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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For Fiscal Year Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-19357
MONRO MUFFLER BRAKE, INC.
(Exact name of registrant as specified in its charter)
New York 16-0838627
(State of incorporation) (I.R.S. Employer
Identification No.)
200 Holleder Parkway, Rochester, New York 14615
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (716) 647-6400
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark if the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter 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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of June 1, 1998, the aggregate market value of voting stock held by
non-affiliates of the registrant was $93,974,000.
As of June 1, 1998, 7,915,797 shares of the registrant's Common Stock,
par value $.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement (to be filed
pursuant to Regulation 14A) for the 1998 Annual Meeting of Shareholders (the
"Proxy Statement") are incorporated by reference into Part III hereof.
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PART I
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ITEM 1. BUSINESS
GENERAL
Monro Muffler Brake, Inc. ("Monro" or the "Company") is a chain of
company-operated stores providing automotive undercar repair services in the
United States. At March 31, 1998, Monro operated 350 stores in New York,
Pennsylvania, Ohio, Connecticut, Massachusetts, West Virginia, Virginia,
Maryland, Vermont, New Hampshire, New Jersey, North Carolina, South Carolina and
Indiana. The Company's stores typically are situated in high-visibility
locations in suburban areas and small towns. Monro serviced approximately
1,568,000 vehicles in fiscal 1998. *
The predecessor to the Company was founded by Charles J. August in 1957
as a Midas Muffler franchise in Rochester, New York, specializing in mufflers
and exhaust systems. In 1966, the Company discontinued its affiliation with
Midas Muffler, and began to diversify into a full line of undercar repair
services. An investor group led by Peter J. Solomon and Donald Glickman
purchased a controlling interest in the Company in July 1984. At that time,
Monro operated 59 stores, located primarily in upstate New York, with
approximately $21 million in sales in fiscal 1984. Since 1984, Monro has added
291 stores and expanded its marketing area to include thirteen additional
states. In addition, in April 1998, the Company signed a definitive agreement
with Speedy Muffler King of Toronto, Canada to acquire 192 company-operated and
13 franchised Speedy stores in the United States. The transaction is scheduled
to be consummated in August 1998.
On February 17, 1998, Lawrence C. Day resigned his position as
President and Chief Executive Officer and Jack M. Gallagher, who had served as
President and Chief Executive Officer from 1987 to 1995, returned to serve as
the interim President and Chief Executive Officer.
The Company was incorporated in the State of New York in 1959. The
Company's principal executive offices are located at 200 Holleder Parkway,
Rochester, New York 14615, and its telephone number is (716) 647-6400.
Monro provides a full range of services on passenger cars, light trucks
and vans for mufflers and exhaust systems (estimated at 27% of fiscal 1998
sales); brakes (35%); and steering, drive train, suspension and wheel alignment
(19%). The Company also provides other products and services including tires,
scheduled maintenance and state inspections (19%). Monro specializes in the
repair and replacement of parts which must be periodically replaced as they wear
out. Normal wear on these parts generally is not covered by new car warranties.
The Company typically does not perform under-the-hood repair services except for
oil change services and a heating and cooling system "flush and fill" service.
The Company does not sell parts or accessories to the do-it-yourself market.
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The Company has a wholly-owned subsidiary, Monro Service Corporation,
which is a Delaware corporation qualified to do business in the State of New
York. Monro Service Corporation holds all assets, rights, responsibilities and
liabilities associated with the Company's warehousing, purchasing, advertising,
accounting, office services, payroll, cash management and certain other
operations which are wholly performed within New York State. The Company
believes that this structure has enhanced and will continue to enhance
operational efficiency and provide cost savings.
* References herein to fiscal years are to the Company's fiscal years ending or
ended March 31 of each year (e.g., references to "fiscal 1998" are to the
Company's fiscal year ended March 31, 1998).
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INDUSTRY OVERVIEW
According to industry reports, demand for automotive repair services,
including undercar repair services, has increased due to the general increase in
the number of vehicles registered, the growth in vehicle miles driven, the
increase in the average age of vehicles and the increased complexity of
vehicles, which makes it more difficult for a vehicle owner to perform
do-it-yourself repairs.
At the same time as demand for automotive repair services has grown,
the Company believes that the number of general repair outlets has decreased,
principally because fewer gas stations now perform repairs, and because there
are fewer new car dealers. Monro believes that these factors present
opportunities for increased sales by the Company, even though the number of
specialized repair outlets (such as those operated by the Company and its direct
competitors) has increased to meet the growth in demand.
OPERATING STRATEGY
Monro's operating strategy is to provide its customers with dependable,
high-quality automotive service at a competitive price by emphasizing the
following key elements.
Products and Services
All Monro stores provide a full range of undercar repair services for
mufflers and exhaust systems, brakes, steering, drive train, suspension
and wheel alignment. These services apply to all makes and models of
domestic and foreign cars, light trucks and vans. In addition, Monro's
stores provide many of the routine maintenance services (except engine
diagnostic and major transmission repair) which automobile
manufacturers suggest or require in the vehicle owners' manuals, and
which fulfill manufacturers' requirements for new car warranty
compliance. At the end of fiscal 1998, the Company introduced
"Scheduled Maintenance" services in all of its stores whereby the
aforementioned services are offered in a formal, packaged way to
consumers based upon the year, make, model, and mileage of specific
vehicles. Management believes that the Company is able to offer this
service in a more convenient and cost competitive fashion than auto
dealers can provide.
Substantially all of the stores provide oil change services as well as
tire sales and installation. All stores perform a heating and cooling
system "flush and fill" service, a transmission "flush and fill"
service, and install belts and hoses. Stores in New York, West
Virginia, New Hampshire, Pennsylvania, Virginia, Massachusetts and
North Carolina also perform annual state inspections.
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Customer Satisfaction
The Company has developed "The Monro Doctrine", a set of customer
satisfaction principles, which is displayed in each store so that
customers and employees will understand the Company's customer service
philosophy. These principles are: free inspection of brakes, shocks,
front end and exhaust systems; item-by-item review with customers of
problem areas; free written estimates; written guarantees; drive-in
service without an appointment; fair and reasonable prices as
advertised; and repairs by professionally trained undercar specialists,
many of whom are Automotive Service Excellence (ASE) certified in
brakes and suspension. (See additional discussion under "Store
Operations: Quality Control and Warranties.")
Competitive Pricing, Advertising and Co-branding Initiatives
The Company seeks to set competitive prices for quality services and
products. The Company supports its pricing strategy by advertising
through direct mail coupon inserts and in-store promotional signage and
displays. In addition, the Company advertises through television,
radio, yellow pages and newspapers to increase consumer awareness of
the services offered.
In fiscal 1997, the Company began testing co-branding initiatives to
more quickly increase consumer awareness in certain markets. The
Company believes that, especially in newer markets, customers may more
readily be drawn into its stores because of their familiarity with
national brand names. Some of these initiatives have included cross-
promotional offers with national fast food chains, video rental stores
and gasoline chains, as well as with regional supermarkets.
Additionally, the Company introduced Bridgestone/Firestone tires into
most of its stores in late fiscal 1997, where it had previously carried
a private label tire. Through this initiative, the Company believes
that it attracts some brand-loyal tire customers who otherwise might
not have visited Monro. This gives the Company the opportunity to
introduce itself to this new customer, and potentially sell other
needed services. The increased tire sales resulting from adding this
branded product have exceeded the Company's expectations thus far.
In fiscal 1997, the Company signed a joint venture agreement with Q-
Lube, Inc., a subsidiary of Quaker State Corporation. The agreement
called for the two companies to jointly develop retail locations which
offer both fast lube and undercar services. The centers are located
adjacent to either existing or newly-developed Monro stores. After
testing the concept in several locations during fiscal 1998, Company
management decided to terminate the arrangement with Q-Lube in early
fiscal 1999. Liquidation of the joint venture is not expected to have a
material effect on fiscal 1999 results of operations.
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Centralized Control
Unlike many of its competitors, the Company owns and operates rather
than franchises its stores. Monro believes that direct operation of all
stores enhances its ability to compete by providing centralized control
of such areas of operations as service quality, store appearance,
promotional activity and pricing. A high level of technical competence
is maintained throughout the Company as Monro requires, as a condition
of employment, that employees participate in comprehensive training
programs to keep pace with technology changes. Additionally,
purchasing, distribution, merchandising, advertising, accounting and
other store support functions are centralized in the Company's
corporate headquarters in Rochester, New York, and are provided through
the Company's subsidiary, Monro Service Corporation. The centralization
of these functions results in efficiencies and gives management the
ability to closely monitor and control costs.
Comprehensive Training
The Company provides ongoing, comprehensive training to its store
employees. Monro believes that such training provides a competitive
advantage by enabling its technicians to provide quality service to its
customers in all areas of undercar repair. (See additional discussion
under "Store Operations: Store Personnel and Training").
EXPANSION STRATEGY
Monro has experienced significant growth due to the opening of new
stores and increases in comparable store sales. Management believes that the
continued growth in sales and profits of the Company is dependent, in large
part, upon its continued ability to open and operate new stores on a profitable
basis. In addition, overall profitability of the Company could be reduced if new
stores do not attain profitability.
As of March 31, 1998, Monro operated 350 stores located in 14 states.
The following table shows the growth in the number of stores over the last five
fiscal years:
STORE OPENINGS AND CLOSINGS
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Stores open at beginning of year......... 184 202 232 274 313
Stores opened during year................ 20 30 43 40 39
Stores closed during year (a)............ (2) 0 (1) (1) (2)
----- ----- ----- ---- -----
Stores open at end of year........ ...... 202 232 274 313 350
===== ===== ===== ===== ====
</TABLE>
(a) These stores were closed because they failed to achieve an
acceptable level of profitability or because a new Monro store was opened in the
same market at a more favorable location.
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Monro believes that there are expansion opportunities in new as well as
existing market areas which will result from a combination of constructing
stores on vacant land and acquiring existing store locations. The Company
believes that, as the industry consolidates due to the increasingly complex
nature of automotive repair and the expanded capital requirements for
state-of-the art equipment, there will be more opportunities for acquisitions of
existing businesses or store structures.
In that regard, the Company signed a definitive agreement in April 1998
with Speedy Muffler King Inc. of Toronto, Canada to acquire 192 company-operated
and 13 franchised Speedy stores (the "Acquired Speedy Stores") in the United
States (the "Speedy Acquisition"). The Acquired Speedy Stores are located
primarily in complementary areas in Monro's existing markets in the Northeast,
Mid-Atlantic and Midwest regions of the United States. The Company expects to
close less than 20 of the Acquired Speedy Stores related to geographic conflicts
and poor performance. (See additional discussion under Item 7: "Management's
Discussion and Analysis of Financial Condition and Results of Operations".)
Additionally, the Company plans to open approximately 30 new stores in fiscal
1999.
The Company has developed a systematic method for selecting new store
locations and a more targeted approach to marketing new stores. Key factors in
market and site selection include population, demographic characteristics,
vehicle population and the intensity of competition. These factors are evaluated
through the use of a proprietary computer model developed for the Company. The
characteristics of each potential site are compared by the model to the profiles
of existing stores, and the model then projects sales for that site. Monro
attempts to cluster stores in market areas in order to achieve economies of
scale in advertising, supervision and distribution costs. All new sites
presently under consideration are within or contiguous to Monro's established
marketing areas.
In fiscal year 1998, the Company performed a comprehensive analysis of
its historical and projected store opening strategy. As a result of this
analysis, the Company established major market profiles, as defined by market
awareness: mature, existing and new markets. Over the next several years, the
Company expects to build a greater percentage of stores in mature and existing
markets in order to capitalize on the Company's market presence and consumer
awareness.
The Company believes that management and operating improvements
implemented over the last several fiscal years will enhance its ability to
sustain its growth. Monro has a chain-wide computerized inventory control and
electronic point-of-sale (POS) management information system, which has
increased management's ability to monitor operations as the number of stores has
grown. The system includes electronic cataloging which allows store managers to
electronically research the specific parts needed for the make and model of car
being serviced. In fiscal 1997, the Company upgraded its electronic credit card
processing and added electronic mail to its stores. In fiscal 1998, the Company
added software which contains data that mirrors the scheduled maintenance
requirements in vehicle owner's manuals, specifically by make, model, year and
mileage for every automobile. Management believes that this software will
facilitate the presentation and sale of Scheduled Maintenance services to
customers.
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Enhancements continue to be made to the POS system annually which increase
efficiency, improve the quality and timeliness of store reporting and enable the
Company to better serve its customers.
The financing to open a new store location may be accomplished in one
of three ways: a store lease for the land and building (in which case, land and
building costs will be financed primarily by the lessor), a land lease with the
building constructed by the Company (with building costs paid by the Company),
or a land purchase with the building constructed by the Company. In all three
cases, each new store also will require approximately $136,000 for equipment
(including a point-of-sale system), and approximately $68,000 in inventory.
Because Monro generally does not extend credit to its customers, stores generate
almost no receivables and a new store's actual net working capital investment is
nominal. Total capital required to open a new store ranges, on average (based
upon the last three fiscal years' openings), from $233,000 to $877,000 depending
on the location and which of the three financing methods is used. In instances
where Monro acquires an existing business, it may pay additional amounts for
intangible assets such as customer lists, covenants not-to-compete and goodwill.
At March 31, 1998 Monro leased the land and/or the building at 71% of
its store locations and owned the land and building at the remaining locations.
Monro's policy is to situate new stores in the best locations, without regard to
the form of ownership required to develop the locations.
New stores have average sales of approximately $360,000 in their first
twelve months of operation.
STORE OPERATIONS
Store Format
The typical format for a Monro repair store is a free-standing building
of approximately 4,500 square feet consisting of a sales area, six
fully-equipped service bays and a parts storage area, with a parking
lot with space for approximately 17 cars. Most service bays are
equipped with aboveground electric vehicle lifts. The typical store
carries $68,000 of inventory and 3,000 stock keeping units ("SKUs").
Generally, each store is located within 35 miles of a "key" store which
carries approximately 20% more inventory than a typical store and
serves as a mini-distribution point of slower moving inventory for
other stores in its area.
The stores generally are situated in high-visibility locations in
suburban areas or small towns and offer easy customer access. The
typical store is open from 7:30 a.m. to 7:00 p.m. on Monday through
Friday and from 7:30 a.m. to 5:00 p.m. on Saturday.
In fiscal 1996, the Company opened its first "small town" concept store
in Saranac Lake, New York. The prototypical "small town" concept store
is a four, five or six bay store located in a town with a population of
15,000 people or less. In the past, the Company generally did not enter
this type of market because it could not
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support the typical six bay store. However, with few or no major
competitors and a lower cost of entry, the small markets represent an
attractive new growth avenue for the Company.
Inventory Control and Management Information System
All Monro stores are linked to the central office and warehouse by a
computerized inventory control and electronic POS management
information system, which enables the Company to collect sales and
operational data on a daily basis, to adjust store pricing to reflect
local conditions and to control inventory on a "real-time" basis.
Additionally, each store has access through the POS system to the
inventory carried by the seven stores nearest to it. Management
believes that this feature improves customer satisfaction and store
productivity by reducing the time required to locate out-of-stock
parts.
Quality Control and Warranties
To maintain quality control, the Company conducts audits to rate its
employees' telephone sales manner and the accuracy of pricing
information given. All headquarters management personnel participate in
the Company's day-in-the-store program by working in a store under the
direction of the store manager, once every other month, to better
understand the latest developments at the store level.
Customer comment cards, pre-addressed to the headquarters office, are
available at each store for customers to comment on the Company's
services. Customer concerns are addressed via personal follow-up by
field management.
The Company has a customer survey program to monitor customer attitudes
toward service quality, friendliness, speed of service, and several
other factors for each store. This program includes four survey
mailings per store annually. (Each mailing consists of approximately 90
surveys.) Customer concerns are addressed via letter and personal
follow-up by field management.
In fiscal 1994, the Company implemented its "Double Check for Accuracy
Program." This quality assurance program requires that a technician and
supervisory-level employee independently inspect a customer's vehicle,
diagnose and document the necessary repairs, and agree on an estimate
before presenting it to a customer. This process is formally documented
on the written estimate by store personnel.
The Company is an active member of the Motorist Assurance Program
(MAP). MAP is an organization of automotive retailers, wholesalers and
manufacturers which was established as part of an industry-wide effort
to address the ethics and business practices of companies in the
automotive repair industry. Participating companies are committed to
improving consumer confidence and trust in the automotive repair
industry by adopting "Uniform Inspection Guidelines" and "Standards of
Service" established by MAP. These "Standards of Service" are posted in
every Monro store and serve to provide consistent recommendations
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to customers in the diagnosis and repair of a vehicle. Monro was the
first major automotive chain to apply for MAP accreditation for all of
its stores.
Monro offers limited warranties on substantially all of the products
and services that it provides. The Company believes that these
warranties are competitive with industry practices.
Store Personnel and Training
The Company supervises store operations primarily through its six
district managers who oversee 42 regional managers (as of June 1,
1998). The typical store is staffed by a store manager and four to six
technicians, one of whom serves as the assistant manager. All store
managers receive a base salary, and assistant managers receive hourly
compensation. In addition, all store managers and assistant managers
receive other compensation based on their store's customer relations,
gross profit, labor cost controls, safety, sales volume and other
factors. All store managers and assistant managers are eligible for a
quarterly bonus based on performance in these same areas.
Monro believes that the ability to recruit and retain qualified
technicians is an important competitive factor in the automotive repair
industry, which has historically experienced a high turnover rate.
Monro makes a concerted effort to recruit individuals who will have a
long-term commitment to the Company and offers an hourly rate structure
and additional compensation based on productivity; a competitive
benefits package, including health, life and disability insurance;
profit-sharing and pension plans; as well as the opportunity to advance
within the Company. Most of the Company's managers and regional
managers started with Monro as technicians.
Most of the Company's new technicians join the Company in their early
twenties as trainees or apprentices. As they progress, they are
promoted to technician and eventually master technician, the latter
requiring ASE certification in both brakes and suspension. The Company
offers a tool lease program through which trainee technicians can
acquire their own set of tools. The Company also will reimburse
technicians for the cost of ASE certification registration fees and
test fees and encourages all technicians to become certified by
providing a higher hourly wage rate following their certification.
The Company's training department conducts in-house technical clinics
for store personnel and management training programs for new store
managers, and coordinates attendance at technical clinics offered by
the Company's vendors. Each store maintains a library of 20-25
instructional videos. The Company issues technical bulletins to all
stores on innovative or complex repair processes, and maintains a
centralized data base for technical repair problems. In addition, the
Company has established a telephone technical hotline to provide
assistance to store personnel in resolving problems encountered while
diagnosing and repairing vehicles. The help line is available during
all hours of store operation.
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In fiscal 1998, the Company established Monro University, which purpose
is to provide comprehensive training and development of current and
prospective store managers. Training is accomplished through an
intensive two-week instructional program at a separate facility in
Rochester, New York. Topics covered include sales training, customer
service, time management, human resources (counseling, recruiting,
interviewing, etc.), leadership, inventory control and financial
management. The courses employ a variety of instructional techniques
including video taping, role playing, and testing. The two week class
follows a field training segment which ranges from two to six weeks
depending upon the individual's level of experience. Monro management
is closely tracking the performance of the managers who have completed
the class. Early indications are that the program will lead to
increased store profitability as well as longer retention of the store
managers.
Additionally, the Company trains apprentice technicians through a
"buddy system" whereby the apprentice is assigned to work side-by-side
with a master technician for approximately three weeks. The master
technician receives a weekly stipend during the training period. He is
also encouraged to mentor the apprentice technician after the
apprentice is assigned to a store, and is rewarded with a bonus if the
apprentice is still employed by the Company after 90, and then 180
days. Since most turnover occurs during the first 180 days of
employment, management believes that this feature of the program helps
to improve retention of these employees.
PURCHASING AND DISTRIBUTION
The Company, through its wholly-owned subsidiary Monro Service
Corporation, selects and purchases parts and supplies for all stores on a
centralized basis. Although purchases outside the centralized system are made
when needed at the store level, these purchases are low by industry standards,
and accounted for approximately 12% of all parts used in fiscal 1998.
The Company's ten largest vendors accounted for approximately 55% of
its parts purchases, with the largest vendor accounting for slightly over 15% of
total purchases in fiscal 1998. The Company purchases parts from over 100
vendors and has no significant long-term contracts with any vendor. Management
believes that the Company's relationships with vendors are excellent and that
alternative sources of supply exist, at comparable cost, for substantially all
parts used in the Company's business. The Company routinely obtains bids from
vendors to ensure it is receiving competitive pricing and terms.
Most parts are shipped by vendors to the Company's warehouse facility
in Rochester, New York, and are distributed to stores through the Company-
operated tractor/trailer fleet. Most stores are replenished once every week from
the warehouse, and such replenishment fills, on the average, 96% of all items
ordered by the stores' automatic POS-driven replenishment system. The warehouse
stocks approximately 7,300 SKUs.
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COMPETITION
The Company competes in the retail automotive service industry. This
industry is generally highly competitive and fragmented, and the number, size
and strength of competitors varies widely from region to region. The Company
believes that competition in this industry is based on customer service and
reputation, store location, name awareness and price. Monro's primary
competitors include national and local undercar specialty chains, both
franchised and company-operated; car dealerships; and, to a lesser extent, gas
stations and independent garages. Monro considers Midas International Corp.,
Meineke Discount Mufflers Inc. and Speedy Muffler King Inc. to be direct
competitors. In most of the new markets that the Company has entered, at least
one competitor was already present. In identifying new markets, the Company
analyzes, among other factors, the intensity of competition. (See "Expansion
Strategy" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations.")
EMPLOYEES
As of March 31, 1998, Monro had 2,141 employees, of whom 1,978 were
employed in the field organization, 47 were employed at the warehouse and 116
were employed at the Company's corporate headquarters. Monro's employees are not
members of any union. The Company believes that its relations with its employees
are good.
REGULATION
The Company stores new oil and generates and handles used automotive
oils and certain solvents, which are disposed of by licensed third-party
contractors. Thus, the Company is subject to a number of federal, state and
local environmental laws including the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"). In addition, the United States
Environmental Protection Agency (the "EPA"), under the Resource Conservation and
Recovery Act ("RCRA"), and various state and local environmental protection
agencies regulate the Company's handling and disposal of waste. The EPA, under
the Clean Air Act, also regulates the installation of catalytic converters by
the Company and all other repair stores by periodically spot checking jobs and
has the power to fine businesses that use improper procedures or materials. The
EPA has the authority to impose sanctions, including civil penalties up to
$25,000 per violation (or up to $25,000 per day for certain willful violations
or failures to cooperate with authorities), for violations of RCRA and the Clean
Air Act. The Company is subject to various laws and regulations concerning
workplace safety, zoning and other matters relating to its business. The Company
believes that it is in substantial compliance with all applicable environmental
and other laws and regulations, and that the cost of such compliance is not
material to the Company.
The Company is environmentally conscious, and takes advantage of
recycling opportunities both at its headquarters and at its stores. Cardboard,
plastic shrink wrap and parts' cores are returned to the warehouse by the stores
on the weekly stock truck. There, they are accumulated for sale to recycling
companies or returned to parts manufacturers for credit.
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SEASONALITY
Although the Company's business is not highly seasonal, customers do
require more undercar service during the period of March through October than
the period of November through February, when miles driven tend to be lower. As
a result, sales and profitability are lower during the latter period.
ITEM 2. PROPERTIES
The Company, through Monro Service Corporation, owns its
office/warehouse facility of approximately 95,000 square feet, which is located
on 12.7 acres of land in Holleder Industrial Park, in Rochester, New York.
Of Monro's 350 stores at March 31, 1998, 103 were owned, 169 were
leased and for 78, the land only was leased. In general, the Company leases
store sites for a ten-year period with several five-year renewal options. Giving
effect to all renewal options, over 90% of the non-capital leases (210 stores)
expire after 2006. Certain of the leases provide for contingent rental payments
if a percentage of annual gross sales exceeds the base fixed rental amount. The
highest contingent percentage rent of any lease is 6.75%, and no such lease has
adversely affected profitability of the store subject thereto. Certain officers
and directors of the Company or members of their families are the lessors, or
have interests in entities that are the lessors, with respect to 41 of the
leases. No related party leases, other than renewals or modifications of leases
on existing stores, have been entered into since May 1989, and no new related
party leases are contemplated.
The existing office and warehouse facility and 36 of the owned stores
are subject to mortgages held by commercial banks or private investors. As of
March 31, 1998, the outstanding amount under the mortgage on the headquarters
office and warehouse facility was $2.6 million and the aggregate outstanding
amount under the permanent mortgages on 36 of the owned stores was $10.2
million. There was also $.7 million outstanding under a mortgage held by the
City of Rochester, New York, secured by the land on which the new headquarters
office and warehouse is located, and a term loan of $.5 million secured by the
existing headquarters facility.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party or subject to any legal proceedings other
than certain routine claims and lawsuits that arise in the normal course of its
business. The Company does not believe that such routine claims or lawsuits,
individually or in the aggregate, will have a material adverse effect on its
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1998.
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ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY AS OF JUNE 1, 1998
The following persons are the executive officers of the Company, having
been elected by and serving at the discretion of the Board of Directors of the
Company:
Name Age Position
- - ---- --- --------
Jack M. Gallagher 61 Interim President and Chief Executive Officer
G. Michael Cox 45 Executive Vice President - Store Operations
Robert W. August 46 Sr. Vice President - Store Support, and Secretary
Catherine D'Amico 42 Sr. Vice President - Finance, Chief Financial
Officer and Treasurer
Thomas J. Budreau 41 Vice President - Eastern Operations
Michael C. Kucharski 38 Vice President - Central Operations
The following is a brief account of the business experience of each of
the executive officers of the Company:
Jack M. Gallagher has been President and Chief Executive Officer since
February 1998 following the resignation of Lawrence C. Day. Mr. Gallagher was
Director - Special Projects from April 1995 to February 1998, and was President
and Chief Executive Officer from October 1987 to March 31, 1995. Mr. Gallagher
has been a member of the Company's Board of Directors since October 1987. Prior
to joining the Company, Mr. Gallagher was President of Auto Works, a 240-store
chain of discount auto parts stores headquartered in Pontiac, Michigan, from May
1985 to October 1987. Mr. Gallagher has held various other positions in the auto
parts and service industries, including 20 years with Firestone Tire & Rubber
Company, where he was Chief Executive of the Fidesta Company, a 200-store
nationwide chain of tire and service centers.
The Company is currently searching for a permanent replacement for Mr.
Day.
G. Michael Cox has been Executive Vice President - Store Operations
since March 1997 and Senior Vice President - Store Operations from January 1995
to March 1997. Prior to joining the Company, Mr. Cox was Director of Affiliated
Dealer Operations for Bridgestone/Firestone, Inc. from 1993 to January 1995,
Director of Corporate Accounts for Bridgestone/Firestone, Inc. from 1992 to 1993
and a Zone Manager for Bridgestone/Firestone, Inc. from 1990 to 1992. Mr. Cox
held various other management positions for Bridgestone/Firestone, Inc. from
1976 to 1990.
Robert W. August has been Senior Vice President - Store Support since
October 1996, Secretary since July 1984 and a director since June 1982. Mr.
August was Senior Vice President - Marketing from May 1992 to October 1996, Vice
President-Marketing from July 1989 to May 1992, Executive Vice President from
1984 to July 1989, and has worked for Monro in various other capacities since
1968.
14
<PAGE> 15
Catherine D'Amico has been Senior Vice President - Finance, Chief
Financial Officer and Treasurer since August 1993. Ms. D'Amico, a certified
public accountant, was previously a Senior Audit Manager with Price Waterhouse
LLP in Rochester, New York and was affiliated with such firm from 1978 to 1993.
Thomas J. Budreau has been Vice President - Eastern Operations since
October 1995. Prior to joining the Company, Mr. Budreau was the National Auto
Express Service Manager for Montgomery Ward & Co., Incorporated from March 1994
to October 1995. From November 1990 to March 1994, Mr. Budreau was a Regional
Auto Express Manager and from March 1988 to November 1990, a District Manager
for Montgomery Ward & Co., Incorporated. From 1975 to March 1988, Mr. Budreau
held various other management positions with Montgomery Ward & Co.,
Incorporated.
Michael C. Kucharski has been Vice President - Central Operations since
May 1997. Mr. Kucharski was a District Manager from February 1996 to May 1997, a
Regional Manager from January 1990 to February 1996 and has worked for Monro in
various other capacities since 1987. From 1981 through 1987, Mr. Kucharski held
management positions with various retail and other companies.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Common Stock is traded on the over-the-counter market and is quoted
on the NASDAQ National Market System under the symbol "MNRO." The
following table sets forth, for the Company's last two fiscal years,
the range of high and low sales prices on the NASDAQ National Market
System for the Common Stock:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997
----------- -----------
QUARTER ENDED HIGH LOW HIGH LOW
------------------ ---- --- ---- ---
<S> <C> <C> <C> <C>
June 30, 18 9/16 15 3/8 18 14 1/16
September 30, 18 1/4 14 1/4 20 3/4 16 7/16
December 31, 15 3/4 13 5/8 20 13 9/16
March 31, 16 3/4 13 7/8 18 1/16 14 3/4
</TABLE>
Amounts in these tables have been adjusted to reflect the five percent
stock dividends paid in August 1997 and August 1996.
Holders
At June 1, 1998, the Company's Common Stock was held by approximately
1,820 shareholders of record or through nominee or street name accounts
with brokers.
Dividends
On May 13, 1998, the Company's Board of Directors declared a five
percent stock dividend, payable June 18, 1998, to shareholders of
record as of June 8, 1998. Information regarding the number of shares
of Common Stock outstanding, as set forth in this Form 10-K, does not
include any shares of Common Stock to be issued in connection with such
dividend.
While the Company has not paid any cash dividends on the Common Stock
since its inception, any future determination as to the payment of
dividends will be at the discretion of the Board of Directors and will
depend on the Company's financial condition, results of operations,
capital requirements, compliance with charter and contractual
restrictions, and such other factors as the Board of Directors deems
relevant.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data of the
Company for each year in the five-year period ended March 31, 1998. The
financial data and certain operating data have been derived from the Company's
financial statements which have been examined by Price Waterhouse LLP,
independent accountants. This data should be read in conjunction with the
Financial Statements and related notes included under Item 8 of this report and
in conjunction with other financial information included elsewhere in this Form
10-K.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996 1995 1994
-------- ------ ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales............................... $154,294 $141,169 $117,104 $109,098 $93,620
Cost of sales including distribution
and occupancy costs.............. 87,510 78,792 66,236 59,725 51,196
-------- ------ ------- ------- -------
Gross profit......................... 66,784 62,377 50,868 49,373 42,424
Operating, selling, general and
administrative expenses............ 46,120 41,749 35,299 32,304 28,068
-------- -------- ------- ------- -------
Operating income..................... 20,664 20,628 15,569 17,069 14,356
Interest expense - net............... 3,829 3,224 2,637 1,939 2,080
Other expense - net.................. 331 475 330 22 107
------- -------- ------- ------- -------
Income before provision for income taxes 16,504 16,929 12,602 15,108 12,169
Provision for income taxes........... 6,650 6,738 4,988 6,024 4,818
-------- -------- ------- ------- -------
Net income........................... $ 9,854 $ 10,191 $ 7,614 $ 9,084 $ 7,351
======== ======== ======= ======= =======
Earnings per share(a) Basic.......... $ 1.25 $ 1.31 $ 1.01 $ 1.22 $ 1.02
======== ======== ======= ======= =======
Diluted $ 1.15 $ 1.19 $ .90 $ 1.07 $ .87
======== ======== ======= ======= =======
Weighted average number of Common Stock
shares and equivalents (a) Basic 7,863 7,797 7,570 7,436 7,207
======== ======== ======= ======= =======
Diluted 8,586 8,580 8,482 8,488 8,438
======== ======== ======= ======= =======
SELECTED OPERATING DATA:
Sales growth:
Total.............................. 9.3% 20.5% 7.3% 16.5% 19.3%
Comparable store (b)............... (0.2%) 7.9% (3.9%) 6.1% 9.5%
Stores open at beginning of year..... 313 274 232 202 184
Stores open at end of year........... 350 313 274 232 202
Capital expenditures ................ $ 25,391 $ 27,562 $25,581 $20,299 $14,374
BALANCE SHEET DATA (AT PERIOD END):
Net working capital.................. $ 13,517 $ 9,579 $ 8,891 $ 6,863 $ 7,894
Total assets......................... 159,088 146,267 120,055 93,042 77,042
Long-term debt....................... 54,102 54,850 45,459 28,749 24,326
Shareholders' equity................. 76,558 66,625 55,887 48,169 38,815
<FN>
(a) Earnings per share for each fiscal year was computed by dividing net income
by the weighted average number of shares of Common Stock and Common Stock
equivalents outstanding during the respective year. All share and per share
information has been adjusted to give retroactive effect to the five
percent stock dividends paid in August 1997, August 1996 and in August
1995.
(b) Comparable store sales data is calculated based on the change in sales of
only those stores open as of the beginning of the preceding fiscal year.
</TABLE>
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth income statement data of the Company expressed as
a percentage of sales for the fiscal years indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales.................................................... 100.0% 100.0% 100.0%
Cost of sales including distribution and occupancy costs. 56.7 55.8 56.6
----- ----- -----
Gross profit............................................. 43.3 44.2 43.4
Operating, selling, general and administrative expenses.. 29.9 29.6 30.1
----- ----- -----
Operating income......................................... 13.4 14.6 13.3
Interest expense - net................................... 2.5 2.3 2.2
Other expense - net...................................... 0.2 0.3 0.3
----- ----- -----
Income before provision for income taxes................. 10.7 12.0 10.8
Provision for income taxes............................... 4.3 4.8 4.3
----- ----- -----
Net income............................................... 6.4% 7.2% 6.5%
====== ===== =====
</TABLE>
FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-K which are
not historical facts, including (without limitation) in particular, statements
made in this Item and in "Item 1 - Business," may contain forward-looking
statements that are subject to important factors that could cause actual results
to differ materially from those in the forward-looking statement, including
(without limitation) product demand, the effect of economic conditions, the
impact of competitive services, products and pricing, product development, parts
supply restraints or difficulties, industry regulation and the continued
availability of capital resources and financing and other risks set forth or
incorporated herein and in the Company's Securities and Exchange Commission
filings. The Company does not undertake to update any forward-looking statement
that may be made from time to time by or on behalf of the Company.
RECENT DEVELOPMENTS
In April 1998, the Company signed a definitive agreement with Speedy
Muffler King Inc. of Toronto, Canada to acquire 192 company-operated and 13
franchised Speedy stores in the United States. The all-cash purchase transaction
will be affected by the payment of $52 million and is subject to customary terms
and conditions, including the obtaining of necessary consents and the Company's
securing of financing necessary to consummate the transaction. The transaction
is expected to close in August 1998.
In May 1998, the Company received a favorable determination under the
Hart-Scott-Rodino Act.
Although the 205 Speedy stores are in the same general markets in which
the Company competes, the Company's and Speedy's locations are mainly situated
in non-overlapping areas. While Monro has tended to open stores in suburban and
small town locations, Speedy has tended to locate in major metropolitan areas.
Therefore, the combination represents an excellent geographic fit. The Company
expects to close less than 20 Speedy stores related to conflicts and poor
performance.
18
<PAGE> 19
FISCAL 1998 AS COMPARED TO FISCAL 1997
Sales for fiscal 1998 increased $13.1 million, or 9.3% over sales for
fiscal 1997. The increase was due to an increase of approximately $13.6 million
for stores opened since April 1, 1996, partially offset by a comparable store
sales decrease of .2%. During the year, 39 stores were opened and two were
closed. At March 31, 1998, the Company had 350 stores in operation.
Management believes that the comparable store sales decrease resulted
in part, from a decline in vehicle population in the five to nine year old
segment, reflecting the early 1990's recession, as well as the continuing effect
of declining exhaust sales related to manufacturers' use of stainless steel
mufflers on almost all new cars. However, management believes that these
declines were offset, in part, by positive industry factors including an
increase in the average age of vehicles, a decrease in the number of service
bays, an increase in the number of registered vehicles, and a shift in the
consumer mentality from "do-it-yourself" to "do-it-for-me" caused by the
increased complexity of cars. Additionally, management believes that its
strategy of product diversification and expanded manager training assisted in
minimizing the comparable store sales decline vis-a-vis its competitors.
The Company introduced "Scheduled Maintenance" services in its stores
late in the fourth quarter of fiscal 1998. These services are required by
vehicle manufacturers to comply with warranty schedules, and are offered by
Monro in a more convenient and cost competitive fashion than auto dealers can
provide. Management believes that these services will make a positive
contribution to comparable store sales in future years, and help to mitigate the
aforementioned challenges which negatively impacted fiscal 1998.
Gross profit for fiscal 1998 was $66.8 million or 43.3% of sales, as
compared with $62.4 million or 44.2% of sales for fiscal 1997. The reduction in
gross profit as a percentage of sales is primarily attributable to an increase
in occupancy costs as a percent of sales reflecting the impact of fixed costs
(such as rent and depreciation) against a decline in comparable store sales.
Additionally, labor costs increased over the prior year. During periods of
slower sales when technicians may not be fully productive, they receive a
minimum base-level wage which increases labor as a percent of sales.
Operating, selling, general and administrative expenses for fiscal 1998
increased by $4.4 million to $46.1 million and, as a percentage of sales,
increased by .3% as compared to fiscal 1997. The increase in total dollars
expended is due, among other things, to additional supervision and advertising
expense in newly added stores and regions, greater costs related to the
Company's continuing investment in training, and additional store expenses
related to the growth in the number of stores. Although expenses increased
during fiscal 1998 as compared to fiscal 1997, the growth rate of these expenses
(10.5%) was lower than the percentage increase in the number of stores (12.5%)
due to ongoing, concerted efforts by management to control costs and operate
within budgetary constraints. Accounting for a portion of the cost reductions
were decreases in bonus and profit sharing expenses. Since the Company did not
attain the minimum required percentage of targeted profit performance, employee
bonus payments
19
<PAGE> 20
were significantly reduced and were eliminated for executive officers, and
profit sharing contributions were reduced. In addition, there was an increase,
as a percent of sales, in the amount of cooperative advertising credits which
the Company received during fiscal 1998 as compared to the previous year.
Management was effective in improving various programs negotiated with vendors.
Operating income in fiscal 1998 of $20.7 million, or 13.4% of sales,
increased by $.1 million over the fiscal 1997 level of $20.6 million due to the
factors discussed above.
Interest expense, net of interest income, increased as a percent of
sales from 2.3% in fiscal 1997 to 2.5% in fiscal 1998. The weighted average debt
outstanding for the year ended March 31, 1998 was approximately $8.0 million
greater than the amount outstanding for the year ended March 31, 1997. This was
partially offset by a decrease in the weighted average interest rate of .3 of a
percentage point.
Other expense, net, at .2% of sales for the year ended March 31, 1998
decreased from .3% of sales for the year ended March 31, 1997. In the prior
year, this line included carrying costs for the Company's former warehouse
facility which was sold in the fourth quarter of fiscal 1997.
The Company's effective tax rate was 40.3% of pre-tax income in fiscal
1998, as compared to 39.8% for fiscal 1997.
Net income for fiscal 1998 decreased by $.3 million or 3.3% as compared
to fiscal 1997 due to the factors discussed above.
FISCAL 1997 AS COMPARED TO FISCAL 1996
Sales for fiscal 1997 increased $24.1 million, or 20.5% over sales for
fiscal 1996. The increase was due to a comparable store sales increase of 7.9%
and an increase of approximately $16.3 million for stores opened since April 1,
1995. During the year, 40 stores were opened and one was closed. At March 31,
1997, the Company had 313 stores in operation.
Management believes that sales increases were driven, in part, by
pent-up demand from previously deferred repairs, combined with a number of
industry factors. These include an increase in the average age of vehicles, a
decrease in the number of service bays, an increase in the number of registered
vehicles, and a shift in the consumer mentality from "do-it-yourself" to
"do-it-for-me" caused by the increased complexity of cars. Additionally,
management believes that successful performance of its operating strategy,
centered on owning and operating all of its stores, helped contribute to the
sales increase. Company operated stores facilitate focused and consistent
execution in key areas such as the Company's unwavering commitment to customer
satisfaction, comprehensive training of service technicians and competitive
pricing.
Gross profit for fiscal 1997 was $62.4 million or 44.2% of sales, as
compared with $50.9 million or 43.4% of sales for fiscal 1996. The improvement
in gross profit as a percentage of sales is primarily due to increases in
selling prices coupled with a reduction in certain material costs as a result of
renegotiated pricing with various vendors.
20
<PAGE> 21
Operating, selling, general and administrative expenses for fiscal 1997
increased by $6.5 million to $41.7 million and, as a percentage of sales,
decreased by .5% as compared to fiscal 1996. The increase in total dollars
expended is primarily attributable to increased store supervision and increased
store support expenses related to the Company's expansion. These expenses
declined as a percentage of sales largely due to management's continued focus on
discretionary spending and controlling costs. One area accounting for a more
significant portion of the decrease as a percent of sales was an increase in the
amount of cooperative advertising credits which the Company received during
fiscal 1997 as compared to the previous year. Management was effective in
improving various programs negotiated with vendors.
Operating income in fiscal 1997 of $20.6 million, or 14.6% of sales
increased by $5.1 million over the fiscal 1996 level of $15.6 million due to the
factors discussed above.
Interest expense, net of interest income, was unchanged as a percent of
sales for fiscal 1997 as compared to fiscal 1996. While average debt outstanding
for the year ended March 31, 1997 was up approximately $11.0 million over the
year ended March 31, 1996, the weighted average interest rate declined by
approximately 1.5 percentage points.
Other expense, net, at .3% of sales for the year ended March 31, 1997
remained unchanged as a percent of sales from the year ended March 31, 1996.
This amount includes carrying costs for the Company's former warehouse facility
which was sold in the fourth quarter of fiscal 1997.
The Company's effective tax rate was 39.8% of pre-tax income in fiscal
1997 as compared to 39.6% for fiscal 1996.
Net income for fiscal 1997 increased by $2.6 million or 33.8% over
fiscal 1996, reflecting higher gross profit and lower operating expenses,
partially offset by a higher effective tax rate.
YEAR 2000
The Company is currently addressing a universal situation commonly
referred to as the "Year 2000 Problem." The Year 2000 Problem relates to the
inability of certain computer software programs to properly recognize and
process date sensitive information relative to the year 2000 and beyond. During
fiscal 1997, the Company developed a plan to devote the necessary resources to
identify and modify systems impacted by the Year 2000 Problem, or implement new
systems to become year 2000 compliant in a timely manner. The cost of executing
this plan is not expected to have a material impact on the Company's results of
operations or financial condition. In addition, the Company has contacted its
major suppliers and vendors to ensure their awareness of the Year 2000 Problem.
If the Company, its suppliers or vendors are unable to resolve issues related to
the year 2000 on a timely basis, it could result in a material financial risk.
21
<PAGE> 22
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
The Company's primary capital requirements for fiscal 1998 were the
funding of its new store expansion program and the upgrading of
facilities and systems in existing stores, totaling $25.6 million, and
principal payments on long-term debt and capital leases of $60.6
million.
In both fiscal years 1998 and 1997, these capital requirements were met
by cash flow from operations and through the use of a Revolving Credit
Facility. In fiscal year 1998, the Company also completed
sale/leaseback transactions totalling $10.3 million.
In fiscal 1999, in addition to the Acquired Speedy Stores, the Company
intends to open approximately 30 new stores. Total capital required to
open a new store ranges, on average (based upon the last three fiscal
years' openings), from $233,000 to $877,000 depending on whether the
store is leased, owned or land leased. Management believes that the
Company has sufficient resources available (including cash and
equivalents, cash flow from operations and bank financing) to expand
its business as currently planned for the next several years.
The Speedy Acquisition will be effected by a cash payment of $52
million (the "Purchase Price"). The Company is currently in
negotiations to obtain financing from its primary lender in the form of
a revised credit facility and a synthetic operating lease arrangement
for a portion of the Purchase Price and additional working capital
requirements. In addition, the Company is seeking financing from other
sources to pay a portion of the Purchase Price.
Liquidity
At March 31, 1998, the Company had a $5.0 million line of credit for
the purpose of issuing stand-by-letters of credit on an unsecured
basis. The line requires fees aggregating .875% annually of the face
amount of each stand-by-letter of credit, payable quarterly in advance.
A total of $3.8 million of letters of credit were outstanding under
this line at March 31, 1998.
As of June 1, 1998, the Company had outstanding $1.8 million in
principal amount of its 10.65% Senior Notes due 2000 (the "Senior
Notes") with Massachusetts Mutual Life Insurance Company pursuant to a
Senior Note Agreement. The fifth of six annual installments of
principal of $1.8 million was paid on April l, 1998.
Through February 1996, the Company had a real estate line of credit of
$25.0 million to be used for the placement of store mortgages. This
line was terminated in fiscal 1996 at the Company's initiative and
replaced by a new unsecured Revolving Credit Facility.
22
<PAGE> 23
Prior to the termination of the real estate line, the Company had
utilized $13.2 million for permanent mortgages. Any of these mortgages
may be converted from a floating rate to a fixed rate loan during the
first five years of its seven-year term. Interest is payable monthly.
Equal monthly installments of principal are required based on 20-year
amortization periods. During fiscal 1997, the Company completed the
modification of its LIBOR-based mortgages, reducing the various
interest rates to LIBOR plus 1.0%.
In February 1996, the Company finalized an unsecured Revolving Credit
Agreement with two banks. Under the terms of the Agreement, the Company
may borrow at the prime rate or at a LIBOR-based rate which fluctuates
quarterly based upon Company performance. The Company must pay a
facility fee of .125% annually on the unused portion of the facility.
In fiscal 1998, the Agreement was modified to increase the amount
available under the facility from $30 million to $50 million and extend
the term to March 2000. Principal payments begin in April 2000 in equal
monthly installments based on a five-year amortization period.
The Company has available a line of credit of $7.5 million under a
short-term borrowing agreement at the lower of the prime rate or other
rate options available at the time of borrowing. There are no
commitment fees associated with this line of credit. Based upon the
Company's ability and intent to refinance the amount outstanding under
the line of credit with its expanded Revolving Credit facility, the
$1.8 million balance has been classified as long-term debt at March 31,
1997.
During fiscal 1995, the Company purchased 12.7 acres of land for $.7
million from the City of Rochester, New York, on which its new
office/warehouse facility is located. The City has provided financing
for 100 percent of the cost of the land via a 20-year non-interest
bearing mortgage, all due and payable in 2014.
To finance its new office/warehouse building, the Company obtained
permanent mortgage financing consisting of a 10-year mortgage for $2.9
million and an eight-year term loan in the amount of $.7 million. Both
obligations require monthly interest payments, and each may be
converted from a floating rate to a fixed rate loan before the last two
years of their respective terms. The mortgage requires equal monthly
installments of principal based on a 20-year amortization period, and
the term loan requires equal monthly payments of principal to fully
amortize the debt over the eight-year term. The Company entered into an
interest rate swap agreement with a major financial institution which
effectively fixes the interest rate over the terms of the
aforementioned agreements at 7.15%.
Certain of the Company's long-term debt agreements require, among other
things, the maintenance of specified current ratios, interest and rent
coverage ratios and amounts of tangible net worth, and also contain
restrictions on dividend payments and capital expenditures. The Company
was in compliance with these requirements at March 31, 1998, and does
not believe that the covenants materially affect its business.
23
<PAGE> 24
As of March 31, 1998, the Company had cash and equivalents of $5.3
million.
Inflation
The Company does not believe its operations have been materially
affected by inflation. The Company has been successful, in many cases,
in mitigating the effects of merchandise cost increases principally
through the use of volume discounts and alternative vendors.
Financial Accounting Standards
Statement of Position (SOP) 93-7, "Reporting on Advertising Costs,"
which provides guidance on financial reporting on advertising costs,
was issued in December 1993. This Statement was adopted by the Company
in fiscal 1996 and had an immaterial effect on the results of
operations.
Effective in fiscal 1997, the Company adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation". As permitted under SFAS 123,
the Company will continue to measure stock-based compensation cost as
the excess of the quoted market price of the Company's common stock at
the grant date over the amount the employee must pay for the stock.
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings Per Share", was issued in February 1997. This Statement
establishes standards for computing and presenting earnings per share
("EPS"), and simplifies the standards previously found in APB Opinion
No. 15 ("APB 15"). It replaces the presentation of primary EPS with a
presentation of basic EPS, and also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities
with complex capital structures. The Company adopted the Statement in
fiscal 1998. Prior periods have been restated to reflect the new
standard.
24
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Accountants.......................................... 26
Audited Financial Statements:
Consolidated Balance Sheet at March 31, 1998 and 1997............. 27
Consolidated Statement of Income for the three years
ended March 31, 1998..................................... 28
Consolidated Statement of Changes in Shareholders'
Equity for the three years ended March 31, 1998.......... 29
Consolidated Statement of Cash Flows for the three
years ended March 31, 1998............................... 30
Notes to Consolidated Financial Statements........................ 31
Selected Quarterly Financial Information (Unaudited)....................... 46
25
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of
Monro Muffler Brake, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Monro
Muffler Brake, Inc. and its subsidiary at March 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Rochester, New York
May 18, 1998
26
<PAGE> 27
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31,
---------
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of $5,315
in 1998 and $6,438 in 1997 $ 5,315 $ 6,438
Trade receivables 841 1,128
Inventories 27,492 20,010
Federal and state income taxes receivable 0 296
Deferred income tax asset 1,725 1,790
Other current assets 4,115 2,935
---------------- --------------
Total current assets 39,488 32,597
---------------- --------------
Property, plant and equipment 165,839 151,906
Less - Accumulated depreciation and amortization (49,429) (42,223)
---------------- --------------
Net property, plant and equipment 116,410 109,683
Other noncurrent assets 3,190 3,987
================ -------------
Total assets $159,088 $146,267
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,582 $ 3,128
Trade payables 11,633 8,728
Federal and state income taxes payable 2 0
Accrued interest 233 270
Accrued payroll, payroll taxes and other payroll benefits 3,764 4,260
Accrued insurance 2,441 2,110
Other current liabilities 4,316 4,522
---------------- --------------
Total current liabilities 25,971 23,018
Long-term debt 54,102 54,850
Other long-term liabilities 576 14
Deferred income tax liability 1,881 1,760
---------------- --------------
Total liabilities 82,530 79,642
---------------- --------------
Commitments
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $.227 and $.239
conversion value at March 31, 1998 and 1997, respectively; 150,000 shares
authorized;
91,727 shares issued and outstanding in 1998 and 1997 138 138
Common Stock, $.01 par value, 15,000,000 shares authorized; 7,876,901 shares
and 7,470,326 shares issued and outstanding in 1998 and 1997, respectively 79 75
Additional paid-in capital 29,284 22,190
Retained earnings 47,057 44,222
---------------- --------------
Total shareholders' equity 76,558 66,625
---------------- --------------
Total liabilities and shareholders' equity $159,088 $146,267
================ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 28
<TABLE>
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
- - -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Sales $154,294 $141,169 $117,104
Cost of sales, including distribution and occupancy costs (a) 87,510 78,792 66,236
------------- ----------- ------------
Gross profit 66,784 62,377 50,868
Operating, selling, general and administrative expenses 46,120 41,749 35,299
------------- ----------- ------------
Operating income 20,664 20,628 15,569
Interest expense, net of interest income of $87 in 1998, $23 in 1997,
and $39 in 1996 (a) 3,829 3,224 2,637
Other expense, net 331 475 330
------------- ----------- ------------
Income before provision for income taxes 16,504 16,929 12,602
Provision for income taxes 6,650 6,738 4,988
------------- ----------- ------------
Net income $ 9,854 $ 10,191 $ 7,614
============= =========== ============
Earnings per share:
Basic $ 1.25 $ 1.31 $ 1.01
============= =========== ============
Diluted $ 1.15 $ 1.19 $ .90
============= =========== ============
Weighted average number of shares of common stock and common stock equivalents
used in computing earnings per share:
Basic 7,863 7,797 7,570
============= =========== ============
Diluted 8,586 8,580 8,482
============= =========== ============
<FN>
(a) Costs and expenses include charges for payments under operating and capital
leases with affiliated parties totaling $1,786, $1,828, and $1,688 for the
years ended March 31, 1998, 1997 and 1996, respectively.
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 29
<TABLE>
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
CONVERTIBLE ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
----- ----- ------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1995 $ 138 $ 65 $10,959 $37,007 $48,169
Net income 7,614 7,614
Exercise of stock options 104 104
Stock dividend 4 5,998 (6,002)
------ ------ --------- ----------- ----------
Balance at March 31, 1996 138 69 17,061 38,619 55,887
Net income 10,191 10,191
Exercise of stock options 2 545 547
Stock dividend 4 4,584 (4,588)
------ ------ --------- ---------- -----------
Balance at March 31, 1997 138 75 22,190 44,222 66,625
Net income 9,854 9,854
Exercise of stock options 79 79
Stock dividend 4 7,015 (7,019)
------ ------ --------- ----------- ----------
Balance at March 31, 1998 $ 138 $ 79 $29,284 $47,057 $76,558
======= ====== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 30
<TABLE>
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
- - ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income $9,854 $10,191 $ 7,614
--------- --------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 9,259 8,099 6,762
Net change in deferred income taxes 186 192 (266)
Loss (gain) on disposal of property, plant and equipment 42 (100) (1)
Decrease (increase) in trade receivables 287 102 (174)
Increase in inventories (7,482) (3,472) (2,721)
Increase in other current assets (217) (717) (373)
Increase in other noncurrent assets (441) (63) (462)
Increase in trade payables 2,905 1,858 1,810
(Decrease) increase in accrued expenses (524) 3,541 270
Increase (decrease) in income taxes payable 298 (278) 10
Increase in other long-term liabilities 17 7 6
--------- --------- ---------
Total adjustments 4,330 9,169 4,861
--------- --------- ---------
Net cash provided by operating activities 14,184 19,360 12,475
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (25,391) (27,562) (25,581)
Proceeds from the sale of property, plant and
equipment 10,552 97 68
Payment for purchase of miscellaneous acquisitions (2,416)
--------- --------- ---------
Net cash used for investing activities (14,839) (27,465) (27,929)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from the sale of common stock 79 547 104
Proceeds from borrowings 60,099 58,220 38,514
Principal payments on long-term debt and capital
lease obligations (60,646) (49,504) (22,739)
--------- --------- ---------
Net cash (used for) provided by financing activities (468) 9,263 15,879
--------- --------- ---------
(Decrease) increase in cash (1,123) 1,158 425
Cash at beginning of year 6,438 5,280 4,855
--------- --------- ---------
<S> <C> <C> <C>
Cash at end of year $ 5,315 $ 6,438 $ 5,280
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 31
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
Monro Muffler Brake, Inc. and its wholly owned subsidiary, Monro Service
Corporation (the "Company"), had 350 automotive repair centers operating
primarily in the northeast region of the United States as of March 31, 1998. The
Company experienced a change in control during 1984 which was accounted for as a
purchase and required the recording of a new basis for assets and liabilities.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with such principles requires the use of
estimates by management during the reporting period. Actual results could differ
from those estimates.
A description of the Company's major accounting policies follows.
FISCAL YEAR
The Company's fiscal year ends on March 31.
CONSOLIDATION
The consolidated financial statements include the Company and its wholly owned
subsidiary, Monro Service Corporation, after the elimination of intercompany
transactions and balances.
REVENUE RECOGNITION
Sales are recorded upon completion of automotive undercar repair services
provided to customers or upon the sale of incidental products and services to
customers.
INVENTORIES
The Company's inventories consist of automotive parts and tires.
Substantially all merchandise inventories are valued under the last-in,
first-out (LIFO) method. Under the first-in, first-out (FIFO) method, these
inventories would have been $426,000, $544,000 and $647,000 higher at March 31,
1998, 1997 and 1996, respectively. The FIFO value of inventory approximates the
current replacement cost.
PROPERTY, PLANT AND EQUIPMENT
All property, plant and equipment are stated at cost. For assets acquired in
conjunction with the 1984 change in control referred to above, cost represents
an allocation of the total purchase price to individual assets based on their
estimated fair values at the date of acquisition. Depreciation of property,
plant and equipment is provided on the straight-line basis. Buildings and
improvements are depreciated over lives varying from 10 to 39 years; machinery,
fixtures and equipment over lives varying from 5 to 15 years; and vehicles over
lives varying from 5 to 7 years.
Certain leases have been capitalized and are classified on the balance sheet as
fixed assets. These assets are being amortized on a straight-line basis over
their estimated lives, which coincide with the terms of the leases (Note 3).
31
<PAGE> 32
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
ADVERTISING
The Company expenses the production costs of advertising the first time the
advertising takes place, except for direct response advertising which is
capitalized and amortized over its expected period of future benefits.
Direct response advertising consists primarily of coupons for the Company's
services. The capitalized costs of this advertising are amortized over the
period of the coupon's validity.
Advertising expense for the years ended March 31, 1998, 1997 and 1996 was not
material to these financial statements.
INTEREST RATE HEDGE AGREEMENTS
The Company enters into interest rate hedge agreements which involve the
exchange of fixed and floating rate interest payments periodically over the life
of the agreement without the exchange of the underlying principal amounts. The
differential to be paid or received is accrued as interest rates change and is
recognized over the life of the agreements as an adjustment to interest expense.
EARNINGS PER SHARE
In fiscal 1998, the Company adopted Statement of Financial Accounting Standards
No. 128 that requires the reporting of both basic and diluted earnings per
share. Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Prior periods have been restated to
reflect the new standard. All share and per share amounts have also been
restated to reflect the five percent stock dividends paid in August 1997, 1996
and 1995 (Note 8).
STOCK-BASED COMPENSATION
The Company measures stock-based compensation cost as the excess of the quoted
market price of the Company's common stock at the grant date over the amount the
employee must pay for the stock. The Company's policy is to generally grant
stock options at fair market value at the date of grant.
STATEMENT OF CASH FLOWS
For purposes of the Statement of Cash Flows, the Company considers all highly
liquid instruments with a maturity of three months or less to be cash
equivalents.
RECLASSIFICATIONS
Certain amounts in the Consolidated Balance Sheet and the Consolidated Statement
of Cash Flows have been reclassified to improve reporting and maintain
comparability among the periods presented.
NOTE 2 - SUBSEQUENT EVENT: PENDING ACQUISITION OF SPEEDY U.S.A. STORES
In April 1998, the Company signed a definitive agreement with Speedy Muffler
King Inc. of Toronto, Canada to acquire 192 company-operated and 13 franchised
Speedy stores in the United States. The all-cash purchase transaction will be
affected by the payment of $52 million and is subject to customary terms and
conditions, including the obtaining of necessary consents and the Company's
securing of financing necessary to consummate the transaction. The transaction
is expected to close in August 1998.
In May 1998, the Company received a favorable determination under the
Hart-Scott-Rodino Act.
Although the 205 Speedy stores are in the same general markets in which the
Company competes, the Company's and Speedy's locations are mainly situated in
non-overlapping areas. The Company expects to close less than 20 underperforming
Speedy stores.
32
<PAGE> 33
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
An investment banking firm associated with a principal shareholder/director of
the Company is serving as consultant to the Company in connection with the
acquisition and related financing (Note 11).
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
The major classifications of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
OWNED LEASED TOTAL OWNED LEASED TOTAL
----- ------ ----- ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Land $23,772 $ 23,772 $ 21,398 $21,398
Buildings and
improvements 76,062 $6,838 82,900 67,751 $6,838 74,589
Equipment, signage
and fixtures 47,379 82 47,461 43,773 82 43,855
Vehicles 7,184 620 7,804 6,527 385 6,912
Construction-in-
progress 3,902 3,902 5,152 5,152
-------------- -------------- -------------- ----------- ---------- -----------
158,299 7,540 165,839 144,601 7,305 151,906
Less - Accumulated
depreciation and
amortization 45,712 3,717 49,429 38,358 3,865 42,223
-------------- -------------- -------------- ----------- ---------- -----------
$112,587 $3,823 $116,410 $106,243 $3,440 $109,683
============== ============== ============== =========== ========== ===========
</TABLE>
Interest costs capitalized aggregated $448,000 in 1998 and $568,000 in 1997.
Amortization expense recorded under capital leases totaled $434,000, $398,000
and $360,000 for the years ended March 31, 1998, 1997 and 1996, respectively.
NOTE 4 - OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mortgage receivable $ 975
Deferred debt issuance costs $ 374 460
Non-compete agreements 485 544
Investment in limited partnership 326 339
Goodwill 1,454 1,342
Acquisition-related costs 223
Other 328 327
-------- -------
$3,190 $3,987
======== =======
</TABLE>
Accumulated amortization associated with noncurrent assets at March 31, 1998 and
1997 amounted to $1,837,000 and $1,562,000, respectively.
Goodwill is being amortized on a straight-line basis over periods ranging from 5
to 20 years.
33
<PAGE> 34
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revolving Credit Facility $34,800 $30,000
Line of Credit 1,800
10.65% Senior Notes, due in installments through fiscal year 2000 3,667 5,500
Mortgage Notes Payable, LIBOR plus 1.0%, secured by store properties, due
in installments through 2003 (a) 9,018 9,578
Mortgage Note Payable, LIBOR plus .8%, secured by new warehouse and
office building, due in installments through 2006 (a) 2,607 2,755
Term loan financing, LIBOR plus .8%, secured by new warehouse and
office building, due in installments through 2004 (a) 517 609
Mortgage Note Payable, non-interest bearing, secured by new warehouse and office
land, due in one installment in 2015 660 660
Other mortgages and notes, prime plus .75% to 8.0%, partially secured by store
properties and equipment, due in installments through 2008 (a) 1,225 1,763
Obligations under capital leases, 6.0% to 16.8%, secured by store properties and
certain equipment, due in installments through 2012 5,190 5,330
------------- -------------
57,684 57,995
Less - Unamortized debt discount (b) 17
------------- -------------
57,684 57,978
Less - Current portion 3,582 3,128
------------- -------------
$54,102 $54,850
============= =============
<FN>
(a) The prime rate at March 31, 1998 was 8.5%. The London Interbank Offered
Rate (LIBOR) at March 31, 1998 was 5.69%.
(b) The debt discount is the result of valuing the debt at fair market value as
of the 1984 purchase date.
</TABLE>
34
<PAGE> 35
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
At March 31, 1998, the Company has a $5.0 million line of credit for the purpose
of issuing stand-by-letters of credit on an unsecured basis. The line requires
fees aggregating .875% annually of the face amount of each stand-by-letter of
credit, payable quarterly in advance. A total of $3.8 million of letters of
credit were outstanding under this line at March 31, 1998.
Through February 1996, the Company had a real estate line of credit of $25.0
million to be used for the placement of store mortgages. The real estate line of
credit was terminated in fiscal 1996 at the Company's initiative and replaced by
a new Revolving Credit facility.
Prior to the termination of the real estate line of credit, the Company had
utilized $13.2 million for permanent mortgages. Any of these mortgages may be
converted from a floating rate to a fixed rate loan during the first five years
of its seven-year term. Interest is payable monthly. Equal monthly installments
of principal are required based on 20-year amortization periods. During fiscal
1997, the Company completed the modification of its LIBOR-based mortgages,
reducing the various interest rates to LIBOR plus 1.0%.
In February 1996, the Company finalized an unsecured Revolving Credit Agreement
with two banks. Under the terms of the Agreement, the Company may borrow at the
prime rate or at a LIBOR-based rate which fluctuates quarterly dependent upon
Company performance. The Company must pay a facility fee of .125% annually on
the unused portion of the commitment. In fiscal 1998, the Agreement was modified
to increase the amount available under the facility from $30 million to $50
million and extend the term to March 2000. Principal payments begin in April
2000 in equal monthly installments based on a five-year amortization period.
The Company has available an unsecured line of credit of $7.5 million under a
short-term borrowing agreement at the lower of the prime rate or other rate
options available at the time of borrowing. There are no commitment fees
associated with this line of credit. Based upon the Company's ability and intent
to refinance the amount outstanding under the line of credit with its expanded
Revolving Credit facility, the $1.8 million balance was classified as long-term
debt at March 31, 1997.
During fiscal 1995, the Company purchased 12.7 acres of land for $.7 million
from the City of Rochester, New York, on which its new office/warehouse facility
is located. The City has provided financing for 100 percent of the cost of the
land via a 20-year non-interest bearing mortgage, all due and payable in 2015.
To finance its new office/warehouse building, the Company obtained permanent
mortgage financing consisting of a 10-year mortgage for $2.9 million and an
eight-year term loan in the amount of $.7 million. Both obligations require
monthly interest payments, and each may be converted from a floating rate to a
fixed rate loan before the last two years of their respective terms. The
mortgage requires equal monthly installments of principal based on a 20-year
amortization period, and the term loan requires constant monthly payments of
principal to fully amortize the debt over the eight-year term. The Company
entered into an interest rate swap agreement with a major financial institution
which effectively fixes the interest rate over the terms of the aforementioned
agreements at 7.15%.
Certain of the Company's long-term debt agreements require, among other things,
the maintenance of specified current ratios, interest and rent coverage ratios
and amounts of tangible net worth, and also contain restrictions on dividend
payments and capital expenditures. The Company is in compliance with these
requirements at March 31, 1998. These agreements permit mortgages and specific
financing lease arrangements with other parties with certain limitations.
35
<PAGE> 36
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Aggregate debt maturities over the next five years and thereafter are as
follows:
<TABLE>
<CAPTION>
CAPITAL LEASES
--------------
AGGREGATE IMPUTED ALL OTHER
YEAR ENDED MARCH 31, AMOUNT INTEREST DEBT TOTAL
-------------------- ------ -------- ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1999 $1,197 $(806) $3,191 $ 3,582
2000 1,172 (749) 3,855 4,278
2001 1,178 (682) 9,891 10,387
2002 1,147 (599) 8,967 9,515
2003 877 (523) 9,894 10,248
Thereafter 5,013 (2,035) 16,696 19,674
----------
Total $57,684
==========
</TABLE>
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term debt, including current portion $52,494 $52,224 $52,665 $52,284
</TABLE>
The carrying amount of cash and cash equivalents approximates fair value because
their maturity is generally less than one year in duration. Fair value of
long-term debt was estimated using either quoted market prices for the same or
similar issues, or the current rates offered to the Company for debt with
similar maturities.
36
<PAGE> 37
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Currently payable -
Federal $5,435 $5,418 $4,340
State 1,029 1,128 908
---------- --------- ---------
6,464 6,546 5,248
Deferred -
Federal 154 159 (219)
State 32 33 (41)
---------- --------- ---------
186 192 (260)
---------- --------- ---------
Total $6,650 $6,738 $4,988
========== ========= =========
</TABLE>
Deferred tax (liabilities) assets are comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Property and equipment basis differences $(2,232) $(2,014) $(1,352)
Prepaid expenses (486) (397) (316)
Tax shelter investment (302) (287) (263)
Installment sale (180) (265)
Other (193) (79) (33)
------------- ------------ -----------
Gross deferred tax liabilities (3,393) (3,042) (1,964)
------------- ------------ -----------
Capital leases 780 755 527
Insurance accruals 959 798 605
Inventory reserves 93 43 65
Vacation accrual 210 174 166
Warranty and other reserves 864 1,034 551
Other 331 268 272
------------ ------------ -----------
Gross deferred tax assets 3,237 3,072 2,186
------------ ------------ -----------
Net deferred tax (liability) asset $ (156) $ 30 $ 222
============ ============ ===========
</TABLE>
37
<PAGE> 38
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
A reconciliation between the U. S. federal statutory tax rate and the effective
tax rate reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal income tax based on
statutory tax rate applied
to income before taxes $5,722 34.7 $5,883 34.8 $4,311 34.2
State income tax, net of
federal income tax benefit 693 4.2 758 4.5 570 4.5
Other 235 1.4 97 .5 107 .9
----------- ------- ----------- ----------- ----------- -----------
$6,650 40.3 $6,738 39.8 $4,988 39.6
=========== ======= =========== =========== =========== ===========
</TABLE>
NOTE 8 - CONVERTIBLE PREFERRED STOCK AND COMMON STOCK
A summary of the changes in the number of shares of Class C preferred stock and
common stock is as follows:
<TABLE>
<CAPTION>
COMMON CLASS C
STOCK CONVERTIBLE PREFERRED
SHARES STOCK
------------ ---------------------------
<S> <C> <C>
Balance at March 31, 1996 6,914,835 91,727
Stock options exercised 209,826
Stock dividend 345,665
------------ ----------
Balance at March 31, 1997 7,470,326 91,727
Stock options exercised 33,151
Stock dividend 373,424
------------ ----------
Balance at March 31, 1998 7,876,901 91,727
============ ==========
</TABLE>
On May 14, 1997, the Board of Directors declared a five percent stock dividend
on the Company's common stock, paid August 4, 1997, to shareholders of record as
of June 20, 1997. The Company also paid a five percent stock dividend on August
5, 1996, to shareholders of record as of June 21, 1996, and on August 7, 1995,
to shareholders of record as of June 23, 1995. All share and per share
information included in the accompanying financial statements and notes have
been adjusted to give retroactive effect to these dividends.
Additionally, in accordance with antidilution provisions of the Class C
convertible preferred stock, the conversion value of the preferred stock was
restated to $.227 per share.
38
<PAGE> 39
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Holders of at least 60% of the Class C preferred stock must approve any action
authorized by the holders of common stock. In addition, there are certain
restrictions on the transferability of shares of Class C preferred stock.
Under the 1984 and 1987 Incentive Stock Option Plans, 693,021 shares (as
retroactively adjusted for the five percent stock dividends) of the common stock
were reserved for issuance to officers and key employees. The 1989 Incentive
Stock Option Plan authorized an additional 165,005 shares (as retroactively
adjusted for the five percent stock dividends) for issuance.
In January 1994, May 1995 and May 1997, the Board of Directors authorized an
additional 245,532, 104,737 and 200,000 shares, respectively (as retroactively
adjusted for the stock dividends), for issuance under the 1989 Plan. These
amounts were approved by shareholders in August 1994, August 1995 and August
1997, respectively.
Generally, options vest with respect to 60% of the shares of common stock
subject thereto three years after the date of grant. Options on 50% of the
remaining shares vest on the fourth anniversary of the date of grant, and the
balance vests on the fifth anniversary of the date of grant.
The outstanding options have a duration of ten years and are exercisable through
February 2008.
A summary of changes in outstanding stock options (as retroactively adjusted for
the five percent stock dividends) is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE AVAILABLE
EXERCISE PRICE OUTSTANDING EXERCISABLE FOR GRANT
-------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
AT MARCH 31, 1995 $ 5.79 530,436 391,026 202,600
Authorized 104,737
Granted $ 13.80 174,636 (174,636)
Became exercisable 23,031
Exercised $ 1.68 (62,971) (62,971)
Canceled $ 13.31 (3,590) (1,702) 3,590
Rounding for stock dividend 10 1
------------ ------------ -----------
AT MARCH 31, 1996 $ 8.34 638,521 349,384 136,292
Granted $ 14.70 118,239 (118,239)
Became exercisable 54,215
Exercised $ 2.49 (220,317) (220,317)
Canceled $ 14.19 (22,072) 22,072
Rounding for stock dividend (3)
------------ ------------ -----------
AT MARCH 31, 1997 $ 12.07 514,371 183,282 40,122
Authorized 200,000
Granted $ 14.17 124,175 (124,175)
Became exercisable 51,102
Exercised $ 2.41 (33,151) (33,151)
Canceled $ 14.24 (206,473) (8,946) 206,473
Rounding for stock dividend 5
------------ ------------ -----------
AT MARCH 31, 1998 $ 12.40 398,927 192,287 322,420
============ ============ ===========
</TABLE>
39
<PAGE> 40
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The following table summarizes information about fixed stock options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Range of Shares Remaining Exercise Shares Exercise
Exercise Prices Under Option Life Price Under Option Price
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.00 - $10.00 59,205 2.42 $ 4.88 59,205 $ 4.88
$10.01 - $15.00 281,224 7.46 $13.22 107,714 $12.71
$15.01 - $19.75 58,498 7.29 $16.07 25,368 $15.74
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
In August 1994, subject to the approval of shareholders in August 1995, the
Board of Directors authorized a non-employee directors' stock option plan. The
plan initially reserved 63,669 shares of common stock (as retroactively adjusted
for the five percent stock dividends), and provides for (i) the grant to each
non-employee director as of August 1, 1994 of an option to purchase 2,894 shares
of the Company's common stock (as retroactively adjusted for the five percent
stock dividends) and (ii) the annual grant to each non-employee director of an
option to purchase 2,894 shares (as retroactively adjusted for the five percent
stock dividends) on the date of the annual meeting of shareholders beginning in
1995. The options expire ten years from the date of grant and have an exercise
price equal to the fair market value of the Company's common stock on the date
of grant. Options vest immediately upon issuance.
In May 1997, the Board of Directors authorized an additional 65,000 shares for
issuance under the Plan, which were approved by shareholders in August 1997.
A summary of changes in these stock options is as follows:
<TABLE>
<CAPTION>
OPTION PRICE AVAILABLE
PER SHARE OUTSTANDING EXERCISABLE FOR GRANT
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
AT MARCH 31, 1995 $14.85 20,258 20,258 43,410
Granted $13.38 20,258 20,258 (20,258)
--------- --------- ------------
AT MARCH 31, 1996 $13.38 - $14.85 40,516 40,516 23,152
Granted $17.86 20,258 20,258 (20,258)
--------- --------- ------------
AT MARCH 31, 1997 $13.38 - $17.86 60,774 60,774 2,894
Authorized 65,000
Granted $16.88 20,258 20,258 (20,258)
--------- --------- ------------
AT MARCH 31, 1998 $13.38 - $17.86 81,032 81,032 47,636
========= ========= ============
</TABLE>
Effective in fiscal 1997, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation." As permitted under SFAS 123, the Company will
continue to measure stock-based compensation cost as the excess of the quoted
market price of the Company's common stock at the grant date over the amount the
employee must pay for the stock.
40
<PAGE> 41
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
SFAS 123 requires disclosure of pro forma net income and pro forma net income
per share as if the fair value-based method had been applied in measuring
compensation cost for the stock-based awards granted subsequent to fiscal year
1995. Management believes that 1998 and 1997 pro forma amounts are not
representative of the effects of stock-based awards on future pro forma net
income and pro forma earnings per share because those pro forma amounts exclude
the pro forma compensation expense related to unvested stock options granted
before fiscal 1996.
Reported and pro forma net income and earnings per share amounts are set forth
below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income
As reported $9,854 $ 10,191 $ 7,614
Pro forma 9,602 10,000 7,505
Earnings per share - diluted
As reported $ 1.15 $ 1.19 $ .90
Pro forma 1.12 1.16 .88
</TABLE>
The weighted average fair value per option at the date of grant for options
granted during fiscal 1998, 1997 and 1996 was $7.03, $8.61 and $6.77,
respectively.
The fair values of the options granted were estimated on the date of their grant
using the Black-Scholes option-pricing model based on the following weighted
average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate 5.85% 6.38% 6.19%
Expected life 9 years 9 years 9 years
Expected volatility 25.0% 26.0% 26.0%
Expected dividend yield 0% 0% 0%
</TABLE>
Forfeitures are recognized as they occur.
NOTE 9 - OPERATING LEASES AND OTHER COMMITMENTS
The Company leases retail facilities and store equipment under noncancellable
lease agreements which expire at various dates through fiscal year 2013. In
addition to stated minimum payments, certain real estate leases have provisions
for contingent rentals when retail sales exceed specified levels. Generally, the
leases provide for renewal for various periods at stipulated rates. Most of the
facilities' leases require payment of property taxes, insurance and maintenance
costs in addition to rental payments, and several provide an option to purchase
the property at the end of the lease term.
During fiscal 1998, the Company entered into an agreement for the sale/leaseback
of certain stores, and into a second agreement for the sale/leaseback of store
equipment. The Company has lease renewal options under the real estate agreement
at projected future fair market values, and has both purchase and renewal
options under the equipment lease agreement.
At March 31, 1998, real estate with net book values totaling $5.8 million and
equipment with net book values totaling $3.9 million have been removed from the
balance sheet. Respective gains realized of $.1 million and $.5 million have
been deferred and are being credited to income as rent expense adjustments over
the lease terms.
41
<PAGE> 42
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Future minimum payments required under noncancellable leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
------
YEAR ENDED MARCH 31, (DOLLARS IN THOUSANDS)
- - -------------------- ----------------------
<S> <C>
1999 $ 10,030
2000 9,958
2001 9,460
2002 8,473
2003 7,406
Thereafter 28,664
-------
Total $73,991
=======
</TABLE>
Rent expense under operating leases totaled $7,944,000, $6,965,000 and
$5,500,000 in 1998, 1997 and 1996, respectively, including contingent rentals of
$589,000, $649,000 and $511,000 in each respective year.
The Company has an employment agreement with its interim Chief Executive
Officer. The Agreement, which commenced in February 1998, requires full-time
services of the Executive during the "Interim Term", defined as the period
during which the Executive serves as Chief Executive Officer. The "Interim Term"
may not be extended beyond six months without the Executive's consent. The
Agreement provides that subsequent to the "Interim Term", the Executive will
continue in the employ of the Company, providing consulting services, at a
reduced salary through February 2003. The Agreement includes a covenant against
competition with the Company for two years after termination.
NOTE 10 - EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS
The Company has a noncontributory defined benefit plan covering most employees.
Coverage under the plan begins after completing one year of service and
attainment of age twenty-one. Benefits are based primarily on years of service
and employees' pay near retirement. The Company's funding policy is consistent
with the funding requirements of Federal law and regulations. Plan assets are
invested in fixed income funds.
Pension cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 280 $ 259 $ 230
Interest cost on projected benefit obligation 315 293 277
Return on plan assets (290) (271) (227)
Amortization of net transition asset (5) 4 14
-------- ------- -------
Net pension cost $ 300 $ 285 $ 294
======== ======= =======
</TABLE>
42
<PAGE> 43
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The plan's funded status was as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $(3,900) $(3,382)
======== ==========
Accumulated benefit obligation $(4,150) $(3.590)
======== ==========
Projected benefit obligation $(5,080) $(4,325)
Plan assets at fair value 4,395 3,566
-------- ----------
Projected benefit obligation in excess of plan assets (685) (759)
Unrecognized net loss 1,030 622
Unrecognized prior service cost 20 24
Unrecognized net transition asset (115) (146)
-------- ----------
Pension asset (liability) at March 31 $ 250 $ (259)
======== ========
</TABLE>
The projected benefit obligation at March 31, 1998 and 1997 assumed discount
rates of 7.0% and 7.5%, respectively. Increase in future compensation levels was
assumed to be 5% in 1998 and 1997. The assumed long-term rate of return on plan
assets at March 31, 1998 and 1997 was 8%.
The unrecognized transition asset is being amortized over fifteen years
beginning April 1, 1988. The unrecognized prior service cost is being amortized
over fifteen years beginning April 1, 1990.
The Company also has a profit sharing plan which covers full-time employees who
meet the age and service requirements of the plan. The annual contribution to
the plan is at the discretion of the Compensation and Benefits Committee of the
Board of Directors and, before annual forfeitures which reduce the annual
contribution, totaled $419,000 and $500,000 for the years ended March 31, 1998
and 1997, respectively. No contribution was made for the year ended March 31,
1996.
The Company's management bonus plan provides for the payment of annual cash
bonus awards to participating employees, as selected by the Board of Directors,
based primarily on the Company's attaining pre-tax income targets established by
the Board of Directors. Charges to expense applicable to the management bonus
plan totaled $210,000, $779,000 and $104,000 for the years ended March 31, 1998,
1997 and 1996 respectively. Because the Company did not attain a minimum
required percentage of targeted profit performance in fiscal 1998 and 1996,
expense for those years does not include any bonus amounts for executive
officers.
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain (a) principal shareholders/directors of the Company, (b) partnerships in
which such persons have interests or (c) trusts of which members of their
families are beneficiaries are lessors of certain facilities to the Company.
Payments under such operating and capital leases amounted to $1,786,000,
$1,828,000 and $1,688,000 for the years ended March 31, 1998, 1997 and 1996,
respectively. Amounts payable under these lease agreements totaled $82,000 and
$88,000, respectively, at March 31, 1998 and 1997.
No related party leases, other than renewals or modifications of leases on
existing stores, have been entered into since May 1989 and no new leases are
contemplated.
43
<PAGE> 44
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
Effective July 1991, the Company entered into a management agreement with an
investment banking firm associated with a principal shareholder/director of the
Company to provide financial advice. The agreement provides for an annual fee of
$160,000, plus reimbursement of out-of-pocket expenses. During fiscal 1998, 1997
and 1996, the Company incurred fees of $160,000 annually under this agreement.
In addition, this investment banking firm, from time to time, provides
additional investment banking services to the Company for customary fees. This
firm is providing financial advisory services to the Company in connection with
the acquisition of and financing for Speedy Muffler King Inc. (Note 2).
NOTE 12 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following transactions represent noncash investing and financing activities
during the periods indicated:
YEAR ENDED MARCH 31, 1998
In connection with the declaration of a five percent stock dividend (Note 8),
the Company increased common stock and additional paid-in capital by $4,000 and
$7,015,000, respectively, and decreased retained earnings by $7,019,000.
Capital lease obligations of $236,000 were incurred under various lease
agreements.
In anticipation of payment-in-full from a mortgagor for its former headquarters
property, the Company reclassified $963,000 from other noncurrent assets to
other current assets.
YEAR ENDED MARCH 31, 1997
In connection with the declaration of a five percent stock dividend (Note 8),
the Company increased common stock and additional paid-in capital by $4,000 and
$4,584,000, respectively, and decreased retained earnings by $4,588,000.
Capital lease obligations of $722,000 were incurred under various lease
agreements.
In connection with the sale of its former headquarters building, the Company
reduced fixed assets and increased other assets (mortgage receivable) by
$989,000.
In connection with the termination of a capital lease, the Company reduced debt
and fixed assets by $112,000.
YEAR ENDED MARCH 31, 1996
In connection with the declaration of a five percent stock dividend (Note 8),
the Company increased common stock and additional paid-in capital by $4,000 and
$5,998,000, respectively, and decreased retained earnings by $6,002,000.
Capital lease obligations of $772,000 were incurred under various lease
agreements.
In connection with the acquisition of several automotive repair stores,
liabilities were assumed as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Fair value of assets acquired $2,835
Cash paid 2,416
---------
Liabilities assumed $ 419
=========
</TABLE>
44
<PAGE> 45
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1998 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year:
Interest, net $4,247 $3,867 $3,205
Income taxes, net $6,166 $6,823 $5,244
</TABLE>
NOTE 13 - LITIGATION
The Company and its subsidiary are involved in legal proceedings, claims and
litigation arising in the ordinary course of business. It is possible that the
outcome of such current legal proceedings could have a material effect on
quarterly or annual operating results or cash flows when resolved in a future
period. However, in the opinion of management, these matters will not materially
affect the Company's consolidated financial position.
NOTE 14 - SUBSEQUENT EVENT
On May 13, 1998, the Board of Directors declared a five percent stock dividend,
payable June 18, 1998, to common stockholders of record as of June 8, 1998.
Shares of common or preferred stock included in the accompanying financial
statements and notes have not been adjusted to reflect this dividend.
45
<PAGE> 46
MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth income statement data by quarter for the fiscal
years ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------
JUNE 30, SEPT.30, DEC.31, MARCH 31,
1997 1997 1997 1998
---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales..... ............................... $40,773 $41,540 $36,336 $35,645
Cost of sales including distribution
and occupancy costs..................... 22,631 23,231 20,996 20,652
------- ------- ------- -------
Gross profit.............................. 18,142 18,309 15,340 14,993
Operating, selling, general
and administrative expenses............. 11,492 11,735 11,409 11,484
------- ------- ------- -------
Operating income.......................... 6,650 6,574 3,931 3,509
Interest expense - net.................... 868 903 1,005 1,053
Other expense............................. 85 86 95 65
------- ------- ------- -------
Income before provision for income taxes.. 5,697 5,585 2,831 2,391
Provision for income taxes................ 2,280 2,233 1,131 1,006
------- ------- ------- -------
Net income................................ $ 3,417 $ 3,352 $ 1,700 $ 1,385
======= ======= ======= =======
Basic earnings per share (b).............. $ .44 $ .43 $ .22 $ .18
Diluted earnings per share (a)(b)......... $ .40 $ .39 $ .20 $ .16
Weighted average number of shares of
common stock and common stock
equivalents used in computing earnings
per share (b): Basic....... 7,850 7,867 7,867 7,867
Diluted..... 8,606 8,608 8,557 8,586
<CAPTION>
1996 1996 1996 1997
---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales..................................... $37,745 $37,799 $33,560 $32,065
Cost of sales including distribution
and occupancy costs..................... 20,666 20,291 19,867 17,968
------- ------- ------- -------
Gross profit.............................. 17,079 17,508 13,693 14,097
Operating, selling, general
and administrative expenses............. 10,645 10,386 9,978 10,740
------- ------- ------- -------
Operating income.......................... 6,434 7,122 3,715 3,357
Interest expense - net.................... 814 851 837 722
Other expense............................. 16 55 205 199
------- ------- ------- -------
Income before provision for income taxes.. 5,604 6,216 2,673 2,436
Provision for income taxes................ 2,225 2,474 1,064 975
------- ------- ------- -------
Net income................................ $ 3,379 $ 3,742 $ 1,609 $ 1,461
======= ======= ======= =======
Basic earnings per share (b).............. $ .44 $ .48 $ .21 $ .19
Diluted earnings per share (a)(b)......... $ .40 $ .43 $ .19 $ .17
Weighted average number of shares of
common stock and common stock
equivalents used in computing earnings
per share (b): Basic.......... 7,670 7,832 7,843 7,844
Diluted........ 8,540 8,620 8,569 8,590
</TABLE>
46
<PAGE> 47
(a) Earnings per share for each period was computed by dividing net income by
the weighted average number of shares of Common Stock and Common Stock
equivalents outstanding during the respective quarters.
(b) All share and per share information has been adjusted to give retroactive
effect to the five percent stock dividends paid in August 1997, August 1996 and
in August 1995.
47
<PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information concerning the directors of the Company is incorporated herein by
reference to the section captioned "Election of Directors" in the Proxy
Statement.
Information concerning the executive officers of the Company is set forth in
Item 4A of Part I hereof.
Information concerning required Section 16(a) disclosure is incorporated
herein by reference to the section captioned "Compliance with Section 16(a) of
the Exchange Act" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference to the section captioned "Executive Compensation" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference to the sections captioned
"Principal Shareholders" and "Election of Directors" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated herein by reference to the sections captioned "Compensation
Committee Interlocks and Insider Participation" and "Certain Transactions"
in the Proxy Statement.
48
<PAGE> 49
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
FINANCIAL STATEMENTS
Reference is made to Item 8 of Part II hereof.
FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because they are inapplicable, not
required, or the information is included elsewhere in the Financial
Statements or the notes thereto.
EXHIBITS
Reference is made to the Index to Exhibits accompanying this Form 10-K
as filed with the Securities and Exchange Commission. The Company will
furnish to any shareholder, upon written request, any exhibit listed
in such Index to Exhibits upon payment by such shareholder of the
Company's reasonable expenses in furnishing any such exhibit.
REPORTS ON FORM 8-K
A report on Form 8-K was filed on February 23, 1998 reporting the
resignation of Lawrence C. Day as President and Chief Executive
Officer and the appointment of Jack M. Gallagher as the interim
President and Chief Executive Officer of the Company.
49
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
MONRO MUFFLER BRAKE, INC.
(Registrant)
By /s/ Jack M. Gallagher
-------------------------------------
Jack M. Gallagher
President and Chief Executive Officer
Date: June 29, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of June 29, 1998.
Signature Title
- - --------- -----
/s/ Catherine D'Amico Senior Vice President-Finance, Chief
- - ------------------------ Financial Officer and Treasurer
Catherine D'Amico (Principal Financial and Accounting
Officer)
Burton S. August* Director
Charles J. August* Director
Robert W. August* Director
Frederick M. Danziger* Director
Donald Glickman* Director
Peter J. Solomon* Director
Lionel B. Spiro* Director
W. Gary Wood* Director
*By /s/ Jack M. Gallagher
----------------------------------
Jack M. Gallagher
Chief Executive Officer,
Director and as Attorney-in-Fact
50
<PAGE> 51
INDEX TO EXHIBITS
-----------------
The following is a list of all exhibits filed herewith or
incorporated by reference herein:
Exhibit No. Page Document
- - ----------- ---- --------
3.01* Restated Certificate of Incorporation of the Company, dated
July 23, 1991, with Certificate of Amendment, dated November
1, 1991. (1992 Form 10-K, Exhibit No. 3.01)
3.02* Restated By-Laws of the Company, dated July 23, 1991.
(Amendment No. 1, Exhibit No. 3.04)
4.01* Revolving Credit Agreement, dated February 7, 1996, among
Monro Muffler Brake, Inc., as borrower, and The Chase
Manhattan Bank, N.A. and Fleet Bank as lenders, and The
Chase Manhattan Bank, N.A. as agent. (1996 Form 10-K,
Exhibit No. 4.01)
4.01a* Amendment One to Credit Agreement among the Chase Manhattan
Bank, Fleet Bank, and the Company, dated June 25, 1997.
(June 1997 Form 10-Q, Exhibit 10.1)
4.02* Senior Note Agreement, dated March 1, 1989, between the
Company and Massachusetts Mutual Life Insurance Company.
(Form S-1, Exhibit No. 4.02)
4.02a* Amendment No. 1, dated June 17, 1991, to Senior Note
Agreement, between the Company and Massachusetts Mutual Life
Insurance Company. (Amendment No. 1, Exhibit No. 4.02a)
4.03* 10.65% Senior Notes Due April 1, 1999, dated March 22, 1989,
issued by the Company to Massachusetts Mutual Life Insurance
Company. (Form S-1, Exhibit No. 4.03)
10.01* 1984 Employees' Incentive Stock Option Plan, as amended
through December 23, 1992. (Form S-8, Exhibit No. 4-1)**
10.02* 1987 Employees' Incentive Stock Option Plan, as amended
through December 23, 1992. (Form S-8, Exhibit No. 4-2)**
10.03* 1989 Employees' Incentive Stock Option Plan, as amended
through December 23, 1992. (Form S-8, Exhibit No. 4-3)**
10.03a* Amendment, dated as of January 25, 1994, to 1989 Employees'
Incentive Stock Option Plan. (1994 Form 10-K, Exhibit No.
10.03a)**
10.03b* Amendment, dated as of May 17, 1995 to the 1989 Employees'
Incentive Stock Option Plan (1995 Form 10-K, Exhibit No.
10.03) **
10.03c* Amendment, dated as of May 14, 1997 to the 1989 Employees'
Incentive Stock Option Plan (1997 Form 10-K, Exhibit No.
10.03c)**
10.03d Amendment, dated as of January 29, 1998 to the 1989
Employees' Incentive Stock Option Plan**
- - ---------------------
51
<PAGE> 52
Exhibit No. Page Document
- - ----------- ---- --------
10.04* Retirement Plan of the Company, as amended and restated
effective as of April 1, 1989. (September 1993 Form 10-Q,
Exhibit No. 10)**
10.05* Profit Sharing Plan, amended and restated as of April 1,
1993. (1995 Form 10-K, Exhibit No. 10.05) **
10.08* Mortgage, dated July 31, 1987, between the Company and
Central Trust Company, with Mortgage Note, dated July 31,
1987, with respect to Shop No. 82. (Form S-1, Exhibit No.
10.09)
10.08a* Amendment, dated June 17, 1991, to Mortgage with respect to
Shop No. 82, between the Company and Central Trust Company.
(Amendment No. 1, Exhibit No. 10.09a)
10.12* Mortgage and Security Agreement, dated August 1, 1988,
between the Company and Chase Lincoln First Bank, N.A., with
Mortgage Note, dated August 9, 1988, and Conditional
Assignment of Leases and Rents, dated August 1, 1988, with
respect to Shop No. 120. (Form S-1, Exhibit No. 10.13)
10.13* Mortgage and Security Agreement, dated August 1, 1988,
between the Company and Chase Lincoln First Bank, N.A., with
Mortgage Note, dated August 9, 1988, and Conditional
Assignment of Leases and Rents, dated August 1, 1988, with
respect to Shop No. 124. (Form S-1, Exhibit No. 10.14)
10.14* Mortgage and Security Agreement, dated August 1, 1988,
between the Company and Chase Lincoln First Bank, N.A., with
Mortgage Note, dated August 9, 1988, and Conditional
Assignment of Leases and Rents, dated August 1, 1988, with
respect to Shop No. 125. (Form S-1, Exhibit No. 10.15)
10.16* Modification and Extension Agreement, dated August 12, 1991,
between AA & L Associates, L.P. and the Company, with
respect to Shop No. 1. (1992 Form 10-K, Exhibit No. 10.18)
10.17* Sublease, dated June 1, 1980, among August, August and Lane
Co-venture and the Company, with Amendment of Lease, dated
July 11, 1984, and assigned by August, August and Lane
Co-venture to AA & L Associates, L.P., effective January 2,
1996 with respect to Shop No. 3. (Form S-1, Exhibit No.
10.19)
10.18* Lease, dated March 8, 1972, among Charles J. August, Burton
S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, with respect to
Shop No. 7. (Form S-1, Exhibit No. 10.20)
10.18a* Confirmation of Assignment of Lease, dated December 31,
1991, among Charles J. August, Burton S. August and Sheldon
A. Lane and Stoneridge 7 Realty Partnership, with respect to
Shop No. 7. (1992 Form 10-K, Exhibit No. 10.20a)
- - ---------------------
52
<PAGE> 53
Exhibit No. Page Document
- - ----------- ---- --------
10.19* Lease, effective December 1, 1985, among Chase Lincoln First
Bank, N.A. and Burton S. August, as Trustees and the
Company, with Assignment of Lease, dated June 7, 1991, among
Chase Lincoln First Bank, N.A. and Burton S. August, as
Trustees, and August, Eastwood & August, with respect to
Shop No. 8. (Form S-1, Exhibit No. 10.21)
10.20* Lease, dated February 10, 1972, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company as
amended July 11, 1984 and assigned to Lane, August, August
Trust on June 7, 1991, and assigned to Lane, August, August
LLC effective January 2, 1996, with respect to Shop No. 9.
(Form S-1, Exhibit No. 10.22)
10.21* Lease, dated May 1, 1973, among Charles J. August, Burton S.
August and Sheldon A. Lane and the Company, with Amendment
of Lease, dated July 11, 1984, and Assignment of Lease,
dated June 7, 1991, among Charles J. August, Burton S.
August and Sheldon A. Lane and 35 Howard Road Joint Venture,
with respect to Shop No. 10. (Form S-1, Exhibit No. 10.23)
10.22* Lease, dated May 7, 1973, among Charles J. August, Burton S.
August and Sheldon A. Lane and the Company, with Amendment
of Lease, dated July 11, 1984, and assigned by Mssrs.
August, August and Lane to AA & L Associates, L.P.,
effective January 2, 1996, with respect to Shop No. 12.
(Form S-1, Exhibit No. 10.24)
10.23* Lease, dated July 25, 1974, among Charles J. August, Burton
S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and AA & L Associates, L. P.,
with respect to Shop No. 14. (Form S-1, Exhibit No. 10.25)
10.24* Lease, effective April 1, 1975, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and Lane, August, August Trust
and assigned by Lane, August, August Trust to Lane, August,
August LLC, effective January 2, 1996, with respect to Shop
No. 15. (Form S-1, Exhibit No. 10.26)
10.25* Lease, dated as of September 25, 1991, among Charles J.
August, Burton S. August and Sheldon A. Lane and the
Company, with respect to Shop No. 17. (1992 Form 10-K,
Exhibit No. 10.27)
10.26* Lease, effective May 1, 1979, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Shop No. 23. (Form S-1, Exhibit No. 10.28)
- - ---------------------
53
<PAGE> 54
Exhibit No. Page Document
- - ----------- ---- --------
10.27* Lease, effective May 1, 1980, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Shop No. 25. (Form S-1, Exhibit No. 10.29)
10.28* Lease, effective March 1, 1980, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Shop No. 27. (Form S-1, Exhibit No. 10.30)
10.29* Lease, effective July 1, 1980, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Shop No. 28. (Form S-1, Exhibit No. 10.31)
10.30* Lease, effective November 1, 1980, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Shop No. 29. (Form S-1, Exhibit No. 10.32)
10.31* Lease, effective August 1, 1983, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Shop No. 30. (Form S-1, Exhibit No. 10.33)
10.32 62 Lease, dated March 3, 1997, between August, August and Lane
of Rochester, LLC, with respect to Store No. 31.
10.33* Modification and Extension Agreement, dated August 12, 1991,
among Charles J. August, Burton S. August and Sheldon A.
Lane and the Company, and assigned by Mssrs. August, August
and Lane to August, August and Lane of Rochester, LLC,
effective January 2, 1996, with respect to Shop No. 33.
(1992 Form 10-K, Exhibit No. 10.35)
10.34* Lease, effective December 1, 1981, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and assigned by
Mssrs. August, August and Lane to August, August and Lane of
Rochester, LLC, effective January 2, 1996, with respect to
Shop No. 34. (Form S-1, Exhibit No. 10.36)
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54
<PAGE> 55
Exhibit No. Page Document
- - ----------- ---- --------
10.35* Lease, dated April 10, 1984, among Charles J. August, Burton
S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Shop No. 35. (Form S-1, Exhibit No. 10.37)
10.36* Lease, effective October 1, 1983, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, with respect to
Shop No. 36. (Form S-1, Exhibit No. 10.38)
10.36a* Assignment of Lease, dated October 1, 1991, among Charles J.
August, Burton S. August and Sheldon A. Lane and AA & L
Associates, L.P., with respect to Shop No. 36. (1992 Form
10-K, Exhibit No. 10.38a)
10.37* Lease, effective July 1, 1983, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Shop No. 43. (Form S-1, Exhibit No. 10.39)
10.38* Lease, dated as of February 1, 1983, among Charles J.
August, Burton S. August and Sheldon A. Lane and the
Company, with Amendment of Lease, dated July 11, 1984, and
assigned by Mssrs. August, August and Lane to AA & L
Associates, L.P., effective January 2, 1996, with respect to
Shop No. 44. (Form S-1, Exhibit No. 10.40)
10.39* Sublease, dated as of May 1, 1979, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Shop No. 45. (Form S-1, Exhibit No. 10.41)
10.40* Lease, effective October 1, 1985, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated as of July 11, 1984, and
Assignment of Lease, dated June 7, 1991, among Burton S.
August, as Trustee, and Lane, August, August Trust, and
assigned by Lane, August, August Trust to Lane, August,
August LLC, effective January 2, 1996, with respect to Shop
No. 48. (Form S-1, Exhibit No. 10.42)
10.41* Lease, dated as of January 1, 1984, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and assigned by
Mssrs. August, August and Lane to AA & L Associates, L.P.,
effective January 2, 1996, with respect to Shop No. 49.
(Form S-1, Exhibit No. 10.43)
- - ---------------------
55
<PAGE> 56
Exhibit No. Page Document
- - ----------- ---- --------
10.42* Lease, dated July 1, 1982, among Charles J. August, Burton
S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and assigned by
Mssrs. August, August and Lane to AA & L Associates, L.P.,
effective January 2, 1996, with respect to Shop No. 51.
(Form S-1, Exhibit No. 10.44)
10.43* Lease, dated July 1, 1982, among Charles J. August, Burton
S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, with respect to
Shop No. 52. (Form S-1, Exhibit No. 10.45)
10.44* Lease, dated May 1, 1979, among Charles J. August, Burton S.
August and Sheldon A. Lane and the Company, with Amendment
of Lease, dated July 11, 1984, and Assignment of Lease,
dated June 7, 1991, among Charles J. August, Burton S.
August and Sheldon A. Lane and AA & L Associates, L.P., with
respect to Shop No. 53. (Form S-1, Exhibit No. 10.46)
10.45* Lease, dated July 1, 1982, among Charles J. August, Burton
S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, with respect to
Shop No. 54. (Form S-1, Exhibit No. 10.47)
10.46* Lease, effective September 1, 1983, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Shop No. 55. (Form S-1, Exhibit No. 10.48)
10.47* Lease, dated as of July 1, 1984, among Charles J. August,
Burton S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, and Assignment of
Lease, dated June 7, 1991, among Charles J. August, Burton
S. August and Sheldon A. Lane and AA & L Associates, L.P.,
with respect to Shop No. 57. (Form S-1, Exhibit No. 10.49)
10.48* Lease, dated July 1, 1982, among Charles J. August, Burton
S. August and Sheldon A. Lane and the Company, with
Amendment of Lease, dated July 11, 1984, with respect to
Shop No. 58. (Form S-1, Exhibit No. 10.50)
10.49* Modification and Extension Agreement, dated August 12, 1991,
between AA & L Associates, L.P. and the Company, with
respect to Shop No. 60. (1992 Form 10-K, Exhibit No. 10.51)
10.50* Lease, signed October 22, 1986, between the Company and
Conifer Johnstown Associates, with respect to Shop No. 63.
(Form S-1, Exhibit No. 10.52)
10.51* Lease, effective October 20, 1986, between the Company and
Conifer Wappingers Falls Associates, with respect to Shop
No. 79. (Form S-1, Exhibit No. 10.53)
- - ---------------------
56
<PAGE> 57
Exhibit No. Page Document
- - ----------- ---- --------
10.52* Lease, dated January 25, 1988, between the Company and
Conifer Northeast Associates, with Letter Agreement, dated
February 3, 1988, amending Lease and Amendment Agreement,
dated January 6, 1989, with respect to Shop No. 107. (Form
S-1, Exhibit No. 10.54)
10.53* Lease, dated March 16, 1988, between the Company and Conifer
Northeast Associates, with Letter Agreement, dated February
3, 1988, amending Lease and Amendment Agreement, dated
January 6, 1989, with respect to Shop. No. 109. (Form S-1,
Exhibit No. 10.55)
10.54* Lease, dated February 11, 1988, between the Company and
Conifer Northeast Associates, with Letter Agreement, dated
February 3, 1988, amending Lease and Amendment Agreement,
dated January 6, 1989, and Non-disturbance and Attornment
Agreement, dated February 11, 1988, between the Company and
Central Trust Company, with respect to Shop No. 114. (Form
S-1, Exhibit No. 10.56)
10.55* Purchase Agreement, dated December 1, 1987, between the
Company and Conifer Northeast Associates, with Lease, dated
February 25, 1988, between the Company and Conifer Northeast
Associates; Letter Agreement, dated February 3, 1988,
amending Lease; Amendment Agreement, dated January 6, 1989;
and Non-Disturbance and Attornment Agreement, dated February
25, 1988, between the Company and Central Trust Company,
with respect to Shop No. 116. (Form S-1, Exhibit No. 10.57)
10.56* Lease, dated May 12, 1989, between the Company and Conifer
Penfield Associates (as successor to Conifer Development,
Inc.), with respect to Shop No. 132. (Form S-1, Exhibit No.
10.58)
10.57* Modification and Extension Agreement, dated November 1,
1993, between A & L Associates, L.P. and the Company, with
respect to Shop Nos. 1, 23, 25, 27, 28, 29, 35, 53, 57 and
60. (1994 Form 10-K, Exhibit No. 10.57)
10.58* Form of Mortgage and Security Agreement, between the Company
and The Chase Manhattan Bank, N.A., with Form of Mortgage
Note and Form of Conditional Assignment of Leases and Rents,
in connection with each of fifteen mortgages on Shop Nos.
137, 140, 143, 146, 162, 164, 168, 169, 172, 177, 179, 184,
185, 186 and 191 entered into since the filing of the 1992
Form 10-K. (1993 Form 10-K, Exhibit No. 10.57)
10.59* Form of Mortgage and Security Agreement, between the Company
and The Chase Manhattan Bank, N.A., with Form of Mortgage
Note and Form of Conditional Assignment of Leases and Rents,
in connection with each of five mortgages on Shop Nos. 160,
183, 190, 192 and 193 entered into since the filing of the
1993 Form 10-K. (1994 Form 10-K, Exhibit No. 10.59)
10.60* Mortgage Agreement, dated September 28, 1994, between the
Company and the the City of Rochester, New York. (1995 Form
10-K, Exhibit No. 10.60)
- - ---------------------
57
<PAGE> 58
Exhibit No. Page Document
- - ----------- ---- --------
10.61* Lease Agreement, dated October 11, 1994, between the Company
and the City of Rochester, New York. (1995 Form 10-K,
Exhibit 10.61)
10.62* Mortgage Notes, Collateral Security Mortgage and Security
Agreement, Indemnification Agreement and Guarantee, dated
September 22, 1995 between Monro Service Corporation, County
of Monroe Industrial Development Agency, the Company and The
Chase Manhattan Bank, N.A. (September 1995 Form 10-Q,
Exhibit No. 10.02)
10.63* Form of Mortgage and Security Agreement, between the Company
and The Chase Manhattan Bank, N.A., with Form of Mortgage
Note and Form of Conditional Assignment of Leases and Rents,
in connection with each of nine mortgages on Store Nos. 205,
207, 210, 213, 216, 226, 229, 230 and 236 entered into
September 14, 1995. (September 1995 Form 10-Q, Exhibit No.
10.01)
10.64* Amendment to Lease Agreement, dated September 19, 1995
between the Company and the County of Monroe Industrial
Development Agency. (September 1995 Form 10-Q, Exhibit No.
10.00)
10.65 Employment Agreement dated February 18, 1998, between
the Company and Jack M. Gallagher.**
10.66* Asset Purchase Agreement by and between Monro Muffler Brake,
Inc. as the buyer and Xpress Automotive Group, Inc. as the
seller, as entered into July 25, 1995. (September 1995 Form
10-Q, Exhibit No. 10.03)
10.67* Mortgage Modification Agreement, dated October 11, 1996
between the Company and Chase Manhattan Bank, N.A., in
connection with each of 33 mortgages for Store Nos. 78, 86,
87, 90, 137, 140, 143, 146, 160, 162, 164, 168, 169, 172,
177, 179, 183, 184, 185, 186, 190, 191, 192, 193, 205, 207,
210, 213, 216, 226, 229, 230 and 236. (September 1996 Form
10-Q, Exhibit No. 10)
10.68* Purchase Agreement between Walker Manufacturing Company, a
division of Tenneco Automotive and Monro Muffler Brake, Inc.
dated as of November 5, 1996. (December 1996 Form 10-Q,
Exhibit 10.1)
10.69* Asset Purchase Agreement by and among Speedy Muffler King
Inc., Bloor Automotive Inc., Speedy Car-X Inc., Speedy
(U.S.A) Inc., Speedy Holding Corp. and Monro Muffler Brake
Inc., dated as of April 13, 1998 (April 1998 Form 8-K,
Exhibit 10.1)
10.70 Form of Agreement - "Purchase Agreement and Escrow
Instructions" between Realty Income Corporation - buyer and
Monro Muffler Brake, Inc. - seller dated November 12, 1997.
11.01 Computation of Per Share Earnings.
21.01 Subsidiaries of the Company.
23.01 Consent of Price Waterhouse.
24.01 Powers of Attorney.
- - ---------------------
58
<PAGE> 59
** Management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K
pursuant to Item 14(c) hereof.
* An asterisk "*" following an exhibit number indicates that
the exhibit is incorporated herein by reference to an
exhibit to one of the following documents: (1) the Company's
Registration Statement on Form S-1 (Registration No.
33-41290), filed with the Securities and Exchange Commission
on June 19, 1991 ("Form S-1"); (2) Amendment No. 1 thereto,
filed July 22, 1991 ("Amendment No. 1"); (3) the Company's
Annual Report on Form 10-K for the fiscal year ended March
31, 1992 ("1992 Form 10-K"); the Company's Registration
Statement on Form S-8, filed with the Securities and
Exchange Commission on December 24, 1992 ("Form S-8"); (5)
the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993 ("1993 Form 10-K"); (6) the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1993 ("September 1993 Form 10-Q"); (7) the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1994 ("1994 Form 10-K"); (8) the Company's
Annual Report on Form 10-K for the fiscal year ended March
31, 1995 ("1995 Form 10-K"); (9) the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September
30, 1995 ("September 1995 Form 10-Q"); (10) the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1996 ("September 1996 Form 10-Q"); (11) the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 1996 ("the December 1996 Form
10-Q"); (12) the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996 ("1996 Form 10-K");
(13) the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1997 ("1997 Form 10-K"); (14) the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997 ("June 1997 Form 10-Q); or (15)
the Company's Current Report on Form 8-K filed on April 28,
1998 ("April 1998 Form 8-K"). The appropriate document and
exhibit number are indicated in parentheses.
59
<PAGE> 1
EXHIBIT 10.03d
AMENDMENT
TO 1989 MONRO MUFFLER BRAKE
EMPLOYEES' INCENTIVE STOCK OPTION PLAN
THIS AMENDMENT, dated as of January 29, 1998 (the "Amendment")
to the 1989 MONRO MUFFLER BRAKE EMPLOYEES' INCENTIVE STOCK OPTION PLAN, as
previously amended (the "Plan").
WHEREAS, the Board of Directors of Monro Muffler Brake, Inc.
(the "Company"), desires to clarify the discretionary abilities of the Board of
Directors of the Company with respect to the terms of options granted under the
Plan; and
WHEREAS, Section 7 of the Plan grants the Board of Directors
of the Company the authority to amend the Plan within the restrictions set forth
in such Section 7;
NOW, THEREFORE, the Plan is hereby amended as follows.
1. By adding "the Board of Directors may, in its sole
discretion, approve the issuance of Options which, although not otherwise
exercisable as of such date, become immediately exercisable in the event that
the optionee ceases to be an employee of the Company or any of its subsidiaries
or an employee of a corporation or a parent or a subsidiary of such corporation
issuing or assuming an Option granted under the Plan in a transaction to which
Section 424(a) of the Code applies; provided, further, that" to Section 4(f) of
the Plan in the eleventh line after the phrase "provided, however, that."
2. By adding "The right to exercise Options which are not
otherwise exercisable in the event of the cessation of optionee's employment
pursuant to this Section 4(f) must be specifically granted by the Board of
Directors in the letter or instrument granting such Option." to the end of
Section 4(f).
3. By adding the following as new Section 4(h):
(h) CHANGE OF CONTROL. The Board of Directors may, in
its sole discretion, approve the issuance of options which, although
not otherwise exercisable as of the date of a Change of Control (as
defined below), become exercisable immediately prior to the date of
such Change of Control. Any such terms referred to in this Section 4(h)
shall be specifically stated in the letter or instrument granting
Options hereunder. For purposes of the Plan, "Change of Control" means
that any of the following events have occurred:
(i) any person who is not an "affiliate" (as
defined in Rule 12b-2 under the Exchange Act of 1934, as
amended) of the Company as of the effective date of the Option
grant becomes the beneficial owner, directly or indirectly, of
50% or more of the combined voting power of the then
outstanding securities of the Company except pursuant to a
public offering of securities of the Company;
1a
<PAGE> 2
(ii) the sale of the Company substantially
as an entirety (whether by sale of stock, sale of assets,
merger, consolidation, or otherwise) to a person who is not an
affiliate of the Company as of the effective date of the
Option grant;
(iii) any tender offer or exchange offer for
shares of common stock of the Company by a person who is not
an affiliate of the Company as of the effective date of the
Option grant; or
(iv) there occurs a merger, consolidation or
other reorganization of the Company with a person who is not
an affiliate of the Company as of the effective date of the
Option grant, and in which the Company is not the surviving
entity.
4. By moving Section 4(h) entitled "POWER TO ESTABLISH
OTHER PROVISIONS" to a new Section 4(i) with no other changes to such new
Section 4(i).
2b
<PAGE> 1
EXHIBIT 10.32
LEASE
THIS LEASE is made as of the 3rd day of March, 1997 between August,
August, and Lane of Rochester, LLC. with an address of c/o Monro Muffler Brake,
Inc., 200 Holleder Parkway, Rochester, New York 14615, ("Landlord") and Monro
Muffler Brake, Inc., a New York Corporation with its office at 200 Holleder
Parkway, Rochester, New York 14615 ("Tenant").
WITNESSETH:
In consideration of the terms, covenants and conditions contained in
this Lease, Landlord and Tenant agree as follows:
1. PREMISES
Subject to the terms and conditions contained in this Lease, Landlord
leases to Tenant and Tenant takes from Landlord a parcel of land and building
known as 1268 Front Street, Chenango (Binghamton), New York as shown and
described on Exhibits "A" (Map) and "B" (metes and bounds description) to be
provided by Landlord prior to the full execution of this Lease and attached
hereto and made a part of this Lease (the "Leased Premises").
2. TERM and RENT COMMENCEMENT
A. The term of this Lease shall be for ten (10) years and shall
commence on the first day of the first full month following the Rent
Commencement Date as defined below.
B. The obligation to pay rent shall commence upon the expiration of the
1
<PAGE> 2
existing Lease of the Leased Premises by and between Landlord and Tenant
presently in force ("Rent Commencement Date").
3. USE
Tenant shall use the Leased Premises for the operation of an auto
service center and, with Landlord's approval, which approval shall not be
unreasonably withheld or delayed, for any other lawful purpose, except Tenant
shall not use the Leased Premises for the display or sale of adult entertainment
services or products nor as a drinking establishment, nor for the display or
sale of tobacco products or alcohol products. Additionally, Tenant shall not use
the Leased Premises for any other purpose that would tend to devaluate the
Property, impair Landlord's reputation or the reputation of the Leased Premises.
Landlord's approval shall not be unreasonably withheld or delayed.
4. RENT
Tenant shall pay to Landlord, at the address above set forth or at such
other place as Landlord may from time to time designate by notice given to
Tenant in the manner provided in this Lease, annual rent as follows:
YEARS ANNUAL RENT
1 - 2.5 $37,800.00
2.5 - 5 $39,690.00
6 - 7.5 $41,580.00
7.5 - 10 $43,470.00
OPTION YEARS ANNUAL RENT
11 - 12.5 $45,360.00
12.5 - 15 $47,250.00
16 - 17.5 $49,140.00
17.5 - 20 $51,030.00
2
<PAGE> 3
Rent shall be paid in equal monthly payments in advance on the first day of each
month during the term of this Lease. If the Rent Commencement Date, is other
than the first day of a calendar month, the rent installment for the month in
which the Rent Commencement Date occurs, shall be prorated from the Rent
Commencement Date until the last day of that month and shall be payable on or
before the Rent Commencement Date.
In the event the Rent due hereunder is received after the tenth of the
month in which it is due, Tenant shall incur a late charge equivalent to two
percent (2%) of said amount due. Any outstanding balance due after thirty (30)
days will bear interest of prime plus two (2) percent.
If Rent is uncontested and remains unpaid on the tenth (10th) day following
Tenant's receipt of Landlord's second notice (which may not be sent until the
sixtieth (60th) day following Tenant's receipt of Landlord's first notice),
Landlord may terminate this lease upon written notice to Tenant.
5. ADDITIONAL RENT
A. Impositions. Tenant shall pay as additional rent all taxes,
assessments, sewer charges, assessments for local, district and special district
improvements that may be assessed against or become a lien upon the Leased
Premises or any part thereof by virtue of any present or future law or
regulation of any governmental authority ("Impositions"). Tenant shall forward
to Landlord evidence of payment of all such taxes,
3
<PAGE> 4
assessments and other charges. Upon receipt of such evidence of payment,
Landlord shall reimburse Tenant for the proportionate share of taxes and other
charges levied against additional leasable space which will be twenty-five
percent (25%) unless further development by either party. Tenant shall also pay
all utility charges for water, gas, fuel oil and electricity consumed on the
Leased Premises. This Lease is a net Lease except that Tenant shall not be
obligated to make any payments on any mortgages now or hereafter encumbering the
Leased Premises, nor shall Tenant be obligated to pay any franchise,
corporation, capital stock, capital levies, transfer, estate, excise,
inheritance or income tax or excess profits tax which is or may become payable
by Landlord or which may be imposed against Landlord or against the rents
payable hereunder or upon the income or profits of Landlord by reason of any law
now in force or hereafter enacted, unless such taxes are a result of a shift of
the incidence of taxation now ordinarily imposed on realty.
B. Penalties. Tenant shall pay all interest and penalties imposed upon
the late payment of any Impositions caused by Tenant's late payment of same.
Impositions shall be apportioned and paid between Tenant and Landlord on the
dates of commencement and termination of this Lease; provided, however, that
Tenant shall not be entitled to receive any apportionment from Landlord if
Tenant shall be in default beyond the applicable cure period in the payment of
rent or in the performance of any of the terms, covenants, conditions or
agreements in this Lease provided.
C. Late Payment. If Tenant shall fail, for ten (10) days after written
notice
4
<PAGE> 5
and demand by Landlord to Tenant to pay any Imposition on or before the last day
upon which the same may be paid without interest or penalty, then Landlord may
pay the same with all interest and penalties lawfully imposed upon the late
payment thereof, and the amounts so paid by Landlord shall thereupon be and
become immediately due and payable by Tenant to Landlord as additional rent.
Any Imposition that remains unpaid after the aforementioned ten (10)
day notice period shall be subject to a Late Penalty of two percent (2%) on the
unpaid arrears. If Imposition remains unpaid after twenty (20) days, additional
Late Charge of prime plus two (2%) percent shall be incurred by Tenant.
D. Contest. Tenant, at its own cost and expense, shall have the right
to contest the validity or amount of any Imposition, in which event Tenant may
defer the payment thereof for such period as such contest shall be actively
prosecuted and shall be pending undetermined; provided, however, that Tenant
shall not allow any such Imposition so contested to remain unpaid for such
length of time as shall permit the Leased Premises, or the lien thereon created
by such item to be contested, to be sold by federal, state, county or municipal
authority for the nonpayment thereof. Tenant may contest the validity or amount
of such Imposition in Landlord's name, by suit or otherwise, in which event
Tenant shall indemnify Landlord and save him harmless from all costs, charges
and liabilities in connection with such contest.
E. Assessments. With respect to assessments which may be payable in
installments, Tenant shall be required to pay only those installments for those
periods
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which fall wholly within the term of this Lease and a proportionate part of any
installments with respect to a period a portion of which falls within the term
of this Lease.
6. MAINTENANCE AND REPAIR
Tenant assumes the sole responsibility for the operation and
maintenance of the Leased Premises. Landlord shall have no responsibility with
respect thereof and shall have no liability for damage to the property of Tenant
or any tenant, subtenant or other occupant of the Leased Premises or any portion
thereof on any account or for any reason whatsoever except as caused by the
negligent acts or omissions of the Landlord, its agents, employees or invitees.
Notwithstanding anything to the contrary stated in this Lease, Tenant shall
take good care of the Leased Premises and at its own expense make, as and when
needed, all necessary repairs of any nature to the Leased Premises, including
all mechanical systems located therein, windows, doors, the interior, all
paving, and all structural and non-structural components of the Leased Premises.
All repairs made by Tenant shall be done in a good and workmanlike manner. If
Tenant shall fail to make such repairs or if after commencing them shall fail to
complete them with reasonable diligence, then after written notice and
opportunity to cure or dispute the need for such repairs, such repairs may be
made or completed by Landlord in a good and workmanlike manner at Tenant's
expense. Any reasonable amounts spent by Landlord to make or complete such
repairs shall be repaid by Tenant as additional rent and shall be payable to
Landlord on the first
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day of the month following Tenant's receipt of a statement from Landlord for
such amounts expended.
A. Tenant shall keep its parking area free of debris, ice and snow and
shall be responsible for routine repairs and maintenance of its parking lot
surface including patching and sealing thereof and for the light bulbs for the
exterior lighting fixtures on the parking area.
B. Landlord shall be responsible for the cost of maintenance, repair
and replacement of any separate part of the building over other tenant space on
any new construction undertaken by Landlord:
Tenant shall have no right to create any lien against the property and
Tenant hereby completely and fully indemnifies Landlord against any Mechanics
Lien or other lien or claim in connection with the making of such Tenant's
repair. Landlord must satisfy and cause to be discharged within thirty (30) days
of notification any liens brought upon the property as a result of Landlord's
work.
7. ALTERATIONS
While Tenant is not in default under any provision of this Lease, it
may at any time and from time to time, make any alterations or additions to the
Building or equipment upon the Leased Premises, provided that:
A. such alterations or additions are made in a good and workmanlike
manner and comply in every way with all other provisions of this Lease;
B. such alterations or additions shall not reduce the rental income of
the Leased Premises; and
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C. the fair value of the Building or equipment after such change shall
not be less than the fair value thereof prior to such change; and
D. Any such alterations or additions shall be done only with Landlord's
prior written approval (excepting equipment), which approval shall not be
unreasonably withheld or delayed. If approved, a depreciation schedule of
approved work will be provided to Landlord.
Any and all alterations or additions made to the Leased Premises by
Tenant, as well as any fixtures or articles or personal property (except movable
trade fixtures and other property installed at the expense of Tenant listed on
said Exhibit "C", all of which may be removed by Tenant) attached to the
Building shall be deemed attached to the fee and become the property of Landlord
without any payment or offset and shall not be detached or removed from the
Leased Premises.
8. EMINENT DOMAIN
If, during the initial term or any option term of this Lease,
condemnation proceedings affecting the Leased Premises result in the total
taking of the Leased Premises, or if as a result of a partial taking the Leased
Premises shall be unsuitable for the conduct of Tenant's business, this Lease
shall terminate, and Tenant shall be entitled to receive and shall receive that
portion of the award or payment in condemnation which represents the unamortized
value of its alterations and improvements, if any, value of its personal
property and fixtures so taken, and the value of any capital improvement made
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by Tenant after the date of this Lease. Landlord shall be entitled to receive
the balance of the award or payment. The rent shall be adjusted as of the time
of such termination, and any rent paid for a period thereafter shall be
adjusted.
If such condemnation proceedings result in a partial taking which does
not render the Leased Premises unsuitable for Tenant's business, Tenant shall
receive that portion of the award or payment that represents the value of its
personal property and fixtures so taken and the value of any capital
improvements made by Tenant after the date of this Lease and the rent payable
hereunder shall be diminished by an amount which shall bear the same ratio to
the rent as the area of the part of the Leased Premises taken bears to the area
of the Leased Premises before such taking. Tenant shall apply such award to the
prompt restoration of the Leased Premises.
Any additional design or building cost as a result of Landlord changing
design will be the full responsibility of Landlord. The Landlord shall receive
the value of the reverter interest in the land taken.
9. INSURANCE and DESTRUCTION
A. Tenant shall keep the Leased Premises and all attached building and
improvements thereon insured throughout the term of this Lease against the
following loss or damage by fire and such other risks as may be included in
extended coverage insurance from time to time available in amounts sufficient to
prevent the Landlord or the Tenant from becoming a coinsurer within the terms of
the applicable policies, and in any event, in an amount not less than one
hundred percent (100%) of replacement value.
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Tenant shall submit to Landlord invoices providing evidence of payment of such
premium(s). Landlord shall reimburse Tenant the proportionate share of the
insurance premium for coverage of additional leasable space located on the
Leased Premises.
All policies of insurance required to be maintained by Tenant shall
name Landlord, Tenant, and Landlord's Mortgagee as the insured as their
interests may appear. Landlord shall obtain any necessary consent from any
mortgagee to apply the proceeds of any claim to the repair or restoration of the
Building and not to the payment of the mortgage debt.
B. If the Building or other improvement upon the Leased Premises shall
be damaged or destroyed by fire or other casualty, then Tenant shall proceed
with reasonable diligence to carry out any necessary demolition and to restore,
repair, replace and rebuild the Building and improvements at Tenant's own cost
and expense; provided, however, that all insurance proceeds, if any, paid by
reason of such fire or other casualty shall be paid to Tenant for application to
the cost of such work.
C. In the event any such fire or casualty renders the Leased Premises
partially or totally untenantable, Tenant shall not he entitled to an abatement
of Rents except in the event that such fire or other casualty is both a result
of the acts or negligence or omissions of any other tenant located on the Leased
Premises and Tenant shall be unable to conduct business in materially the same
manner it did prior to casualty. In the event that the area surrounding the
Leased Premises is damaged by fire or casualty, but the Leased Premises itself
remains undamaged, Tenant will continue to pay rent without any
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abatement provided Tenant's ability to conduct business or its customer's access
to the Leased Premises is not materially affected.
10. DEFAULT
This Lease is made upon the express condition that if Tenant shall
default in the payment of the rent reserved in this Lease, or fails or neglects
to perform any of Tenant's other obligations under this Lease; then Landlord at
any time thereafter, shall give twenty (20) days written notice to Tenant to
cure said default. In the event that Tenant does not cure the default within the
twenty (20) days aforesaid, then Landlord shall give Tenant an additional
written notice and an additional ten (10) days to cure the default or such
reasonable time for Tenant to cure any such non-monetary default which may
require more than ten (10) days to cure. After the notices and the continued
failure of Tenant to cure or to have commenced and diligently pursued such cure,
then the Landlord may, upon notice as required by New York State law, commence
legal action to end this Lease Agreement and/or retake possession of the Leased
Premises. Landlord may, after obtaining a final judgment in such legal action,
either terminate this Lease, or, without terminating this Lease, retake
possession, re-let the Leased Premises or any part thereof for such term or
terms (which maybe for a term extending beyond the term of this Lease) and at
such rent and upon such other terms and conditions which are the most favorable
terms obtaining. Upon each such reletting Tenant shall be immediately liable to
pay to Landlord, the necessary and reasonable costs and expenses of such
reletting incurred by Landlord, including but not limited to reasonable
applicable
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brokerage commissions (non which shall be paid to Landlord). Tenant shall remain
liable for repayment monthly as it accrues, of any deficiency if any, between
the rent due under this Lease and the amount to be paid under the new lease.
Landlord shall not be entitled to an acceleration of rent nor to any self-help
remedies notwithstanding any law to the contrary.
Landlord shall, at all times, have the obligation to mitigate its
damages.
11. TENANT'S RIGHT TO CURE LANDLORD'S DEFAULT
If Landlord shall at any time fail to pay any installment of principal
or interest, or any other sum under any mortgage now or hereafter placed on the
Leased Premises to which this Lease may be subordinate, the failure to make such
payment constituting a default under such mortgage so as to permit foreclosure
thereof, Tenant, if not in default hereunder, shall have the right, but not
before the last ten (10) days of the period at the expiration of which the
failure to make such payment would constitute such default, to pay such
principal, interest and other sum, with respect to which Landlord may be in
default as aforesaid, and to deduct the amount of such payment and the cost and
expense attaching or incurred on account of such non-payment by Landlord, with
interest thereon from the date of payment, from the next succeeding installment
or installments of rent which shall become due and payable after such payment
until Tenant shall have been fully reimbursed for such payment, cost, expense
and interest as aforesaid. Landlord shall cause any mortgagee of the Leased
Premises to send copies of any default notice under Landlord's mortgage to
Tenant.
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12. INDEMNIFICATION
Tenant shall indemnify and hold Landlord harmless from and against any
loss or damage due to personal injury, death or property damage occurring on the
Leased Premises during the term of this Lease, unless such loss or damage shall
have been caused by the acts, omissions or negligence of Landlord, its
employees, agents, invitees or other tenants. To that end, Tenant shall maintain
at its sole expense policies of public liability insurance relating to the
Leased Premises with combined single limits of not less than $1,000,000 for
personal injury or death and for property damage. Such policies shall name
Landlord as an additional insured and shall provide for ten (10) days' notice to
Landlord prior to any cancellation of such policies. If Tenant shall fail to pay
the premiums for such policies as they come due, Landlord may pay such premiums
and charge the cost thereof to Tenant as additional rent, which shall be paid to
Landlord on the next rent day. Tenant shall furnish to Landlord certificates
evidencing such policies concerning the Leased Premises. All insurance policies
required by this paragraph shall be placed with companies qualified to do
business within the State of New York.
13.SIGNS
Tenant may install and maintain on the exterior and within the interior
of the Building or elsewhere on the Leased Premises signs, advertising its
business. Tenant shall obtain at its expense all permits and any other approvals
from municipal or other authorities for the erection and maintenance of such
signs.
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14. ASSIGNMENT AND SUBLEASE
Landlord hereby gives consent to Tenant to assign this Lease or any
interest therein, or to sublease the Leased Premises or any part thereof,
provided the assignee/sublessee is subject to the same Use provision as
specified in section 3 hereof, but Tenant shall in no such event be released of
its duties, obligations or liabilities hereunder and the same shall continue in
full force and effect.
15. RENEWAL OPTIONS
Tenant shall have one (1) successive option to renew this Lease upon
expiration of the initial term hereof, provided that this Lease shall be in full
force and effect immediately prior to said expiration. This Lease shall
automatically renew unless Tenant shall give to Landlord no less than six (6)
months before the expiration of the initial term or each additional term,
written notice of its intention not to exercise each option. Said renewal term
shall be for a period of ten (10) years under the same terms and conditions as
under the initial term except for the rent as set forth in Paragraph 4.
16. SURRENDER OF LEASED PREMISES
Tenant shall surrender the Leased Premises on the last day of the term
hereof or any additional term or under any other provision for termination under
this Lease; provided, however, if Tenant shall not then be in default under the
terms of this Lease, any furniture, trade fixtures, business equipment,
carpeting, interior and exterior signs, millwork, counters and cabinets and any
items listed on Exhibit "C" may be removed by Tenant. Upon the removal of any
such items, Tenant shall cause the Building and
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Leased Premises to be restored to the condition prior to such removal subject to
use, reasonable wear and tear during the term of this Lease.
Roof to be turned over to Landlord in a water tight condition prior to
termination.
17. RIGHT TO SHOW LEASED PREMISES
Provided Tenant has given its notice not to renew, Landlord shall have
the right to show the Leased Premises to prospective tenants or buyers during
the later of the last six (6) months of this Lease term or renewal thereof.
Landlord shall give reasonable notice to Tenant before showing the Leased
Premises.
18. GOVERNMENTAL COMPLIANCE
Tenant and Landlord shall comply with all laws, orders and regulations
of federal, state, county and municipal authorities, and with any direction of
any public officer and officers, pursuant to law, or any insurance company
carrying any insurance on the Leased Premises, which shall impose any duty upon
Landlord or Tenant with respect to the Leased Premises or the ownership use or
occupation thereof.
19. SUBORDINATION
Subject to the further provisions of this paragraph, Tenant agrees that
this Lease (and any option renewals thereof) is subordinate to the existing
mortgages, if any, or any and all mortgages, consolidated mortgages, or
renewals, modifications and extensions thereof, or to any other forms or methods
of financing of the Leased Premises, which are hereafter executed, delivered and
recorded. Tenant shall, upon
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demand at any time, execute, acknowledge and deliver any and all instruments
that may be necessary or proper to further evidence this subordination. Landlord
shall procure and deliver to Tenant an agreement in writing, duly executed by
any future mortgagee, which agreement shall provide that, for so long as Tenant
is not in default in its performance of the terms, conditions and provisions of
this Lease, Tenant's rights hereunder shall not be disturbed by an action or
suit on the debt or debts secured by such mortgages, deeds of trust or other
forms or methods of financing or refinancing, and that any sale at foreclosure
will be subject to this Lease. Tenant's agreement to subordinate its rights
under this Lease is conditioned upon Landlord obtaining a non-disturbance
agreement in the form attached hereto as Exhibit D. Landlord acknowledges that
there is an existing lien against the Leased Premises. Landlord shall be
obligated to obtain an agreement as aforementioned herein from the existing lien
holder only in the event said lien is modified, extended or spread after the
date of this Lease. Notwithstanding anything to the contrary a Non-Disturbance
Agreement must be in place on June 1, 1998 if a mortgage is still in place.
20. RIGHT TO INSPECT
Landlord shall have the right to inspect the Leased Premises during
operating hours upon reasonable notice to Tenant.
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21. MEMORANDUM OF LEASE
The parties shall at any time, at the request of either one, promptly
execute duplicate originals of an instrument, in recordable form, which shall
constitute a memorandum of lease, setting forth any portions of this Lease,
excepting the rent provisions, as either party may request.
22. HEADINGS
The headings are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope or intent of this
Lease, nor in any way affect this Lease.
23. BILL AND NOTICES
All notices required or permitted pursuant to any provisions of this Contract
shall be in writing, sent certified mail or overnight courier, and shall be
effective upon receipt if sent certified mail or the second business day
following delivery to an overnight courier. Copies shall be sent to each party
herein and to the attorney for the other party as follows:
If to Landlord: A.A.L. of Rochester, L.L.C.
c/o Monro Muffler Brake, Inc.
200 Holleder Parkway
Rochester, New York 14615
Copy to: Underberg & Kessler
1600 Chase Square
Rochester, New York 14604
Attention: Irving Kessler, Esq.
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If to Tenant: Monro Muffler Brake, Inc.
200 Holleder Parkway
Rochester, New York 14615
ATTN: President
Copy to: Underberg & Kessler
1800 Chase Square
Rochester, New York 14604
Attention: Sr. Real Estate Partner
Either party may designate by notice a new or other address to which
notice or demand shall be thereafter so given.
24. CONDITIONS
This Lease is conditioned upon Tenant conducting subsurface,
ground-penetrating tests on the Leased Premises. The costs of said tests shall
be split between Landlord and Tenant. If the results of said tests indicate the
presence of any underground entity, Landlord or Tenant shall have the right to
terminate this Lease with written notice to the other.
25. LANDLORD'S WARRANTIES
Landlord warrants and agrees that:
A. Any future construction by Landlord or its successors shall be in
line with the Building and not closer to the fronting road than the present
location of the Building on the Leased Premises.
B. During the term of this Lease or any extension thereof Landlord
shall not operate or allow to be operated any business other than Monro Muffler
Brake, Inc.
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which directly or indirectly engages in the automotive service business on any
site owned by or under the control of Landlord within a radius of two (2) miles
from the Leased Premises providing Tenant shall not be in default under this
Lease. In addition, Tenant shall not be permitted to operate another Monro
Muffler Brake, Inc. shop within a radius of two (2) miles from the Leased
Premises prior to the final year of this lease or exercised options.
C. During the term of this Lease or any extension thereof Landlord
shall not operate or allow to be operated any business relating to sale or
display of pornographic materials, alcohol and any other use that would damage
the reputation of Monro Muffler Brake, Inc.
26. ENVIRONMENTAL REPRESENTATIONS
A. REPRESENTATIONS AND WARRANTIES.
Landlord and Tenant will comply with any and all federal, state and
local rules, laws, statutes, ordinances and orders regulating the Environment
which affect the ownership, use and occupation of the Leased Premises.
Furthermore, Tenant agrees that no Hazardous Substance shall be stored and/or
used on the Leased Premises except in strict compliance with such laws.
"Environment" means all air, water, or water vapor, including surface water and
groundwater, any land, including land surface or subsurface, and includes all
fish, wildlife, biota and all other natural resources. "Hazardous Substance"
means any materials or substances defined as or included in the definition of
"Hazardous Substances", "Hazardous Materials", "Hazardous Wastes", "Toxic
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Substances", or "Toxic Pollutants" under any applicable law regulating the
Environment, including any substance which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic, or which contains
polychlorinated biphenyls (PCBs), gasoline, diesel fuel, other petroleum
hydrocarbons, or asbestos.
Tenant indemnifies and holds Landlord harmless from and against any and
all claims, demands, judgments, awards, actions, penalties and fines arising
from the existence of Hazardous Substances which result from the acts or
omissions of Tenant during the term of this Lease or the previous Lease by and
between Landlord and Tenant on the Leased Premises.
Landlord indemnifies and holds Tenant harmless from and against any and
all claims, demands, judgments, awards, actions, penalties and fines arising
from existence of Hazardous Substances on or below the surface of the Leased
Premises which existence pre-dates Tenant's occupancy of the Leased Premises.
27. QUIET ENJOYMENT
Landlord covenants and agrees with Tenant that, upon Tenant paying the
annual rent and performing all of the covenants and conditions contained in this
Lease on Tenant's part to be observed and performed, Tenant shall and may
peaceably and quietly have, hold and enjoy the Leased Premises for the term of
this Lease.
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28. ENTIRE AGREEMENT
It is understood and agreed by the parties hereto that this Lease shall
constitute the only agreement between them relative to the Leased Premises, and
that no oral statement or no prior written matter extrinsic to this instrument
shall have any force or effect. This Lease shall not be modified except by
writing, subscribed by both parties.
29. FORCE MAJEURE
In the event either Landlord or Tenant shall be delayed or hindered in
or prevented from the performance of any act required hereunder by reason of
fire, casualty, strikes, lockouts, labor trouble, inability to procure
materials, permits or supplies, failure of power, governmental authority, riots,
insurrections, war or other reason of like nature, where such delay, hindrance
or prevention of performance shall not be within the reasonable control of the
Landlord or the Tenant, and shall not be avoidable by diligence, then, the
Landlord or the Tenant shall thereupon be excused for such period of delay.
30. BROKER'S COMMISSION
The parties hereto agree that no broker brought about this lease.
Landlord indemnifies and holds Tenant harmless from any costs or claims for
broker's commissions arising hereunder.
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31. PARTIES
The conditions, covenants and agreement in this Lease shall be binding
and inure to the benefit of the respective parties to this Lease, their legal
representatives, successors and assigns.
32. EXECUTION
If not executed by Landlord on or before March 3. 1997, then Tenant
shall have the right to cancel this Lease by giving written notice to Landlord.
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IN WITNESS WHEREOF, the parties hereto have set their hands and seals this
3rd day of March, 1997.
LANDLORD:
/s/ CHARLES J. AUGUST
------------------------------------
Charles J. August
/s/ BURTON S. AUGUST
------------------------------------
Burton S. August
STATE OF NEW YORK)
COUNTY OF MONROE) ss:
On this 3rd day of March, 1997, before me the subscriber, personally appeared
Charles J. August to me personally known and to me to be the same person
described in and who executed the foregoing instrument, and duly acknowledged to
me that he executed the same.
/s/ VALORIE J. SHORT
------------------------------------
Notary Public
STATE OF NEW YORK)
COUNTY OF MONROE) ss:
On this 3rd day of March, 1997, before me the subscriber, personally appeared
Burton S. August to me personally known and to me to be the same person
described in and who executed the foregoing instrument, and duly acknowledged to
me that he executed the same.
/s/ VALORIE J. SHORT
------------------------------------
Notary Public
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LANDLORD (Continued)
/s/ BARBARA S. LANE
------------------------------------
Estate of Sheldon A. Lane
STATE OF __________________)
COUNTY OF __________) ss:
On this __rd day of __________, 199_, before me the subscriber, personally
appeared _________________________, on behalf of the Estate of Sheldon A. Lane
to me personally known and to me to be the same person described in and who
executed the foregoing instrument, and duly acknowledged to me that he executed
the same.
------------------------------------
Notary Public
TENANT
STATE OF NEW YORK)
COUNTY OF MONROE) ss:
On this 3rd day of March, 1997, before me personally came LARRY DAY to me known,
who being by me duly sworn did depose and say that he resides in Victor, New
York, that he is the President of Monro Muffler Brake, Inc., the corporation
described in and which executed the foregoing Instrument; and that he signed his
name thereto by order of the board of directors of said corporation.
/s/ VALORIE J. SHORT
------------------------------------
Notary Public
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EXHIBIT 10.65
EXECUTION COPY
--------------
EMPLOYMENT AGREEMENT
AGREEMENT made by and between MONRO MUFFLER BRAKE, INC., 200
Holleder Parkway, Rochester, New York 14615 (the "Company") and Jack M.
Gallagher, residing at 30 Reedy Court, Manning, South Carolina 29102
("Employee").
1. EMPLOYMENT. The Company hereby employs Employee and
Employee hereby accepts employment with the Company during the Term (as
hereinafter defined) upon the terms and conditions hereinafter set forth. During
the Interim Term (as hereinafter defined). Employee shall serve as the President
and Chief Executive Officer of the Company responsible for the overall business
and strategic planning, management and operations of the Company. Employee shall
perform the customary duties of such positions and such other commensurate
duties as may be assigned from time to time by the Company's Board of Directors,
which duties shall be performed at the Company's headquarters, subject to
reasonable travel requirements.
During the Consulting Term (as hereinafter defined), Employee
shall provide consulting services to the Company, as may be reasonably requested
by its Board of Directors, Chairman, President or Chief Executive Officer. Such
services shall not require more than two business day's work per month without
Employee's consent and may be performed from Employee's home or, subject to the
reimbursement of reasonable travel expenses and on reasonable notice, at such
other location as the Company may request.
Employee agrees to abide by the reasonable rules, regulations,
instructions, personnel practices, employment manuals and policies of the
Company, as they may exist or be modified from time to time by the Company.
Employee during the Interim Term shall devote his
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entire business time and attention and best efforts to the business of the
Company. Employee shall perform his duties in a diligent, effective and loyal
manner. Under no circumstances shall Employee take any action contrary to the
best interests of the Company.
2. COMPENSATION. Employee shall be compensated by the Company
for all services to be rendered pursuant to this Agreement as follows:
(a) The Company shall pay Employee a salary (the "Initial
Salary") at the rate of $35,000 per month during the Interim Term, and $2,000
per month during the Consulting Term (the "Consulting Salary"), in each case
payable in accordance with the normal payroll practices of the Company
applicable to its executive officers.
(b) The Company also is granting Employee 90,000 stock options
of the Company under the 1989 Employee's Stock Option Plan, as amended, in
accordance with the form of grant letter attached hereto as Exhibit A.
3. BENEFITS. Employee shall also be entitled to receive the
following benefits during the Interim Term:
(a) Paid holidays as customarily provided to the Company's
other comparable employees.
(b) Life insurance as was heretofore provided to Employee
under the Employment Agreement between Employee and Company, dated February 18,
1995 (the "Prior Agreement").
(c) Medical and dental insurance coverage as provided by the
Company to its executive employees generally.
(d) The automobile currently used by Employee in rendering
services to the Company pursuant to the Prior Agreement shall be transferred to
Employee, and while in
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Rochester, New York an additional automobile shall be available for his use
together with reimbursement for all gas, maintenance, insurance and repairs
required by reason of his use of such vehicle.
(e) Coverage in accordance with their terms of any pension,
profit-sharing or retirement plans now existing or hereafter established by the
Company and made generally available for executive employees.
(f) Reimbursement for all reasonable expenses incurred by
Employee during the Interim Term for advancing the Company's business in
accordance with Company policies upon Employee's presentation, from time to
time, of an itemized account and evidence and explanation reasonably
satisfactory to the Company of such expenses including, without limitation, (i)
reimbursement of travel expenses between Employee's home and the Company's
headquarters and (ii) reimbursement for the cost of maintaining an apartment
convenient to the Company's headquarters.
(g) Such other benefits as the Company may, from time to time,
provide generally to its other executive level officers.
4. TERM. The term of the Agreement (the "Term") shall commence
on the date hereof and continue until the fifth anniversary of the date hereof.
The period of Employee's full-time services hereunder (the "Interim Term") shall
commence on the date hereof and continue until terminated by the Company;
PROVIDED, HOWEVER, that (i) if the Interim Term is terminated by the Company
within the first three months of Employee's employment hereunder, Employee shall
be entitled to his Interim Salary through the end of such three month period
payable in accordance with normal payroll practices of the Company and any
unvested options granted to Employee pursuant to Section 2(b) shall fully vest;
and (ii) the Company may not
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extend the Interim Term beyond six months from the date hereof without the
consent of Employee. The balance of the Term following the Interim Term is the
Consulting Term (the "Consulting Term").
5. (a) NON-DISCLOSURE. Employee will not, during the period of
Employee's employment with the Company or at any time thereafter, regardless of
the reason for the cessation of Employee's employment: (i) use any Confidential
Information for Employee's own benefit or for the benefit of any person or
entity other than the Company; (ii) disclose to any person or entity any
Confidential Information; or (iii) remove from the Company's premises or make
copies of any Confidential Information, in any form; except, in each case, as
may be required within the scope of Employee's duties during Employee's
employment by the Company.
Upon termination of Employee's employment, or at any such time
as the Company may request, Employee will deliver to the Company all copies in
Employee's possession of any Confidential Information, in any form. Employee
will not at any time assert any rights as against the Company in or with respect
to any Confidential Information.
For purposes of this Agreement, "Confidential Information"
means any and all technical, research, operational, manufacturing, marketing,
sales and financial information, customer lists and trade secrets of the Company
or of any vendor, supplier, distributor or customer of the Company, regardless
of how acquired or developed by the Company or any such vendor, supplier,
distributor or customer, concerning any of their respective businesses.
Confidential Information does not include information, knowledge or data which
Employee can prove was in Employee's possession prior to the commencement of
Employee's employment with the Company or information, knowledge or data which
was or is in the public domain by reason other than the wrongful acts of
Employee.
4
<PAGE> 5
(b) NON-COMPETITION. Employee will not, during the period of
Employee's employment with the Company, and for a period of two years after the
termination of Employee's employment with the Company for any reason, directly
or indirectly, on Employee's behalf or on behalf of any other person or entity,
in any way, whether as an individual proprietor, partner, stockholder, officer,
employee, consultant, director, joint venturer, investor, lender (other than as
an employee of a bank or other financial institution) or in any other capacity
with any entity materially engaged in the business of the Company, compete
within the territory served, or contemplated to be entered, by Company on the
date of such termination with the business of the Company. Nothing contained
herein shall be construed as preventing Employee from owning beneficially or of
record not more than five percent (5%) of the outstanding equity security of any
entity whose equity securities are registered under the Securities Act of 1933,
as amended, or are listed for trading on any recognizable United States or
foreign stock exchange or market. The business of the Company shall be defined
to include the undercar service and repair of automobile and light truck brake,
exhaust and suspension systems, and related activities.
(c) NON-SOLICITATION OF EMPLOYEES. Employee will not, during
the period of Employee's employment with the Company, and for a period of two
years after the termination of Employee's employment with the Company for any
reason, directly or indirectly, recruit, solicit or otherwise induce or attempt
to induce any employees of the Company to leave the employment of the Company,
nor hire any such employee at any enterprise with which employee is then
affiliated.
(d) ENFORCEABILITY OF PROVISIONS. If any restriction set forth
in this Paragraph 5 is found by any court of competent jurisdiction to be
unenforceable because it extends for too long a period of time or over too great
a range of activities or in too broad a geographic area, it
5
<PAGE> 6
shall be interpreted to extend only over the maximum period of time, range of
activities or geographic area as to which it may be enforceable, it being
understood and agreed that by the execution of this Agreement, the parties
hereto regard the restrictions herein as reasonable and compatible with their
respective rights.
6. GENERAL TERMS.
(a) BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, their personal representatives,
successors and assigns.
(b) ASSIGNMENT. This Agreement may not be assigned, in whole
or in part, by any party hereto without the prior written consent of the other
party.
(c) ENTIRE AGREEMENT; PRIOR AGREEMENT. This Agreement contains
the entire understanding between or among the parties hereto and supersedes any
prior understanding, memoranda or other written or oral agreements between or
among any of them respecting the within subject matter. There are no
representations, agreements, arrangements or understandings, oral or written,
between or among any of the parties relating to the subject matter of this
Agreement which are not fully expressed herein.
The Prior Agreement is hereby terminated.
(d) MODIFICATIONS; WAIVER. No modification or waiver of this
Agreement or any part hereof shall be effective unless in writing and signed by
the party or parties sought to be charged therewith. No waiver of any breach or
condition of this Agreement shall be deemed to be a waiver of any other or
subsequent breach or condition, whether of like or different nature. No waiver
of any breach or condition of this Agreement by or with respect to any party
hereto shall be deemed to be a waiver of the same breach or condition with
respect to any other party hereto. No course of dealing between or among any of
the parties hereto will be deemed
6
<PAGE> 7
effective to modify, amend or discharge any part of this Agreement or the rights
or obligations of any party hereunder.
(e) NO THIRD PARTY BENEFICIARY. None of the provisions of this
Agreement shall be for the benefit of, or enforceable by, any person or entity
not a party hereto.
(f) PARTIAL INVALIDITY. In addition to the provisions of
Paragraph 5(d) hereof, if any provision of this Agreement shall be held invalid
or unenforceable by competent authority, such provision shall be construed so as
to be limited or reduced to be enforceable to the maximum extent compatible with
the law as it shall then appear. The total invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
(g) NOTICES. Any notice or other communication required or
permitted under this Agreement shall be in writing and shall be deemed to have
been duly given (i) upon hand delivery, or (ii) on the third day following
delivery to the U.S. Postal Service as certified or registered mail, return
receipt requested and postage prepaid, or (iii) on the first day following
delivery to a nationally recognized United States overnight courier service, fee
prepaid, return receipt or other confirmation of delivery requested, or (iv)
when telecopied or sent by facsimile transmission if an additional notice is
also given under (i), (ii) or (iii) above within three days thereafter. Any such
notice or communication shall be delivered or directed to a party at its address
set forth above or at such other address as may be designated by a party in a
notice given to all other parties hereto in accordance with the provisions of
this paragraph.
7
<PAGE> 8
(h) GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York pertaining to
contracts made and to be wholly performed within such state, without taking into
account conflicts of laws principles.
(i) JURISDICTION AND VENUE. In the event that any legal
proceedings are commenced in any court with respect to any matter arising under
this Agreement, the parties hereto specifically consent and agree that:
(i) the courts of the State of New York and/or the
United States Federal Courts located in the State of New York
shall have jurisdiction over each of the parties hereto and
over the subject matter of any such proceedings; and
(ii) the venue of any such action shall be Monroe
County, New York and/or the United States District Court for
the Western District of New York.
(j) INJUNCTIVE RELIEF. In the event of a breach or threatened
breach of any of the terms of this Agreement, the Company shall be entitled to
an injunction restraining Employee from committing any breach of this Agreement
without showing or proving any actual damages and without diminishing any other
right or remedy which the Company may have at law or in equity to enforce the
provisions of this Agreement. Employee waives any right he may have to require
the Company to post a bond or other security with respect to obtaining or
continuing any injunction or temporary restraining order, releases the Company
and its officers and directors from and waives any claim for damages against
them which Employee may have with respect to the Company's obtaining any
injunction or restraining order pursuant to this Agreement.
(k) SURVIVAL. The provisions of Paragraph 5 shall survive the
term of this Agreement as provided therein, and the provisions of this Paragraph
6 shall survive the term of this Agreement.
8
<PAGE> 9
(l) HEADINGS. The headings contained in this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(m) FAIR MEANING. This Agreement shall be construed according
to its fair meaning, the language used shall be deemed the language chosen by
the parties hereto to express their mutual intent, and no presumption or rule of
strict construction will be applied against any party hereto.
(n) GENDER. Whenever the context may require, any pronoun used
herein shall include the corresponding masculine, feminine or neuter forms and
the singular of nouns, pronouns and verbs shall include the plural and vice
versa.
(o) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of said
counterparts together shall constitute but one and the same instrument.
(p) REMEDIES. All rights and remedies of the Company or
Employee, whether provided for herein or by operation of law, are cumulative and
may be exercised singularly or concurrently, and the exercise of any such remedy
shall not be deemed an election of remedies so as to preclude the election of
any other remedy.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of February __, 1998
COMPANY:
MONRO MUFFLER BRAKE, INC.
By:
-------------------------------
Title:
----------------------------
EMPLOYEE:
----------------------------------
Jack M. Gallagher
10
<PAGE> 11
MONRO MUFFLER BRAKE, INC.
200 Holleder Parkway
Rochester, NY 14615
February 18, 1998
Mr. Jack M. Gallagher
30 Reedy Court
Manning, South Carolina 29102
Re: NOTICE OF GRANT OF STOCK OPTION
-------------------------------
Dear Employee:
I am pleased to notify you that the Board of Directors of
Monro Muffler Brake, Inc. ("Monro") has granted you a stock option pursuant to
the 1989 Monro Muffler Brake Employees' Incentive Stock Option Plan, as amended
(the "Plan").
The option granted to you is to purchase 90,000 shares of the
$.01 par value common stock of Monro at the price of $14.00 per share. The date
of grant is January 29, 1998 and the Board of Directors has determined in good
faith that, on that date, the fair market value of Monro's $.01 par value common
stock was $14.00 per share. This option shall be exercisable by you pursuant to
the following schedule:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE DATE
---------------- -------------
<S> <C>
22,500 Immediate
33,750 March 31, 1999
33,750 March 31, 2000
</TABLE>
A copy of the Plan governing the option granted to you is
enclosed. Please be sure to read all of its provisions.
11
<PAGE> 12
The option is, in all respects, limited and conditioned as
provided in the Plan, including but not limited to the following:
(a) The option may be exercised by you, but only until the
earlier of the date which is three months after the termination date of your
employment or the date which is ten years from the date of this letter.
(b) You may not transfer the option other than by your will or
by the laws of descent and distribution.
(c) The option is exercisable, during your lifetime, only by
you.
(d) Monro Muffler Brake, Inc. retains the right to repurchase
the shares at their fair market value after the expiration of a certain period
of time as described in the Plan.
(e) Exercisability of options not then vested shall (i)
immediately occur in the event specified in Section 4 of the Employment
Agreement dated the date hereof between you and the Company, (ii) immediately
occur in the event of the death of the Employee or (iii) immediately occur prior
to a Change of Control of the Company, as defined in the Plan.
12
<PAGE> 13
At the time or times when you desire to exercise the option in
whole or in part, please refer to the provisions of the Plan dealing with the
formalities of exercise and see the Secretary of the company with respect to the
exercise. I am personally pleased that the Board has decided to grant you this
option.
Sincerely,
13
<PAGE> 1
EXHIBIT 10.70
FORM OF AGREEMENT
PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
------------------------------------------
NOVEMBER 12, 1997
BUYER:
------
REALTY INCOME CORPORATION, A MARYLAND CORPORATION
SELLER:
-------
MONRO MUFFLER BRAKE, INC., A NEW YORK CORPORATION
PROPERTY LOCATION:
------------------
Monro Muffler/Brake #XXX
SPECIFIC ADDRESS 10 LOCATIONS AS FOLLOWS:
3411 Milan Road, Sandusky, OH
5021 Scatterfield, Anderson, IN
5200 Library Road, Bethel Park, PA
2196 West Union Blvd, Bethlehem, PA
3010 Easton Avenue, Bethlehem, PA
1970 Tiffin Avenue, Findlay, OH
1014 Coshocton, Mt. Vernon, OH
190 Milan Avenue, Norwalk, OH
3702 Franklin Rd., Roanoke, VA
2055 Queen Street, York, PA
<PAGE> 2
PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
TABLE OF CONTENTS
RECITALS ....................................................1
1. PURCHASE PRICE ........................................1
2. OPENING OF ESCROW .....................................1
3. TITLE TO PROPERTY .....................................2
4. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE ..........2
4.1 Approvals by Buyer ...............................2
4.2 Utilities ........................................4
4.3 Physical Characteristics of the Property .........4
4.4 Accuracy of Representations ......................4
4.5 No Hazardous Materials ...........................4
4.6 Foreign Investments ..............................4
4.7 Failure of Conditions ............................5
4.8 Lease ............................................5
5. CONDITIONS TO SELLER'S OBLIGATION TO SELL .............5
5.1 Performance by Buyer .............................5
5.2 Accuracy of Representations ......................5
5.3 Payment of Purchase Price ........................5
6. BUYER'S DELIVERIES TO ESCROW AGENT and seller .........6
6.1 Purchase Price ...................................6
6.2 Lease ............................................6
6.3 Failure to Deliver ...............................6
7. SELLER'S DELIVERIES TO ESCROW AGENT AND BUYER .........6
7.1 Deed .............................................6
7.2 Lease ............................................6
7.3 Documents Needed to Close ........................6
7.4 Failure to Deliver ...............................6
8. THE CLOSING ..........................................7
8.1 Date and Manner of Closing .......................7
8.2 Delay in Closing; Authority to Close .............7
9. PRORATION, COSTS AND EXPENSES .........................8
9.1 Prorations and Apportionments ....................8
9.2 Payment of Adjustments to Proration ..............8
9.3 Seller's Costs and Expenses ......................8
9.4 Buyer's Costs and Expenses .......................8
10. DISTRIBUTION OF FUNDS AND DOCUMENTS ...................9
10.1 Form of Distributions ............................9
10.2 Recorded Documents ...............................9
10.3 Non-Recorded Documents ...........................9
10.4 Cash Disbursements ...............................9
10.5 Copies of Documents ..............................9
11. RETURN OF DOCUMENTS AND FUNDS UPON TERMINATION ........9
11.1 Return of Seller's Documents .....................9
11.2 Return of Buyer's Documents .....................10
11.3 No Effect on Rights of Parties ..................10
11.4 Payment of Termination Fee ......................10
12. DEFAULT ..............................................10
12.1 Seller's Remedy .................................10
12.2 Buyer's Remedies ................................11
<PAGE> 3
13. REPRESENTATIONS AND WARRANTIES OF SELLER .............11
13.1 Authority of Seller .............................11
13.2 Condition of Property ...........................11
13.3 Use and Operation ...............................11
13.4 Land Use Regulation .............................12
13.5 Reports, Contracts and Other Documents ..........12
13.6 Absence of Fraud and Misleading Statements ......12
13.7 Litigation ......................................12
13.8 Other Contracts to Convey .......................12
13.9 Environmental Compliance/Hazardous Materials ....13
13.10 Property Tax Assessment .........................13
13.11 Agreements Affecting the Property ...............13
13.12 Use Permits and Other Approvals .................14
13.13 Confidentiality .................................14
13.14 Survival.. ......................................14
13.15 No Broker .......................................14
14. REPRESENTATIONS & WARRANTIES OF BUYER ................15
14.1 Authority of Buyer...............................15
14.2 Absence of Fraud and Misleading Statements ......15
14.3 Litigation ......................................15
14.4 Financial Condition .............................15
14.5 Survival ........................................15
14.6 No Broker .......................................15
15. COVENANTS ............................................16
15.1 Indemnification by Parties ......................16
15.2 Maintenance .....................................16
15.3 Other Agreements ................................17
16. LOSS BY FIRE OR OTHER CASUALTY; CONDEMNATION .........17
16.1 Damage or Destruction ...........................17
16.2 Condemnation ....................................17
17. POSSESSION ...........................................17
18. NOTICES ..............................................18
19. GENERAL PROVISIONS ...................................18
19.1 Manner of Taking Title ..........................18
19.2 Gender; Number ..................................19
19.3 Captions ........................................19
19.4 Exhibits ........................................19
19.5 Entire Agreement ................................19
19.6 Modification. ...................................19
19.7 Attorneys' Fees .................................19
19.8 Joint and Several Liability .....................19
19.9 Governing Law ...................................20
19.10 Severability ....................................20
19.11 Successors and Assigns ..........................20
19.12 Information Provided ............................20
19.13 Counterparts ....................................21
EXHIBIT "A" LEGAL DESCRIPTION
EXHIBIT "B" DEED (SAMPLE)
EXHIBIT "C" - DOCUMENTS NEEDED TO CLOSE CHECKLIST (SAMPLE)
EXHIBIT "D" - GUIDELINES FOR AS-BUILT SURVEYS
<PAGE> 4
PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
This Purchase Agreement and Escrow Instructions (the "Agreement"), dated
November 12, 1997 for reference purposes, is made by and between Monro Muffler
Brake, Inc., a New York corporation ("Seller"), and Realty Income Corporation, a
Maryland corporation ("Buyer"), and is made with reference to the recitals set
forth below, and constitutes (i) a contract of purchase and sale between the
parties and (ii) escrow instructions to Partners Title Company (the "Escrow
Agent").
RECITALS
A. Real Property. Seller owns certain real property together with all
improvements located on the property (the "Property"), the legal description of
which is attached hereto and made a part hereof as Exhibit "A," and is also
known as:
Monro Muffler/Brake - SPECIFIC ADDRESS
B. Purchase and Sale. Seller desires to sell and Buyer desires to purchase
all - Seller's right, title, and interest in and to the Property upon the terms
and conditions set forth below.
C. Leasehold Interest. Concurrently with the Closing (as defined in Section
8), Buyer, as landlord, shall lease the Property to Seller, as tenant, under a
lease dated November 12, 1997 (the "Lease").
1. PURCHASE PRICE
In consideration of the covenants contained in this Agreement, Seller shall
sell and Buyer shall purchase the Property for a total purchase price of
SPECIFIC PRICE FOR THE LOCATION ( 10 PROPERTIES TOTALLED $6,072,600) (the
"Purchase Price") which shall be delivered by Buyer to Escrow Agent on or before
the Closing in Cash (defined as (i) United States currency, (ii) cashier's or
certified check(s) currently dated, payable to Escrow Agent, and honored upon
presentation for payment, (iii) an amount credited by wire transfer into Escrow
Agent's bank account, or (iv) if monies are deposited with Escrow Agent within
twenty (20) days prior to the Closing, funds in such form as Escrow Agent in its
sole discretion requires).
2. OPENING OF ESCROW
Within five (5) business days following the execution of this Agreement,
Buyer and Seller shall open an escrow (the "Escrow") with Escrow Agent for the
Property and shall deposit with Escrow Agent fully executed counterparts of this
Agreement for use as escrow instructions. Buyer and Seller shall execute
<PAGE> 5
Escrow Agent's usual form of supplemental escrow instructions for transactions
of this type; provided, however, that such escrow instructions shall be for the
purpose of implementing this Agreement, shall incorporate this Agreement by
reference, and shall specifically provide that no provisions shall have the
effect of modifying this Agreement unless it is so expressly stated and
initialed on behalf of Buyer and Seller.
3. TITLE TO PROPERTY
At Closing Seller shall convey to Buyer fee simple title to the Property by
execution and delivery of a warranty deed in the form customarily used in
connection with commercial real property transactions in the state in which the
Property is located (the "Deed"). A form of the Deed is attached hereto as
Exhibit "B." At the Closing Buyer shall receive from Commonwealth Land Title
Insurance Company (the "Title Company") an ALTA Owner's Extended Policy of Title
Insurance (the "Title Policy") with liability in the full amount of the Purchase
Price insuring fee simple title to the Property in Buyer, subject only to
exceptions approved by Buyer as provided in Section 4.1, deleting all standard
printed exceptions (as deemed customary in the state in which the Property is
located), together with such endorsements as may be reasonably requested by
Buyer. Indemnification of the Title Company to induce it to insure any otherwise
non-permitted exception to title shall not be allowed except with the prior
written consent of Buyer after full disclosure to Buyer of the nature and
substance of such exception and indemnity. The Title Policy shall provide for
survey coverage and full coverage against mechanics' and materialmen's liens
arising out of the construction, repair, or alteration of any of improvements
located on the Property.
4. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE
Buyer's obligation to purchase the Property is expressly conditioned upon
each of the following:
4.1 Approvals by Buyer
Buyer's receipt and approval for the Property of the following prior to the
Closing:
4.1.1 ALTA Commitment for Policy of Title Insurance. As
soon as reasonably possible after execution of this
Agreement, Seller shall cause the issuance of an
ALTA Commitment for Policy of Title Insurance,
including complete legible copies of all
encumbrances and liens of record (the
"Commitment"), with respect to the Property to be
forwarded to Buyer for approval. If no written
disapproval of any items in the Commitment is
received from Buyer on or before thirty (30) days
after the later of delivery of the Commitment to
Buyer or delivery of the Certified As-Built Survey
<PAGE> 6
PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS EXHIBIT "D#
GUIDELINES FOE AS-BUILT SURVEYS
1. Label: The survey must be labeled as an ALTA/ACSM Land Title Survey.
2. Boundary Lines: Boundary lines as described in the current title
commitment.
3. Legal Description: Full legal description on the face of the survey
(including a metes and bounds description even if not a part of the legal
description used in the title commitment).
4. Title Commitment Exceptions: Location and size of all easements and other
plotable matters of record, marked with book and page to correspond with
the title commitment exceptions. If unplotable, statement indicating that
such exceptions, if any, affect the fee parcel (or appurtenant easement
parcel, as the case may be).
5. Easement Parcels: Easement parcel(s), if any, appurtenant to the fee
parcel, if the same is/are part of the legal description to be insured (to
the extent the same can be shown on the survey).
6. Encroachments: Statement identifying the existence and location of
encroachments, if any.
7. Improvements: Location of the building and surrounding improvements.
8. Square Footage: Square footage of the building and land.
9. Utilities: Location of utilities (wires, cables, manholes, drains, etc.).
10. Access Ways: Location of parking areas, curb cuts, and driveways.
11. Vicinity map: Vicinity map showing the subject site and surrounding area.
12. Flood Zone: FEMA flood information.
13. Certification: Certification to insuring title company and Realty Income
Corporation.
14. Zoning: Zoning designation, including description if possible.
15. No Loan: No reference made as to "Loan Purposes."
16. Signature: Surveyor's signature, seal, and date.
<PAGE> 7
(as defined in Section 4.1.2), the Commitment shall be deemed approved
by Buyer.
4.1.2 As-Built Survey. A survey of the Property (the
"As-Built Survey") prepared by a licensed surveyor
or civil engineer in sufficient detail to provide
for the Title Policy, certified to Buyer and the
Title Company, and conforming to the guidelines set
forth on Exhibit "D," attached hereto and
incorporated herein, without material boundary,
encroachment, or survey exceptions.
4.1.3 Phase I Environmental Site Assessment Report. As
soon as reasonably possible after execution of this
Agreement, Seller shall cause a Phase I
Environmental Site Assessment Report (the "Phase I")
to be prepared for the Property in accordance with
ASTM guidelines and certified to Buyer by an
environmental consultant approved by Buyer.
4.1.4 Plans and Specifications. As soon as reasonably
possible after the execution of this Agreement,
Seller shall submit complete plans and
specifications to Buyer, together with an itemized
cost breakdown for all improvements, including on-
and off-site improvements, from the contractor who
has performed or is in the process of performing
the construction of said improvements in accordance
with the plans and specifications.
4.1.5 Appraisal. AS soon as reasonably possible after
the execution of this Agreement, Buyer shall cause
a narrative appraisal (the "Appraisal") to be
prepared on a completed project basis, covering the
land, improvements, and the Lease by an independent
appraiser who is a member in good standing of a
recognized professional appraisal association, and
shall cause said Appraisal to be delivered to Buyer
on or before fifteen (15) days prior to the
Scheduled Closing Date (as defined in Section 8).
4.1.6 Certificate of Occupancy. If available Seller shall
cause a notice of completion and/or certificate of
occupancy or its equivalent certifying that
construction has been completed to be delivered to
Buyer.
4.1.7 Other Documents. All other documents listed on Exhibit
"C" entitled "Documents Needed to Close Checklist"
for the Property.
4.1.8 Statement of Matters Affecting Title. A statement
of (and, if available, copies of) any other matters
of any nature of which Seller has knowledge and
<PAGE> 8
which affect title to any part of the Property, whether or not of
record, whether or not visible or ascertainable by inspection of
the Property, and whether or not otherwise known to Buyer.
4.2 Utilities
Buyer's receipt and approval of evidence that all water, sewer, gas,
electric, telephone, and drainage facilities and all other utilities required by
law or by the normal use and operation of the Property are and at the time of
Closing will be installed to the property lines of the Property, are and at the
time of Closing will be connected and operating pursuant to valid permits, and
are and at the time of Closing will be adequate to service the Property and to
permit full compliance with all requirements of law and normal usage of the
Property.
4.3 Physical Characteristics of the Property
Buyer's review and approval, prior to the Closing, of the structural,
mechanical, electrical, and other physical characteristics of the Property.
4.4 Accuracy of Representations
All of Seller's representations and warranties contained in or made
pursuant to this Agreement shall have been true and correct when made and shall
be true and correct as of the Closing, and Seller shall have complied with all
of Seller's covenants and agreements contained in or made pursuant to this
Agreement.
4.5 NO Hazardous Materials
Buyer's satisfaction that there are no Hazardous Materials (as defined in
Section 13.9) on the Property.
4.6 Forelan Investments
Buyer's receipt of the affidavit, certification, or notice required by
Section 1445 of the Internal Revenue Code of 1954, as amended and the
Regulations pursuant thereto, in a form sufficient to relieve Buyer of any
potential transferee withholding liability under such Section. If Seller fails
to deliver such affidavit, certification, or notice to Buyer prior to or at the
Closing, or Buyer has knowledge or receives notice of the falsity of such
document, then the transactions shall be completed at the Closing, but Buyer
shall withhold ten percent (10%) of the "amount realized" (as set forth in the
Regulations) by Seller and transmit it to the Internal Revenue Service Center,
Philadelphia, PA 19255, all in accordance with Section 1445 and the Regulations
pursuant thereto.
<PAGE> 9
4.7 Failure of Conditions
4.7.1 The foregoing conditions contained in this Section 4 are
intended solely for the benefit of Buyer. If any of the foregoing
conditions are not satisfied or approved by Buyer, Buyer shall
have the right at its sole election either (i) to waive the
condition in question and proceed with the purchase of the
Property pursuant to all of the other terms of this Agreement,
reserving all of its other rights and remedies available to it
under this Agreement or otherwise at law or in equity by reason
of such failure of condition or (ii) to terminate this Agreement.
4.7.2 By written agreement, the Closing may be extended for a
reasonable time if required to allow the conditions contained in
this Section 4 to be satisfied, subject to Buyer's further rights
to terminate this Agreement upon the expiration of the period of
any extension if all such conditions have not then been
satisfied.
4.8 Lease
Execution by Buyer and Seller of the Lease for the Property.
5. CONDITIONS TO SELLER'S OBLIGATION TO SELL
Seller's obligation to sell is expressly conditioned upon each of the
following:
5.1 Performance by Buyer
Timely performance of each obligation, covenant, and delivery required of
Buyer.
5.2 Accuracy of Representations
Ail of Buyer's representations and warranties contained in or made pursuant
to this Agreement shall have been true and correct when made and shall be true
and correct at the Closing, and Buyer shall have complied with all of Buyer's
covenants and agreements contained in or made pursuant to this Agreement.
5.3 Payment of Purchase Price
Payment of the Purchase Price at the Closing in the manner provided in this
Agreement.
<PAGE> 10
6. BUYER'S DELIVERIES TO ESCROW AGENT AND SELLER
6.1 Purchase Price
Buyer shall deliver in Cash to Escrow Agent the Purchase Price as set forth
in Section 1, less adjustments pursuant to Section 9. Escrow Agent shall deposit
the Purchase Price in an interest bearing account, the interest upon which shall
accrue to the benefit of Buyer.
6.2 Lease
On or before the Closing, Buyer shall deliver to Escrow Agent the
Memorandum of Lease for the Property executed and acknowledged by Seller and
Buyer, which Memorandum of Lease shall be filed for record by Escrow Agent upon
the close of Escrow. On the Closing, Buyer shall deliver to Seller the Lease for
the Property executed by Buyer and Seller.
6.3 Failure to Deliver
The failure of Buyer to make any required delivery within the specified
time shall constitute a material breach by Buyer.
7. SELLER'S DELIVERIES TO ESCROW AGENT AND BUYER
7.1 Deed
On or before the Closing, Seller shall deliver to Escrow Agent the Deed
for the Property executed and acknowledged by Seller.
7.2 Lease
Before the Closing, Seller shall deliver to Buyer the Lease for the
Property executed by Seller. In addition, before the Closing, Seller shall
deliver to Buyer the Memorandum of Lease for the Property executed and
acknowledged by Seller.
7.3 Documents Needed to Close
On or before the Closing, Seller shall deliver to Buyer each and every
document described in Section 4, subject to Buyer's right to waive delivery.
7.4 Failure to Deliver
The failure of Seller to make any required delivery within the specified
time shall constitute a material breach by Seller.
<PAGE> 11
8. THE CLOSING
8.1 Date and Manner of Closing
Escrow Agent shall close the Escrow (the "Closing") on a date mutually
agreeable to Buyer and Seller but which is in no event later than sixty (60)
days following the date upon which this Agreement is last executed by Buyer or
Seller (the "Scheduled Closing Date"), provided that all of the conditions to
Buyer's obligation to purchase have been either satisfied Or waived. The Escrow
shall be deemed closed when (i) Title Company is irrevocably committed to
issuing the Title Policy and (ii) Escrow Agent delivers the funds and documents
for the Property as set forth in Section t0. Distribution of funds and documents
shall occur WHEN AND ONLY WHEN each of the following conditions has been
satisfied:
8.1.1 All documents required to be delivered to Buyer and Escrow Agent
pursuant to this Agreement have been delivered or delivery of
such document(s) has been waived.
8.1.2 The Title Company is prepared to issue the Title Policy for the
Property.
8.1.3 All funds for the Property required to be delivered to Seller and
Escrow Agent pursuant to this Agreement have been delivered.
8.2 Delay in Closing: Authority to Close
If Escrow Agent cannot close the Escrow on or before the Scheduled Closing
Date, it will nevertheless close when all conditions have been satisfied or
waived, notwithstanding that one or more of such conditions was not timely
performed, unless after the Scheduled Closing Date and prior to the close of the
delayed Escrow, Escrow Agent receives a written notice to terminate the Escrow
and this Agreement from a party who, at the time such notice is delivered, is
not in default. Neither (i) the exercise of the right of termination, (ii) delay
in the exercise of the right of termination, nor (iii) the return of monies and
documents, shall affect the right of the party giving notice of termination to
pursue legal or equitable remedies for the other party's breach of this
Agreement. Nor shall (i) the giving of such notice, (ii) the failure to object
to termination of the Escrow, or (iii) the return of monies and documents affect
the right of the other party to pursue legal or equitable remedies for the
breach of the party who gives notice.
<PAGE> 12
9. PRORATION, COSTS AND EXPENSES
9.1 Prorations and Apportionments
Contemporaneously with the Closing, Seller intends to lease the Property
from Buyer. Therefore, the parties do not anticipate the need to prorate
revenues or expenses. However, in the event an item of expense or revenue must
be prorated, it shall be prorated and apportioned as of 12:01 a.m. on the date
of the Closing so that Seller shall bear all expenses with respect to the
Property and shall have the benefit of all income with respect to the Property
through and including the period preceding the date of the Closing. Any taxes or
other amounts which cannot be ascertained with certainty as of the Closing shall
be prorated on the basis of the parties' reasonable estimates of such amount(s)
and shall be the subject of a final proration thirty (30) days after the Closing
or as soon thereafter as the precise amounts can be ascertained.
9.2 Payment of Adjustments to Proration
Either party owing the other party a sum of money based on adjustments made
to prorations after the Closing shall promptly pay that sum to the other party,
together with interest thereon at the rate of twelve percent (12%) per annum to
the date of payment if payment is not made within ten (10) days after mutual
agreement of the amount due.
9.3 Seller's Costs and Expenses
Seller shall pay for: (i) the As Built Survey, (ii} the Phase I, (iii)
one-half (1/2) the cost of procuring the Title Policy, {iv) one-half (1/2) the
cost of any documentary or other transfer taxes applicable to the sale, (v)
one-half (1/2) of the costs and charges of the Escrow, including, without
limitation, Escrow Agent's fee, and (vi) Seller's own attorneys' fees.
9.4 Buyer's Costs and Expenses
Buyer shall pay for: (i) the Appraisal; (ii) brokerage commission in the
amount of one percent (1%) of the Purchase Price to Horn Capital Realty, 3303
Lee Parkway, Suite 335, Dallas, TX 75219; (214) 522-4676; (iii) one-half (1/2)
the cost of procuring the Title Policy, (iv) one-half (1/2) the cost of any
documentary or other transfer taxes applicable to the sale, (v) one-half (1/2)
of the costs and charges of the Escrow, including, without limitation, Escrow
Agent's fee, and (vi) Buyer's own attorneys' fees.
<PAGE> 13
10. DISTRIBUTION OF FUNDS AND DOCUMENTS
10.1 Form of Distributions
All disbursements by Escrow Agent shall be made by checks of Escrow Agent
or by wire transfers to the account of, and as directed by, the receiving party.
10.2 Recorded Documents
Escrow Agent shall cause the County Recorder of the County in which the
Property is located to mail the Deed (and any other documents which are required
by this Agreement to be, or by general usage are, recorded) after recordation,
to the grantee, beneficiaries, or person (i) acquiring rights under the
documents or (ii) for whose benefit the documents were acquired.
10.3 Non-Recorded Documents
Escrow Agent shall, at the Closing, deliver by United States mail (or shall
hold for personal pickup, if requested), each non-recorded document received by
Escrow Agent to the payee or person (i) acquiring rights under the document or
(ii) for whose benefit the documents were acquired.
10.4 Cash Disbursements
At the Closing, Escrow Agent shall hold for personal pickup or shall
arrange for wire transfer (i) to Seller, or order, the cash plus any proration
or other credits to which Seller shall be entitled for the Property and less any
appropriate proration or other charges and (ii) to Buyer, or order, any excess
funds previously delivered to Escrow Agent by Buyer.
10.5 Copies of Documents
Following the Closing, Escrow Agent shall deliver to Buyer and to Seller a
copy of the Deed (conformed to show recording data) and each other recorded
document for the Property.
11. RETURN OF DOCUMENTS AND FUNDS UPON TERMINATION
11.1 Return of Seller's Documents
In the event the Escrow is terminated for any reason (other than the
default of Seller), Buyer shall, within fifteen (15) calendar days following the
termination, deliver to Seller all documents and materials, if any, relating to
the Property previously delivered to Buyer by Seller. Escrow Agent shall deliver
all documents and materials relating to the Property previously deposited by
Seller and then in Escrow Agent's possession to Seller.
<PAGE> 14
11.2 Return of Buyer's Documents
In the event the Escrow is terminated for any reason (other than the
default of Buyer), Seller shall, within fifteen (15) calendar days following
termination, deliver to Buyer all funds and documents, if any, relating to the
Property, previously delivered to Seller by Buyer. Escrow Agent shall deliver
all documents, materials, and funds relating to the Property previously
deposited by Buyer and then in Escrow Agent's possession to Buyer. .-
11.3 No Effect on Rights of Parties
The return of documents and monies as set forth above shall not affect the
right of either party to seek the legal or equitable remedies that the party may
have with respect to the enforcement of this Agreement.
11.4 Payment of Termination Fee
Escrow Agent may condition its deliveries upon payment of a termination fee
by the party requesting delivery. Notwithstanding the foregoing, any termination
fee shall be paid (or reimbursed) by the defaulting party, or paid equally if
neither party is then in default.
12. DEFAULT
12.1 Seller's Remedy
If Buyer fails to complete the acquisition of the Property by reason of any
default by Buyer, Seller shall be released from any further obligations and
shall be entitled to the following:
INSOFAR AS IT WOULD BE EXTREMELY IMPRACTICABLE AND DIFFICULT TO
ESTIMATE THE DAMAGE AND HARM WHICH SELLER WOULD SUFFER IN THE EVENT
BUYER DEFAULTS AND FAILS TO COMPLETE THE SALE OR ACQUISITION OF
THE PROPERTY, AND INSOFAR AS A REASONABLE ESTIMATE OF THE TOTAL NET
DETRIMENT THAT SELLER WOULD SUFFER IN THE EVENT OF BUYER'S DEFAULT AND
FAILURE TO DULY COMPLETE THE SALE OR ACQUISITION OF THE PROPERTY IS THE
SUM OF TEN THOUSAND DOLLARS ($10,000), SELLER SHALL BE ENTITLED TO THE
SUM OF TEN THOUSAND DOLLARS ($10,000) AS AND FOR SELLER'S SOLE REMEDY
FOR DAMAGES ARISING FROM BUYER'S FAILURE TO COMPLETE THE SALE OR
ACQUISITION OF THE PROPERTY IN ACCORDANCE WITH THE TERMS OF THIS
AGREEMENT. BY PLACING THEIR INITIALS BELOW,
<PAGE> 15
THE PARTIES ARE CONFIRMING THE ACCURACY OF THE STATEMENTS SET FORTH
ABOVE.
BUYER-Initials SELLER-Initials
12.2 Buyer's Remedies
In the event that the transaction fails to close on account of Seller's
fault or Seller's breach of this Agreement, Buyer shall be entitled to such
remedies for breach of contract as may be available under applicable law,
including, without limitation, the remedy of specific performance.
13. REPRESENTATIONS AND WARRANTIES OF SELLER
The following representations and warranties by Seller are now and shall,
at the Closing, be true and correct. If during the period between the execution
of this Agreement and the Closing, Seller learns of or has a reason to believe
that any of the following representations and warranties may cease to be true,
Seller covenants to give notice thereof to Buyer immediately.
13.1 Authority of Seller
Seller is a New York corporation duly organized and validly existing and in
good standing under the laws of the State of New York and has the authority to
own and convey the Property. This Agreement and all documents executed by Seller
which are to be delivered to Buyer are, or at the time of the Closing will be,
duly authorized, executed, and delivered by Seller and do not, and at the time
of the Closing will not, violate any provisions of any agreement or judicial
order to which Seller is a party or to which Seller or the Property are subject.
13.2 Condition of Property
There are now, and at the Closing there will be, no material physical or
mechanical defects of the Property, including, without limitation, the plumbing,
heating, air conditioning, ventilating; emergency safety systems, and electrical
systems, and all such items are in good operating condition and repair and in
compliance with all applicable governmental laws, ordinances, regulations, and
requirements, including, but not limited to, the Americans with Disabilities
Act. In addition, there are no existing leases on the Property, other than N/A.
13.3 Use and Operation
The use and operation of the Property now is, and at the time of Closing
will be, in full compliance with applicable building codes, safety, fire,
environmental, zoning, and land use
<PAGE> 16
laws, and other applicable local, state, and federal laws, ordinances,
regulations, and requirements. Seller knows of no facts nor has Seller failed to
disclose to Buyer any fact which would prevent Buyer from using and operating
the Property after the Closing in the manner in which the Property has been
used, leased, and operated prior to the date of this Agreement.
13.4 Land Use Regulation
There are no condemnation, environmental, zoning, or other land use
regulation proceedings instituted which could detrimentally affect the use or
operation of the Property or the value of the Property, nor has Seller received
notice of any special assessment proceedings affecting the Property.
13.5 Reports, Contracts and Other Documents
Contracts or documents delivered to Buyer pursuant to this Agreement are,
and at the time of Closing will be, true and correct copies, are and at the time
of Closing will be in full force and effect, and contain no inaccuracies or
misstatements of fact. All documents which are required by this Agreement to be
delivered to Buyer have been or will be delivered to Buyer.
13.6 Absence of Fraud and Misleading Statements
No representation, warranty, or statement of Seller in this Agreement or in
any document, certificate, or schedule furnished or to be furnished to Buyer
pursuant thereto, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements or facts not misleading. All representations, warranties, or
statements of Seller are based upon current, accurate, and complete information
as of the time of their making and there has been no subsequent material change
in the information.
13.7 Litigation
There is no litigation, pending or threatened, against Seller or any basis
therefor that arises out of the ownership of the Property, or that might
detrimentally affect the use or operation of the Property for its intended
purpose or the value of the Property, or adversely affect the ability of Seller
to perform its obligations under this Agreement.
13.8 Other Contracts to Convey
Seller has not committed nor obligated itself in any manner whatsoever to
sell the Property to any party other than Buyer. Seller has not hypothecated or
assigned any rents or income from the Property in any manner.
<PAGE> 17
13.9 Environmental Compliance/Hazardous Materials
The Property is not, and as of the Closing will not be, in violation of any
federal, state, or local law, ordinance, or regulation relating to industrial
hygiene or to the environmental conditions on, under, or about the Property
including, but not limited to, soil and groundwater conditions. There are no
Hazardous Materials (as defined below) present on the Property, other than As
disclosed in that certain phase one environmental site assessment dated December
12, 1997 which is/are used in compliance with all applicable laws, ordinances,
and regulations. Seller further warrants and represents that during the time in
which Seller owned the Property, neither Seller nor, to the best of Seller's
knowledge, any third party has used, generated, manufactured, produced, stored,
or disposed of on, under, or about the Property or transported to or from the
Property any Hazardous Materials in violation of applicable laws, ordinances,
and regulations. Seller has not received notification of any proceeding or
inquiry by any governmental authority with respect to the presence of Hazardous
Materials on the Property or the migration of Hazardous Materials from or to the
Property. There are no storage tanks located in or under the Property. The term
"Hazardous Material" means, but is not limited to, any substance, material, or
waste which is toxic, ignitable, reactive, or corrosive; which is or can be
injurious to the health, safety, or welfare of the public or environment, and
which is or becomes regulated by any local or state governmental authority or
the United States Government. The term "Hazardous Material" includes, without
limitation, any material or substance which is (i) defined as a "hazardous
waste," "extremely hazardous waste," "restricted hazardous waste," "hazardous
substance," "pollutant or contaminant," or "hazardous material," by any local or
state law, (ii) oil and petroleum products and their byproducts, (iii) asbestos
or asbestos-containing materials, (iv) designated as a "hazardous substance"
pursuant to the Federal Water Pollution Control Act, (v) defined as a "hazardous
waste" pursuant to the Federal Resource Conservation and Recovery Act, or (vi)
defined as a "hazardous substance" pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act. Seller has disclosed to Buyer in
writing all information in Seller's possession or control which relates to the
environmental condition of the Property.
13.10 Property Tax Assessment
Notwithstanding any other provision of this Agreement to the contrary, if
Buyer shall become liable after the Closing for payment of any property taxes
assessed against the Property for any period of time prior to the Closing,
Seller shall immediately pay to Buyer on demand an amount equal to such tax
assessment.
13.11 Agreements Affecting the Property
At the Closing there will be no leases, easements, encumbrances, or other
agreements affecting the Property except as
<PAGE> 18
shown in the Commitment for the Property or as otherwise disclosed to Buyer by
Seller in writing and approved by Buyer.
13.12 Use Permits and Other Approvals
Seller has obtained all licenses, permits, approvals, easements, and rights
of way required from all governmental authorities having jurisdiction over the
Property or from private parties for the normal use and operation of the
Property and to ensure free and unimpeded vehicular and pedestrian ingress to
and egress from the Property as required to permit the normal intended usage of
the Property. Seller has materially complied with all licenses and permits and
has not received any notice that any licenses or permits will not be renewed
upon expiration, or of any material conditions which will be imposed in order to
receive any renewal.
13.13 Confidentiality
Seller shall hold as confidential all information concerning Buyer and this
transaction. Seller shall not release any such information to third parties
without Buyer's prior written consent, except pursuant to a court order
requiring such release or as otherwise may be required by law. Buyer shall hold
as confidential all information concerning Seller and this transaction. Buyer
shall not release any such information to third parties without Seller's prior
written consent, except pursuant to a court order requiring such release or as
otherwise may be required by law. Notwithstanding the foregoing, subsequent to
the Closing, either party publicly may announce (provided such announcement is
factually accurate): (i) Seller sold and Buyer purchased the Property; (ii) the
Property is subject to the Lease; (iii) the industry of Tenant; (iv) the total
number of properties Seller sold to Buyer and Buyer purchased from Seller,
including, without limitation, the Property; and (v) the total value of the
transaction, i.e., the Purchase Price.
13.14 Survival
The representations and warranties of Seller contained herein shall survive
the Closing.
13.15 NO Broker
Seller warrants that except for brokerage commission due Horn Capital
Realty, which commission is payable by Buyer pursuant to Section 9.4, there are
no brokerage commissions payable as a result of the Closing herein. Seller shall
indemnify and hold harmless Buyer from any claims, costs, damages, or liability
based on any statement, representations, or agreement by Seller with respect to
the payment of any brokerage commissions or finders' fees.
<PAGE> 19
14. REPRESENTATIONS & WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
14.1 Authority of Buyer
Buyer is a corporation duly organized and validly existing under the laws
of the State of Maryland. This Agreement and all documents executed by Buyer
which are to be delivered to Seller at the Closing are, or at the time of
Closing will be duly authorized, executed, and delivered by Buyer, and are, or
at the Closing will be, legal, valid, and binding obligations of Buyer, and do
not, and at the time of Closing will not, violate any provisions of any
agreement or judicial order to which Buyer is a party or to which it is subject.
14.2 Absence of Fraud and Misleading Statements
No representation, warranty, or statement of Buyer in this Agreement or in
any document, certificate, or schedule furnished or to be furnished to Seller
pursuant thereto contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements or facts not misleading. Ail representations, warranties, or
statements of Buyer are based upon current, accurate, and complete information
as of the time of their making and there has been no subsequent material change
in the information.
14.3 Litigation
There is no litigation pending or, to Buyer's knowledge, threatened,
against Buyer or any basis therefor before any court or administrative agency
which might adversely affect the ability of Buyer to perform its obligations
under this Agreement.
14.4 Financial Condition
Buyer has adequate financial resources to make timely payment of all sums
due from Buyer hereunder and to perform all of its obligations hereunder.
14.5 Survival
The representations and warranties of Buyer contained herein shall survive
the Closing.
14.6 No Broker
Buyer warrants that except for brokerage commission due Horn Capital
Realty, which commission is payable by Buyer pursuant to Section 9.4, there are
no brokerage commissions payable as a result of the Closing herein. Buyer shall
indemnify and hold harmless Seller from any claims, costs, damages, or liability
based on any statement, representations, or agreement by Buyer
<PAGE> 20
with respect to the payment of any brokerage commissions or finders' fees.
15. COVENANTS
Matters as to which Escrow Agent need not be concerned, Seller and Buyer
covenant and agree with one another as follows:
15.1 Indemnification by Parties
Each party shall indemnify the other party and hold the
other party harmless from and against any and all claims, demands, liabilities,
liens, costs, expenses, penalties, damages, and losses, including, without
limitation, reasonable attorneys' fees and costs, suffered as a direct or
indirect result of:
15.1.1 Any misrepresentation, breach of warranty, or breach of
covenant made pursuant to this Agreement or in any document,
certificate, or exhibit given or delivered pursuant to or in
connection with this Agreement; and
15.1.2 Any and all obligations, liabilities, claims, liens, or
encumbrances, whether direct, contingent, or consequential and
no matter how arising or accruing, which are in any way
related to or arising from any act, conduct, omission,
contract, or commitment of a party (or any of its agents or
employees) at any time or times before the Closing, including
indemnification by Seller of Buyer, without limitation, of (i)
all foreseeable and all unforeseeable consequential damages,
directly or indirectly arising out of the use, generation,
storage, or disposal of Hazardous Materials by Seller and (ii)
the cost of any required or necessary repair, cleanup,
remediation, removal, or detoxification and the preparation of
any closure or other required plans, or actions, whether such
action is required or necessary prior to or following transfer
of title to the Property, to the full extent that such action
is attributable, directly or indirectly, to the presence, use,
generation, storage, release, threatened release, treatment,
or disposal of Hazardous Materials by title to Buyer. The
provisions of this Section shall survive the execution and
delivery of this Agreement, the delivery of the Deed, and
transfer of title.
15.2 Maintenance
Closing, Seller shall, at Seller's sole cost and expense, maintain
<PAGE> 21
the Property in good order, condition, and repair, reasonable wear and tear
excepted, and shall operate the Property in the same manner as before the making
of this Agreement as though Seller were retaining the Property.
15.3 Other Agreements
Seller shall not enter into or terminate any contracts or agreements
pertaining to the Property without in each case obtaining Buyer's prior written
consent thereto.
16. LOSS BY FIRE OR OTHER CASUALTY; CONDEMNATION
16.1 Damage or Destruction
In the event that any of the improvements on the Property are damaged or
destroyed by fire or other casualty prior to the Closing, then Seller may
terminate this Agreement or may offer to restore and repair such damage.
Termination shall be by written notice to Buyer within five (5) days after the
occurrence of the damage or destruction. Buyer shall have no obligation to
accept Seller's offer to restore and repair such damage if such restoration and
repair would cause the Scheduled Closing Date to be extended. Seller shall pay
escrow and related costs, if any, that exist as a result of terminating this
Agreement under this Section.
16.2 Condemnation
In the event that prior to the Closing a governmental entity shall commence
any eminent domain proceeding to take any portion of the Property, Buyer shall
have the option to make either of the following elections:
16.2.1 Terminate this Agreement by written notice to Seller within
five (5} days of its receiving notice of such action of
condemnation; or
16.2.2 Proceed with the transaction in which case the Purchase Price
shall not be reduced and Buyer shall be entitled to the net award
paid to Seller or Seller's mortgagee for the taking, if any, and
Seller shall assign and transfer to Buyer all right, title, and
interest in and to any awards.
17. POSSESSION
Possession of the Property shall be delivered to Buyer at the Closing.
<PAGE> 22
18. NOTICES
Ail notices, requests, or demands herein provided to be given or made, or
which may be given or made by either party to the other, shall be given or made
only in writing and shall be deemed to have been duly given: (1) when delivered
personally at the address set forth below, or to any agent of the party to whom
notice is being given, or (ii) on the date delivered when sent via Overnight
Mail, properly addressed and postage prepaid, or (iii) on the date sent via
facsimile transmission, or (iv) seventy-two (72) hours after the time the same
is deposited in the United States mail, properly addressed and first class
postage prepaid, return receipt requested. The proper address to which notices,
requests, or demands may be given or made by either party shall be the address
set forth at the end of this Section or to such other address or to such other
person as any party shall designate. Such address may be changed by written
notice given to the other party in accordance to this Section.
If to Buyer:
Realty Income Corporation
Attn: Legal Department
220 West Crest Street Escondido, CA 92025-1707 {760) 741-2111
(760) 741-8674 (Fax number)
If to Seller:
Thomas M. Aspenleiter
Monro Muffler Brake, Inc.
200 Holleder Parkway
Rochester, NY 14615-3808
(716) 647-6400
(716) 647-0945 (Fax number)
If to Escrow:
P.J. Whitworth
Partners Title Company
712 Main Street, Suite 2000E
Houston, TX 77002-3218
(713) 238-9181
(713) 238-9180 (Fax number)
19. GENERAL PROVISIONS
19.1 Manner of Taking Title
Buyer shall have the right to take title to the Property at the Closing in
a name other than Buyer's name.
<PAGE> 23
19.2 Gender - Number
The use of (i) the neuter gender includes the masculine and feminine and
(ii) the singular number includes the plural whenever the context requires.
19.3 Captions
Captions in this Agreement are inserted for the convenience of reference
only and do not define, describe, or limit the scope or the intent of this
Agreement or any of its terms.
19.4 Exhibits
All attached exhibits are a part of this Agreement and are incorporated in
full by this reference.
19.5 Entire Agreement
This Agreement contains the entire agreement between the parties relating
to the transactions contemplated hereby and all prior or contemporaneous
agreements, understandings, representations, and statements, oral or written,
are merged into this Agreement.
19.6 Modification
No modification, waiver, amendment, discharge, or change of this Agreement
shall be valid unless it is in writing and signed by the party against which the
enforcement of the modification, waiver, amendment, discharge, or change is or
may be sought.
19.7 Attorneys' Fees
Should any party employ an attorney for the purpose of enforcing or
construing this Agreement, or any judgment based on this Agreement, in any legal
proceeding whatsoever, including insolvency, bankruptcy, arbitration,
declaratory relief, or other litigation, the prevailing party shall be entitled
to receive from the other party or parties, reimbursement for all attorneys'
fees and all costs, including, but not limited to, service of process, filing
fees, court and court reporter costs, investigative costs, expert witness fees,
and the cost of any bonds, whether taxable or not, and that such reimbursement
shall be included in any judgment or final order issued in that proceeding.
19.8 Joint and Several Liability
If any party consists of more than one person or entity, the liability of
each such person or entity signing this Agreement shall be joint and several.
<PAGE> 24
19.9 Governing Law
This Agreement shall be construed and enforced in accordance with the laws
of the state in which the Property is located.
19.10 Severability
In the event any term, covenant, condition, or provision of this Agreement
is held to be invalid, void, or otherwise unenforceable by any court of
competent jurisdiction, the fact that such term, covenant, condition, or
provision is invalid, void, or otherwise unenforceable shall in no way affect
the validity or enforceability of any other term, covenant, condition, or
provision of this Agreement.
19.11 Successors and Assigns
All terms of this Agreement shall be binding upon, inure to the benefit of,
and be enforceable by the parties and their respective legal representatives,
successors, and assigns.
19.12 Information Provided
Seller warrants and represents that all information Seller has provided to
Buyer is accurate and correct and Seller acknowledges that Buyer has relied upon
such information in entering into this Agreement.
Buyer warrants and represents that all information Buyer has provided to
Seller is accurate and correct and Buyer acknowledges that Seller has relied
upon such information in entering into this Agreement.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
<PAGE> 25
19. 13 Counterparts SELLER: Catherine D'Amico
(signature)
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original. counterparts shall together constitute but one
agreement.
Monro Muffler
Brake, Inc., a New
BUYER: Richard G. Collins (signature) York corporation
Realty Income Corporation,
a Maryland corporation
- Senior Vice President,
Date: Dec 18, 1997 DEC 18, 1997 Portfolio Acquisitions
ESCROW AGENT: PJ Whitworth
Partners Title Company
Date: 12/19/97
<PAGE> 26
PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS EXHIBIT "A"
LEGAL DESCRIPTION OF REAL PROPERTY
LOCATION: Monro Muffler/Brake #xxx
SPECIFIC ADDRESS
(To be taken from the Commitment for Policy of Title Insurance.)
<PAGE> 27
PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
EXHIBIT "B" SAMPLE DEED
<PAGE> 28
PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS EXHIBIT "C"
DOCUMENTS NEEDED TO CLOSE CHECKLIST
LOCATION: Monro Muffler/Brake #xxx
SPECIFIC ADDRESS
ITEM RECEIVED
1. Aerial Photograph
2. Certified Boundary Survey (if Available)
3. Area/Location Map
4. Area Demographics
5. Acceptable Commitment Of Title Insurance
6. Copy Of The Deed
7. Zoning Permits And Regulations
8. Insurance Certificates
9. Copy Of Tax Bill
10. Corporate Resolution Or Partnership Agreement
11. Standard Parcel Map Or Subdivision Plat
12. Site Plan
13. Soils Report
14. Phase 1 Environmental Site Assessment Report & Reliance Letter
15. Land Purchase Escrow Closing Statement
16. Project Pro Forma\Operating Profit & Loss Statement
17. Construction Contract (Including itemized Breakdown)
18. Plans and Specifications
19. Verification of Built-to Plans
20. Certified As-Built Survey (ALTA) Showing Land and Building
21. MAI Leased Fee Appraisal (Including Land Valuation)
22. Completion Notice/Certificate of Occupancy (If Available)
<PAGE> 1
Exhibit 11.01
MONRO MUFFLER BRAKE, INC. & SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS
- - --------------------------------------------------------------------------------
Net income per share was computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
DILUTED
EARNINGS
<S> <C> <C> <C>
Net income available to
common shares $9,854 $10,191 $7,614
========== ========== =========
SHARES
Weighted average number of
common shares 7,863 7,797 7,570
Assuming conversion of Class
C Convertible Preferred
Stock 605 605 605
Dilutive effect of
outstanding options 118 178 307
---------- ---------- ---------
Total common and common
equivalent shares 8,586 8,580 8,482
========== ========== =========
DILUTED EARNINGS PER SHARE $ 1.15 $ 1.19 $ .90
========== ========== =========
BASIC
EARNINGS
Net income available to
common shares $9,854 $10,191 $7,614
========== ========== =========
SHARES
Weighted average number of
common shares 7,863 7,797 7,570
========== ========== =========
BASIC EARNINGS PER SHARE $ 1.25 $ 1.31 $ 1.01
========== ========== =========
</TABLE>
<PAGE> 1
Exhibit 21.01
SUBSIDIARIES OF THE COMPANY
---------------------------
Monro Service Corporation
Speedy Holding Corporation
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 33-56458) of Monro Muffler Brake, Inc. of our
report dated May 18, 1998, appearing in Item 8 of the Monro Muffler Brake, Inc.
Annual Report on Form 10-K for the year ended March 31, 1998.
PRICE WATERHOUSE LLP
Rochester, New York
May 18, 1998
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director
of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"),
constitutes and appoints JACK M. GALLAGHER to be his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities in connection with the filing of the Annual Report of Form 10-K of
the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with
the Securities and Exchange Commission, to sign the Form 10-K and any and all
amendments related thereto and to file the same, with any exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, or his substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this power of attorney has been signed by the following director on
June 22, 1998.
/s/ Robert W. August
-------------------------
Robert W. August
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director
of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"),
constitutes and appoints JACK M. GALLAGHER to be his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities in connection with the filing of the Annual Report of Form 10-K of
the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with
the Securities and Exchange Commission, to sign the Form 10-K and any and all
amendments related thereto and to file the same, with any exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, or his substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this power of attorney has been signed by the following director on
June 24, 1998.
/s/ Frederick M. Danziger
-------------------------
Frederick M. Danziger
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director
of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"),
constitutes and appoints JACK M. GALLAGHER to be his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities in connection with the filing of the Annual Report of Form 10-K of
the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with
the Securities and Exchange Commission, to sign the Form 10-K and any and all
amendments related thereto and to file the same, with any exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, or his substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this power of attorney has been signed by the following director on
June 29, 1998.
/s/ Peter J. Solomon
-------------------------
Peter J. Solomon
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director
of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"),
constitutes and appoints JACK M. GALLAGHER to be his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities in connection with the filing of the Annual Report of Form 10-K of
the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with
the Securities and Exchange Commission, to sign the Form 10-K and any and all
amendments related thereto and to file the same, with any exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, or his substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this power of attorney has been signed by the following director on
June 24, 1998.
/s/ Donald Glickman
-------------------------
Donald Glickman
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director
of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"),
constitutes and appoints JACK M. GALLAGHER to be his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities in connection with the filing of the Annual Report of Form 10-K of
the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with
the Securities and Exchange Commission, to sign the Form 10-K and any and all
amendments related thereto and to file the same, with any exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, or his substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this power of attorney has been signed by the following director on
June 24, 1998.
/s/ Lionel B. Spiro
-------------------------
Lionel B. Spiro
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director
of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"),
constitutes and appoints JACK M. GALLAGHER to be his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities in connection with the filing of the Annual Report of Form 10-K of
the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with
the Securities and Exchange Commission, to sign the Form 10-K and any and all
amendments related thereto and to file the same, with any exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, or his substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this power of attorney has been signed by the following director on
June 24, 1998.
/s/ Burton S. August
-------------------------
Burton S. August
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director
of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"),
constitutes and appoints JACK M. GALLAGHER to be his true and lawful
attorney-in-fact and agent, with full powers of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities in connection with the filing of the Annual Report of Form 10-K of
the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with
the Securities and Exchange Commission, to sign the Form 10-K and any and all
amendments related thereto and to file the same, with any exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, or his substitutes,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this power of attorney has been signed by the following director on
June 23, 1998.
/s/ W. Gary Wood
-------------------------
W. Gary Wood
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 5,315
<SECURITIES> 0
<RECEIVABLES> 841
<ALLOWANCES> 0
<INVENTORY> 27,492
<CURRENT-ASSETS> 39,488
<PP&E> 165,839
<DEPRECIATION> (49,429)
<TOTAL-ASSETS> 159,088
<CURRENT-LIABILITIES> 25,971
<BONDS> 0
0
138
<COMMON> 79
<OTHER-SE> 29,284
<TOTAL-LIABILITY-AND-EQUITY> 159,088
<SALES> 154,294
<TOTAL-REVENUES> 154,294
<CGS> 87,510
<TOTAL-COSTS> 87,510
<OTHER-EXPENSES> 46,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,829
<INCOME-PRETAX> 16,504
<INCOME-TAX> 6,650
<INCOME-CONTINUING> 9,854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,854
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.15
</TABLE>
