UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] 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 000-9812
Grease Monkey Holding Corporation
----------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Utah 87-0321320
------------------------------ -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
633 17th Street, Suite 400
Denver, Colorado 80202
--------------------------------------
(Address of principal executive offices)
(303) 308-1660
-------------------------
(Issuer's telephone number)
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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Outstanding at
Class October 31, 1998
----------------------------- ----------------
Common Stock, $0.03 par value 4,647,880 shares
Transitional Small Business Disclosure Format Yes [ ] No [X]
<PAGE>
GREASE MONKEY HOLDING CORPORATION
Commission File Number: 000-9812
Quarter Ended September 30, 1998
FORM 10-QSB
Part I FINANCIAL INFORMATION
Consolidated Statements of Operations.......................... Page 1
Consolidated Balance Sheets.................................... Page 2
Consolidated Statements of Stockholders' Equity (Deficit)...... Page 4
Consolidated Statements of Cash Flows.......................... Page 5
Notes to Consolidated Financial Statements..................... Page 7
Management's Discussion and Analysis or Plan
of Operation................................................ Page 12
Part II OTHER INFORMATION
Legal Proceedings............................................. Page 20
Defaults Upon Senior Securities............................... Page 20
Other Information............................................. Page 20
Exhibits and Reports on Form 8-K.............................. Page 21
Signatures.................................................... Page 22
<PAGE>
<TABLE>
<CAPTION>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenue:
Royalty fees.............................................. $ 766,172 828,823 2,285,969 2,659,034
Franchise sales - center openings......................... 25,490 84,000 199,090 172,201
Product and equipment revenue............................. 147,202 230,971 514,109 574,508
Sales by Company-owned Centers............................ 3,788,628 3,829,962 11,243,408 11,216,333
Leasing revenue........................................... 248,127 388,085 876,116 1,166,957
Other..................................................... 25,616 123,769 66,435 325,416
-------------- -------------- --------------- ---------------
5,001,235 5,485,610 15,185,127 16,114,449
-------------- -------------- --------------- ---------------
Operating Expenses:
Franchise costs - center openings......................... 15,445 19,791 57,871 41,209
Product and equipment costs............................... 48,875 115,369 218,804 223,762
Company-owned Centers..................................... 3,162,933 3,270,698 9,427,520 9,590,148
Leasing expense........................................... 303,404 408,958 1,000,019 1,161,294
General and administrative expenses....................... 1,886,914 1,216,626 4,550,299 3,864,259
Provision for credit losses............................... 92,555 30,000 184,220 82,141
Depreciation.............................................. 184,381 175,761 522,474 503,974
Amortization.............................................. 72,917 72,577 216,689 207,614
-------------- -------------- --------------- ---------------
5,767,424 5,309,780 16,177,896 15,674,401
-------------- -------------- --------------- ---------------
Operating income (loss)..................................... (766,189) 175,830 (992,769) 440,048
-------------- -------------- --------------- ---------------
Other income (expense):
Loss on sale/disposition/closure of centers............... (80,214) (282,929) (136,157) (300,392)
Undeveloped franchise licenses canceled................... 163,703 - 195,686 -
Interest income........................................... 3,247 15,302 24,567 50,976
Interest expense.......................................... (194,989) (189,408) (620,929) (555,525)
-------------- -------------- --------------- ---------------
(108,253) (457,035) (536,833) (804,941)
-------------- -------------- --------------- ---------------
Net loss................................................... $ (874,442) (281,205) (1,529,602) (364,893)
============== ============== =============== ===============
Loss per common share (Note 5).............................. $ (0.19) (0.07) (0.35) (0.10)
============== ============== =============== ===============
Loss per common share assuming dilution (Note 5)............ $ (0.19) (0.07) (0.35) (0.10)
============== ============== =============== ===============
Weighted average shares outstanding......................... 4,698,337 4,442,184 4,645,707 4,384,802
============== ============== =============== ===============
</TABLE>
(UNAUDITED)
1
<PAGE>
<TABLE>
<CAPTION>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1998 1997
------------- -----------
ASSETS
<S> <C> <C>
Current Assets:
Cash.............................................................. $ 68,046 182,214
Accounts receivable, net of allowance for
doubtful accounts of $367,244 at September 30,
1998, and $478,553 at December 31, 1997 .......................... 743,202 1,212,014
Current portion of notes receivable,
net of allowance for uncollectible amounts ....................... 71,799 318,658
Current portion of net investment
in direct financing leases ....................................... 183,899 204,921
Inventories ........................................................ 707,399 758,116
Prepaid expenses and supplies ...................................... 237,524 113,648
------------ ------------
TOTAL CURRENT ASSETS ............................................. 2,011,869 2,789,571
------------ ------------
Property and Equipment, at Cost, Pledged:
Land ............................................................... 512,804 543,838
Buildings (including buildings under capital leases) ............... 6,908,120 6,430,000
Furniture and fixtures ............................................. 624,436 536,329
Leasehold improvements ............................................. 787,204 718,672
Machinery and equipment ............................................ 1,817,623 1,774,196
------------ ------------
10,650,187 10,003,035
Less accumulated depreciation and
amortization ..................................................... (4,328,209) (3,985,940)
------------ ------------
NET PROPERTY AND EQUIPMENT ....................................... 6,321,978 6,017,095
------------ ------------
Other Assets:
Net investment in direct financing leases .......................... 1,988,919 3,154,581
Notes receivable, net of allowance for uncollectible
amounts .......................................................... 92,816 225,177
Deferred franchising costs ......................................... 129,013 189,528
Goodwill and covenants not to compete, net
of accumulated amortization of $1,311,430 at
September 30, 1998, and $1,215,026 at December
31, 1997 ......................................................... 2,395,161 2,688,103
Other assets, net of accumulated amortization of
$59,007 at September 30, 1998, and $167,145 at
December 31, 1997 ................................................ 1,880,296 333,795
------------ ------------
TOTAL OTHER ASSETS ............................................... 6,486,205 6,591,184
------------ ------------
$ 14,820,052 15,397,850
============ ============
(UNAUDITED)
(continued on next page)
2
<PAGE>
<CAPTION>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................... $ 1,629,172 1,400,633
Accrued salaries and wages ........................................ 215,048 195,787
Other accrued liabilities ......................................... 344,294 371,143
Current portion of long-term obligations .......................... 1,065,863 715,289
Current portion of obligations
under capital leases ............................................ 485,532 464,955
------------ ------------
TOTAL CURRENT LIABILITIES ....................................... 3,739,909 3,147,807
------------ ------------
Long-term Obligations ............................................... 5,322,805 3,800,082
Obligations Under Capital Leases .................................... 6,024,451 6,848,249
Deferred Franchise Sales Revenue .................................... 630,965 985,470
Stockholders' Equity (Deficit):
Series C Preferred stock, stated value of $100.00
per share, 20,896 shares issued and outstanding at
September 30, 1998 and December 31, 1997 ......................... 2,089,638 2,089,638
Common stock, par value $.03, 20,000,000
shares authorized, 4,647,880 and 4,633,570,
shares issued and outstanding at September 30,
1998 and December 31, 1997, respectively ........................ 139,436 139,007
Capital in excess of par value .................................... 6,212,733 6,197,880
Accumulated deficit ............................................... (9,339,885) (7,810,283)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) .......................... (898,078) 616,242
Commitments and Contingencies
------------ ------------
$ 14,820,052 15,397,850
============ ============
</TABLE>
(UNAUDITED)
3
<PAGE>
<TABLE>
<CAPTION>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock Common Stock
---------------------- -----------------------------------------
Capital in
Number of Number of Excess of
Shares Amount Shares Amount Par Value
--------- ------ --------- ------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ................... 20,896 $2,089,638 4,379,860 $ 131,396 5,877,670
Issuance of common stock pursuant to
employee benefit plan ........................ -- -- 33,234 996 44,262
Issuance of common stock upon
exercise of employee stock options ........... -- -- 30,000 900 31,663
Issuance of common stock ....................... -- -- 190,476 5,715 244,285
Net loss ....................................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 ................... 20,896 2,089,638 4,633,570 139,007 6,197,880
Issuance of common stock pursuant to
employee benefit plan ........................ -- -- 10,810 324 13,145
Issuance of common stock upon
exercise of employee stock options ........... -- -- 3,500 105 3,613
Issuance of common stock ....................... -- -- -- -- (1,905)
Net loss ....................................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at September 30, 1998 .................. 20,896 $2,089,638 4,647,880 $ 139,436 6,212,733
========== ========== ========== ========== ==========
<CAPTION>
Accumulated
Deficit Total
----------- -----
<S> <C> <C>
Balance at December 31, 1996 ................... (6,651,697) 1,447,007
Issuance of common stock pursuant to
employee benefit plan ........................ -- 45,258
Issuance of common stock upon
exercise of employee stock options ........... -- 32,563
Issuance of common stock ....................... -- 250,000
Net loss ....................................... (1,158,586) (1,158,586)
---------- ----------
Balance at December 31, 1997 ................... (7,810,283) 616,242
Issuance of common stock pursuant to
employee benefit plan ........................ -- 13,469
Issuance of common stock upon
exercise of employee stock options ........... -- 3,718
Issuance of common stock ....................... -- (1,905)
Net loss ....................................... (1,529,602) (1,529,602)
---------- ----------
Balance at September 30, 1998 .................. (9,339,885) (898,078)
========== ==========
</TABLE>
(UNAUDITED)
4
<PAGE>
<TABLE>
<CAPTION>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................................. $ (1,529,602) (364,893)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Increase in deferred franchise sales revenue...................... 116,200 281,500
Franchise sales revenue recognized-center openings................ (199,090) (172,201)
Increase in deferred franchising costs............................ (43,485) (82,762)
Franchise costs recognized - center openings...................... 46,771 41,209
Provision for credit losses....................................... 184,220 82,141
Depreciation and amortization..................................... 739,163 711,588
Undeveloped franchise licenses canceled........................... (195,686) --
Loss on sale/disposition/closure of centers....................... 107,267 275,476
Impairment of asset value......................................... 377,871 --
Accrual of Consultant Agreement/Severance
Agreements...................................................... 216,440 357,113
Other, net........................................................ 96,312 372
Change in assets and liabilities:
Decrease (increase) in accounts receivable...................... 148,124 (168,364)
Decrease in notes receivable.................................... 223,542 283,977
Decrease (increase) in inventories.............................. 47,719 (14,051)
Decrease (increase) in prepaid expenses and
supplies...................................................... (123,875) 52,382
Decrease in accounts payable.................................... (98,752) (158,604)
Increase in accrued salaries and wages
and other liabilities......................................... 1,800 54,570
-------------- ------------
Net cash provided by operating activities......................... $ 114,939 1,179,453
-------------- ------------
(UNAUDITED)
(continued on next page)
5
<PAGE>
<CAPTION>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Nine Months Ended
September 30,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from investing activities:
Principal receipts on direct financing leases......................... $ 129,846 150,081
Acquisition of centers................................................ -- (573,249)
Sale of centers....................................................... 115,450 116,901
Capital expenditures.................................................. (277,944) (249,605)
Increase in projects and development.................................. (1,544,738) --
Increase in other assets.............................................. (261,901) (113,709)
-------------- ------------
Net cash used in investing activities........................... (1,839,287) (669,581)
-------------- ------------
Cash flows from financing activities:
Proceeds from long-term obligations................................... 2,483,100 3,045,000
Principal payments on long-term obligations........................... (555,926) (3,101,022)
Principal payments on capital lease
obligations......................................................... (326,039) (306,821)
Issuance of common stock.............................................. 1,814 271,938
Decrease in restricted cash........................................... -- 34,927
Increase in lease deposit obligations................................. 7,231 2,306
-------------- ------------
Net cash provided by (used in) financing activities............. 1,610,180 (53,672)
-------------- ------------
Net increase (decrease) in cash......................................... (114,168) 456,200
Cash, beginning of period............................................... 182,214 324,745
-------------- ------------
Cash, end of period..................................................... $ 68,046 780,945
============== =============
Supplemental disclosures of cash flow
information -
Cash paid during the period for interest............................ $ 933,399 891,569
============== =============
</TABLE>
(UNAUDITED)
6
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the interim financial statements include
all adjustments, consisting of normal recurring adjustments, necessary
in order to make the financial statements not misleading.
2. Grease Monkey Holding Corporation ("GMHC") and its wholly-owned
subsidiaries, Grease Monkey International, Inc. ("GMI"), Grease Monkey
de Mexico SA de CV ("GMM") and GM Properties, Inc. ("GMP") are
collectively referred to as the "Company". The accompanying unaudited
consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for
financial statements. For further information, refer to the audited
consolidated financial statements and notes thereto for the year ended
December 31, 1997, included in the Company's Annual Report on Form
10-KSB filed with the Securities and Exchange Commission on March 31,
1998.
3. The results for the three-month and nine-month periods ended September
30, 1998, are not necessarily indicative of the results to be expected
for the entire fiscal year of 1998.
4. STOCKHOLDERS' EQUITY (DEFICIT)
On January 20, 1997, Charles E. Steinbrueck, former President and Chief
Executive Officer, entered into an agreement to purchase 190,476 shares
of restricted common stock at a per share price of $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. On
September 30, 1998, accumulated unpaid dividends totaled $600,722.
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 the first nine months of 1998 and 1997, the
Company contributed 10,810 and 27,847 shares to this plan at an average
of $1.25 and $1.30 per share, respectively.
(continued)
7
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. EARNINGS (LOSS) PER SHARE
Effective for periods ending after December 15, 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. 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 Three Months Ended
------------------------------------------------------------------------------------
September 30, 1998 September 30, 1997
Income Income
(Loss) EPS Shares (Loss) EPS Shares
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) ..... (874,442) (281,205)
Preferred
dividends ......... (31,602) (31,602)
---------- ---------- ---------- ---------- ---------- ----------
Basic EPS ......... (906,044) (0.19) 4,698,337 (312,807) (0.07) 4,442,184
Effects of dilutive
securities:
Common stock
equivalents
Convertible
Preferred Stock
---------- ---------- ---------- ---------- ---------- ----------
Diluted EPS ....... (906,044) (0.19) 4,698,337 (312,807) (0.07) 4,442,184
========== ========== ========== ========== ========== ==========
<CAPTION>
For the Nine Months Ended
------------------------------------------------------------------------------------
September 30, 1998 September 30, 1997
Income Income
(Loss) EPS Shares (Loss) EPS Shares
------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) ..... (1,529,602) (364,893)
Preferred
dividends ......... (93,776) (93,776)
---------- ---------- ---------- ---------- ----------- ----------
Basic EPS ......... (1,623,378) (0.35) 4,645,707 (458,669) (0.10) 4,384,802
Effects of dilutive
securities:
Common stock
equivalents
Convertible
Preferred Stock
---------- ---------- ---------- ---------- ------------ ---------
Diluted EPS ....... (1,623,378) (0.35) 4,645,707 (458,669) (0.10) 4,384,802
========== ========== ========== ========== ============ =========
</TABLE>
(continued)
8
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. COMMITMENTS AND CONTINGENCIES
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.
7. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires that all items that are recognized under accounting
standards as components of comprehensive income be reported in an
annual financial statement displayed with the same prominence as other
annual financial statements. Condensed financial statements of interim
periods are to include a total for comprehensive income. The Company's
total comprehensive income (loss) did not differ from its net income
(loss).
(continued)
9
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Supplemental Schedule 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.
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
Acquisitions:
Number of Centers purchased ................. -- 2
======== ========
Number of Centers foreclosed ................ 3 --
======== ========
Receivables applied (net of related
allowance) ................................ $ 83,843 --
Liabilities assumed ......................... 83,159 375,337
Loss on foreclosure ......................... (70,500) --
Cash paid ................................... -- 573,249
-------- --------
Cost of assets acquired ..................... $ 96,502 948,586
======== ========
Sales:
Number of Centers
refranchised/sold/closed .................. 3 6*
======== ========
Cash received ............................... $ 115,450 116,901
Notes received/accounts receivable
granted ................................... 15,769 26,800
Liabilities assumed by purchaser ............ -- 40,875
Loss on sale ................................ 36,767 275,476
Franchise fees .............................. -- 14,000
-------- --------
Net book value of Centers ................... $ 167,986 474,052
refranchised/sold/closed ======== ========
* Includes one center which was originally developed to be a Company-owned
Center, but was sold to a franchisee prior to opening.
(continued)
10
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the nine months ended September 30, 1998 and 1997, non-cash
transactions consisted of the Company issuing 10,810 and 27,847 shares
of common stock at an average value of $1.25 and $1.30 per share
respectively, in accordance with its matching requirement under the
Company's 401(k) plan. Other non-cash transactions during the first
nine months of 1998 included: a franchise license in the amount of
$10,000, net of deferred costs of $2,173, was cancelled and applied to
a franchisee's obligation to the Company; a capital lease obligation of
$196,900 was recorded for a Company-owned Center; a franchisee
abandoned two sites, resulting in two direct financing leases being
cancelled and two capital lease buildings being recorded for an
aggregate amount of $447,384; and the Company wrote off a direct
financing lease receivable and the corresponding capital lease
obligation of $487,527 based on the Company being released from the
lease.
Other non-cash transactions during the first nine months of 1997
included: the write-off of a direct financing lease receivable and the
corresponding capital lease obligation of $153,316 based on the
franchisee re-negotiating 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.
11
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The Company reported a net loss of ($1,529,602) for the first nine months
of 1998, as compared to a net loss of ($364,893) for the first nine months of
1997. For the third quarter of 1998, the Company recognized a net loss of
($874,442) compared to a net loss of ($281,205) for the same quarter in 1997.
Total revenue decreased by $929,322 or 6% for the first nine months of
1998, compared to the first nine months of 1997. Revenue during the third
quarter of 1998 decreased $484,375 over the same quarter last year, a decrease
of 9%. The nine and three month decreases are due primarily to decreases in
royalty revenue, leasing revenue and other revenue. The decreases in royalty
revenue and other revenue can be partially attributed to a settlement agreement
entered into in 1997 with a former franchisee that caused increases in 1997.
Under the settlement agreement, in 1997 the Company recognized approximately
$207,200 of royalty fees not previously recognized and approximately $168,000 of
other income related to the reimbursement of costs previously expensed. In
addition, approximately $99,000 of other revenue was recognized in 1997 based on
a settlement agreement with another franchisee. Further decreases in royalty
revenue in 1998 are due to, on average, eleven fewer franchises open and
operating. Leasing revenue has declined primarily due to: the abandonment of a
franchise site late in the third quarter of 1997 resulting in the Company being
required to subsidize the rent to obtain a new subtenant; three franchise sites
have been acquired by the Company through both purchase and foreclosure; the
Company was released from nine leases at franchised and third party locations,
thus reducing not only rental income, but the matching rent expense; and the
Company sold one of its owned property locations and put another location up for
sale thus losing the third party subtenant income on those sites as well. In
addition, in 1998 a former franchisee abandoned two sites. Currently the Company
is not receiving matching revenue for the expense outlay on these Centers. The
Company is actively engaged in finding new subtenants. New subleases could
require the Company to subsidize the payments for an amount less than what the
Company currently pays the landlords. Should this be the case, the Company would
be required to record lease loss reserves equal to the present value of the
future minimum sublease commitment deficiencies. Currently the Company cannot
estimate the future potential losses associated with these sites. Offsetting
these decreases were the sale/refranchising of two Company-owned Centers where
the Company remained on the lease.
Royalty fees are a percentage of gross sales paid monthly by all franchised
Grease Monkey Centers. Royalty fee revenue for the first nine months of 1998
decreased by 14% compared to the first nine months of 1997 to $2,285,969.
Royalty fee revenue for the third quarter of 1998 decreased by 8% compared to
the third quarter of 1997 to $766,172. The nine month decrease is due partly to
the recording of the settlement agreement with a former franchisee, as discussed
previously. The remaining decreases are due to an average decrease of eleven
open and operating franchises for the nine and three month periods. In addition,
on August 1, 1998, the Company entered into a Master Franchise Agreement for the
Republic of Mexico ("the Agreement"). The Agreement is for a term of fifteen
years and is renewable for an additional fifteen year term. The Master
Franchisee retains eighty percent of royalties and franchise fees collected from
Mexico franchisees after the effective date of the Agreement (further reducing
royalty income), in exchange, the Master Franchisee is obligated under the
Agreement to provide training and all types of support for franchisees in Mexico
that Grease Monkey International would be obligated to provide under its Grease
Monkey Franchise Agreement.
(continued)
12
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
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. For the first
nine months of 1998, estimated royalties of $172,485 were not accrued under this
policy, compared to $89,700 for the first nine months of 1997. During the third
quarter of 1998, estimated royalties of $59,385 were not accrued compared to
$31,325 for the third quarter of 1997. The Company has a royalty rebate program
for franchisees under which eligible franchisees can receive a rebate of
royalties paid. For the first nine months of 1998, the rebate accrued under this
program was $178,147, compared to $182,712 for the first nine months of 1997.
The rebate accrued for the third quarter of 1998, was $64,096, compared to a
rebate of $62,510 for the third quarter of 1997. The rebate is recorded as a
reduction in royalty revenue.
The Company recognized franchise sales revenue net of related costs of
$141,219 during the first nine months of 1998, representing nine Center
openings. For the third quarter of 1998, franchise sales net revenue was
$10,045, representing two Center openings. The Company recognized franchise
sales net revenue of $130,992 and $64,209 for the first nine months and third
quarter of 1997, respectively, representing fifteen and eight Center openings.
Franchise sales revenue represents initial one-time payments received by the
Company from buyers of its franchises. The fee and any directly related costs
are recognized as revenue and expense when the related franchise Center opens
for business.
At September 30, 1998, the Company operated 32 centers as compared to 30
centers at September 30, 1997. For the first nine months of 1998, the Company
reported an operating margin (Company-owned Center sales less expenses,
excluding interest, depreciation and amortization) of $1,815,888 on revenue of
$11,243,408 at Company-owned Centers, as compared to an operating margin of
$1,626,185 on revenue of $11,216,333 for the same period last year. This
represents a slight increase in revenue and a 12% increase in operating margin.
For the third quarters of 1998 and 1997, the Company reported operating margins
of $625,695 and $559,264 on revenue of $3,788,628 and $3,829,962, respectively,
representing a decrease in revenue of 1% and an increase in operating margin of
12%.
In the first nine months of 1998, the Company realized marketing allowances
and gross margins on product and equipment sales of $295,305, as compared to
$350,746 in the first nine months of 1997. In the third quarter of 1998,
marketing allowances and gross margins on product and equipment sales were
$98,327, as compared to $115,602 in the third quarter of 1997. 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.
General and administrative expenses for the first nine months and third
quarter of 1998 increased 18% or $686,040 and 55% or $670,288 as compared to the
first nine months and third quarter of 1997. Negative variances in both the nine
month and three month periods ended September 30, 1998, were caused by several
(continued)
13
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)
factors. One such factor was a severance accrual for the Company's former
President and Chief Executive Officer, the former Senior Vice President of
Operations and other employees terminated effective September 30, 1998. Should
either of the executives be employed by a new employer during the remaining term
of the severance accrual, the severance compensation payable to the executive
will be reduced by the amount of compensation that the executive actually
receives from the new employer. The severance accrual totaled approximately
$327,000, but was reduced by approximately $86,000, which was the remaining
amount due under the Consultant Agreement for the Company's previous, now
current President. The Company had also previously entered into an agreement for
the development of a new point of sale system to be used at both Company-owned
and franchised Centers. Upon review of the agreement by current management,
further development was terminated and costs capitalized to date were expensed
in the amount of approximately $230,000. As mentioned previously, during the
quarter the Company entered into a Master Franchise Agreement for the Republic
of Mexico. Based upon this agreement, certain assets related to operations in
Mexico were evaluated and adjusted, resulting in a write-off of approximately
$132,000. During the quarter, the Company entered into a contract for the sale
of real estate in St. Louis, Missouri. Based on the contract, the real estate
was written down by approximately $31,000. Offsetting these increases was the
prior year accrual of the Company's obligation under a Consultant Agreement.
General and administrative expenses for the first nine months of 1997 included
approximately $379,000 related to this agreement. As mentioned previously and
reported in a September 16, 1998, Form 8-K, this individual has returned to the
Company as President and Chief Operating Officer. Other variances in the first
nine months of 1998 as compared to the first nine months of 1997 included: an
increase in salaries, wages and personnel expenses of approximately $194,000; an
increase in litigation expenses, including legal fees and related costs, of
approximately $188,000 and an increase in professional fees, including legal,
tax and accounting of approximately $61,000. Other variances in the third
quarter of 1998 as compared to the same quarter of 1997 included: an increase in
litigation expenses, including legal fees and related costs, of approximately
$11,400; an increase in professional fees, including legal, tax and accounting
of approximately $10,300; and an increase in office expenses primarily due to a
relocation of the corporate offices of $26,500.
Depreciation and amortization expense for the first nine months and third
quarter of 1998 increased 4% as compared to the same periods in 1997. This is
due primarily to the average number of Company-owned Centers operated during the
periods increasing slightly and due to capital acquisitions at the Company-owned
Center level.
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 ($136,157)
for the nine months ended September 30, 1998, represents the closure of two
(continued)
14
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
Company-owned Centers in 1998, marketing allowances paid based on subsidies
granted certain franchisees on the refranchising of Company-owned Centers in
1996, and additional costs incurred in 1998 related to the closure of
Company-owned Centers closed in 1997. In addition, losses were recognized on the
sale of a Company-owned Center to a third party, and the foreclosure of a
franchised Center. The loss of ($300,392) for the nine months ended September
30, 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 franchised Center,
(which was leased from the Company) resulting in $236,101 of the total $300,392.
The loss is a result of costs associated with the closing of the Centers, as
well an impairment assessment at each location.
In the first nine months and the third quarter of 1998, the Company
recognized $195,686 and $163,703, respectively, in franchise sales revenue
resulting from license cancellations. There were no license cancellations in
1997.
Interest expense includes interest on debt financing and interest recorded
on capital leases of Company-owned Centers. The increase in interest expense
from $555,525 in the first nine months of 1997 to $620,929 in the first nine
months of 1998 was due in part to a change in vendor financing. This change
resulted in financing costs being transferred out of cost of goods sold and into
financing costs. In addition, debt outstanding for the nine month periods
increased approximately $1,870,000. This increase is due in part to borrowings
associated with the purchase of two Centers late in the first quarter of 1997,
and one Center purchased late in the second quarter of 1998. In addition, a
capital lease was entered into for a Company-owned Center in the early third
quarter of 1997.
(continued)
15
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
The following schedule summarizes the activity with regard to Grease Monkey
Company-owned Centers as well as Grease Monkey franchised Centers for the
nine-months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED:
----------------------------------------------------------------------------------
September 30, 1998 | September 30, 1997
------------------------------------ | -----------------------------------
Company Franchisee | Company Franchisee
Owned Owned Total | Owned Owned Total
------- ---------- ----- | -------- ---------- -----
<S> <C> <C> <C> | <C> <C> <C>
Centers open, beginning .................. 31 187 218 | 31 184 215
Centers opened ........................... 1 9 10 | 1 15 16
Centers purchased ........................ -- -- -- | 2 (2) --
Centers sold ............................. (1) -- (1) | (2) 2 --
Centers terminated or |
closed ................................. (2) (17) (19) | (2) (13) (15)
Centers reacquired ....................... 3 (3) -- | -- -- --
--------- --------- --------- | --------- --------- ---------
Centers open, ending (A) ................. 32 176 208 | 30 186 216
========= ========= ========= | ========= ========= =========
Vehicles serviced (000's) ................ 2,049 | 2,171
========= | =========
Franchise licenses issued (B) ............ 6 | 11
========= | =========
Undeveloped franchise |
licenses (C) ........................... 33 | 50
========= | =========
Franchise applications |
outstanding (C) ........................ 10 | 22
========= | =========
Franchise license/application |
fees received (D) ...................... $ 116,200 | $ 281,500
========= | =========
</TABLE>
(A) Includes 20 franchised centers in Mexico in 1998 and 21 franchised centers
in Mexico in 1997.
(B) Represents the number of licenses issued during the period.
(C) Represents the number of licenses/applications outstanding at September 30
(D) Represents amounts received for franchise licenses/applications during the
period.
(continued)
16
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES
The Company currently has lines of credit with varying interest rates from
a third party. The lines total $489,000 of which $484,500 was outstanding at
September 30, 1998. Monthly payments are for interest only, and maturities range
from December 1998 to July 1999.
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 balloon 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. Additional draws totalling $1,998,600 were made in the first nine months
of 1998 with an average interest rate of approximately 9% plus guarantee fees.
As of September 30, 1998, approximately $4,411,000 is outstanding under the Loan
Agreement.
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 September 30, 1998, there were
no amounts outstanding under this line of credit.
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.
(continued)
17
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
LIQUIDITY
Cash provided by operations during the first nine months of 1998 was
$114,939 as compared to $1,179,453 in the first nine months of 1997. Factors
contributing to the negative variance as compared to prior year include: the
prior year settlement agreements entered into with former franchisees as
discussed previously; a decline in royalty revenue and collections; a decrease
in franchise sales; losses in leasing activities and increased financing costs.
Offsetting these negative factors was an improved operating margin at
Company-owned Centers.
Cash used in investing activities was ($1,839,287) in the first nine months
of 1998, as compared to cash used in investing activities of ($669,581) in the
first nine months of 1997. Cash provided in both periods consisted primarily of
receipts on direct financing leases which decreased over the periods. Additional
cash was received in the first nine months of 1998 and 1997 with the
refranchising/sale of one and three Company-owned Centers, respectively. Cash
used in investing activities for the first nine months of 1998 and 1997
consisted primarily of cash used for the development/purchase of Centers.
Additional cash was used in both periods for capital expenditures, primarily
Company Center equipment.
Cash provided by financing activities was $1,610,180 in the first nine
months of 1998 as compared to cash used in financing activities of ($53,672) in
the first nine months of 1997. Cash provided by financing activities in the
first nine months of 1998 consisted primarily of proceeds from long-term
obligations for the development of Centers. Cash provided by financing
activities in the first nine months of 1997 consisted primarily of proceeds from
long-term obligations and the sale of common stock. Financing activities also
included cash used to reduce long-term obligations and capital lease obligations
of $881,965 in the first nine months of 1998 and $3,407,843 in the first nine
months of 1997.
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 has identified as its two main computer systems, the point of
sale terminals at the Company-owned Centers and the corporate network system,
which includes the accounting system. The Company is currently in the process of
evaluating and installing new computers and new software for both systems. The
Company has identified selected vendors and will begin implementation soon.
Although the hardware and software has been represented as being Year 2000
compliant, only testing of the systems once they are actually installed can
guarantee Year 2000 performance. Testing is expected to begin late in the first,
or early in the second quarter and completion is expected in the third quarter.
(continued)
18
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
The Company will initiate a process of identifying and prioritizing critical
suppliers and communicating with them about their plans and progress in
addressing the Year 2000 problem. Contingency plans may need to be developed
based upon the results of the vendor evaluation. The total cost associated with
required modifications to become Year 2000 compliant is not expected to be
material to the Company's financial position. A significant portion of the
hardware for the corporate computer network has already been purchased.
Corporate business equipment such as the communication system was replaced in
1997. Failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 readiness of third-party suppliers and
customers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition.
The Company does not have any material commitments for capital expenditures
other than for the required replacement or upgrade of underground storage tanks
at Company-owned Centers.
The Company has incurred substantial losses in 1998 and prior years and is
exploring alternatives to improve operating results and maximize shareholder
value. Such alternatives include cost reduction initiatives, asset sales or a
corporate restructuring. There is no guarantee that the Company will be
successful at improving its results or financial position. The Company is
currently seeking additional financing through equity and or debt to provide
working capital for current and future operating needs. The Company believes,
but cannot guarantee, that such financing will be obtained. Should financing not
be obtained, the Company may not generate sufficient liquidity to timely meet
its financial obligations in 1999.
19
<PAGE>
GREASE MONKEY HOLDING CORPORATION
Commission File Number: 000-9812
Quarter Ended September 30, 1998
FORM 10-QSB
PART II OTHER INFORMATION
ITEM 1. 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 3. DEFAULTS UPON SENIOR SECURITIES.
(b) As of the date of filing this Quarterly Report on Form 10-QSB, the Company
is in arrears in the payment of dividends on the Series C Preferred Stock in the
amount of approximately $616,000. Under Paragraph 5(d) of the Statement of
Designation, Voting Powers, Preferences and Rights of the Series C Preferred
Stock ("Statement of Designation"), if dividends on the Series C Preferred Stock
are in arrears in an aggregate amount equal to at least four quarterly
dividends, the number of members of the Board of Directors of the Company is
automatically increased by the smallest number of directors that will constitute
at least 25% of the Board of Directors after such increase and the holders of
the Series C Preferred Stock (voting as a separate voting group) have the
exclusive right to elect, remove or replace such additional directors of the
Company. The holders of the Series C Preferred Stock have not notified the
Company that they have any intention to elect or serve as Directors.
ITEM 5. OTHER INFORMATION
Effective June 29, 1998, the United States Securities and Exchange
Commission adopted new rules relating to shareholder proposals which
shareholders do not request be included in the Company's proxy statement to be
used in connection with the Company's Annual Meeting of Shareholders. Under
these new rules, proxies that confer discretionary authority will not be able to
be voted on a shareholder proposal to be presented at the Annual Meeting of
Shareholders if the shareholder provides the Company with advance written notice
of the shareholder's proposal on a date in the current year that is at least 45
days prior to the date the prior year's proxy materials were mailed to the
Company's shareholders. If a shareholder fails to so notify the Company, proxies
that confer discretionary authority will be able to be voted when the proposal
is presented at the Annual Meeting of Shareholders.
Unless the Company receives notice of the proposals by no later than April
7, 1999, proxies which confer discretionary authority will be able to be voted
on shareholder proposals that the shareholders do not request be included in the
Company's proxy statement but plan to present at the Company's next Annual
Meeting of Shareholders.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (numbered in accordance with Item 601 of regulation S-K)
10. Material Contracts
(a) Master Franchise Agreement for the Republic of Mexico
27.1 Financial Data Schedule - 1998
27.2 Financial Data Schedule - 1997 restated
(b) Reports on Form 8-K
A Current Report on Form 8-K dated September 16, 1998, was filed on
September 25, 1998, reporting under Item 5 a change of officers of the
Company.
21
<PAGE>
GREASE MONKEY HOLDING CORPORATION AND SUBSIDIARIES
Commission File Number: 000-9812
Quarter Ended September 30, 1998
FORM 10-QSB
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREASE MONKEY HOLDING CORPORATION
By: /s/ Rex L. Utsler
-------------------------------------------------
Rex L. Utsler
President and Chief Operating Officer
(Chief Financial Officer and Principal Accounting
Officer)
Denver, Colorado
November 13, 1998
22
THIS IS A CONFIDENTIAL DOCUMENT
GREASE MONKEY INTERNATIONAL, INC.
MASTER FRANCHISE AGREEMENT
FOR THE
REPUBLIC OF MEXICO
Country: Republic of Mexico
Master Franchisee: Unilub, S.A. de C.V.
<PAGE>
GREASE MONKEY INTERNATIONAL, INC.
MASTER FRANCHISE AGREEMENT
TABLE OF CONTENTS
Page Number
I. PURPOSE.................................................................. 5
2. GRANT OF LICENSE......................................................... 2
2.1. Grant of Master License
2.2. Scope of Franchise Operations
2.3. Franchise Agreements
2.4. Disclosure Information--Registration........................ 3
3. FEES PAID TO FRANCHISOR.................................................. 3
3.1. Continuing Fees in General
3.2. Continuing Initial Franchise Fees........................... 3
3.3. Continuing Royalty Fees..................................... 3
3.4. Levies and Taxes............................................ 3
3.5. Manner of Payment
3.5. Manner of Payment
4. FRANCHISOR'S OBLIGATIONS................................................. 4
4.1. Franchisor's Duties
5. MASTER LICENSEE'S COVENANTS.............................................. 6
5.1. Development of Licensed Area................................ 6
5.2. Development Schedule........................................ 6
5.3. Master License Office
5.4. Initial Training Program.................................... 6
5.5. Compliance with Master Licensee's Operations Manual......... 7
5.6. Protection and Promotion of Marks and Licensed Methods...... 7
5.7. Compliance with Laws........................................ 8
5.8. Payment of Taxes and Other Obligations...................... 8
5.9. Support Services
5.10. Control of Franchisees
5.11. Attendance at the Franchisor's Conferences
5.12. Written Materials........................................... 10
5.13. Organization of Master Licensee.
5.14. Authurization.
6. TRADE AND INDUSTRIAL SECRETS............................................. 11
i
<PAGE>
6.1. Trade and Industrial Secrets................................ 11
6.2. Use and Limitation on Use................................... 11
6.3. Franchisor's Rights to New Ideas............................ 11
6.4. Updated Information
7. REPRESENTATIONS OF MASTER LICENSEE....................................... 12
7.1. Representations of Master Licensee
8. ADVERTISING.............................................................. 13
8.1. Standards.
8.2. Master Licensee's Advertising Account....................... 13
9. LICENSED METHODS STANDARDS............................................... 13
9.1. Licensed Methods Standards
9.2. Incorporation of Licensed Methods Standards
9.3. Restriction on Services and Products........................ 14
9.4. Instuction Rights
10. MARKS AND PROPRIETARY RIGHTS............................................ 14
10.1. Ownership and Goodwill of Marks............................ 14
10.2. Trade Secrets
10.3. No Other Mark.............................................. 15
10.4. Cessation of Use at Termination............................ 15
10.5. Protection of the Marks.................................... 15
10.6. Master Licensee's Trade Name............................... 16
10.7. Change of Marks............................................ 16
10.8. Registration in Licensed Area.............................. 16
11. REPORTS AND RECORDS..................................................... 16
11.1. Periodic Reports
11.2. Annual Reports............................................. 16
11.3. Maintenance of Records
11.4. Inspection and Audit
12. ASSIGNMENT OF RIGHTS.................................................... 17
12.1. Assignment by Master Licensee.............................. 17
12.2. Franchisor's Approval of Transfer.......................... 18
12.3. Right of First Refusal..................................... 19
12.4. Types of Assignment........................................ 19
12.5. Assignment by Franchisor................................... 20
13. TERM AND EXPIRATION..................................................... 20
ii
<PAGE>
13.1. Term....................................................... 20
13.2. Rights On Expiration....................................... 20
13.3. Exercise of Option for Successor Franchise................. 20
13.4. Conditions of Refusal...................................... 20
14. DEFAULT AND TERMINATION................................................. 20
14.1. Termination by Master Licensee............................. 20
14.2. Termination by Franchisor.................................. 21
14.3. Post-Termination Obligations of Master Licensee............ 21
15. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION............................. 22
15.1. Independent Businesspersons
15.2. Indemnification
16. RESTRICTIVE COVENANTS................................................... 23
16.1. Non-Competition During Term................................ 23
16.2. Post-Termination Covenant Not to Compete................... 23
16.3. No Interference
16.4. Confidentiality of Proprietary Information................. 24
16.5. Nondisclosure and Noncompetition Agreement................. 24
17. INSURANCE............................................................... 24
17.1. Insurance Coverage
17.2. Proof of Insurance
18. ENFORCEMENT............................................................. 24
18.2. GOVERNING LAW.............................................. 25
18.3. CONSENT TO JURISDICTION.................................... 25
18.4. INJUNCTIVE RELIEF.......................................... 25
19. MISCELLANEOUS PROVISIONS................................................ 26
19.1. Modification
19.2. Delegation................................................. 26
19.3. Entire Agreement
19.4. No Right to Set-Off........................................ 26
19.5. Fees and Costs
19.6. Severability............................................... 26
19.7. Notices
19.8. Excuse of Performance
19.9. Approval Within Licensed Area.............................. 27
19.11. Applicable Law............................................. 27
19.12. Translation of Agreement................................... 27
iii
<PAGE>
EXHIBITS
A Addendum to Master Franchise Agreement
B Mark Registrations in the Master Franchise Area
C Nondisclosure and Noncompetition Agreement
D Limited Guarantee of Master Franchisee's Obligations
iv
<PAGE>
THIS IS A CONFIDENTIAL DOCUMENT
GREASE MONKEY INTERNATIONAL, INC.
MASTER FRANCHISE AGREEMENT
THIS AGREEMENT (the "Agreement") is made to be effective as of the 1st day
of August, 1998, by and between GREASE MONKEY INTERNATIONAL, INC., a Colorado
corporation, with its principal place of business located at 216 16th Street
Mall, Suite 1100, Denver, Colorado 80202 (the "Franchisor") and UNILUB, S.A. de
C.V., a Mexican corporation duly incorporated and validly existing under the
laws of the Republic of Mexico, with its principal place of business located at
Humberto Lobo No. 770, Colonia del Valle, San Pedro Garza Garcia, Nuevo Leon,
66220 Mexico (the "Master Franchisee") who, on the basis of the mutual
covenants, promises and agreements contained herein, agree as follows:
I. PURPOSE
1.1. The Franchisor 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" and design, and
other trademarks, service marks, logos and identifying features, described in
the attached Exhibit B ("Marks") and the Franchisor's distinctive methods
("Master Franchise Methods") for establishing and operating GREASE MONKEY
Centers.
1.2. The Franchisor grants the right to qualified individuals and entities
to develop and operate a single GREASE MONKEY Center under the Marks and
utilizing the Master Franchise Methods pursuant to franchise agreements
("Franchise Agreements"). The Franchisor also grants the right to qualified
individuals and entities to develop and operate a certain number of GREASE
MONKEY Centers within an exclusive territory under the Marks and utilizing the
Master Franchise Methods pursuant to exclusive territory development agreements.
The individuals and entities that operate a single GREASE MONKEY Center and the
individuals and entities that are licensed to develop and operate more than one
GREASE MONKEY Center in an exclusive territory shall collectively be referred to
herein as "Franchisees."
1.3. The Master Franchisee shall have the exclusive rights to operate,
develop and assist the Franchisor in the capacity of Master Franchisee within
the Republic of Mexico ("Master Franchise Area") to operate a business ("Master
Franchisee's Business"), and to develop, support and provide services to GREASE
MONKEY centers within the Master Franchise Area in accordance with Mexican
applicable law; Articles 142, 143 and 148 of the Mexican Intellectual Property
Law ("Ley Para el Fomento y Proteccion de la Propiedad Intelectual") and Article
1
<PAGE>
65 of its Reglament ("Reglamento de la Ley de la Propriedad Intelectual"), and
the terms and conditions which are contained in this Agreement; provided,
however, that nothing in this paragraph 1.3 shall impair the ability of
Franchisees of Franchisor to operate consistent with a Grease Monkey Franchise
Agreement executed prior to the effective date of this Agreement.
1.4. The Franchisor is willing to grant the exclusive right to the Master
Franchisee to serve as its Master Franchisee through the operation of a Master
Franchisee's Business within the Master Franchise Area, under terms and
conditions which are contained in this Agreement.
2. GRANT OF LICENSE
2.1. Grant of Master License. The Franchisor grants to the Master
Franchisee, and the Master Franchisee accepts from the Franchisor, the exclusive
right to use the Marks and the Master Franchise Methods in connection with
operating the Master Franchisee's Business within the Master Franchise Area;
provided, however, that nothing in this paragraph 2.1 shall impair the ability
of Franchisees of Franchisor to operate consistent with a Grease Monkey
Franchise Agreement executed prior to the effective date of this Agreement. The
rights that are granted to the Master Franchisee are for the specific Master
Franchise Area and cannot be transferred from or used outside of such Master
Franchise Area, nor may the boundaries of the Master Franchise Area be altered
or modified, without the prior written approval of the Franchisor. The Master
Franchisee acknowledges that its continued rights to operate the Master
Franchisee's Business in the Master Franchise Area is dependent on the Master
Franchisee's continued compliance with all terms and conditions of this
Agreement, including without limitation the Master Franchisee's obligations and
deadlines imposed by the Development Schedule defined in Section 5.2 of this
Agreement and set forth on Exhibit A.
2.2. Scope of Franchise Operations. The Master Franchisee agrees at all
times to faithfully, honestly and diligently perform the Master Franchisee's
obligations hereunder, and to continuously exert best efforts to maximize
general public recognition and acceptance of the Marks for the benefit of all
GREASE MONKEY Centers ("System") and to promote the GREASE MONKEY System among
current and potential Franchisees. The Master Franchisee agrees to utilize the
Marks and Master Franchise Methods to operate the Master Franchisee's Business
in accordance with the methods and systems developed and prescribed from time to
time by the Franchisor, in its sole discretion, all of which are a part of the
Master Franchise Methods. The Master Franchisee's Business operations shall
offer only the instruction, products and services as the Franchisor shall
designate or approve to ensure uniformity of presentation to maintain the GREASE
MONKEY image, which include names, Marks, uniform product ranges, specified
designs and color schemes for the business premises, signs, layouts, fixtures
and fittings, written materials, uniforms and identification tags. The Master
Franchisee shall implement any additions or changes to the instruction, products
and services offered or provided by the Master Franchisee's Business as may be
reasonably required by the Franchisor.
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2.3. Franchise Agreements. The Master Franchisee shall have the right to
develop and open new franchises and/or submit potential local Franchisees within
the Master Franchise Area with the prior written approval of all potential
Franchisees and sites by the Franchisor, which shall not be unreasonably
withheld. The Master Franchisee and the Franchisor shall develop for each
calendar quarter a Quarterly Development Program for the Master Franchise Area.
The Master Franchisee shall follow the Quarterly Development Program without
further approval by the Franchisor of sites or Franchisees. The Master
Franchisee shall execute a separate GREASE MONKEY Franchise Agreement with each
local franchisee, which Grease Monkey Franchise Agreement shall specifically
provide that the Franchisor is a third party beneficiary. The GREASE MONKEY
Franchise Agreements executed with Franchisees in the Master Franchise Area
shall conform with the standards for a qualified franchisee of the Franchisor,
including but not limited to protection of Marks and Franchised Methods,
training programs, development and protection of intellectual property, Master
Franchisee's Operations Manuals, compliance with laws and regulations, and
services to be rendered.
2.4. Disclosure Information--Registration. The Master Franchisee shall
comply with and abide by all disclosure requirements as the Franchisor may
require from time to time with respect to promoting GREASE MONKEY Centers to
potential Franchisees.
3. FEES PAID TO FRANCHISOR
3.1. Continuing Fees in General. The Master Franchisee acknowledges that in
developing the Master Franchise Methods, the Franchisor has made and continues
to make substantial investments of time, capital, and technical and commercial
research. In consideration of the license of the Master Franchise Methods,
Marks, confidential information and trade secrets to be provided by the
Franchisor, the Master Franchisee shall pay to the Franchisor the Continuing
Initial Franchise Fees and the Continuing Royalty Fees as described in this
Article 3.
3.2. Continuing Initial Franchise Fees. While this Agreement is in effect,
the Master Franchisee shall pay the Franchisor each month, by the 20th day of
the month, 20% of the gross initial franchise fee receipts collected by the
Master Franchisee from Franchisees in the Master Franchise Area, which fees were
received between and including the 11th day of the preceding month and the 10th
day of the then current month ("Continuing Initial Franchise Fees"). While this
Agreement is in effect, the Master Franchisee shall keep 80% of the Continuing
Initial Franchise Fees.
3.3. Continuing Royalty Fees. While this Agreement is in effect, the Master
Franchisee shall pay the Franchisor each month, by the 20th day of the month,
20% of the gross royalty fee receipts collected by the Master Franchisee from
Franchisees in the Master Franchise Area, which fees were received between and
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including the 11th day of the preceding month and the 10th day of the then
current month ("Continuing Royalty Fees"). The term "gross royalty fee receipts"
as used in this Section 3.3 shall equal the gross payments received by the
Master Franchisee as "Royalties," which term shall be defined by each respective
Franchise Agreement for Centers located in the Master Franchise Area. While this
Agreement is in effect, the Master Franchisee shall keep 80% of the Continuing
Royalty Fees.
3.4. Levies and Taxes. All payments by the Master Franchisee to the
Franchisor shall be made without any deduction for any taxes, except that Master
Franchisee shall deduct and pay to the appropriate taxing authority, on behalf
of the Franchisor, any amount which the Master Franchisee is required to
withhold under any laws in the Master Franchise Area on payments made by the
Master Franchisee to the Franchisor. The Master Franchisee shall transmit to the
Franchisor official receipts for payment of all taxes withheld. If the Master
Franchisee fails to withhold or pay such taxes, it shall indemnify the
Franchisor for the full amount of such taxes and for any loss or liability
occasioned by the Master Franchisee's failure to withhold as required by law,
including, but not limited to, any penalties, interest and expenses incurred by
the Franchisor. All other taxes imposed on payments by the Master Franchisee to
the Franchisor that may be imposed now or in the future under laws of the Master
Franchise Area or any taxing authority therein shall be the Master Franchisee's
sole responsibility, and the Master Franchisee shall transmit such taxes to
appropriate fiscal authorities. Such taxes shall not affect the Master
Franchisee's obligation to make payments to the Franchisor as required under
this Agreement.
3.5. Manner of Payment. Unless otherwise agreed in writing, all payments
made by the local Franchisees, including but not limited to royalty payments and
franchise fees, shall be paid in Mexican Pesos directly to the Master
Franchisee. Unless otherwise instructed, all payments made to the Franchisor
hereunder shall be paid in Mexican Pesos to Franchisor's Mexican affiliate,
Grease Monkey de Mexico, S.A. de C.V. The Franchisor may designate and change
payment instructions at any time with at least fifteen (15) days prior written
notice to the Master Franchisee. The Master Franchisee shall be solely
responsible for the payment of any costs and charges incurred in connection with
the transfer and exchange of currency over and above any fees paid hereunder.
The Master Franchisee shall comply with all Mexican tax laws and regulations,
and withhold such taxes and tariffs as may be imposed, from time to time, by any
governmental authority within the Master Franchise Area. The Master Franchisee
shall provide an accounting or other documentation of any such withheld amounts
and payments made therefrom, in a form as may be reasonably acceptable to the
Franchisor.
3.6. Past Due Royalties and Franchise Fees. The Master Franchisee shall, at
no cost to the Franchisor, use its best efforts through extra-judicial
proceedings to collect any and all royalties and franchise fees past due on the
effective date of this Agreement. In the event the Master Franchisee's
extra-judicial efforts are unsuccessful, the Franchisor may, in its sole
discretion, elect to pursue judicial proceedings, the attorneys' fees and other
costs associated with which shall be borne by the Franchisor.
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4. FRANCHISOR'S OBLIGATIONS
4.1. Franchisor's Duties. The duties to be performed by the Franchisor in
connection with the Master Franchisee's Business will include the following:
a. The Franchisor will provide an initial training program in Denver,
Colorado U.S.A., or other training facility designated by the Franchisor,
for the Master Franchisee or, if the Master Franchisee is not an
individual, the person designated by the Master Franchisee to assume
primary responsibility for the management of the Master Franchisee's
Business ("Manager"). No fee shall be charged by the Franchisor for the
Master Franchisee or its Manager to attend the initial training program.
The Master Franchisee will be responsible for all travel and living
expenses related to attendance at the training program. The training will
last for at least five days. Successful completion of the initial training
program shall be evidenced by the Master Franchisee or its Manager
receiving a certificate of training completion. At least one individual
must successfully complete the initial training program prior to the
commencement of operations of the Master Franchisee's Business. The
Franchisor reserves the right to waive a portion of the initial training
program or alter the training schedule, if in the Franchisor's sole
discretion, the Master Franchisee or its Manager have sufficient prior
experience or training.
b. The Franchisor will provide advice regarding the development of the
Master Franchisee's Business.
c. The Franchisor will provide input, in the form of advice, studies,
data or written materials, to assist the Master Franchisee in compiling a
marketing plan for its first year of operation.
d. The Franchisor will provide newsletters, ad slicks and other
advertising materials, as they may be available from time to time;
provided, however, that they shall be in the English language and the
Master Franchisee will be required to have them accurately translated for
use in the Master Franchise Area at the Master Franchisee's own expense.
e. The Franchisor will make available, in the English language, one or
more manuals, technical bulletins or other written materials covering the
proper operating and marketing techniques of a GREASE MONKEY Center as well
as standards and specifications for implementing the Master Franchise
Methods, and manuals or other written materials covering the Master
Franchisee's Business operations, which may include advertising, marketing,
franchise promotion, franchisee selection, franchisee support, budgeting
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and forecasting, systems and controls, management of the advertising fund,
development schedule issues, public relations and related business systems
and methods. The manuals and other written information described herein
shall collectively be referred to as the "Master Franchisee's Operations
Manual." The Master Franchisee understands that the Franchisor shall accept
no responsibility for insuring that the Master Franchisee's Operations
Manual, and any information contained therein apply or are consistent with
the laws, regulations and customs prevailing within the Master Franchise
Area. The Franchisor reserves the right to revise the Master Franchisee's
Operations Manual from time to time as it deems necessary to update
operating and marketing techniques or standards and specifications.
f. The Franchisor will make available to the Master Franchisee the
standard form of Franchise Agreement within 90 days after the execution of
this Agreement, for use as a reference in performing the Master
Franchisee's Business operations licensed hereunder. The Franchisor will
also provide to the Master Franchisee a summary of the terms of each
Franchise Agreement in existence and operating in the Master Franchise Area
during the term of this Agreement, for use in performing the Master
Franchisee's Business operations licensed hereunder.
5. MASTER FRANCHISEE'S COVENANTS
5.1. Development of Master Franchise Area. The Master Franchisee shall
promote licenses or franchises to potential Franchisees to develop and operate
GREASE MONKEY Centers in the Master Franchise Area in a manner consistent with
the standards and specifications as may be established by the Franchisor from
time to time and in compliance with any applicable laws and regulations directly
or indirectly affecting or relating to the offer and sale of licenses or
franchises in the Master Franchise Area. The Master Franchisee shall uphold the
Franchisor's qualification standards in soliciting, screening and promoting
licenses or franchises to potential Franchisees. Each party shall be solely and
fully responsible for insuring compliance with all applicable laws and
regulations by their own employees, agents and/or other representatives under
their control.
5.2. Development Schedule. The Master Franchisee agrees that during the
term of this Agreement, the Master Franchisee will meet and maintain the levels
specified in each calendar quarter's quarterly development schedule ("Quarterly
Development Schedule") set forth in Exhibit A to this Agreement, which Quarterly
Development Schedule specifies the minimum dollar amount of Gross Receipts, as
defined below, that must be realized collectively by the GREASE MONKEY Centers
located in the Master Franchise Area. The term "Gross Receipts" shall mean and
include 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 Centers or arising out of the operation
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or conduct of the GREASE MONKEY Centers, 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) any sales or services charges or taxes collected
from customers and paid to the appropriate taxing authority. The Franchisor and
the Master Franchisee must agree to an ongoing development schedule for any
renewal of this Agreement as set forth in Article 13 of this Agreement.
5.3. Master License Office. The Master Franchisee agrees to obtain and at
all times during the term of this Agreement maintain office facilities in the
Master Franchise Area for operation of the Master Franchisee's Business ("Master
Office"). The Franchisor shall approve the Master Office location by its
designation in Exhibit A to this Agreement or by later executing a Rider to
Exhibit A if the Master Office location is not chosen as of the date of
execution of this Agreement. The Master Office shall have a dedicated telephone
line which shall be answered in the name of GREASE MONKEY and shall otherwise be
equipped and furnished and have signage in a manner consistent with the System,
image and minimum standards of the Franchisor.
5.4. Initial Training Program. The Master Franchisee agrees that its
responsibilities to Franchisees in the Master Franchise Area include the
provision of an initial GREASE MONKEY training program for each Franchisee, to
be conducted at the Master Office, for two individuals representing each GREASE
MONKEY Franchisee.
5.5. Compliance with Master Franchisee's Operations Manual. The Master
Franchisee shall use the Marks and Master Franchise Methods only as specified in
the Master Franchisee's Operations Manual. The Master Franchisee agrees that it
shall comply with the Master Franchisee's Operations Manual as an essential
aspect of its obligations under this Agreement and failure to substantially
comply with the Master Franchisee's Operations Manual may be considered a breach
of this Agreement. The Master Franchisee's Operations Manual is the sole
property of the Franchisor and shall be used by the Master Franchisee only
during the term of this Agreement and in strict accordance with the terms and
conditions hereof, except as the same may be revised or waived in writing by the
Franchisor in order to comply or be consistent with the laws, regulations or
custom prevailing in the Master Franchise Area. The Master Franchisee shall not
duplicate the Master Franchisee's Operations Manual or disclose its contents to
persons other than the Franchisees in the Master Franchise Area, or employees or
officers who have signed a Nondisclosure and Noncompetition Agreement
substantially similar to that attached as Exhibit C hereto and incorporated
herein by reference, and only to the extent that the disclosure of said
information is required under this Agreement and the Master Franchisee's
Operations Manual for the operation of the Master Franchisee's Business. The
Master Franchisee shall return the Master Franchisee's Operations Manual to the
Franchisor on the expiration, termination or assignment of this Agreement.
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5.6. Protection and Promotion of Marks and Master Franchise Methods. The
Master Franchisee shall operate the Master Franchisee's Business in accordance
with the Master Franchise Methods standards set by the Franchisor and in such a
manner as not to detract from or adversely reflect on the name and reputation of
the Franchisor and the goodwill associated with the GREASE MONKEY name and
Marks. The Franchisor and the Master Franchisee shall comply with Articles 142,
143 and 148 of the Mexican Intellectual Property Law ("Ley Para el Fomento y
Proteccion de la Propiedad Intelectual") and Article 65 of its Reglament
("Reglamento de la Ley de la Propriedad Intelectual"). The Franchisor shall
register and record this Agreement before the Mexican Institute of Intellectual
Property ("Instituto Mexicano de la Propiedad Industrial") to enable the Master
Franchisee to protect and defend the Marks and Franchised Methods against third
parties within the Master Franchise Area. The Franchisor shall deliver to the
Master Franchisee a copy of this Agreement duly registered before the Mexican
Institute of Intellectual Property. The Master Franchisee shall make every
effort to protect, maintain and promote the Marks and the Master Franchise
Methods, and to prevent imitations and infringements on the Marks and Master
Franchise Methods, within the Master Franchise Area. The Master Franchisee shall
promptly notify Franchisor 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. The Master Franchisee acknowledges that Franchisor shall have
the right to determine whether action will be taken on account of any possible
infringement or illegal use. If Franchisor shall determine that such action
shall be taken, Master Franchisee shall commence or prosecute such action in
Master Franchisee's own name and Franchisor may join as a party to the action if
Franchisor determines it to be reasonably necessary for the continued protection
and quality control of the Marks and Master Franchise Methods. In the event tha
Master Franchisee employs the service of an attorney to commence or prosecute
such action, such attorney shall be approved by Franchisor prior to such
employment. The Master Franchisee will not institute any action on account of
any possible infringement or illegal use without first obtaining Franchisor's
prior written consent. In the event Master Franchisee employs the service of an
attorney to commence or prosecute such action, such attorney shall be approved
by Franchisor prior to such employment.
5.7. Compliance with Laws. The Master Franchisee shall conduct itself and
operate the Master Franchisee's Business in compliance with all applicable laws
and ordinances in the Master Franchise Area. In connection therewith, the Master
Franchisee shall be solely and fully responsible for obtaining and maintaining
any and all government permits, registrations, licenses or similar approvals to
carry on the Master Franchisee's Business.
5.8. Payment of Taxes and Other Obligations. The Master Franchisee shall
promptly pay when due all taxes and other obligations incurred with third
parties in the operation of the Master Franchisee's Business, including, without
limitation, value-added, import/export, national insurance contributions,
turnover taxes, sales and withholding taxes, and any and all accounts or other
indebtedness of every kind incurred by the Master Franchisee in the conduct of
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the Master Franchisee's Business. In the event of a bona fide dispute as to the
liability for taxes assessed or other indebtedness, the Master Franchisee shall
follow the procedures of the appropriate governmental authority in the Master
Franchise Area. The Master Franchisee shall comply with all agreements with
third parties related to the Master Franchisee's Business.
5.9. Support Services. The Master Franchisee agrees to perform its
obligations to serve and act as the Master Franchisee of the Franchisor in
accordance with the terms and conditions of this Agreement, and only within the
Master Franchise Area, which obligations include, in addition to all other
obligation set forth in this Agreement, performing certain site approval,
development and operating services and establishing and maintaining certain
supply services (collectively, the "Support Services"), as defined in this
Section below, in accordance with the Franchisor's standards and specifications.
"Support Services" are defined as follows:
a. Solicit and identify prospective Franchisees for GREASE MONKEY
Centers to be located within the Master Franchise Area;
b. Assist with GREASE MONKEY Center location selection for each
Franchisee, which shall consist of providing each Franchisee with criteria
for a satisfactory site and approving or disapproving of site submittal
packages (containing such demographic commercial and other information as
the Franchisor and the Master Franchisee may reasonably require) submitted
to the Master Franchisee by Franchisees for each location at which a
Franchisee proposes to establish and operate a GREASE MONKEY Center,
assisting in negotiating lease terms and coordinating the work of
contractors and architects with respect to the development of each GREASE
MONKEY Center;
c. Provide standards and specifications to Franchisees for the build
out, interior design, layout, floor plan, signs, designs, color and decor
of the Center as prescribed from time to time by the Franchisor;
d. Provide advice to Franchisee regarding the standards and
specifications for the equipment, supplies and materials used in, and the
services offered for sale by, the Centers and advice regarding the
selection of suppliers for the purchasing of such items used in connection
with the GREASE MONKEY Centers;
e. Provide initial training and on-site assistance for not less than
five days in the opening of GREASE MONKEY Centers;
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f. Provide guidance in implementing advertising and marketing
programs, operating and sales procedures and bookkeeping and accounting
programs;
g. Upon the reasonable request of Franchisees, provide consultation by
telephone regarding the continuing operation and management of the Center
and advice regarding GREASE MONKEY services, product quality control,
employment issues and customer relations issues;
h. Provide on-going updates of information and programs regarding the
GREASE MONKEY Center operations and related Master Franchise Methods,
including without limitation, information about special or new services of
the Franchisor;
i. Perform on-site inspections of all GREASE MONKEY Centers located in
the Master Franchise Area at least one time per year, including the
inventory, equipment, products, materials and supplies, to ensure
compliance with all standards and specifications set by the Franchisor;
j. Collect all amounts due and owing from the Franchisees in the
Master Franchise Area to the Franchisor under the respective Franchise
Agreements or any other agreement between the Franchisor and the
Franchisees, and remit to the Franchisor such Continuing Initial Franchise
Fees, Continuing Royalty Fees and other payments as required by the terms
of this Agreement;
k. Establish and maintain all necessary relationships with suppliers
located within the Master Franchise Area of equipment, supplies, materials
and other items used in the operation of GREASE MONKEY Centers in
accordance with the Franchisor's standards and specifications. The Master
Franchisee shall also obtain the Franchisor's prior written approval, which
approval shall not be unreasonably withheld, of any changes in the
Franchisor's standards and specifications for the equipment, supplies and
materials used in, and the services offered for sale by, GREASE MONKEY
Centers in the Master Franchise Area and once the Master Franchisee obtains
the Franchisor's approval therefor, advise Franchisees in the Master
Franchise Area regarding these changes and regarding the selection of
suppliers for the purchase of such items used in connection with the GREASE
MONKEY Centers in the Master Franchise Area;
l. Provide access to advertising and promotional materials as may be
developed by the Franchisor from time to time;
m. At the Franchisor's written request, establish an advertising
cooperative for all GREASE MONKEY Centers located in the Master Franchise
Area using forms and procedures supplied by the Franchisor; and
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n. Submit periodic reports to the Franchisor on the Master
Franchisee's Business operations, the GREASE MONKEY Centers and other
activities in the Master Franchise Area, using procedures and forms
prescribed by the Franchisor from time to time.
5.10. Control of Franchisees and Assignment of Existing Franchise
Agreements. The Master Franchisee shall assure that the standards and
specifications as set forth in any and all Franchise Agreements and the Master
Franchisee's Operations Manual and any and all other standards and
specifications which are part of the Master Franchise Methods established by the
Franchisor are, in turn, established and maintained by the Master Franchisee and
the Franchisees with respect to all GREASE MONKEY Centers in the Master
Franchise Area. The Franchisor shall, within six months from the effective date
of this Agreement, assign the Franchisor's rights in and to all Grease Monkey
Franchise Agreements executed on or before the effective date of this Agreement
for franchises located or to be located within the Master Franchise Area, to the
Master Franchisee; provided, however, that (i) the Franchisor shall not assign
its rights relating to resolution of disputes; (ii) the Franchisor shall remain
a third party beneficiary of such Grease Monkey Franchise Agreements; and (iii)
the Master Franchisee shall not receive initial franchise fees for Grease Monkey
Franchise Agreements assigned pursuant to this paragraph 5.10.
5.11. Attendance at the Franchisor's Conferences. The Master Franchisee, or
its Manager, shall attend on-going seminars, conventions and programs offered by
the Franchisor to its Franchisees and Master Franchisees which are offered on a
national basis in the United States of America, and those offered on an
international basis. The Master Franchisee, or its Manager, shall attend any
mandatory seminar, convention or program as may be offered by the Franchisor.
The Franchisor shall give the Master Franchisee at least 30 days prior written
notice of any seminar, convention or program which is considered by the
Franchisor to be mandatory; provided, however, the Master Franchisee, or the
Manager, shall not be required to attend any mandatory seminar, convention or
program more than once per year, except for local or regional advertising and
marketing meetings, sponsored by an advertising cooperative or by the
Franchisor, the Master Franchisee's or the Manager's attendance at which may
also be required. The Master Franchisee is responsible for all costs and
expenses associated with attending any training program, seminar or convention.
5.12. Written Materials. The Master Franchisee agrees to develop and use in
connection with the Master Franchisee's Business only such written materials,
training manuals and supplies which comply with the Franchisor's standards and
specifications. Unless provided to the Master Franchisee in the language in
dominant use in the Master Franchise Area, the Master Franchisee shall pay all
costs of translation for such written materials and training manuals as may be
necessary for use in the Master Franchise Area.
5.13. Organization of Master Franchisee. The Master Franchisee is a
corporation duly organized, validly existing and in good standing under the laws
of the Republic of Mexico.
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5.14. Authorization. The individuals executing this Agreement on behalf of
the Master Franchisee have been duly authorized to execute and deliver this
Agreement on behalf of the Master Franchisee and this Agreement is bind upon the
Master Franchisee in accordance with its terms.
6. TRADE AND INDUSTRIAL SECRETS
6.1. Trade and Industrial Secrets. The Master Franchisee acknowledges that
the Franchisor possesses certain trade and industrial secrets ("Trade and
Industrial Secrets") relating to the operation of GREASE MONKEY Centers, which
include: (1) site selection criteria; (2) methods, processes, formats,
specifications, systems, procedures, sales and marketing techniques and
knowledge of and experience in the development and operation of GREASE MONKEY
Centers, including any and all contents of the Master Franchisee's Operations
Manual; (3) marketing programs; (4) research and development relating to new
businesses and services; (5) knowledge of specifications for and suppliers of
certain products, services, materials, supplies, equipment and fixtures; (6) the
proprietary computer software program and designated equipment; and (7)
knowledge of operating results and financial performance of GREASE MONKEY
Centers. The Franchisor's Trade and Industrial Secrets shall be disclosed by the
Franchisor to the Master Franchisee through documents, electronic or magnetic
means, optical disks, microfilm, film or other similar instruments. In view of
the foregoing, any unauthorized disclosure by the Master Franchisee of the Trade
and Industrial Secrets provided by the Franchisor pursuant to this Agreement
shall entitle the Franchisor to exercise all of the legal rights and remedies
available to the Franchisor pursuant to any applicable law and/or regulation.
6.2. Use and Limitation on Use. The Master Franchisee acknowledges and
agrees it will not acquire any interest in Trade and Industrial Secrets, other
than the right to utilize disclosed Trade and Industrial Secrets in operating
the Master Franchisee's Business in the Master Franchise Area during the term
hereof and that use or duplication of any Trade and Industrial Secrets in any
other business would constitute an unfair method of competition. The Master
Franchisee further acknowledges and agrees that the Trade and Industrial Secrets
are proprietary to the Franchisor, include trade secrets of the Franchisor and
are disclosed to the Master Franchisee solely on the condition that the Master
Franchisee agrees, and the Master Franchisee does hereby agree, that the Master
Franchisee: (1) will not use any Trade and Industrial Secrets in any other
business or capacity; (2) will maintain the absolute confidentiality of all of
the Trade and Industrial Secrets during and after the term of this Agreement;
(3) will not make unauthorized copies of any portion of the Trade and Industrial
Secrets disclosed in written or other tangible forms; and (4) will adopt and
implement all reasonable procedures that Franchisor prescribes to prevent
unauthorized use or disclosure of the Trade and Industrial Secrets.
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6.3. Franchisor's Rights to New Ideas. The Master Franchisee agrees that
the Franchisor shall have the right to use and authorize other GREASE MONKEY
Centers to use, and the Master Franchisee shall fully and promptly disclose to
the Franchisor, all ideas, concepts, methods and procedures relating to the
development and/or operations of a business providing automotive lubrication,
oil changes, radiator flush and fill, and transmission fluid and other fluid
replacement services conceived or developed by the Master Franchisee and/or its
employees, Franchisees and licensees during the term of this Agreement.
6.4. Updated Information. The Master Franchisee, within thirty days of
receiving any updated information regarding the Master Franchisee's Operations
Manual, shall in turn update its copy of the Master Franchisee's Operations
Manual as instructed by the Franchisor and shall conform its operations with the
updated provisions within a reasonable time thereafter. The Master Franchisee
shall also be responsible for ensuring that each of the Franchisees in the
Master Franchise Area shall, in turn, update their copy of their Operations
Manual as instructed by the Franchisor, and shall conform their operations with
the updated provisions within a reasonable period of time thereafter. The Master
Franchisee acknowledges that a master copy of the Master Franchisee's Operations
Manual maintained by the Franchisor at its principal office shall be controlling
in the event of a dispute relative to the content of any Master Franchisee's
Operations Manual.
7. REPRESENTATIONS OF MASTER FRANCHISEE
7.1. Representations of Master Franchisee. The Master Franchisee represents
and warrants that it has induced the Franchisor to enter into this Agreement
based on the following representations and warranties made to Franchisor. The
following representations and warranties shall survive termination of this
Agreement.
a. The Master Franchisee understands and acknowledges that the
Franchisor has made no promise or guarantee, express or implied, that the
Master Franchisee will be able to comply with any applicable laws and
regulations concerning the promotion of franchises in the Master Franchise
Area throughout the entire term hereof, but the Master Franchisee agrees to
use its best efforts to comply with the same.
b. The Franchisor has made no representations or statements of actual,
average, projected or forecasted sales, profits or earnings to the Master
Franchisee with respect to the Master Franchisee's Business on which the
Master Franchisee has in any way relied in entering into this Agreement.
c. The Master Franchisee understands and acknowledges that the Master
Franchisee's Operations Manual provided by the Franchisor contains
information which may not be applicable in the Master Franchise Area and
the Master Franchisee will be required to inform the Franchisor of any
proposed revisions, and if approved by the Franchisor in its sole
discretion, to revise those sections which are in turn provided to
Franchisees.
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d. The Master Franchisee acknowledges that it has read this Agreement
and understands and accepts the terms contained in this Agreement as being
reasonably necessary to maintain the Franchisor's high standards of quality
and service and the uniformity of those standards and thereby to protect
and preserve the goodwill of the Marks and the integrity of the Master
Franchise Methods. The Master Franchisee acknowledges that it has conducted
an independent investigation of the business venture contemplated by this
Agreement and recognizes that, like any other business, the nature of this
business may evolve and change over time, that the investment involves
business risks and that the success of the venture is largely dependent on
the Master Franchisee's business abilities and efforts. The Master
Franchisee further represents to the Franchisor, as an inducement to its
entry into this Agreement, that the Master Franchisee had made no
misrepresentations in obtaining the license granted pursuant to this
Agreement.
e. The Master Franchisee represents that it is familiar with and has
the necessary managerial and financial ability to operate, develop and
maintain the Master Franchisee's Business and that it has sufficient staff
and offices to attempt to promote, train and support prospective and future
Franchisees pursuant to the Franchisor's minimum standards of quality and
in accordance with the Master Franchisee's Operations Manual.
8. ADVERTISING
8.1. Standards. The Master Franchisee acknowledges that the advertising and
promotion of the GREASE MONKEY Centers and the GREASE MONKEY System in
accordance with the Franchisor's standards and specifications regarding
advertising is an essential aspect of the Master Franchise Methods, and the
Master Franchisee agrees to comply with all advertising standards and
specifications.
8.2. Master Franchisee's Advertising Account. Any advertising fees
collected by the Master Franchisee from Franchisees pursuant to the Franchise
Agreements and retained by the Master Franchisee, shall be deposited by the
Master Franchisee in separate bank accounts, commercial accounts or savings
accounts ("Advertising Account"). The Master Franchisee will make available to
the Franchisor and to the Franchisees in the Master Franchise Area, no later
than 120 days after the end of each calendar year, an annual financial statement
for the Advertising Account which indicates how deposits to the Advertising
Account have been spent. The Advertising Account will be administered by the
Master Franchisee, in its sole discretion, and shall be used by the Master
Franchisee on behalf of Franchisees in the Master Franchise Area only for
production and placement of media advertising, direct response literature,
direct mailings, brochures, collateral material advertising, surveys of
advertising effectiveness, or other advertising or public relations expenditures
relating to advertising.
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9. MASTER FRANCHISE METHODS STANDARDS
9.1. Master Franchise Methods Standards. The Master Franchisee acknowledges
and agrees that the development and operation of the GREASE MONKEY Centers in
accordance with the specifications, standards, operating procedures and rules
the Franchisor prescribes for the operation of GREASE MONKEY Centers as
periodically modified and supplemented by the Franchisor in its discretion
during the term (the "Master Franchise Methods Standards") is the essence of
this Agreement and essential to preserve the goodwill of the Marks. Therefore,
Master Franchisee agrees, at all times during the term hereof, to maintain and
operate, and to require Franchisees to maintain and operate, the GREASE MONKEY
Centers in accordance with each and every Master Franchise Methods Standard.
9.2. Incorporation of Master Franchise Methods Standards. The Master
Franchisee hereby agrees that Master Franchise Methods Standards prescribed from
time to time in the Master Franchisee's Operations Manual, or otherwise
communicated to the Master Franchisee in writing, shall constitute provisions of
this Agreement as if fully set forth herein. All references to this Agreement
shall include all Master Franchise Methods Standards as periodically modified.
9.3. Restriction on Services and Products. The Master Franchisee is
prohibited from offering or selling any services or products not authorized by
the Franchisor. However, if the Master Franchisee proposes to offer, conduct or
utilize any services, products, materials, forms, items or supplies for use in
connection with or sale through the Master Franchisee's Business which are not
previously approved by the Franchisor as meeting its specifications, the Master
Franchisee shall first notify the Franchisor in writing requesting approval. The
Franchisor shall not unreasonably withhold such approval; however, in order to
make such determination, the Franchisor may require submission of
specifications, information, or samples of such services, products, materials,
forms, items or supplies. The Franchisor will advise the Master Franchisee
within a reasonable time whether such services, products or other items meet its
specifications.
9.4. Inspection Rights. To ensure conformity with the standards and
specifications of the Franchisor, the Franchisor reserves the right to inspect
all aspects of the operation of the Master Franchisee's Business and the GREASE
MONKEY Centers in the Master Franchise Area, during normal business hours. The
Franchisor shall provide the Master Franchisee with at least ten days prior
written notice with respect to an upcoming inspection and the Master Franchisee
shall reasonably cooperate with the Franchisor for the scheduling of the
inspection. The Master Franchisee shall have the right to be present during any
inspection conducted by the Franchisor or the Franchisor's representative.
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10. MARKS AND PROPRIETARY RIGHTS
10.1. Ownership and Goodwill of Marks. The Master Franchisee hereby
acknowledges that the Franchisor is the sole owner of the Marks and any goodwill
established thereby and the Franchisor has the sole right to license and control
the Master Franchisee's use of the GREASE MONKEY service mark and other of the
Marks, and that the use of the Marks shall remain under the sole and exclusive
control of the Franchisor. The Master Franchisee acknowledges that it has not
acquired any right, title or interest in the Marks except for the right to use
the Marks in the operation of the Master Franchisee's Business in the Master
Franchise Area pursuant to this Agreement.
10.2. Trade Secrets. The Master Franchisee hereby acknowledges that the
Franchisor owns and controls the distinctive plan for the establishment,
operation and promotion of GREASE MONKEY Centers and all related Master
Franchise Methods of doing business, previously defined as the "Master Franchise
Methods", which may include, but are not limited to, distinctive layout, design
and decoration for the GREASE MONKEY Center structure, other commercial symbols,
written promotional materials, advertising and accounting systems, all of which
constitute trade secrets of the Franchisor, and the Master Franchisee
acknowledges that the Franchisor has valuable rights in and to such trade
secrets. The Master Franchisee further acknowledges that it has not acquired any
right, title or interest in the Master Franchise Methods except for the right to
use the Master Franchise Methods in the operation of the Master Franchisee's
Business as it relates to this Agreement or as may be granted by separate
agreement with the Franchisor. If, in the course of operating its Master
Franchisee's Business, the Master Franchisee develops or improves any aspect of
the Master Franchise Methods, any and all plans, methods, ideas and systems
related to such development or improvement shall inure to the benefit of the
Franchisor and shall be owned by the Franchisor as a part of the Master
Franchise Methods.
10.3. No Other Mark. The Master Franchisee further agrees that no Mark
other than "GREASE MONKEY" and design or such other Marks as may be specified by
the Franchisor, shall be used in the operation of the Master Franchisee's
Business.
10.4. Cessation of Use at Termination. In the event this Agreement is
terminated for any reason, the Master Franchisee shall immediately cease using
any of the GREASE MONKEY Master Franchise Methods, Marks, trade names, trade
dress, trade secrets, copyrights or any other symbols used to identify the
Master Franchisee's Business, and all rights the Master Franchisee had to the
same shall automatically terminate. The Master Franchisee agrees to execute any
documents of assignment as may be necessary to transfer any rights the Master
Franchisee may possess in and to the Marks to the Franchisor. Nothing herein
shall affect the Master Franchisee's rights as a Franchisee under any then
existing Franchise Agreement.
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10.5. Protection of the Marks. The Franchisor shall have the affirmative
obligation to protect and defend its use of the Marks and the Franchisor's
proprietary interests therein, which affirmative obligations shall include,
without limitation, ascertaining on a periodic basis whether there is any
infringing or illegal use of the Marks by any unauthorized parties within the
Master Franchise Area. The Master Franchisee shall notify the Franchisor in
writing of any possible infringement or illegal use by others of the Marks, or
trademarks the same as or substantially similar to the Marks which may come to
its attention. The Master Franchisee acknowledges that the Franchisor shall have
the right to determine whether action will be taken on account of any possible
infringement or illegal use. If such action is deemed to be necessary, the
Franchisor will notify the Master Franchisee who will be responsible for the
commencement or prosecution of such action if the Franchisor determines it to be
reasonably necessary for the continued protection and quality control of the
Marks and Master Franchise Methods. The Franchisor shall bear the cost of any
such action, including reasonable attorneys' fees, and shall reasonably
cooperate with the Master Franchisee in any such litigation; provided the
Franchisor shall also have the right to dictate and control the prosecution of
any such action. The Master Franchisee agrees not to institute any action on
account of any possible infringement or illegal use without first obtaining the
Franchisor's prior written consent.
10.6. Master Franchisee's Trade Name. The Master Franchisee acknowledges
that the Franchisor has a prior and superior claim to the Marks and GREASE
MONKEY trade name. The Master Franchisee shall not license or use any of the
GREASE MONKEY Marks or trade names in the legal name of its company, partnership
or any other business entity used in conducting the business provided for in
this Agreement. The Master Franchisee also agrees not to register or attempt to
register any trade name using the words "GREASE MONKEY" in the Master
Franchisee's name or in any other person or business entity name without the
prior written consent of the Franchisor. Further, except as permitted by the
Master Franchisee's Operations Manual, the Master Franchisee shall not use any
of the Marks as part of an electronic mail address, or on any sites on the
Internet or World Wide Web and the Master Franchisee shall not use or register
any of the Marks as a domain name on the Internet. When this Agreement is
terminated, the Master Franchisee shall execute any assignment or other document
the Franchisor requires to transfer to the Franchisor any rights the Master
Franchisee may possess in a trade name utilizing the mark GREASE MONKEY or any
other Mark owned by the Franchisor.
10.7. Change of Marks. In the event that the Franchisor, in its sole
discretion, shall determine it necessary to modify or discontinue the use of any
proprietary Marks, or to develop additional or substitute marks, the Master
Franchisee shall, within a reasonable time after receipt of written notice of
such a modification or discontinuation from the Franchisor, take such action, at
the Master Franchisee's sole expense, as may be necessary to comply with such
modification, discontinuation, addition or substitution; provided, however, any
cost to register the additional or substitute mark shall be at the Franchisor's
sole expense.
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10.8. Registration in Master Franchise Area. The Franchisor has received
trademark registration with the appropriate regulator agencies in the Master
Franchise Area for the service mark "GREASE MONKEY" and design as described in
Exhibit B, attached hereto and by this reference incorporated herein. The Master
Franchisee shall promptly file, as and when necessary and at Master Franchisee's
sole expense, a registered user agreement, statutory declaration or other
applicable document with the appropriate office in the Master Franchise Area in
connection with the use of the GREASE MONKEY mark and any Marks which may
subsequently be used by the Master Franchisee in connection with this Agreement.
The Master Franchisee will be responsible for any and all subsequent registered
user agreements, statutory declarations or other applicable documents as may be
required to be filed with the appropriate regulatory agency in connection with
each Franchisee's use of the GREASE MONKEY mark and any other Marks of the
Franchisor to be used by the Franchisees.
11. REPORTS AND RECORDS
11.1. Periodic Reports. The Master Franchisee shall supply to the
Franchisor such reports in a manner and form as the Franchisor may, from time to
time, reasonably require.
11.2. Annual Reports. The Master Franchisee shall, within 120 days after
the end of its fiscal year, provide to the Franchisor, in English, annual
audited financial statements, tax returns relating to the Master Franchisee's
Business, and a certification from an independent certified public accountant
that all sums due and owing hereunder have been paid. If the certification shows
an underpayment of any amounts owed to the Franchisor, these amounts shall be
paid to the Franchisor concurrently with the submission of the statements. In
addition, the Master Franchisee shall, within forty five days from the end of
each calendar quarter, provide the Franchisor with copies of quarterly value
added tax returns or other assessment returns or reports as may be applicable.
11.3. Maintenance of Records. The Master Franchisee shall maintain all
books and records for the Master Franchisee's Business in accordance with
generally accepted accounting principles, consistently applied, and preserve
these records for at least six years after the fiscal year to which they relate.
11.4. Inspection and Audit. The Master Franchisee shall permit the
Franchisor to inspect and audit the books and records of the Master Franchisee's
Business at any reasonable time, at the Franchisor's expense. "Books and
records" includes but is not limited to, all books and records of the Master
Franchisee's Business, tax returns and reports, invoices, general ledgers, sales
slips and bank statements. In the event that any audit discloses an
understatement of payments due to or paid to the Franchisor, the Master
Franchisee shall immediately pay all deficiencies which may be due and owing to
the Franchisor, including interest at 18% per annum. In addition, if such audit
reflects an underpayment to the Franchisor by 5% or more, the Master Franchisee
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will bear the entire cost of such audit and all related reasonable expenses and
the Franchisor shall be entitled to reaudit the Master Franchisee's Business at
the Master Franchisee's expense, at any time within one year from the date of
the current audit, to determine whether the Master Franchisee has accurately
reported and paid all amounts due to the Franchisor.
12. ASSIGNMENT OF RIGHTS
12.1. Assignment by Master Franchisee. The Master Franchisee's Business
granted herein is personal to the Master Franchisee and except as stated below,
the Franchisor shall not allow or permit any transfer, assignment, sublicense or
conveyance of this Agreement or any interest hereunder. The Master Franchisee
shall not sell, transfer or assign its rights under this Agreement or any
interest in it, or any part or portion of the entity that owns it, or a
substantial portion of the assets used in carrying out this Agreement, unless
the Master Franchisee obtains the Franchisor's prior written consent and the
Master Franchisee or the proposed transferee or both, comply with requirements
12.1(a), through 12.1(h); provided, however, that the restrictions on transfer
in this paragraph 12.1 shall not apply if the proposed transferee is owned or
controlled by at least 51% of the original shareholders of the Master Franchisee
and the transaction is made for purposes of fiscal consolidation in accordance
with applicable Mexican law.
a. Payment of all amounts due and owing by the Master Franchisee to
the Franchisor and to third parties whose debts or obligations the
Franchisor has guaranteed on behalf of the Master Franchisee, if any;
b. Agreement by the proposed transferee to satisfactorily complete the
initial training program conducted by the Franchisor, which training may be
completed by the transferee either prior to or immediately after assignment
of this Agreement;
c. An express written assumption by the proposed transferee of the
Master Franchisee's obligations pursuant to this Agreement and any other
related agreement between the Franchisor and the Master Franchisee;
d. Provision by the Master Franchisee of thirty (30) days written
notice prior to the proposed effective date of the transfer, such notice to
contain the material terms and conditions of the transfer, including
without limitation, the price and terms of payment;
e. Execution by the Master Franchisee of a general release of all
claims against the Franchisor and an acknowledgement of the termination of
all of its rights in connection with this Agreement;
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f. Payment by the Master Franchisee or the proposed transferee of a
transfer fee in an amount commensurate with the reasonable costs incurred
by the Franchisor in connection with the review and consummation of the
proposed transfer and the qualification and training of the transferee,
which payment shall not exceed 10% of the total purchase price to be paid
by the transferee, whether to be paid in lump sum or financed;
g. The proposed transferee shall have provided information to the
Franchisor sufficient for the Franchisor to assess the proposed
transferee's business experience, aptitude, creditworthiness and financial
resources to operate the Master Franchisee's Business and the Franchisor
shall have ascertained that the proposed transferee meets such
qualifications; and
h. The proposed transferee shall have visited the corporate
headquarters of the Franchisor and shall have been evaluated and reasonably
approved by the Franchisor.
12.2. Franchisor's Approval of Transfer. The Franchisor has thirty (30)
days from the date of notice from the Master Franchisee to approve or disapprove
the Master Franchisee's proposed assignment. The Master Franchisee acknowledges
that the Franchisor may withhold approval of a proposed assignment or proposed
transferee for any commercially reasonable cause, including without limitation,
the transferee's financial capability or its suitability to act as the
Franchisor's special agent in the Master Franchise Area, irrespective of how
such financial capability or suitability compares to that of the Master
Franchisee. If the Master Franchisee and its proposed transferee comply with all
conditions for assignment set forth herein and the Franchisor has not given the
Master Franchisee notice of its approval or disapproval within such period,
approval is deemed granted. This paragraph 12.2 shall not apply if the proposed
transferee is owned or controlled by at least 51% of the original shareholders
of the Master Franchisee and the transaction is made for purposes of fiscal
consolidation in accordance with applicable Mexican law.
12.3. Right of First Refusal. In the event the Master Franchisee wishes to
sell, transfer or assign its rights under this Agreement or any interest in it,
or any substantial portion of the assets used in carrying out this Agreement to
a third party, the Master Franchisee agrees to grant to the Franchisor a thirty
day right of first refusal to purchase such rights or assets on the same terms
and conditions as are contained in the written offer to purchase submitted to
the Master Franchisee by the proposed purchaser. The Master Franchisee shall
immediately notify the Franchisor of such offer by sending a written notice via
courier, telegram or telefax to the Franchisor enclosing a copy of the written
offer from the proposed purchaser and receipt of such notice must be confirmed
in writing on receipt by Franchisor. Such right of first refusal is effective
for each proposed assignment. Absence of a reply to the Master Franchisee's
notice of a proposed assignment within the thirty day period is deemed a waiver
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of such right of first refusal. The right of first refusal period will run
concurrently with the period in which the Franchisor has to approve or
disapprove the proposed transferee. If the Franchisor chooses not to exercise
its right of first refusal, the Master Franchisee shall be free to complete the
sale, transfer or assignment, subject to compliance with all other
pre-conditions for assignment set forth herein. This paragraph 12.3 shall not
apply if the proposed transferee is owned or controlled by at least 51% of the
original shareholders of the Master Franchisee and the transaction is made for
purposes of fiscal consolidation in accordance with applicable Mexican law.
12.4. Types of Assignment. The Master Franchisee acknowledges that the
Franchisor's right to approve or disapprove a proposed sale or transfer provided
for herein shall apply (1) if the Master Franchisee is a partnership or other
business association, to the addition or deletion of a partner or a member of
the association or the transfer of any partnership or membership interest among
existing partners or members; (2) if the Master Franchisee is a corporation or
company, to any proposed transfer or assignment of 25% or more of the stock or
other ownership interest in the Master Franchisee, whether such transfer occurs
in a single transaction or several transactions; and (3) if the Master
Franchisee is an individual, to the transfer from such individual or individuals
to a company controlled by him, her or them, in which case the Franchisor's
approval will be conditioned on the continuing personal guarantee of the
individual (or individuals) for the performance of obligations under this
Agreement, and other reasonable conditions. With respect to a proposed transfer
as described in subsection (3) of this section, the Franchisor's right of first
refusal to purchase, as set forth above, shall not apply and the Franchisor will
waive any transfer fee chargeable to the Master Franchisee for a transfer under
these circumstances.
12.5. Assignment by Franchisor. This Agreement is fully assignable by the
Franchisor and shall inure to the benefit of any assignee or other legal
successor in interest. The Franchisor shall also have the right to delegate the
performance of any portion or all of its obligations hereunder to third parties,
whether the same are agents of the Franchisor or independent contractors with
whom the Franchisor has contracted to provide such services. The Franchisor
shall give the Master Franchisee at least thirty (30) days prior written notice
of the assignment or delegation of all or any portion of Franchisor's rights and
obligations in this Agreement. The Master Franchisee agrees in advance to any
such delegation by the Franchisor of any part or portion of its obligations and
duties hereunder.
13. TERM AND EXPIRATION
13.1. Term. The term of this Agreement is for a period of fifteen (15)
years from the date of this Agreement, unless sooner terminated as provided
herein.
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13.2. Rights On Expiration. At the end of the initial term hereof, the
Master Franchisee shall have the option to renew the franchise rights granted
hereunder for consecutive terms of fifteen (15) years each if the Master
Franchisee:
a. At least thirty (30) days prior to expiration of the term, executes
the then current form of Master Franchise Agreement; provided, however,
that the financial terms as well as the terms relating to the operation of
the Master Franchise Business of the Master Franchise Agreement offered in
connection with the renewal shall be no less favorable than those terms and
conditions of this Agreement;
b. Has complied with all provisions of this Agreement during the
initial term. "Compliance" shall mean, at a minimum, that the Master
Franchisee has not received written notification from the Franchisor of a
material breach hereunder more than three times during the term hereof,
whether or not the Master Franchisee cured such breaches;
c. Executes a general release covering all claims the Master
Franchisee may have against the Franchisor in connection with the
completion of the then applicable term of this Agreement; and
d. Pays a successor master license fee of $5,000 United States
Dollars.
13.3. Exercise of Option for Successor Franchise. The Master Franchisee may
exercise its renewal option by giving notice of such exercise to the Franchisor
at least sixty (60) days prior to the scheduled expiration of this Agreement and
thereafter complying with the other conditions of renewal set forth in this
Agreement within ninety days after such notice.
13.4. Conditions of Refusal. The Franchisor shall not be obligated to renew
this Agreement if the Master Franchisee fails to comply with any of the above
conditions of renewal. In such event, the Franchisor shall give notice of
nonrenewal at least 180 days prior to the expiration of the term (unless
nonrenewal is due to a default of Section 13.2 (a) above), and such notice shall
set forth the reasons for such refusal to renew.
14. DEFAULT AND TERMINATION
14.1. Termination by Master Franchisee. The Master Franchisee shall have
the right to terminate this Agreement on ninety days prior written notice to the
Franchisor only in the event that the Franchisor commits gross negligence and/or
a material breach of this Agreement, including but not limited to the
insolvency, bankruptcy or dissolution of the Franchisor. Under circumstances
where the breach is of the nature that it may be remedied through the actions of
the Franchisor, the Master Franchisee shall permit the Franchisor the same
ninety (90) day period to remedy any such breach or default, after which time,
if the breach or default has not been remedied, the Master Franchisee may
terminate this Agreement immediately. Notwithstanding the foregoing, if the
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breach is remediable, but is of a nature which cannot be reasonably remedied
within such ninety (90) day period and the Franchisor has commenced and is
continuing to make good faith efforts to remedy the breach during such ninety
(90) day period, then the Franchisor shall be given an additional reasonable
period of time to remedy the same and this Agreement shall not terminate.
14.2. Termination by Franchisor. The Franchisor shall have the right to
terminate this Agreement, on ninety (90) days prior written notice to the Master
Franchisee only in the event that the Master Franchisee commits gross negligence
and/or a material breach of this Agreement, including but not limited to the
insolvency, bankruptcy or dissolution of the Master Franchisee. Under
circumstances where the breach is of the nature that it may be remedied through
the actions of the Master Franchisee, the Franchisor shall permit the Master
Franchisee the same ninety (90) day period to remedy any such breach or default,
after which time, if the breach or default has not been remedied, the Franchisor
may terminate this Agreement immediately. Notwithstanding the foregoing, if the
breach is remediable, but is of a nature which cannot be reasonably remedied
within such ninety (90) day period and the Master Franchisee has commenced and
is continuing to make good faith efforts to remedy the breach during such ninety
(90) day period, then the Master Franchisee shall be given an additional
reasonable period of time to remedy the same and this Agreement shall not
terminate.
14.3. Post-Termination Obligations of Master Franchisee. The Master
Franchisee is obligated on termination or nonrenewal of this Agreement to:
a. Pay to the Franchisor all fees, and any and all amounts or accounts
payable then owed the Franchisor or its affiliates pursuant to this
Agreement, or pursuant to any other written agreement between the parties,
within thirty (30) days of the effective date of such termination;
b. Immediately cease to identify the Master Franchisee's Business as
being, or having been, associated with the Franchisor, and immediately
cease using any of the Marks, or any mark in any way associated with the
Master Franchise Methods for any purpose, except pursuant to any other
effective agreement with the Franchisor;
c. Deliver to the Franchisor all signs, sign-faces, advertising
materials, stationery, videotapes, forms and other materials bearing any of
the Marks or otherwise identified with the Franchisor;
d. Immediately deliver to the Franchisor the Master Franchisee's
Operations Manuals in its possession and all other information, documents
and copies thereof which are proprietary to the Franchisor;
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e. Promptly take such action as may be required to cancel all trade
names or equivalent registrations relating to its use of any Marks of the
Franchisor or, at the option of the Franchisor, assign the same to the
Franchisor;
f. Deliver to the Franchisor the names, addresses, telephone numbers
and any other information in the Master Franchisee's possession, regarding
all sales leads of prospective Franchisees within the Master Franchise
Area; and
g. Abide by all restrictive covenants as set forth in Article 16
below.
15. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION
15.1. Independent Businesspersons. During the term of this Agreement, the
Master Franchisee shall be an independent businessperson and shall in no way be
considered as a general agent, partner or employee of the Franchisor. It is
understood and agreed that no general agency or partnership is created by this
Agreement. As such, the Master Franchisee has no authority of any nature
whatsoever to bind the Franchisor or incur any liability for or on behalf of the
Franchisor or to represent itself as anything other than an independent
contractor.
15.2. Indemnification. The Master Franchisee shall indemnify and hold
harmless the Franchisor and its officers, directors, employees, agents and
representatives from all fines, suits, proceedings, claims, demands or actions
("Claims") of any kind or nature, including reasonable attorneys' fees, from any
third party whomsoever, arising or growing out of, or otherwise connected with
the Master Franchisee's operation of the Master Franchisee's Business, except
and unless any such Claim arises out of the authorized use of, or defense or
protection of, the Marks in the Master Franchise Area, or any such Claim is due
to the gross negligence or willful misconduct of Franchisor or arises in
connection with a defect in the product made or supplied by the Franchisor.
a. If the Franchisor seeks indemnification hereunder with respect to
the assertion of a Claim, it shall give notice to the Master Franchisee
within thirty days of the Franchisor becoming aware of any such Claim. The
notice shall set forth such information with respect to the Claim as is
then reasonably available to the Franchisor. The Master Franchisee will
thereafter be entitled, at any time during the defense of the Claim, if it
so elects, by written notice delivered to the Franchisor within thirty days
after receiving the Franchisor's notice, to assume the defense of the Claim
with counsel satisfactory to the Franchisor. Notwithstanding the foregoing,
(i) the Franchisor shall have the right to employ its own counsel in any
such case (but the fees and expenses of such counsel shall be at the
expense of the Franchisor as long as the Master Franchisee continues to
defend such matter), to defend such Claim, or to compromise or settle such
Claim insofar as such compromise or settlement does not involve monetary
damage or payment of money; (ii) the Franchisor shall not have any
obligation to give any notice of a Claim by a third party unless such Claim
is in writing; and (iii) the rights of the Franchisor to be indemnified
herein shall not be deemed forfeited by its failure to give notice unless
the Master Franchisee is prejudiced by such failure.
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<PAGE>
b. After receipt of the aforesaid notice of a Claim, if the Master
Franchisee fails to assume the defense of the Franchisor against such
Claim, the Franchisor shall have the right to undertake the defense and to
compromise or settle such Claim on behalf of and for the account and risk
of the Master Franchisee, and at the Master Franchisee's expense, payable
to the Franchisor on written demand.
16. RESTRICTIVE COVENANTS
16.1. Non-Competition During Term. While this Agreement is in effect, the
Master Franchisee and its officers, partners, directors, agents or employees who
have completed the Franchisor's initial training program or had access to the
Master Franchisee's Operations Manual, including without limitation, the
beneficial owners of a 5% or greater interest in the Master Franchisee, where
the Master Franchisee is a company, shall not, directly or indirectly, engage in
or participate as an owner, officer, partner, director, agent, franchise sales
agent, consultant, employee or otherwise, in any other business which engages
in, or licenses or franchises others to engage in, a business which is the same
as or substantially similar to the Master Franchisee's Business or a GREASE
MONKEY Center, including without limitation, any business promoting, operating
or granting licenses or franchises to others to operate a business deriving 40%
or more of the gross sales revenue from automotive lubrication, oil changes,
radiator flush and fill, and transmission fluid and other fluid replacement
services, and related products or services offered by GREASE MONKEY Centers
("Competitive Business"), without having first obtained the Franchisor's written
consent.
16.2. Post-Termination Covenant Not to Compete. The Master Franchisee has
acquired from the Franchisor confidential information regarding Franchisor's
trade secrets and Master Franchise Methods which, in the event of a termination
of this Agreement, could be used by the Master Franchisee to injure the
Franchisor. As a result, the Master Franchisee and its officers, partners,
directors, agents or employees who have completed the Franchisor's initial
training program or had access to the Master Franchisee's Operations Manual,
including without limitation, the beneficial owners of 5% or more of the
ownership interest in a Master Franchisee which is a company, shall not for a
period of two years from the date of termination, transfer or expiration of this
Agreement, or for a period of two years after termination or cessation of such
person's relationship with the Master Franchisee in such capacity, whichever
first occurs, without first having obtained the Franchisor's consent, engage in
or participate as an owner, officer, partner, director, franchise sales agent,
agent, consultant or employee, in any other business which engages in, or
licenses or franchises others to engage in, a Competitive Business, and which is
25
<PAGE>
operating, as of the date of such termination, transfer or expiration, anywhere
within the Master Franchise Area, unless such right is granted pursuant to a
separate agreement with the Franchisor.
16.3. No Interference. The Master Franchisee agrees that during the term of
this Agreement and for a period of two years thereafter, it shall in no way
solicit or attempt to solicit the employees of or the business or customers of,
or interfere with the business relationship established with employees or
customers of, the Franchisor or any other Master Franchisee's business or GREASE
MONKEY Centers.
16.4. Confidentiality of Proprietary Information. The Master Franchisee
acknowledges that after execution of this Agreement, Master Franchisee will have
access to confidential information and trade secrets which are proprietary to
Franchisor, through participation in Franchisor's training programs, receipt of
the Master Franchisee's Operations Manual and otherwise. The Master 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 Franchisor. The Master Franchisee, and all of Master Franchisee's
employees who have attended Franchisor's training programs or had access to the
Master Franchisee's Operations Manual or are otherwise privy to such
information, 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 Master Franchisee's Business or a GREASE MONKEY Center.
16.5. Nondisclosure and Noncompetition Agreement. The Master Franchisee
shall require that any officer, partner, director, employee or agent of the
Master Franchisee execute a Nondisclosure and Noncompetition Agreement (in the
form substantially similar to Exhibit C) containing the provisions as set forth
herein, and further, the Master Franchisee shall notify the Franchisor of the
identity of each and every above-described person and provide the Franchisor
with an originally executed copy of each such Nondisclosure and Noncompetition
Agreement.
17. INSURANCE
17.1. Insurance Coverage. The Master Franchisee shall procure, maintain and
provide evidence of insurance coverage for the Master Franchisee, as required by
Mexican law, if any.
17.2. Proof of Insurance. The Master Franchisee will provide proof of
insurance, if insurance is required by Mexican law, to the Franchisor prior to
commencement of the Master Franchisee's Business operations. This proof will
show that the insurer has been authorized to inform the Franchisor in the event
any policies lapse or are canceled. The Franchisor has the right to change the
26
<PAGE>
minimum amount of insurance the Master Franchisee is required to maintain by
giving the Master Franchisee prior reasonable notice, giving due consideration
to what is reasonable and customary in a similar business in the Master
Franchise Area. 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, the Franchisor shall
have the right to demand that the Master Franchisee cease operations until
coverage is reinstated, or, in the alternative, pay any delinquencies in premium
payments and charge the same back to the Master Franchisee.
18. ENFORCEMENT
18.1. GOVERNING LAW. EXCEPT TO THE EXTENT GOVERNED BY THE UNITED STATES
TRADEMARK ACT OF 1946 (LANHAM ACT, 15 U.S.C. ss.ss. 1051 ET SEQ.) OR OTHER
UNITED STATES FEDERAL LAW, THIS AGREEMENT, THE MASTER FRANCHISEE'S BUSINESS AND
ALL CLAIMS ARISING FROM THE RELATIONSHIP BETWEEN THE FRANCHISOR AND THE MASTER
FRANCHISEE WILL BE GOVERNED BY THE LAWS OF THE STATE OF COLORADO U.S.A., WITHOUT
REGARD TO ITS CONFLICT OF LAWS PRINCIPLES, EXCEPT THAT ANY COLORADO LAW
REGULATING THE SALE OF FRANCHISES OR BUSINESS OPPORTUNITIES OR GOVERNING THE
RELATIONSHIP OF A FRANCHISOR AND ITS FRANCHISEE WILL NOT APPLY UNLESS ITS
JURISDICTIONAL REQUIREMENTS ARE MET INDEPENDENTLY WITHOUT REFERENCE TO THIS
SECTION.
18.2. CONSENT TO JURISDICTION. SUBJECT TO SECTION 18.1, THE MASTER
FRANCHISEE AND THE MASTER FRANCHISEE'S OWNERS AGREE THAT ALL JUDICIAL ACTIONS
BROUGHT BY THE FRANCHISOR AGAINST THE MASTER FRANCHISEE OR THE MASTER
FRANCHISEE'S AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES
OR BY THE MASTER FRANCHISEE OR THE MASTER FRANCHISEE'S OWNERS AGAINST THE
FRANCHISOR OR THE FRANCHISOR'S AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS,
AGENTS OR EMPLOYEES MUST BE BROUGHT IN THE DISTRICT COURT FOR THE CITY AND
COUNTY OF DENVER, COLORADO U.S.A., OR IN THE UNITED STATES FEDERAL DISTRICT
COURT IN DENVER, COLORADO U.S.A. AND THE MASTER FRANCHISEE (AND EACH OF ITS
AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES) IRREVOCABLY
SUBMITS TO THE JURISDICTION OF SUCH COURTS AND WAIVES ANY OBJECTION THE MASTER
FRANCHISEE (OR SUCH NAMED INDIVIDUAL) MAY HAVE TO EITHER THE JURISDICTION OF OR
VENUE IN SUCH COURTS. NOTWITHSTANDING THE FOREGOING, THE FRANCHISOR MAY BRING AN
ACTION FOR A TEMPORARY RESTRAINING ORDER, TEMPORARY OR PRELIMINARY INJUNCTIVE
RELIEF, IN ANY FEDERAL, STATE, PROVINCIAL OR OTHER APPLICABLE COURT OF GENERAL
JURISDICTION IN THE MASTER FRANCHISE AREA.
27
<PAGE>
18.3. INJUNCTIVE RELIEF. THE FRANCHISOR AND THE MASTER FRANCHISEE SHALL
EACH HAVE THE RIGHT IN THE PROPER CASE TO OBTAIN INJUNCTIVE RELIEF FROM A COURT
OF COMPETENT JURISDICTION. THE MASTER FRANCHISEE AGREES THAT THE FRANCHISOR MAY
OBTAIN SUCH INJUNCTIVE RELIEF, WITHOUT BOND (OR IF A COURT OF COMPETENT
JURISDICTION DETERMINES A BOND IS REQUIRED, SUCH BOND SHALL IN NO EVENT EXCEED
U.S.$500), BUT UPON DUE NOTICE, AND THE MASTER 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 HAD; PROVIDED, HOWEVER, THAT
ALL CLAIMS FOR DAMAGES BY REASON OF THE WRONGFUL ISSUANCE OF ANY SUCH INJUNCTION
ARE HEREBY EXPRESSLY WAIVED BY THE MASTER FRANCHISEE. ANY SUCH ACTION WILL BE
BROUGHT AS PROVIDED IN SECTION 18.2 ABOVE.
19. MISCELLANEOUS PROVISIONS
19.1. Modification. The parties may modify this Agreement only on execution
of a written agreement between the parties; provided, however, that the Master
Franchisee acknowledges that this Agreement may be amended by the Franchisor in
its sole discretion, after it has been reviewed by legal counsel in the Master
Franchise Area in order to bring the Agreement into conformity with applicable
laws and regulations. The Master Franchisee acknowledges that the Franchisor may
modify its standards and specifications and operating and marketing techniques
set forth in the Master Franchisee's Operations Manual unilaterally under any
conditions and to the extent to which the Franchisor, in its sole discretion,
deems necessary to protect, promote or improve the Marks and the quality of the
Master Franchise Methods, but under no circumstances will such modifications be
made arbitrarily without such determination.
19.2. Delegation. The Master Franchisee may not delegate any of its duties
under this Agreement, unless it has received the prior written consent of the
Franchisor.
19.3. Entire Agreement. This Agreement contains the entire agreement
between the parties and supersedes any and all prior agreements concerning the
subject matter hereof. The Master Franchisee agrees and understands that the
Franchisor shall not be liable or obligated for any oral representations or
commitments made prior to the execution hereof and that no modifications of this
Agreement shall be effective except those in writing and signed by both parties.
The Franchisor does not authorize and will not be bound by any representation of
any nature other than those expressed in this Agreement. The Master Franchisee
further acknowledges and agrees that no representations have been made to it by
28
<PAGE>
the Franchisor regarding projected sales volumes, market potential, revenues,
profits or operational assistance other than as stated in this Agreement or in
any disclosure document provided in connection herewith. This Agreement shall
not be effective until it is signed by an officer of the Franchisor.
19.4. No Right to Set-Off. The Master Franchisee shall not be allowed to
set off amounts owed to the Franchisor in respect of any amounts due hereunder,
against any monies owed to the Master Franchisee, which right of set off is
hereby expressly waived by the Master Franchisee.
19.5. Fees and Costs. 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 and translation costs, incurred
by the aggrieved party in any legal action, arbitration or other proceeding as a
result of such default, plus interest at the lesser of 18% annually or the
highest rate allowable by law, accruing from the date of such default.
19.6. Severability. If any provision of this Agreement is held invalid 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.
19.7. Notices. All notices required to be given under this Agreement shall
be given in writing, by certified air mail, or by hand, or by an overnight
delivery service providing documentation of receipt, at the addresses set forth
in the first paragraph of this Agreement or at such other addresses as the
Franchisor or the Master Franchisee may designate from time to time in
accordance with this Section, and shall be deemed to be received seven days from
the date of mailing, registered air mail, or when received via overnight
delivery, or immediately if delivered by hand, as may be applicable.
19.8. Excuse of Performance. Notwithstanding anything contained in this
Agreement to the contrary, the obligations of the parties hereto shall be
subject to all laws, both present and future, or any requests of any government
or any department, agency or corporation thereof having jurisdiction over this
Agreement, and to war, acts of God, or any cause of like or different kind
beyond the control of the parties, and the parties shall be excused from
performance of any obligation hereunder to the extent such failure is caused by
any law, order, regulation, direction, request or contingency; provided,
however, that such excuse of performance shall be limited to the period during
which such excuse of performance exists and shall not affect the running of the
term of this Agreement.
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<PAGE>
19.9. Approval Within Master Franchise Area. Any approval of this Agreement
by the appropriate authorities in the Master Franchise Area which is required to
enable the Master Franchisee to enter into this Agreement, perform under the
terms of this Agreement, do business with the Franchisor, or to make payments to
the Franchisor hereunder in United States dollars in the United States of
America shall be the sole responsibility of the Master Franchisee, except as
otherwise set forth herein.
19.10. Applicable Law. This Agreement shall be interpreted in accordance
with the laws of Colorado, U.S.A.
19.11. Translation of Agreement. The English language shall be regarded as
the authoritative and official text of this Agreement. However, this Agreement
will be translated into the language in dominant use in the Master Franchise
Area, at the Franchisor's expense, in the event that translation is necessary
for the purpose of registration of the Agreement with the applicable government
authorities. Nevertheless, in the event that discrepancies exist between the
English and such translated text, the English text shall be considered the
official text of the Agreement. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
30
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
day and year first above written.
GREASE MONKEY INTERNATIONAL, INC.,
a Colorado corporation
By: /s/ Charles E. Steinbrueck
---------------------------------
Its: President and CEO
-------------------------------
Date: July 16, 1998
-------------------------------
UNILUB, S.A. de C.V.,
a Mexican corporation
By: /s/ Antonio Ramon
---------------------------------
Its: President
-------------------------------
Date: July 16, 1998
------------------------------
31
<PAGE>
EXHIBIT A
ADDENDUM TO
MASTER FRANCHISE AGREEMENT
<PAGE>
EXHIBIT A
TO MASTER FRANCHISE AGREEMENT
ADDENDUM TO GREASE MONKEY INTERNATIONAL, INC.
MASTER FRANCHISE AGREEMENT
This is an Addendum to the Master Franchise Agreement dated August 1, 1998
(the "Agreement") by and between Grease Monkey International, Inc.
("Franchisor") Unilub, S.A. de C.V. ("Master Franchisee"). This Addendum
modifies certain terms and conditions of the Agreement and in the event of a
conflict in terms between the Agreement and this Addendum, the terms of this
Addendum shall be controlling. To the extent not otherwise defined in this
Addendum, all initial-capitalized references shall have the same definition as
set forth in the Agreement.
The parties agree as follows:
a. Development Schedule. The initial Quarterly Development Schedule, as
referenced in Sections 2.1 and 5.2 of the Agreement, shall be
determined by the Franchisor and the Master Franchisee by October 31,
1998.
b. Master Office. The Master Office, referenced in Section 5.3 of the
Agreement, will be located at the following address: Humberto Lobo No.
770, Colonia del Valle, San Pedro Garza Garcia, Nuevo Leon, 66220
Mexico.
c. Effectiveness of Agreement. To the extent not amended herein, all
other terms and conditions of the Agreement shall remain in full force
and effect.
Fully executed this 16th day of July, 1998.
FRANCHISOR:
GREASE MONKEY INTERNATIONAL, INC.
By: /s/ Charles E. Steinbrueck
---------------------------------
Title: President and CEO
Date: July 16, 1998
UNILUB, S.A. de C.V.:
By: /s/ Antonio Ramon
---------------------------------
Title: President
Date: July 16, 1998
<PAGE>
EXHIBIT B
MARK REGISTRATIONS IN THE MASTER FRANCHISE AREA
<PAGE>
MARKS REGISTERED IN MEXICO
Mark Registration Date Registration No.
============================= ========================= ======================
"GREASE MONKEY" and August 12, 1992 427543
Design
"MONKEY SHINE" September 30, 1997 560647
============================= ========================== =====================
<PAGE>
EXHIBIT C
NONDISCLOSURE AND NONCOMPETITION AGREEMENT
<PAGE>
NONDISCLOSURE AND NONCOMPETITION AGREEMENT
This Nondisclosure and Noncompetition Agreement ("Agreement") is made and
entered into effective the 1st day of August, 1998 by and between Grease Monkey
International, Inc., a Colorado corporation, located at 216 16th Street, Suite
1100, Denver, Colorado 80202-5125 ("Company") and VICTOR HINOJOSA, who resides
at Miguel de Cervantes #20, Cortiso Del Valle, San Pedro Garza Garcia, N.L.
Mexico, ("Associate").
RECITALS
A. Company sells franchises for the operation of automotive lubrication
businesses which operate under the name and service mark "GREASE MONKEY" and
other approved marks ("Franchises" or "Grease Monkey Centers");
B. Company also sells licenses to operate a business ("Master Franchisee's
Businesses") that will assist the Company in promoting Franchises and to
develop, support and provide services to Grease Monkey Centers within a select
area ("Master Franchise Area"), under the terms and conditions which are
contained in a Master Franchise Agreement;
C. Company has developed a business method for operating Grease Monkey
Centers and operating Master Franchisee's Businesses utilizing certain
information, plans, methods, data, processes, marketing systems, techniques,
operating procedures, trademarks, proprietary marks and information and know-how
of Company ("Confidential Information") and such Confidential Information may be
further developed from time to time by Company;
D. Company and its Affiliates have established substantial goodwill and an
excellent reputation with respect to the quality of services available, which
goodwill and reputation have been and will continue to be of major benefit to
Company;
E. Associate is or will become involved with Company, or a franchisee or
Master Franchisee of Company, in the capacity of an officer, partner, director,
or as a beneficial owner of a Franchise or a Master Franchisee's Business, which
is authorized by Company pursuant to a Franchise Agreement or Master License
Agreement, and will become privileged as to certain Confidential Information;
and
F. Associate and Company have reached an understanding with regard to
nondisclosure by Associate of Confidential Information and with respect to
noncompetition by Associate with Company.
NOW THEREFORE, in consideration of the foregoing, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, Associate and Company, intending
legally to be bound, hereby agree as follows:
1. Confidential Information. Associate and Company acknowledge that the
business plan and methods used in connection with the operation of the Franchise
or Master Franchisee Business which utilize Company's Confidential Information,
are confidential, unique, constitute the exclusive property of Company and are
trade secrets of Company. Associate acknowledges that any disclosure of the
Confidential Information would be wrongful and would cause irreparable injury
and harm to Company. Associate further acknowledges that Company has expended a
great amount of effort and money in obtaining and developing the Confidential
Information, that Company has taken numerous precautions to guard the secrecy of
the Confidential Information and that it would be very costly for competitors to
acquire or duplicate the Confidential Information.
<PAGE>
2. Operations Manual as Trade Secret. It is understood that Confidential
Information, constituting "trade secrets", as used in this Agreement is deemed
to include, without limitation, any and all information contained in the
Operations Manual, which may be provided as one or more separate manuals, or
written instructional guides, as the same are changed or supplemented from time
to time, the Development Opening Guide, and any information of whatever nature
which gives to Company an opportunity to obtain an advantage over its
competitors who do not have access to, know or use such lists, written materials
or information.
3. Nondisclosure of Confidential Information. Associate shall not at any
time, publish, disclose, divulge or in any manner communicate to any person,
firm, corporation, association, partnership or any other entity whatsoever or
use, directly or indirectly, for its own benefit or for the benefit of any
person, firm, corporation or other entity, other than for the use of Company,
any of the Confidential Information of Company or its Affiliates.
4. Noncompetition Covenant. Associate hereby covenants and agrees that
during the term of the Franchise Agreement or Master License Agreement, except
while associated with or operating the Franchise business or Master Franchisee
Business in a manner authorized by Company, neither Associate nor any member of
his or her immediate family shall: (a) have any direct or indirect controlling
interest as a disclosed or beneficial owner in a "Competitive Business," as
hereafter defined; or (b) perform services as a director, officer, manager,
employee, consultant, representative, agent, or otherwise, for 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 fluid and other fluid replacement services. If the Rider to
Franchise Agreement -- Car Wash is executed in connection with the Franchise
Agreement, the term "Competitive Business" shall include any business providing
car wash services. Notwithstanding the foregoing, Associate 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, that
represent five percent or less of that class of securities issued and
outstanding.
5. Post-Termination Covenant. Associate hereby covenants and agrees that,
for a period of three years, commencing on the effective date of termination or
expiration of the Franchise Agreement or Master License Agreement or on the date
on which Associate ceases his or her association with Company or Company's
franchisee or Master Franchisee, whichever is later, neither Associate, nor a
member of his or her immediate family, shall have any direct or indirect
interest as a disclosed or beneficial owner, investor, partner, director,
officer, employee, consultant, representative or agent or in any other capacity,
in a Competitive Business located or operating within the Master Franchise Area
of the Master Franchisee, unless authorized under another franchise agreement
with Company. Notwithstanding the foregoing, this restriction shall not apply to
the ownership of shares of a class of securities listed on a stock exchange or
traded on the over-the-counter market that represent five percent or less of the
number of shares of that class of securities issued and outstanding. Associate
expressly acknowledges that he or she possesses skills and abilities of a
general nature and has other opportunities for exploiting such skills.
Consequently, enforcement of this covenant will not deprive Associate of his or
her personal goodwill or ability to earn a living.
This covenant not to compete is intended to be a reasonable restriction on
Associate. 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.
<PAGE>
6. No Interference With Business. During the term of the Franchise
Agreement or Master License Agreement and for three years thereafter or for
three years after cessation of Associate's association with Company or Company's
franchisee or Master Franchisee, whichever is earlier, neither Associate nor any
member of his or her immediate family shall divert or attempt to divert any
business related to, or any customer or prospective customer of the Grease
Monkey Center or Master Franchisee's Business, by direct inducement or
otherwise, or divert or attempt to divert the employment of any employee of
Company or another franchisee or Master Franchisee licensed by Company, to any
Competitive Business by any direct inducement or otherwise.
7. Beginning of Three Year Period. If Associate commits a breach of Section
5 or Section 6 above, the three year period shall start on the date Associate is
enjoined from competing or interfering, or stops competing or interfering, with
the business of the Company, whichever is later.
8. Remedies. Associate hereby acknowledges and agrees that in the event of
any violation of this Agreement, Company shall be authorized and entitled to
obtain from any court of competent jurisdiction, preliminary and permanent
injunctive relief as well as an equitable accounting of all profits or benefits
arising out of any such violation, which rights and remedies shall be cumulative
and in addition to any other rights or remedies to which Company may be
entitled.
9. Effect of Waiver. The waiver by Associate or Company of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
10. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of Associate and Company and their respective heirs, executors,
representatives, successors and assigns.
11. Entire Agreement. This instrument contains the entire agreement of
Associate and Company relating to the matters set forth herein. It may not be
changed orally, but only by an agreement in writing, signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
12. Governing Law. This instrument shall be governed by and construed under
the laws of the State of Colorado, U.S.A.
13. Jurisdiction and Venue. In the event of a breach or threatened breach
by Associate of this Agreement, Associate hereby irrevocably submits to the
jurisdiction of the District Court of the City and County of Denver, Colorado,
U.S.A. and the Federal District Court for the District of Colorado, and
irrevocably agrees that venue for any action or proceeding shall be in the City
and County of Denver, Colorado, U.S.A. Both parties waive any objection to the
jurisdiction of these courts or to venue in the City and County of Denver,
Colorado, U.S.A.
14. Severability. Should any one or more of the provisions hereof be
determined to be illegal or unenforceable, all other provisions hereof shall be
given effect separately therefrom and shall not be affected thereby.
15. Cost of Enforcement. In any action at law or in equity to enforce any
of the provisions or rights under this Agreement, the unsuccessful party in such
litigation, as determined by the court in a final judgment or decree, shall pay
the successful party or parties all costs, expenses and reasonable attorneys'
fees incurred therein by such party or parties (including without limitation
such costs, expenses and fees on any appeals), plus, if applicable, interest at
the highest rate allowable by law, accruing from the date of the breach of this
Agreement. If such successful party shall recover judgment in any such action or
proceeding, such costs, expenses, attorneys' fees and interest shall be included
as part of such judgment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement on the
date first above written.
GREASE MONKEY INTERNATIONAL, INC.
By /s/ Charles E. Steinbrueck
----------------------------------------
Title President and CEO
Date July 16, 1998
"ASSOCIATE"
By /s/ Victor Hinojosa
---------------------------------------
Date July 16, 1998
CAPACITY WITH MASTER FRANCHISEE'S BUSINESS:
Secretary
<PAGE>
NONDISCLOSURE AND NONCOMPETITION AGREEMENT
This Nondisclosure and Noncompetition Agreement ("Agreement") is made and
entered into effective the 1st day of August, 1998 by and between Grease Monkey
International, Inc., a Colorado corporation, located at 216 16th Street, Suite
1100, Denver, Colorado 80202-5125 ("Company") and ANTONIO RAMON, who resides at
La Mancha #20, Cortijo Del Valle, San Pedro Garza Garcia, N.L. Mexico,
("Associate").
RECITALS
A. Company sells franchises for the operation of automotive lubrication
businesses which operate under the name and service mark "GREASE MONKEY" and
other approved marks ("Franchises" or "Grease Monkey Centers");
B. Company also sells licenses to operate a business ("Master Franchisee's
Businesses") that will assist the Company in promoting Franchises and to
develop, support and provide services to Grease Monkey Centers within a select
area ("Master Franchise Area"), under the terms and conditions which are
contained in a Master Franchise Agreement;
C. Company has developed a business method for operating Grease Monkey
Centers and operating Master Franchisee's Businesses utilizing certain
information, plans, methods, data, processes, marketing systems, techniques,
operating procedures, trademarks, proprietary marks and information and know-how
of Company ("Confidential Information") and such Confidential Information may be
further developed from time to time by Company;
D. Company and its Affiliates have established substantial goodwill and an
excellent reputation with respect to the quality of services available, which
goodwill and reputation have been and will continue to be of major benefit to
Company;
E. Associate is or will become involved with Company, or a franchisee or
Master Franchisee of Company, in the capacity of an officer, partner, director,
or as a beneficial owner of a Franchise or a Master Franchisee's Business, which
is authorized by Company pursuant to a Franchise Agreement or Master License
Agreement, and will become privileged as to certain Confidential Information;
and
F. Associate and Company have reached an understanding with regard to
nondisclosure by Associate of Confidential Information and with respect to
noncompetition by Associate with Company.
NOW THEREFORE, in consideration of the foregoing, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, Associate and Company, intending
legally to be bound, hereby agree as follows:
1. Confidential Information. Associate and Company acknowledge that the
business plan and methods used in connection with the operation of the Franchise
or Master Franchisee Business which utilize Company's Confidential Information,
are confidential, unique, constitute the exclusive property of Company and are
trade secrets of Company. Associate acknowledges that any disclosure of the
Confidential Information would be wrongful and would cause irreparable injury
and harm to Company. Associate further acknowledges that Company has expended a
great amount of effort and money in obtaining and developing the Confidential
Information, that Company has taken numerous precautions to guard the secrecy of
the Confidential Information and that it would be very costly for competitors to
acquire or duplicate the Confidential Information.
<PAGE>
2. Operations Manual as Trade Secret. It is understood that Confidential
Information, constituting "trade secrets", as used in this Agreement is deemed
to include, without limitation, any and all information contained in the
Operations Manual, which may be provided as one or more separate manuals, or
written instructional guides, as the same are changed or supplemented from time
to time, the Development Opening Guide, and any information of whatever nature
which gives to Company an opportunity to obtain an advantage over its
competitors who do not have access to, know or use such lists, written materials
or information.
3. Nondisclosure of Confidential Information. Associate shall not at any
time, publish, disclose, divulge or in any manner communicate to any person,
firm, corporation, association, partnership or any other entity whatsoever or
use, directly or indirectly, for its own benefit or for the benefit of any
person, firm, corporation or other entity, other than for the use of Company,
any of the Confidential Information of Company or its Affiliates.
4. Noncompetition Covenant. Associate hereby covenants and agrees that
during the term of the Franchise Agreement or Master License Agreement, except
while associated with or operating the Franchise business or Master Franchisee
Business in a manner authorized by Company, neither Associate nor any member of
his or her immediate family shall: (a) have any direct or indirect controlling
interest as a disclosed or beneficial owner in a "Competitive Business," as
hereafter defined; or (b) perform services as a director, officer, manager,
employee, consultant, representative, agent, or otherwise, for 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 fluid and other fluid replacement services. If the Rider to
Franchise Agreement -- Car Wash is executed in connection with the Franchise
Agreement, the term "Competitive Business" shall include any business providing
car wash services. Notwithstanding the foregoing, Associate 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, that
represent five percent or less of that class of securities issued and
outstanding.
5. Post-Termination Covenant. Associate hereby covenants and agrees that,
for a period of three years, commencing on the effective date of termination or
expiration of the Franchise Agreement or Master License Agreement or on the date
on which Associate ceases his or her association with Company or Company's
franchisee or Master Franchisee, whichever is later, neither Associate, nor a
member of his or her immediate family, shall have any direct or indirect
interest as a disclosed or beneficial owner, investor, partner, director,
officer, employee, consultant, representative or agent or in any other capacity,
in a Competitive Business located or operating within the Master Franchise Area
of the Master Franchisee, unless authorized under another franchise agreement
with Company. Notwithstanding the foregoing, this restriction shall not apply to
the ownership of shares of a class of securities listed on a stock exchange or
traded on the over-the-counter market that represent five percent or less of the
number of shares of that class of securities issued and outstanding. Associate
expressly acknowledges that he or she possesses skills and abilities of a
general nature and has other opportunities for exploiting such skills.
Consequently, enforcement of this covenant will not deprive Associate of his or
her personal goodwill or ability to earn a living.
This covenant not to compete is intended to be a reasonable restriction on
Associate. 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.
<PAGE>
6. No Interference With Business. During the term of the Franchise
Agreement or Master License Agreement and for three years thereafter or for
three years after cessation of Associate's association with Company or Company's
franchisee or Master Franchisee, whichever is earlier, neither Associate nor any
member of his or her immediate family shall divert or attempt to divert any
business related to, or any customer or prospective customer of the Grease
Monkey Center or Master Franchisee's Business, by direct inducement or
otherwise, or divert or attempt to divert the employment of any employee of
Company or another franchisee or Master Franchisee licensed by Company, to any
Competitive Business by any direct inducement or otherwise.
7. Beginning of Three Year Period. If Associate commits a breach of Section
5 or Section 6 above, the three year period shall start on the date Associate is
enjoined from competing or interfering, or stops competing or interfering, with
the business of the Company, whichever is later.
8. Remedies. Associate hereby acknowledges and agrees that in the event of
any violation of this Agreement, Company shall be authorized and entitled to
obtain from any court of competent jurisdiction, preliminary and permanent
injunctive relief as well as an equitable accounting of all profits or benefits
arising out of any such violation, which rights and remedies shall be cumulative
and in addition to any other rights or remedies to which Company may be
entitled.
9. Effect of Waiver. The waiver by Associate or Company of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
10. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of Associate and Company and their respective heirs, executors,
representatives, successors and assigns.
11. Entire Agreement. This instrument contains the entire agreement of
Associate and Company relating to the matters set forth herein. It may not be
changed orally, but only by an agreement in writing, signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
12. Governing Law. This instrument shall be governed by and construed under
the laws of the State of Colorado, U.S.A.
13. Jurisdiction and Venue. In the event of a breach or threatened breach
by Associate of this Agreement, Associate hereby irrevocably submits to the
jurisdiction of the District Court of the City and County of Denver, Colorado,
U.S.A. and the Federal District Court for the District of Colorado, and
irrevocably agrees that venue for any action or proceeding shall be in the City
and County of Denver, Colorado, U.S.A. Both parties waive any objection to the
jurisdiction of these courts or to venue in the City and County of Denver,
Colorado, U.S.A.
14. Severability. Should any one or more of the provisions hereof be
determined to be illegal or unenforceable, all other provisions hereof shall be
given effect separately therefrom and shall not be affected thereby.
15. Cost of Enforcement. In any action at law or in equity to enforce any
of the provisions or rights under this Agreement, the unsuccessful party in such
litigation, as determined by the court in a final judgment or decree, shall pay
the successful party or parties all costs, expenses and reasonable attorneys'
fees incurred therein by such party or parties (including without limitation
such costs, expenses and fees on any appeals), plus, if applicable, interest at
the highest rate allowable by law, accruing from the date of the breach of this
Agreement. If such successful party shall recover judgment in any such action or
proceeding, such costs, expenses, attorneys' fees and interest shall be included
as part of such judgment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement on the
date first above written.
GREASE MONKEY INTERNATIONAL, INC.
By /s/ Charles E. Steinbrueck
----------------------------------------
Title President and CEO
Date July 16, 1998
"ASSOCIATE"
By /s/ Antonio Ramon
----------------------------------------
Date July 16, 1998
CAPACITY WITH MASTER FRANCHISEE'S BUSINESS:
President
<PAGE>
EXHIBIT D
LIMITED GUARANTY OF MASTER FRANCHISEE'S OBLIGATIONS
<PAGE>
EXHIBIT D
TO MASTER FRANCHISE AGREEMENT
LIMITED GUARANTY OF MASTER FRANCHISEE'S OBLIGATIONS
In consideration of, and as an inducement to, the execution of the above
Master Franchise Agreement (the "Agreement") by Grease Monkey International,
Inc. ("Franchisor"), each of the undersigned hereby personally and
unconditionally:
1. Guarantees to Franchisor and its successors and assigns, for the
term of this Agreement, including renewals thereof, that if
Unilub, S.A. de C.V. ("Master Franchisee") fails to timely cure
a breach of the Agreement, after the Franchisor gives notice of
breach according to paragraph 14.2 of the Agreement, the
undersigned shall punctually pay to the Franchisor an amount
equal to six times the average month's payments due the
Franchisor under paragraphs 3.2 and 3.3 of the Agreement for the
two years immediately preceding the date of the notice of
breach; and
2. Agrees that if the payment is required to be made pursuant to
paragraph 1 of this Limited Guaranty of Master Franchisee's
Obligations, all rights of the Master Franchisee under the
Agreement shall immediately become the property of the
Franchisor, and shall be freely transferable by the Franchisor,
without the necessity of further action or notice by the
Franchisor.
Each of the undersigned waives the following:
1. Acceptance and notice of acceptance by Franchisor 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 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 Franchisor of any remedies against Franchisee or any
other person;
4. Such liability shall not be diminished, relieved or otherwise
affected by any extension of time, credit or other indulgence
which Franchisor may from time to time grant to Franchisee or to
<PAGE>
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 the Agreement; and
6. The injunctive relief, governing law and jurisdiction provisions
contained in 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)
Antonio Ramon
-------------------------------------
(Print Name)
/s/Antonio Ramon
-------------------------------------
(Signature)
La Mancha #20
-------------------------------------
Cortijo Del Valle
(Address)
528 335 1602
(Telephone Number)
Victor M. Hinojosa
-------------------------------------
(Print Name)
/s/Victor Hinojosa
-------------------------------------
(Signature)
Miguel De Cervantes #20
-------------------------------------
Cortijo Del Valle
Garza Garcia, N.L., Mexico
(Address)
528 378 5589
(Telephone Number)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 1-3 OF THE COMPANY'S FORM 10-QSB FOR THE YEAR-TO-DATE.
</LEGEND>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 68,046
<SECURITIES> 0
<RECEIVABLES> 1,275,061
<ALLOWANCES> 367,244
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<CURRENT-ASSETS> 2,011,869
<PP&E> 10,650,187
<DEPRECIATION> 4,328,209
<TOTAL-ASSETS> 14,820,052
<CURRENT-LIABILITIES> 3,739,909
<BONDS> 6,388,668
0
2,089,638
<COMMON> 139,436
<OTHER-SE> (3,127,152)
<TOTAL-LIABILITY-AND-EQUITY> 14,820,052
<SALES> 0
<TOTAL-REVENUES> 15,185,127
<CGS> 0
<TOTAL-COSTS> 16,177,896
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 184,220
<INTEREST-EXPENSE> 620,929
<INCOME-PRETAX> (1,529,602)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,529,602)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,529,602)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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PAGES 1-3 OF THE COMPANY'S FORM 10-QSB FOR THE YEAR-TO-DATE.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 780,945
<SECURITIES> 0
<RECEIVABLES> 1,914,194
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0
2,089,638
<COMMON> 138,545
<OTHER-SE> (837,797)
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<TOTAL-REVENUES> 16,114,449
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<INTEREST-EXPENSE> 555,525
<INCOME-PRETAX> (364,893)
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<EPS-PRIMARY> (0.10)
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