<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998.
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________ to ___________
Commission File No. 0-19357
-------
MONRO MUFFLER BRAKE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 16-0838627
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
200 Holleder Parkway, Rochester, New York 14615
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 716-647-6400
------------------------------
Indicate by check mark whether 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
--------- ---------
As of February 1, 1999, 8,321,701 shares of the Registrant's Common Stock, par
value $ .01 per share, were outstanding after giving effect to the five percent
stock dividend, paid June 18, 1998 to stockholders of record as of June 8, 1998.
<PAGE> 2
MONRO MUFFLER BRAKE, INC.
INDEX
-----
Part I. Financial Information Page No.
--------
Consolidated Balance Sheet at
December 31, 1998 and March 31, 1998 3
Consolidated Statement of Income for the quarter
and nine months ended December 31, 1998 and 1997 4
Consolidated Statement of Changes in Common
Shareholders' Equity for the nine months ended
December 31, 1998 5
Consolidated Statement of Cash Flows for the
nine months ended December 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
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<PAGE> 3
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents, including interest-bearing accounts of $852 at $ 852 $ 5,315
December 31, 1998 and $5,315 at March 31, 1998
Trade receivables 1,231 841
Inventories, at LIFO cost 41,601 27,492
Deferred income tax asset 1,725 1,725
Other current assets 5,264 4,115
--------- ---------
Total current assets 50,673 39,488
--------- ---------
Property, plant and equipment 202,786 165,839
Less - Accumulated depreciation and amortization (56,511) (49,429)
--------- ---------
Net property, plant and equipment 146,275 116,410
Other noncurrent assets 9,327 3,190
--------- ---------
Total assets $ 206,275 $ 159,088
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,832 $ 3,582
Trade payables 9,845 11,633
Federal and state income taxes payable 34 2
Accrued expenses and other current liabilities
Accrued interest 216 233
Accrued payroll, payroll taxes and other payroll benefits 4,316 3,764
Accrued insurance 2,142 2,441
Accrued restructuring costs 3,000
Other current liabilities 7,114 4,316
--------- ---------
Total current liabilities 31,499 25,971
Long-term debt 82,862 54,102
Other long-term liabilities 3,469 576
Accrued long-term restructuring costs 4,484
Deferred income tax liability 1,768 1,881
--------- ---------
Total liabilities 124,082 82,530
--------- ---------
Commitments
Shareholders' equity:
Class C Convertible Preferred Stock, $1.50 par value, $.216 and $.227
conversion value at December 31, 1998 and March 31, 1998, respectively;
150,000 shares authorized; 91,727 shares issued and outstanding 138 138
Common Stock, $.01 par value, 15,000,000 shares authorized; 8,321,701
shares and 7,876,901 shares issued and outstanding at December 31, 1998 83 79
and March 31, 1998, respectively
Additional paid-in capital 36,370 29,284
Retained earnings 45,602 47,057
--------- ---------
Total shareholders' equity 82,193 76,558
--------- ---------
Total liabilities and shareholders' equity $ 206,275 $ 159,088
========= =========
</TABLE>
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K (File
No. 0-19357), filed by the Company with the Securities and Exchange Commission
on June 29, 1998.
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<PAGE> 4
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales $ 53,672 $ 36,336 $144,169 $118,649
Cost of sales, including distribution and
occupancy costs (a) 33,844 20,996 84,933 66,858
-------- -------- -------- --------
Gross profit 19,828 15,340 59,236 51,791
Operating, selling, general and
administrative expenses 19,449 11,409 46,168 34,637
-------- -------- -------- --------
Operating income 379 3,931 13,068 17,154
Interest expense, net of interest income for
the quarter of $18 in 1998 and $21 in
1997 (a) 1,598 1,005 3,579 2,775
Other expense, net 322 95 625 267
-------- -------- -------- --------
(Loss) income before provision for income taxes (1,541) 2,831 8,864 14,113
(Recovery of) provision for income taxes (618) 1,131 3,518 5,644
-------- -------- -------- --------
Net (loss) income $ (923) $ 1,700 $ 5,346 $ 8,469
======== ======== ======== ========
Basic (loss) earnings per share (b) $ (.11) $ .21 $ .64 $ 1.03
======== ======== ======== ========
Diluted (loss) earnings per share $ (.11) $ .19 $ .59 $ .94
======== ======== ======== ========
Weighted average number of shares of
common stock and common stock
equivalents used in computing earnings
per share: Basic 8,322 8,260 8,301 8,254
======== ======== ======== ========
Diluted (b) 8,322 8,984 9,002 9,019
======== ======== ======== ========
<FN>
(a) Amounts paid under operating and capital leases with affiliated parties
totaled $408 and $417 for the quarters ended December 31, 1998 and
1997, respectively, and $1,371 and $1,374 for the nine months ended
December 31, 1998 and 1997, respectively.
(b) The antidilutive effect of the Class C Convertible Preferred Stock and
outstanding options resulted in their exclusion from the calculation
of weighted average diluted shares outstanding, and thereby increased
the loss per share by $.01.
</TABLE>
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K (File
No. 0-19357), filed by the Company with the Securities and Exchange Commission
on June 29, 1998.
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<PAGE> 5
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
Nine Months Ended December 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------ ------ --------- ----------
(Amounts in thousands)
<S> <C> <C> <C> <C>
Balance at March 31, 1998 7,877 $ 79 $ 29,284 $ 47,057
Net income 5,346
Other comprehensive income:
Minimum pension liability adjustment (171)
Exercise of stock options 49 462
5% stock dividend 396 4 6,625 (6,629)
Rounding (1) (1)
-------- -------- -------- --------
Balance at December 31, 1998 8,322 $ 83 $ 36,370 $ 45,602
======== ======== ======== ========
</TABLE>
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K (File
No. 0-19357), filed by the Company with the Securities and Exchange Commission
on June 29, 1998.
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<PAGE> 6
MONRO MUFFLER BRAKE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
-----------------
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,346 $ 8,469
--------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities -
Depreciation and amortization 8,164 6,921
(Gain) loss on disposal of property, plant and equipment (101) 36
(Increase) decrease in trade receivables (390) 388
Increase in inventories (4,262) (7,475)
Decrease in other current assets 1,061 1,201
(Increase) decrease in other noncurrent assets (1,867) 67
(Decrease) increase in trade payables (2,792) 935
(Decrease) in accrued expenses (921) (1,082)
Increase in federal and state income taxes payable 32 1,197
Increase in other long-term liabilities 1,330
Decrease in deferred tax liability (113)
--------- ---------
Total adjustments 141 2,188
--------- ---------
Net cash provided by operating activities 5,487 10,657
--------- ---------
Cash flows from investing activities:
Capital expenditures (17,575) (18,792)
Proceeds from the disposal of property, plant and equipment 81 6,228
Payment for purchase of Speedy stores (21,488)
--------- ---------
Net cash used for investing activities (38,982) (12,564)
--------- ---------
Cash flows from financing activities:
Proceeds from the sale of common stock 462 52
Proceeds from borrowings 130,755 47,631
Principal payments on long-term debt and capital
lease obligations (102,185) (45,359)
--------- ---------
Net cash provided by financing activities 29,032 2,324
--------- ---------
(Decrease) increase in cash (4,463) 417
Cash at beginning of year 5,315 6,438
--------- ---------
Cash at December 31 $ 852 $ 6,855
========= =========
</TABLE>
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Annual Report on Form 10-K (File
No. 0-19357), filed by the Company with the Securities and Exchange Commission
on June 29, 1998.
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<PAGE> 7
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Acquisition of Speedy Stores
- -------------------------------------
In September 1998, the Company completed the acquisition of 189
company-operated and 14 franchised Speedy stores, all located in the United
States, from SMK Speedy International Inc. of Toronto Canada. Speedy stores
provide automotive repair services, specializing in undercar care, in 11 states
located primarily in the Northeast. The acquisition was accounted for as a
purchase, and accordingly, the operating results of Speedy have been included in
the Company's consolidated financial statements since the date of the
acquisition.
Approximately $51 million was borrowed under a new $135 million secured
credit facility to pay the all-cash purchase price, with an additional $16
million to be borrowed to provide for the closing of up to 20 underperforming or
redundant Speedy stores, capital expenditures at remaining Speedy stores and
transaction expenses.
The excess of the aggregate purchase price over the fair value of net
assets acquired is being amortized on a straight-line basis over 20 years. The
accrued restructuring charge of approximately $7.5 million at December 31, 1998
represents estimated closing costs associated with poorly performing or
duplicative Speedy store locations resulting from the acquisition.
Note 2 - Stock Dividend
- -----------------------
On May 13, 1998, the Board of Directors declared a five percent stock
dividend, paid June 18, 1998, to stockholders of record as of June 8, 1998. The
consolidated financial statements, including all share information therein, have
been restated to reflect this dividend.
Additionally, in accordance with antidilution provisions of the Class C
Convertible Preferred Stock, the conversion value of the preferred stock was
restated from $.227 per share to $.216 per share.
Shares reserved for issuance to officers and key employees under
outstanding options under the 1984, 1987 and 1989 Incentive Stock Option Plans
have also been retroactively adjusted for the five percent stock dividend.
Note 3 - 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 $534,000 and $426,000 higher at December 31, 1998
and March 31, 1998, respectively. The FIFO value of inventory approximates the
current replacement cost.
Note 4 - Cash and Equivalents
- -----------------------------
The Company's policy is to invest cash in excess of operating
requirements in income producing investments. Cash equivalents of $852,000 at
December 31, 1998 and $5,315,000 at March 31, 1998 include money market accounts
which have maturities of three months or less.
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<PAGE> 8
MONRO MUFFLER BRAKE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Supplemental Disclosure of Cash Flow Information
- ---------------------------------------------------------
The following transactions represent noncash investing and financing
activities during the periods indicated:
NINE MONTHS ENDED DECEMBER 31, 1998:
Capital lease obligations of $754,000 were incurred under various lease
obligations.
In connection with the declaration of a five percent stock dividend
(see Note 2), the Company increased accrued expenses common stock and additional
paid-in capital by $1,000, $4,000 and $6,624,000, respectively, and decreased
retained earnings by $6,629,000.
In connection with the acquisition of Speedy stores (see Note 1),
liabilities were assumed as follows:
Fair value of assets acquired $36,134,000
Cash paid 21,488,000
-----------
Liabilities assumed $14,646,000
===========
NINE MONTHS ENDED DECEMBER 31, 1997:
Capital lease obligations of $236,000 were incurred under various lease
obligations.
In connection with the declaration of a five percent stock dividend
(see Note 1), 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.
CASH PAID DURING THE PERIOD:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
---------------
1998 1997
---- ----
<S> <C> <C>
Interest, net $3,835,000 $ 3,041,000
Income taxes, net 3,488,000 4,448,000
</TABLE>
Note 6 - Other
- --------------
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Annual Report on Form
10-K (File No. 0-19357), filed by the Company with the Securities and Exchange
Commission on June 29, 1998.
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<PAGE> 9
MONRO MUFFLER BRAKE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The statements contained in this Form 10-Q which are not historical
facts, including (without limitation) statements made in the Management's
Discussion and Analysis of Financial Condition and Results of Operations, may
contain statements of future expectations and other forward-looking statements
that are subject to important factors that could cause actual results to differ
materially from those in the forward-looking statements, including (without
limitation) product demand, the effect of economic conditions, the impact of
competitive services and pricing, product development, parts supply restraints
or difficulties, industry regulation, the continued availability of capital
resources and financing and other risks set forth or incorporated elsewhere
herein and in the Company's Securities and Exchange Commission filings.
RESULTS OF OPERATIONS
The following table sets forth income statement data of Monro Muffler
Brake, Inc. ("Monro" or the "Company") expressed as a percentage of sales for
the fiscal periods indicated.
<TABLE>
<CAPTION>
Quarter Ended December 31, Nine Months Ended December 31,
-------------------------- ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales ......................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales, including distribution
and occupancy costs .......................... 63.1 57.8 58.9 56.3
------- ------- ------- -------
Gross profit .................................. 36.9 42.2 41.1 43.7
Operating, selling, general and
administrative expenses ...................... 36.2 31.4 32.0 29.2
------- ------- ------- -------
Operating income .............................. .7 10.8 9.1 14.5
Interest expense - net ........................ 3.0 2.8 2.5 2.4
Other expenses - net .......................... .6 .2 .5 .2
------- ------- ------- -------
(Loss) income before provision for income
taxes ....................................... (2.9) 7.8 6.1 11.9
Provision for income taxes .................... (1.2) 3.1 2.4 4.8
------- ------- ------- -------
Net (loss) income ............................. (1.7)% 4.7% 3.7% 7.1%
======= ======= ======= =======
</TABLE>
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<PAGE> 10
THIRD QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO
THIRD QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1997.
In December 1998, the Company appointed Robert G. Gross as President
and Chief Executive Officer, replacing Jack M. Gallagher who returned as interim
President and Chief Executive Officer in February 1998. Mr. Gross began
full-time responsibilities on January 1, 1999.
On September 17, 1998, the Company completed its acquisition of 189
company-owned and 14 franchised Speedy stores, all located in the United States,
from SMK Speedy International Inc. of Toronto Canada (the "Acquisition"). Sales
for the fiscal year ended January 3, 1998 for the 189 company-operated stores,
some of which were opened only part of the year, were approximately $86 million.
While management expects the acquisition to have a dilutive impact on earnings
in the current 1999 fiscal year, management anticipates that the acquired
operations should begin to contribute to earnings per share during fiscal 2000,
and should be increasingly accretive in subsequent years.
Sales were $53.7 million for the quarter ended December 31, 1998
compared with $36.3 million for the quarter ended December 31, 1997. The sales
increase of $17.4 million, or 47.7%, was due to an increase in sales of
approximately $18.1 million relating to stores opened since the beginning of
fiscal 1998, including $15.7 million from the newly-acquired Speedy stores. This
increase was partially offset by a decrease in comparable store sales of 0.8%.
Sales for the nine months ended December 31, 1998 were $144.2 million compared
with $118.6 million for the same period of the prior year. The sales increase of
$25.5 million, or 21.5%, was due to an increase in sales of approximately $27.3
million relating to stores opened since the beginning of fiscal 1998, including
$18.2 million from the newly-acquired Speedy stores. This increase was partially
offset by a decrease in comparable store sales of 0.7%. At December 31, 1998,
the Company had 532 company-operated stores (including the stores acquired from
Speedy) compared to 341 at December 31, 1997.
In the third quarter of fiscal 1999, the weakness of Speedy's sales
represents a continuation of a decline which was most pronounced prior to the
Acquisition in September 1998. The conversion of systems and inventory at all
Speedy stores also impacted the performance of these locations. These
conversions, all of which occurred during this quarter, involved the
installation of new point-of-sale systems in all Speedy stores, as well as the
lifting of slow moving items and restocking with more popular parts,
representing approximately half of the inventory in the Speedy stores. Although
essential to margin improvement in future periods, this conversion process was
very disruptive to the operations of the Speedy stores in the quarter ended
December 31, 1998.
Gross profit for the quarter ended December 31, 1998 was $19.8 million,
or 36.9% of sales, compared with $15.3 million, or 42.2% of sales, for the
quarter ended December 31, 1997. Gross profit for the nine months ended December
31, 1998 was $59.2 million, or 41.1% of sales, compared to $51.8 million or
43.7% of sales, for the nine months ended December 31, 1997. The decline in
gross profit as a percentage of sales for Monro stores was due, in part, to an
increase in outside purchases. During periods of slower sales, store personnel
will more readily accept repair work outside of the normal recurring services
the store usually provides. In addition, Company personnel assigned to
controlling outside purchases were diverted during the Speedy due diligence
process, away from the Monro stores. However, beginning late in the second
quarter of fiscal 1999, the Company has refocused its resources in order to
reduce outside purchases at the Monro stores. In that regard, the Company will
be lifting older, slow moving inventory from the Monro stores, and restocking
them with faster moving items during the fourth quarter of fiscal 1999.
Secondly, there was an increase in distribution and occupancy costs as
a percent of sales for the third quarter of fiscal 1999 as compared to the third
quarter of fiscal 1998, primarily due to an increase in the number of stores and
increased occupancy costs against negative comparable store sales.
In addition, labor costs increased as a percentage of sales during the
third quarter of fiscal 1999 as compared to the same quarter of the prior year.
During periods of slower sales when technicians may not be fully productive,
they will receive a minimum base level wage.
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<PAGE> 11
Additionally, the Speedy stores accounted for 2.5 percentage points of
the decline in gross profit as a percent of sales, in part in the "cost of
goods" component of cost of sales. Historically, Speedy's cost of goods has
averaged approximately six percentage points more than the Company's due to more
expensive parts acquisition costs. This resulted from a higher percentage of
outside purchases, and Speedy's distribution methods (store-door from vendors
vs. Monro's central distribution facility). Management is confident that, over
time, the Speedy stores will experience the same lower cost of goods as the
Monro stores. One measure leading to this is the inclusion of all Speedy stores
in the Company's central distribution/automatic replenishment system. As of
December 31, 1998, all Speedy stores were receiving product from the Company's
central warehouse facility in Rochester, New York.
The Company experienced improved margins during the few weeks after
conversion of the Speedy stores from Speedy's distribution system to Monro's
distribution system. Since all stores were not converted until mid-December,
the real impact of the improvement will not be seen until the fourth quarter of
fiscal 1999.
The Speedy stores also experienced higher than anticipated labor and
occupancy costs as a percentage of sales due to the weakness in Speedy sales in
the quarter.
Operating, selling, general and administrative expenses for the quarter
ended December 31, 1998 increased by $8.0 million to $19.4 million over the
quarter ended December 31, 1997, and were 36.2% of sales compared to 31.4% in
the same quarter of the prior year. For the nine months ended December 31, 1998,
these expenses increased by $11.5 million to $46.2 million over the comparable
period of the prior year and were 32.0% of sales compared to 29.2% in the
comparable period of the prior year. During the third quarter of fiscal 1999,
costs associated with the Speedy stores and acquisition-related activities
accounted for 4.0 percentage points of the increase. The remainder is primarily
due to increases in fixed, store-related operating and support costs (such as
store supervision and utilities) against negative comparable store sales.
Net interest expense for the quarter ended December 31, 1998, increased
by approximately $.6 million compared to the same period in the prior year, and
increased from 2.8% to 3.0% as a percentage of sales for the same periods. Net
interest expense for the nine months ended December 31, 1998, increased by
approximately $.8 million compared to the comparable period in the prior year,
and rose from 2.4% to 2.5% as a percentage of sales for the same periods. The
increase in expense is due to an increase in the weighted average debt
outstanding for the quarter and nine months ended December 31, 1998 as compared
to the same periods in the previous year.
The net loss for the quarter ended December 31, 1998 of approximately
$.9 million represents a 154.3% decrease from the net income reported for the
quarter ended December 31, 1997. For the nine months ended December 31, 1998,
net income of approximately $5.3 million decreased 36.9%, due to the factors
discussed above.
Interim Period Reporting
The data included in this report are unaudited and are subject to
year-end adjustments; however, in the opinion of management, all known
adjustments (which consist only of normal recurring adjustments) have been made
to present fairly the Company's operating results for the unaudited periods. The
results for interim periods are not necessarily indicative of results to be
expected for the fiscal year.
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<PAGE> 12
Year 2000 Computer Issue
As the year 2000 approaches, the Company, along with other companies,
could experience potentially serious operational problems, since many computer
programs that were developed in the past may not properly recognize calendar
dates beginning with the year 2000. Further, there are embedded chips contained
within equipment that may be date sensitive.
PLANS: The Company's overall plan for dealing with the Year 2000
problem covers Information Technology ("IT") systems, non-IT systems, and third
party providers. The Company has established a dedicated Year 2000 team to lead
the Company's activities relating to its Year 2000 issues. The Company's current
state of readiness with respect to each of these elements is discussed below.
1.) All IT SYSTEMS that the Company considers to be critical
at this time have been evaluated for Year 2000 problems. In connection with this
process, the Company has developed detailed plans that establish phases of the
work to be done for each major area:
1.) An assessment of all systems and equipment.
2.) Development of detailed workplans and timelines
for remediation.
3.) Remediation/modification.
4.) Testing and validation.
5.) Acceptance and deployment.
6.) Independent validation and
7.) Contingency planning.
Although the Company has identified seven different phases of the
project, in some cases the phases are done concurrently. For example, certain
component systems may be completely tested and redeployed, while others are
still being remediated. Management of the Company believes these systems will
have been diagnosed, modified, tested and deployed by September 1, 1999.
2.) NON-IT SYSTEMS typically include embedded technology such
as microcontrollers. The Company's non-IT systems include machinery and
equipment in its buildings such as elevators, telephone equipment, HVAC,
security and alarm systems, copiers, fax machines and computerized alignment
equipment. The Company is reviewing these systems for Year 2000 compliance with
third party providers, and believes that full compliance will be achieved by
September 1, 1999.
3.) The Company uses a variety of third party providers and
vendors in the normal course of conducting its day to day operations. Year 2000
problems may result in a loss of service from these providers/vendors. The
Company believes that loss of electric power, phone, banking or certain
outsourced processing services, as well as a vendor's inability to deliver
product on a timely basis, could have an immediate and critical adverse material
impact on the Company's operations. The Company is contacting each of its major
third party providers and vendors to determine if the provider/vendor is Year
2000 compliant. If a provider is not currently Year 2000 compliant, and its
plans to become Year 2000 compliant are uncertain, then the Company intends to
seek other providers/vendors.
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<PAGE> 13
CONTINGENCY PLANS: The Company's Year 2000 plans also include the
development and implementation of contingency plans in the event of Year 2000
failures, both within the Company and by third parties. The Company expects to
have these plans completed during calendar 1999 for all major systems. As
discussed above with regard to third party providers/vendors, if a provider is
not currently Year 2000 compliant, and its plans to become Year 2000 compliant
are uncertain, then the Company intends to seek other providers/vendors.
COSTS: The Company's incremental costs to address the Year 2000 issues
did not have a material impact on the Company's operations in fiscal 1998 or
during the nine months ended December 31, 1998, and are not expected to have a
material impact on the remainder of fiscal 1999 or fiscal 2000.
RISKS: The failure to correct for Year 2000 problems, either by the
Company or third parties, could result in significant disruptions of the
Company's operations. At this point in time, based upon the progress to date and
information received from third parties, the Company is unable to determine its
most likely worst case scenario.
Certain statements included in this discussion regarding Year 2000
compliance are forward-looking statements as defined in Section 21E of the
Securities Exchange Act of 1934. These statements include management's best
estimates for completion dates for the various phases and testing to be
performed, costs to be spent for compliance, and the risks associated with
non-compliance either by the Company or third parties. These forward-looking
statements are subject to various factors, which may materially affect the
Company's efforts with Year 2000 compliance. Specific factors that might cause
such material differences include, but are not limited to, the availability and
cost of personnel trained in this area, which could cause a change in the
estimated completion date of a particular phase, the ability to locate and
correct all relevant software and embedded components, the compliance of
critical vendors, and similar uncertainties. The Company's assessments of the
effects of Year 2000 on the Company are based, in part, upon information
received from third parties, and the Company's reasonable reliance on that
information. Therefore, the risk that inaccurate information is supplied by
third parties upon which the Company reasonably relied must be considered as a
risk factor that might affect the Company's Year 2000 efforts. The Company is
attempting to reduce the risks by utilizing an organized approach, extensive
testing and allowance of contingency time to address issues identified by
tests. Despite the Company's efforts to address its Year 2000 issues, there
can be no assurances that Year 2000 related failures of the Company's software,
or that Year 2000 related failures by third parties with which the Company
interacts, will not have a material adverse affect on the Company.
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
Other than the funding of the Acquisition, the Company's primary
capital requirement has been the funding of its new store expansion program and
the upgrading of facilities and systems in existing shops. For the nine months
ended December 31, 1998, the Company spent $18.4 million for equipment and new
store construction. Funds for equipment and new store construction were provided
primarily by cash flow from operations. 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.
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<PAGE> 14
Liquidity
Concurrent with the closing of the Acquisition, Monro obtained a new
$135 million secured credit facility from lenders led by The Chase Manhattan
Bank. Approximately $51 million was borrowed under this facility to pay the
all-cash purchase price in the Acquisition, with an additional $16 million to be
borrowed to provide for the closing of up to 20 underperforming or redundant
Speedy stores, capital expenditures at remaining Speedy stores and transaction
expenses. In addition, Monro refinanced approximately $35 million of
indebtedness through the new credit facility, with the balance of the facility
available for future working capital needs. More specifically, the new financing
structure consists of a $25 million term loan (all of which was outstanding at
December 31, 1998), a $75 million Revolving Credit facility (of which
approximately $42 million was outstanding at December 31, 1998), and synthetic
lease (off-balance sheet) financing for a significant portion of the Speedy real
estate, totaling $35 million. The loans bear interest at the prime rate or other
LIBOR-based rate options tied to the Company's financial performance.
The Company has outstanding $1.8 million in principal amount of its
10.65% Senior Notes due 1999 (the "Senior Notes") with Massachusetts Mutual Life
Insurance Company pursuant to a Senior Note Agreement. The fifth of six equal
annual installments of principal in the amount of $1.8 million was paid on April
1, 1998.
Certain of the Company's stores were financed by mortgages currently
bearing interest at LIBOR plus 100 basis points.
The Company has financed its office/warehouse facility via a 10 year
mortgage with a current balance of $2.5 million, amortizable over 20 years, and
an eight year term loan with a balance of $.5 million.
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. They also contain requirements
concerning Y2K compliance and restrictions on cash dividend
payments.
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.
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<PAGE> 15
MONRO MUFFLER BRAKE, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
10.1 - Amended and Restated Employment Agreement, dated
February 16, 1999, by and between the Company and
Robert G. Gross.
10.2 - Amended and Restated Secured Loan
Agreement, dated February 16, 1999, by and
between the Company and Robert G. Gross.
10.3 - Company's 1998 Stock Option Plan Amendment.
(*Subject to the approval of the shareholders of the
Company.)
11 - Statement of Computation of Per Share Earnings.
b. Reports on Form 8-K.
The Company filed a report on Form 8-K on December 3,
1998 in connection with the appointment of Robert G.
Gross as President and Chief Executive Officer of the
Company.
c. Reports on Form 8-K/A
The Company filed a report on Form 8-K/A on December
1, 1998 presenting financial statements and pro forma
financial information related to the acquisition of
189 company-owned and 14 franchised stores from Bloor
Automotive and Speedy Car-X on September 17, 1998.
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<PAGE> 16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MONRO MUFFLER BRAKE, INC.
DATE: February 12, 1999 By /s/ Robert G. Gross
---------------------------------------
Robert G. Gross
President and Chief Executive Officer
DATE: February 12, 1999 By /s/ Catherine D'Amico
---------------------------------------
Catherine D'Amico
Senior Vice President-Finance, Treasurer
and Chief Financial Officer
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<PAGE> 17
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Amended and Restated Employment Agreement, dated
February 16, 1999, by and between the Company and
Robert G. Gross.
10.2 Amended and Restated Secured Loan Agreement, dated
February 16, 1999, by and between the Company and
Robert G. Gross.
10.3 Company's 1998 Stock Option Plan Amendment.
(*Subject to the approval of the shareholders of the
Company.)
11 Statement of Computation of Per Share Earnings.
27 Financial Data Schedule
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<PAGE> 1
Exhibit 10.1
AMENDED EMPLOYMENT AGREEMENT
----------------------------
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of February 16,
1999, between Monro Muffler Brake, Inc. (the "Company") and Robert Gross (the
"Executive").
WHEREAS, the Company wishes to hire the Executive and the Executive
desires to serve in the employ of the Company upon the terms and conditions
hereinafter provided.
IT IS THEREFORE AGREED AS FOLLOWS:
1. EMPLOYMENT AND DUTIES.
1.1 EMPLOYMENT BY THE COMPANY. The Company hereby agrees to
employ the Executive for the Term (as herein defined), to render exclusive and
full-time services in the capacity of President and Chief Executive Officer of
the Company, subject to the control and direction of the Company's Board of
Directors (the "Board of Directors").
1.2 DUTIES/AUTHORITY. The Executive shall have responsibility for
the conduct of the business and fiscal affairs of the Company and the general
supervision of and control over the properties, business interests, and agents
of the Company, in each case subject to the control and direction of the Board
of Directors. The Executive's duties hereunder shall be consistent with the
duties, responsibilities, and authority generally recognized for the offices of
Chief Executive Officer and President.
1.3 DIRECTORSHIP. The Company shall use its best efforts to cause
the Executive to be elected as a director by February 18, 1999.
2. TERM OF EMPLOYMENT. The term of the Executive's employment under
this Agreement (the "Term") shall commence on the Effective Date (as defined in
Section 9.10) and shall end on December 1, 2003, unless sooner terminated as
provided herein.
3. COMPENSATION.
3.1 SALARY. As compensation for all services to be rendered
pursuant to this Agreement, the Company shall pay the Executive (i) for the
period from the Effective Date through December 31, 1998, the sum of $7,500
payable on January 5, 1999, and (ii) thereafter during the Term a salary of
$420,000 per annum (the "Base Salary"), payable in the case of payments under
this clause (ii) not less frequently than monthly, less such amounts as shall
be required to be withheld by applicable law and regulations.
3.2 INITIAL BONUS. The Company shall pay the Executive an initial
bonus of $150,000, payable on the later of January 15, 1999 and the date on
which the Executive completes his stock purchase obligation pursuant to Section
4 hereof, less such amounts as shall be required to be withheld by applicable
law and regulations.
<PAGE> 2
3.3 ANNUAL BONUS. Pursuant to the Company's bonus plan (the
"Bonus Plan"), the Company shall pay the Executive, within 120 days of its
fiscal year end, a bonus in respect of each year during the Term beginning with
the fiscal year ending in March, 2000, of 60% of Base Salary if the Company
achieves its performance targets set by the Board of Directors with respect to
such years, increased up to a maximum of 120% of Base Salary if the Company
exceeds such performance targets by amounts to be determined by the Board of
Directors (the "Annual Bonus"), less such amounts as shall be required to be
withheld by applicable law and regulations. If this Agreement terminates other
than at the end of a fiscal year end and if the Executive is entitled to a pro
rata bonus for such partial year pursuant to Section 5.5, such pro rata bonus
shall be equal to the bonus he would have received under the Bonus Plan had he
been employed by the Company for the entire fiscal year multiplied by a
fraction the numerator of which shall be the number of days during such fiscal
years he was so employed and the denominator of which shall be 365.
3.4 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted during the Term, if and to the extent eligible, to participate in
any group life, hospitalization or disability insurance plan, health program
(including either coverage thereunder for his wife notwithstanding any
pre-existing condition or separate reimbursement of his wife's medical expenses
by the Company), or any pension plan or similar benefit plan of the Company,
which is available generally to other senior executives of the Company.
3.5 EXPENSES. Subject to such policies generally applicable to
senior executives of the Company, as may from time to time be established by
the Board of Directors, the Company shall pay or reimburse the Executive for
all reasonable expenses (including travel expenses) actually incurred or paid
by the Executive during the Term in the performance of the Executive's services
under this Agreement ("Expenses") upon presentation of expense statements or
vouchers or such other supporting information as it may require.
3.6 VACATION. The Executive shall be entitled to such amount of
vacation which is available generally to other senior executives of the
Company; PROVIDED, HOWEVER, that in no event shall the Executive be entitled to
less than three weeks of vacation in each twelve-month period following the
commencement of the Term.
3.7 STOCK OPTIONS.
(a) As of the Effective Date, the Executive shall be granted
under the Monro Muffler Brake, Inc. 1989 Stock Option Plan (the "Stock Option
Plan") incentive stock options (the "ISOs"), within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), to purchase
225,000 shares of the Company's common stock. The ISOs shall have an exercise
price equal to the fair market value of the Company's common stock on the
Effective Date and shall have a 10 year term. The ISOs shall vest and become
exercisable, subject to approval of the Company's stockholders, in accordance
with the following schedule, provided that on each such date the Executive
continues to be employed by the Company: (i) on the Effective Date and on
January 1, 2003, a number of options covering that number of shares which
equals $100,000 divided by the fair market value per share of the Company's
common stock on the date of grant, and (ii) on December 1, 1999, December 1,
2000,
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<PAGE> 3
December 1, 2001 and December 1, 2002, 25% of the difference between 225,000
shares and the number of shares subject to clause (i); PROVIDED, HOWEVER, that
if the Executive's employment is terminated by the Company without Cause prior
to December 1, 2000, an aggregate (including those theretofore vested) of 50%
of the ISOs shall be vested and immediately exercisable as of the date of
termination.
(b) As of the Effective Date the Executive shall be granted
under the 1998 Stock Option Plan non-qualified stock options (the "NSOs") to
purchase 200,000 shares of the Company's common stock. The NSOs shall have an
exercise price equal to the fair market value of the Company's common stock on
the Effective Date and shall have a 5 year term. The NSOs shall vest and become
exercisable, subject to approval of the Company's stockholders, as follows: (i)
50% shall vest and become exercisable at the time when the closing price of the
Company common stock has been at least $13 per share for 20 consecutive trading
days, provided the Executive continues to be employed by the Company on such
date; and (ii) the remaining 50% shall vest and become exercisable at the time
when the closing price of the Company common stock has been at least $16 per
share for 20 consecutive trading days, provided the Executive continues to be
employed by the Company on such date.
(c) Within thirty days after preparation of the Company's
federal income tax return for a year during which the Executive exercises an
NSO granted to the Executive pursuant to this Agreement, the Company shall pay
the Executive, in cash, the net Federal income tax benefit to the Company from
such exercise. Such net tax benefit shall be determined by comparing the
Federal income tax liability that the Company would have incurred in the
absence of such exercise to the actual Federal income tax liability of the
Company in the taxable year in which such exercise occurs (the "Exercise Tax
Year") taking into account such exercise; PROVIDED, HOWEVER, that if the
Company suffers a net operating loss in the Exercise Tax Year, the Company
shall also pay to the Executive, in cash, the net Federal income tax benefit it
reasonably expects to result from a carryback of such net operating loss to the
extent such carryback results from any deduction attributable to such exercise,
the amount of such benefit being determined by comparing the Federal income tax
liability that the Company would have incurred in the year or years to which
such net operating loss deduction may be carried back in the absence of such
exercise to the actual Federal income tax liability of the Company in the year
or years to which such net operating loss may be carried back taking into
account such exercise. The amount of the payment required under this Section
3.7(c) shall be determined by the independent public accounting firm that
audits the Company's financial reports at the time such payment is due, the
determination of which firm shall be binding and conclusive on the Company and
the Executive in the absence of manifest error.
3.8 ADDITIONAL BENEFITS. The Executive shall be entitled to the
following additional benefits under this Agreement:
(a) the use of an automobile comparable to that provided to
other senior executives in connection with the rendering of services to the
Company pursuant to this Agreement, together with reimbursement for all gas,
maintenance, insurance and repairs required by reason of his use of such
vehicle;
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<PAGE> 4
(b) reimbursement for all reasonable moving costs associated
with Executive's relocation in connection with his commencement of employment
under this Agreement; PROVIDED, HOWEVER, that the Executive shall not be
entitled to reimbursement for any loss on the sale of Executive's residence;
(c) reimbursement for all reasonable housing expenses,
including, but not limited to, the cost of maintaining an apartment convenient
to the Company's headquarters, incurred by the Executive for the period ending
May 31, 1999; and
(d) reimbursement for all reasonable commuting and travel
expenses between the Executive's home and the Company's headquarters incurred
by the Executive for the period ending May 31, 1999.
4. STOCK PURCHASE.
(a) The Executive shall purchase, in the open market, 100,000
shares of Company common stock (the "Shares") no later than January 31, 1999;
PROVIDED, HOWEVER, that, in the event the aggregate purchase price for the
Shares is greater than $850,000, the Executive shall be required to purchase
only the number of shares of Company common stock that can be purchased for an
aggregate purchase price of $850,000.
(b) In connection with the purchase of the Shares, Executive
agrees to pay the amount equal to the purchase price necessary for the purchase
of the first 25,000 shares (the "Out-of-Pocket Sum"). Pursuant to a Secured
Note Agreement between the Company and the Executive, the Company shall lend to
the Executive, on a full-recourse basis, as and when needed to effect the
purchases, the balance required for the purchase of the remaining 75,000 Shares
above the Out-of-Pocket Sum (the "Loan"); PROVIDED, HOWEVER, that under no
circumstances shall the principal amount of the Loan exceed $650,000. The Loan
shall be due and payable by the Executive, with such payment made in cash, in
five annual installments, each equaling 20% of the principal amount of the Loan
(the "Installment Payments"), with all accrued interest and other charges due
and payable on the fifth anniversary of the date of the Loan; PROVIDED,
HOWEVER, that if the Executive is employed with the Company pursuant to this
Agreement at the time any Installment Payment is due, such Installment Payment
shall be forgiven by the Company.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Term, this Agreement shall terminate and the Company shall have no further
obligations under this Agreement.
5.2 TERMINATION UPON DISABILITY. If during the Term the Executive
becomes physically or mentally disabled, whether totally or partially, so that
the Executive is unable substantially to perform his services hereunder for a
period or periods aggregating 90 days during any twelve month period, the
Company may at any time after such 90th day of disability, by written notice to
the Executive, terminate the Term of the Executive's employment hereunder.
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<PAGE> 5
5.3 TERMINATION FOR CAUSE. The Company may at any time, by
written notice to the Executive, terminate the Term of the Executive's
employment hereunder for Cause and the Executive shall have no right to receive
any compensation or benefit hereunder on and after the effective date of such
notice, except for the payment of any Base Salary earned, and any Expenses
incurred but not yet paid to the Executive and benefits in accordance with
Section 5.5 hereof. For purposes hereof, the term "Cause" shall mean: (a)
conviction of, or a plea of nolo contendere or guilty by, the Executive for any
crime constituting a felony in the jurisdiction in which committed or for any
other criminal act against the Company; (b) failure or refusal of the Executive
in any material respect (i) to perform the duties of his employment or to
follow the lawful and proper directives of the Board of Directors, provided
such duties or directives are consistent with this Agreement and such duties or
directives have been given to the Executive in writing, or (ii) to comply with
the reasonable and substantial written policies, practices, standards or
regulations of the Company as may be established from time to time, if such
failure or refusal under either clause (i) or clause (ii) continues uncured for
a period of 10 days after written notice thereof, specifying the nature of such
failure or refusal and requesting that it be cured, is given by the Company to
the Executive; (c) any willful or intentional act of the Executive committed
for the purpose, or having the reasonably foreseeable effect, of injuring the
Company, its business or reputation or of improperly or unlawfully converting
for the Executive's own personal benefit any property of the Company; or (d)
any violation or breach of the provisions of Section 7 of this Agreement.
5.4 TERMINATION WITHOUT CAUSE. During the Term, the Company may
terminate the Executive's employment without Cause upon 10 days' written
notice. If the Company terminates the Executive's employment without Cause, the
Executive shall receive (i) his Base Salary, payable in accordance with the
provisions of Section 3.1 hereof, until the later of (a) one year from the date
of such termination and (b) December 1, 2000, and (ii) the Annual Bonus for the
year prior to the year in which the Executive is terminated, to the extent not
yet paid.
5.5. BENEFITS UPON TERMINATION. Notwithstanding termination of
this Agreement pursuant to Section 5.1 or 5.2, the Executive shall continue to
be entitled to compensation and benefits accrued through the date of death or
disability as the case may be. Except as provided in Sections 5.4 and 6 hereof,
all of the Executive's rights to bonuses and fringe benefits accruing after any
termination of this Agreement, if any, shall cease upon such termination;
PROVIDED, HOWEVER, that (i) the Executive shall be entitled to any amounts
payable to the Executive under any Company profit sharing or other employee
benefit plan up to the date of termination; (ii) nothing contained in this
Agreement is intended to limit or otherwise restrict the availability of any
benefits to the Executive required to be provided pursuant to Section 4980B of
the Code; (iii) if the employment of the Executive terminates pursuant to
Section 5.1, 5.2 or 5.4 other than at the end of a fiscal year, he shall be
entitled to a pro rata bonus under the Bonus Plan in respect of such year as
provided in Section 3.3; and (iv) the benefits provided in Section 3.7(c) shall
continue.
6. CHANGE IN CONTROL. In the event of the occurrence of a Change in
Control of the Company, the Executive shall remain employed by the Company,
pursuant to the terms and conditions of this Agreement. If, after the Change in
Control, the Executive's employment is
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<PAGE> 6
terminated without Cause or the Executive resigns following a material
diminution in his duties as set forth in Section 1.2 of this Agreement, then
the Executive shall continue to receive his Base Salary for the remainder of
the Term, and the ISOs and NSOs granted to the Executive shall become fully
vested and exercisable as of the date of termination or resignation, as the
case may be. For purposes of this Agreement, a "Change in Control" shall mean
any of the following: (i) any person who is not an "affiliate" (as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of the
Company as of the date of this Agreement 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; (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 date of
this Agreement; or (iii) 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 date of this Agreement, and in which the Company is not the
surviving entity.
7. NON-COMPETITION AND CONFIDENTIALITY.
7.1 NON-DISCLOSURE. The Executive will not, during the period of
the Executive's employment with the Company or at any time thereafter,
regardless of the reason for the cessation of the Executive's employment: (i)
use any Confidential Information for the Executive'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 the Executive's
duties during the Executive's employment by the Company. Upon termination of
the Executive's employment, or at any such time as the Company may request, the
Executive will deliver to the Company all copies in the Executive's possession
of any Confidential Information, in any form. The Executive 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 the Executive can prove was in the Executive's possession prior to
the commencement of the Executive'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 the Executive.
7.2 NON-COMPETITION. The Executive will not, during the period of
the Executive's employment with the Company, and for (i) a period of two years
after the termination of the Executive's employment with the Company for any
reason other than termination by the Company without Cause, or (ii) if for
termination by the Company without Cause, for the period he continues to
receive his Base Salary pursuant to Section 5.4, directly or indirectly, on the
Executive'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,
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<PAGE> 7
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
the Company on the date of such termination of employment. Nothing contained
herein shall be construed as preventing the Executive 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.
7.3 NON-SOLICITATION OF EMPLOYEES. The Executive will not, during
the period of the Executive's employment with the Company, and for a period of
two years after the termination of the Executive's employment with the Company
for any reason, directly or indirectly, recruit, solicit or otherwise induce or
attempt to induce any employee of the Company to leave the employment of the
Company, nor hire any such employee at any enterprise with which the Executive
is then affiliated.
7.4 ENFORCEABILITY OF PROVISIONS. If any restriction set forth in
this Section 7 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 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.
7.5 REMEDY FOR BREACH. The Executive hereby acknowledges that the
provisions of this paragraph 7 are reasonable and necessary for the protection
of the Company and its respective subsidiaries and affiliates. In addition, the
Executive further acknowledges that the Company and its respective subsidiaries
and affiliates will be irrevocably damaged if such covenants are not
specifically enforced. Accordingly, the Executive agrees that, in addition to
any other relief to which the Company may be entitled, the Company will be
entitled to seek and obtain injunctive relief (without the requirement of any
bond) from a court of competent jurisdiction for the purposes of restraining
the Executive from an actual or threatened breach of such covenants. In
addition, and without limiting the Company's other remedies, in the event of
any breach by the Executive of such covenants, the Company will have no
obligation to pay any of the amounts that remain payable by the Company under
Section 5.4 of this Agreement.
8. EXECUTIVE REPRESENTATIONS.
(a) The Executive hereby represents and warrants to the Company
that (i) the execution, delivery and performance of this Agreement by the
Executive does not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which the Executive is a party or by which he is bound, (ii) the Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity, (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall
be the valid and binding obligation of the
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<PAGE> 8
Executive, enforceable in accordance with its terms, and (iv) the Executive is
under no physical or mental disability that would hinder him in the performance
of his duties hereunder.
(b) The Executive shall indemnify and hold harmless the Company
from and against any and all claims, liabilities, damages and reasonable costs
of defense and investigation arising out of any breach or inaccuracy in any of
the foregoing representations and warranties.
9. OTHER PROVISIONS.
9.1 NOTICES. Any notice or other communication required or which
may be given hereunder shall be in writing and shall be delivered personally,
telecopied, or sent by certified, registered or express mail, postage prepaid,
to the parties at the following addresses or at such other addresses as shall
be specified by the parties by like notice, and shall be deemed given when so
delivered personally, telecopied or if mailed, two days after the date of
mailing, as follows:
(a) if to the Company, to it at:
Monro Muffler Brake, Inc.
200 Holleder Parkway
Rochester, New York 14615
Attention: Peter Solomon
(b) if to the Executive, to him at:
10 Moraine Road
Edison, New Jersey 08820
9.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
9.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any
party of any right, power or privilege hereunder, nor any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder.
9.4 GOVERNING LAW; JURISDICTION. This Agreement shall be governed
by and construed and enforced in accordance with and subject to, the laws of
the State of New York applicable to agreements made and to be performed
entirely within such state. The courts of New York and the United States
District Courts for New York shall have jurisdiction over the parties
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<PAGE> 9
with respect to any dispute or controversy between them arising under or in
connection with this Agreement.
9.5 ASSIGNMENT. This Agreement shall inure to the benefit of and
shall be binding upon the Company and its successors and permitted assigns and
upon the Executive and his heirs, executors, legal representatives, successors
and permitted assigns. However, neither party may voluntarily assign, transfer,
pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of
its or his rights hereunder without the prior written consent of the other
party, and any such attempted assignment, transfer, pledge, encumbrance,
hypothecation or other disposition without such consent shall be null and void
without effect.
9.6 COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed an original but both of which
together shall constitute one and the same instrument.
9.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
9.8 SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement, or any part thereof, is held by a court of competent
jurisdiction of any foreign, federal, state, county or local government or any
other governmental, regulatory or administrative agency or authority to be
invalid, void, unenforceable or against public policy for any reason, the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
9.9 SHAREHOLDER APPROVAL. The Company shall use its best efforts
to obtain shareholder approval of the Stock Option Plan at the next annual
meeting of shareholders.
9.10. EFFECTIVE DATE. Notwithstanding the date and execution of
this Agreement, this Agreement shall not become effective until the Executive
notifies the Company of his resignation from his current employer (the
"Effective Date"), provided that this Agreement shall terminate completely if
the Effective Date does not occur by December 4, 1998.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Amended and
Restated Employment Agreement as of the date first above written.
MONRO MUFFLER BRAKE, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
_____________________________________
Robert Gross
<PAGE> 1
Exhibit 10.2
AMENDED AND RESTATED SECURED NOTE AGREEMENT
-------------------------------------------
AMENDED AND RESTATED AGREEMENT, dated as of this 16th day of
February, 1999 (the "Agreement"), between Monro Muffler Brake, Inc. (the
"Lender"), and Robert Gross (the "Borrower").
WHEREAS, the Lender and the Borrower entered into an employment
agreement as of November 18, 1998, and effective as a date specified therein,
as amended (the "Employment Agreement"), whereby, under the terms thereof, the
Lender agreed to employ the Borrower to render exclusive and full-time services
in the capacity of President and Chief Executive Officer of the Lender; and
WHEREAS, pursuant to the Employment Agreement, the Borrower is
required to purchase, in the open market, up to 100,000 shares of Lender common
stock (the "Shares") no later than January 31, 1999; and
WHEREAS, in connection with the purchase of the Shares, the
Borrower agreed to pay an amount equal to the purchase price necessary for the
purchase of the first 25,000 of the 100,000 Shares (the "Out-of-Pocket Sum");
and
WHEREAS, pursuant to the Employment Agreement, the Lender agreed
to lend to the Borrower, on a full-recourse basis, the balance required for the
purchase of the remaining 75,000 Shares above the Out-of-Pocket Sum, up to
$650,000; and
WHEREAS, the Lender is prepared to make available to the
Borrower, pursuant to this Agreement, such funds above the Out-of-Pocket Sum as
are necessary for the purchase of the Shares.
NOW THEREFORE, the parties hereto agree as follows:
1. LOAN
The Lender hereby agrees to make available to the Borrower a loan
in lawful money of the United States in the principal amount (the "Principal
Amount") of up to $650,000 pursuant to the terms of this Agreement (the
"Loan").
2. REPAYMENT OF PRINCIPAL
The Principal Amount shall be due and payable by the Borrower,
with such payment made in cash, in five annual installments, each equaling 20%
of the Principal Amount (the "Installment Payments"), such that the first
Installment Payment shall be due and payable on the first anniversary of the
date of this Agreement and the last Installment Payment shall be due and
payable on the fifth anniversary of the date of this Agreement; PROVIDED,
HOWEVER, that if the
<PAGE> 2
Borrower is employed with the Lender pursuant to the Employment Agreement at
the time any Installment Payment is due under this Section 2, such Installment
Payment shall be forgiven by the Lender.
3. INTEREST
The Borrower agrees to pay interest on the unpaid Principal
Amount outstanding under this Agreement, which interest shall be due and
payable on the fifth anniversary of the date of this Agreement, at a rate per
annum of 5 1/2%, compounded annually, as of the date the Lender loans the
Principal Amount to the BorroweR hereunder; PROVIDED, HOWEVER, that if the
Borrower is employed with the Lender pursuant to the Employment Agreement on
the fifth anniversary of the date of this Agreement, the interest payment due
under this Section 3 shall be forgiven by the Lender.
4. USE OF FUNDS
The Borrower covenants and agrees that the Principal Amount shall
be used solely to finance the purchase of the Shares.
5. SECURITY INTEREST
To secure the full and timely payment when due of the Principal
Amount, interest and other charges on the Loan, the Borrower hereby pledges and
grants a first priority security interest in favor of the Lender in the Shares
purchased by the Borrower with the proceeds of the Loan and shall deliver to
the Lender as promptly as possible the certificates representing the Shares,
duly endorsed in blank or accompanied by executed stock powers, as collateral
(the "Collateral"). On any date that a portion of the principal amount of the
Loan is forgiven pursuant to Section 2, a portion of the Shares shall be
released from pledge hereunder equal to the lesser of (i) a number of Shares
equal to the same percentage of the total number of Shares originally pledged
as the percentage of the original principal amount then forgiven, and (ii) a
number of shares such that, after such release, the remaining pledged shares
have a fair market value of at least 150% of the remaining principal amount of
the Loan.
6. DEFAULTS
If any of the following events shall occur: (a) a default by the
Borrower in the payment of any of the obligations or liabilities of the
Borrower to the Lender hereunder which default is not cured within 5 days
following the applicable payment date; (b) the appointment of a custodian,
trustee, liquidator or receiver for or for any of the property of, or an
assignment for the benefit of creditors by, the Borrower; or (c) the Borrower
shall admit in writing that he is unable to pay his debts as such debts become
due (collectively, "Events of Default"); then, at the option of the Lender, all
obligations of the Borrower under this Agreement shall become due and payable
forthwith, upon declaration to that effect by the Lender, without notice to the
Borrower, anything contained herein or in any other document, instrument or
agreement the contrary notwithstanding, and the Lender shall be entitled to
exercise any and all of the rights and remedies available to it
2
<PAGE> 3
pursuant to Section 7 hereof, including, without limitation, any and all of the
rights and remedies of a secured party under the Uniform Commercial Code of the
State of New York, as it may be amended from time to time. All obligations of
the Borrower under this Agreement shall become immediately and automatically
due and payable, without presentment, demand, protest or notice of any kind,
upon the commencement by or against the Borrower of a case or proceeding under
any bankruptcy, insolvency or other law relating to the relief of debtors, the
readjustment, composition or extension of indebtedness or reorganization or
liquidation.
7. REMEDIES IN CASE OF EVENT OF DEFAULT
In case an Event of Default shall have occurred and be
continuing, the Lender shall be entitled to exercise all of the rights, powers
and remedies (whether vested in it by this Agreement or by law) for the
protection and enforcement of its rights in respect of the Collateral, and the
Lender shall be entitled, without limitation, to exercise the following rights:
(a) to receive all distributions payable in respect of the Collateral; (b) to
transfer all or any part of the Borrower's interest in the Collateral into the
Lender's name or the name of its nominee or nominees; (c) to vote all or any
part of the Borrower's interest in the Collateral (whether or not transferred
into the name of the Lender) and give all required consents, waivers and
ratifications in respect of the Collateral and otherwise act with respect
thereto as though it were the outright owner thereof (the Borrower hereby
irrevocably constituting and appointing the Lender the proxy and
attorney-in-fact of the Borrower, with full power of substitution to do so);
and (d) without limiting the foregoing, at any time or from time to time to
sell, assign and deliver, or grant options to purchase, all or any part of the
Collateral, or any interests therein, at any public or private sale without
demand of performance, advertisement or notice of intention to sell or of the
time or place of sale or adjournment thereof or to redeem or otherwise (all of
which are hereby waived by the Borrower), for cash, on credit or for other
property, for immediate or future delivery without any assumption of credit
risk, and for such price or prices and on such terms as the Lender in its
absolute discretion may determine.
8. GOVERNING LAW
The provisions of this Agreement shall be construed and
interpreted and all rights and obligations hereunder shall be determined in
accordance with the laws of the State of New York, without regard to the
conflicts of laws provisions thereof.
9. WAIVER OF JURY TRIAL
The Borrower hereby waives trial by jury, presentment, demand,
notice of demand, notice of dishonor, protest, non-payment and all other
notices in connection with the loan.
10. ASSIGNMENT
The obligations or rights of the Lender hereunder shall be
assignable or transferable in full or in part by the Lender without the consent
of the Borrower. No obligation or
3
<PAGE> 4
rights of the Borrower hereunder can be assigned or transferred without the
prior written consent of the Lender.
11. NO WAIVER; CUMULATIVE REMEDIES
No failure on the part of the Lender to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as waiver
thereof, nor shall any single or partial exercise by the Lender of any right,
remedy or power hereunder preclude any other or future exercises of any other
right, remedy or power. Each and every right, remedy and power hereby granted
to the Lender shall be cumulative and not exclusive of any other such right,
remedy or power, and may be exercised by the Lender from time to time.
12. SEVERABILITY
Every provision of this Agreement is intended to be severable. If
any term, provision, covenant or restriction of this Agreement, or any part
thereof, is held by a court of competent jurisdiction of any foreign, federal,
state, county or local government or any other governmental, regulatory or
administrative agency or authority to be invalid, void, unenforceable or
against public policy for any reason, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
13. HEADINGS
The section headings in this Agreement are for convenience only
and are not intended to affect the interpretation or construction of the
provisions of this Amended and Restated Secured Note Agreement.
Executed as of the date and year first above written.
MONRO MUFFLER BRAKE, INC.
____________________________ ____________________________
By: Robert Gross
Title:
4
<PAGE> 1
Exhibit 10.3
MONRO MUFFLER BRAKE, INC.
1998 STOCK OPTION PLAN
ARTICLE 1
ESTABLISHMENT AND PURPOSE
1.1 Establishment and Effective Date. Monro Muffler Brake,
Inc., a New York corporation (the "Company"), hereby establishes a stock option
plan to be known as the Monro Muffler Brake, Inc. 1998 Stock Option Plan (the
"Plan"). The Plan shall become effective as of November 18, 1998, subject to the
approval of the Company's stockholders.
1.2 Purpose. The purpose of the Plan is to encourage and
enable all eligible employees (subject to such requirements as may be prescribed
by the Stock Option Committee (the "Committee")) of the Company and its
subsidiaries to acquire a proprietary interest in the Company through the
ownership of the Company's common stock, par value $0.01 per share ("Common
Stock"). Such ownership will provide such employees with a more direct stake in
the future welfare of the Company and encourage them to remain with the Company
and its subsidiaries. It is also expected that the Plan will encourage qualified
persons to seek and accept employment with the Company and its subsidiaries.
ARTICLE 2
AWARDS
2.1 Form of Awards. Awards under the Plan may be granted in
the form of incentive stock options ("Incentive Stock Options") meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or non-qualified stock options ("Non-qualified Stock Options) that
are not intended to qualify as incentive stock options under Section 422 of the
Code (collectively, "Options").
2.2 Maximum Shares Available. The maximum aggregate number of
shares of Common Stock available for award under the Plan is 750,000, subject to
adjustment pursuant to Article 8 hereof. Shares of Common Stock issued pursuant
to the Plan may be either authorized but unissued shares or issued shares
reacquired by the Company. In the event that prior to the end of the period
during which Options may be granted under the Plan, any Option expires
unexercised or is terminated, surrendered or canceled without being exercised in
whole for any reason, the shares of Common Stock covered by such Option shall be
available for subsequent awards of Options under the Plan upon such terms as the
Committee may determine. In addition, shares of Common Stock withheld in payment
of taxes relating to Options, and the number of shares of Common Stock equal to
the number of shares surrendered in payment of the exercise price of Options or
taxes relating to Options, shall be available for subsequent awards of Options
under the Plan upon such terms as the Committee may determine.
-1-
<PAGE> 2
2.3 Return of Prior Awards. As a condition to any subsequent
award, the Committee shall have the right, at its discretion, to require
employees to return to the Company Options previously granted under the Plan.
Subject to the provisions of the Plan, such new Option shall be upon such terms
and conditions as are specified by the Committee at the time the new award is
granted.
ARTICLE 3
ADMINISTRATION
3.1 Committee. Awards shall be determined, and the Plan shall
be administered by, the Committee as appointed from time to time by the Board of
Directors of the Company (the "Board"), which Committee shall consist of not
less than two (2) members of the Board. Except as permitted by Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Act"), and by Section 162(m)
of the Code (or Regulations promulgated thereunder), no member of the Board may
serve on the Committee if such member: (i) is or has been granted or awarded
stock, stock options or any other equity security or derivative security of the
Company or any of its affiliates pursuant to the Plan or any other plan of the
Company or its affiliates either while serving on the Committee or during the
one year period prior to being appointed to the Committee; (ii) is an employee
or former employee of the Company; or (iii) receives remuneration from the
Company, either directly or indirectly, in any capacity other than as a
director.
3.2 Powers of Committee. Subject to the express provisions of
the Plan, the Committee shall have the power and authority (i) to grant Options
and to determine the purchase price of the Common Stock covered by each Option,
the term of each Option, the number of shares of Common Stock to be covered by
each Option and any performance objectives or vesting standards applicable to
each Option; (ii) to designate Options as Incentive Stock Options or
Non-qualified Stock Options; and (iii) to determine the employees to whom, and
the time or times at which, Options shall be granted.
3.3 Delegation. The Committee may delegate to one or more of
its members or to any other person or persons such ministerial duties as it may
deem advisable. The Committee may also delegate to the Chief Executive Officer
of the Company the authority, subject to such terms as the Committee shall
determine, to perform any and all functions as the Committee may determine. The
Committee may also employ attorneys, consultants, accountants or other
professional advisors and shall be entitled to rely upon the advice, opinions or
valuations of any such advisors.
3.4 Interpretations. The Committee shall have sole
discretionary authority to interpret the terms of the Plan, to adopt and revise
rules, regulations and policies to administer the Plan and to make any other
factual determinations which it believes to be necessary or advisable for the
administration of the Plan. All actions taken and interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Company, all employees who have received awards under the Plan and all
other interested persons.
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<PAGE> 3
3.5 Liability; Indemnification. No member of the Committee,
nor the Chief Executive Officer, or any person to whom ministerial duties have
been delegated, shall be personally liable for any action, interpretation or
determination made with respect to the Plan or Options granted thereunder, and
each member of the Committee, the Chief Executive Officer and each person to
whom ministerial duties have been delegated shall be fully indemnified and
protected by the Company with respect to any liability he or she may incur with
respect to any such action, interpretation or determination, to the extent
permitted by applicable law and to the extent provided in the Company's
Certificate of Incorporation and Bylaws, as amended from time to time, or under
any agreement between such member, the Chief Executive Officer and the Company.
ARTICLE 4
ELIGIBILITY
Options may be granted to all employees of the Company or any
of its subsidiaries (subject to such requirements as may be prescribed by the
Committee), including officers of the Company; PROVIDED, HOWEVER, that no
employee may receive a grant of an Option to purchase more than 500,000 shares
of Common Stock in the aggregate in any fiscal year of the Company. Options may
be granted to a director of the Company, provided that the director is also an
employee. In determining the employees to whom Options shall be granted and the
number of shares to be covered by each Option, the Committee shall take into
account the nature of the services rendered by such employees, their present and
potential contributions to the success of the Company and its subsidiaries, and
such other factors as the Committee in its sole discretion shall deem relevant.
As used herein, the term "subsidiary" shall mean any present
or future corporation, partnership or joint venture in which the Company owns,
directly or indirectly, 40% or more of the economic interests. Notwithstanding
the foregoing, only employees of the Company and any present or future
corporation which is or may be a "subsidiary corporation" of the Company (as
such term is defined in Section 424(f) of the Code) shall be eligible to receive
Incentive Stock Options.
ARTICLE 5
STOCK OPTIONS
5.1 Grant of Options. Options may be granted under the Plan
for the purchase of shares of Common Stock. Options shall be granted in such
form and upon such terms and conditions, including the satisfaction of corporate
or individual performance objectives and other vesting standards, as the
Committee shall from time to time determine.
5.2 Designation as Non-qualified Stock Option or Incentive
Stock Option. In connection with any grant of Options, the Committee shall
designate in the written agreement required pursuant to Article 10 hereof
whether the Options granted shall be Incentive Stock
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<PAGE> 4
Options or Non-qualified Stock Options, or in the case both are granted, the
number of shares of each.
5.3 Option Price. The purchase price per share under each
Incentive Stock Option shall be the Market Price (as hereinafter defined) of the
Common Stock on the date the Incentive Stock Option is granted. The purchase
price per share under each Non-qualified Stock Option shall be specified by the
Committee. In no case, however, shall the purchase price per share of an Option
be less than the par value of the Common Stock ($0.01). Notwithstanding the
foregoing, to the extent required by the Code, the purchase price per share
under each Non-qualified Stock Option granted to an employee who is treated as a
"covered employee" (as defined in Section 162(m)(3) of the Code) on the date
such Non-qualified Stock Option is exercised shall not be less than 100% of the
Market Price of the Common Stock on the date of grant. In the case of an
Incentive Stock Option granted to an employee owning (actually or constructively
under Section 424(d) of the Code), more than 10% of the total combined voting
power of all classes of stock of the Company or of a subsidiary (a "10%
Stockholder"), the option price shall not be less than 110% of the Market Price
of the Common Stock on the date of grant.
The "Market Price" of the Common Stock on any day shall be
determined as follows: (i) if the Common Stock is listed on a national
securities exchange or quoted through the NASDAQ National Market System, the
Market Price on any day shall be the average of the high and low reported
Consolidated Trading sales prices, or if no such sale is made on such day, the
average of the closing bid and asked prices reported on the Consolidated Trading
listing for such day; (ii) if the Common Stock is quoted on the NASDAQ
inter-dealer quotation system, the Market Price on any day shall be the average
of the representative bid and asked prices at the close of business for such
day; or (iii) if the Common Stock is not listed on a national stock exchange or
quoted on NASDAQ, the Market Price on any day shall be the average of the high
bid and low asked prices reported by the National Quotation Bureau, Inc. for
such day.
5.4 Limitation on Amount of Incentive Stock Options. In the
case of Incentive Stock Options, the aggregate Market Price (determined at the
time the Incentive Stock Option is granted) of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by any optionee
during any calendar year (under all plans of the Company and any subsidiary)
shall not exceed $100,000.
5.5 Limitation on Time of Grant. No grant of an Incentive
Stock Option shall be made under the Plan more than ten (10) years after the
date the Plan is approved by stockholders of the Company.
5.6 Exercise and Payment. Options may be exercised in whole or
in part. Common Stock purchased upon exercise of Options shall be paid for in
full at the time of purchase. Such payment shall be made in cash or, in the
discretion of the Committee, through delivery of shares of Common Stock or a
combination of cash and Common Stock, in accordance with procedures to be
established by the Committee. Any shares so delivered shall be valued at their
Market Price on the date of exercise.
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<PAGE> 5
5.7 Term. The term of each Option granted under the Plan shall
be determined by the Committee; PROVIDED, HOWEVER, that, notwithstanding any
other provision of the Plan, in no event shall an Incentive Stock Option be
exercisable after ten (10) years from the date it is granted, or in the case of
an Incentive Stock Option granted to a 10% Stockholder, five (5) years from the
date it is granted.
5.8 Rights as a Stockholder. A recipient of Options shall have
no rights as a stockholder with respect to any shares issuable or transferable
upon exercise thereof until the date a stock certificate is issued to such
recipient representing such shares. Except as otherwise expressly provided in
the Plan, no adjustment shall be made for cash dividends or other rights for
which the record date is prior to the date such stock certificate is issued.
5.9 General Restrictions. Each Option granted under the Plan
shall be subject to the requirement that, at any time the Board shall determine,
in its discretion, that the listing, registration or qualification of the shares
issuable or transferable upon exercise thereof upon any securities exchange or
under any state or Federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such Option or the issue, transfer, or purchase of shares
thereunder, such Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Board.
The Board or the Committee may, in connection with the
granting of any Option, require the individual to whom the Option is to be
granted to enter into an agreement with the Company stating that as a condition
precedent to each exercise of the Option, in whole or in part, such individual
shall if then required by the Company represent to the Company in writing that
such exercise is for investment only and not with a view to distribution, and
also setting forth such other terms and conditions as the Board or the Committee
may prescribe.
ARTICLE 6
NONTRANSFERABILITY OF OPTIONS
No Option may be transferred, assigned, pledged or
hypothecated (whether by operation of law or otherwise), except as provided by
will or the applicable laws of descent and distribution, and no Option shall be
subject to execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of an Option not
specifically permitted herein shall be null and void and without effect. An
Option may be exercised by the recipient only during his or her lifetime, or
following his or her death pursuant to Section 7.3 hereof.
Notwithstanding anything to the contrary in the preceding
paragraph, the Committee may, in its sole discretion, cause the written
agreement relating to any Options granted under the Plan to provide that the
recipient of such Options may transfer any such Options other than by will or
the laws of descent and distribution in any manner authorized under applicable
law.
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<PAGE> 6
ARTICLE 7
EFFECT OF TERMINATION OF EMPLOYMENT, RELOCATION EVENT,
DISABILITY, RETIREMENT, DEATH OR SPECIAL EVENT
7.1 General Rule. Except as expressly determined by the
Committee in its sole discretion, no Option shall be exercisable after [thirty
(30) days] following the recipient's termination of employment with the Company
or a subsidiary, unless such termination of employment occurs by reason of: (i)
Retirement (as defined in Section 7.2), (ii) Disability (as defined in Section
7.2), or (iii) death.
Options shall not be affected by any change of employment so
long as the recipient continues to be employed by either the Company or a
subsidiary. The Committee may, in its sole discretion, cause any Option to be
forfeited upon an employee's termination of employment if the employee was
terminated for one (or more) of the following reasons: (i) the employee's
conviction, or plea of guilty or nolo contendere to the commission of a felony;
(ii) the employee's commission of any fraud, misappropriation or misconduct
which causes demonstrable injury to the Company or a subsidiary; (iii) an act of
dishonesty by the employee resulting or intended to result, directly or
indirectly, in gain or personal enrichment at the expense of the Company or a
subsidiary; or (iv) any breach of the employee's fiduciary duties to the Company
as an employee. It shall be within the sole discretion of the Committee to
determine whether the employee's termination was for one of the foregoing
reasons, and the decision of the Committee shall be final and conclusive.
7.2 Disability or Retirement. Except as expressly provided
otherwise in the written agreement relating to any Option granted under the
Plan, in the event of the Disability or Retirement of a recipient of Options,
the Options which are held by such recipient on the date of such Disability or
Retirement, whether or not otherwise exercisable on such date, shall be
exercisable for [one (1) year following such Disability or Retirement].
"Disability" shall mean any termination of employment with the
Company or a subsidiary because of a long-term or total disability, as
determined by the Committee in its sole discretion. "Retirement" shall mean a
termination of employment with the Company or a subsidiary either: (i) on a
voluntary basis by a recipient who is at least sixty-five (65) years of age and
who has at least ten (10) years of service with the Company or a subsidiary; or
(ii) otherwise with the written consent of the Committee in its sole discretion.
The decision of the Committee with respect to a determination regarding
Disability or Retirement shall be final and conclusive.
7.3 Death. In the event of the death of a recipient of Options
while an employee of the Company or any subsidiary, Options which are held by
such employee at the date of death, whether or not otherwise exercisable on the
date of death, shall be exercisable by the beneficiary designated by the
employee for such purpose (the "Designated Beneficiary") or if no Designated
Beneficiary shall be appointed or if the Designated Beneficiary shall predecease
the employee, by the employee's personal representatives, heirs or legatees, at
any time within [one (1) year] from the date of death, at which time such
Options shall terminate.
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<PAGE> 7
In the event of the death of a recipient of Options following
a termination of employment due to Retirement or Disability, if such death
occurs before the Options are exercised, the Options which are held by such
recipient on the date of termination of employment, whether or not otherwise
exercisable on such date, shall be exercisable by such recipient's Designated
Beneficiary, or if no Designated Beneficiary shall be appointed or if the
Designated Beneficiary shall predecease such recipient, by such recipient's
personal representatives, heirs or legatees, to the same extent such Options
were exercisable by the recipient following such termination of employment.
7.4 Leave of Absence. In the case of an employee on an
approved leave of absence, the Options of such employee shall not be affected
unless such leave is longer than [three (3) months]. The date of exercisability
of any Options of an employee which are unexercisable at the beginning of an
approved leave of absence lasting longer than [three (3) months] shall be
postponed for a period equal to the length of such leave of absence.
Notwithstanding the foregoing, the Committee may, in its sole discretion, waive
in writing any such postponement of the date of exercisability of any Options
due to a leave of absence.
7.5 Change in Control. Notwithstanding any provisions of the
Plan to the contrary, if there should be a Change in Control of the Company (i)
the Company shall give each recipient of Options written notice of such Change
in Control as promptly as practicable prior to the effective date thereof, and
(ii) all of the Options held by employees not currently exercisable shall become
exercisable immediately prior to the effective date of such Change in Control;
PROVIDED, HOWEVER, that all or a portion of such Options shall not be
exercisable to the extent that the exercise would cause the employee to be
subject to taxes under Section 4999 of the Code.
"Change in Control" shall mean any of the following: (i) any
person who is not an "affiliate" (as defined in Rule 12b-2 of the Act) of the
Company as of the effective date of the Plan 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; (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 Plan; or (iii) 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 Plan, and in which the Company is not
the surviving entity.
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<PAGE> 8
ARTICLE 8
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Notwithstanding any other provision of the Plan, the Committee
may: (i) at any time, make or provide for such adjustments to the Plan or to the
number and class of shares available thereunder; or (ii) at the time of grant of
any Options, provide for such adjustments to such Options as the Committee shall
deem appropriate to prevent dilution or enlargement of rights, including,
without limitation, adjustments in the event of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations or exchanges of shares,
separations, spin-offs, reorganizations, liquidations and the like.
ARTICLE 9
AMENDMENT AND TERMINATION
The Board may suspend, terminate, modify or amend the Plan,
provided that any amendment that would (i) materially increase the aggregate
number of shares which may be issued under the Plan, (ii) materially increase
the benefits accruing to employees under the Plan, or (iii) materially modify
the requirements as to eligibility for participation in the Plan, shall be
subject to the approval of the Company's stockholders, except that any such
increase or modification that may result from adjustments authorized by Article
8 hereof shall not require such stockholder approval. If the Plan is terminated,
the terms of the Plan shall, notwithstanding such termination, continue to apply
to awards granted prior to such termination. No suspension, termination,
modification or amendment of the Plan may, without the consent of the employee
to whom an award shall theretofore have been granted, adversely affect the
rights of such employee under such award.
ARTICLE 10
WRITTEN AGREEMENT
Each award of Options shall be evidenced by a written
agreement containing such restrictions, terms and conditions, if any, as the
Committee may require. In the event of any conflict between a written agreement
and the Plan, the terms of the Plan shall govern.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Tax Withholding. The Company shall have the right to
require employees or their Designated Beneficiaries, personal representatives,
heirs or legatees to remit to the Company an amount sufficient to satisfy
Federal, state and local withholding tax requirements, or to deduct from all
payments under the Plan amounts sufficient to satisfy all withholding tax
-8-
<PAGE> 9
requirements. The Committee may, in its sole discretion, permit an employee to
satisfy his or her tax withholding obligation either by: (i) surrendering shares
of Common Stock owned by the employee; or (ii) having the Company withhold from
shares of Common Stock otherwise deliverable to the employee. Shares of Common
Stock surrendered or withheld shall be valued at their Market Price as of the
date on which income is required to be recognized for income tax purposes.
11.2 Successor. The obligations of the Company under the Plan
shall be binding upon any successor Company or organization resulting from the
merger, consolidation or other reorganization of the Company, or upon any
successor Company or organization succeeding to all or substantially all of the
assets and business of the Company. In the event of any of the foregoing, the
Committee may, at its discretion prior to the consummation of the transaction
and subject to Article 9 hereof, cancel, offer to purchase, exchange, adjust or
modify any outstanding awards, at such time and in such manner as the Committee
deems appropriate and in accordance with applicable law.
11.3 General Creditor Status. Employees shall have no right,
title, or interest whatsoever in or to any investments which the Company may
make to aid it in meeting its obligations under the Plan. Nothing contained in
the Plan, and no action taken pursuant to its provisions, shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the
Company and any employee or Designated Beneficiary, personal representative,
heir or legatee of such employee. To the extent that any person acquires a right
to receive payments from the Company under the Plan, such right shall be no
greater than the right of an unsecured general creditor of the Company. All
payments to be made under the Plan shall be paid from the general funds of the
Company and no special or separate fund shall be established and no segregation
of assets shall be made to assure payment of such amounts except as expressly
set forth in the Plan.
11.4 No Right to Employment. Nothing in the Plan or in any
written agreement entered into pursuant to Article 10 hereof, nor the grant of
any award, shall confer upon any employee any right to continue in the employ of
the Company or a subsidiary or to be entitled to any remuneration or benefits
not set forth in the Plan or such written agreement or interfere with or limit
the right of the Company or a subsidiary to modify the terms of or terminate
such employee's employment at any time.
11.5 Notices. Notices required or permitted to be made under
the Plan shall be sufficiently made if personally delivered to the employee or
sent by regular mail addressed: (i) to the employee at the employee's address as
set forth in the books and records of the Company or its subsidiaries; or (ii)
to the Company or the Committee at the principal office of the Company clearly
marked "Attention: Stock Option Committee."
11.6 Severability. In the event that any provision of the Plan
shall be held illegal or invalid for any reason, such illegality or invalidity
shall not affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provision had not been
included.
-9-
<PAGE> 10
11.7 Governing Law. To the extent not preempted by Federal
law, the Plan, and all agreements thereunder, shall be construed in accordance
with and governed by the laws of the State of New York.
-10-
<PAGE> 1
MONRO MUFFLER BRAKE, INC. Exhibit 11
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
Earnings per share for each period was computed by dividing net income
for such period by the weighted average number of shares of Common Stock and
common stock equivalents outstanding during such period. All share data have
been restated to reflect the 5% stock dividend paid June 18, 1998. (See Note 2
of Notes to Consolidated Financial Statements). Calculations reflect the
adoption of the provisions of Financial Accounting Standards ("FAS") No. 128,
"Earnings per Share" effective for periods ending after December 15, 1997.
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DILUTED
EARNINGS
<S> <C> <C> <C> <C>
Net Income $ (923) $ 1,700 $ 5,346 $ 8,469
======= ======= ======= =======
SHARES
Weighted average number of shares of common
shares 8,322 8,260 8,301 8,254
Assuming conversion of Class C Convertible
Preferred Stock 636 636 636
Dilutive effect of outstanding options 88 65 129
------- ------- ------- -------
Total common and common equivalent shares 8,322 8,984 9,002 9,019
======= ======= ======= =======
DILUTED (LOSS) EARNINGS PER SHARE $ (.11) $ .19 $ .59 $ .94
======= ======= ======= =======
BASIC
EARNINGS
Net Income $ (923) $ 1,700 $ 5,346 $ 8,469
======= ======= ======= =======
SHARES
Weighted average number of common shares 8,322 8,260 8,301 8,254
BASIC (LOSS) EARNINGS PER SHARE $ (.11) $ .21 $ .64 $ 1.03
======= ======= ======= =======
</TABLE>
- 18 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 852
<SECURITIES> 0
<RECEIVABLES> 1,231
<ALLOWANCES> 0
<INVENTORY> 41,601
<CURRENT-ASSETS> 50,073
<PP&E> 202,786
<DEPRECIATION> (50,511)
<TOTAL-ASSETS> 206,275
<CURRENT-LIABILITIES> 31,499
<BONDS> 0
0
138
<COMMON> 83
<OTHER-SE> 81,972
<TOTAL-LIABILITY-AND-EQUITY> 200,275
<SALES> 144,169
<TOTAL-REVENUES> 144,169
<CGS> 84,933
<TOTAL-COSTS> 84,933
<OTHER-EXPENSES> 46,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,579
<INCOME-PRETAX> 8,864
<INCOME-TAX> 3,518
<INCOME-CONTINUING> 5,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,346
<EPS-PRIMARY> .64
<EPS-DILUTED> .59
</TABLE>
