . . . . 16 11 18
Terminated . . . . . . . . . (11) (6) (13)
Closed . . . . . . . . . . . (2) - -
----------- ---------- ----------
Open at end of year . . . . . . 218 215 210
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C>
Centers Open:
US . . . . . . . . . . . . . 197 195 194
Mexico . . . . . . . . . . . . 21 20 16
------------------- ------------------- -------------------
Systemwide . . . . . . . . . . 218 215 210
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Sales (000's):
US . . . . . . . . . . . . . $ 89,803 88,910 89,254
Mexico . . . . . . . . . . . . 3,457 2,159 1,323
------------------- ------------------- -------------------
Systemwide . . . . . . . . . . $ 93,260 91,069 90,577
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Percent growth in sales:
US . . . . . . . . . . . . . 1% - 1%
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Mexico . . . . . . . . . . . . 60% 63% 85%
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Systemwide . . . . . . . . . . 2% 1% 1%
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Royalty fees (000's):
US . . . . . . . . . . . . . $ 3,325 3,078 3,153
Mexico . . . . . . . . . . . . 129 66 58
------------------- ------------------- -------------------
Systemwide . . . . . . . . . . $ 3,454 3,144 3,211
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Percent growth in royalties:
US . . . . . . . . . . . . . 8% (2%) 4%
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Mexico . . . . . . . . . . . . 95% 14% 80%
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Systemwide . . . . . . . . . . 10% (2%) 5%
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Vehicles serviced (000's):
US . . . . . . . . . . . . . 2,730 2,731 2,850
Mexico . . . . . . . . . . . . 154 103 63
------------------- ------------------- -------------------
Systemwide . . . . . . . . . . 2,884 2,834 2,913
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Average sale per vehicle:
US . . . . . . . . . . . . . $ 32.89 32.55 31.32
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Mexico . . . . . . . . . . . . $ 22.41 21.04 21.05
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Systemwide . . . . . . . . . . $ 32.33 32.14 31.09
------------------- ------------------- -------------------
------------------- ------------------- -------------------
</TABLE>
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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. In addition, the
Company collects development fees under ETD and AD Agreements as discussed
previously. Initial franchise fees and certain development 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:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C>
Franchise licenses issued:
US (1) . . . . . . . . . . . . 10 20 4
Mexico . . . . . . . . . . . . 4 7 1
------------------ ------------------ -------------------
Total . . . . . . . . . . . 14 27 5
------------------ ------------------ -------------------
------------------ ------------------ -------------------
Franchise fees paid:
US . . . . . . . . . . . . . $ 250,500 386,600 116,800
Mexico . . . . . . . . . . . . 124,000 154,800 12,200
------------------ ------------------ -------------------
Total . . . . . . . . . . . $ 374,500 514,400 129,000
------------------ ------------------ -------------------
------------------ ------------------ -------------------
Franchise costs deferred:
US . . . . . . . . . . . . . $ 61,976 99,964 23,996
Mexico . . . . . . . . . . . . 7,600 11,177 54,134
------------------ ------------------ -------------------
Total . . . . . . . . . . . $ 69,576 111,141 78,130
------------------ ------------------ -------------------
------------------ ------------------ -------------------
Franchises opened:
US (1) . . . . . . . . . . . . 14 6 11
Mexico . . . . . . . . . . . . 1 4 7
------------------ ------------------ -------------------
Total . . . . . . . . . . . 15 10 18
------------------ ------------------ -------------------
------------------ ------------------ -------------------
Franchise fees recognized on openings:
US (2) . . . . . . . . . . . . $ 229,401 104,900 234,110
Mexico . . . . . . . . . . . . 28,000 78,400 196,000
------------------ ------------------ -------------------
Total . . . . . . . . . . . $ 257,401 183,300 430,110
------------------ ------------------ -------------------
------------------ ------------------ -------------------
Franchise costs recognized on openings:
US (3) . . . . . . . . . . . . $ 78,222 11,683 27,677
Mexico . . . . . . . . . . . . 7,600 21,160 72,094
------------------ ------------------ -------------------
Total . . . . . . . . . . . $ 85,822 32,843 99,771
------------------ ------------------ -------------------
------------------ ------------------ -------------------
Undeveloped franchise
licenses/applications cancelled . . . . - 5 6
------------------ ------------------ -------------------
------------------ ------------------ -------------------
Income recognized on
cancellations . . . . . . . . . . $ - 27,563 18,075
------------------ ------------------ -------------------
------------------ ------------------ -------------------
</TABLE>
(1) Excludes franchise licenses related to refranchised Company-owned Centers
during the year; three in 1997, five in 1996 and two in 1995.
11
<PAGE>
(2) Excludes franchise fees related to refranchised Company-owned Centers;
$58,800 in 1997, $128,800 in 1996 and $56,000 in 1995.
(3) Excludes franchise costs related to refranchised Company-owned Centers; none
in 1997, $5,000 in 1996 and $7,500 in 1995.
At December 31, 1997, 49 franchises had been sold which were not open
and commitment fees for 24 franchises had been paid, representing $985,470 in
deferred franchise sales revenue, compared to 50 unopened franchises and
commitment fees for 21 franchises representing $907,371 in deferred franchise
sales revenue at the end of 1996.
The Company terminated five undeveloped licenses/applications in 1996
and six undeveloped licenses/applications in 1995 for non-performance,
representing income of $27,563 and $18,075, respectively. There were no
undeveloped license terminations during 1997.
In 1997, the Company realized marketing allowances and gross margins on
product and equipment sales of $460,359, as compared to $436,033 in 1996 and
$463,184 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. The number of Center openings in a period impacts product and
equipment revenue, thus revenue for 1997 was comparable to that of 1996 and 1996
was below 1995.
Company-owned Centers at December 31, 1997, include 19 Centers located
in Denver, Colorado, 8 Centers in Seattle, Washington, 2 Centers in California
and 1 Center each in Arizona and New Jersey.
12
<PAGE>
The following table shows the Company's activity with respect to
Company-owned Centers over the past three years:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Company-owned Centers at
the beginning of the year . . . 31 29 29
New Centers built or purchased . . 4 2 1
Centers acquired from
failed franchisees . . . . . - 5 1
Centers refranchised . . . . . . (2) (5) (2)
Centers closed . . . . . . . . (2) - -
---------------- ---------------- ----------------
Company-owned Centers at
the end of the year . . . . . 31 31 29
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Average number of Centers operated
during the year based on number of
months operated . . . . . . . 31 32 29
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
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.
13
<PAGE>
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>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Centers built or purchased:
Revenue . . . . . . . . . . . $ 12,403,904 11,262,863 10,258,432
Expenses . . . . . . . . . . . 10,179,465 9,010,709 8,545,028
-------------------- -------------------- ---------------------
Income (loss) before depreciation,
amortization and division
overhead . . . . . . . . . . 2,224,439 2,252,154 1,713,404
-------------------- -------------------- ---------------------
Centers acquired from failed franchisees:
Revenue . . . . . . . . . . . 2,338,895 3,153,338 2,204,200
Expenses . . . . . . . . . . . 2,510,630 3,394,063 2,272,279
-------------------- -------------------- ---------------------
Income (loss) before depreciation,
amortization and division
overhead . . . . . . . . . (171,735) (240,725) (68,079)
-------------------- -------------------- ---------------------
Combined income (loss) before
depreciation, amortization and
division overhead . . . . . . . . 2,052,704 2,011,429 1,645,325
Depreciation . . . . . . . . . . (564,846) (565,490) (527,050)
Amortization . . . . . . . . . . (259,812) (225,518) (144,465)
Company-owned Centers division
overhead (1) . . . . . . . . . (819,154) (678,476) (564,719)
-------------------- -------------------- ---------------------
Operating income (loss) from
Company-owned Centers (2) . . . . . $ 408,892 541,945 409,091
-------------------- -------------------- ---------------------
-------------------- -------------------- ---------------------
Number of Centers by category:
Built or purchased . . . . . . . 25 21 20
Failed franchises acquired . . . . . 6 10 9
-------------------- -------------------- ---------------------
Total . . . . . . . . . . . 31 31 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.
14
<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 $1,547,876 in
1997; $1,434,086 in 1996; and $1,391,886 in 1995.
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 $1,549,315 in 1997; $1,376,677 in 1996; and $1,401,978 in
1995.
The following table summarizes General and Administrative Expenses:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Salaries, wages and personnel
expenses . . . . . . . . . . . $ 2,213,721 2,007,997 1,992,406
Travel and entertainment
expenses . . . . . . . . . . . 374,664 375,460 357,140
Office expenses . . . . . . . . . . 631,062 648,552 611,998
Franchise development and
training expenses . . . . . . . . 121,467 48,555 55,139
Franchise sales and promotional
expenses . . . . . . . . . . . 98,875 90,276 30,610
Terminated projects . . . . . . . . 12,644 206,469 26,250
Litigation, including legal fees
and related costs . . . . . . . . 137,612 344,139 106,176
Professional fees - legal, tax and
accounting . . . . . . . . . . 233,909 145,733 166,306
Company-owned Centers division
overhead . . . . . . . . . . . 819,146 678,476 564,719
Loss on sale of assets/asset
impairment . . . . . . . . . . 65,558 1,110 9,886
Consultant Agreement/severance
expenses . . . . . . . . . . . 459,420 - -
Other . . . . . . . . . . . . . 214,395 193,614 189,536
-------------------- ---------------- -------------------
Total general and
administrative expenses . . . . . . $ 5,382,473 4,740,381 4,110,166
-------------------- ---------------- -------------------
-------------------- ---------------- -------------------
</TABLE>
General and Administrative expenses increased 14% in 1997 over 1996.
This increase is a result of several factors. One such factor was the accrual of
the Company's obligation under a Consultant Agreement with the Company's former
Chairman of the Board, President
15
<PAGE>
and Chief Executive Officer. The term of the agreement is from March 4, 1997
through March 3, 1999. The agreement requires the former executive 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.
Under the agreement, the former executive will be paid a monthly fee for the
term of the agreement. The Company is obligated to make the payments
regardless of whether services are requested or performed. General and
administrative expenses include approximately $379,000 related to this
agreement. Other factors include increases in Company-owned Centers division
overhead, professional fees related to legal issues, salaries, wages and
personnel expenses and franchise development and training expenses. These
increases were offset by decreases in costs associated with litigation,
including legal fees and related costs, terminated projects, unsuccessful
financing and acquisition costs.
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 provision for credit losses increased in 1997 to $253,368 from
$206,221 in 1996 and from $151,800 in 1995. The increase in 1997 is due
primarily to a more aggressive policy for addressing non-performing accounts
which resulted in additional provisions on eight non-performing franchisee
accounts. Subsequent to year end, two of the accounts have resulted in GMI
taking over operations of the Centers, four Centers have closed, one Center is
operating under a repayment agreement and the remaining Center is currently
negotiating a repayment agreement. The increase in 1996 is due to additional
provisions for two non-performing franchisee accounts, two franchisees who filed
for bankruptcy and a note receivable.
Depreciation expense totaled $688,041 in 1997 compared to $694,241 in
1996 and $638,352 in 1995. The depreciation expense remained relatively constant
between 1996 and 1997, but increased from 1995 to 1996. The increase in 1996 is
due to an increase in the average number of Company-owned Centers operated (32
in 1996 and 29 in 1995) and capital expenditures. Amortization expense totaled
$284,689 in 1997 compared to $245,454 in 1996 and $177,553 in 1995. The increase
in amortization expense is due to the purchase of two Company-owned Centers in
1996 and in 1997.
Gain (loss) on sale/disposition/closure of Centers represents the net
results of the refranchising/disposal/closure 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 $368,169
in 1997 represents the refranchising of two Company-owned Centers, the sale of
one Center, the closure of three Centers, and marketing allowances paid based on
subsidies granted certain franchisees on the refranchising of Company-owned
Centers in 1996. In regards to the closure of three Centers, the Company decided
to close two under-performing Company-owned Centers and one franchise Center
(which was leased from the Company), resulting in $280,445 of the total
$368,169. The loss is a result of costs associated with the closing of the
Centers, as well as an impairment assessment at each location. 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.
16
<PAGE>
Interest expense includes interest on debt financing and interest
recorded on capital leases of Company-owned Centers. The increase in interest
expense from $659,996 in 1996 to $774,671 in 1997 was caused primarily by
additional borrowings to acquire two Company-owned Centers. In addition, the
Company entered into two capital leases (thus incurring interest expense) at two
Company-owned Centers. The Company also made a change in vendor financing which
resulted in financing costs being transferred out of cost of goods sold and into
financing costs. 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 acquisition of two Centers.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES
In September 1997, the Company entered into a $5,000,000 Loan
Agreement with a major bank. In connection with the Company entering into a
Master Supply Contract with a motor oil supplier, the supplier agreed to
guarantee the line. Draws under the Loan Agreement were used for the purpose
of paying off certain debt, including the Company's former Loan Agreement and
Fast Lube Supply Agreement, and will be used for acquiring, constructing
and/or developing Company Centers. Any draws are evidenced by notes which
amortize over ten years with a five year ballon payment and bear interest at
a rate provided under the Loan Agreement plus guarantee fees. For an
increased guarantee fee, the Company can extend the payment terms an
additional five years. An initial draw of $2,620,000 was made on September
29, 1997, with interest at 9.26% plus guarantee fees which approximated
$20,000 in 1997.
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,
1997, $190,000 is outstanding 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, as amended, a $2,481,000 line of credit was established.
All loans drawn under this line accrued interest at 9% per annum and were
repaid in quarterly installments over a ten year period from date of
disbursement. The line was secured by the assignment of real property, leases
and lubrication equipment of certain Company-owned Centers. The line was paid
in full on September 30, 1997.
The growth of the Grease Monkey system is dependent on the ability
of the Company 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
the Company's specifications, then leased to the Company 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 1997 was $931,907 as compared to
$775,108 provided by operations in 1996. The most significant factors
contributing to this variance were the settlement agreement entered into with
a former franchisee and the non-cash accrual for the Consultant Agreement (as
described previously) and the non-cash portion of the loss on
sale/disposition/closure of Centers.
18
<PAGE>
Cash used for investing activities was $714,473 in 1997 and
$1,251,993 in 1996. This consisted primarily of cash used for the acquisition
of Centers of $688,191 in 1997 and $394,389 in 1996 and capital expenditures
of $297,570 in 1997 and $724,861 in 1996. 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. In
1997, $225,000 of these advances were paid back. Cash provided by investing
activities included receipts on direct financing leases of $189,926 and
$177,656 in 1997 and 1996, respectively. Additional cash was received in 1997
and 1996 with the refranchising of three and five Company-owned Centers,
respectively. Additional cash was used for the development of an updated
operations manual and updated training materials and the development of a
strategic planning and marketing database model. The cash used appears as a
variance in other assets.
Cash used in financing activities was $359,965 in 1997 and cash
provided by financing activities was $416,463 in 1996. Cash provided by
financing activities in 1997 consisted primarily of proceeds from long-term
debt of $3,045,000, (of which approximately $2,048,000 was used to repay
existing debt) and the sale of common stock of $282,563. Cash provided by
financing activities in 1996 includes proceeds from long-term debt of
$1,257,000. Cash used to reduce long-term debt was $3,316,796 in 1997 and
$493,249 in 1996 and cash used to reduce capital lease obligations was
$409,115 in 1997 and $348,365 in 1996.
The Company is aware of the issues associated with the programming
code in existing computer systems as the millennium (year 2000) approaches.
The "year 2000" problem is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two digit year
value to 00. The issue is whether computer systems will properly recognize
date sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Company's current system is not Year 2000 compliant. The
Company is currently addressing this issue, primarily through the development
of a new system.
The Company does not have any material commitments for capital
expenditures at December 31, 1997, other than as noted in the environmental
section for the required replacement or upgrade of underground storage tanks.
The Company is currently seeking additional financing through equity and or
debt to provide working capital for current and future operating needs as
well as to fund development projects. The Company believes, but cannot
guarantee, that such financing will be obtained. If new financing is not
secured, the Company's ability to grow would be substantially limited.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128, EARNINGS PER
SHARE (Statement 128). Statement 128 supersedes APB Opinion No. 15, EARNINGS
PER SHARE (APB 15) and specifies the computation, presentation, and
disclosure requirements for earnings per share (EPS) for entities with
publicly
19
<PAGE>
held common stock or potential common stock. Statement 128 was issued to
simplify the computation of EPS and to make the U.S. standard more compatible
with the EPS standards of other countries and that of the International
Accounting Standards Committee. It replaces the presentation of primary EPS
with a presentation of basic EPS and fully diluted EPS with diluted EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Statement 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. The adoption of Statement 128 did not have a significant effect on
the Company's reported earnings per share.
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.
20
<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.
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:
<TABLE>
<CAPTION>
NAME AND POSITION, IF DIRECTOR
ANY, IN THE COMPANY AGE SINCE
----------------------- --------- --------
<S> <C> <C>
James B. Wallace 69 1991
(Chairman of the Board)
Charles E. Steinbrueck 54 1994
(President and Chief
Executive Officer)
Jerry D. Armstrong 67 1991
Jim D. Baldwin 65 1994
Cortlandt S. Dietler 76 1995
Wayne H. Patterson 52 1994
George F. Wood 54 1991
</TABLE>
There are no arrangements or understanding between any director and any other
person pursuant to which any director was selected as such.
21
<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:
<TABLE>
<CAPTION>
NAME OF EXECUTIVE OFFICER OFFICER
AND POSITION IN COMPANY AGE SINCE
------------------------- --------- --------
<S> <C> <C>
Charles E. Steinbrueck 54 1997
(Director, President and
Chief Executive Officer)
Gary L. Wofford 54 1997
(Senior Vice President -
Operations and Development)
Michael J. Brunetti 41 1995
(Vice President -
Franchise Sales)
Dana Klapper Cohen 30 1998
(Vice President-
Administration, General Counsel
and Corporate Secretary)
</TABLE>
T. Timothy Kershisnik served as Vice President, Controller, Treasurer and
Corporate Secretary through March 13, 1998.
22
<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>
<CAPTION>
<C> <S>
NAME OF DIRECTOR
OR EXECUTIVE OFFICER PRINCIPAL OCCUPATION DURING THE LAST FIVE YEARS
-------------------- -----------------------------------------------
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.
Gary L. Wofford Senior Vice President, Operations and
Development since March 1998; Vice President,
System Sales and Support from May 1997 to
March 1998; Director of GMI's Company Center
Operations from December 1996 to May 1997;
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.
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.
Dana Klapper Cohen Vice President - Administration, General
Counsel and Corporate Secretary since March
26, 1998. Manager of Strategic and Legal
Affairs from May 1997 to March 1998.
Associate attorney for the law firm of Hogan
and Hartson, LLP, from March 1996 to April
1997. Associate attorney for the law firm of
Holland & Hart, LLP, from October 1994 to
March 1997. Prior to October 1994, Ms. Cohen
attended Columbia University School of Law.
23
<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. Mr. Baldwin is on the Board of
Directors for Channel 6 KRMA TV.
Cortlandt S. Dietler Chairman and CEO of TransMontaigne Oil
Company, an oil and gas company, since April
1995; Chairman, Founder and CEO of Associated
Natural Gas Corporation, a gas gathering,
processing and marketing company from 1980 to
1994. Mr. Dietler is also on the Board of
Directors for the following public companies:
Forest Oil Corporation, Key Production
Company, Inc., 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 President of Wood and Co., an investment
management firm, since 1982.
</TABLE>
(b) IDENTIFICATION OF SIGNIFICANT EMPLOYEES: None.
(c) FAMILY RELATIONSHIPS. None
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS. None.
24
<PAGE>
(e) SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
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, 1997, the only director, officer or more than 10% shareholder of
the Company who failed to timely file a Form 3, Form 4 or Form 5 was Charles
E. Steinbrueck who filed a late Form 4 reporting three transactions.
25
<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 to the Chief Executive Officers of the
Company for services rendered for the fiscal years ended December 31, 1997,
1996 and 1995. No other executive officers of the Company total cash
compensation exceeded $100,000 for the fiscal years ended December 31, 1997,
1996 or 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
OTHER SECURITIES
ANNUAL UNDERLYING
NAME PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS/SAR'S(#)
---- ------------------ ---- ------ ------------ ----------------
<C> <S> <C> <C> <C> <C>
Charles E. President and Chief Executive
Steinbrueck Officer and Director of GMHC and GMI (1) 1997 $ 114,182 - 750,000
1996 $ - - 10,000
1995 $ - - 20,000
Rex L. Utsler President and Chairman of the Board of
Directors of GMHC and GMI(2) 1997 $ 179,868 $ 8,386(3) -
1996 $ 163,417 $ 11,450(3) 12,500
1995 $ 157,842 $ 11,328(3) 50,000
</TABLE>
(1) Mr. Steinbrueck became President and Chief Executive Officer on February
6, 1997, and has been a Director since 1994. Mr. Steinbrueck has an
Employment Agreement with the Company. See "Item 12. Certain Relationships
and Related Transactions."
(2) Mr. Utsler resigned as the Chairman of the Board and President of the
Company on February 6, 1997. Mr. Utsler continues to be paid under a
consulting contract through March 31, 1999. See "Item 12. Certain
Relationships and Related Transactions."
(3) Includes costs of a leased car, country club dues and the Company's
401(k) matching contribution.
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 1997, the Company
contributed 33,234 shares to the Plan at an average
26
<PAGE>
of $1.36 per share. During 1996, the Company contributed 40,616 shares to the
Plan at an average of $1.14 per share.
(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 originally reserved 500,000 shares for
grant or awards under the Plan. In June 1997, the Company's shareholders
approved an additional 500,000 shares.
The 1986, 1993 and 1994 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 1997 were Jerry D. Armstrong, Jim D.
Baldwin and George F. Wood. The Option Committee met once during 1997. All
members were present at the meeting. New members of the Option Committee will
be selected after the Annual Meeting of Shareholders.
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 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.
27
<PAGE>
The following table sets forth information pertaining to options
that were granted by the Company to Charles E. Steinbrueck during the year
ended December 31, 1997.
Option Grants in Last Fiscal Year
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles E. 300,000(1) 40% 1.3125 12/31/02
Steinbrueck
450,000(2) 60% 1.3125 12/31/02
</TABLE>
(1) Options relating to 300,000 shares are fully vested and exercisable.
(2) Options relating to 200,000 shares vest on December 31, 1998, and
options relating to 250,000 shares vest on December 31, 1999 provided the
Company has attained certain performance criteria. See "Item 12. Certain
Relationships and Related Transactions."
No options were granted to Rex L. Utsler during the year ended December
31, 1997.
28
<PAGE>
The following table sets forth information pertaining to the options
that were held by Charles E. Steinbrueck and Rex L. Utsler as of December 31,
1997. Neither Mr. Steinbrueck nor Mr. Utsler exercised any options during the
year ended December 31, 1997.
Aggregated Option/SAR Exercises in Last Fiscal Year and Option/SAR Values
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS/SARS AT
OPTIONS/SARS AT FY-END(#) FY-END
------------------------- -------------------------
Name EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------- -------------------------
<S> <C> <C>
Charles E.
Steinbrueck 330,000/450,000 - 0 - (1)
Rex L. Utsler 62,500/0 - 0 - (1)
</TABLE>
(1) The exercise prices were above the market price of the common stock on
December 31, 1997.
(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 were granted on March 24, 1998, for services rendered for
the period June 1997 to June 1998.
(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 and an employment agreement with Charles E. Steinbrueck.
(h) REPORT ON REPRICING OF OPTIONS/SARS. None.
29
<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 27, 1998, 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>
<CAPTION>
SHARES
UNDERLYING
PRESENTLY
SHARES CONVERTIBLE
UNDERLYING SERIES C
SHARES OF PRESENTLY PREFERRED
NAME OF COMMON EXERCISABLE STOCK PERCENT
BENEFICIAL STOCK OPTIONS AND AND UNPAID TOTAL OF CLASS
OWNER(1) OWNED WARRANTS (3) DIVIDENDS(4) OWNERSHIP (6)
- ------------------------------ --------- ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C>
Rex L. Utsler(2)(5) 640,315 206,800 53,478 900,593 18.4%
Jerry D. Armstrong(2) 438,820 118,925 82,786 640,531 13.2%
James B. Wallace(2) 443,821 113,925 58,177 615,923 12.8%
Ray O. Brownlie(2) 442,375 88,925 58,177 589,477 12.3%
J. H. Bander(2) 407,709 88,925 58,177 554,811 11.6%
Charles E. Steinbrueck(2) 190,476 330,000 36,914 557,390 11.1%
Cortlandt S. Dietler(2) 55,556 20,000 19,687 95,243 2.0%
George F. Wood(2) 38,639 25,000 4,922 68,561 1.5%
Wayne H. Patterson(2) - 35,000 24,609 59,609 1.3%
Jim D. Baldwin(2) - 25,000 12,305 37,305 0.8%
All officers and directors as
a group (9 persons) 1,167,312 767,850 249,244 2,184,406 38.6%
</TABLE>
- -------------
Note: Included as an officer is T. Timothy Kershisnik who resigned from his
positions of Vice President, Controller, Treasurer and Corporate Secretary
effective March 13, 1998. Excluded is Dana Klapper Cohen who became an
officer on March 26, 1998.
(1) All beneficial owners listed have sole voting and/or investment
power with respect to the shares shown unless otherwise indicated.
30
<PAGE>
(2) The address for Rex L. Utsler is Trinity Place, Suite 720, 1801
Broadway, Denver, Colorado 80202. The address for Messrs. Armstrong,
Wallace, Brownlie and Bander 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 706 Golf Club
Drive, Castle Pines Village, Colorado 80104.
(3) Represents shares of common stock underlying presently
exercisable options and warrants.
(4) 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.
(5) Does not include 3,100 shares held by Mr. Utsler's children, of
which he disclaims beneficial ownership.
(6) 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. On June 30, 1997,
First of September Corporation was dissolved and any ownership of the
Company's common stock, preferred stock and the warrants mentioned previously
were transferred to First of September Corporation's shareholders.
31
<PAGE>
On March 12, 1998, the Company entered into an Employment Agreement
("Agreement") with Charles E. Steinbrueck pursuant to which the Company
employed Mr. Steinbrueck as the President and Chief Executive Officer of the
Company effective January 20, 1997. The Agreement will terminate on January
20, 2000, unless terminated earlier pursuant to the terms thereof. Pursuant
to the Agreement, the Company has agreed to pay Mr. Steinbrueck an initial
base salary of $125,000 per year. The base salary is to be reviewed annually
by the Compensation Committee of the Board of Directors and the base salary
for each year (or portion thereof) beginning January 1, 1998, shall be
determined by the Compensation Committee which shall authorize an increase in
the base salary. Mr. Steinbrueck also is entitled to receive bonuses in such
amount as determined by the Board of Directors of the Company. Further, Mr.
Steinbrueck is eligible to participate in all plans available to the
executive officers of the Company. Pursuant to the Agreement, Mr. Steinbrueck
was granted stock options for 750,000 shares of the Company's common stock
that have an exercise price of $1.3125 per share. The options vested as to
100,000 shares as of January 20, 1997, and options for the remaining 650,000
shares were to vest over a three year period, subject to the attainment by
the Company of certain performance criteria, so that options with respect to
200,000 shares would become exercisable on December 31, 1997, options with
respect to 200,000 shares would become exercisable on December 31, 1998, and
options for 250,000 shares would become exercisable on December 31, 1999. The
options were only to become exercisable if the Company attained minimum
corporate earnings for the years ended December 31, 1997, 1998 and 1999 of
$500,000, $1,000,000 and $1,500,000, respectively, if the Company achieved a
compounded growth rate in gross revenue of 20% for each year from 1997
through 1999 and if the Company was within 75% of the growth target for new
unit openings in the business plan established by the Board of Directors for
the Company. Although the Company did not meet the performance criteria for
the year ended December 31, 1997, the Board of Directors of the Company and
the Compensation Committee have determined that 200,000 shares would be
exercisable as of December 31, 1997, pursuant to the option granted to Mr.
Steinbrueck. The options expire on December 31, 2002, if not previously
exercised.
The Agreement provides that the Company may terminate the Agreement
for cause without paying Mr. Steinbrueck any additional compensation.
However, if the Company terminates the Agreement other than for cause, the
Company is required to pay Mr. Steinbrueck severance compensation for a
period of the lesser of the remaining portion of the term of the Agreement or
two years from the date of such termination, reduced by any compensation that
Mr. Steinbrueck may receive from a new employer ("Severance Compensation").
Mr. Steinbrueck also has the ability to terminate the Agreement voluntarily
or upon a change in control of the Company. A change in control in the
Company is deemed to occur if (i) any person or group acquires direct or
indirect beneficial ownership of 20% or more of the Company's outstanding
securities unless a majority of the "Continuing Directors" approves the
acquisition or (ii) on the first day on which a majority of the members of
the Board of Directors are not "Continuing Directors." A "Continuing
Director" is any member of the Company's Board of Directors who (i) was a
member of that Board of Directors on January 20, 1997, (ii) has been a member
of that Board of Directors for the two years immediately preceding such date
of determination, or (iii) was nominated for election or elected to the
Company's Board of Directors with the affirmative vote of the greater of (x)
a majority of the Continuing Directors who are members of the Company's Board
of Directors at the time of such nomination or election or (y) at least three
Continuing Directors. If Mr. Steinbrueck terminates the Agreement
voluntarily, he is entitled to no additional compensation. However, if the
termination is within 120 days following a change in control, Mr. Steinbrueck
is entitled to receive Severance Compensation which Mr. Steinbrueck can elect
to receive in a lump sum. In no event, however, shall the Severance
Compensation upon a Change in
32
<PAGE>
Control exceed any amount that the Company is prohibited from deducting for
federal income tax purposes by virtue of Section 280G of the Internal Revenue
Code.
The Agreement also provides that Mr. Steinbrueck will not compete
with the Company during the term of the Agreement and for a period of two
years following the termination thereof.
On January 20, 1997, the Company sold 190,476 shares of the
Company's common stock to Mr. Steinbrueck for a total of $250,000.
On January 30, 1998, the Company entered into Employment Agreements
("Agreements") with Gary L. Wofford and with Dana Klapper Cohen pursuant to
which the Company employed Mr. Wofford as Vice President of System Sales and
Support and Ms. Cohen as Manager of Strategic and Legal Affairs. The
agreements will terminate on January 30, 2001, unless terminated earlier
pursuant to the terms thereof. Pursuant to the Agreements, the Company has
agreed to pay Mr. Wofford an initial base salary of $92,500 per year and Ms.
Cohen an initial base salary of $57,500 per year. The base salaries are to be
reviewed annually by the President and CEO. Mr. Wofford and Ms. Cohen are
entitled to receive bonuses and to participate in all plans available to the
executive officers of the Company. Pursuant to the Agreements, Mr. Wofford is
entitled to the grant of stock options for 100,000 shares of the Company's
common stock and Ms. Cohen is entitled to the grant of 50,000 shares of the
Company's common stock.
The Agreements provide that the Company may terminate the Agreements
for cause without paying Mr. Wofford or Ms. Cohen any additional
compensation. However, if the company terminates the Agreements other than
for cause, the Company is required to pay Mr. Wofford and Ms. Cohen severance
compensation for a period of the lesser of the remaining portion of the term
of the Agreement or one year from the date of such termination, ("Severance
Compensation"). Mr. Wofford and Ms. Cohen also have the ability to terminate
the Agreement voluntarily or upon a change in control of the Company. A
change in control in the Company is deemed to occur if (i) any person or
group acquires direct or indirect beneficial ownership of 20% or more of the
Company's outstanding securities unless a majority of the "Continuing
Directors" approves the acquisition or (ii) on the first day on which a
majority of the members of the Board of Directors are not "Continuing
Directors." A "Continuing Director" is any member of the Company's Board of
Directors who (i) was a member of that Board of Directors on January 30,
1998, (ii) has been a member of that Board of Directors for the two years
immediately preceding such date of determination, or (iii) was nominated for
election or elected to the Company's Board of Directors with the affirmative
vote of the greater of (x) a majority of the Continuing Directors who are
members of the Company's Board of Directors at the time of such nomination or
election or (y) at least three Continuing Directors. If Mr. Wofford or Ms.
Cohen terminate their respective Agreements voluntarily, he/she is entitled
to no additional compensation. However, if the termination is within 120 days
following a change in control, Mr. Wofford and Ms. Cohen are entitled to
receive Severance Compensation which they can elect to receive in a lump sum.
In no event, however, shall the Severance Compensation upon a Change in
Control exceed any amount that the Company is prohibited from deducting for
federal income tax purposes by virtue of Section 280G of the Internal Revenue
Code.
The Agreements also provide that Mr. Wofford and Ms. Cohen will not
compete with the Company during the term of the Agreements and for a period
of two years following the termination thereof.
33
<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 quarter 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,
incorporated by reference to the Annual Report on
Form 10-KSB for the fiscal year ended December 31,
1996.
34
<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, incorporated
by reference to the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996.
(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) Current form of Grease Monkey Franchise Agreement
currently in effect.
(i) 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.
(j) Business Loan Agreement with Bank of America for
$2,000,000 three year line of credit, incorporated by
reference to the Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996.
(k) Consultant Agreement between Grease Monkey Holding
Corporation and Rex L. Utsler, incorporated by
reference to the Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996.
(l) $5,000,000 Loan Agreement with Citicorp Leasing,
Inc., incorporated by reference to the Quarterly
Report on Form 10-QSB for the period ended September
30, 1997.
(m) Master Supply Contract dated September 29, 1997, with
Mobil Oil Corporation.
35
<PAGE>
(n) Employment Agreement dated March 12, 1998, with Charles E.
Steinbrueck.
(o) Employment Agreement dated January 30, 1998, with Gary L.
Wofford.
(p) Employment Agreement dated January 30, 1998, with Dana
Klapper Cohen.
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).
(c) Grease Monkey de Mexico SA de CV., incorporated in
Mexico (100% owned).
23. Consent of Experts and Counsel
(a) Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule - 1997.
27.2 Financial Data Schedule - 1996 and 1995 annual periods restated.
(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.
36
<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 26, 1998
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.
<TABLE>
<CAPTION>
DATE NAME AND TITLE SIGNATURE
- --------------- -------------------- ---------------------------
<S> <C> <C>
March 26, 1998 CHARLES E. STEINBRUECK, Director, /s/ Charles E. Steinbrueck
President and Chief ----------------------------
Executive Officer Charles E. Steinbrueck
(Principal Executive
Officer, Chief Financial
Officer and Principal
Accounting Officer)
March 26, 1998 JAMES B. WALLACE, Director and /s/ James B. Wallace
Chairman of the Board ----------------------------
James B. Wallace
March 26, 1998 JERRY D. ARMSTRONG, Director /s/ Jerry D. Armstrong
----------------------------
Jerry D. Armstrong
March 26, 1998 JIM D. BALDWIN, Director /s/ Jim D. Baldwin
----------------------------
Jim D. Baldwin
March 26, 1998 CORTLANDT S. DIETLER, Director /s/ Cortlandt S. Dietler
----------------------------
Cortlandt S. Dietler
March 26, 1998 WAYNE H. PATTERSON, Director
----------------------------
Wayne H. Patterson
March 26, 1998 GEORGE F. WOOD, Director /s/ George F. Wood
----------------------------
George F. Wood
</TABLE>
37
<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, 1997 and 1996, 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,
1997. 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, 1997 and 1996,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 12, 1998
F-1
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
Current Assets:
Cash ............................................................ $ 182,214 324,745
Restricted cash including certificates of deposit ............... - 34,927
Accounts receivable, net of allowance for doubtful
accounts of $478,553 in 1997 and $252,795 in 1996 ............ 1,212,014 1,042,259
Current portion of notes receivable, net of
allowance for uncollectible amounts (Note D) ................. 318,658 500,705
Current portion of net investment in direct financing
leases (Note F) ................................................ 204,921 225,053
Inventories ..................................................... 758,116 887,203
Prepaid expenses and supplies ................................... 113,648 125,208
----------- ---------
TOTAL CURRENT ASSETS 2,789,571 3,140,100
----------- ----------
Property and Equipment, at Cost, Pledged (Notes E and F):
Land ............................................................ 543,838 445,917
Buildings (including buildings under capital leases)............. 6,430,000 5,728,492
Furniture and fixtures .......................................... 536,329 562,235
Leasehold improvements .......................................... 718,672 662,001
Machinery and equipment ......................................... 1,774,196 1,735,844
----------- ----------
10,003,035 9,134,489
Less accumulated depreciation and amortization .................. (3,985,940) (3,540,784)
----------- ----------
NET PROPERTY AND EQUIPMENT ...................................... 6,017,095 5,593,705
----------- ----------
Other Assets:
Net investment in direct financing leases (Note F) .............. 3,154,581 3,499,162
Notes receivable, net of allowance for uncollectible
amounts (Note D) .............................................. 225,177 270,761
Deferred franchising costs ...................................... 189,528 211,849
Goodwill and covenants not to compete, net of accumulated
amortization of $1,215,026 in 1997 and $966,729 in 1996 ....... 2,688,103 2,401,586
Other assets, net of accumulated amortization of $167,145
in 1997 and $141,355 in 1996................................... 333,795 99,960
----------- ----------
TOTAL OTHER ASSETS 6,591,184 6,483,318
---------- ----------
$15,397,850 15,217,123
----------- ----------
----------- ----------
</TABLE>
(continued on next page)
F-2
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- ----------
<S> <C> <C>
Current Liabilities:
Accounts payable ................................................ $ 1,400,633 1,043,149
Accrued salaries and wages ...................................... 195,787 203,073
Other accrued liabilities ....................................... 371,143 347,158
Current portion of long-term obligations (Note E) ............... 715,289 1,066,283
Current portion of obligations under capital leases
(Note F)....................................................... 464,955 427,917
----------- ----------
TOTAL CURRENT LIABILITIES ..................................... 3,147,807 3,087,580
----------- ----------
Long-Term Obligations (Note E) .................................... 3,800,082 3,126,148
Obligations Under Capital Leases (Note F) ......................... 6,848,249 6,649,017
Deferred Franchise Sales Revenue .................................. 985,470 907,371
Stockholders' Equity (Note G):
Series C Preferred stock, stated value of $100.00 per
share, 20,896 shares issued and outstanding in 1997 and
1996 ....................................................... 2,089,638 2,089,638
Common stock, par value $0.03, 20,000,000 shares
authorized, 4,633,570 and 4,379,860 shares issued and
outstanding in 1997 and 1996, respectively ...................... 139,007 131,396
Capital in excess of par value .................................. 6,197,880 5,877,670
Accumulated deficit ............................................. (7,810,283) (6,651,697)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY .................................... 616,242 1,447,007
Commitments and Contingencies (Notes F and J) .....................
----------- ----------
$15,397,850 15,217,123
----------- ----------
----------- ----------
</TABLE>
See notes to the consolidated financial statements
F-3
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Operating Revenue:
Royalty fees ............................... $ 3,454,238 3,143,933 3,211,716
Franchise sales - center openings .......... 257,401 183,300 430,110
Product and equipment revenue .............. 777,285 776,333 1,021,730
Sales by Company-owned Centers ............. 14,742,786 14,416,201 12,462,632
Leasing revenue ............................ 1,547,876 1,434,086 1,391,886
Other....................................... 389,728 188,940 150,069
----------- --------- ---------
21,169,314 20,142,793 18,668,143
----------- ---------- ----------
Operating Expenses:
Franchise costs - center openings .......... 85,822 32,843 99,771
Product and equipment costs ................ 316,926 340,300 558,546
Company-owned Centers ...................... 12,690,085 12,404,772 10,817,307
Leasing expense ............................ 1,549,315 1,376,677 1,401,978
General and administrative expenses (Note H) 5,382,473 4,740,381 4,110,166
Provision for credit losses ................ 253,368 206,221 151,800
Depreciation ............................... 688,041 694,241 638,352
Amortization ............................... 284,689 245,454 177,553
----------- ---------- ----------
21,250,719 20,040,889 17,955,473
----------- ---------- ----------
Operating income (loss) ...................... (81,405) 101,904 712,670
----------- ---------- ----------
Other income (expense):
Gain (loss) on sale/disposition/closure
of centers ............................... (368,169) (83,780) 31,705
Undeveloped franchise licenses canceled .... - 27,563 18,075
Interest income ............................ 65,659 37,186 37,845
Interest expense (Note F) .................. (774,671) (659,996) (562,105)
----------- ---------- ----------
(1,077,181) (679,027) (474,480)
----------- ---------- ----------
Net income (loss) ............................ $(1,158,586) (577,123) 238,190
----------- ---------- ----------
----------- ---------- ----------
Earnings (loss) per common share (Note L) .... $ (0.29) (0.16) 0.03
----------- --------- ---------
----------- --------- ---------
Earnings (loss) per common share -
assuming dilution (Note L) .................. $ (0.29) (0.16) 0.03
----------- --------- ---------
----------- --------- ---------
Weighted average shares outstanding .......... 4,390,116 4,361,163 4,354,680
----------- --------- ---------
----------- --------- ---------
</TABLE>
See notes to the consolidated financial statements
F-4
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------------- ---------------------------------
CAPITAL IN
NUMBER OF NUMBER OF EXCESS OF ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT TOTAL
--------- ---------- --------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Issuance of common stock pursuant to
employee benefit plan................... - - 33,234 996 44,262 - 45,258
Issuance of common stock upon
exercise of employee stock options...... - - 30,000 900 31,663 - 32,563
Issuance of common stock................... - - 190,476 5,715 244,285 - 250,000
Net loss................................... - - - - - (1,158,586) (1,158,586)
------ ---------- --------- -------- ---------- ---------- ---------
Balance at December 31, 1997............... 20,896 $2,089,638 4,633,570 $139,007 6,197,880 (7,810,283) 616,242
------ ---------- --------- -------- ---------- ---------- ---------
------ ---------- --------- -------- ---------- ---------- ---------
</TABLE>
See notes to the consolidated financial statements
F-5
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
------------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................................ $ (1,158,586) (577,123) 238,190
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Increase in deferred franchise sales revenue ............................. 374,500 541,400 129,000
Franchise sales revenue recognized - center openings ..................... (257,401) (183,300) (430,110)
Increase in deferred franchising costs ................................... (75,176) (111,141) (78,130)
Franchise costs recognized - center openings ............................. 85,822 32,843 99,771
Provision for credit losses .............................................. 253,368 206,221 151,800
Loss realized on retirement of property and equipment .................... 131,532 1,110 18,130
Depreciation and amortization ............................................ 972,730 939,695 815,905
Loss (gain) on sale/disposition/closure of centers ....................... 327,850 58,421 (31,705)
Accrual of Consultant Agreement .......................................... 357,113 - -
Undeveloped franchise licenses canceled .................................. - (27,563) (18,075)
Interest on litigation award ............................................. - - 20,723
Increase in fair value of warrants extended .............................. - 54,000 -
Other, net ............................................................... (6,099) 380 17,113
Change in assets and liabilities:
Increase in accounts receivable ........................................ (582,461) (448,549) (422,484)
Decrease in notes receivable ........................................... 76,799 8,456 29,150
Decrease (increase) in inventories ..................................... 104,109 (153,658) (13,513)
Decrease (increase) in prepaid expenses and supplies ................... 11,560 30,453 (30,634)
Increase (decrease) in accounts payable ................................ 260,656 273,797 (194,363)
Increase (decrease) in accrued salaries and wages and other
accrued liabilities ................................................... 55,591 129,666 (62,370)
------------- --------- --------
Net cash provided by operating activities ............................. $ 931,907 775,108 238,398
------------- --------- --------
</TABLE>
(Continued on next page)
F-6
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
----------- ---------- --------
<S> <C> <C> <C>
Cash flows from investing activities:
Principal receipts on direct financing leases .............................. $ 189,926 177,656 181,155
Acquisition of centers ..................................................... (688,191) (394,389) (870,388)
Sale of centers ............................................................ 116,901 75,354 123,233
Capital expenditures ....................................................... (297,570) (724,861) (218,041)
Notes receivable from developers ........................................... 225,000 (415,000) -
Decrease (increase) in other assets ........................................ (260,539) 29,247 (41,925)
----------- ---------- --------
Net cash used in investing activities .................................... (714,473) (1,251,993) (825,966)
----------- ---------- --------
Cash flows from financing activities:
Proceeds from long-term obligations ........................................ 3,045,000 1,257,000 1,241,880
Principal payments on long-term obligations ................................ (3,316,796) (493,249) (350,372)
Principal payments on capital lease obligations ............................ (409,115) (348,365) (307,669)
Issuance of common stock ................................................... 282,563 - -
Issuance of preferred stock, net of offering costs ......................... - - (7,500)
Payment of accumulated dividends upon conversion of preferred stock
to common stock ........................................................... - (729) (9,942)
Decrease (increase) in restricted cash ..................................... 34,927 (2,694) 149,407
Increase in lease deposit obligations ...................................... 3,456 4,500 300
----------- ---------- --------
Net cash provided by (used in) financing activities ...................... (359,965) 416,463 716,104
----------- ---------- --------
Net increase (decrease) in cash .............................................. (142,531) (60,422) 128,536
Cash, beginning of year ...................................................... 324,745 385,167 256,631
----------- ---------- --------
Cash, end of year ............................................................ $ 182,214 324,745 385,167
----------- ---------- --------
----------- ---------- --------
Supplemental disclosures of cash flow information -
Cash paid during the year for interest ................................... $ 1,226,054 1,066,840 955,889
----------- ---------- --------
----------- ---------- --------
</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
Grease Monkey Holding Corporation (GMHC) is the parent company of
Grease Monkey International, Inc. (GMI), which operates, leases, manages and
franchises automotive quick-service preventive fluid maintenance Centers
(Grease Monkey Centers or Centers). 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. In 1997, GMHC established a wholly-owned subsidiary, Grease
Monkey de Mexico SA de CV ("GMM"), for the purpose of franchising automotive
quick-service preventive fluid maintenance centers in Mexico. The four
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
thirty-one 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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Franchised Grease Monkey Centers......................... 187 184 181
Company-owned Grease Monkey Centers...................... 31 31 29
---- ---- ----
Total Grease Monkey Centers in operation at year end..... 218 215 210
---- ---- ----
---- ---- ----
</TABLE>
Included in Franchised Grease Monkey Centers are twenty-one Centers in
1997, twenty Centers in 1996 and sixteen Centers in 1995 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,
is a certificate of deposit pledged to secure long-term debt with a balance
of $33,000. The debt was paid off in 1997.
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 Companyowned 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:
<TABLE>
<S> <C>
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
</TABLE>
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 - 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. If three or more licenses are purchased concurrently, an Exclusive
Territory Development Agreement ("ETD Agreement") may be executed. When an
ETD Agreement is executed, the franchisee pays a development fee equal to
$28,000 for the first Center to be developed and $8,400 for the second and
each subsequent Center to be developed. The development fee is nonrefundable.
The initial franchise fee of $28,000 is charged for the first franchise and
$16,800 for the second and each subsequent franchise acquired under the ETD
Agreement. The portion of the development fee paid for each Center to be
developed is applied toward the initial franchise fee for that franchise. The
Company also offers to select qualified persons the opportunity to acquire a
larger nonexclusive area ("Development Area") than under the ETD Agreement.
If a Development Area is purchased, an Area Development Agreement ("AD
Agreement") is executed. When an AD Agreement is executed, the franchisee
pays an area development fee equal to $5,000 times the estimated number of
franchises which may be established in the Development Area. The initial
franchise fee of $28,000 is charged for the first franchise and $16,800 for
the second and each subsequent franchise acquired under the AD Agreement. The
development fees and license 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 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 1997, approximately $147,000 ($112,000 in 1996 and $171,000 in
1995) 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
F-10
<PAGE>
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1997, 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 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 the disclosure requirement of SFAS No. 123, Accounting for
Stock-Based Compensation, which permits 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.
EARNINGS (LOSS) PER COMMON SHARE - Effective for the year ended
December 31, 1997, earnings (loss) per common share (EPS) is computed using
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." SFAS No. 128 established standards for computing and presenting EPS and
supersedes all prior EPS guidance found in APB Opinion 15. Basic EPS is computed
by dividing income available to common shareholders by the weighted-average
number of common shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common shares. All prior periods
have been restated to conform with SFAS No. 128.
RECLASSIFICATIONS - Certain amounts in the 1995 and 1996 financial
statements have been reclassed to conform to the 1997 presentation.
F-11
<PAGE>
C. ACQUISITIONS
During 1997, the Company acquired three Grease Monkey Centers from
franchisees. The Company paid cash and assumed liabilities for total
consideration of $1,077,456 for the Centers.
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.
The results of operations of the Grease Monkey Centers acquired are
included in the accompanying Consolidated Financial Statements from the date
of acquisition. All acquisitions were recorded under the purchase method of
acquisition accounting.
F-12
<PAGE>
D. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION> DECEMBER 31
-----------------------------
1997 1996
--------- --------
<S> <C> <C>
Notes receivable from franchisees. Both interest and non-interest
bearing with interest rates ranging from 6% to 10% at December 31,
1997. Due in monthly installments of approximately $6,900
including interest (maturities range through February 2006).
Generally collateralized by franchise rights, property and
equipment of Grease Monkey Centers, and undeveloped licenses................... $354,694 304,714
Notes receivable from franchisees. Both interest and non-interest
bearing with interest rates ranging from 8% to 10% at December 31, 1997.
Due in monthly installments of approximately $7,500 (maturities range
through March 2002). Unsecured................................................ 92,339 52,006
Notes receivable from developers. Interest at 9.04%. Monthly
payments of interest only, with principal due April 1998....................... 190,000 415,000
Other notes receivable. Both interest and non-interest bearing
with interest rates ranging from 7% to 8% at December 31, 1997
(maturities range through February 2006)........................................ 141,399 145,190
--------- --------
778,432 916,910
Less allowance for uncollectible amounts.......................................... (234,597) (145,444)
Less current portion.............................................................. (318,658) (500,705)
--------- --------
$225,177 270,761
--------- --------
--------- --------
</TABLE>
Maturities of notes receivable (excluding the allowance for uncollectible
amounts) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
<S> <C>
1998............................................................................. $ 393,314
1999............................................................................. 96,912
2000............................................................................. 79,118
2001............................................................................. 77,102
2002............................................................................. 57,956
Thereafter....................................................................... 74,030
------------
$ 778,432
------------
------------
</TABLE>
F-13
<PAGE>
E. LONG-TERM OBLIGATIONS
Long-term obligations consists of the following:
<TABLE>
<CAPTION> DECEMBER 31
------------------------
1997 1996
---------- ---------
<S> <C> <C>
Notes payable under an aggregate line of credit of $5,000,000 with
interest at 9.26% plus guarantee fees, maturing in September 2002, with
an option to extend to September 2007 under an increased guarantee fee,
guaranteed by a motor oil supplier with a related Master Supply
Contract, and restricted to the paying off of certain debt, and for
acquiring, constructing and/or developing of Grease Monkey Centers............. $2,579,775 -
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
Notes payable to oil suppliers which are non-interest bearing and
amortized based on product purchases, maturing at various times through
August 2011, secured by lubrication equipment at Grease Monkey Centers
having a net book value of $135,356 at December 31, 1997....................... 303,607 402,447
Notes payable with interest rates ranging from 8.5% to 12%, maturing at
various times through July 2011, secured by mortgages on real property
and lubrication equipment having a net book value of $522,004 at
December 31, 1997.............................................................. 377,686 619,464
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 $1,026,491 at December 31, 1997............. 648,786 784,051
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 April 1998, and is restricted to the development
of Grease Monkey Centers ...................................................... 190,000 415,000
Long-term obligation to a former executive with an imputed interest
rate of 9%, maturing March 1999 ............................................... 230,639 -
Other long-term obligations...................................................... 184,878 184,157
---------- ----------
4,515,371 4,192,431
Less current portion............................................................. (715,289) (1,066,283)
---------- ----------
$3,800,082 3,126,148
---------- ----------
---------- ----------
</TABLE>
F-14
<PAGE>
E. LONG-TERM OBLIGATIONS (CONTINUED)
Aggregate maturities of long-term obligations as of December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C>
1998........................................................................... $ 715,289
1999........................................................................... 489,086
2000........................................................................... 331,691
2001........................................................................... 358,501
2002........................................................................... 374,996
Thereafter..................................................................... 2,245,808
------------
$ 4,515,371
------------
------------
</TABLE>
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 $2,565,414 for 1997, $2,524,578 for 1996 and $2,274,542 for
1995.
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 30 sites to franchisees and third
parties. The typical sublease period coincides with the primary lease term, and
some leases contain renewal options. The franchisees or tenants 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 six of its franchisees. At
December 31, 1997, the aggregate contingent liability under the lease guarantees
amounted to approximately $1,557,281.
F-15
<PAGE>
F. LEASES (CONTINUED)
Future minimum commitments under leasing arrangements for Grease
Monkey Centers at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
PAYABLE AS LESSEE RECEIVABLE AS LESSOR
------------------------ ------------------------
YEARS ENDED CAPITAL OPERATING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES LEASES LEASES
------------ ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
1998 ........................................... $ 1,254,523 2,057,782 541,629 909,240
1999 ........................................... 1,262,203 1,974,959 551,508 846,200
2000 ........................................... 1,290,483 1,924,611 581,818 868,048
2001 ........................................... 1,299,355 1,828,444 584,685 845,139
2002 ........................................... 1,257,554 1,789,534 542,944 794,074
Thereafter ..................................... 5,866,231 7,308,635 2,724,877 3,340,945
----------- ---------- ---------- ---------
Total minimum commitments ...................... 12,230,349 16,883,965 5,527,461 7,603,646
Less portion representing interest ............. (4,917,145) ---------- (2,167,959) ---------
----------- ---------- ---------- ---------
Present value of net minimum commitments ....... 7,313,204 3,359,502
Less current portion ........................... (464,955) (204,921)
----------- ----------
Non-current portion ............................ $ 6,848,249 3,154,581
----------- ----------
----------- ----------
</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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- ----------
<S> <C> <C>
Buildings ...................... $ 4,595,274 3,877,414
Less accumulated depreciation .. (1,481,383) (1,209,035)
----------- ----------
$ 3,113,891 2,668,379
----------- ----------
----------- ----------
</TABLE>
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 $369,233, $364,041 and $360,783 in 1997, 1996 and
1995, respectively.
F-16
<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 January 20, 1997, Charles E. Steinbrueck, President and Chief
Executive Officer, entered into an agreement to purchase from the Company
190,476 shares of restricted common stock of the Company at $1.3125, the last
trade price on January 20, 1997, for a total consideration of $250,000.
The Company's Series C, 6% cumulative, Preferred stock is redeemable
at the option of the Company upon 60 days prior written notice. 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. 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. During 1997, there were no conversions
of Preferred stock into common stock. As of December 31, 1997, accumulated
unpaid dividends totaled $506,946.
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. On June 30, 1997, First of September
Corporation was dissolved and any ownership of the Company's common stock,
preferred stock and the warrants mentioned previously were transferred to
First of September Corporation's shareholders.
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 1997, 1996 and 1995, the Company contributed 33,234,
40,616, and 11,542 shares to this plan at an average of $1.36, $1.14 and
$1.82 per share, respectively.
At December 31, 1997, the Company has three stock-based compensation
plans. Under the terms of the 1986 and 1993 Plan, 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-17
<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 originally reserved 500,000 shares for grant or awards under the Plan.
In June 1997, the Company's shareholders approved an additional 500,000
shares.
On January 20, 1997, five year options to purchase 650,000 shares of
the Company's common stock at $1.31 per share were granted to Charles E.
Steinbrueck, President and Chief Executive Officer. These options vest upon
certain performance criteria being achieved and were not granted under the
Company's qualified stock option plans. At December 31, 1997, 200,000 of
these options had vested, and are included in the calculation of compensation
costs.
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 or the performance
based options. 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:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C> <C>
Net income (loss) As Reported
(net of preferred
stock dividends) $(1,283,964) $(702,889)
Pro forma $(1,408,445) $(750,717)
Earnings (loss)
per common share As Reported $ (.29) $ (0.16)
Pro forma $ (.32) $ (0.17)
</TABLE>
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 1997 and 1996; no dividend
yield; expected volatility approximating 50% percent; risk free interest rate
of approximately 6 percent; and expected lives of five years.
F-18
<PAGE>
G. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the status of the Company's three fixed stock option
plans as of December 31, 1997, 1996 and 1995, and changes during the years
ended on those dates is presented below:
<TABLE>
<CAPTION>
SHARES WEIGHTED
OUTSTANDING AVERAGE
SHARES AND EXERCISE
RESERVED EXERCISABLE PRICE
---------- ----------- ---------
<S> <C> <C> <C>
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
Additional shares reserved ... 500,000 - -
Granted ...................... - 100,000 1.31
Exercised .................... (30,000) (30,000) 1.09
Canceled ..................... - (103,634) 1.75
Expired ...................... (10,000) - -
---------- --------- ----
Balances at December 31, 1997 ... 1,293,200 632,599 1.56
---------- --------- ----
---------- --------- ----
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Weighted-average fair value of
options granted during the
year ......................... $0.66 $0.42
</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, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
----------------------------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED-
OUTSTANDING AND REMAINING AVERAGE
RANGE OF EXERCISABLE AT CONTRACTUAL EXERCISE
EXERCISE PRICES 12/31/97 LIFE PRICE
- --------------- --------------- ----------- ---------
<S> <C> <C> <C>
$1.06 - 1.17 143,200 3.63 years $1.07
1.31 100,000 4.05 1.31
1.59 - 1.75 319,399 2.57 1.71
2.22 70,000 2.30 2.22
-------
1.06 - 2.22 632,599 3.02 1.56
-------
-------
</TABLE>
F-19
<PAGE>
H. GENERAL AND ADMINISTRATIVE EXPENSES
The following is a summary of general and administrative expenses:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Salaries, wages and personnel expenses ............... $ 2,213,721 2,007,997 1,992,406
Travel and entertainment expenses .................... 374,664 375,460 357,140
Office expenses ...................................... 631,062 648,552 611,998
Franchise development and training expenses .......... 121,467 48,555 55,139
Franchise sales and promotional expenses ............. 98,875 90,276 30,610
Terminated projects .................................. 12,644 206,469 26,250
Litigation, including legal fees and related costs ... 137,612 344,139 106,176
Professional fees - legal, tax and accounting ........ 233,909 145,733 166,306
Company-owned Centers division overhead .............. 819,146 678,476 564,719
Loss on sale of assets/asset impairment .............. 65,558 1,110 9,886
Consultant agreement/severance expenses .............. 459,420 - -
Other ................................................ 214,395 193,614 189,536
----------- --------- ---------
Total general and administrative expenses ......... $ 5,382,473 4,740,381 4,110,166
----------- --------- ---------
----------- --------- ---------
</TABLE>
F-20
<PAGE>
I. INCOME TAXES
In 1997, the deferred tax benefit that otherwise would have been
provided for was offset by an increase in the valuation allowance of $447,000.
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,
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.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996, are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996
----------------- ----------------
<S> <C> <C>
Deferred tax assets:
Accounts and notes receivable, principally due to
the allowance for doubtful accounts . . . . . . . $ 143,000 49,000
Property and equipment, principally due to
differences in basis and depreciation . . . . . . 630,000 570,000
Goodwill . . . . . . . . . . . . . . . . . 247,000 215,000
Deferred franchise sales revenue, due to deferral
for financial reporting purposes . . . . . . . . 370,000 340,000
Other . . . . . . . . . . . . . . . . . . 211,000 62,000
Net operating loss carry-forwards . . . . . . . . 1,548,000 1,474,000
----------------- ----------------
Total gross deferred tax assets . . . . . . . . 3,149,000 2,710,000
Less valuation allowance . . . . . . . . . . . (3,078,000) (2,631,000)
----------------- ----------------
Net deferred tax assets . . . . . . . . . . . 71,000 79,000
----------------- ----------------
Deferred tax liabilities:
Deferred franchising costs, due to deferral for
financial reporting purposes . . . . . . . . . (71,000) (79,000)
----------------- ----------------
Total gross deferred tax liabilities . . . . . . (71,000) (79,000)
----------------- ----------------
Net deferred tax liability . . . . . . . . . $ - -
----------------- ----------------
----------------- ----------------
</TABLE>
The valuation allowance as of December 31, 1997 and 1996 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, 1997,
of approximately $4,100,000 for income tax purposes. The net operating loss
carry-forwards expire between 2002 and 2012. 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-21
<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, sale (refranchising) and closure
of Company-owned Centers:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C>
Acquisition of Centers:
Number of Centers purchased . . . . . . 3 2 1
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Number of Centers foreclosed . . . . . . - 5 -
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Receivables applied (net of related
allowance) . . . . . . . . . $ 18,430 251,328 -
Liabilities assumed . . . . . . . . 370,835 1,218,962 -
Cash paid . . . . . . . . . . 688,191 394,389 870,388
------------------- ------------------- -------------------
Cost of assets acquired . . . . . . . $ 1,077,456 1,864,679 870,388
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Sales:
Number of Centers refranchised/closed . . . 6* 5 3
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Cash received . . . . . . . . . $ 116,901 75,354 123,233
Notes received . . . . . . . . . 26,800 124,777 41,993
Liabilities assumed by purchaser . . . . . 40,875 39,750 40,000
Loss (gain) on sale . . . . . . . . 327,850 58,421 (31,705)
Operating and marketing subsidies
granted to purchaser . . . . . . . - (97,750) -
Franchise fees . . . . . . . . . 14,000 28,000 53,000
Franchise costs . . . . . . . . . - (5,000) (7,500)
Liability assumed by seller . . . . . . - - (5,000)
------------------- ------------------- -------------------
Net book value of Centers
refranchised/closed . . . . . . . $ 526,426 223,552 214,021
------------------- ------------------- -------------------
------------------- ------------------- -------------------
</TABLE>
* Includes one Center which was originally developed to be a
Company-owned Center, but was sold to a franchisee prior to opening.
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-22
<PAGE>
K. SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION (CONTINUED)
During the year ended December 31, 1997, there were the following
non-cash transactions: the Company issued 33,234 shares of stock at an average
value of $1.36 per share in accordance with its matching requirement under the
Company's 401(k) plan; the Company wrote off a direct financing lease receivable
and the corresponding capital lease obligation of $153,316 based on the
franchisee renegotiating the lease resulting in the Company being released from
the lease; a capital lease obligation of $386,045 was recorded; and a direct
financing lease receivable and the corresponding capital lease obligation of
$83,619 was written off based on the sale of the related Center to a third
party. As a result of the sale, the landlord reduced the Company's obligation
from a primary lessor to a guarantor.
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.
F-23
<PAGE>
L. EARNINGS PER SHARE
In February 1997, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share
(Statement No. 128) effective for periods ending after December 15, 1997.
Statement No. 128 changes the computation, presentation and disclosure
requirements for earnings per share for entities with publicly held common
stock or potential common stock. Under such requirements, the Company is
required to present both basic earnings per share and diluted earnings per
share. Basic earnings per share is computed by dividing income available to
common stockholders by all dilutive potential common shares outstanding
during the period. The Company adopted the provisions of Statement No. 128 as
of December 31, 1997. As prescribed by Statement No. 128, the Company has
restated prior periods' earnings per share of common stock, including interim
earnings per share of common stock, in the period of adoption. Such amounts
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, QUARTER ENDED - 1996 QUARTER ENDED - 1997
-------------- ------------------------------------------------ -----------------------------------
1995 1996 March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30
-------------- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings per share 0.03 (0.16) (0.04) (0.02) * (0.10) (0.11) 0.07 (0.07)
of common stock as
previously reported
Basic earnings 0.03 (0.16) (0.04) (0.02) * (0.10) (0.11) 0.08 (0.07)
per share of
common stock
Diluted earnings 0.03 (0.16) (0.04) (0.02) * (0.10) (0.11) 0.07 (0.07)
per share of
common stock
</TABLE>
* Less than $.01 per share
F-24
<PAGE>
L. EARNINGS PER SHARE (CONTINUED)
The following is a reconciliation between the basic and diluted earnings per
common share for income (loss) as calculated under SFAS No. 128.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
---------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
INCOME EPS SHARES INCOME EPS SHARES INCOME EPS SHARES
------------ ------- ---------- ---------- ------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) (1,158,586) (577,123) 238,190
Preferred dividends (125,378) (125,766) (126,632)
--------------------------------- ------------------------------- -------------------------------
Basic EPS (1,283,964) (0.29) 4,390,116 (702,889) (0.16) 4,361,163 111,558 0.03 4,354,680
Effects of dilutive
securities:
Common stock 109,083
equivalents
Convertible Preferred ** **
Stock
--------------------------------- ------------------------------- -------------------------------
Diluted EPS (1,283,964) (0.29) 4,390,116 (702,889) (0.16) 4,361,163 111,558 0.03 4,463,763
--------------------------------- ------------------------------- -------------------------------
--------------------------------- ------------------------------- -------------------------------
</TABLE>
Options to purchase 70,000 shares of common stock were outstanding at December
31, 1997, but not included in the computation of Diluted EPS, because the
options' exercise price exceeded the average market price of the Company's
common stock during 1997.
** Antidilutive
F-25
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT PAGE
<C> <S> <C>
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 quarter 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,
incorporated by reference to the Annual Report
on Form 10-KSB for the fiscal year ended
December 31, 1996. N/A
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, incorporated
by reference to the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996. N/A
(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) Current form of Grease Monkey Franchise Agreement
currently in effect. --
(i) 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
(j) Business Loan Agreement with Bank of America for
$2,000,000 three year line of credit, incorporated by
reference to the Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996. N/A
(k) Consultant Agreement between Grease Monkey Holding
Corporation and Rex L. Utsler, incorporated by
reference to the Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996. N/A
(l) $5,000,000 Loan Agreement with Citicorp Leasing,
Inc., incorporated by reference to the Quarterly
Report on Form 10-QSB for the period ended
September 30, 1997. N/A
(m) Master Supply Contract dated September 29, 1997,
with Mobil Oil Corporation. --
ii
<PAGE>
(n) Employment Agreement dated March 12, 1998, with Charles E.
Steinbrueck. --
(o) Employment Agreement dated January 30, 1998, with Gary L.
Wofford. --
(p) Employment Agreement dated January 30, 1998, with Dana
Klapper Cohen. --
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).
(c) Grease Monkey de Mexico SA de CV., incorporated in
Mexico (100% owned).
23. Consent of Experts and Counsel.
(a) Consent of KPMG Peat Marwick LLP. --
27.1 Financial Data Schedule - 1997. --
27.2 Financial Data Schedule - 1996 and 1995 annual periods restated. --
</TABLE>
iii
<PAGE>
CENTER #______
GREASE MONKEY
FRANCHISE AGREEMENT
(5/9/97)
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C> <C> <C>
BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. GRANT OF FRANCHISE AND INITIAL FRANCHISE FEE . . . . . . . . . . . . . . 1
1.1. Grant of Franchise.. . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Initial Franchise Fee. . . . . . . . . . . . . . . . . . . . . . 1
2. FRANCHISED LOCATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1. Franchised Location. . . . . . . . . . . . . . . . . . . . . . . 2
2.2. Relocation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3. Reservation of Rights. . . . . . . . . . . . . . . . . . . . . . 2
3. DEVELOPMENT OF CENTER. . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1. Site Selection . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2. Commencement of Operations.. . . . . . . . . . . . . . . . . . . 3
3.3. Lease or Purchase of Franchised Location.. . . . . . . . . . . . 3
3.4. Design and Decor.. . . . . . . . . . . . . . . . . . . . . . . . 4
3.5. Signage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.6. Other Pre-Opening Obligations. . . . . . . . . . . . . . . . . . 5
4. OPENING ASSISTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1. Opening Assistance.. . . . . . . . . . . . . . . . . . . . . . . 5
5. TRAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1. Initial Training.. . . . . . . . . . . . . . . . . . . . . . . . 6
5.2. Additional Training. . . . . . . . . . . . . . . . . . . . . . . 6
5.3. Additional Seminars. . . . . . . . . . . . . . . . . . . . . . . 7
6. OPERATIONS MANUAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1. Operations Manual. . . . . . . . . . . . . . . . . . . . . . . . 7
6.2. Revisions to Operations Manual.. . . . . . . . . . . . . . . . . 7
6.3. Confidentiality of Operations Manual.. . . . . . . . . . . . . . 7
7. OPERATING ASSISTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1. Operating Assistance.. . . . . . . . . . . . . . . . . . . . . . 8
7.2. Additional Assistance. . . . . . . . . . . . . . . . . . . . . . 8
8. FRANCHISEE'S OPERATIONAL COVENANTS . . . . . . . . . . . . . . . . . . . 8
8.1. Franchised Operations. . . . . . . . . . . . . . . . . . . . . . 8
9. QUALITY CONTROL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.1. Standards and Specifications.. . . . . . . . . . . . . . . . . . 11
9.2. Approved Services and Products.. . . . . . . . . . . . . . . . . 11
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9.3. Obligation For Purchases.. . . . . . . . . . . . . . . . . . . . 11
9.4. Designation of Oil Supply. . . . . . . . . . . . . . . . . . . . 11
9.5. Inspections. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.6. Confidentiality of Licensed Methods. . . . . . . . . . . . . . . 12
10. FEES AND OTHER CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . 12
10.1. Royalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10.2. Gross Receipts.. . . . . . . . . . . . . . . . . . . . . . . . . 12
10.3. Marketing Expenditures.. . . . . . . . . . . . . . . . . . . . . 12
10.4. Payment Schedule.. . . . . . . . . . . . . . . . . . . . . . . . 13
10.5. Late Charges.. . . . . . . . . . . . . . . . . . . . . . . . . . 13
11. PROPRIETARY MARKS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.1. Marks and Licensed Methods.. . . . . . . . . . . . . . . . . . . 14
11.2. Change of Proprietary Marks. . . . . . . . . . . . . . . . . . . 14
11.3. Cessation of Use of Marks. . . . . . . . . . . . . . . . . . . . 14
11.4. Trademark Infringement.. . . . . . . . . . . . . . . . . . . . . 14
11.5. Franchisee's Business Name.. . . . . . . . . . . . . . . . . . . 15
12. REPORTS, RECORDS AND FINANCIAL REVIEW . . . . . . . . . . . . . . . . . 15
12.1. Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
12.2. Books and Records. . . . . . . . . . . . . . . . . . . . . . . . 15
12.3. Failure to Submit Reports. . . . . . . . . . . . . . . . . . . . 15
12.4. Audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13.1. Assignment by Franchisee.. . . . . . . . . . . . . . . . . . . . 16
13.2. Pre-Conditions to Franchisee's Assignment. . . . . . . . . . . . 16
13.3. Grease Monkey's Approval of Transfer.. . . . . . . . . . . . . . 17
13.4. Right of First Refusal.. . . . . . . . . . . . . . . . . . . . . 18
13.5. Types of Transfers.. . . . . . . . . . . . . . . . . . . . . . . 19
13.6. Effect of Breach of Certain Restrictions on Assignment.. . . . . 19
13.7. Assignment by Grease Monkey. . . . . . . . . . . . . . . . . . . 20
13.8. Death or Disability of Franchisee. . . . . . . . . . . . . . . . 20
14. TERM AND EXPIRATION . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14.1. Term.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14.2. Rights Upon Expiration.. . . . . . . . . . . . . . . . . . . . . 20
14.3. Refusal to Offer Successor Franchise.. . . . . . . . . . . . . . 21
15. DEFAULT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 22
15.1. Termination by Grease Monkey - Effective Upon Notice.. . . . . . 22
15.2. Termination by Grease Monkey - Fifteen Days Notice.. . . . . . . 22
15.3. Termination by Grease Monkey - Thirty Days Notice. . . . . . . . 22
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15.4. Cross Default. . . . . . . . . . . . . . . . . . . . . . . . . . 23
15.5. Rights and Obligations Upon Termination or Expiration. . . . . . 23
15.6. Right to Repurchase. . . . . . . . . . . . . . . . . . . . . . . 24
15.7. Continuing Obligations.. . . . . . . . . . . . . . . . . . . . . 26
15.8. Governing State Law. . . . . . . . . . . . . . . . . . . . . . . 27
16. RESTRICTIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 27
16.1. Noncompetition During Term.. . . . . . . . . . . . . . . . . . . 27
16.2. Post-Termination Covenant Not to Compete.. . . . . . . . . . . . 28
16.3. No Interference With Business. . . . . . . . . . . . . . . . . . 28
16.4. Confidentiality of Proprietary Information.. . . . . . . . . . . 29
16.5. Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . . 29
16.6. Confidentiality Agreements.. . . . . . . . . . . . . . . . . . . 29
16.7. Beginning of Three Year Period . . . . . . . . . . . . . . . . . 29
16.8. Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . 29
17. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
17.1. Insurance Coverage.. . . . . . . . . . . . . . . . . . . . . . . 30
17.2. Proof of Insurance.. . . . . . . . . . . . . . . . . . . . . . . 30
18. OPTION TO PURCHASE ADDITIONAL FRANCHISE . . . . . . . . . . . . . . . . 30
18.1. Option to Purchase.. . . . . . . . . . . . . . . . . . . . . . . 30
19. BUSINESS RELATIONSHIP . . . . . . . . . . . . . . . . . . . . . . . . . 31
19.1. Independent Businesspersons. . . . . . . . . . . . . . . . . . . 31
19.2. Payment of Third Party Obligations.. . . . . . . . . . . . . . . 31
19.3. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 31
20. ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
20.1. Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
20.2. Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . . 33
20.3. Governing Law/Consent to Jurisdiction/Waiver of Jury Trial.. . . 33
21. MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 33
21.1. Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . 33
21.2. Effective Date.. . . . . . . . . . . . . . . . . . . . . . . . . 34
21.3. Review of Agreement. . . . . . . . . . . . . . . . . . . . . . . 34
21.4. Invalidity.. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
21.5. Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
21.6. Notice.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
21.7. Cost of Enforcement. . . . . . . . . . . . . . . . . . . . . . . 34
21.8. Modification.. . . . . . . . . . . . . . . . . . . . . . . . . . 35
21.9. Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . . 35
<PAGE>
21.10. Prohibition Against Nonpayment.. . . . . . . . . . . . . . . . . 35
21.11. Acknowledgement. . . . . . . . . . . . . . . . . . . . . . . . . 35
<PAGE>
EXHIBITS TO FRANCHISE AGREEMENT
I Addendum to Franchise Agreement
II Statement of Ownership
III Guaranty and Assumption of Franchisee's Obligations
</TABLE>
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GREASE MONKEY
FRANCHISE AGREEMENT
THIS AGREEMENT is entered into on this _____ day of___________, 19__, by
and between GREASE MONKEY INTERNATIONAL, INC., ("GREASE MONKEY"), located at
216 16th Street, Suite 1100, Denver, Colorado 80202-5125, and
_______________________ located at ____________________________ ("FRANCHISEE").
BACKGROUND
A. GREASE MONKEY has developed a system for establishing and operating
fast service automotive lubrication centers ("GREASE MONKEY Centers" or
"Centers"), associated with the service mark "GREASE MONKEY, THE 10 MINUTE
LUBE & OIL PROS" and other trademarks, service marks, logos and identifying
features (the "Marks") and GREASE MONKEY's distinctive methods ("Licensed
Methods") for establishing and operating GREASE MONKEY Centers.
B. GREASE MONKEY grants the right to others to develop and operate
GREASE MONKEY Centers under the Marks and pursuant to the Licensed Methods.
C. FRANCHISEE desires to establish a GREASE MONKEY Center at a
location identified below or to be later identified ("Franchised Business"),
and GREASE MONKEY desires to grant FRANCHISEE the right to operate a GREASE
MONKEY Center at such location under the terms and conditions contained in
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree as follows:
1. GRANT OF FRANCHISE AND INITIAL FRANCHISE FEE
1.1. GRANT OF FRANCHISE. GREASE MONKEY grants to FRANCHISEE, and
FRANCHISEE accepts from GREASE MONKEY, the right and license ("Franchise") to
operate a GREASE MONKEY Center using the Marks and the Licensed Methods, at
the location described in Article 2 below. FRANCHISEE agrees to use the
Marks and Licensed Methods as they may be changed, improved and further
developed from time to time, only in accordance with the terms and conditions
of this Agreement. GREASE MONKEY grants the Franchise to FRANCHISEE in
reliance upon FRANCHISEE'S representations that FRANCHISEE will at all times
faithfully, honestly and diligently perform its obligations hereunder and
continuously exert its best efforts to promote and enhance the GREASE MONKEY
Center.
1.2. INITIAL FRANCHISE FEE. FRANCHISEE shall pay to GREASE MONKEY an
initial franchise fee of $28,000 due and payable in full on or before the
date of execution of this Agreement. GREASE MONKEY acknowledges receipt of
the initial franchise fee due hereunder. FRANCHISEE acknowledges and agrees
that the initial franchise fee represents payment for the
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initial grant of rights to use the Marks and Licensed Methods, that GREASE
MONKEY has earned the initial franchise fee upon receipt thereof and that the
fee is under no circumstances refundable to FRANCHISEE after it is paid,
unless otherwise specifically set forth herein.
2. FRANCHISED LOCATION
2.1. FRANCHISED LOCATION. FRANCHISEE shall have the right to operate
one GREASE MONKEY Center at the address and location which shall be set forth
in EXHIBIT I, attached hereto and incorporated by this reference ("Franchised
Location").
2.2. RELOCATION. The Franchise that is hereby granted to FRANCHISEE is
for the right to establish and operate a GREASE MONKEY Center at the specific
Franchised Location only and cannot be relocated without the prior written
approval of GREASE MONKEY, which approval shall not be unreasonably withheld.
2.3. RESERVATION OF RIGHTS. FRANCHISEE expressly acknowledges that the
franchise granted hereunder is non-exclusive and that GREASE MONKEY retains
the right, among others, to use, and to license others to use, the Marks and
Licensed Methods for the operation of GREASE MONKEY CENTERS at any location
other than at the Franchised Location; to use the Marks and Licensed Methods
in connection with other services and products, promotional and marketing
efforts or related items or in alternative channels of distribution, without
regard to location; and to use and license the use of other proprietary marks
or methods in connection with the operation of businesses under names which
are not the same as or confusingly similar to the Marks, whether in
alternative channels of distribution at any location, which businesses are
the same as, or similar to, or different from GREASE MONKEY CENTERS, on any
terms and conditions as GREASE MONKEY deems advisable, and without granting
the FRANCHISEE any rights therein.
3. DEVELOPMENT OF CENTER
3.1. SITE SELECTION. FRANCHISEE shall obtain the written approval of
GREASE MONKEY of a site suitable for the operations of its GREASE MONKEY
Center within the designated area described in EXHIBIT I, attached hereto and
incorporated herein by reference, within 120 days from the Effective Date of
this Agreement. FRANCHISEE shall propose sites for approval by GREASE MONKEY
on forms and in the manner designated from time to time by GREASE MONKEY. A
proposed site shall only be submitted to GREASE MONKEY for approval after
FRANCHISEE has evaluated the site and determined that it meets GREASE
MONKEY's then current criteria for sites which GREASE MONKEY has communicated
to FRANCHISEE. FRANCHISEE shall be responsible for obtaining GREASE MONKEY's
then current site criteria prior to submitting a site approval application.
FRANCHISEE shall have every proposed site reviewed by GREASE MONKEY and shall
submit to GREASE MONKEY the site approval application. GREASE MONKEY shall
review the site approval application, and
2
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within 30 days of GREASE MONKEY's receipt thereof GREASE MONKEY shall approve
or reject the proposed site. Unless otherwise agreed to in writing by GREASE
MONKEY, final site approval will be conditioned upon GREASE MONKEY's receipt
of evidence of FRANCHISEE's ownership, lease or control of the property in
accordance with Section 3.3 of this Agreement. FRANCHISEE acknowledges and
agrees that GREASE MONKEY's approval of a site or provision of criteria
regarding the site do not constitute a representation or warranty of any
kind, express or implied, as to the suitability of the site for a GREASE
MONKEY Center or for any other purpose. GREASE MONKEY's approval of the site
indicates only that GREASE MONKEY believes that a site falls within the
acceptable criteria established by GREASE MONKEY as of that time.
3.2. COMMENCEMENT OF OPERATIONS. Unless otherwise agreed in writing by
GREASE MONKEY and FRANCHISEE, FRANCHISEE has 12 months from the date of this
Agreement within which to have its Franchised Business open and operating
("Development Period"). GREASE MONKEY will extend the Development Period for
a reasonable period of time in the event factors beyond FRANCHISEE's
reasonable control prevent FRANCHISEE from meeting this development schedule,
so long as FRANCHISEE has made reasonable and continuing efforts to comply
with such development obligations and FRANCHISEE requests, in writing, an
extension of time in which to have its Franchised Business open and operating
before the Development Period lapses.
3.3. LEASE OR PURCHASE OF FRANCHISED LOCATION. FRANCHISEE shall obtain
GREASE MONKEY's prior written approval of any lease or sublease (the "Lease")
for the Franchised Location prior to its execution by FRANCHISEE. If
FRANCHISEE is purchasing real estate upon which to operate its GREASE MONKEY
Center, FRANCHISEE shall obtain GREASE MONKEY's prior written approval of any
purchase agreement or other acquisition document proposed to be executed by
FRANCHISEE. All documents submitted to GREASE MONKEY hereunder shall be
delivered at least 10 days prior to execution thereof. After final execution
is completed, FRANCHISEE shall provide GREASE MONKEY with a fully executed
copy of the document. In addition:
a. The terms of any financing that FRANCHISEE may need to fund
the acquisition and/or construction of a GREASE MONKEY Center,
information regarding the obtaining of all required zoning and/or
building permits and provisions for satisfaction of relevant conditions
precedent within acceptable time frames shall be provided in the Lease
or purchase contract, or through separate documentation provided to
GREASE MONKEY.
b. If a Lease is to be signed, the Lease shall contain provisions
allowing for the assignment of the Lease to GREASE MONKEY, at the option
of GREASE MONKEY, in the event that this Agreement is for any reason
terminated or not renewed due to a default in FRANCHISEE's obligations
hereunder, and for providing GREASE
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MONKEY with a right to cure a default in FRANCHISEE's leasehold
obligations under the Lease, and/or to take an assignment of the Lease
upon such default, in GREASE MONKEY's sole discretion.
c. If a purchase contract is to be signed, FRANCHISEE shall grant
GREASE MONKEY the right to lease the premises from FRANCHISEE on
commercially reasonable terms in the event that this Agreement is for any
reason terminated or not renewed due to a default in FRANCHISEE's
obligations hereunder.
d. FRANCHISEE shall at all times keep GREASE MONKEY informed of
FRANCHISEE's progress toward the satisfaction of all obligations and
conditions contained in any Lease or purchase contract related to the
acquisition and/or construction of the GREASE MONKEY Center. FRANCHISEE
shall provide GREASE MONKEY with copies of all site plans, surveys, title
reports and other related real estate information as and when it becomes
available.
FRANCHISEE acknowledges that GREASE MONKEY's approval of a Lease or purchase
agreement or any assistance in the Lease or purchase negotiations does not
constitute a guarantee, recommendation or endorsement of the Lease, purchase
agreement, or the Franchised Location and FRANCHISEE should take all steps
necessary to ascertain whether such Lease or purchase agreement is acceptable
to FRANCHISEE. FRANCHISEE acknowledges that it is required to enter into
either a conditional assignment of lease or an option agreement with GREASE
MONKEY or a related entity in connection with the Lease or purchase of real
estate.
3.4. DESIGN AND DECOR. FRANCHISEE shall submit to GREASE MONKEY for
approval, plans for the interior and exterior design of the building, layout,
floor plan, parking and driveway facilities, which shall be in compliance
with local and state building codes, and shall include specifications for
color, decor, equipment and machines that relate to the Franchised Location
and which are in compliance with GREASE MONKEY's standards and specifications.
3.5. SIGNAGE. FRANCHISEE shall only use that signage at the Franchised
Location that complies with the drawings and specifications provided by
GREASE MONKEY. If such signage cannot be used because of local ordinances or
applicable building codes, then FRANCHISEE must submit to GREASE MONKEY
detailed drawings and specifications of the proposed signage to be used, in
sufficient detail acceptable to GREASE MONKEY, which signage can only be used
upon receiving the prior written approval of GREASE MONKEY. FRANCHISEE
agrees that, other than the Marks, no other name, symbol or identifying marks
shall be used in conjunction with the approved signage; provided, however,
that a trademark of an approved oil supplier may be included on the signage.
FRANCHISEE shall obtain GREASE MONKEY's prior written consent as to the
manner of the use of the trademark of the approved oil supplier and
configuration of the signage in each instance.
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3.6. OTHER PRE-OPENING OBLIGATIONS. During the Development Period,
FRANCHISEE shall, in addition to all other development obligations contained
in this Agreement, at its sole expense do or cause to be done all of the
following with respect to developing the GREASE MONKEY Center at the
Franchised Location: (a) secure all required financing; (b) obtain all
required permits and licenses; (c) construct all required improvements and
decorate the Center in compliance with approved plans and specifications; (d)
purchase and install all required fixtures and equipment; and (e) purchase an
opening inventory of oil and other approved products, materials and supplies.
FRANCHISEE shall also successfully complete the initial training program and
other training requirements as GREASE MONKEY shall require prior to the
opening of the Center.
4. OPENING ASSISTANCE
4.1. OPENING ASSISTANCE. GREASE MONKEY shall provide FRANCHISEE with
assistance in the initial opening of the Franchised Business as follows:
a. Assistance to FRANCHISEE related to the acceptance of a site
for the Franchised Business, although FRANCHISEE acknowledges that
GREASE MONKEY shall have no obligation to select or acquire a site on
behalf of FRANCHISEE. GREASE MONKEY's assistance will consist of the
provision of criteria for a satisfactory site, an on-site inspection and
a determination of whether a proposed site fulfills the requisite
criteria, prior to formal acceptance of a site selected by FRANCHISEE.
Site selection, acquisition and development shall be the sole obligation
of FRANCHISEE except as may be set forth in this Agreement or any other
written agreement executed by GREASE MONKEY. FRANCHISEE acknowledges
that GREASE MONKEY is under no obligation to provide additional site
selection services other than may be set forth in a written, executed
agreement and that GREASE MONKEY's acceptance of the site does not infer
or guarantee the success or profitability of the site in any manner
whatsoever.
b. Standards and specifications for the interior and exterior
design of the building, layout, floor plan, parking and driveway
facilities, signs, color, decor, equipment and machines. GREASE MONKEY
agrees to provide FRANCHISEE with a standard set of blueprints for the
building for the Franchised Business and FRANCHISEE agrees to be
responsible for assuring that any necessary alterations are made to the
same in order to fit the needs of FRANCHISEE, the Franchised Location
and local zoning and other regulations.
c. A New Center Development Opening Guide which sets forth
procedures for opening a Center.
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d. A nonexclusive license to use certain proprietary computer
programs in accordance with the terms of GREASE MONKEY's standard Software
License and Electronic Reporting Agreement.
e. Recommendations for accounting systems for the Center.
f. Between FRANCHISEE's actual opening and its grand opening
advertising promotion, GREASE MONKEY shall have one of its representatives
on site to assist FRANCHISEE in training employees and in determining that
the Franchised Business is properly established and that FRANCHISEE and its
employees are instructed in the operation and management thereof. A GREASE
MONKEY representative shall normally spend three to four days at
FRANCHISEE's Franchised Location to provide opening assistance; FRANCHISEE
acknowledges, however, that this may be subject to variation based on the
experience and capabilities of FRANCHISEE, as assessed by GREASE MONKEY in
its sole discretion. The time for the on-site opening assistance shall be
established by mutual agreement of the parties.
g. Technical advice regarding the construction and installation of
equipment in each Center.
h. An initial training program for FRANCHISEE or, if FRANCHISEE is
not an individual, the person designated by FRANCHISEE to assume primary
responsibility for the management of the Center ("Principal Operator"), as
more fully described in Article 5 below.
i. An Operations Manual, as defined and described in Section 6
below.
5. TRAINING
5.1. INITIAL TRAINING. FRANCHISEE or its Principal Operator is
required to attend and successfully complete the initial training program
offered by GREASE MONKEY prior to the opening of the Franchised Business, at
a location designated by GREASE MONKEY. Successful completion of the initial
training program shall be evidenced by FRANCHISEE or its Principal Operator
receiving a certificate of training completion. GREASE MONKEY's initial
training program lasts a minimum of five days in duration, and FRANCHISEE or
its Principal Operator may attend the program or programs until they have
successfully completed the same, at a time prior to the opening of the
Franchised Business, but not earlier than six months prior to the opening of
the Center. FRANCHISEE shall pay for its own transportation costs and living
expenses while attending the initial training program.
5.2. ADDITIONAL TRAINING. FRANCHISEE agrees that the Franchised
Business shall only be managed and operated by certified individuals who have
successfully completed the
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initial training program. If FRANCHISEE or an original Principal Operator
trained by GREASE MONKEY is no longer actively involved in the operation of
the Franchised Business, then FRANCHISEE shall notify GREASE MONKEY of its
replacement Principal Operator, who shall be required to successfully
complete the initial training program. FRANCHISEE may be required to pay to
GREASE MONKEY the then current training fee for any subsequent Principal
Operators that are to be trained by GREASE MONKEY to satisfy the terms of
this Agreement.
5.3. ADDITIONAL SEMINARS. FRANCHISEE agrees and understands that
GREASE MONKEY presents seminars, conventions or continuing development
programs from time to time for the benefit of its franchisees. The
attendance by FRANCHISEE, or its Principal Operator, at most of these
seminars is voluntary. However, FRANCHISEE, or the Principal Operator, shall
attend any mandatory seminar, convention, or program offered by GREASE
MONKEY; provided, that FRANCHISEE, or the Principal Operator, shall not be
required to attend any mandatory seminar, convention or program more than
once per year. GREASE MONKEY shall give FRANCHISEE at least 30 days prior
written notice of any seminar, convention or program which is considered
mandatory. FRANCHISEE is responsible for all costs and expenses associated
with attending any training program, seminar or convention.
6. OPERATIONS MANUAL
6.1. OPERATIONS MANUAL. GREASE MONKEY shall loan FRANCHISEE its New
Center Development Opening Guide and its other operations and marketing
manuals (collectively referred to as "Operations Manual") covering proper
operating and marketing techniques of the Franchised Business as well as
standards and specifications for the operation of the Franchised Business.
FRANCHISEE agrees that it shall comply with the Operations Manual as an
essential aspect of its obligations under this Agreement and failure to
substantially comply with the Operations Manual may be considered a breach of
this Agreement.
6.2. REVISIONS TO OPERATIONS MANUAL. The Operations Manual contents
may be updated periodically by GREASE MONKEY and FRANCHISEE shall update
FRANCHISEE's copy of the Operations Manual as instructed by GREASE MONKEY and
shall conform the Franchised Business operations with the updated provisions,
within 30 days after receipt of the update or as may be otherwise agreed upon
by the parties. FRANCHISEE acknowledges that a master copy of the Operations
Manual maintained by GREASE MONKEY at its principal office shall be
controlling in the event of a dispute relative to the contents of any
Operations Manual.
6.3. CONFIDENTIALITY OF OPERATIONS MANUAL. FRANCHISEE shall use the
Marks and Licensed Methods only as specified in the GREASE MONKEY Operations
Manual. The GREASE MONKEY Operations Manual is the sole property of GREASE
MONKEY and shall be used by FRANCHISEE only during the term of this Agreement
and in strict accordance with the terms and conditions hereof. FRANCHISEE
shall not duplicate the Operations Manual nor disclose its contents to
persons other than employees of its GREASE MONKEY Center.
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FRANCHISEE shall return the Operations Manual to GREASE MONKEY upon the
expiration, termination or assignment of this Agreement.
7. OPERATING ASSISTANCE
7.1. OPERATING ASSISTANCE. During the operation of FRANCHISEE's
Franchised Business, GREASE MONKEY shall provide:
a. Advice and consultation, as GREASE MONKEY deems necessary, in its
sole discretion, regarding the continuing operation and management of a
GREASE MONKEY Center.
b. Information regarding any new product, service or supplier or any
updated methods of doing business available to GREASE MONKEY Centers.
GREASE MONKEY will use national, regional or local seminars, conventions or
continuing development programs, Operations Manual updates, bulletins,
newsletters or regional representatives to introduce FRANCHISEE to new
products, services, supplies and new techniques and methods of doing
business.
c. Access to advertising and promotional programs and materials, in
a manner deemed appropriate by GREASE MONKEY, in its sole discretion,
funded through Advertising Fee contributions; provided, however, that
FRANCHISEE shall be solely responsible for the placement of advertising for
FRANCHISEE's Center.
d. At least once per year, a GREASE MONKEY representative will visit
the Franchised Location and provide consulting assistance.
7.2. ADDITIONAL ASSISTANCE. In the event FRANCHISEE requires
additional on-site assistance in the operation of its Franchised Business,
FRANCHISEE can request, in writing, that a GREASE MONKEY representative visit
the Franchised Location and provide the additional assistance. Before
additional on-site assistance is provided, FRANCHISEE and GREASE MONKEY must
agree, in writing, as to the compensation to be paid to GREASE MONKEY by
FRANCHISEE, if any, and the amount and duration of the assistance to be given.
8. FRANCHISEE'S OPERATIONAL COVENANTS
8.1. FRANCHISED OPERATIONS. FRANCHISEE acknowledges that it is solely
responsible for the operation of its GREASE MONKEY Center and that the
successful operation is, in part, dependent upon FRANCHISEE's compliance with
this Agreement and the Operations Manual. In addition to all other
obligations contained herein and in the Operations Manual, FRANCHISEE
covenants that:
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a. FRANCHISEE shall maintain a clean, efficient and high quality
GREASE MONKEY Center and shall operate the Franchised Business in
accordance with the Operations Manual and in such a manner as not to
detract from or adversely reflect upon the name and reputation of GREASE
MONKEY.
b. FRANCHISEE agrees to conduct itself and operate its Franchised
Business in compliance with all applicable laws and ordinances and in such
a manner as to promote a good public image in the business community.
FRANCHISEE shall at all times be fully responsible for obtaining and
maintaining all licenses to carry on the Franchised Business.
c. FRANCHISEE agrees to maintain business hours at the Center as may
from time to time be prescribed by GREASE MONKEY throughout the term of
this Agreement and to maintain sufficient supplies of products and to
employ adequate personnel at all times so as to operate the Center at its
maximum capacity and efficiency.
d. FRANCHISEE shall cause all employees of FRANCHISEE, while working
in the Center, to present a professional appearance, as described in the
Operations Manual, and to render competent and courteous service to Center
customers.
e. FRANCHISEE shall offer only those products and services through
its Franchised Business which meet or exceed the standards and
specifications established by GREASE MONKEY. Standards and specifications
may be given to FRANCHISEE in writing and may be changed by GREASE MONKEY
at any time. FRANCHISEE shall offer for sale at the Center only those
products and services now or hereafter designated by GREASE MONKEY and
shall at all times refrain from offering any other products or services
from or through the Center, without GREASE MONKEY's prior written consent.
f. FRANCHISEE will submit all reports required hereunder and pay its
Royalty and Advertising Fees on a timely basis.
g. FRANCHISEE will pay on a timely basis all amounts due and owing
to GREASE MONKEY pursuant to any separate agreements between FRANCHISEE and
GREASE MONKEY and all amounts due and owing by FRANCHISEE to all third
parties with whom FRANCHISEE does business at or through the Center. In
connection with any amounts due and owing by FRANCHISEE to third parties,
FRANCHISEE expressly acknowledges that a default by FRANCHISEE with respect
to such indebtedness may be considered a default hereunder and GREASE
MONKEY may avail itself of all remedies provided for herein in the event of
default.
h. FRANCHISEE will use its best efforts in establishing, operating
and maintaining the GREASE MONKEY Center.
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i. FRANCHISEE acknowledges that proper management of the GREASE
MONKEY Center is critical to the successful operations of a GREASE MONKEY
Center and shall ensure that FRANCHISEE, individually, or if applicable,
the Principal Operator who has completed the GREASE MONKEY initial training
program, will be responsible for the management of the GREASE MONKEY
Center.
j. FRANCHISEE shall at all times during the term of this Agreement
own and control the GREASE MONKEY Center. Upon request, FRANCHISEE shall
promptly provide satisfactory proof of such ownership to GREASE MONKEY.
FRANCHISEE represents that the Statement of Ownership, attached hereto as
EXHIBIT II and by this reference incorporated herein, is true, complete,
accurate and not misleading and, in accordance with the information
contained in the Statement of Ownership, the controlling ownership of the
GREASE MONKEY Center is held by FRANCHISEE. FRANCHISEE acknowledges that
each officer, director or other principal who owns five percent or more of
the interest in FRANCHISEE will be required to guarantee the performance of
FRANCHISEE hereunder and sign the Guaranty and Assumption of Franchisee's
Obligations which is attached to this Agreement as EXHIBIT III. FRANCHISEE
shall promptly provide GREASE MONKEY with a written notification if the
information contained in the Statement of Ownership changes at any time
during the term of this Agreement and shall in such circumstances comply
with the applicable transfer provisions contained in Article 13 herein.
k. FRANCHISEE shall only use advertising materials at or in
connection with the Franchised Business that are either provided or
approved by GREASE MONKEY. FRANCHISEE shall submit any proposed new
advertising material to GREASE MONKEY for its written approval prior to
publication or broadcast and if GREASE MONKEY does not respond to
FRANCHISEE's request for approval within 30 days of receipt of the proposed
new advertising material, approval shall be deemed granted.
l. FRANCHISEE shall at all times comply with the terms and
conditions of the Software License and Electronic Reporting Agreement,
including, but not limited to, the use of the proprietary computer software
programs licensed thereunder.
m. FRANCHISEE shall service all local, regional and national fleet
accounts of GREASE MONKEY in accordance with GREASE MONKEY's policies and
procedures concerning fleet accounts and its agreements with any fleet
account vendor, which may change from time to time upon notice to
FRANCHISEE.
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9. QUALITY CONTROL
9.1. STANDARDS AND SPECIFICATIONS. FRANCHISEE agrees to maintain and
operate the GREASE MONKEY Center in compliance with this Agreement and the
standards and specifications contained in the Operations Manual, as the same
may be modified from time to time by GREASE MONKEY.
9.2. APPROVED SERVICES AND PRODUCTS. FRANCHISEE agrees to purchase or
lease its entire requirements of products, equipment, supplies, other items
and services used, sold or leased at or through its Franchised Business in
accordance with GREASE MONKEY's standards and specifications and only from
suppliers approved in advance by GREASE MONKEY. GREASE MONKEY shall upon
request make available to FRANCHISEE a list of approved suppliers, together
with complete specifications and levels of performance of the products,
equipment, supplies, other items or services to be used, sold or leased by
FRANCHISEE at or through its Franchised Business. GREASE MONKEY shall not
unreasonably withhold its approval of a different supplier of FRANCHISEE's
choosing, provided that such supplier meets any published standards and
specifications of GREASE MONKEY. If FRANCHISEE proposes to purchase, lease or
offer any equipment, supplies, materials or services not previously approved
by GREASE MONKEY as meeting its standards and specifications, then FRANCHISEE
will notify GREASE MONKEY requesting approval and GREASE MONKEY's approval
shall not be unreasonably withheld. GREASE MONKEY reserves the right to
change the published standards regarding approved suppliers and any products
used and/or offered for sale or lease at the Franchised Business from time to
time upon 30 days written notice to FRANCHISEE and all applicable approved
suppliers.
9.3. OBLIGATION FOR PURCHASES. All purchases of approved supplies and
products by FRANCHISEE shall be made at FRANCHISEE's own expense and for
FRANCHISEE's own account. GREASE MONKEY shall in no way be obligated or
liable for said purchases by FRANCHISEE, and FRANCHISEE shall be obligated to
inform all of its suppliers to this effect.
9.4. DESIGNATION OF OIL SUPPLY. GREASE MONKEY reserves the right to
designate the source of FRANCHISEE's supply of oil, so long as such
designation will not result in FRANCHISEE's violation of any other agreement
with an existing oil supplier, will allow FRANCHISEE to remain competitive in
its market area, will not materially adversely affect FRANCHISEE's Franchised
Business and will be in compliance with applicable laws and regulations, if
any, such compliance to be determined by GREASE MONKEY.
9.5. INSPECTIONS. FRANCHISEE agrees to permit inspection by GREASE
MONKEY, or GREASE MONKEY's designated representative, of the Franchised
Business, and the supplies, equipment and services of every kind used in
connection with the Franchised Business, at all reasonable times during
regular business hours. GREASE MONKEY reserves the right to inspect the
Franchised Business without prior notice of the inspection to FRANCHISEE.
FRANCHISEE
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will furnish promptly, upon request, any desired information regarding its
supplies, equipment, services and methods used in conducting its Franchised
Business.
9.6. CONFIDENTIALITY OF LICENSED METHODS. FRANCHISEE acknowledges that
all of GREASE MONKEY's Licensed Methods are confidential and agrees that at
all times information regarding the same, including all written manuals,
technical information and other material regarding the GREASE MONKEY methods
of doing business shall be treated as confidential and as GREASE MONKEY's
sole and exclusive property.
10. FEES AND OTHER CONSIDERATION
10.1. ROYALTY. FRANCHISEE agrees to pay to GREASE MONKEY on a monthly
basis a nonrefundable fee ("Royalty") of five percent of FRANCHISEE's total
monthly "Gross Receipts," defined below.
10.2. GROSS RECEIPTS. "Gross Receipts" shall means and includes the
aggregate amount received from all sales of services, products or merchandise
of every kind or nature, performed or sold from, at or in connection with the
operation of the GREASE MONKEY Center or arising out of the operation or
conduct of the Franchised Business, whether for cash or credit, but excluding
(i) the amount of the discount given off the regular retail price of such
services or products in connection with the use of coupons or other discount
promotions; and (ii) federal, state or municipal sales or services taxes
collected from customers and paid to the appropriate taxing authority.
10.3. MARKETING EXPENDITURES.
a. FRANCHISEE shall allocate, for expenditures for marketing
purposes, six percent of FRANCHISEE's total monthly Gross Receipts
("Marketing Allocation"), to be thereafter used for advertising and
marketing the Franchised Business in a manner set forth in this Section
10.3.
b. FRANCHISEE shall remit to GREASE MONKEY a marketing materials
fee ("Marketing Materials Fee") of up to one-sixth of the total Marketing
Allocation (one percent of Gross Receipts). The Marketing Materials Fee
may be changed from time to time by GREASE MONKEY, upon 30 days prior
written notice to FRANCHISEE, except that the Marketing Materials Fee will
in no event exceed one sixth of the total Marketing Allocation (one percent
of Gross Receipts). The Marketing Materials Fee is payable concurrently
with the payment of the Royalty, within 10 days following the end of the
month, based on the amount of Gross Receipts of the previous month. The
Marketing Materials Fee shall be deposited in a separate bank account,
commercial account or savings account ("Account"). Upon request, GREASE
MONKEY shall make available to FRANCHISEE an annual financial report for
the Account which indicates how the
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Account has been spent. The Account will be administered by GREASE
MONKEY, in its sole discretion. GREASE MONKEY may reimburse itself for
independent audits, reasonable accounting, bookkeeping, reporting and
legal expenses, taxes and any and all other reasonable direct or
indirect expenses as may be incurred by GREASE MONKEY or its authorized
representatives in connection with the programs funded by the Account.
c. FRANCHISEE shall retain for regional or local advertising
purposes the remaining portion of the total Marketing Allocation to a
marketing fund administered by FRANCHISEE, which shall be used for regional
and/or local advertising. FRANCHISEE shall prepare and submit to GREASE
MONKEY a report accounting for and evidencing the use of these funds for
advertising. The report shall be submitted to GREASE MONKEY concurrently
with the remittance of the Marketing Materials Fee and the Royalty to
GREASE MONKEY.
d. GREASE MONKEY reserves the right, upon 30 days prior written
notice to FRANCHISEE, to collect all or any part of the remaining Marketing
Allocation (five percent of Gross Receipts) to be used for regional
advertising or paid into a regional advertising fund and no longer retained
by FRANCHISEE. GREASE MONKEY shall not exercise this right, however, until
such time as GREASE MONKEY determines, in its sole discretion, that the
market area or "Area of Dominant Influence" ("A.D.I.") wherein FRANCHISEE
is located is developed to the extent that a regional advertising program
is warranted, at which time, GREASE MONKEY will notify FRANCHISEE that it
will collect and/or allocate, at its discretion, all or a part of the
remaining five-sixths of the Marketing Allocation (five percent of Gross
Receipts) for regional advertising for the franchisees located in the
A.D.I. or market area, the scope of such A.D.I. or market area to be
determined by GREASE MONKEY. GREASE MONKEY agrees that it will collect such
funds, or require payment into a regional advertising fund, from all
franchisees within the A.D.I. or market area on a uniform basis, to the
extent such uniform treatment may be enforced by GREASE MONKEY.
10.4. PAYMENT SCHEDULE. All Royalty, Marketing Materials Fees and any
other fees to be paid to GREASE MONKEY by FRANCHISEE pursuant to this
Agreement shall be made by the 10th day of each month, based on the amount of
Gross Receipts of the previous month. This payment shall be submitted on a
computer generated transmittal record in a form approved by GREASE MONKEY,
who may also request certain additional information it determines useful in
the overall management and marketing of the GREASE MONKEY franchise system.
10.5. LATE CHARGES. Delinquent Royalties and Marketing Materials Fees
or other amounts as may be due from FRANCHISEE to GREASE MONKEY hereunder,
shall bear interest at 1.5% per month; provided, however, in no event shall
FRANCHISEE be required to pay interest at a rate greater than the maximum
interest rate permitted by applicable law.
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11. PROPRIETARY MARKS
11.1. MARKS AND LICENSED METHODS. FRANCHISEE acknowledges that GREASE
MONKEY is the sole owner of the Marks and Licensed Methods and the Marks and
Licensed Methods shall remain the sole and exclusive property of GREASE
MONKEY. FRANCHISEE acknowledges that it has not acquired any right, title or
interest in the Marks and Licensed Methods except for the right to use the
Marks and Licensed Methods in the operation of its Franchised Business in
accordance with this Agreement. FRANCHISEE agrees that no name or mark other
than the Marks shall be used in the operation of the Franchised Business nor
shall any other name, symbols, logo or other identifying marks be used in
connection with the Franchised Business without the prior written approval of
GREASE MONKEY.
11.2. CHANGE OF PROPRIETARY MARKS. In the event that GREASE MONKEY, in
its sole discretion, shall determine to modify or discontinue use of the
Marks, or to develop additional or substitute proprietary marks, FRANCHISEE
shall, within a reasonable time after receipt of written notice from GREASE
MONKEY, take such action, at FRANCHISEE's sole expense, as may be necessary
to comply with such modification, discontinuation, addition or substitution.
GREASE MONKEY shall not be obligated to reimburse FRANCHISEE for any loss of
goodwill associated with any modifications or discontinuance of the Marks or
for any expenditures made by FRANCHISEE to promote a modified or substitute
trademark or service mark. FRANCHISEE's changes or improvements to the
System, FRANCHISEE's usage of the Marks and Licensed Methods and any goodwill
established thereby will inure to GREASE MONKEY's exclusive benefit.
11.3. CESSATION OF USE OF MARKS. In the event this Agreement is
terminated for any reason, FRANCHISEE shall immediately cease using any of
the Marks or other trade names or any other symbols used to identify GREASE
MONKEY and all rights FRANCHISEE had to the same shall automatically
terminate. FRANCHISEE agrees to execute any documents of assignment as may be
necessary to transfer any rights FRANCHISEE may possess in and to the Marks.
11.4. TRADEMARK INFRINGEMENT. FRANCHISEE will notify GREASE MONKEY in
writing of any possible infringement or illegal use by others of a trademark
the same as or similar to the Marks which may come to its attention.
FRANCHISEE acknowledges that GREASE MONKEY shall have the right to determine
whether action will be taken on account of any possible infringement or
illegal use. GREASE MONKEY shall commence or prosecute such action in GREASE
MONKEY's own name and may join FRANCHISEE as a party to the action if GREASE
MONKEY determines it to be reasonably necessary for the continued protection
and quality control of the Marks and Licensed Methods. GREASE MONKEY shall
bear the reasonable cost of any such action, including attorneys' fees.
FRANCHISEE will not institute any action on account of any possible
infringement or illegal use without first obtaining GREASE MONKEY's prior
written consent.
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11.5. FRANCHISEE'S BUSINESS NAME. FRANCHISEE acknowledges that GREASE
MONKEY has a prior and superior claim to the GREASE MONKEY trade name.
FRANCHISEE agrees not to register or attempt to register such trade name or
any variation thereof in FRANCHISEE's name or that of any other person or
business entity without prior written consent of GREASE MONKEY. FRANCHISEE
shall not use any of the Marks in the legal name of its corporation,
partnership or any other business entity used in conducting the Franchised
Business provided for in this Agreement.
12. REPORTS, RECORDS AND FINANCIAL REVIEW
12.1. REPORTS. FRANCHISEE shall supply GREASE MONKEY with reports in
such manner and form as GREASE MONKEY may from time to time reasonably
require, including:
a. Monthly transmittal reports in a form as may be prescribed by
GREASE MONKEY, which shall accompany FRANCHISEE's Royalty and Marketing
Materials Fee payments, to be submitted to GREASE MONKEY by the 10th day of
each month;
b. Financial statements, including a balance sheet as of the end of
the quarter and a profit and loss statement for the quarter, in a form
acceptable to GREASE MONKEY, shall be submitted within 45 days after the
end of each quarter of FRANCHISEE's fiscal year for each of the preceding
three months;
c. Copies of FRANCHISEE's federal income tax reports, relating to
the Franchised Business for the preceding year, shall be submitted to
GREASE MONKEY by May 1st of each year; and
d. Electronic access to certain nonproprietary daily information of
FRANCHISEE's GREASE MONKEY Center in accordance with the Software License
and Electronic Reporting Agreement.
12.2. BOOKS AND RECORDS. FRANCHISEE shall maintain all books and
records for the Franchised Business in accordance with generally accepted
accounting principles, consistently applied, and preserve these records for
at least three years after the fiscal year to which they relate.
12.3. FAILURE TO SUBMIT REPORTS. If FRANCHISEE fails to timely submit
the reports and financial statements required in Section 12.1 of this
Agreement, then FRANCHISEE agrees that GREASE MONKEY, at its option, has the
right to audit the books and records of the Franchised Business, at
FRANCHISEE's expense. If such audit discloses an understatement of
FRANCHISEE's Gross Receipts of the Franchised Business, FRANCHISEE shall
immediately pay all deficiencies which may be due and owing to GREASE MONKEY,
including interest at 18% per annum. The failure of FRANCHISEE to timely
submit the required reports and
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financial statements may be considered by GREASE MONKEY to be a material
default under this Agreement.
12.4. AUDIT. FRANCHISEE agrees to allow GREASE MONKEY the right to
review, inspect and/or audit the books and records of the Franchised Business
at any time during regular business hours, at GREASE MONKEY's expense.
"Books and records" includes but is not limited to, all books and records of
the Franchised Business, local, state and federal tax returns and reports,
cash register tapes, sales slips and bank statements. In the event that any
audit discloses an understatement of FRANCHISEE's Gross Receipts of the
Franchised Business, FRANCHISEE shall immediately pay all deficiencies which
may be due and owing to GREASE MONKEY, including interest at 18% per annum.
In addition, if such audit reflects an underpayment to GREASE MONKEY by five
percent or more, FRANCHISEE will bear the entire cost of such audit and all
related reasonable expenses and GREASE MONKEY shall be entitled to reaudit
the Franchised Business at FRANCHISEE's expense, at any time within one year
from the date of the current audit, to determine whether FRANCHISEE has
accurately reported the Gross Receipts of the Franchised Business.
13. ASSIGNMENT
13.1. ASSIGNMENT BY FRANCHISEE. The franchise rights granted herein
are personal to FRANCHISEE and, except as stated below, GREASE MONKEY shall
not allow or permit any transfer, assignment, subfranchise or conveyance of
this Agreement or any interest hereunder. A transfer of ownership in the
Franchised Business may only be made in conjunction with a transfer of this
Agreement. The failure of FRANCHISEE to abide by the provisions of this
Article 13 may be considered by GREASE MONKEY to be a material default under
this Agreement.
13.2. PRE-CONDITIONS TO FRANCHISEE'S ASSIGNMENT. FRANCHISEE shall not
sell, transfer or assign its rights under this Agreement, or any interest in
it, or any part or portion of the business entity that owns it, or a
substantial portion of the assets used in connection therewith, unless
FRANCHISEE and the transferee obtain GREASE MONKEY's prior written consent
and comply with the following:
a. FRANCHISEE shall pay all amounts due and owing to GREASE MONKEY.
b. The proposed transferee must be qualified to become a franchisee
and shall be evaluated for approval by GREASE MONKEY, based on the same
criteria as is currently being used to assess new franchisees of GREASE
MONKEY.
c. The proposed transferee shall execute a written assumption of
this Agreement, or at the option of GREASE MONKEY, a franchise agreement
and related
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agreements in a form then currently offered by GREASE MONKEY, the term
of which shall end on the expiration date of this Agreement and
supersede this Agreement in all respects. If a new franchise agreement
is signed, the terms thereof may differ from the terms of this
Agreement. The transferee will not be required to pay any additional
initial franchise fee.
d. FRANCHISEE must execute a general release, in a form
satisfactory to GREASE MONKEY, of any and all claims against GREASE MONKEY
and affiliated companies and their respective officers, directors,
employees and agents arising up to the effective date of the transfer.
e. FRANCHISEE or the proposed transferee shall pay a transfer fee
in the amount of $5,000.
f. FRANCHISEE shall give written notice to GREASE MONKEY of the
proposed transfer 30 days prior to the proposed transfer date. The notice
shall include disclosure of all material terms and conditions of the
proposed transaction and an executed agreement with the proposed
transferee, together with such information about the proposed transferee as
shall be necessary for GREASE MONKEY to assess the qualifications of the
proposed transferee to become a GREASE MONKEY franchisee. Any purchase
agreement or other agreement entered into by FRANCHISEE for the sale or
transfer of the Franchised Business or other interest in the Franchise
shall include in its terms that the sale or transfer is conditional upon
and subject to GREASE MONKEY's right of first refusal, described in Section
13.4 below, and GREASE MONKEY's right to approve the sale or transfer in
accordance with this Agreement.
g. Written evidence shall be submitted from FRANCHISEE's landlord,
if applicable, that the landlord will consent to assign the lease or
sublease for the GREASE MONKEY Center to the transferee, or other evidence
shall be submitted to GREASE MONKEY showing that the transferee will have a
right to possession of the Franchised Location.
h. FRANCHISEE must continue to abide by the restrictive covenants
contained in Article 16 below.
13.3. GREASE MONKEY'S APPROVAL OF TRANSFER. GREASE MONKEY has 30 days
from the date of notice from FRANCHISEE to approve or disapprove of
FRANCHISEE's proposed transfer or sale. FRANCHISEE acknowledges the proposed
transferee shall be evaluated for approval by GREASE MONKEY based on the same
criteria as is currently being used to assess new franchisees of GREASE
MONKEY and that such proposed transferee shall be provided with such
disclosures as may be required by state or federal law. If FRANCHISEE and
its proposed transferee comply with all conditions for assignment set forth
herein and GREASE MONKEY
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has not given FRANCHISEE notice of its approval or disapproval within the 30
day period after notice, approval is deemed granted.
13.4. RIGHT OF FIRST REFUSAL. In the event FRANCHISEE wishes to sell
or otherwise transfer its franchise rights, this Agreement, or a substantial
portion of the assets of the Franchised Business to a third party, FRANCHISEE
hereby grants to GREASE MONKEY a 30 day right of first refusal to purchase
such rights or assets proposed to be transferred on the same terms and
conditions as are contained in the written agreement signed by FRANCHISEE and
the proposed transferee; provided however, the following additional terms and
conditions shall apply:
a. The 30 day period shall run concurrently with the period in
which GREASE MONKEY has to approve or disapprove of FRANCHISEE's proposed
transfer or sale. The time within which GREASE MONKEY may exercise its
right of first refusal shall commence as of the date of the notice provided
by FRANCHISEE to GREASE MONKEY containing all information described in
Section 13.2(f) above and receipt by GREASE MONKEY of the written agreement
of transfer signed by FRANCHISEE and the proposed transferee containing all
of the terms and conditions of the transfer.
b. GREASE MONKEY's right of first refusal shall include the right
of first refusal to purchase any portion or all of FRANCHISEE's interest in
the Franchised Business premises, whether the premises are owned or leased
by FRANCHISEE, if such interest is part of the assets proposed to be
transferred or sold. The terms and conditions of GREASE MONKEY's right of
first refusal may be recorded, if deemed appropriate by GREASE MONKEY, in
the real property records. GREASE MONKEY and FRANCHISEE agree to execute
such additional documentation as may be necessary in connection with the
recording.
c. GREASE MONKEY's right of first refusal arises with respect to
each proposed transfer. Any material change in the terms or conditions of
the proposed transfer shall be deemed a separate transfer for which a new
30 day period for the right of first refusal shall be given and new
documents shall be submitted to GREASE MONKEY.
d. If the consideration or the manner of payment offered by a third
party is such that GREASE MONKEY may not reasonably be required to furnish
the same, then GREASE MONKEY may purchase the interest which is proposed to
be sold for the reasonable cash equivalent. If the parties cannot agree
within a reasonable time on the cash consideration, an independent
appraiser shall be designated by GREASE MONKEY, whose determination will be
binding upon the parties. All expenses of the appraiser shall be paid for
equally between GREASE MONKEY and FRANCHISEE. In the event that the terms
of the proposed transfer include an offer on the part of FRANCHISEE to
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finance a portion of the purchase price on behalf of the proposed
transferee, then the same terms shall be made available to GREASE MONKEY.
e. The closing between GREASE MONKEY and FRANCHISEE shall occur
upon the later of the date of closing set forth in the written agreement of
transfer signed by FRANCHISEE and the proposed transferee, or 60 days from
the date of GREASE MONKEY's notice of exercise of its right of first
refusal.
13.5. TYPES OF TRANSFERS. FRANCHISEE acknowledges that GREASE MONKEY's
right to approve or disapprove of a proposed sale or transfer and GREASE
MONKEY's right of first refusal as provided for herein shall apply: (a) if
FRANCHISEE is a partnership or other business association, to the proposed
addition or deletion of a partner or members of the association or the
transfer of any partnership or membership among existing partners or members;
(b) if FRANCHISEE is a corporation, to any proposed issuance of securities or
transfer of outstanding securities of a corporate FRANCHISEE, which issuance
or transfer would involve 40% or more of the outstanding equity securities of
the corporate FRANCHISEE, whether such issuance or transfer occurs in a
single transaction or several transactions; and (c) if FRANCHISEE is an
individual, to the proposed transfer from such individual or individuals to a
corporation controlled by them, in which case, GREASE MONKEY's approval will
be conditioned upon: (i) the continuing personal guarantee of the individual
(or individuals) for the performance of obligations under the Agreement; (ii)
the issuance and/or transfer of shares which would affect the controlling
interest in the corporation being conditioned on GREASE MONKEY's prior
written approval; (iii) a limitation on the corporation's business activity
to that of owning the Franchised Business and related activities; and (iv)
other reasonable conditions. With respect to a proposed transfer as
described in subsection (c) of this section, GREASE MONKEY's right of first
refusal to purchase certain rights being transferred, as set forth above,
shall not apply and GREASE MONKEY hereby agrees to waive any transfer fee
chargeable to the FRANCHISEE for a transfer under these circumstances.
13.6. EFFECT OF BREACH OF CERTAIN RESTRICTIONS ON ASSIGNMENT. Under no
circumstances will FRANCHISEE be entitled to transfer or make a bulk sale of
a material portion of the assets of the Franchised Business separate and
apart from this Agreement and the Franchise conferred hereunder. FRANCHISEE
acknowledges that if FRANCHISEE violates this provision, it may be difficult
to ascertain the damages to GREASE MONKEY. Therefore, if FRANCHISEE sells,
assigns or otherwise transfers its ownership in the Franchised Business
without a corresponding approved transfer of this Agreement and the
Franchise, this Agreement shall automatically terminate without notice or a
right to cure and, in addition to all other obligations of FRANCHISEE arising
upon termination, FRANCHISEE shall be required to pay to GREASE MONKEY, in
cash or certified funds, a sum equal to the average monthly royalties due
from FRANCHISEE to GREASE MONKEY over the three years immediately prior to
the unauthorized transfer, or such shorter period if the unauthorized
transfer occurred prior to the third anniversary of this Agreement,
multiplied by the number of full months from the date of the
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unauthorized transfer until the end of the term of this Agreement, or the
"total consideration" received for such transfer, whichever is greater. The
"total consideration" shall include all cash, notes and the value in kind of
other assets received in the transfer, as well as the value received from the
assumption of liability, taxes, contracts, leases and other similar
consideration given by the transferee. Such payment shall be due within five
business days of the unauthorized transfer. Notwithstanding the foregoing,
the restrictive covenants contained in Article 16 shall remain in full force
and effect and shall survive the termination of this Agreement.
13.7. ASSIGNMENT BY GREASE MONKEY. This Agreement is fully assignable
by GREASE MONKEY and shall inure to the benefit of any assignee or other
legal successor in interest.
13.8. DEATH OR DISABILITY OF FRANCHISEE. Upon the death or permanent
disability of FRANCHISEE (or a guarantor of FRANCHISEE's obligations under
this Agreement or an owner of 40% or more of the equity securities of a
corporate FRANCHISEE), the executor, administrator, conservator, guardian or
other personal representative of such person shall transfer his or her
interest in this Agreement or such interest in FRANCHISEE to an approved
third party. Such disposition of this Agreement or such interest (including,
without limitation, transfer by bequest or inheritance) shall be completed
within a reasonable time, not to exceed six months from the date of death or
permanent disability, and shall be subject to all the terms and conditions
applicable to transfers contained in Article 13 of this Agreement. Failure
to transfer the interest in this Agreement or such interest in FRANCHISEE
within said period of time shall constitute a breach of this Agreement. For
purposes hereof, the term "permanent disability" shall mean a mental or
physical disability, impairment or condition that is reasonably expected to
prevent or actually does prevent FRANCHISEE, Guarantor or an owner of 40% or
more of the equity securities of a corporate FRANCHISEE from supervising the
management and operation of the Franchised Business for a period of six
months from the onset of such disability, impairment or condition.
14. TERM AND EXPIRATION
14.1. TERM. The term of this Agreement is for a period of 15 years
from the date of the opening of the Franchised Business, unless sooner
terminated as provided herein.
14.2. RIGHTS UPON EXPIRATION. FRANCHISEE shall have the option to
renew the Franchise for an additional 15 year term, by acquiring successor
franchise rights. FRANCHISEE shall be deemed to have exercised its option to
renew unless FRANCHISEE gives GREASE MONKEY written notice of its election
not to renew not earlier than 12 months nor later than nine months prior to
the expiration of the term. The grant of a successor franchise by GREASE
MONKEY is subject to FRANCHISEE fulfilling the following conditions precedent:
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a. FRANCHISEE shall have performed all obligations under this
Agreement and shall have not received a written notification of breach of
this Agreement more than five times during the term;
b. FRANCHISEE is not, at the time of renewal, in default or under
notification of breach of this Agreement;
c. FRANCHISEE executes the then current form of franchise agreement
being offered to new GREASE MONKEY franchisees within 30 days after the new
form of agreement is submitted to FRANCHISEE for execution, which agreement
may contain terms materially different than those in this Agreement.
GREASE MONKEY shall not charge any additional initial franchise fee. As to
royalty fees, advertising fees and other fees, FRANCHISEE shall be subject
to any changes in such fees or other material provisions of this Agreement;
provided, however, when there has been an increase in the royalty fees,
GREASE MONKEY may, in its sole discretion, keep the royalty fee in the new
franchise agreement the same as the royalty fee set forth herein for the
first five years of the term of the new franchise agreement, and then
increase the royalty fee to the rate in effect as the date of the new
franchise Agreement for the remainder of the term of the new franchise
agreement;
d. FRANCHISEE upgrades and/or remodels the GREASE MONKEY Center and
its equipment and systems, at FRANCHISEE's expense, to conform to the then
current design and performance specifications, as reasonably determined
necessary, in the sole discretion of GREASE MONKEY; and
e. FRANCHISEE executes a general release, in form satisfactory to
GREASE MONKEY, of any and all claims against GREASE MONKEY and its
affiliated companies and their respective officers, directors, employees
and agents arising out of or relating to this Agreement.
14.3. REFUSAL TO OFFER SUCCESSOR FRANCHISE. Unless FRANCHISEE has
given timely notice to GREASE MONKEY of its election not to acquire successor
franchise rights, and if FRANCHISEE has not satisfied one or more of the
above conditions precedent to the offer of a successor franchise, GREASE
MONKEY shall give FRANCHISEE written notice of GREASE MONKEY's refusal to
offer successor franchise rights not later than 180 days prior to the
expiration of the term (unless such refusal is based upon FRANCHISEE's
failure to execute a new franchise agreement) and such notice will set forth
the reasons for such refusal to offer successor franchise rights. In such
event, this Agreement will expire at the end of the 15-year term and
FRANCHISEE will be required to comply with the post-termination obligations
set forth in Section 15.5 below.
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15. DEFAULT AND TERMINATION
15.1. TERMINATION BY GREASE MONKEY - EFFECTIVE UPON NOTICE. GREASE MONKEY
shall have the right to terminate this Agreement, effective immediately upon
written notice to FRANCHISEE under the following circumstances to the extent
allowed by applicable law or regulation: (a) FRANCHISEE files a voluntary
petition in bankruptcy or is adjudicated bankrupt as a result of an involuntary
petition in bankruptcy being filed against it. (This provision may not be
enforceable under federal bankruptcy law, 11 U.S.C. Sections 101 ET SEQ.); (b) a
receiver is appointed for the Franchised Business, FRANCHISEE makes a general
assignment for the benefit of creditors, or procedures for reorganization or
rearrangement of its business entity are instituted by, for or against
FRANCHISEE; (c) FRANCHISEE is convicted of a crime or offense that is reasonably
likely, in the sole opinion of GREASE MONKEY, to materially and unfavorably
affect the GREASE MONKEY franchise system or Marks or goodwill thereof; (d)
FRANCHISEE receives a third notice of default from GREASE MONKEY within a six
month period or a fourth notice of default within a twelve month period,
regardless of whether the previous defaults were cured by FRANCHISEE, if
allowable under applicable state law or regulation; (e) FRANCHISEE makes an
unauthorized assignment of the Franchise Agreement or interest in the Franchised
Business or entity owning the Franchise; or (f) FRANCHISEE materially misstates
the amount of Gross Receipts upon which it bases its Royalty payments.
15.2. TERMINATION BY GREASE MONKEY - FIFTEEN DAYS NOTICE. GREASE MONKEY
shall have the right to terminate this Agreement upon 15 days prior written
notice, such notice to contain a right to cure the default within such 15 day
period, if FRANCHISEE: (a) defaults in prompt and full payment of Royalties,
advertising fees or any other indebtedness due to GREASE MONKEY and the default
continues for a 10 day period after the date such indebtedness is due; or (b)
closes the Franchised Business for a period in excess of seven consecutive days,
which acts shall be deemed an abandonment of the Franchised Business, unless the
abandonment is reasonably unavoidable due to war conditions, government
regulations, strikes or any other conditions which are beyond its reasonable
control.
15.3. TERMINATION BY GREASE MONKEY - THIRTY DAYS NOTICE. GREASE MONKEY
shall have the right to terminate this Agreement, upon 30 days prior written
notice to FRANCHISEE, if FRANCHISEE breaches any other provision of this
Agreement. Under circumstances where the breach is of a nature that may be cured
through the actions of FRANCHISEE, GREASE MONKEY shall permit FRANCHISEE the
same 30 day period to cure any such breach or default. If the breach or default
has not been cured within such 30 day period, this Agreement will terminate
without further notice to FRANCHISEE upon expiration of the 30 day period.
Notwithstanding the foregoing, if the breach is curable, but is of a nature
which cannot reasonably be cured within such 30 day period and FRANCHISEE has
commenced and is continuing to make good faith efforts to cure the breach during
such 30 day period, then FRANCHISEE shall be given an additional reasonable
period of time to cure the same and the Agreement shall not terminate.
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15.4. CROSS DEFAULT. Any default or breach by FRANCHISEE of any other
agreement with GREASE MONKEY, the parent of GREASE MONKEY, GREASE MONKEY HOLDING
CORPORATION, or any of its subsidiaries may, at the option of GREASE MONKEY,
constitute a breach or default under this Agreement.
15.5. RIGHTS AND OBLIGATIONS UPON TERMINATION OR EXPIRATION. Upon
termination or expiration of this Agreement, FRANCHISEE shall:
a. Pay Royalties, Marketing Materials Fees and other charges owed
to GREASE MONKEY within 10 days of the effective date of termination or
expiration;
b. Not hold itself out as a current or former GREASE MONKEY
franchisee and cease use of the Marks, processes, materials, methods or
promotional materials provided by GREASE MONKEY and take all necessary
steps to disassociate itself from GREASE MONKEY, including without
limitation, the removal of signs, destroying letterhead, advertising
materials, invoices or other items containing the Marks;
c. Deliver to GREASE MONKEY the Operations Manual and all other
information and materials proprietary to GREASE MONKEY;
d. Relinquish all interest of any kind in the Franchise and, in the
event GREASE MONKEY does not exercise its right to acquire FRANCHISEE's
interest in the Franchised Business and the Franchised Location, including
FRANCHISEE's leasehold or fee simple interest in any real estate,
immediately take steps to deidentify the Franchised Location so as to
distinguish it from a GREASE MONKEY Center, including removal of signage,
alteration of distinctive coloring, interior and exterior design and
modification of other aspects of the premises closely identified with the
GREASE MONKEY name and Marks;
e. Promptly take such action as may be required to cancel all
assumed or trade names or equivalent registrations relating to the use of
the GREASE MONKEY name;
f. Notify the telephone company and all telephone directory
publishers of the termination or expiration of FRANCHISEE's right to use
any telephone number and any regular, classified or other telephone
directory listings associated with any Mark and to authorize transfer
thereof to GREASE MONKEY or its designee. FRANCHISEE acknowledges that, as
between FRANCHISEE and GREASE MONKEY, GREASE MONKEY has the sole rights to
and interest in all telephone, telecopy or facsimile machine numbers and
directory listings associated with any Mark. FRANCHISEE authorizes GREASE
MONKEY, and hereby appoints GREASE MONKEY and any of its officers as
FRANCHISEE's attorney-in-fact, to direct the telephone company and all
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telephone directory publishers to transfer any telephone, telecopy or
facsimile machine numbers and directory listings relating to the Franchised
Business to GREASE MONKEY or its designee, should FRANCHISEE fail or refuse
to do so, and the telephone company and all telephone directory publishers
may accept such direction or this Agreement as conclusive evidence of
GREASE MONKEY's exclusive rights in such telephone numbers and directory
listings and GREASE MONKEY's authority to direct their transfer;
g. Comply with all applicable provisions of the Software License
and Electronic Reporting Agreement;
h. Comply with all applicable provisions of the Conditional
Assignment of Lease or Option Agreement; and
i. Abide by the covenants not to compete and confidentiality
provisions set forth in Article 16 of this Agreement.
15.6. RIGHT TO REPURCHASE.
a. Within 60 days after the termination or expiration of this
Agreement by FRANCHISEE or by GREASE MONKEY, GREASE MONKEY shall have the
right to exercise its option to purchase the Franchised Business, which may
include, at GREASE MONKEY's option, all of FRANCHISEE's interest, if any,
in and to the real estate upon which the Franchised Business is located,
and all buildings and other improvements thereto, including leasehold
interests (to the extent not already assigned to GREASE MONKEY pursuant to
a Conditional Assignment of Lease or Option Agreement), at fair market
value, less any amount apportioned to the goodwill of the Franchised
Business which is attributable to GREASE MONKEY's Marks and Licensed
Methods, and less any amounts owed to GREASE MONKEY by FRANCHISEE. For
purposes of this Section 15.6, goodwill shall be deemed to be the
difference between the fair market value of the Franchised Business and the
value of the tangible assets of the Franchised Business as set forth in
FRANCHISEE'S most recent financial records then available.
b. GREASE MONKEY's option hereunder shall be exercisable by
providing FRANCHISEE with written notice of its intention to exercise the
option given to FRANCHISEE no later than 60 days after the effective date
of termination or the expiration of the term of this Agreement. For
purposes of this Section 15.6, the effective date of termination of this
Agreement shall be that date GREASE MONKEY notifies FRANCHISEE in writing
in accordance with Section 21.6 of this Agreement, that this Agreement
shall be terminated and the effective date of the expiration of this
Agreement shall be the date determined in accordance with Section 14.1 of
this Agreement.
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c. In the event that GREASE MONKEY and FRANCHISEE cannot agree to a
fair market value of the Franchised Business and/or real estate or
leasehold interest thereunder, then the fair market value shall be
determined by an independent third party appraisal. GREASE MONKEY and
FRANCHISEE shall each select one independent, qualified appraiser, and the
two so selected shall select a third appraiser, all three to determine the
fair market value of the Franchised Business and/or real estate or
leasehold interest therein. The purchase price shall be the median of the
fair market values as determined by the three appraisers. The expenses of
the appraisers shall be paid for equally between GREASE MONKEY and
FRANCHISEE.
d. GREASE MONKEY and FRANCHISEE agree that the terms and conditions
of this right and option to purchase may be recorded, if deemed appropriate
by GREASE MONKEY, in the real property records and GREASE MONKEY and
FRANCHISEE further agree to execute such additional documentation as may be
necessary and appropriate to effectuate such recording.
e. The closing for GREASE MONKEY's purchase of the Franchised
Business will take place within 60 days after determination of the purchase
price. GREASE MONKEY will pay the purchase price in full at the closing,
or, at its option, in five equal consecutive monthly installments with
interest at a rate of 10% per annum. FRANCHISEE must sign all documents of
assignment and transfer as are reasonably necessary for purchase of the
Franchised Business by GREASE MONKEY.
f. Notwithstanding the foregoing, in the event that GREASE MONKEY
does not exercise GREASE MONKEY's right to repurchase FRANCHISEE's
Franchised Business as set forth above, for a period of one year following
the termination or expiration of this Agreement should any third party
offer or agree to purchase any or all of the physical assets of
FRANCHISEE's Franchised Business, then FRANCHISEE hereby grants to GREASE
MONKEY a 30 day right of first refusal to purchase such rights or assets
proposed to be transferred on the same terms and conditions as are
contained in the written agreement signed by FRANCHISEE and the proposed
transferee; provided however, the following additional terms and conditions
shall apply:
i. The time within which GREASE MONKEY may exercise its right
of first refusal shall commence as of the date GREASE MONKEY
receives the notice provided by FRANCHISEE to GREASE MONKEY of the
right of first refusal and a copy of the written agreement signed by
the FRANCHISEE and the proposed transferee containing all of the
terms and conditions of the transfer.
ii. GREASE MONKEY's right of first refusal shall include the
right of first refusal to purchase any portion or all of
FRANCHISEE's interest in the Franchised Business premises, whether
the premises are owned or leased by
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FRANCHISEE, if such interest is part of the assets proposed to be
transferred or sold. The terms and conditions of GREASE MONKEY's
right of first refusal may be recorded, if deemed appropriate by
GREASE MONKEY, in the real property records. GREASE MONKEY and
FRANCHISEE agree to execute such additional documentation as may be
necessary in connection with the recording.
iii. GREASE MONKEY's right of first refusal arises with
respect to each proposed transfer. Any material change in the terms
or conditions of the proposed transfer shall be deemed a separate
transfer for which a new 30 day period for the right of first
refusal shall be given and new documents shall be submitted to
GREASE MONKEY.
iv. If the consideration or the manner of payment offered by a
third party is such that GREASE MONKEY may not reasonably be
required to furnish the same, then GREASE MONKEY may purchase the
interest which is proposed to be sold for the reasonable cash
equivalent. If the parties cannot agree within a reasonable time on
the cash consideration, an independent appraiser shall be designated
by GREASE MONKEY, whose determination will be binding upon the
parties. All expenses of the appraiser shall be paid for equally
between GREASE MONKEY and FRANCHISEE. In the event that the terms
of the proposed transfer include an offer on the part of FRANCHISEE
to finance a portion of the purchase price on behalf of the proposed
transferee, then the same terms shall be made available to GREASE
MONKEY.
v. The closing between GREASE MONKEY and FRANCHISEE shall occur
upon the later of the date of closing set forth in the written
agreement of transfer signed by FRANCHISEE and the proposed
transferee or 60 days from the date of GREASE MONKEY's notice of
exercise of its right of first refusal.
Following the expiration of the one year period following the termination or
expiration of this Agreement, FRANCHISEE will be free to keep or to sell to any
third party, all of the physical assets of its Franchised Business; provided,
however, that all appearances of the Marks are first removed in a manner
approved in writing by GREASE MONKEY. GREASE MONKEY will only be obligated to
repurchase any assets of the Franchised Business in the event and to the extent
it is required by applicable state or federal law.
15.7. CONTINUING OBLIGATIONS. The foregoing rights of GREASE MONKEY upon
termination for any reason shall not be exclusive, but shall be in addition to
and not in lieu of any other rights available to GREASE MONKEY under the terms
hereof or at law or in equity. Termination of this Agreement under any
circumstances shall not abrogate, impair, release, or extinguish the debt,
obligation or liability of FRANCHISEE which may have accrued hereunder,
including without limitation, any debt, obligation or liability which was the
cause of termination.
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All covenants and agreements of FRANCHISEE which by their terms or by
reasonable implication are to be performed, in whole or in part, after the
termination of this Agreement, including without limitation, FRANCHISEE's
obligations of nondisclosure and confidentiality, shall survive any
termination of this Agreement.
15.8. GOVERNING STATE LAW. If any mandatory provisions of governing state
law prohibit termination of this Agreement or limit GREASE MONKEY's rights to
terminate to some other basis or term than are herein provided, or require
renewal hereof, or require repurchase, then such mandatory provisions of state
law shall be deemed incorporated in this Agreement by reference and shall
prevail over any inconsistent terms in this Agreement.
16. RESTRICTIVE COVENANTS
16.1. NONCOMPETITION DURING TERM. FRANCHISEE acknowledges that, in
addition to the license of the Marks hereunder, GREASE MONKEY has also licensed
commercially valuable information which comprises and is a part of the Licensed
Methods, including without limitation, operations, marketing, advertising and
related information and materials and that the value of this information derives
not only from the time, effort and money which went into its compilation, but
from the usage of the same by all franchisees of GREASE MONKEY using the Marks
and Licensed Methods. FRANCHISEE therefore agrees that other than the GREASE
MONKEY Center licensed herein, and any other GREASE MONKEY Centers licensed
under other franchise agreements with GREASE MONKEY, neither FRANCHISEE nor any
of FRANCHISEE's officers, directors and owners of five percent or more of the
equity securities of a corporate franchisee, nor any member of his or their
immediate families, shall during the term of this Agreement:
a. Have any direct or indirect controlling interest as a disclosed
or beneficial owner in a Competitive Business; or
b. Perform services as a director, officer, manager, employee,
consultant, representative, agent or otherwise for a Competitive Business;
or
c. Owns any assets used to operate a Competitive Business; or
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d. Receives any portion of the sales proceeds or net income or any
other benefit from a Competitive Business.
The term "Competitive Business" as used in this Agreement shall mean any
business providing, or granting franchises or licenses to others to operate a
business providing, automotive lubrication services. For purposes of this
Agreement, a "business providing automotive lubrication services" shall be
deemed to mean any business where 40% or more of the gross sales revenue is
derived from automotive lubrication, oil changes, radiator flush and fill, and
transmission and fluid replacement services. Notwithstanding the foregoing,
FRANCHISEE shall not be prohibited from owning securities in a Competitive
Business if such securities are listed on a stock exchange or traded on the
over-the-counter market and represent five percent or less of that class of
securities issued and outstanding.
16.2. POST-TERMINATION COVENANT NOT TO COMPETE. FRANCHISEE acknowledges
that, pursuant to the franchise relationship established in this Agreement,
FRANCHISEE has acquired from GREASE MONKEY confidential information regarding
GREASE MONKEY's Marks and Licensed Methods and that, in the event this Agreement
is terminated, FRANCHISEE could injure GREASE MONKEY, not only because it is no
longer a FRANCHISEE but, in addition, because FRANCHISEE would be able to take
those customers it has acquired over a period of time in the event FRANCHISEE
were to start another fast service automotive lubrication operation. FRANCHISEE,
therefore, agrees that in the event this Franchise is ever terminated, expires
or FRANCHISEE otherwise relinquishes all rights to the Franchise through
assignment or otherwise, for whatever reason, neither FRANCHISEE nor its
officers, directors and owners of five percent or more of the equity securities
of a corporate franchisee, for a period of three years, commencing on the date
of termination or expiration as determined in accordance with Section 15.6(c) or
16.7 of this Agreement, or the date on which FRANCHISEE ceases to conduct
business, whichever is later, unless authorized under another franchise
agreement with GREASE MONKEY, shall (a) have any direct or indirect interest
(through a member of any immediate family of FRANCHISEE, its officers, directors
and owners of five percent or more of the stock of a corporate franchisee or
otherwise) as a disclosed or beneficial owner, investor, partner, director,
officer, employee, consultant, representative or agent in, or (b) in any other
capacity (i) engage in, (ii) own any assets used in, or (iii) receive any
portion of the sales proceeds or net income or any other benefit from, a
Competitive Business within a radius of 25 miles of the location of FRANCHISEE's
former Franchised Business. This covenant not to compete is intended to be a
reasonable restriction on FRANCHISEE. For purposes of interpreting this covenant
not to compete, every month of time and mile of distance shall be considered
severable. In the event a court of competent jurisdiction interprets either the
spatial or temporal limitations of this Agreement to be overly broad, then the
court shall adjust the offending limitation, either by months of time or miles
of distance, so as to fashion a reasonably enforceable covenant.
16.3. NO INTERFERENCE WITH BUSINESS. During the term of this Agreement
and for three years thereafter, FRANCHISEE and its officers, directors and
owners of five percent or more of
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the equity securities of a corporate franchisee, and his or their immediate
families, shall not divert or attempt to divert any business related to, or
any customer or prospective customer of the GREASE MONKEY Center, by direct
inducement or otherwise, or diverting or attempting to divert the employment
of any employee of GREASE MONKEY or another franchisee licensed by GREASE
MONKEY to use the Marks, to any Competitive Business by any direct inducement
or otherwise.
16.4. CONFIDENTIALITY OF PROPRIETARY INFORMATION. FRANCHISEE acknowledges
that after execution of this Agreement, FRANCHISEE will have access to
confidential information and trade secrets which are proprietary to GREASE
MONKEY. FRANCHISEE acknowledges that the unauthorized use of such information
or the disclosure of such information, or any part thereof, to unauthorized
third parties will be injurious to GREASE MONKEY. FRANCHISEE covenants and
agrees that it shall not make unauthorized use of, or disclose to any
unauthorized third party, the systems, techniques, operating procedures,
marketing systems or other trade secrets or confidential information relating to
the establishment and operation of a GREASE MONKEY franchise.
16.5. INJUNCTIVE RELIEF. FRANCHISEE irrevocably grants GREASE MONKEY, in
addition to other legal remedies available, the right to apply for an
injunction, without bond, to enforce the covenants herein and FRANCHISEE's sole
remedy in the event of the entry of such injunctive relief shall be the
dissolution of such injunctive relief, if warranted, upon hearing duly held (all
claims for damages by reason of the wrongful issuance of such injunction being
expressly waived hereby). Any such action shall be brought as provided in
Section 20.3 below.
16.6. CONFIDENTIALITY AGREEMENTS. GREASE MONKEY reserves the right to
require that FRANCHISEE have its officers, directors, owners of five percent
or more of the equity securities of a corporate FRANCHISEE, or members of
FRANCHISEE's immediate family execute a nondisclosure and noncompetition
agreement containing the provisions set forth in this Article 16, and
further, FRANCHISEE shall notify GREASE MONKEY of the identity of each and
every above-described person and provide GREASE MONKEY with an originally
executed copy of each such nondisclosure and noncompetition agreement.
16.7. BEGINNING OF THREE YEAR PERIOD. If FRANCHISEE commits a breach of
Section 16.2 or Section 16.3 above, the three year period shall start on the
date FRANCHISEE is enjoined from competing or interfering, or stops competing or
interfering with the business of GREASE MONKEY, whichever is later.
16.8. LIQUIDATED DAMAGES. FRANCHISEE acknowledges and agrees that if
there is any act in violation of Sections 16.1, 16.2, 16.3 or 16.4, it will be
impossible to determine with specificity the damage to GREASE MONKEY.
Therefore, for purposes of this Agreement, as liquidated damages and not as a
penalty, within 30 days of any act in violation of Section 16.1, 16.2, 16.3 or
16.4, FRANCHISEE shall pay to GREASE MONKEY the sum of $20,000 plus five
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percent of the average of FRANCHISEE's monthly Gross Receipts over the three
years immediately prior to the violation, or such shorter period if the
violation occurred prior to the third anniversary of this Agreement,
multiplied by the number of full months from the date of the violation until
the end of the term of this Agreement.
17. INSURANCE
17.1. INSURANCE COVERAGE. FRANCHISEE agrees to procure and maintain
during the term of this Agreement, with an insurer or insurers reasonably
acceptable to GREASE MONKEY, a policy or policies of the following insurance:
(a) comprehensive and general liability insurance with a limit of not less than
$1,000,000 for injury to one person; (b) replacement cost property insurance in
an amount equal to at least 80% of the highest coverage permitted by law or the
replacement cost of the building and contents comprising the GREASE MONKEY
Center as provided in a lease; (c) garage-keepers liability insurance for damage
to vehicles that are in the Franchisee's care, custody and control with a limit
of not less than $30,000 for the GREASE MONKEY Center; and (d) unemployment and
workmen's compensation insurance with a broad form all-states endorsement
coverage sufficient to meet the requirements of applicable state law. All
policies of insurance shall contain a 10 day advance written notice of
cancellation requirement and shall designate GREASE MONKEY as an additional
named insured.
17.2. PROOF OF INSURANCE. FRANCHISEE will provide proof of insurance to
GREASE MONKEY prior to commencement of operations at its Franchised Business.
This proof will show that the insurer has been authorized to inform GREASE
MONKEY in the event any policies lapse or are cancelled. GREASE MONKEY has the
right to change the minimum amount of insurance FRANCHISEE is required to
maintain by giving FRANCHISEE prior reasonable notice. Noncompliance with the
insurance provisions set forth herein shall be deemed a material breach of this
Agreement; in the event of any lapse in insurance coverage, in addition to all
other remedies, GREASE MONKEY shall have the right to demand that FRANCHISEE
cease operations of the Franchised Business until coverage is reinstated, or, in
the alternative, pay any delinquencies in premium payments and charge the same
back to FRANCHISEE.
18. OPTION TO PURCHASE ADDITIONAL FRANCHISE
18.1. OPTION TO PURCHASE.
a. During the term of this Agreement, FRANCHISEE may purchase an
additional franchised location for a discounted initial franchise fee equal
to 60% of the then current initial franchise fee; provided however, that
such discount is available only if FRANCHISEE is in compliance with this
Agreement and FRANCHISEE maintains a majority interest in the additional
franchise. Except for the discounted initial franchise fee, the additional
franchise will be subject to all of the terms and conditions which are
30
<PAGE>
contained in the franchise agreement in effect at the time of the sale. In
addition, FRANCHISEE will be required to meet the then current franchisee
qualification standards of GREASE MONKEY, including without limitation,
financial requirements.
b. For each additional GREASE MONKEY franchise purchased, a
separate franchise agreement shall be executed. Payment of 50% of the
discounted initial franchise fee is due and payable to GREASE MONKEY upon
the execution of the franchise agreement. The remaining amount due for the
discounted initial franchise fee is due upon the earlier of GREASE MONKEY's
approval of the site for the GREASE MONKEY Center to be established under
the franchise agreement or 180 days after execution of the franchise
agreement. Each portion of the initial franchise fee is nonrefundable when
received in all circumstances.
c. Notwithstanding the foregoing, the grant of the additional
franchise shall be conditional upon and subject to GREASE MONKEY's ability
to comply with all applicable laws and regulations regarding the sale of
the franchise. GREASE MONKEY shall use reasonable efforts to enable
FRANCHISEE to exercise its options granted hereunder; however, GREASE
MONKEY makes no guarantee that such a franchise can be granted at the time
that FRANCHISEE desires to exercise this option.
19. BUSINESS RELATIONSHIP
19.1. INDEPENDENT BUSINESSPERSONS. During the term of this Agreement,
FRANCHISEE shall be an independent contractor and shall in no way be considered
as an agent, servant or employee of GREASE MONKEY. It is understood and agreed
that no agency, partnership or fiduciary relationship is created by this
Agreement. As such, FRANCHISEE has no authority of any nature whatsoever to bind
GREASE MONKEY or incur any liability for or on behalf of GREASE MONKEY or to
represent itself as anything other than an independent contractor. FRANCHISEE
agrees to exercise full and complete control over and have full responsibility
for any and all labor relations, including the hiring, firing, disciplining,
compensation and work schedule of their employees.
19.2. PAYMENT OF THIRD PARTY OBLIGATIONS. GREASE MONKEY shall have no
liability for FRANCHISEE's obligations to pay any third parties, including
without limitation, any sales, use, service, occupation, excise, gross receipts,
income, property or other tax levied upon FRANCHISEE, FRANCHISEE's GREASE MONKEY
Center, FRANCHISEE's property or upon GREASE MONKEY in connection with the sales
made or business conducted by FRANCHISEE (except any taxes GREASE MONKEY is
required by law to collect from FRANCHISEE with respect to purchases from GREASE
MONKEY).
19.3. INDEMNIFICATION. FRANCHISEE agrees to indemnify, defend and hold
harmless GREASE MONKEY, its subsidiaries and affiliates, and their shareholders,
directors, officers,
31
<PAGE>
employees, agents, successors and assignees, (the "Indemnified Parties")
against, and to reimburse them for all claims, obligations and damages
described in this Section 19.3, any and all third party obligations described
in Section 19.2 and any and all claims and liabilities directly or indirectly
arising out of the operation of the GREASE MONKEY Center, or the relationship
of the parties under this Agreement, or arising out of the use of the Marks
and Licensed Methods in any manner not in accordance with this Agreement.
For purposes of this indemnification, claims shall mean and include all
obligations, actual and consequential damages and costs reasonably incurred
in the defense of any claim against the Indemnified Parties, including,
without limitation, reasonable accountants', attorneys' and expert witness
fees, costs of investigation and proof of facts, court costs, other
litigation expenses and travel and living expenses. GREASE MONKEY shall have
the right to defend any such claim against it. This indemnity shall continue
in full force and effect subsequent to and notwithstanding the expiration or
termination of this Agreement.
20. ARBITRATION
20.1. ARBITRATION. Except for controversies, disputes or claims related
to or based on the Marks or any lease of real estate, all controversies,
disputes or claims between GREASE MONKEY, its subsidiaries and affiliated
companies and their shareholders, officers, directors, agents, employees and
attorneys (in their representative capacity) and FRANCHISEE (and its owners and
guarantors, if applicable) arising out of or related to: (1) this Agreement or
any other agreement between the parties or any provision of such agreements; (2)
the relationship of the parties hereto; (3) the validity of this Agreement or
any other agreement between the parties or any provision of such agreements; or
(4) any system standard shall be submitted for arbitration to the Denver,
Colorado Office of the American Arbitration Association on demand of either
party. Such arbitration proceedings shall be conducted in Denver, Colorado and
shall be heard by one arbitrator in accordance with the then current Commercial
Arbitration Rules of the American Arbitration Association.
The arbitrator shall have the right to award or include in the award any
relief which he deems proper in the circumstances, including, without
limitation, money damages (with interest on unpaid amounts from the date
due), specific performance, and attorneys' fees and costs, in accordance with
Section 21.7 of this Agreement, provided that the arbitrator shall not award
exemplary or punitive damages. The award and decision of the arbitrator
shall be conclusive and binding upon all parties hereto and judgment upon the
award may be entered in any court of competent jurisdiction. Each party
waives any right to contest the validity or enforceability of such award.
The parties agree to be bound by the provisions of any applicable limitation
on the period of time by which claims must be brought under applicable law or
this Agreement, whichever is less. The parties further agree that, in
connection with any such arbitration proceeding, each shall file any
compulsory counterclaim (as defined by Rule 13 of the Federal Rules of Civil
Procedure) within 30 days after the date of the filing of the claim to which
it
32
<PAGE>
relates. This provision shall continue in full force and effect subsequent
to and notwithstanding the expiration or termination of this Agreement.
GREASE MONKEY and FRANCHISEE agree that arbitration shall be conducted on
an individual, not a class wide, basis and that an arbitration proceeding
between GREASE MONKEY and FRANCHISEE shall not be consolidated with any other
arbitration proceeding involving GREASE MONKEY and any other person, corporation
or partnership.
20.2. INJUNCTIVE RELIEF. Notwithstanding anything to the contrary
contained in Section 20.1 of this Agreement, GREASE MONKEY and FRANCHISEE shall
each have the right in a proper case to obtain temporary or preliminary
injunctive relief from a court of competent jurisdiction. FRANCHISEE agrees
that GREASE MONKEY may have such temporary or preliminary injunctive relief,
without bond, but upon due notice, and FRANCHISEE's sole remedy in the event of
the entry of such injunctive relief shall be the dissolution of such injunctive
relief, if warranted, upon hearing duly held (all claims for damages by reason
of the wrongful issuance of such injunction being expressly waived hereby). Any
such action shall be brought as provided in Section 20.3 below.
20.3. GOVERNING LAW/CONSENT TO JURISDICTION/WAIVER OF JURY TRIAL. Except
to the extent governed by the United States Trademark Act of 1946 (Lanham Act,
15 U.S.C. Sections 1051 ET SEQ.) or other federal law, this Agreement shall be
interpreted under the laws of the state of Colorado and any dispute between the
parties shall be governed by and determined in accordance with the substantive
laws of the state of Colorado, which laws shall prevail in the event of any
conflict of law. FRANCHISEE and GREASE MONKEY have negotiated regarding a forum
in which to resolve any disputes which may arise between them and have agreed to
select a forum in order to promote stability in their relationship. Therefore,
if a claim is asserted in any legal proceeding involving FRANCHISEE, its
employees, officers or directors (collectively, "FRANCHISEE Affiliates") and
GREASE MONKEY its employees, officers, or directors (collectively, "GREASE
MONKEY Affiliates") both parties agree that the exclusive venue for disputes
between them shall be in the state and federal courts of Colorado and each waive
any objection either may have to the personal jurisdiction of or venue in the
state and federal courts of Colorado. GREASE MONKEY, the GREASE MONKEY
Affiliates, FRANCHISEE and the FRANCHISEE Affiliates each waive their rights to
a trial by jury.
21. MISCELLANEOUS PROVISIONS
21.1. ENTIRE AGREEMENT. This Agreement (which includes the attachments
and exhibits expressly incorporated herein) contains the entire agreement
between the parties and supersedes any and all prior agreements concerning
the subject matter hereof. FRANCHISEE agrees and understands that GREASE
MONKEY will not be liable or obligated for any oral representations or
commitments made prior to the execution hereof or for claims of negligent or
fraudulent misrepresentation based on any such oral representations or
commitments and that no
33
<PAGE>
modifications of this Agreement will be effective except those in writing and
signed by both parties. GREASE MONKEY does not authorize and will not be bound
by any representation of any nature other than those expressed in this
Agreement. FRANCHISEE further acknowledges and agrees that no representations
have been made to it by GREASE MONKEY regarding projected sales volumes, market
potential, revenues, profits of the FRANCHISEE's Franchised Business, or
operational assistance other than as stated in this Agreement or in any
franchise offering circular or advertising or promotional materials provided by
GREASE MONKEY in connection herewith.
21.2. EFFECTIVE DATE. This Agreement shall not be effective until
accepted by GREASE MONKEY as evidenced by dating and signing by an officer of
GREASE MONKEY.
21.3. REVIEW OF AGREEMENT. FRANCHISEE acknowledges that it had a copy of
this Agreement in its possession for a period of time not less than 10 full
business days, during which FRANCHISEE has had the opportunity to submit same
for professional review and advice of FRANCHISEE's choosing prior to freely
executing this Agreement.
21.4. INVALIDITY. If any provision of this Agreement is held invalid by
any tribunal in a final decision from which no appeal is or can be taken, such
provision shall be deemed modified to eliminate the invalid element and, as so
modified, such provision shall be deemed a part of this Agreement as though
originally included. The remaining provisions of this Agreement shall not be
affected by such modification.
21.5. WAIVER. No waiver of any condition or covenant contained in this
Agreement or failure to exercise a right or remedy by GREASE MONKEY or the
FRANCHISEE shall be considered to imply or constitute a further waiver by GREASE
MONKEY or FRANCHISEE of the same or any other condition, covenant, right or
remedy.
21.6. NOTICE. All notices or demands required hereunder shall be made in
writing and shall be deemed to be fully given when deposited in the U.S.
certified mail, postage prepaid, return receipt requested or when sent Federal
Express or similar overnight courier to Grease Monkey International, Inc., 216
16th Street, Suite 1100, Denver, Colorado 80202-5125, or to its then current
address, and to FRANCHISEE to the address given in this Agreement. Mailing any
notice hereunder sent by U.S. certified mail, postage prepaid or when sent
Federal Express or similar overnight courier shall be presumptive evidence of
delivery of the notice. Either party may change its address hereunder by notice
to the other party, sent by U.S. certified mail postage prepaid, return receipt
requested or when sent Federal Express or similar overnight courier.
21.7. COST OF ENFORCEMENT. In the event of any default on the part of
either party to this Agreement, in addition to all other remedies, the party
in default will pay the aggrieved party all amounts due and all damages,
costs and expenses, including reasonable attorneys' fees, incurred
34
<PAGE>
by the aggrieved party in any legal action or proceeding as a result of such
default, plus interest at the highest rate allowable by law, accruing from
the date of such default.
21.8. MODIFICATION. GREASE MONKEY and/or FRANCHISEE may modify this
Agreement only upon execution of a written agreement between the parties.
FRANCHISEE acknowledges that GREASE MONKEY may modify its standards and
specifications set forth in the Operations Manual unilaterally under any
conditions and to the extent in which GREASE MONKEY, in its sole discretion,
deems necessary to protect, promote, or improve the Marks and the quality of the
Licensed Methods, but under no circumstances will such modifications be made
without good cause therefor. FRANCHISEE agrees to accept and utilize any such
changes or modifications which are reasonably requested as if they were a part
of this Agreement.
21.9. INJUNCTIVE RELIEF. Nothing herein shall prevent GREASE MONKEY or
FRANCHISEE from seeking injunctive relief to prevent irreparable harm in
addition to all other remedies.
21.10. PROHIBITION AGAINST NONPAYMENT. FRANCHISEE agrees to consult with
GREASE MONKEY with respect to any alleged nonperformance of GREASE MONKEY and
FRANCHISEE will not, on the grounds of any alleged nonperformance by GREASE
MONKEY of its obligations hereunder, withhold payment of any Royalties,
Marketing Materials Fees, rents or other payment or fee payable by FRANCHISEE
pursuant to the terms of this Agreement or any related document.
21.11. ACKNOWLEDGEMENT. BEFORE SIGNING THIS AGREEMENT, FRANCHISEE SHOULD
READ IT CAREFULLY WITH THE ASSISTANCE OF LEGAL COUNSEL. FRANCHISEE ACKNOWLEDGES
THAT:
A. THE SUCCESS OF THE BUSINESS VENTURE CONTEMPLATED HEREIN INVOLVES
SUBSTANTIAL RISKS AND DEPENDS UPON FRANCHISEE'S ABILITY AS AN INDEPENDENT
BUSINESSPERSON AND ITS ACTIVE PARTICIPATION IN THE DAILY AFFAIRS OF THE
BUSINESS, AND
B. NO ASSURANCE OR WARRANTY, EXPRESSED OR IMPLIED, HAS BEEN GIVEN AS TO
THE POTENTIAL SUCCESS OF SUCH BUSINESS VENTURE OR THE EARNINGS LIKELY TO BE
ACHIEVED, AND
C. NO STATEMENT, REPRESENTATION OR OTHER ACT, EVENT OR COMMUNICATION,
EXCEPT AS SET FORTH IN THIS DOCUMENT, AND IN ANY OFFERING CIRCULAR SUPPLIED TO
FRANCHISEE IS BINDING ON GREASE MONKEY IN CONNECTION WITH THE SUBJECT MATTER OF
THIS AGREEMENT.
35
<PAGE>
IN WITNESS WHEREOF, the parties hereto set their hands and seals the day
and year as set forth above.
FRANCHISOR:
GREASE MONKEY INTERNATIONAL, INC.
ATTEST: By:
---------------------------------------
Title:
- --------------------------------
FRANCHISEE:
-------------------------------------------
ATTEST: By:
---------------------------------------
Title:
- --------------------------------
36
<PAGE>
EXHIBIT I TO
FRANCHISE AGREEMENT
ADDENDUM TO GREASE MONKEY
FRANCHISE AGREEMENT - LOCATION ACCEPTANCE
1. The Franchised Location set forth in Section 2.1 of the Agreement
shall be:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
2. [If applicable] The designated area set forth in Section 3.1
shall be:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
3. The business address for any notices mailed pursuant to
Section 21.6 of the Agreement shall be as follows:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
4. By execution hereof, GREASE MONKEY hereby accepts the above-stated
Franchised Location and the Franchisee acknowledges and warrants that (1)
GREASE MONKEY's acceptance of the Franchised Location does not constitute a
guarantee, recommendation or endorsement of the Franchised Location and the
success of the GREASE MONKEY Service Center to be operated at such Franchised
Location is dependent upon the Franchisee's abilities as an independent
business person; and (2) that GREASE MONKEY has complied with its obligations
under the Agreement and, if applicable, the Site Selection and Commitment
Agreement, to assist the Franchisee by provision of criteria for the
Franchised
<PAGE>
Location and an on-site inspection and determination of
fulfillment of the requisite criteria for the Franchised Location.
Fully executed this ______ day of __________________ , 19____.
GREASE MONKEY INTERNATIONAL, INC.
By:
---------------------------------
Title:
FRANCHISEE:
--------------------------------------
By:
---------------------------------
Title:
<PAGE>
EXHIBIT II
TO FRANCHISE AGREEMENT
STATEMENT OF OWNERSHIP
Franchisee: ______________________________
Trade name (if different from above): _________________________________________
_______________________________________________________________________________
Form of Ownership
(Check One)
____ Individual ____ Partnership ____ Corporation ____ Limited Liability
Company
If a Partnership, provide name and address of each partner showing
percentage owned, whether active in management, and indicate the state in which
the partnership was formed.
If a Corporation, give the state and date of incorporation, THE NAMES AND
ADDRESSES OF EACH OFFICER AND DIRECTOR, and list the names and addresses of
every shareholder showing what percentage of stock is owned by each.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Franchisee acknowledges that this Statement of Ownership applies to the
GREASE MONKEY Service Center authorized under the Franchise Agreement.
Use additional sheets if necessary. Any and all changes to the above
information must be reported to GREASE MONKEY in writing.
- ---------------------------------- ------------------------------------------
Date
<PAGE>
EXHIBIT III
TO FRANCHISE AGREEMENT
GUARANTY AND ASSUMPTION OF FRANCHISEE'S OBLIGATIONS
In consideration of, and as an inducement to, the execution of the above
Franchise Agreement (the "Agreement") by Grease Monkey International, Inc.
("GREASE MONKEY"), each of the undersigned hereby personally and
unconditionally:
1. Guarantees to GREASE MONKEY and its successors and assigns, for the
term of this Agreement, including renewals thereof, that
___________________ ("Franchisee") shall punctually pay and perform
each and every undertaking, agreement and covenant set forth in the
Agreement; and
2. Agrees to be personally bound by, and personally liable for the
breach of, each and every provision in the Agreement.
Each of the undersigned waives the following:
1. Acceptance and notice of acceptance by GREASE MONKEY of the
foregoing undertaking;
2. Notice of demand for payment of any indebtedness or nonperformance
of any obligations hereby guaranteed;
3. Protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby
guaranteed;
4. Any right he or she may have to require that any action be brought
against Franchisee or any other person as a condition of liability;
and
5. Any and all other notices and legal or equitable defenses to which
he or she may be entitled.
Each of the undersigned consents and agrees that:
1. His or her direct and immediate liability under this guaranty shall
be joint and several;
2. He or she shall render any payment or performance required under
the Agreement upon demand if Franchisee fails or refuses punctually
to do so;
3. Such liability shall not be contingent or conditioned upon pursuit
by GREASE MONKEY of any remedies against Franchisee or any other
person;
<PAGE>
4. Such liability shall not be diminished, relieved or otherwise
affected by any extension of time, credit or other indulgence which
GREASE MONKEY may from time to time grant to Franchisee or to any
other person, including without limitation the acceptance of any
partial payment or performance, or the compromise or release of any
claims, none of which shall in any way modify or amend this
guaranty, which shall be continuing and irrevocable during the term
of the Agreement, including renewals thereof;
5. He or she shall be bound by the restrictive covenants and
confidentiality provisions contained in Article 16 of the Agreement
and the indemnification provision contained in Section 19.3 of the
Agreement; and
6. The arbitration, injunctive relief, governing law and jurisdiction
provisions contained in Article 20 of the Agreement shall govern
this Guaranty and such provisions are incorporated into this
Guaranty by this reference.
IN WITNESS WHEREOF, each of the undersigned has affixed his or her
signature on the same day and year as the Agreement was executed.
GUARANTOR(S)
----------------------------------------
(Name)
----------------------------------------
(Address)
----------------------------------------
(Telephone Number)
----------------------------------------
(Name)
----------------------------------------
(Address)
----------------------------------------
(Telephone Number)
<PAGE>
EXHIBIT 10(m)
MASTER SUPPLY CONTRACT
FOR RESALE OF OIL AND GREASES
TO BE SOLD AT
ORIGINAL AND NTG LOCATIONS FUNDED
THROUGH LOANS GUARANTEED BY MOBIL
MOBIL OIL CORPORATION
AND
GREASE MONKEY INTERNATIONAL, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE NO.
- ------- --------
<C> <S> <C>
1. Products; Quantities......................................................1
2. Term......................................................................1
3. Prices, Terms; Deliveries.................................................2
4. Taxes.....................................................................2
5. Trademarks; Trade Dress; Brand Names; Advertising.........................2
6. Containers................................................................3
7. Product Quality Control...................................................3
8. Claims; Release...........................................................3
9. Contingencies.............................................................3
10. Indemnity.................................................................4
11. Permits...................................................................4
12. Seller's Right to Terminate; Default; Payments Due on Termination.........4
13. Buyer's Right to Terminate................................................5
14. Representations and Assurances............................................6
15. Relation of Seller and Buyer..............................................6
16. Notices...................................................................6
17. Severability..............................................................6
18. Entire Agreement..........................................................6
19. Number of NTG Locations...................................................6
20. Miscellaneous.............................................................7
21. Governing Law.............................................................7
</TABLE>
<PAGE>
MASTER SUPPLY CONTRACT
FOR
RESALE OF OILS AND GREASES
AT COMPANY OPERATED LOCATIONS AND
AT NTG LOCATIONS FUNDED
THROUGH LOANS GUARANTEED BY MOBIL
THIS SUPPLY CONTRACT is made as of September 11, 1997, between MOBIL
OIL CORPORATION ("Seller"), with offices at 3225 Gallows Road, Fairfax,
Virginia 22037 and GREASE MONKEY INTERNATIONAL, INC. ("Buyer"), with offices
at 216 16th Street, Suite 1100, Denver, Colorado 80202.
1. PRODUCTS; QUANTITIES. Seller agrees to sell and Buyer agrees to
purchase, on the terms and conditions of this Supply Contract, Mobil products
for: (i) the original company locations listed in Exhibit 2 ("Company
Operated Locations"), and (ii) certain new-to-Grease Monkey quick-lube
locations, which includes acquisitions of existing quick lube locations which
do not feature Mobil products ("NTG Locations") to be added to Exhibit 2 by
mutual agreement of the Parties, which NTG locations will be financed in
connection with the Agreement to Provide Guaranty and Security Agreement
between Seller and Buyer and dated as of September 11, 1997, (the Agreement
to Provide Guaranty and Security Agreement together with all related
documents are referred to in this Supply Contract as the "Guaranty
Agreement"). The Original Locations and NTG Locations are collectively
referred to as the "Grease Monkey Locations."
Buyer agrees to: (i) feature Mobil 1 synthetic and Mobil bulk
lubricants at all Company Operated Locations, and (ii) purchase an average of
approximately 230,000 gallons per year of Mobil lubricants for all Company
Operated Locations but no less than 2,300,000 gallons must be purchased for
the Company Locations over a ten-year period. Buyer further agrees to: (i)
feature Mobil I synthetic and Mobil bulk lubricants at all NTG Locations, the
required gallons of Mobil lubricants per year over a period of ten (10) years
for each NTG Location (there will be multiple NTG Locations and multiple ten
(10) year periods, each ten (10) year period begins at the time that each NTG
Location opens for business) such that for each $2.58 borrowed, 10 gallons
must be purchased by each NTG over each ten-year period. All NTG Locations
will begin operations within the first four (4) years of the term of this
Supply Contract. Buyer also agrees that twelve percent (12%) of all purchases
will be Mobil 1.
Purchase obligations are measured beginning on the opening day for
each NTG Location and ending ten years thereafter.
For this Supply Contract, 8 pounds of grease equals 1 gallon of oil.
As used in this Supply Contract, the terms "Seller's product" and "Mobil
lubricants" are used interchangeably.
A list of Mobil lubricants to be purchased by Buyer is set forth on
Exhibit 1, attached to and made part of this Supply Contract. Mobil lubricants,
grades, trademarks, and packaging shall be those marketed and used by Seller at
times of deliveries for similar buyers in Buyer's area, all as determined by
Seller. Seller may change the grade, specifications, characteristics, delivery
package, brand name, or other distinctive designation of any of Seller's product
and such products as so changed shall remain subject to this Supply Contract.
2. TERM. The term of this Supply Contract shall vary for the different
locations covered by this Supply Contract. For NTG Locations, the term shall
begin on the date such NTG location opens for business. For the
-1-
<PAGE>
Company Operated Locations, the term shall begin __________. In either case,
the term shall end upon the later to occur of: (i) the purchase of the volume
requirements for that location (or, in the case of the Company Operated
Locations, for all such locations), and (ii) final payment of any amounts
outstanding under any of the Promissory Notes (as defined in the Agreement to
Provide Guaranty and Reimbursement Agreement among Mobil Oil, Mobil and
Grease Monkey associated with that location.
3. PRICES, TERMS; DELIVERIES.
(a) PRICES. Initial prices of Seller's products are set forth on
Exhibit 1. Prices are prior to taxes and include delivery to Buyer's location
but exclude any loan guaranty service charge that may be due under the
Guaranty Agreement.
(b) TERMS OF PAYMENT. Net 30 days. Cash discounts, if any, are not
applicable to taxes, freight charges, or container charges. Seller shall
forward invoices for Mobil products purchased by individual Grease Monkey
Locations to Buyer for payment within 30 days.
(c) DELIVERIES. Deliveries of Mobil products shall be made by
Seller's authorized distributors, selected by Seller in its sole discretion,
and shall be promptly received by Buyer. Minimum orders for bulk Mobil
products is 500 gallons; minimum orders for packaged Mobil products (drums
and pails) is 63 gallons.
Title to, and all risk of loss of or damage to any of Seller's
products shipped to Buyer passes to Buyer at the delivery point. Seller's
products are received by Buyer when delivered to Buyer at the delivery point
specified by the ordering Grease Monkey Location.
If Buyer defaults in the payment of any indebtedness to Seller, in
addition to any other rights it may have, Seller may immediately change the
terms of payment and may suspend deliveries of all of Seller's products and
apply any funds that Buyer may have on deposit in Seller's custody to the
payment of the indebtedness.
(d) PRICE ADJUSTMENT. Seller may adjust the price or terms of
payment for Seller's products at any time by giving Buyer at least thirty
(30) days written notice.
4. TAXES. The amount of any present or future governmental tax, fee,
duty or other imposition (not included in the price or otherwise paid by
Buyer) on or measured by: (a) this Supply Contract; (b) Seller's products or
constituent materials covered by this Supply Contract; or (c) the
manufacture, sale, use, transportation or handling of Seller's products or
materials, shall be paid by Buyer to Seller, unless Buyer is required by law
to make payments directly to the governmental taxing unit. Any and all
exemptions from taxes claimed by Buyer are set forth on Exhibit 3.
5. TRADEMARKS; TRADE DRESS; BRAND NAMES; ADVERTISING. Buyer shall
use Seller's trademarks, trade dress, and brand names ("Trademarks") to
identify and advertise Seller's products. The Trademarks shall not be used
for any other purposes, or in any manner that may confuse or deceive the
public.
Buyer shall not mix any other products with Mobil products or
adulterate them in any way, and shall not use the Trademarks in connection
with the storage, handling, dispensing, or sale of any adulterated, mixed or
substituted Mobil products. Seller may take samples from Buyer's tanks to
ensure product integrity.
All advertising, including color schemes, of Seller's products are
subject to Seller's approval. Any violation of the provisions of this
Paragraph 5 gives Seller the right to immediately terminate this Supply
Contract. On any termination of this Supply Contract, Buyer shall immediately
discontinue: (a) referring to Seller, (b) using Seller's color schemes,
Trademarks and slogan, (c) advertising Seller's products, (d) return to
Seller, at no cost to Seller, all signs, advertising and promotional material
in Buyer's possession, and (e) repay all
-2-
<PAGE>
amounts owing to Mobil in accordance with Section 12(c) of this Supply
Contract.
Buyer acknowledges that in addition to any applicable monetary or
other damages, injunctive relief is also an appropriate remedy for Buyer's
violation of this Paragraph 5. Buyer agrees to pay Seller's reasonable
attorney fees if Seller institutes legal action to enforce any provisions of
this Paragraph 5.
6. CONTAINERS. All containers on which Seller charges a deposit
($20.00 deposit on drums) remain Seller's property, must be used only for the
original contents, and must be returned when empty, freight collect, to the
point from which Seller shipped the product to the Buyer, or other location
as may be designated by Seller from time to time. If Seller maintains a
regular pick-up service in Buyer's area, Seller may collect containers on
notice from Buyer.
Deposit charges are payable without discount when payments for the
contents are due. Deposit charges are refundable if the containers are
returned in their delivered condition, less ordinary wear, within ninety (90)
days after delivery. If containers are not returned, Seller may retain the
deposit charges in settlement for the containers and expenses.
7. PRODUCT QUALITY CONTROL. Buyer has a duty to protect the quality
of products delivered to it by Seller or Seller's authorized distributors.
8. CLAIMS; RELEASE. Seller has no liability for any defect in
quality, or shortage in quantity, of any of Seller's products delivered
unless Buyer gives Seller or Seller's authorized distributor notice of
Buyer's claim within: (a) two (2) days after delivery for shortages in
quantity of Seller's products, or (b) within four (4) days after delivery for
quality deficiencies, and further provides Seller with a reasonable
opportunity to inspect Seller's products and take test samples.
Any other claim by Buyer of any kind, based on or arising out of
this Supply Contract or otherwise, is waived and barred unless Seller is
given written notice within one hundred eighty (180) days after the event,
action, or inaction to which the claim relates. Further, any claim is waived
by Buyer and barred unless asserted by the commencement of an action within
twelve (12) months after the event, action, or inaction to which the claim
relates. Seller is not liable for prospective profits or special, indirect,
or consequential damage.
9. CONTINGENCIES. Seller shall not be liable for loss, damage, or
demurrage due to any delay or failure to perform:
(a) because of compliance with any action, order, direction,
request, or control of any governmental authority; or
(b) when the supply or purchase of Seller's products or any facility
of production, manufacture, storage, transportation, distribution, or
delivery is interrupted, unavailable, or inadequate because of wars,
hostilities, public disorders, acts of enemies, sabotage, strikes, lockouts,
labor or employment difficulties, fires, floods, acts of God, accidents or
breakdowns, plant shutdowns for repairs, maintenance or inspection, weather
conditions, or for any other cause which Seller determines is beyond the
party's reasonable control when acting in good faith and in the ordinary
course of business, whether or not similar to any of the foregoing (a "Force
Majeure Event") provided that Seller has made good-faith efforts to secure an
alternative source of supply.
Seller is not required to remove any cause or replace the affected
source of supply or facility if it involves material additional expense or a
material departure from normal practices.
If, for any cause, there is, or Seller believes in its reasonable
opinion there may be, a shortage of supplies, for whatever reason, so that
Seller is or may be unable to meet the demands of all of its customers of all
kinds,
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Seller may allocate to and among its customers in each class of trade
quantities of product as Seller determines in the exercise of its ordinary
business judgment it has available for distribution to that class of trade
from any given terminal or point of supply, provided that Seller's plan of
allocation shall not unreasonably discriminate between Buyer and Seller's
other customers in that class of trade.
Seller shall not be required to make up any deliveries or quantities
omitted under the provisions of this Paragraph 9, including but not limited
to, deliveries or quantities omitted pursuant to Seller's right to allocate
Seller's products among its customers, nor shall Seller be liable for any
damages or losses in connection with omitted deliveries or quantities.
In all instances when a decision or determination of Seller is
referred to in this Paragraph 9, the decision or determination shall be made
in Seller's sole and absolute discretion acting in the ordinary course of
business.
10. INDEMNITY. Buyer shall defend and indemnify Seller, and its
agents, servants, employees, successors, and assigns from:
(i) any fines, penalties, charges, or expenses, for violations
of any law, ordinance or regulation, caused by any act or omission,
whether negligent or otherwise, of such Buyer or its agents,
servants, employees, or others under it; and
(ii) any claims, losses, liability, suits, liens and expenses
for death, personal injury, property damage, or any other injury or
claim arising out of the use, occupancy, operation, services offered
by, or maintenance of Buyer's NTG locations (including adjacent
sidewalks, drives, and curbs), lubrication equipment, or Buyer's
other businesses by Buyer or any of its operators, lessees, agents,
contractors, employees, customers, or others under it.
The provisions of Paragraphs 8 and 10 survive any termination or
nonrenewal of this Supply Contract, however arising.
11. PERMITS. Buyer must obtain all required permits and licenses in
connection with its operation of the Grease Monkey Locations and must comply
in all material respects with all applicable governmental laws and
regulations.
12. SELLER'S RIGHT TO TERMINATE; DEFAULT; PAYMENTS DUE ON TERMINATION.
(a) If Buyer or any Grease Monkey Location is in material default
under this Supply Contract, or under any other agreement between the parties:
(i) Seller may suspend deliveries (to the Grease Monkey Location in default)
during the default; and (ii) Seller shall provide notice of default to Buyer
and Buyer shall have thirty (30) days to cure such default. Thereafter, if
the default continues, Seller may terminate this Supply Contract with respect
to the Grease Monkey Location in default and the payment provisions in
section 12(b) and 12(c) shall apply.
(b) Upon providing written notice to Buyer, Seller may immediately
terminate this Supply Contract (with respect to one or more Grease Monkey
Locations) upon the occurrence of one or more of the following events:
(i) Buyer or Grease Monkey Location's material failure to comply
with the provisions of Section 5 of this Supply Contract;
(ii) except in circumstances where Seller is unable to deliver
product to a specific Grease Monkey Location by reason of a Force
Majeure Event, the non-Mobil inventory of lubricants at a Grease
Monkey
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Location constitutes more than 15% of that Grease Monkey Location's
total inventory of lubricants;
(iii) a Grease Monkey Location(s) is closed for more than 7
days except by reason of a Force Majeure Event;
(iv) a Grease Monkey Location(s) does not materially meet its
purchase obligations as set forth in this Supply Contract;
(v) a sale or transfer of a Grease Monkey Location occurs other
than those transfers permitted by the Guaranty Agreement;
(vi) without Mobil's prior written consent, more than 30% of
the voting shares or other form of ownership and control of Grease
Monkey Holding Corporation, of which GMI is a wholly owned
subsidiary is sold or transferred to a party that Mobil considers to
be a direct competitor;
(vii) Buyer becomes insolvent; an insolvency, receivership or
bankruptcy proceeding is commenced by or against Buyer; or Buyer
makes an assignment for the benefit of creditors;
(viii) Buyer attempts to assign or otherwise transfer its
interest in this Agreement in contravention of the terms of Section
20; or
(ix) Mobil Corporation is required to pay under the Guaranty
Agreement or related documents.
On or prior to the effective date of any termination (partial or
whole) of this Supply Contract, funds owed by Buyer to Seller with respect to
the affected Grease Monkey Location(s), including: (i) payments due Seller
under the Guaranty Agreement, (ii) amounts owing Seller for Buyer's purchases
of Seller's products, and (iii) any other amounts outstanding shall become
immediately due and payable to Seller.
(c) It is understood that Mobil is relying on sales to Buyer of
Mobil lubricants in quantities and percentages set forth in Section I and
that any termination of this Supply Contract or failure to purchase those
quantities and percentages of Mobil lubricants will result in serious losses
to Mobil. Buyer and Mobil acknowledge that the amount of those losses is and
will be difficult to determine. It is agreed, therefore, that upon any
termination of this Supply Contract, in whole or with respect to a specific
location, Buyer shall pay to Mobil, as liquidated damages to compensate for
such losses, fifteen cents ($0.15) per gallon multiplied by the excess of the
number of gallons of Mobil lubricants that are required to be purchased over
the term of this Agreement pursuant to Section 1 for the affected locations,
over the number of gallons actually purchased prior to such termination.
Buyer may terminate certain locations as allowed by the Agreement to Provide
Guaranty without incurring any liquidated damages pursuant to this Section
12. The damages here liquidated are confined to losses resulting from
termination of this Supply Contract and shall not affect such other rights
and remedies Mobil may have under this Supply Contract and under applicable
law.
13. BUYER'S RIGHT TO TERMINATE.
(a) If Seller defaults under this Supply Contract, Buyer shall
provide written notice to Seller and Seller shall have sixty (60) days to
cure such default. Thereafter, if the default continues, Buyer may terminate
this Supply Contract upon providing thirty (30) days written notice to Seller
and the payment provision in Section 12(c) of this Supply Contract shall not
apply.
(b) Buyer may terminate this Supply Contract upon providing ninety
(90) days prior written notice to Seller. Prior to the effective date of
termination, Buyer agrees to: (i) make all payments due Seller under the
Guaranty Agreement and related documents to Seller, (ii) make all payments
owing Seller for Buyer's purchases
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of Seller's products, (iii) pay any other amounts outstanding, and (iv) pay
liquidated damages set forth in Section 12(c).
14. REPRESENTATIONS AND ASSURANCES. Seller is entering into this
Supply Contract in reliance on Buyer's qualifications and representation to
Seller of its desire to operate the Grease Monkey Locations selling Mobil
products. Buyer acknowledges that its conduct impacts Mobil's products,
trademarks, and other Mobil retailers, distributors, and dealers; therefore,
Buyer agrees to conduct its business in a manner that maintains and enhances
public acceptance of Mobil products, trademarks, and Mobil retailers,
distributors, and dealers.
At all times, Buyer shall keep visible and legible Seller's logos,
signs and trademarks used in connection with the sale of Mobil products
inside of Buyer's Grease Monkey Locations, unless otherwise agreed upon by
the Buyer and Seller. Seller shall not require Buyer to display Seller's
logo, signs or trademarks in violation of Buyer's graphic standards contained
in Buyer's corporate identity guide.
15. RELATION OF SELLER AND BUYER. Buyer and Seller are independent
businesses, and nothing in this Supply Contract creates any right in Seller
or Buyer to exercise any control over, or to direct in any respect, the
conduct or management of the other party's business, subject only to each
party's performance of their respective obligations set forth in this Supply
Contract. Neither Buyer nor any person performing work at the Grease Monkey
Locations for, or on behalf of, Buyer shall be considered as an employee or
agent of Seller.
16. NOTICES. All notices under this Supply Contract, except those
under Paragraph 6, must be in writing and delivered personally or sent by
certified mail to the address set forth below unless changed by notice.
Notice by mail is effective 3 days from the postmark date.
Address for Seller: Mobil Oil Corporation
3225 Gallows Road
Fairfax, Virginia 22037
Attn: _______________
With a copy to: Mobil Oil Corporation
Customer Support Center
40 Liberty Boulevard
Malvern, PA 19355
Address for Buyer: Grease Monkey International, Inc.
216 16th Street, Suite 1100
Denver, CO 80202
Attn: Financial and Legal Departments
17. SEVERABILITY. If any provision or any portion of this Supply
Contract or the application of it to any person or circumstance is finally
determined by a court of competent jurisdiction to be invalid or
unenforceable, the invalidity or unenforceability shall not affect the other
provisions of this Supply Contract.
18. ENTIRE AGREEMENT. This instrument (including the documents
referred to in this instrument and documents incorporated herein) contains
the entire agreement covering the subject matter, and supersedes any prior
discussions between the parties relating to the subject matter of this Supply
Contract. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR WARRANTIES
AFFECTING THIS SUPPLY CONTRACT WHICH ARE NOT FULLY SET FORTH IN THIS SUPPLY
CONTRACT.
19. NUMBER OF NTG LOCATIONS. Buyer and Seller acknowledge that the
number of NTG Locations may change during the term of this Supply Contract
requiring additions or deletions to the number and location of NTG
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Locations serviced by particular Mobil distributors and time for Seller to
prepare the necessary administrative connections so that deleted or added NTG
Locations will be properly serviced. Buyer agrees to provide timely
notification of such events to Seller, enabling Seller to accommodate such
changes.
20. MISCELLANEOUS. Any attempt to assign this Supply Contract by
Buyer without obtaining Seller's prior written consent is void and
constitutes a default of this Supply Contract. The headings of the paragraphs
of this Supply Contract are for convenience only and do not limit, amplify,
or otherwise affect its terms and conditions. Seller's right to require
strict performance shall not be affected by any previous waiver or course of
dealing. Modifications to this Supply Contract must be in writing and signed
by an authorized representative of each party.
21. GOVERNING LAW. This Supply Contract shall be construed and
enforced in accordance with the laws of the Commonwealth of Virginia, without
giving effect to its rules on the conflicts of laws. The parties to this
Supply Contract irrevocably submit to the exclusive jurisdiction of the
United States District Court for the Eastern District of Virginia, for all
purposes of this Supply Contract, except for those matters over which said
Court does not have subject matter jurisdiction in which case the parties
irrevocably submit to the exclusive jurisdiction of the Circuit Court of the
County of Fairfax, Commonwealth of Virginia.
EXECUTED as of the date first above written.
WITNESSES: MOBIL OIL CORPORATION
/s/ Kim E. Howry /s/ George W. Madden
- -------------------------- ------------------------------------
By: George W. Madden
------------------------------------
Its: General Manager, Lubes Business
------------------------------------
GREASE MONKEY INTERNATIONAL, INC.
/s/ T. Timothy Kershisnik /s/ Charles E. Steinbrueck
- --------------------------- -----------------------------------
By: Charles E. Steinbrueck
-----------------------------------
Its: President and CEO
-----------------------------------
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EXHIBIT 10(n)
EMPLOYMENT AGREEMENT
[CHIEF EXECUTIVE OFFICER]
This Employment Agreement ("AGREEMENT") is made and entered into as
of this 12th day of March 1998 by and between GREASE MONKEY HOLDING
CORPORATION, a Utah corporation ("CORPORATION"), and CHARLES E. STEINBRUECK
("EXECUTIVE").
WHEREAS, the Corporation and the Executive desire that the term of
this Agreement begin on January 20, 1997 ("EFFECTIVE DATE"); and
WHEREAS, the Corporation desires to employ the Executive as its
President and Chief Executive Officer and Executive is willing to accept such
employment by the Corporation, on the terms and subject to the conditions set
forth in this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and
conditions contained herein, the Corporation and the Executive hereby agree
as follows:
SECTION 1. DUTIES. During the term of this Agreement, the Executive agrees to
be employed by and to serve the Corporation as its President and Chief
Executive Officer, and the Corporation agrees to employ and retain the
Executive in such capacities. In such capacity, the Executive shall render
such managerial, administrative and other services as are customarily
associated with or incident to such position and shall perform such other
duties and responsibilities for the Corporation as the Corporation may
reasonably require, consistent with such position. The Executive shall devote
a substantial portion of his business time, energy, and skill to the affairs
of the Corporation as the Executive shall report to the Corporation's board
of directors. The Corporation shall not appoint any individual to whom the
Executive shall report, or who shall have the right to supervise the
Executive, provided, however, that the Corporation's board of directors may
appoint one or more members of the board of directors to coordinate the
reporting from the Executive to the board of directors.
SECTION 2. TERM OF EMPLOYMENT.
2.1 DEFINITIONS. For the purposes of this Agreement the following terms shall
have the following meanings:
2.1.1 "Termination For Cause" shall mean termination by the Corporation
of the Executive's employment by the Corporation by reason of: (i) a conviction
of Executive 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 Executive, or (vi)
dishonesty, gross neglect of duty, disparagement of the Corporation or other
intentional acts or omissions which
<PAGE>
negatively and materially impact or impair the Corporation's ability to
conduct its ordinary business in its usual manner.
2.1.2 "Termination Other Than For Cause" shall mean termination by
the Corporation of the Executive's employment by the Corporation (other than
in a Termination for Cause) and shall include constructive termination of the
Executive's employment by reason of material breach of this Agreement by the
Corporation, such constructive termination to be effective upon notice from
the Executive to the Corporation of such constructive termination.
2.1.3 "Voluntary Termination" shall mean termination by the
Executive of the Executive's employment by the Corporation other than (i)
Constructive Termination as described herein, (ii) "Termination Upon a Change
in Control," and (iii) termination by reason of the Executive's death or
disability as described herein.
2.1.4 "Termination Upon a Change in Control" shall mean a
termination by the Executive of the Executive's employment with the
Corporation within 120 days following a "Change in Control."
2.1.5 "Change in Control" shall mean (i) the time that the
Corporation first determines that any person and all other persons who
constitute a group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934 ("Exchange Act")) have acquired direct or indirect
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of twenty percent (20%) or more of the Corporation's outstanding
securities, unless a majority of the "Continuing Directors" approves the
acquisition not later than ten (10) business days after the Corporation makes
that determination, or (ii) the first day on which a majority of the members
of the Corporation's board of directors are not "Continuing Directors."
2.1.6 "Continuing Directors" shall mean, as of any date of
determination, any member of the Corporation's board of directors of the
Corporation who (i) was a member of that board of directors on January 20,
1997, (ii) has been a member of that board of directors for the two years
immediately preceding such date of determination, or (iii) was nominated for
election or elected to the Corporation's board of directors with the
affirmative vote of the greater of (x) a majority of the Continuing Directors
who were members of the Corporation's board of directors at the time of such
nomination or election or (y) at least three Continuing Directors.
2.2 INITIAL TERM. The term of employment of the Executive by the Corporation
shall be for a period of three (3) years beginning with Effective Date ("INITIAL
TERM"), unless terminated earlier pursuant to this Agreement. At any time prior
to the expiration of the Initial Term, the Corporation and the Executive may by
mutual written agreement extend the Executive's employment under the terms of
this Agreement for such additional periods as they may agree.
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2.3 TERMINATION FOR CAUSE. Termination For Cause may be effected by the
Corporation at any time during the term of this Agreement and shall be
effected by written notification to the Executive. Upon Termination For
Cause, the Executive shall promptly be paid all accrued salary, bonus
compensation to the extent earned, vested deferred compensation (other than
pension plan, stock incentive plan or profit sharing plan benefits which will
be paid in accordance with the applicable plan), any benefits under any plans
of the Corporation in which the Executive is a participant to the full extent
of the Executive's rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by the Executive in connection with
his duties hereunder, all to the date of termination, but the Executive shall
not be paid any other compensation or reimbursement of any kind, including
without limitation, Severance Compensation.
2.4 TERMINATION OTHER THAN FOR CAUSE. Notwithstanding anything else in this
Agreement, the Corporation may effect a Termination Other Than For Cause at
any time upon giving written notice to the Executive of such termination.
Upon any Termination Other Than For Cause, the Executive shall promptly be
paid all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan, stock incentive plan or
profit sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Corporation in which
the Executive is a participant to the full extent of the Executive's rights
under such plans (including accelerated vesting, if any, of awards granted to
the Executive under the Corporation's stock option plan), accrued vacation
pay and any appropriate business expenses incurred by the Executive in
connection with his duties hereunder, all to the date of termination, and all
Severance Compensation provided, but no other compensation or reimbursement
of any kind.
2.5 TERMINATION BY REASON OF DISABILITY. If, during the term of this
Agreement, the Executive, in the reasonable judgment of the Corporation's
board of directors, has failed to perform his duties under this Agreement on
account of illness or physical or mental incapacity, and such illness or
incapacity continues for a period of more than two consecutive months, the
Corporation shall have the right to terminate the Executive's employment
hereunder by written notification to the Executive and payment to the
Executive of all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than stock incentive plan, pension plan
or profit sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Corporation in which
the Executive is a participant to the full extent of the Executive's rights
under such plans, accrued vacation pay and any appropriate business expenses
incurred by the Executive in connection with his duties hereunder, all to the
date of termination, with the exception of medical and dental benefits which
shall continue through the expiration of this Agreement, but the Executive
shall not be paid any other compensation or reimbursement of any kind,
including without limitation, Severance Compensation.
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2.6 DEATH. In the event of the Executive's death during the term of this
Agreement, the Executive's employment shall be deemed to have terminated as
of the last day of the month during which his death occurs and the
Corporation shall promptly pay to his estate or such beneficiaries as the
Executive may from time to time designate all accrued salary, bonus
compensation to the extent earned, vested deferred compensation (other than
stock incentive plan, pension plan or profit sharing plan benefits which will
be paid in accordance with the applicable plan), any benefits under any plans
of the Corporation in which the Executive is a participant to the full extent
of the Executive's rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by the Executive in connection with
his duties hereunder, all to the date of termination, but the Executive's
estate shall not be paid any other compensation or reimbursement of any kind,
including without limitation, Severance Compensation.
2.7 VOLUNTARY TERMINATION. In the event of a Voluntary Termination, the
Corporation shall promptly pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than stock incentive plan,
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Corporation in
which the Executive is a participant to the full extent of the Executive's
rights under such plans, accrued vacation pay and any appropriate business
expenses incurred by the Executive in connection with his duties hereunder,
all to the date of termination, but no other compensation or reimbursement of
any kind, including without limitation, Severance Compensation.
Notwithstanding the above to the contrary, if the Corporation changes the
Executive's title, working conditions or specifies duties so that the
Executive's powers and duties are diminished or reduced, or include powers,
duties or working conditions which are not generally consistent with the
title of Chief Executive Officer (a "CONSTRUCTIVE TERMINATION"), or if the
Corporation changes the reporting relationship so that the Executive reports
to another officer or employee, other than the Corporation's board of
directors as a whole, then at any time thereafter, at the Executive's option
and upon thirty days notice, and provided that such changes shall not have
been rescinded or corrected to the reasonable satisfaction of the Executive
within said thirty day period, the Executive shall have the right to
terminate the employment relationship, and in such event, the employment
shall be deemed to have been terminated by the Corporation without cause.
2.8 TERMINATION UPON A CHANGE IN CONTROL. In the event of a Termination Upon
a Change in Control, the Executive shall immediately be paid all accrued
salary, bonus compensation to the extent earned, vested deferred compensation
(other than pension plan or profit sharing plan benefits which will be paid
in accordance with the applicable plan), any benefits under any plans of the
Corporation in which the Executive is a participant to the full extent of the
Executive's rights under such plans (including accelerated vesting, if any,
of any awards granted to the Executive under the Corporation's Stock Option
Plan), accrued vacation pay and any appropriate
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business expenses incurred by the Executive in connection with his duties
hereunder, all to the date of termination, and all Severance Compensation,
but no other compensation or reimbursement of any kind.
2.9 NOTICE OF TERMINATION. The Corporation may effect a termination of this
Agreement pursuant to the provisions of this Section upon giving thirty (30)
days' written notice to the Executive of such termination. The Executive may
effect a termination of this Agreement pursuant to the provisions of this
Section upon giving thirty (30) days' written notice to the Corporation of
such termination.
SECTION 3. SALARY, BENEFITS AND BONUS COMPENSATION.
3.1 BASE SALARY. As payment for the services to be rendered by the Executive
as provided in Section 1 and subject to the terms and conditions of Section
2, the Corporation agrees to pay to the Executive a base salary for the
twelve (12) calendar months beginning the Effective Date at the rate of
$125,000 per annum payable in 12 equal monthly installments of $10,416.66.
The Executive's base salary shall be reviewed annually by the Compensation
Committee of the Corporation's board of directors ("COMPENSATION COMMITTEE"),
and the base salary for each year (or portion thereof) beginning January 1,
1998 shall be determined by the Compensation Committee which shall authorize
an increase in the Executive's base salary.
3.2 BONUSES. The Executive shall be eligible to receive a discretionary bonus
for each year (or portion thereof) during the term of this Agreement and any
extensions thereof, with the actual amount of any such bonus to be determined
in the sole discretion of the Corporation's board of directors based upon its
evaluation of the Executive's performance during such year. All such bonuses
shall be reviewed annually by the Compensation Committee.
3.3 ADDITIONAL BENEFITS. During the term of this Agreement, the Executive
shall be entitled to the following fringe benefits:
3.3.1 EXECUTIVE BENEFITS. The Executive shall be eligible to participate
in such of the Corporation's benefits and deferred compensation plans as are
now generally available or later made generally available to executive
officers of the Corporation, including, without limitation, the Corporation's
Stock Incentive Plan, profit sharing plans, annual physical examinations,
dental and medical plans, personal catastrophe and disability insurance, life
insurance, financial planning, retirement plans and supplementary executive
retirement plans, if any. For purposes of establishing the length of service
under any benefit plans or programs of the Corporation, the Executive's
employment with the Corporation will be deemed to have commenced on the
Effective Date.
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3.3.2 VACATION. The Executive shall be entitled to four weeks of vacation
during each year during the term of this Agreement and any extensions
thereof, prorated for partial years.
3.3.3 REIMBURSEMENT FOR EXPENSES. During the term of this Agreement, the
Corporation shall reimburse the Executive for reasonable and properly
documented out-of-pocket business and/or entertainment expenses incurred by
the Executive in connection with his duties under this Agreement.
3.3.4 STOCK OPTIONS. The Corporation shall grant to Executive, stock
options on 750,000 shares of the Corporation's common stock with an exercise
price of $1.3125. Such stock options shall be issued and held in accordance
with the Corporation's Stock Incentive Plan currently in effect. Such stock
options shall vest as follows: (i) 100,000 as of January 20, 1997, and (ii)
the remaining 650,000 shall vest over the three (3) year period following the
date of this agreement based on performance criteria (set forth below) as
follows:
SHARES EXERCISABLE
------ -----------
200,000 December 31, 1997
200,000 December 31, 1998
250,000 December 31, 1999
3.3.5 PERFORMANCE CRITERIA. Executive shall not be entitled to exercise
the stock options in any year unless the Board of Directors of the Corporation
has determined that the Corporation has met the following performance criteria
for the previous year, which determination shall be at the Board's sole and
absolute discretion. The performance criteria for each year is set forth below:
3.3.5.1 MINIMUM CORPORATE EARNINGS. The Corporation must obtain minimum
corporate earnings (net earnings based on Generally Accepted Accounting
Principals) as follows:
YEAR ENDED MINIMUM CORPORATE EARNINGS
---------- --------------------------
December 31, 1997 $ 500,000
December 31, 1998 1,000,000
December 31, 1999 1.500,000
3.3.5.2 REVENUE GROWTH. The Corporation must achieve a compounded growth
rate in gross revenue of 20% for each year from 1997 through 1999.
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3.3.5.3 UNIT OPENINGS. The Corporation must be within 75% of the growth
target for new unit openings which shall be established by the Board of
Directors in the business plan for the Corporation.
SECTION 4. SEVERANCE COMPENSATION.
4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A CHANGE IN
CONTROL. In the event the Executive's employment is terminated in a
Termination Upon a Change in Control, the Executive shall be paid as
severance compensation ("SEVERANCE COMPENSATION") his base salary (at the
rate payable at the time of such termination), for a period of the lesser of
the remaining portion of the Initial Term or two (2) years from the date of
such termination provided, however, that if the Executive is employed by a
new employer during such period, the Severance Compensation payable to the
Executive during such period will be reduced by the amount of compensation
that the Executive actually receives from the new employer. However, the
Executive is under no obligation to mitigate the amount owed the Executive
pursuant to this Section by seeking other employment or otherwise.
Notwithstanding anything in this Section to the contrary, the Executive may
in the Executive's sole discretion, by delivery of a notice to the
Corporation within thirty (30) days following a Termination Upon a Change in
Control, elect to receive from the Corporation, a lump sum Severance
Compensation payment by bank cashier's check equal to the present value of
the flow of cash payments that would otherwise be paid to the Executive
pursuant to this Section. The Executive shall also be entitled to an
accelerated vesting of any awards granted to the Executive under the
Corporation's Stock Incentive Plan to the extent provided in the stock option
agreement entered into at the time of grant. The Executive shall continue to
accrue retirement benefits and shall continue to enjoy any benefits under any
plans of the Corporation in which the Executive is a participant to the full
extent of the Executive's rights under such plans, including any perquisites
provided under this Agreement, though the remaining term of this Agreement;
provided, however, that the benefits under any such plans of the Corporation
in which the Executive is a participant, including any such perquisites,
shall cease upon re-employment by a new employer.
4.2 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN FOR
CAUSE. In the event the Executive's employment is terminated in a Termination
Other Than for Cause, the Executive shall be paid as Severance Compensation
his Base Salary (at the rate payable at the time of such termination), for a
period of the lesser of the remaining portion of the Initial Term or two (2)
years from the date of such termination, on the dates specified in Section
3.1; provided, however, that if the Executive is employed by a new employer
during such period, the Severance Compensation payable to the Executive
during such period will be reduced by the amount of compensation that the
Executive is receiving from the new employer, officer. However, the Executive
is under no obligation to mitigate the amount owed to the officer pursuant to
this Section by seeking employment or otherwise. The
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Executive shall be entitled to an accelerated vesting of any awards granted
to the Executive under the Corporation's Stock Incentive Plan to the extent
provided in the stock option agreement entered into at the time of grant.
4.3 NO SEVERANCE COMPENSATION UPON OTHER TERMINATION. In the event of a
Voluntary Termination, Termination For Cause, termination by reason of the
Executive's death or disability as described herein, the Executive or his
estate shall not be paid any Severance Compensation.
4.4 LIMIT ON AGGREGATE COMPENSATION UPON A CHANGE IN CONTROL. Notwithstanding
anything else in this Agreement, solely in the event of a Termination Upon a
Change in Control, the amount of Severance Compensation paid to the
Executive, but exclusive of any payments to the Executive in respect of any
stock options then held by the Executive (or any compensation deemed to be
received by the Executive in connection with the exercise of any stock
options at any time) or by virtue of the Executive's exercise of a right
under the Stock Incentive Plan upon a Change in Control, shall not include
any amount that the Corporation is prohibited from deducting for federal
income tax purposes by virtue of Section 280G of the Internal Revenue Code
or any successor provision.
SECTION 5. WITHHOLDINGS. All compensation and benefits to the Executive
hereunder shall be reduced by all federal, state, local and other
withholdings and similar taxes and payments required by applicable law.
SECTION 6. INDEMNIFICATION. In addition to any rights to indemnification to
which the Executive is entitled to under the Corporation's articles of
incorporation and bylaws, the Corporation shall indemnify the Executive at all
times during and after the term of this Agreement to the maximum extent
permitted under the Colorado Business Corporation Act or any successor provision
thereof and any other applicable state law, and shall pay the Executive's
expenses in defending any civil or criminal action, suit, or proceeding in
advance of the final disposition of such action, suit or proceeding, to the
maximum extent permitted under such applicable state laws.
SECTION 7. PROPRIETARY INFORMATION. Executive shall use his best efforts to
preserve and protect the confidentiality of all proprietary and confidential
information regarding the Corporation and its affiliates which he obtains or
of which he otherwise becomes aware during the course of providing the
services described in this Agreement (other than information that is already
publicly available or which he may be required by law to disclose)
("Confidential Information"). Executive shall not disclose any Confidential
Information to any entity other than (i) the Corporation's employees or its
designated agents, or (ii) other than as necessary in the ordinary course of
business. Executive acknowledges that the Confidential Information is a
unique and valuable asset of the Corporation, represents a substantial
investment of time and expense by the
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Corporation, and that any disclosure or other use of such information other
than for the benefit of the Corporation would cause irreparable harm.
SECTION 8. RECORDS. Executive will keep complete, accurate and authentic
accounts, notes, data and records ("Records") of his actions. The Records
shall be the property of the Corporation. Upon request, Executive will
promptly deliver the Records to the Corporation. Upon termination of this
Agreement, Executive shall deliver promptly to the Corporation 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 the Corporation,
including, but not limited to, all documents which in whole or in part
contain any Confidential Information.
SECTION 9. NON-COMPETITION COVENANT.
a. AGREEMENT NOT TO COMPETE. Executive agrees that, during the term of
this Agreement and for a period of two years following the termination of
this Agreement, he shall not, without the express written consent of the
Corporation, engage in competition with the Corporation, directly or
indirectly, in any manner or capacity (e.g., as an advisor, principal, agent,
partner, officer, director, stockholder, employee, member of any association,
or otherwise) in any phase of any business of a type conducted by the
Corporation.
b. GEOGRAPHIC EXTENT OF COVENANT. The obligations of Executive under
this Section 9 shall apply to the United States.
c. INDIRECT COMPETITION. Executive 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 9 if such
activity were carried out by Executive, either directly or indirectly.
SECTION 10. 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 Executive to render services hereunder
is personal in nature and shall not be assignable by Executive. The rights
and benefits of Executive under this Agreement shall not be subject to
voluntary or involuntary alienation, assignment or transfer. The terms and
provisions of this
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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
Executive and The Corporation 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, 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 Executive, to his office at the Corporation and (ii) if to the
Corporation, then to 216 16th Street, Suite 1100, Denver, Colorado 80202,
Attention Chairman of the Board, or at such other address as he may designate
from time to time.
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IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the day and year first above written.
The Grease Monkey Holding Corporation, a
Utah corporation
By: /s/ JAMES B. WALLACE
--------------------------
James B. Wallace, Chairman
/s/ CHARLES E. STEINBRUECK
---------------------------
Charles E. Steinbrueck
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EXHIBIT 10(o)
EMPLOYMENT AGREEMENT
VICE PRESIDENT OF SYSTEM SALES AND SUPPORT
This Employment Agreement ("Agreement") is made and entered into as of this
30th day of January, 1998 by and between GREASE MONKEY HOLDING CORPORATION, a
Utah corporation ("Corporation") and GARY L. WOFFORD ("Executive").
WHEREAS, the Corporation and the Executive desire that the term of this
Agreement begin on January 30, 1998 ("Effective Date"); and
WHEREAS, the Corporation desires to employ the Executive as its Vice
President of System Sales and Support and Executive is willing to accept such
employment by the Corporation, on the terms and subject to the conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the Corporation and the Executive hereby agree as follows:
SECTION 1. DUTIES. During the term of this Agreement, the Executive agrees to
be employed and to serve the Corporation as its Vice President of System
Sales and Support, and the Corporation agrees to employ and retain the
Executive in such capacity. In such capacity, the Executive shall render such
managerial, administrative and other services as are customarily associated
with or incident to such position and shall perform such other duties and
responsibilities for the Corporation as the Corporation may reasonably
require, consistent with such position. The Executive shall devote
substantially all of his business time, energy and skills to the affairs of
the Corporation, and shall report to the President and C.E.O.
SECTION 2. TERM OF EMPLOYMENT.
2.1 DEFINITIONS. For the purposes of this Agreement the following terms shall
have the following meanings:
2.1.1 "Termination For Cause" shall mean termination by the Corporation of
the Executive's employment by the Corporation by reason of: (i) a conviction
of Executive of a felony (whether or not such conviction is subject to
appeal), (ii) fraud, (ii) misappropriation of any property or business of
Corporation, (iv) default of any term or obligation of this Agreement, (v)
death of the Executive, or (vi) dishonesty, gross neglect of duty,
disparagement of the Corporation or other intentional acts or omissions which
negatively and materially impact or impair the Corporation's ability to
conduct its ordinary business in its usual manner.
2.1.2 "Termination Other Than For Cause" shall mean termination by the
Corporation of the Executive's employment by the Corporation (other than in a
Termination for Cause)
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and shall include constructive termination of the Executive's employment by
reason of material breach of this Agreement by the Corporation, such
constructive termination to be effective upon notice from the Executive to
the Corporation of such constructive termination.
2.1.3 "Voluntary Termination" shall mean termination by the Executive of the
Executive's employment by the Corporation other than (i) Constrictive
Termination as described herein, (ii) "Termination Upon a Change in Control,"
and (iii) termination by reason of the Executive's death or disability as
described herein.
2.1.4 "Termination Upon a Change in Control" shall mean a termination by the
Executive of the Executive's employment with the Corporation within 120 days
following a "Change in Control."
2.1.5 "Change in Control" shall mean (i) the time that the Corporation first
determines that any person and all other persons who constitute a group
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of
1934 ("Exchange Act")) have acquired direct or indirect beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of twenty percent
(20%) or more of the Corporation's outstanding securities, unless a majority
of the "Continuing Directors" approves the acquisition not later than ten
(10) business days after the Corporation makes that determination, or (ii)
the first day on which a majority of the members of the Corporation's board
of directors are not "Continuing Directors."
2.1.6 "Continuing Directors" shall mean, as of any date of determination, any
member of the Corporation's board of directors of the Corporation who (i) was
a member of that board of directors on January 30, 1998, (ii) has been a
member of that board of directors for the two years immediately preceding
such date of determination, or (iii) was nominated for election or elected to
the Corporation's board of directors with the affirmative vote of the greater
of (x) a majority of the Continuing Directors who were members of the
Corporation's board of directors at the time of such nomination or election
or (y) at least three Continuing Directors.
2.2 INITIAL TERM. The term of employment of the Executive by the Corporation
shall be for a period of three years beginning with Effective Date ("Initial
Term"), unless terminated earlier pursuant to this Agreement. At any time
prior to the expiration of the Initial Term, the Corporation and the
Executive may by mutual written agreement extend the Executive's employment
under the terms of this Agreement for such additional periods as they may
agree.
2.3 TERMINATION FOR CAUSE. Termination For Cause may be effected by the
Corporation at any time during the term of this Agreement and shall be effected
by written notification to the Executive. Upon Termination For Cause, the
Executive shall
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promptly be paid all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan, stock incentive plan
or profit sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Corporation in which
the Executive is a participant to the full extent of the Executive's rights
under such plans, accrued vacation pay and any appropriate business expenses
incurred by the Executive in connection with his duties hereunder, all to the
date of termination, but the Executive shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
Severance Compensation.
2.4 TERMINATION OTHER THAN FOR CAUSE. Notwithstanding anything else in this
Agreement, the Corporation may effect a Termination Other Than For Cause at
any time upon giving written notice to the Executive of such termination.
Upon any Termination Other Than For Cause, the Executive shall promptly be
paid all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan, stock incentive plan or
profit sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Corporation in which
the Executive is a participant to the full extent of the Executive's rights
under such plans (including accelerated vesting, if any, of awards granted to
the Executive under the Corporation's stock option plan), accrued vacation
pay and any appropriate business expenses incurred by the Executive in
connection with his duties hereunder, all to the date of termination, and all
Severance Compensation provided, but no other compensation or reimbursement
of any kind.
2.5 TERMINATION BY REASON OF DISABILITY. If, during the term of this
Agreement, the Executive, in the reasonable judgment of the Corporation's
board of directors, has failed to perform his duties under this Agreement on
account of illness or physical or mental incapacity, and such illness or
incapacity continues for a period of more than two consecutive months, the
Corporation shall have the right to terminate the Executive's employment
hereunder by written notification to the Executive and payment to the
Executive of all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than stock incentive plan, pension plan
or profit sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Corporation in which
the Executive is a participant to the full extent of the Executive's rights
under such plans, accrued vacation pay and any appropriate business expenses
incurred by the Executive in connection with his duties hereunder, all to the
date of termination, with the exception of medical and dental benefits which
shall continue through the expiration of this Agreement, but the Executive
shall not be paid any other compensation or reimbursement of any kind,
including without limitation, Severance Compensation.
2.6 DEATH. In the event of the Executive's death during the term of this
Agreement, the Executive's employment shall be deemed to have terminated as
of the last day of the month during which his death occurs and the
Corporation shall promptly pay to his
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estate or such beneficiaries as the Executive may from time to time designate
all accrued salary, bonus compensation to the extent earned, vested deferred
compensation (other than stock incentive plan, pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which the Executive is a
participant to the full extent of the Executive's rights under such plans,
accrued vacation pay and any appropriate business expenses incurred by the
Executive in connection with his duties hereunder, all to the date of
termination, but the Executive's estate shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
Severance Compensation.
2.7 VOLUNTARY TERMINATION. In the event of a Voluntary Termination, the
Corporation shall promptly pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than stock incentive plan,
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Corporation in
which the Executive is a participant to the full extent of the Executive's
rights under such plans, accrued vacation pay and any appropriate business
expenses incurred by the Executive in connection with his duties hereunder,
all to the date of termination, but no other compensation or reimbursement of
any kind, including without limitation, Severance Compensation.
Notwithstanding the above to the contrary, if the Corporation changes the
Executive's title, working conditions or specifies duties so that the
Executive's powers and duties are diminished or reduced, or include powers,
duties or working conditions which are not generally consistent with the
title of Vice President of System Sales and Support (a "Constructive
Termination"), or if the Corporation changes the reporting relationship so
that the Executive reports to another officer or employee, other than the
President and C.E.O., then at any time thereafter, at the Executive's option
and upon thirty days notice, and provided that such changes shall not have
been rescinded or corrected to the reasonable satisfaction of the Executive
within said thirty day period, the Executive shall have the right to
terminate the employment relationship, and in such event, the employment
shall be deemed to have been terminated by the Corporation without cause.
2.8 TERMINATION UPON A CHANGE IN CONTROL. In the event of a Termination Upon
a Change in Control, the Executive shall immediately be paid all accrued
salary, bonus compensation to the extent earned, vested deferred compensation
(other than pension plan or profit sharing plan benefits which will be paid
in accordance with the applicable plan), any benefits under any plans of the
Corporation in which the Executive is a participant to the full extent of the
Executive's rights under such plans (including accelerated vesting, if any,
of any awards granted to the Executive under the Corporation's Stock Option
Plan), accrued vacation pay and any appropriate business expenses incurred by
the Executive in connection with his duties hereunder, all to the date of
termination, and all Severance Compensation, but no other compensation or
reimbursement of any kind.
2.9 NOTICE OF TERMINATION. The Corporation may effect a termination of this
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Agreement pursuant to the provisions of this Section upon giving thirty (30)
days' written notice to the Executive of such termination. The Executive may
effect a termination of this Agreement pursuant to the provisions of this
Section upon giving thirty (30) days' written notice to the Corporation of
such termination.
SECTION 3. SALARY, BENEFITS AND BONUS COMPENSATION.
3.1 BASE SALARY. As payment for the services to be rendered by the Executive
as provided in Section 1 and subject to the terms and conditions of Section
2, the Corporation agrees to pay to the Executive a base salary beginning at
the Effective Date at the rate of $92,500 per annum payable in bi-monthly
installments. The Executive's base salary shall be reviewed annually by the
President and C.E.O. and the base salary for each year (or portion thereof)
beginning January 1, 1998 shall be determined by the President and C.E.O. who
may authorize an increase in the Executive's base salary.
3.2 BONUSES. The Executive shall be eligible to receive a discretionary bonus
for each year (or portion thereof) during the term of this Agreement and any
extensions thereof, with the actual amount of any such bonus to be determined
in the sole discretion of the President and C.E.O. based upon its evaluation
of the Executive's performance during such year. All such bonuses shall be
reviewed annually by the President and C.E.O.
3.3 ADDITIONAL BENEFITS. During the term of this Agreement, the Executive
shall be entitled to the following fringe benefits:
3.3.1 Executive Benefits. The Executive shall be eligible to participate in
such of the Corporation's benefits and deferred compensation plans as are now
generally available or later made generally available to executive officers
of the Corporation, including, without limitation, the Corporation's Stock
Incentive Plan, profit sharing plans, annual physical examinations, dental
and medical plans, personal catastrophe and disability insurance, life
insurance, financial planning, retirement plans and supplementary executive
retirement plans, if any. For purposes of establishing the length of service
under any benefit plans or programs of the Corporation, the Executive's
employment with the Corporation will be deemed to have commenced on the
Effective Date.
3.3.2 Vacation. The Executive shall be entitled to three weeks of vacation
during each year during the term of this Agreement and any extensions
thereof, prorated for partial years.
3.3.3 Reimbursement for Expenses. During the term of this Agreement, the
Corporation shall reimburse the Executive for reasonable and properly
documented out-of-pocket business and/or entertainment expenses incurred by
the Executive in connection with his duties under this Agreement.
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3.3.4 Stock Options. The Corporation shall grant to Executive, stock options
on One Hundred Thousand (100,000) shares of the Corporation's common stock
with an exercise price of $1.3125. Such stock options shall be issued and
held in accordance with the Corporation's Stock Incentive Plan currently in
effect.
SECTION 4. SEVERANCE COMPENSATION.
4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A CHANGE IN
CONTROL. In the event the Executive's employment is terminated in a
Termination Upon a Change in Control, the Executive shall be paid as
severance compensation ("Severance Compensation") his base salary (at the
rate payable at the time of such termination), for a period of twelve (12)
months from the date of such Termination Upon a Change in Control.
Notwithstanding anything in this Section to the contrary, the Executive may
in the Executive's sole discretion, by delivery of a notice to the
Corporation within thirty (30) days following a Termination Upon a Change in
Control, elect to receive from the Corporation, a lump sum Severance
Compensation payment by bank cashier's check equal to the present value of
the flow of cash payments that would otherwise be paid to the Executive
pursuant to this Section. The Executive shall also be entitled to an
accelerated vesting of any awards granted to the Executive under the
Corporation's Stock Incentive Plan to the extent provided in the stock option
agreement entered into at the time of grant. The Executive shall continue to
accrue retirement benefits and shall continue to enjoy any benefits under any
plans of the Corporation in which the Executive is a participant to the full
extent of the Executive's rights under such plans, including any perquisites
provided under this Agreement, though the remaining term of this Agreement.
4.2 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN FOR
CAUSE. In the event the Executive's employment is terminated in a Termination
Other Than for Cause, the Executive shall be paid as Severance Compensation
his Base Salary (at the rate payable at the time of such termination), for a
period of the lesser of the remaining portion of the Initial Term or twelve
(12) months from the date of such termination, on the dates specified in
Section 3.1; provided, however, that if the Executive is employed by a new
employer during such period, the Severance Compensation payable to the
Executive during such period will be reduced by the amount of compensation
that the Executive is receiving from the new employer, officer. However, the
Executive is under no obligation to mitigate the amount owed to the officer
pursuant to this Section by seeking employment or otherwise. The Executive
shall be entitled to an accelerated vesting of any awards granted to the
Executive under the Corporation's Stock Incentive Plan to the extent provided
in the stock option agreement entered into at the time of grant.
4.3 NO SEVERANCE COMPENSATION UPON OTHER TERMINATION. In the event of a
Voluntary Termination, Termination For Cause, termination by reason of the
Executive's death or disability as described herein, the Executive or his
estate shall not be paid any Severance Compensation.
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4.4 LIMIT ON AGGREGATE COMPENSATION UPON A CHANGE IN CONTROL.
Notwithstanding anything else in this Agreement, solely in the event of a
Termination Upon a Change in Control, the amount of Severance Compensation
paid to the Executive, but exclusive of any payments to the Executive in
respect of any stock options then held by the Executive (or any compensation
deemed to be received by the Executive in connection with the exercise of any
stock options at any time) or by virtue of the Executive's exercise of a
right under the Stock Incentive Plan upon a Change in Control, shall not
include any amount that the Corporation is prohibited from deducting for
federal income tax purposes by virtue of Section 28OG of the Internal Revenue
Code or any successor provision.
SECTION 5. OUTSIDE ACTIVITIES OF EXECUTIVE. Nothing in this Agreement shall
preclude the Executive from devoting time during reasonable periods required
for investing personal assets and/or those of family members in such form or
manner that will not violate this Agreement and these activities will be
permitted so long as they do not materially adversely affect the performance
of the Executive's duties and obligations to the Corporation.
SECTION 6. WITHHOLDINGS. All compensation and benefits to the Executive
hereunder shall be reduced by all federal, state, local and other
withholdings and similar taxes and payments required by applicable law.
SECTION 7. INDEMNIFICATION. In addition to any rights to indemnification to
which the Executive is entitled to under the Corporation's articles of
incorporation and bylaws, the Corporation shall indemnify the Executive at
all times during and after the term of this Agreement to the maximum extent
permitted under the Colorado Business Corporation Act or any successor
provision thereof and any other applicable state law, and shall pay the
Executive's expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action, suit or
proceeding, to the maximum extent permitted under such applicable state laws.
SECTION 8. PROPRIETARY INFORMATION. Executive shall use his best efforts to
preserve and protect the confidentiality of all proprietary and confidential
information regarding the Corporation and its affiliates which he obtains or
of which he otherwise becomes aware during the course of providing the
services described in this Agreement (other than information that is already
publicly available or which he may be required by law to disclose)
("Confidential Information"). Executive shall not disclose any Confidential
Information to any entity other than (i) the Corporation's employees or its
designated agents, or (ii) other than as necessary in the ordinary course of
business. Executive acknowledges that the Confidential Information is a
unique and valuable asset of the Corporation, represents a substantial
investment of time and expense by the Corporation, and that any disclosure or
other use of such information other than for the benefit of the Corporation
would cause irreparable harm.
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SECTION 9. RECORDS. Executive will keep complete, accurate and authentic
accounts, notes, data and records ("Records") of his actions. The Records
shall be the property of the Corporation. Upon request, Executive will
promptly deliver the Records to the Corporation. Upon termination of this
Agreement, Executive shall deliver promptly to the Corporation 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 the Corporation,
including, but not limited to, all documents which in whole or in part
contain any Confidential Information.
SECTION 10. NON-COMPETITION COVENANT.
10.1 AGREEMENT NOT TO COMPETE. Executive agrees that, during the term of
this Agreement and for a period of two years following the termination of
this Agreement, he shall not, without the express written consent of the
Corporation, engage in competition with the Corporation, directly or
indirectly, in any manner or capacity (e.g., as an advisor, principal, agent,
partner, officer, director, stockholder, employee, member of any association,
or otherwise) in any phase of any business of a type conducted by the
Corporation.
10.2 GEOGRAPHIC EXTENT OF COVENANT. The obligations of Executive under this
section 10 shall apply to the United States.
SECTION 11. MISCELLANEOUS.
11.1 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.
11.2 ASSIGNMENT. The agreement of Executive to render services hereunder is
personal in nature and shall not be assignable by Executive. The rights and
benefits of Executive 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.
11.3 ENTIRE AGREEMENT. This Agreement is the entire agreement between
Executive and The Corporation 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.
11.4 AMENDMENTS AND MODIFICATIONS. This Agreement cannot be changed orally, 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
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of any waiver, change, modification or discharge is sought.
11.5 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.
11.6 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 thereof.
11.7 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.
11.8 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
the Executive, to his office at the Corporation and (ii) if to the
Corporation, to 216 16th Street, Suite 1100, Denver, CO 80202, Attention:
Charles E. Steinbrueck, or at such other office as he may designate from time
to time.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
Grease Monkey Holding Corporation, a Utah corporation
/s/ Charles E. Steinbrueck
- -------------------------------
By: Charles E. Steinbrueck
Its: President and C.E.O.
/s/ Gary L. Wofford
- -------------------------------
Gary L. Wofford
<PAGE>
EXHIBIT 10(p)
EMPLOYMENT AGREEMENT
MANAGER OF STRATEGIC AND LEGAL AFFAIRS
This Employment Agreement ("Agreement") is made and entered into as of this
30th day of January, 1998 by and between GREASE MONKEY HOLDING CORPORATION, a
Utah corporation ("Corporation") and DANA KLAPPER COHEN ("Executive").
WHEREAS, the Corporation and the Executive desire that the term of this
Agreement begin on January 30, 1998 ("Effective Date"); and
WHEREAS, the Corporation desires to employ the Executive as its Manager of
Strategic and Legal Affairs and Executive is willing to accept such
employment by the Corporation, on the terms and subject to the conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the Corporation and the Executive hereby agree as follows:
SECTION 1. DUTIES. During the term of this Agreement, the Executive agrees to
be employed and to serve the Corporation as its Manager of Strategic and
Legal Affairs, and the Corporation agrees to employ and retain the Executive
in such capacity. In such capacity, the Executive shall render such legal,
managerial, administrative and other services as are customarily associated
with or incident to such position and shall perform such other duties and
responsibilities for the Corporation as the Corporation may reasonably
require, consistent with such position. The Executive shall devote
substantially all of her business time, energy and skills to the affairs of
the Corporation, and shall report to the President and C.E.O.
SECTION 2. TERM OF EMPLOYMENT.
2.1 DEFINITIONS. For the purposes of this Agreement the following terms shall
have the following meanings:
2.1.1 "Termination For Cause" shall mean termination by the Corporation of
the Executive's employment by the Corporation by reason of: (i) a conviction
of Executive of a felony (whether or not such conviction is subject to
appeal), (ii) fraud, (ii) misappropriation of any property or business of
Corporation, (iv) default of any term or obligation of this Agreement, (v)
death of the Executive, or (vi) dishonesty, gross neglect of duty,
disparagement of the Corporation or other intentional acts or omissions which
negatively and materially impact or impair the Corporation's ability to
conduct its ordinary business in its usual manner.
2.1.2 "Termination Other Than For Cause" shall mean termination by the
Corporation of the Executive's employment by the Corporation (other than in a
Termination for Cause)
1
<PAGE>
and shall include constructive termination of the Executive's employment by
reason of material breach of this Agreement by the Corporation, such
constructive termination to be effective upon notice from the Executive to
the Corporation of such constructive termination.
2.1.3 "Voluntary Termination" shall mean termination by the Executive of the
Executive's employment by the Corporation other than (i) Constrictive
Termination as described herein, (ii) "Termination Upon a Change in Control,"
and (iii) termination by reason of the Executive's death or disability as
described herein.
2.1.4 "Termination Upon a Change in Control" shall mean a termination by the
Executive of the Executive's employment with the Corporation within 120 days
following a "Change in Control."
2.1.5 "Change in Control" shall mean (i) the time that the Corporation first
determines that any person and all other persons who constitute a group
(within the meaning of Section 13(d)(3) of the Securities Exchange Act of
1934 ("Exchange Act")) have acquired direct or indirect beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of twenty percent
(20%) or more of the Corporation's outstanding securities, unless a majority
of the "Continuing Directors" approves the acquisition not later than ten
(10) business days after the Corporation makes that determination, or (ii)
the first day on which a majority of the members of the Corporation's board
of directors are not "Continuing Directors."
2.1.6 "Continuing Directors" shall mean, as of any date of determination, any
member of the Corporation's board of directors of the Corporation who (i) was
a member of that board of directors on January 30, 1998, (ii) has been a
member of that board of directors for the two years immediately preceding
such date of determination, or (iii) was nominated for election or elected to
the Corporation's board of directors with the affirmative vote of the greater
of (x) a majority of the Continuing Directors who were members of the
Corporation's board of directors at the time of such nomination or election
or (y) at least three Continuing Directors.
2.2 INITIAL TERM. The term of employment of the Executive by the Corporation
shall be for a period of three years beginning with Effective Date ("Initial
Term"), unless terminated earlier pursuant to this Agreement. At any time
prior to the expiration of the Initial Term, the Corporation and the
Executive may by mutual written agreement extend the Executive's employment
under the terms of this Agreement for such additional periods as they may
agree.
2.3 TERMINATION FOR CAUSE. Termination For Cause may be effected by the
Corporation at any time during the term of this Agreement and shall be
effected by written notification to the Executive. Upon Termination For
Cause, the Executive shall
2
<PAGE>
promptly be paid all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than pension plan, stock incentive plan
or profit sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Corporation in which
the Executive is a participant to the full extent of the Executive's rights
under such plans, accrued vacation pay and any appropriate business expenses
incurred by the Executive in connection with her duties hereunder, all to the
date of termination, but the Executive shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
Severance Compensation.
2.4 TERMINATION OTHER THAN FOR CAUSE. Notwithstanding anything else in this
Agreement, the Corporation may effect a Termination Other Than For Cause at
any time upon giving written notice to the Executive of such termination.
Upon any Termination Other Than For Cause, the Executive shall promptly be
paid all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan, stock incentive plan or
profit sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Corporation in which
the Executive is a participant to the full extent of the Executive's rights
under such plans (including accelerated vesting, if any, of awards granted to
the Executive under the Corporation's stock option plan), accrued vacation
pay and any appropriate business expenses incurred by the Executive in
connection with her duties hereunder, all to the date of termination, and all
Severance Compensation provided, but no other compensation or reimbursement
of any kind.
2.5 TERMINATION BY REASON OF DISABILITY. If, during the term of this
Agreement, the Executive, in the reasonable judgment of the Corporation's
board of directors, has failed to perform her duties under this Agreement on
account of illness or physical or mental incapacity, and such illness or
incapacity continues for a period of more than two consecutive months, the
Corporation shall have the right to terminate the Executive's employment
hereunder by written notification to the Executive and payment to the
Executive of all accrued salary, bonus compensation to the extent earned,
vested deferred compensation (other than stock incentive plan, pension plan
or profit sharing plan benefits which will be paid in accordance with the
applicable plan), any benefits under any plans of the Corporation in which
the Executive is a participant to the full extent of the Executive's rights
under such plans, accrued vacation pay and any appropriate business expenses
incurred by the Executive in connection with her duties hereunder, all to the
date of termination, with the exception of medical and dental benefits which
shall continue through the expiration of this Agreement, but the Executive
shall not be paid any other compensation or reimbursement of any kind,
including without limitation, Severance Compensation.
2.6 DEATH. In the event of the Executive's death during the term of
this Agreement, the Executive's employment shall be deemed to have terminated
as of the last day of the month during which her death occurs and the
Corporation shall promptly pay to her
3
<PAGE>
estate or such beneficiaries as the Executive may from time to time designate
all accrued salary, bonus compensation to the extent earned, vested deferred
compensation (other than stock incentive plan, pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Corporation in which the Executive is a
participant to the full extent of the Executive's rights under such plans,
accrued vacation pay and any appropriate business expenses incurred by the
Executive in connection with her duties hereunder, all to the date of
termination, but the Executive's estate shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
Severance Compensation.
2.7 VOLUNTARY TERMINATION. In the event of a Voluntary Termination, the
Corporation shall promptly pay all accrued salary, bonus compensation to the
extent earned, vested deferred compensation (other than stock incentive plan,
pension plan or profit sharing plan benefits which will be paid in accordance
with the applicable plan), any benefits under any plans of the Corporation in
which the Executive is a participant to the full extent of the Executive's
rights under such plans, accrued vacation pay and any appropriate business
expenses incurred by the Executive in connection with her duties hereunder,
all to the date of termination, but no other compensation or reimbursement of
any kind, including without limitation, Severance Compensation.
Notwithstanding the above to the contrary, if the Corporation changes the
Executive's title, working conditions or specifies duties so that the
Executive's powers and duties are diminished or reduced, or include powers,
duties or working conditions which are not generally consistent with the
title of Manager of Strategic and Legal Affairs (a "Constructive
Termination"), or if the Corporation changes the reporting relationship so
that the Executive reports to another officer or employee, other than the
President and C.E.O., then at any time thereafter, at the Executive's option
and upon thirty days notice, and provided that such changes shall not have
been rescinded or corrected to the reasonable satisfaction of the Executive
within said thirty day period, the Executive shall have the right to
terminate the employment relationship, and in such event, the employment
shall be deemed to have been terminated by the Corporation without cause.
2.8 TERMINATION UPON A CHANGE IN CONTROL. In the event of a Termination Upon
a Change in Control, the Executive shall immediately be paid all accrued
salary, bonus compensation to the extent earned, vested deferred compensation
(other than pension plan or profit sharing plan benefits which will be paid
in accordance with the applicable plan), any benefits under any plans of the
Corporation in which the Executive is a participant to the full extent of the
Executive's rights under such plans (including accelerated vesting, if any,
of any awards granted to the Executive under the Corporation's Stock Option
Plan), accrued vacation pay and any appropriate business expenses incurred by
the Executive in connection with her duties hereunder, all to the date of
termination, and all Severance Compensation, but no other compensation or
reimbursement of any kind.
2.9 NOTICE OF TERMINATION. The Corporation may effect a termination of this
4
<PAGE>
Agreement pursuant to the provisions of this Section upon giving thirty (30)
days' written notice to the Executive of such termination. The Executive may
effect a termination of this Agreement pursuant to the provisions of this
Section upon giving thirty (30) days' written notice to the Corporation of
such termination.
SECTION 3. SALARY, BENEFITS AND BONUS COMPENSATION.
3.1 BASE SALARY. As payment for the services to be rendered by the Executive
as provided in Section 1 and subject to the terms and conditions of Section
2, the Corporation agrees to pay to the Executive a base salary beginning at
the Effective Date at the rate of $57,500 per annum payable in bi-monthly
installments. The Executive's base salary shall be reviewed annually by the
President and C.E.O. and the base salary for each year (or portion thereof)
beginning January 1, 1998 shall be determined by the President and C.E.O. who
may authorize an increase in the Executive's base salary.
3.2 BONUSES. The Executive shall be eligible to receive a discretionary bonus
for each year (or portion thereof) during the term of this Agreement and any
extensions thereof, with the actual amount of any such bonus to be determined
in the sole discretion of the President and C.E.O. based upon its evaluation
of the Executive's performance during such year. All such bonuses shall be
reviewed annually by the President and C.E.O.
3.3 ADDITIONAL BENEFITS. During the term of this Agreement, the Executive
shall be entitled to the following fringe benefits:
3.3.1 EXECUTIVE BENEFITS. The Executive shall be eligible to participate in
such of the Corporation's benefits and deferred compensation plans as are now
generally available or later made generally available to executive officers
of the Corporation, including, without limitation, the Corporation's Stock
Incentive Plan, profit sharing plans, annual physical examinations, dental
and medical plans, personal catastrophe and disability insurance, life
insurance, financial planning, retirement plans and supplementary executive
retirement plans, if any. For purposes of establishing the length of service
under any benefit plans or programs of the Corporation, the Executive's
employment with the Corporation will be deemed to have commenced on the
Effective Date.
3.3.2 VACATION. The Executive shall be entitled to three weeks of vacation
during each year during the term of this Agreement and any extensions
thereof, prorated for partial years.
3.3.3 REIMBURSEMENT FOR EXPENSES. During the term of this Agreement, the
Corporation shall reimburse the Executive for reasonable and properly
documented out-of-pocket business and/or entertainment expenses incurred by
the Executive in connection with her duties under this Agreement.
5
<PAGE>
3.3.4 STOCK OPTIONS. The Corporation shall grant to Executive, stock options
on Fifty Thousand (50,000) shares of the Corporation's common stock with an
exercise price of $1.375. Such stock options shall be issued and held in
accordance with the Corporation's Stock Incentive Plan currently in effect.
SECTION 4. SEVERANCE COMPENSATION.
4.1 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION UPON A CHANGE IN
CONTROL. In the event the Executive's employment is terminated in a
Termination Upon a Change in Control, the Executive shall be paid as
severance compensation ("Severance Compensation") her base salary (at the
rate payable at the time of such termination), for a period of twelve (12)
months from the date of such Termination Upon a Change in Control.
Notwithstanding anything in this Section to the contrary, the Executive may
in the Executive's sole discretion, by delivery of a notice to the
Corporation within thirty (30) days following a Termination Upon a Change in
Control, elect to receive from the Corporation, a lump sum Severance
Compensation payment by bank cashier's check equal to the present value of
the flow of cash payments that would otherwise be paid to the Executive
pursuant to this Section. The Executive shall also be entitled to an
accelerated vesting of any awards granted to the Executive under the
Corporation's Stock Incentive Plan to the extent provided in the stock option
agreement entered into at the time of grant. The Executive shall continue to
accrue retirement benefits and shall continue to enjoy any benefits under any
plans of the Corporation in which the Executive is a participant to the full
extent of the Executive's rights under such plans, including any perquisites
provided under this Agreement, though the remaining term of this Agreement.
4.2 SEVERANCE COMPENSATION IN THE EVENT OF A TERMINATION OTHER THAN FOR
CAUSE. In the event the Executive's employment is terminated in a Termination
Other Than for Cause, the Executive shall be paid as Severance Compensation
her Base Salary (at the rate payable at the time of such termination), for a
period of the lesser of the remaining portion of the Initial Term or twelve
(12) months from the date of such termination, on the dates specified in
Section 3.1; provided, however, that if the Executive is employed by a new
employer during such period, the Severance Compensation payable to the
Executive during such period will be reduced by the amount of compensation
that the Executive is receiving from the new employer, officer. However, the
Executive is under no obligation to mitigate the amount owed to the officer
pursuant to this Section by seeking employment or otherwise. The Executive
shall be entitled to an accelerated vesting of any awards granted to the
Executive under the Corporation's Stock Incentive Plan to the extent provided
in the stock option agreement entered into at the time of grant.
4.3 NO SEVERANCE COMPENSATION UPON OTHER TERMINATION. In the event of a
Voluntary Termination, Termination For Cause, termination by reason of the
Executive's death or disability as described herein, the Executive or her
estate shall not be paid any Severance Compensation.
6
<PAGE>
4.4 LIMIT ON AGGREGATE COMPENSATION UPON A CHANGE IN CONTROL. Notwithstanding
anything else in this Agreement, solely in the event of a Termination Upon a
Change in Control, the amount of Severance Compensation paid to the
Executive, but exclusive of any payments to the Executive in respect of any
stock options then held by the Executive (or any compensation deemed to be
received by the Executive in connection with the exercise of any stock
options at any time) or by virtue of the Executive's exercise of a right
under the Stock Incentive Plan upon a Change in Control, shall not include
any amount that the Corporation is prohibited from deducting for federal
income tax purposes by virtue of Section 28OG of the Internal Revenue Code or
any successor provision.
SECTION 5. OUTSIDE ACTIVITIES OF EXECUTIVE. Nothing in this Agreement shall
preclude the Executive from devoting time during reasonable periods required
for investing personal assets and/or those of family members in such form or
manner that will not violate this Agreement and these activities will be
permitted so long as they do not materially adversely affect the performance
of the Executive's duties and obligations to the Corporation.
SECTION 6. WITHHOLDINGS. All compensation and benefits to the Executive
hereunder shall be reduced by all federal, state, local and other
withholdings and similar taxes and payments required by applicable law.
SECTION 7. INDEMNIFICATION. In addition to any rights to indemnification to
which the Executive is entitled to under the Corporation's articles of
incorporation and bylaws, the Corporation shall indemnify the Executive at
all times during and after the term of this Agreement to the maximum extent
permitted under the Colorado Business Corporation Act or any successor
provision thereof and any other applicable state law, and shall pay the
Executive's expenses in defending any civil or criminal action, suit, or
proceeding in advance of the final disposition of such action, suit or
proceeding, to the maximum extent permitted under such applicable state laws.
SECTION 8. PROPRIETARY INFORMATION. Executive shall use her best efforts to
preserve and protect the confidentiality of all proprietary and confidential
information regarding the Corporation and its affiliates which she obtains or
of which she otherwise becomes aware during the course of providing the
services described in this Agreement (other than information that is already
publicly available or which she may be required by law to disclose)
("Confidential Information"). Executive shall not disclose any Confidential
Information to any entity other than (i) the Corporation's employees or its
designated agents, or (ii) other than as necessary in the ordinary course of
business. Executive acknowledges that the Confidential Information is a
unique and valuable asset of the Corporation, represents a substantial
investment of time and expense by the Corporation, and that any disclosure or
other use of such information other than for the benefit of the Corporation
would cause irreparable harm.
SECTION 9. RECORDS. Executive will keep complete, accurate and authentic
accounts, notes,
7
<PAGE>
data and records ("Records") of her actions. The Records shall be the
property of the Corporation. Upon request, Executive will promptly deliver
the Records to the Corporation. Upon termination of this Agreement, Executive
shall deliver promptly to the Corporation 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 the Corporation, including,
but not limited to, all documents which in whole or in part contain any
Confidential Information.
SECTION 10. NON-COMPETITION COVENANT.
10.1 AGREEMENT NOT TO COMPETE. Executive agrees that, during the term of this
Agreement and for a period of two years following the termination of this
Agreement, she shall not, without the express written consent of the
Corporation, engage in competition with the Corporation, directly or
indirectly, in any manner or capacity (e.g., as an advisor, principal, agent,
partner, officer, director, stockholder, employee, member of any association,
or otherwise) in any phase of any business of a type conducted by the
Corporation.
10.2 GEOGRAPHIC EXTENT OF COVENANT. The obligations of Executive under this
section 10 shall apply to the United States.
SECTION 11. MISCELLANEOUS.
11.1 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.
11.2 ASSIGNMENT. The agreement of Executive to render services hereunder is
personal in nature and shall not be assignable by Executive. The rights and
benefits of Executive 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.
11.3 ENTIRE AGREEMENT. This Agreement is the entire agreement between
Executive and The Corporation 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.
11.4 AMENDMENTS AND MODIFICATIONS. This Agreement cannot be changed orally,
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.
8
<PAGE>
11.5 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.
11.6 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 thereof.
11.7 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.
11.8 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 the Executive, to her office at the Corporation and (ii) if
to the Corporation, to 216 16th Street, Suite 1100, Denver, CO 80202,
Attention: Charles E. Steinbrueck, or at such other office as she may
designate from time to time.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
Grease Monkey Holding Corporation, a Utah corporation
/s/ CHARLES E. STEINBRUECK
- -------------------------------
By: Charles E. Steinbrueck
Its: President and C.E.O.
/s/ DANA KLAPPER COHEN
- -------------------------------
Dana Klapper Cohen
<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 12, 1998,
relating to the consolidated balance sheets of Grease Monkey Holding
Corporation and subsidiaries as of December 31, 1997 and 1996, 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, 1997,
which report appears in the December 31, 1997, annual report on Form 10-KSB
of Grease Monkey Holding Corporation.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 26, 1998
<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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 182,214
<SECURITIES> 0
<RECEIVABLES> 2,234,402
<ALLOWANCES> 478,553
<INVENTORY> 758,116
<CURRENT-ASSETS> 2,789,571
<PP&E> 10,003,035
<DEPRECIATION> 3,985,940
<TOTAL-ASSETS> 15,397,850
<CURRENT-LIABILITIES> 3,147,807
<BONDS> 4,515,371
0
2,089,638
<COMMON> 139,007
<OTHER-SE> (1,612,403)
<TOTAL-LIABILITY-AND-EQUITY> 15,397,850
<SALES> 0
<TOTAL-REVENUES> 21,169,314
<CGS> 0
<TOTAL-COSTS> 21,250,719
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 253,368
<INTEREST-EXPENSE> 774,671
<INCOME-PRETAX> (1,158,586)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,158,586)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,158,586)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
<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 FORMS 10-KSB FOR THE YEARS ENDED 1995 AND
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 385,167 324,745
<SECURITIES> 0 0
<RECEIVABLES> 1,727,028 2,066,520
<ALLOWANCES> 399,141 252,795
<INVENTORY> 697,383 887,203
<CURRENT-ASSETS> 2,686,489 3,140,100
<PP&E> 8,017,631 9,134,489
<DEPRECIATION> 3,061,632 3,540,784
<TOTAL-ASSETS> 13,145,633 15,217,123
<CURRENT-LIABILITIES> 1,967,621 3,087,580
<BONDS> 2,644,704 4,192,431
0 0
2,095,838 2,089,638
<COMMON> 130,103 131,396
<OTHER-SE> (301,326) (774,027)
<TOTAL-LIABILITY-AND-EQUITY> 13,145,633 15,217,123
<SALES> 0 0
<TOTAL-REVENUES> 18,668,143 20,142,793
<CGS> 0 0
<TOTAL-COSTS> 17,955,473 20,040,889
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 151,800 206,221
<INTEREST-EXPENSE> 562,105 659,996
<INCOME-PRETAX> 238,190 (577,123)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 238,190 (577,123)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 238,190 (577,123)
<EPS-PRIMARY> 0.03 (0.16)
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