<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 4, 1997
Commission file number 1-11276
DISCOUNT AUTO PARTS, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-1447420
- --------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
4900 Frontage Road, South
Lakeland, Florida 33815
- --------------------------------------- ---------------------------
(Address of principal executive offices) (zip code)
(941) 687-9226
- ------------------------------------------------------------------------------
Registrant's telephone number, including area code
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 periods 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
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock $.01 Par Value - 16,582,460 shares as of March 4, 1997
<PAGE> 2
Discount Auto Parts, Inc.
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets - March 4, 1997 and May 28,1996.....................3
Condensed Statements of Income - for the forty and fourteen weeks
ended March 4, 1997 and the thirty-nine and thirteen weeks
ended February 27, 1996.....................................................4
Condensed Statements of Cash Flows - for the forty weeks ended
March 4, 1997 and the thirty-nine weeks ended February 27, 1996..............5
Notes to Condensed Financial Statements......................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................11
Item 6. Exhibits and Reports on Form 8-K............................................ 12
SIGNATURES.......................................................................... 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Discount Auto Parts, Inc.
Condensed Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
March 4 May 28
1997 1996
-------------------------
Assets (In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,114 $ 4,552
Inventories 135,441 111,408
Prepaid expenses and other current assets 13,243 9,197
-------------------------
Total current assets 153,798 125,157
Property, plant and equipment 298,855 247,021
Less allowances for depreciation
and amortization (47,562) (38,927)
-------------------------
251,293 208,094
Other assets 828 1,013
-------------------------
Total assets $ 405,919 $ 334,264
=========================
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 49,748 $ 49,056
Other current liabilities 8,178 8,900
Note payable to bank -- 5,000
Current maturities of long-term debt 2,400 2,400
-------------------------
Total current liabilities 60,326 65,356
Deferred income taxes 3,537 2,462
Long-term debt 106,949 50,400
Stockholders' equity:
Preferred stock -- --
Common stock 166 166
Additional paid-in capital 140,383 140,245
Retained earnings 94,558 75,635
-------------------------
Total stockholders' equity 235,107 216,046
-------------------------
Total liabilities and stockholders' equity $ 405,919 $ 334,264
=========================
</TABLE>
See accompanying notes.
3
<PAGE> 4
Discount Auto Parts, Inc.
Condensed Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Forty Thirty-Nine Fourteen Thirteen
weeks weeks weeks weeks
ended ended ended ended
---------------------------------------------------
March 4 February 27 March 4 February 27
1997 1996 1997 1996
---------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 297,765 $ 220,545 $ 101,876 $ 75,426
Cost of sales, including
distribution costs 189,238 133,731 64,023 45,445
--------- --------- --------- --------
Gross profit 108,527 86,814 37,853 29,981
Selling, general and
administrative expenses 73,312 57,963 26,885 20,291
--------- --------- --------- --------
Income from operations 35,215 28,851 10,968 9,690
Other income (expense) (97) 1,141 (18) 444
Interest expense (4,364) (4,103) (1,825) (946)
--------- --------- --------- --------
Income before income taxes 30,754 25,889 9,125 9,188
Income taxes 11,831 9,987 3,513 3,542
--------- --------- --------- --------
Net income $ 18,923 $ 15,902 $ 5,612 $ 5,646
========= ========= ========= ========
Net income per share $ 1.14 $ 1.04 $ .34 $ .34
========= ========= ========= ========
Weighted average number of shares 16,579 15,338 16,581 16,569
========= ========= ========= ========
</TABLE>
See accompanying notes
4
<PAGE> 5
Discount Auto Parts, Inc.
Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Forty Weeks Thirty-nine weeks
ended ended
------------------------------
March 4 February 27
1997 1996
------------------------------
Operating activities: (In thousands)
<S> <C> <C>
Net income $ 18,923 $ 15,902
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,044 6,958
Deferred income taxes 1,075 --
Changes in operating assets and liabilities:
(Increase) in inventories (24,033) (9,268)
(Increase) in prepaid expenses and
other current assets (4,046) (57)
Decrease (increase) in other assets 108 (124)
Increase (decrease) in trade accounts payable 692 (11,847)
(Decrease) increase in other current liabilities (722) 1,157
-------- --------
Net cash provided by operating activities 1,041 2,721
Investing activities:
Purchases of property, plant and equipment (52,166) (35,602)
-------- --------
Net cash used in investing activities (52,166) (35,602)
Financing activities:
Proceeds from short-term borrowings and long-term debt 77,100 32,500
Payments of short-term borrowings and long-term debt (25,551) (77,140)
Proceeds from issuances of common stock 138 75,570
-------- --------
Net cash provided by financing activities 51,687 30,930
Net increase (decrease) in cash and cash equivalents 562 (1,951)
Cash and cash equivalents at beginning of period 4,552 5,330
-------- --------
Cash and cash equivalents at end of period $ 5,114 $ 3,379
======== ========
</TABLE>
See accompanying notes
5
<PAGE> 6
Discount Auto Parts, Inc.
Notes to Condensed Financial Statements (Unaudited)
March 4, 1997
1. Basis of Presentation
The accompanying unaudited condensed financial statements of Discount Auto
Parts, Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended May 28,
1996.
Operating results for the fourteen-week and forty-week periods ended March 4,
1997 are not necessarily indicative of the results that may be expected for the
entire fiscal year.
2. Stockholders' Equity
In October 1995, the Company consummated a secondary public offering of
approximately 2,650,000 shares of its common stock. From the offering, the
Company realized net proceeds (after offering expenses) of approximately $75.4
million. Proceeds from the offering were used to repay certain indebtedness of
approximately $71.1 million. The balance of the net proceeds were used for
general corporate purposes.
3. Long-Term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 4 May 28
1997 1996
-----------------------
<S> <C> <C>
Unsecured revolving loan $ 5,000 $ 5,000
Real estate acquisition and
construction lines of credit 91,149 32,200
Senior secured notes 13,200 15,600
-----------------------
109,349 52,800
Less current maturities (2,400) (2,400)
-----------------------
$ 106,949 $ 50,400
=======================
</TABLE>
In February 1995, the Company entered into an unsecured revolving loan
agreement with a bank. The agreement provides for maximum borrowings of $20
million, including up to $1 million for letters of credit. Interest is payable
monthly and is a function of the prime rate or LIBOR. The agreement is
renewable annually with principal becoming due six months after the agreement
is not renewed. The scheduled maturity date of the agreement is October 1997.
The Company's real estate acquisition and construction lines of credit provide
for maximum aggregate borrowings of $130 million for the acquisition and
construction of properties. Interest is payable monthly and is a function of
the prime rate or LIBOR. The agreements are provided by two separate banks. One
line of credit agreement ($80 million), which is unsecured, is scheduled to
expire in October 1997, but the Company has received a commitment to extend the
expiration date to April 1, 1998. The second facility ($50 million) which is
also unsecured, is scheduled to expire in December 1997. The Company expects to
renew or replace its real estate and acquisition lines of credit prior to their
expiration.
6
<PAGE> 7
At March 4, 1997, the Company's weighted average interest rate on its revolving
loan agreement and real estate acquisition and construction lines of credit was
6.0%.
As of March 4, 1997, the Company had approximately $53.9 million of available
borrowings under its revolving loan agreement and real estate acquisition and
construction lines of credit.
The Company has issued two senior secured notes, each for an original principal
amount of $12 million, with an insurance company. The notes are collateralized
by a first mortgage on certain retail store properties, equipment and fixtures.
The agreements provide for interest at fixed rates of 10.11% and 9.8%, payable
quarterly, with annual principal payments of $1.2 million on each December 15
and May 31.
The Company's debt agreements contain various restrictions, including the
maintenance of certain financial ratios and restrictions on dividends, with
which the Company was in compliance as of March 4, 1997.
4. Contingencies
On February 12, 1997, a complaint was filed by Airgas, Inc. and certain of its
subsidiaries against the Company, one of its employees and other defendants in
the United States District Court for the Southern District of Georgia, Savannah
Division. The action alleges, among other things, conspiracy to defraud and
RICO violations in connection with commercial sales of refrigerant R-12 (freon)
in October and November 1996. In particular, the complaint asserts that the
Company made certain false representations, actively participated in
transactions involving counterfeit and smuggled refrigerant and caused false
bills of lading to be sent to Airgas and seeks compensatory damages in an
amount not less than $20 million. The complaint also seeks treble damages and
certain other relief. The Company filed a motion to dismiss which was denied.
William Morris, one of the other defendants in this litigation, filed a cross
claim against the Company relating to these transactions and the Company has
filed its answer to both the complaint and the cross claim. The court
overseeing this litigation has recently set an accelerated schedule for
discovery and trial with the trial being set for late summer 1997. Discovery
has commenced and is continuing. The Company believes that the claims asserted
against it in the complaint and the cross claim are without merit and intends
to defend the action vigorously.
On January 23, 1997, a complaint was filed against the Company and certain of
its current and former team members in the United States District Court for the
Southern District of Florida, Civil Division. The action alleges, among other
things, racial discrimination, failure to promote, discriminatory firing,
violations of the Family Medical Leave Act, negligence, negligent
misrepresentation and related causes of action on behalf of ten current and
former team members and one related individual. No specific dollar amount is
alleged in the complaint, but the complaint seeks to recover, under several
different counts, compensatory and punitive damages, lost wages, reinstatement,
costs and attorney's fees. The Company has filed a series of motions which
include a motion to dismiss for failure to state a claim for relief, a motion
to strike certain references within the complaint, a motion for relief from
improper joinder and a motion for more definitive statement. All motions remain
pending. Discovery has begun. The Company believes that the claims in the
complaint are without merit and intends to defend the action vigorously.
5. Subsequent Event
At the end of March 1997, the Company entered into a joint business agreement
with Q Lube, Inc., a subsidiary of Quaker State Corporation, to jointly develop
locations that provide fast lube and automotive maintenance services. The
service centers will primarily be located on selected properties owned or
leased by the Company that are adjacent to the Company's retail stores. Under
the terms of the agreement, the Company will own and control, through its own
wholly owned subsidiary that is to be formed, fifty-one percent of the entity
that will be established pursuant to the agreement to operate the service
centers.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Fourteen Weeks and Forty Weeks Ended March 4, 1997 Compared to Thirteen Weeks
and Thirty-Nine Weeks Ended February 27, 1996.
Net sales for the fourteen weeks ended March 4, 1997 increased $26.5 million,
or 35.1% over net sales for the comparable period ended February 27, 1996. Of
this increase, $1.7 million represented revenues associated with commercial
sales of R-12 freon (there having been no significant comparable sales in the
thirteen week period ended February 27, 1996). Net sales for the fourteen weeks
ended March 4, 1997 from the Company's core retail store operations increased
$24.7 million or 32.8% over the thirteen week period ended February 27, 1996.
Comparable store sales increased by 4.7% for the third quarter of fiscal 1997
on a comparable week basis as compared to the third quarter of fiscal 1996,
when including revenues associated with commercial sales of R-12 freon in the
sales figures; comparable store sales from the Company's core retail store
operations increased by 2.6% for the current quarter on a comparable week basis
as compared to the third quarter of fiscal 1996. The balance of the increase in
net sales from the Company's core retail operations was attributable to net
sales from new stores opened since the beginning of fiscal 1996.
Net sales for the forty weeks ended March 4, 1997 increased $77.2 million or
35.0% over net sales for the thirty-nine week period ended February 27, 1996.
Of this increase $30.0 million represented revenues associated with commercial
sales of R-12 freon (there having been no significant comparable sales in the
thirty-nine week period ended February 27, 1996). Net sales for the forty weeks
ended March 4, 1997 from the Company's core retail store operations increased
$47.3 million or 21.4% over the thirty-nine week period ended February 27,
1996. Comparable store sales increased by 12.3% for the first nine months of
fiscal 1997 on a comparable week basis as compared to the first nine months of
fiscal 1996, when including revenues associated with commercial sales of R-12
freon in the sales figures; comparable store sales from the Company's core
retail store operations decreased by 1.6% for the first nine months on a
comparable week basis as compared to the first nine months of fiscal 1996. The
balance of the increase in net sales from the Company's core retail operations
was attributable to net sales from new stores opened since the beginning of
fiscal 1996.
At March 4, 1997, the Company had 378 stores in operation, compared with 314
stores at May 28, 1996 and 292 stores at February 27, 1996.
As indicated above, comparable store sales for both the third quarter and the
first nine months of fiscal 1997 include commercial sales of air conditioning
products, such as R-12 freon. These commercial sales have helped to support
comparable store sales in the third quarter of fiscal 1997 and have been the
driving force behind the Company's ability to achieve positive comparable store
sales for the first nine months of fiscal 1997. At the present time, the
Company does not anticipate any significant revenues associated with commercial
sales of R-12 freon during the fourth quarter of fiscal 1997. Although the
Company expects that it will be able to continue some level of commercial sales
of R-12 freon into fiscal 1998, the potential for and extent of any such
revenues in fiscal 1998 remains uncertain at this time. Also, as previously
disclosed, certain of the freon sales transactions in which the Company was
involved are the subject of a federal investigation and certain litigation
brought by Airgas, Inc. against the Company pending in the federal district
court for the Southern District of Georgia.
In both the third quarter and the first nine months of fiscal 1997, the more
traditional DIY comparable store sales continued to be impacted by the
Company's strategy of opening new stores that are in proximity to existing
Discount Auto Parts stores. The Company believes the negative impact on
comparable store sales in time will be substantially offset by its ability to
leverage costs such as advertising, transportation and store management
expenses. The Company also believes this strategy responds to its customers'
desire for shopping convenience.
8
<PAGE> 9
Gross profit for the fourteen weeks ended March 4, 1997 was $37.9 million, or
37.2% of net sales, compared with $30.0 million, or 39.7% of net sales, for the
comparable period of fiscal 1996. Gross profit for the forty weeks ended March
4, 1997 was $108.5 million, or 36.4% of net sales, compared with $86.8 million,
or 39.4% of net sales, for the comparable period of fiscal 1996. For the third
quarter, the lower gross profit percentage was primarily the result of higher
than normal promotional markdowns which resulted from increased advertising
efforts during the quarter, the continuing effects of the decrease in retail
pricing which occurred in the fourth quarter of fiscal 1996, lower than
anticipated vendor incentives and rebates resulting from the finalization of
the calendar year 1996 vendor programs, and increased commercial sales of R-12
freon, which generally tend to have a lower gross margin because of the
product's commodity nature. Although management is currently undertaking
efforts to improve gross margins, some of the facts contributing to the drop in
the Company's gross profit percentage can be expected to continue to impact the
Company's gross profit percentage in a similar fashion into the foreseeable
future. For the first nine months of fiscal 1997, the lower gross profit
percentage was primarily the result of the increased sales of R-12 freon, which
generally tend to have a lower gross margin because of the product's commodity
nature. The gross profit margin on the commercial sales of R-12 freon during
the forty weeks ended March 4, 1997 was 21.9%. The gross profit percentage on
sales from the core retail operations, which excluded revenues from the
commercial sales of R-12 freon, was 38.1% for the forty weeks ended March 4,
1997. The decrease in gross profit percentage for the forty weeks ended March
4, 1997 on sales from the core retail store operations was primarily
attributable to the other factors cited as impacting the gross profit margin
results for the third quarter.
Selling, general and administrative (SG&A) expenses as a percentage of sales
decreased during the third quarter of fiscal 1997 to 26.4% from 26.9% a year
earlier. SG&A expenses as a percentage of sales decreased during the forty
weeks ended March 4, 1997 to 24.6% from 26.3% a year earlier. The decrease for
the third quarter was primarily the result of commercial sales of R-12 freon,
which only have nominal SG&A expenses, and increased efficiency in team member
related expenses. The decrease for the first nine months of fiscal 1997 is
primarily the result of increased commercial sales of R-12 freon. The decreases
were offset in part by increased advertising expenses and additional
depreciation expense attributable to new store growth.
During the third quarter of fiscal 1997 the Company recorded $350,000 of
reserves and legal expenses related to the pending freon claims, investigation
and litigation which are included as a component of SG&A. The Company
anticipates that it will be incurring significant legal expenses each fiscal
quarter while these matters continue to be pending.
Interest expense for the fourteen weeks ended March 4, 1997 was $1.8 million,
compared to $.9 million for the thirteen weeks ended February 27, 1996. The
increase in interest expense was primarily the result of additional borrowings
in connection with new store growth.
Interest expense for the forty weeks ended March 4, 1997 was $4.4 million,
compared to $4.1 million for the thirty-nine weeks ended February 27, 1996. The
increase in interest expense was the primarily the result of an increase in
average borrowings associated with new store growth. The increase was partially
offset by overall lower average interest rates.
For the fourteen and forty weeks ended March 4, 1997, the Company reported
other expense of $18,000 and $97,000, respectively, compared to other income of
$444,000 and $1.1 million, for the thirteen and thirty-nine weeks ended
February 27, 1996. The fiscal 1996 periods included approximately $400,000 and
$1.3 million of gains on real estate sales for which no comparable sales exist
for the fiscal 1997 periods.
The Company's effective tax rate for the fourteen and forty weeks ended March
4, 1997 was 38.5% as compared with 38.6% for the same periods a year ago.
9
<PAGE> 10
As a result of the above factors, net income was $5.6 million for both the
fourteen weeks ended March 4, 1997 and for the thirteen weeks ended February
27, 1996. Net income increased to $18.9 million for the forty weeks ended March
4, 1997 as compared to $15.9 million for the thirty-nine weeks ended February
27, 1996.
Liquidity and Capital Resources
For the forty weeks ended March 4, 1997, net cash of $1.0 million was provided
by the Company's operations versus $2.7 million for the thirty-nine week period
of fiscal 1996. During the first nine months of fiscal 1997, cash flows from
operating activities was positively impacted primarily by current period
earnings, depreciation and an increase in deferred income taxes. These positive
impacts were offset by an increase in inventories resulting primarily from new
store growth and an increase in prepaid expenses and other current assets.
Prepaid expenses and other current assets primarily increased due to the timing
of amounts earned and collections on certain vendors incentive programs, and
receivables associated with commercial freon sales.
Capital expenditures for the forty weeks ended March 4, 1997 were $52.2
million. The majority of the capital expenditures related to the 64 stores
opened during the first nine months of fiscal 1997. The Company anticipates
that capital expenditures for all of fiscal 1997 will total $65 to $70 million.
The Company expects to open approximately 85 new stores during fiscal 1997, as
well as replacing or expanding an additional 5 to 10 stores. In addition,
preliminary site work has begun on the expansion of the Company's existing
distribution center from 300,000 square feet to 600,000 square feet, with
completion expected near the end of fiscal 1998. Total cost of the expansion is
estimated to be approximately $15 million.
The Company has historically been able to finance most of its new store growth
through unsecured lines of credit and medium and longer term mortgage financing
provided by banks and other institutional lenders, and through cash flow from
operations.
As of March 4, 1997, the Company had $53.9 million of additional availability
under its existing financing agreements. Consistent with its historical
practice, the Company expects to finance both its short and long-term liquidity
needs for new store growth, as to land and buildings, primarily through these
lines of credit and mortgage financing (and renewals and replacements thereof),
and as to equipment, fixtures, primarily through cash flow from operations.
Financing for the distribution center expansion is expected to be provided
through more permanent type financing.
The Company's new store development program also requires significant working
capital, principally for inventories. The Company has historically used trade
credit to finance a portion of its inventory expansion and has been successful
in negotiating extended payment terms and incentives from many suppliers
through volume purchases. The Company believes that it will be able to continue
financing much of its inventory growth through the extension of favorable
payment terms and incentives from its vendors, but there can be no assurance
that the Company will be successful in doing so. The additional funding for
inventory expansion has been provided in large part from cash flow from
operations.
The Company believes that the expected cash flows from operations, available
bank borrowings and trade credit, will be sufficient to fund both the capital
and liquidity needs of the Company for the near term, but that expanded lines
of credit will need to be negotiated to permit the Company to remain on the
aggressive new store openings schedule into fiscal 1998. Furthermore, the
Company will need to secure permanent type financing for its distribution
center expansion which expansion is also considered necessary in order to
continue to support the Company's plans for continued new store openings
growth. Although the Company is engaged in efforts to put such financings in
place, there can be no assurance that the Company will be successful in doing
so or will be able to do so on favorable terms.
10
<PAGE> 11
Forward Looking Statements
The Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this quarterly report contain forward looking
statements that are based on the current expectations, estimates and
projections about the industry in which the Company operates, management's
beliefs and the assumptions made by management. These statements include the
words "anticipates", "expects", "expected" and "believe", variations of such
words, and similar expressions which are intended to identify such forward
looking statements. These forward looking statements are subject to potential
risks and uncertainties that could cause actual results to differ materially
from historical results or those currently anticipated. These potential risks
and uncertainties include increased competition, extent of the market demand
for auto parts, availability of inventory supply, propriety of inventory mix,
adequacy and perception of customer service, product quality and defect
experience, availability of and ability to take advantage of vendor pricing
programs and incentives, sourcing availability, rate of new store openings,
cannibalization of store sites, mix and types of merchandise sold, governmental
regulation of products, new store development and the like, performance of
information systems, effectiveness of deliveries from the distribution center,
ability to hire, train and retain qualified team members, availability of
quality store sites, environmental risks, availability of expanded and extended
credit facilities, legal expenses associated with disputes and investigations
concerning freon matters, potential for liability with respect to these matters
and other risks.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A.E.W., Inc. d/b/a DAPS Discount Auto Parts Stores vs. Discount
Auto Parts, Inc., United States District Court for the Northern
District of Florida, Civil Division, Civil Action
94-30073-CIV-LAC.
On or about January 31, 1994, a complaint was originally filed against the
Company by A.E.W., Inc. d/b/a DAPS Discount Auto Parts Stores in the Circuit
Court in and for Escambia County, Florida (Case 94-0166-CA-01). A.E.W., which
operates several retail auto parts stores in Escambia County, Florida, Fort
Walton Beach, Florida, Mobile, Alabama, and Pascagoula and Gulfport,
Mississippi, sought to enjoin, under several different counts, the Company's
use of the trade names "Discount Auto Parts" and "DAP" without an accompanying
identifier to the extent such use was likely to create confusion with A.E.W.'s
business, and to recover, under several different counts, compensatory and
punitive damages and attorney's fees. No specific dollar amount of damages was
alleged in the complaint. A motion for preliminary injunction was also filed by
A.E.W. The Company sought to remove the case to federal court and also moved to
dismiss several counts or portions thereof and to strike certain references in
the complaint. In February 1994, the Company was able to remove the case to
federal court. A.E.W.'s motion for preliminary injunction was denied as was its
motion for reconsideration of the ruling. The Company's motions to dismiss, and
to strike were granted as to certain counts and denied as to all other counts.
Discovery requests have been exchanged by the parties and such discovery is
proceeding. Recently, the case was bifurcated as to damages and liability
phases. The liability phase is proceeding forward with the damages phase being
stayed until the outcome of the liability phase. Management of the Company
believes that the claims in the complaint that have survived the motions to
dismiss and to strike are without merit and intends to continue to defend the
action vigorously.
11
<PAGE> 12
Airgas, Inc., Airgas Management, Inc., and Airgas Speciality
Gases, Inc., vs. Discount Auto Parts, Inc., Brad Davis, JLM
Enterprises, Inc. d/b/a Autoplex Parts, Jerral L. Mayes, Sr.,
William D. Morris, and John Does 1-100. United States District
Court for the Southern District of Georgia, Civil Division, Civil
Action CV 497-32.
On February 12, 1997, a complaint was filed against the Company, one of its
employees and other defendants in the United States District Court for the
Southern District of Georgia, Savannah Division. The action alleges, among
other things, conspiracy to defraud and RICO violations in connection with
commercial sales of refrigerant R-12 (freon) in October and November 1996. In
particular, the complaint asserts that the Company made certain false
representations, actively participated in transactions involving counterfeit
and smuggled refrigerant and caused false bills of lading to be sent to Airgas
and seeks compensatory damages in an amount not less than $20 million. The
complaint also seeks treble damages and certain other relief. The Company filed
a motion to dismiss which was denied. William Morris, one of the other
defendants in this litigation, filed a cross claim against the Company relating
to these transactions and the Company has filed its answer to both the
complaint and the cross claim. The court overseeing this litigation has
recently set an accelerated schedule for discovery and trial with the trial
being set for late summer 1997. Discovery has commenced and is continuing. The
Company believes that the claims asserted against it in the complaint and the
cross claim are without merit and intends to defend the action vigorously.
Dexter Carson, et. al. vs. Discount Auto Parts, Inc., et. al.
United States District Court for the Southern District of
Florida, Civil Division, Civil Action 96-08833-CIV-HURLEY
On January 23, 1997, a complaint was filed against the Company and certain of
it's current and former team members in the United States District Court for
the Southern District of Florida, Civil Division. The action alleges, among
other things, racial discrimination, failure to promote, discriminatory firing,
violations of the Family Medical Leave Act, negligence, negligent
misrepresentation and related causes of action on behalf of ten current and
former team members and one related individual. No specific dollar amount is
alleged in the complaint, but the complaint seeks to recover, under several
different counts, compensatory and punitive damages, lost wages, reinstatement,
costs and attorney's fees. The Company has filed a series of motions which
include a motion to dismiss for failure to state a claim for relief, a motion
to strike certain references within the complaint, a motion for relief from
improper joinder and a motion for more definitive statement. All motions remain
pending. Discovery has begun. The Company believes that the claims in the
complaint are without merit and intends to defend the action vigorously.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.15 Incentive Compensation Plan for William C. Perkins
10.16 Master Joint Business Agreement of Q Lube, Inc. and
Discount Auto Parts, Inc.
27 Financial Data Schedule (For SEC Use Only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourteen-week
period ended March 4, 1997.
12
<PAGE> 13
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.
DISCOUNT AUTO PARTS, INC.
Date : April 17, 1997 By: /s/ Peter J. Fontaine
-------------------- --------------------------
Peter J. Fontaine
Chief Executive Officer
(Principal Executive Officer)
Date : April 17, 1997 By: /s/ C. Michael Moore
-------------------- --------------------------
C. Michael Moore
Chief Financial Officer
(Principal Financial and Accounting
Officer)
13
<PAGE> 1
EXHIBIT 10.15
DISCOUNT AUTO PARTS, INC.
BONUS PLAN: FISCAL 1997
Bonus Plan for: William C. Perkins
Sales and earnings growth are the key to the long term success of Discount Auto
Parts and they incorporate all the other aspects of the business. Therefore for
the purposes of this pay plan we will only focus on these two areas.
The following bonus will be paid quarterly following the prescribed formula:
Income Before Taxes multiplied by 1.0% = Base Bonus.
This Base Bonus will be halved to provide a Comparable Sales Bonus and a
Earnings Growth Bonus.
Our goal for Comparable Store Sales increase is 10%. Our goal for Earnings
growth increase is 25%.
For every 1% above the Comparable Sales goal of 10% add 10% to Base Bonus for
sales.
For every 1% above the Earnings Growth (as calculated based on Income From
Operations) goal of 25% add 10% to the Base Bonus for earnings growth.
For every 1% below the Comparable Sales goal of 10% deduct 5% from the Base
Bonus for sales.
For every 1% below the Earnings growth (as calculated based on Income From
Operations) goal of 25% deduct 5% from the Base Bonus for earnings growth.
Bonus calculations will be made on a quarterly basis by comparing the then
current quarterly results to the same quarter prior year results. Any resulting
bonuses will be paid on a quarterly basis as well.
Example #1:
Income Before Taxes of $ 20,000,000
1.0% of $20,000,000 = $ 200,000
divided in half = $ 100,000
$100,000 will be dedicated to Comparable Sales growth
$100,000 will be dedicated to Earnings growth
Assume 12% Comparable sales increases for the quarter and 28% Earnings growth
for the quarter.
$100,000 x 20% = $20,000 to total $120,000 for the comparable
sales bonus.
$100,000 x 30% = $30,000 to total $130,000 for the earnings growth
bonus.
<PAGE> 2
Example #2:
Income Before Taxes of $45,000,000
1.0% of $45,000,000 = $ 450,000
divided in half = $ 225,000
$ 225,000 will be dedicated to Comparable Sales growth.
$ 225,000 will be dedicated to Earnings growth.
Assume a 7% Comparable sales increase for the quarter
Assume a 15% Earnings growth for the quarter
$ 225,000 x (100% - ( 3 x 5%)) = $191,250 total for Comparable
sales bonus.
$ 225,000 x (100% - (10 x 5%)) = $112,500 total for Earnings
growth bonus.
The "Income before Taxes" amount to be used in calculating the Base Bonus will
include a reasonable estimate of the executive bonuses to be paid for the
quarter.
The Comparable Sales bonus and the Earnings Growth bonus calculations will be
made independent of each other (e.g. a negative earnings growth bonus
calculation will not offset a positive comparable store sales bonus
calculation).
This plan may be terminated by management at any time and may be subject to
periodic adjustments to earnings and/or comparable sales for one-time items or
other matters as deemed appropriate by executive management.
Agreed To:
/s/ Peter Fontaine 2/24/97
- --------------------------- --------
Discount Auto Parts, Inc. Date
/s/ William C. Perkins 2/24/97
- --------------------------- --------
William C. Perkins Date
<PAGE> 1
EXHIBIT 10.16
MASTER JOINT BUSINESS AGREEMENT OF
Q LUBE,INC. AND DISCOUNT AUTO PARTS, INC.
JANUARY 1,1997
<PAGE> 2
INDEX
<TABLE>
<S> <C> <C>
1. RECITALS............................................................................................................1
2. DEFINITIONS.........................................................................................................1
3. COMPANY FORMATION...................................................................................................4
a. Formation..................................................................................................4
b. Ownership Interests........................................................................................4
c. Management.................................................................................................4
d. Terms of Agreement.........................................................................................4
e. Additional Entities........................................................................................4
4. CAPITALIZATION OF THE COMPANY...................................................................................... 5
a. Initial Capital............................................................................................5
b. Capital Calls..............................................................................................5
5. TERM................................................................................................................5
6. COMPANY SITES.......................................................................................................6
a. Site Nomination............................................................................................6
b. Formal Site Approval.......................................................................................6
c. Development Plans..........................................................................................6
d. Environmental Considerations...............................................................................7
7. CONSTRUCTION AND DEVELOPMENT OF CENTERS.............................................................................8
a. Company Obligations .......................................................................................8
b. Discount's Obligations.....................................................................................8
i. Premises..........................................................................................8
ii. Site Improvements.................................................................................8
iii. Utilities.........................................................................................9
iv. Storage Tanks.....................................................................................9
c. Q Lube Obligations.........................................................................................9
i. Building..........................................................................................9
ii. Equipment........................................................................................10
iii. Computers; Furniture.............................................................................10
iv. Tool Packages; Inventory.........................................................................10
8. INVESTMENT EQUALIZATION............................................................................................10
9. COMPANY OPERATIONS.................................................................................................11
a. Franchise Agreement.......................................................................................11
b. Management of Centers.....................................................................................12
c. Real Property Subleases...................................................................................12
d. Building; Personal Property Leases........................................................................12
e. Common Area Maintenance...................................................................................12
10. FINANCIAL AND ACCOUNTING...........................................................................................12
a. Books and Records.........................................................................................12
b. Accounting ...............................................................................................13
c. Net Profits...............................................................................................13
i. Party Entitlement................................................................................13
ii. Calculation and Payment..........................................................................13
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
d. Medium of Payment.........................................................................................14
e. Place of Payment..........................................................................................14
f. Taxes.....................................................................................................14
11. REGULATORY COMPLIANCE..............................................................................................14
12. INSURANCE..........................................................................................................14
a. General...................................................................................................14
b. Party Insurance...........................................................................................14
13. PROPERTY TITLE AND OWNERSHIP.......................................................................................14
a. Real Property and Buildings...............................................................................15
b. Q Lube Personal Property..................................................................................15
c. Joint Property............................................................................................15
14. TERMINATION........................................................................................................15
a. On Default................................................................................................15
b. By Agreement..............................................................................................15
c. Bankruptcy................................................................................................15
d. Non-Profitability.........................................................................................15
e. Conditions of Termination By Q Lube.......................................................................15
f. Conditions of Termination By Discount.....................................................................17
g. Termination After Initial Term of Agreement...............................................................18
15. INDEMNITIES........................................................................................................18
a. Company Indemnity.........................................................................................18
b. Discount Indemnities......................................................................................18
i. Physical Condition; Title; Environmental.........................................................18
ii. Condition of Ownership, Occupancy or Other Prior Right...........................................19
c. Q Lube Indemnities........................................................................................19
d. Mutual Indemnities........................................................................................20
16. WARRANTIES AND CONDITIONS..........................................................................................20
a. Q Lube Warranties.........................................................................................20
i. Authorization....................................................................................20
ii. Corporate Status.................................................................................20
iii. No Conflict......................................................................................20
iv. Valid and Binding Obligations....................................................................20
v. Center Materials.................................................................................20
vi. Titled Assets....................................................................................21
b. Discount Warranties.......................................................................................21
i. Authorization....................................................................................21
ii. Corporate Status.................................................................................21
iii. No Conflict......................................................................................21
iv. Valid and Binding Obligations....................................................................21
v. Hazardous Materials..............................................................................21
vi. Center Materials.................................................................................21
vii. Title to Assets..................................................................................21
c. Condition to Performance..................................................................................22
17. NON-COMPETITION COVENANTS..........................................................................................22
a. Non-Competition by Discount...............................................................................22
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
b. Non-Competition by Q Lube.................................................................................22
c. Other Joint Ventures......................................................................................22
18. ASSIGNMENT.........................................................................................................23
19. CONFIDENTIALITY....................................................................................................23
20. NOTICES............................................................................................................23
a. Change of Address or Addressee............................................................................24
21. DEFAULT............................................................................................................24
a. Generally.................................................................................................24
b. Notice of Default and Cure................................................................................24
22. REMEDIES...........................................................................................................25
a. General Remedies..........................................................................................25
b. Litigation Expenses.......................................................................................25
c. Cumulative Remedies.......................................................................................25
23. DISPUTES...........................................................................................................25
a. Non-Binding Arbitration...................................................................................25
b. Arbitrators...............................................................................................25
c. Choice of Law and Consent to Jurisdiction.................................................................26
24. MISCELLANEOUS PROVISIONS...........................................................................................26
a. Trade Secrets, Trademarks and Other Intellectual Property.................................................26
b. Bankruptcy/Insolvency.....................................................................................26
c. Severability..............................................................................................27
d. Counterparts..............................................................................................27
e. Waiver....................................................................................................27
f. Time......................................................................................................27
g. Integration and Amendment.................................................................................27
h. Best Efforts and Good faith...............................................................................27
i. No Brokers................................................................................................27
j. Force Majeure.............................................................................................27
k. Construction..............................................................................................28
l. Successors................................................................................................28
</TABLE>
<PAGE> 5
MASTER JOINT BUSINESS AGREEMENT OF
Q LUBE, INC. AND DISCOUNT AUTO PARTS, INC.
THIS MASTER JOINT BUSINESS AGREEMENT ("AGREEMENT") is made and entered
into effective the 1st day of January, 1997 ("EFFECTIVE DATE") and is by and
between the following Parties:
Q Lube: Q LUBE, INC., a Delaware corporation
1385 West 2200 South
Salt Lake City, Utah 84119
Discount: DISCOUNT AUTO PARTS, INC.
a Florida corporation
4900 Frontage Road South
Lakeland, Florida 33801
RECITALS:
WHEREAS, Q Lube, Inc. ("Q LUBE") is a business specializing in the
development, operation and franchising of automotive quick oil change and
lubrication service centers;
WHEREAS, Discount Auto Parts, Inc. ("DISCOUNT") is a business
specializing in the development and operation of retail auto parts stores;
WHEREAS, Q Lube and Discount are desirous of entering a joint business
agreement wherein the parties jointly develop and operate numerous quick-lube
centers at existing Discount locations in Florida, Alabama, South Carolina,
Georgia and other Discount locations;
NOW THEREFORE, in consideration of the mutual covenants and agreements
of the Parties herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Parties do
hereby agree as follows:
AGREEMENT
1. RECITALS. The foregoing Recitals constitute a part of this Agreement.
2. DEFINITIONS. Capitalized terms used in this Agreement, are defined
as follows:
a. "ADVERTISING CONTRIBUTION" is defined in Paragraph 9(a)(iii).
1
<PAGE> 6
b. "AGREEMENT" shall mean this Master Joint Business Agreement
between Q Lube, Inc. and Discount Auto Parts, Inc., together with all exhibits,
amendments and attachments hereto.
c. "APPROVED ADVERTISING" is defined in Paragraph 9(a)(iii).
d. "BUILDING" shall mean the building structure (exclusive of
Site Improvements) and "pit" provided by Q Lube and leased or sold to the
Company to house a Company quick-lube Center. The Building shall be valued at
actual cost for all purposes hereunder.
e. "CASH FLOW" shall mean all cash flows as determined on an
accrual basis according to generally accepted accounting principles ("GAAP").
f. "CENTER" shall mean the Building, Premises, quick-lube
garages, bays and other structures approved in the Development Plan for a Site,
and all other facilities, fixtures, real estate and Site Improvements otherwise
necessary to accommodate and operate a Company operated "Q Lube" quick service
motor vehicle center.
g. "COMPANY" shall mean a mutually agreed upon entity, formed by
the Parties pursuant to Paragraph 3, to own and operate the Centers, which
shall be a partnership (general or limited), unless otherwise mutually agreed
between the parties.
h. "COMPANY MANAGER" is defined in Paragraph 3(c).
i. "DEVELOPMENT PLAN" is defined in Paragraph 6(c).
j. "DISCOUNT SITE" shall mean any location upon which Discount
has previously operated or upon which it is presently operating a business of
any type. Discount Site may also include surplus properties owned or leased by
Discount.
k. "FRANCHISE AGREEMENT" shall mean the Q Lube Franchise
Agreement currently in effect, a copy of which is attached hereto as Exhibit
"B", used by Q Lube in franchising its quick-lube centers, as may be amended
from time to time.
l. "GROSS REVENUES" shall mean receipts less sales, excise and
other taxes, environmental fees, refunds and returns.
m. "HAZARDOUS SUBSTANCES" shall mean any hazardous or toxic
substance, material or waste which is or hereafter becomes regulated by the
United States Government and any agency, authority or body thereof, or by any
agency, authority or government of any local body, municipality, county,
district, province or state in which a Site is located or in which a Center is
in operation.
2
<PAGE> 7
n. "LEASED PREMISES DISCOUNT SITE" shall mean that portion of a
Discount Site leased by Discount and subleased or considered for sublease by
Discount to the Company for development and operation of a Center. The Leased
Premises Discount Site shall have a value equal to the present value of the
stream of sublease payments at market value for the initial term of the
sublease, at the capitalization rate agreed upon between the Parties.
o. "PREMISES" shall mean that portion of a Discount Site sold and
deeded by general warranty deed, or leased, to the Company for development and
operation of a Center. The Premises shall have a value equal to the fair
market value of such Premises.
p. "OWNERSHIP INTEREST" is defined in Paragraph 3(b).
q. "PARTY" or "PARTIES" shall mean Q Lube and/or Discount.
r. "PROTECTED PROPERTY" shall mean all trademarks, patents,
logos, trade names, trade secrets, operational manuals, established procedures,
and other confidential and/or proprietary information of either Party or its
agents, provided such information:
i. is not broadly published in the public domain;
ii. is legitimately treated as a trade secret by the
Party claiming it as their Protected Property; and
iii. did not come into the public domain by the
inappropriate act of the other Party or any franchisee or agent of the
other Party.
s. "Q LUBE FACILITY" or "Q LUBE FACILITIES" shall mean any
automotive maintenance facility/ies specializing in the quick lube business
which is owned, controlled, franchised or managed by Q Lube, whether operated
under the name of Q Lube, Minit-Lube, McQuik's or otherwise.
t. "SITE" shall mean the geographical location of a Premises upon
which a proposed or actual Center is or will be located, regardless of whether
such location is owned or leased by Q Lube, DAP or otherwise.
u. "SITE DATA" shall mean all information reasonably necessary to
make an informed decision as to the analysis of Site suitability, and of
potential Company operations at a potential Site.
v. "SITE IMPROVEMENTS" shall mean all improvements to any Site
including, but not limited to, site grading, excavation, utility extensions,
footings, foundations, paving, curb, gutter, sidewalks and landscaping, but
shall not include any buildings, building fixtures, trade fixtures, or pit
excavation.
3
<PAGE> 8
w. "TOOL PACKAGE" shall mean all hand tools, manual tools, air
tools, power tools, tool devices, tool boxes, tool accessories, and oil-change
accessories normally and routinely used in the operation of a quick-lube
center. The Tool Packages shall not include fixture equipment, or other
primary equipment used in the quick-lube operation, such as compressors,
hydraulic equipment, oil tanks, lifts, and oil injection equipment.
3. COMPANY FORMATION.
a. Formation. Within sixty (60) days after the Effective Date
(defined in Paragraph 24(m) below), the Parties shall form a Company for the
purpose of owning and/or leasing and operating the Centers. Such Company shall
be in a form and place mutually agreed upon by the Parties.
b. Ownership Interests. Discount will own and/or control a
fifty-one percent (51%) ownership interest in the Company and Q Lube will own
and/or control a forty-nine percent (49%) ownership interest in the Company.
Such ownership interests shall be referred to herein as the Parties' respective
"OWNERSHIP INTEREST" in the Company.
c. Management. The Company shall be managed by a "COMPANY
MANAGER" selected by Q Lube with the reasonable consent of Discount, and hired
by the Company to oversee and manage the business affairs of the Company. The
Company Manager shall report directly to Q Lube and Discount. The Parties
shall mutually agree upon reasonable standards for Manager removal. In the
event either Party shall, based upon the established removal standards, desire
the removal of any particular Company Manager, notice shall be given to the
other Party of such dissatisfaction. Within thirty (30) days from the date of
delivery of such notice to the other Party, the Company shall cause a thirty
(30) day written notice of removal to be delivered to the Company Manager. Q
Lube shall select another Company Manager for employment by the Company upon
the later to occur of (i) thirty (30) days after receipt of notice of
dissatisfaction, or (ii) the effective date of the removal. The rights of Q
Lube to select the Company Manager as set forth in this Section may not be
changed or modified by majority vote, but may only be changed or modified with
the express written consent of Q Lube.
d. Terms of Agreement. The organizational documents of the
Company shall incorporate, either expressly or by reference, the terms of this
Agreement which shall in all respects be binding upon the Company and the
Centers.
e. Additional Entities. The Parties may form additional entities
("ADDITIONAL ENTITIES") to hold and/or own a Party's interest in the Company,
to develop and/or operate Centers, and for such other purposes as the parties
may hereafter agree in writing, and provided that the organizational documents
of all such Additional Entities incorporate the terms of this Agreement. The
business affairs of any such Additional Entities shall be managed and overseen
by the Company Manager. The Parties agree that they shall respectively remain
jointly and severally liable to the other Party for any obligations,
performances, or other covenants
4
<PAGE> 9
subsequently assigned to any Additional Entity under this Agreement. No
obligations, covenants rights, performances or other transfer of right title or
interest under this Agreement shall be effective unless approved in writing by
both Parties.
4. CAPITALIZATION OF THE COMPANY.
a. Initial Capital. The Company shall receive an initial
capitalization by the Parties in a total amount of One Hundred Thousand Dollars
($100,000.00), to be paid by the Parties in proportion to their respective
Ownership Interests and within thirty (30) days after formation of the Company.
The Parties shall be subject to additional capital calls for the Company as set
forth below. Initial capitalization of any Additional Entities shall be by
mutual agreement of the Parties.
b. Capital Calls. In the event the Company shall experience
negative Cash Flow which impairs the Company's financial condition or the
ability to operate the Centers, either Party may, on behalf of the Company,
make a call for additional capital in an amount and so often as may be
reasonably necessary to remedy the impaired financial condition of the Company.
If mutually agreed by the Parties, any capital call may be in the form of a
loan. The amount of capital called for shall be paid by the Parties in
proportion to their respective Ownership Interest in the Company. If the
Parties are unable to agree as to the reasonableness of a capital call, the
reasonableness thereof shall be determined by a mutually agreed upon third
party accountant. In the event the Parties cannot agree on a third party
accountant, each Party shall appoint their own accountant to determine whether
the call for additional capital is reasonable, and if not, to determine a
reasonable call amount, if any. In the event the accountants do not agree, a
reasonably requested call amount shall be the lower call amount submitted by
the accountants, plus one half (1/2) of the difference between the lower call
amount and the higher call amount. All analysis by the accountants shall be
done in accordance with generally accepted accounting principles. Subject to
each Party's rights of termination, the Parties hereby agree to pay all
additional reasonably requested capital calls until such time as the financial
impairment is remedied, or until the operation of the Company is terminated
pursuant to the terms of this Agreement. In the event a Party refuses or fails
to timely remit the additional requested capital payment pursuant to this
Paragraph, the non-paying Party shall pay to the Company interest on the unpaid
amount at the rate of eighteen percent (18%) per annum, from the due date until
paid in full. In the event the other Party elects to make such payment on
behalf of the non-paying Party, such other Party shall be entitled to recover
from the non-paying Party the principle amount of such capital contribution
together with all interest referenced above, together with a right to offset
any amounts recoverable under this Paragraph against Cash Flow or other amounts
otherwise payable to the non-paying Party.
5. TERM. The initial term of this Agreement shall be for Ten (10) years
from the date hereof, and shall automatically renew for additional Five (5)
year periods unless otherwise terminated by either Party by written notice
given no less than six months prior to the expiration of the initial term or
subsequent additional period. In no event shall the term of this Agreement
5
<PAGE> 10
continue beyond Forty (40) years from the date hereof unless the Parties hereto
agree in writing to extend the term. The terms of this Agreement shall be
applicable to the Company and Centers until such time as the operations of the
Company and Centers are terminated in accordance with the provisions of this
Agreement. Except as otherwise provided in this Agreement, the provisions of
this Agreement shall continue in force, and shall be binding upon each Company
and the Parties hereto until termination of the last Company and operations at
the last Center. It is expressly understood and agreed that while this
Agreement shall be applicable to the Company, Sites and Centers, the
termination of Company operations at one Center shall have no impact upon the
continued viability, enforceability or validity of this Agreement with respect
to any other Site, Company, Center, or Party.
6. COMPANY SITES.
a. Site Nomination. Either Party may nominate a Site for
construction and operation of a Center ("SITE NOMINATION"). Each Site may be
selected from any available parcels of real property, including, but not
limited to, Discount owned or leased parcels. Such Site Nomination shall be in
writing and shall be delivered to the other Party in accordance with the terms
of this Agreement. Construction of a Center upon a Site shall not begin unless
and until the Parties each give Site Approval (as defined in subparagraph (b)
below).
b. Formal Site Approval. Within thirty (30) days of a Site
Nomination, the Parties shall deliver to each other all available and relevant
Site Data in their possession, which may include aerial photographs, site
layouts, title reports, environmental reports, conditioning and zoning reports,
preliminary cost estimates, demographics, sales projections and pro-forma
financial statements. Either party may require further Site Data as it deems
reasonably necessary, including environmental site assessments. The costs of
preparing or obtaining further Site Data shall be treated as an expense of the
Company as may be applicable, and shall be shared in proportion to the Parties'
respective ownership interests therein.
Within sixty (60) days of Site Nomination, each Party shall either
approve the nominated Site in writing ("SITE APPROVAL") or disapprove the
nominated Site. If either Party fails to give its Site Approval within such
sixty (60) day period, such Party shall be deemed to have disapproved the Site
Nomination. A Party's disapproval of a Site on one or more occasions shall not
preclude nomination and approval on a subsequent occasion.
c. Development Plans. If a Site receives Site Approval from each
Party, the Parties shall mutually agree upon and cause to be prepared a
"DEVELOPMENT PLAN" for a Center on the approved Site. Such Development Plan
may include the following:
i. Each Party's designation of a "DEVELOPMENT MANAGER"
to represent the Parties in the construction, development and start-up
of the Center;
6
<PAGE> 11
ii. Plans, drawings, specifications, operational plans,
any existing Hazardous Materials disclosures, and other development
data necessary for construction and development of the Center;
iii. A development and construction budget for the
proposed Center, including the estimated costs of any Site
Improvements and Building construction;
iv. A start-up budget for the proposed Center;
v. A proposed list of required furniture, fixtures,
computers, equipment and tools for the Center;
The costs of preparing each Development Plan shall be the
responsibility of the Company. In the event the existing Hazardous Materials
disclosures are deemed by either Party to be insufficient, outdated,
incomplete, or otherwise unsatisfactory, the Party(ies) may either disapprove
the Site, or the Company shall, upon request of either Party, pay for any
additional Hazardous Materials disclosures necessary for complete Site
assessment and analysis. In the event the Parties are unable to agree on a
Development Plan for a particular Site after a period of sixty (60) days from
the latest date of Site Approval, either Party may thereafter, in its sole
discretion, revoke in writing its Site Approval for that particular Site. No
revocation of Site Approval shall affect the operations or various stages of
development of any other Center.
d. Environmental Considerations.
i. Sites Conveyed to the Company. Prior to conveyance of any
Discount Site to the Company, Discount shall either: (1) affirmatively
represent that Discount does not know of any environmental contamination on the
Discount Site; or (2) set forth in writing the nature of any known
environmental contamination on the Discount Site. In the event any Discount
Site is to be conveyed to the Company, and any environmental contamination is
discovered or identified upon such Discount Site prior to the conveyance of the
Discount Site to the Company, Discount shall have the option to remediate such
contamination at its sole cost, to Q Lube's reasonable satisfaction, and within
a reasonable period of time. Should Discount elect not to remediate such
contamination, Q Lube shall have the right to either: a) refuse to approve the
Site or to revoke its prior Site Approval; or b) approve the conveyance to the
Company. In the event both parties approve the conveyance to the Company, and
the conveyance is completed, the Company shall accept the Site "as-is" as to
environmental considerations.
ii. Sites Leased from Discount. In the event any
environmental contamination is discovered or identified upon any Discount Site
leased to the Company which contamination is found to have existed prior to the
Company's possession of the Discount Site, Discount shall indemnify and hold Q
Lube and the Company harmless from any liability arising from such
environmental contamination. Notwithstanding such indemnity, Discount shall
not have the affirmative duty to immediately mitigate such contamination unless
otherwise required to do so
7
<PAGE> 12
pursuant to applicable law. Each lease between Discount and the Company shall
contain indemnification language consistent with this paragraph.
iii. Contamination After Conveyance of Site. In the event
any environmental contamination is discovered or identified upon any Discount
Site after conveyance of the Site to the Company, the Company shall be
responsible to remediate such contamination to the reasonable satisfaction of
both Parties.
In the event any environmental contamination is discovered or
identified upon any Discount Site or non-Discount Site after commencement of
the operation of a Center upon the Site, and it is determined that the
environmental contamination occurred as a result of the actions, omissions or
fault of any third party, the Company shall pay for remediation of such
contamination to the reasonable satisfaction of both Parties. Notwithstanding
the foregoing, nothing herein shall be construed to prevent the Company seeking
recovery of all costs, expenses and charges of remediation from any responsible
third parties, and nothing herein is intended to be nor shall be construed as
granting to any such responsible third party any beneficiary rights of
performance by the Company or either Party.
Any reference to environmental contamination shall also refer to and
include the existence of or need for remediation in any matters involving of
any Storage Tanks (as defined in Section 7(b)(iv) below).
7. CONSTRUCTION AND DEVELOPMENT OF CENTERS.
a. Company Obligations. The Parties agree to fully cooperate
with each other in the development of the Sites and the construction of the
Centers as provided below. The Company or Additional Entity, as applicable,
shall be responsible to pay for all reasonable soft costs associated with the
development of Site Improvements and Center construction. Soft costs shall
include, but not be limited to, engineering, legal, zoning, architectural and
environmental study fees; plans and specifications; licenses, permits and
related fees.
b. Discount's Obligations.
i. Premises. Upon approval of the Development Plan, but
prior to commencement of construction, Discount shall either convey
the Premises to the Company by general warranty deed or lease the
Premises to the Company upon such terms as may be determined between
the Company and Discount. Discount and the Company shall determine
whether the subject Premises will be leased or conveyed on a case by
case basis. The Company shall pay all documentary transfer taxes,
costs of transfer and recording costs related to any transfer of the
Premises to the Company.
ii. Site Improvements. Discount shall construct the Site
Improvements for each Center at its sole cost and expense. Discount's
Development Manager shall manage,
8
<PAGE> 13
supervise and direct the construction of the Site Improvements, which
construction shall be in accordance with: (1) the Development Plans;
(2) all Q Lube center development requirements as set forth in the
Franchise Agreement and associated documents (as may be changed from
time to time); and (3) all applicable building codes and ordinances.
Any change order or variance therefrom must be approved in writing by
each Development Manager, and if such change order is attributable to
unforeseen conditions, each Development Manager shall not unreasonably
withhold written approval of such change orders.
iii. Utilities. Discount shall, at its sole cost and
expense, install all necessary utilities to the Approved Sites stubbed
to the footprint of the Building on the Approved Site. Discount's
Development Manager shall oversee, direct and ensure the proper
installation of all such utilities.
iv. Storage Tanks. Discount shall, at its sole cost,
obtain permanent closure and removal of any underground storage tanks
(herein "STORAGE TANKS"), in accordance with all applicable Federal,
state and local regulations. Discount warrants to Q Lube that any
action relative to the Storage Tanks, including permanent closure and
removal of the Storage Tanks, shall be conducted in such a way as to
ensure that such action is undertaken in a manner which causes the
least possible disturbance or disruption to the Company's operation or
development of a Center.
c. Q Lube Obligations.
i. Building. Q Lube shall construct the Buildings upon
the improved Sites at its sole cost and expense, and upon completion
of the same, shall either convey or lease the Building to the Company
by bill of sale, deed or lease. Q Lube and the Company shall
determine whether each subject Building shall be sold or leased to the
Company on a case by case basis. Q Lube's Development Manager shall
manage, supervise and direct the construction of the Buildings for
each Center. Each Building shall be of first rate quality (that
quality required for other newly constructed Q Lube Facilities) and
shall be constructed or installed on the Approved Site within a
reasonable time after completion of the Site Improvements and in
accordance with: (1) the Development Plan; (2) all Q Lube center
development requirements set forth in the Franchise Agreement and
associated documents (as may be changed from time to time); and (3)
all applicable building codes and ordinances. Any change order or
variance therefrom must be approved in writing by each Development
Manager, and if such change order is attributable to unforeseen
conditions, each Development Manager shall not unreasonably withhold
written approval of such change order. The Buildings shall generally
be prefabricated or modular, unless there exists certain covenants or
other agreements enforceable against the Premises, in which event the
Building shall be constructed in a manner non-violative of such
applicable covenants or agreements. Notwithstanding the
9
<PAGE> 14
foregoing, nothing herein shall be construed to require that the
Buildings be prefabricated or modular.
ii. Equipment. Q Lube shall, at its sole cost and
expense, provide to the Company all initial oil-lube equipment
necessary or reasonably required for the operation of each Center;
provided that such equipment shall not include those tools and other
items included within the Tool Package. Necessary oil lube equipment
shall include but shall not be limited to oil pumps, reels, hoses and
oil containers.
iii. Computers; Furniture. Q Lube shall, at its sole cost
and expense, provide the Company for use in each Center all initial
computer hardware and software, and office and waiting room furniture
of the type and quality normally used in Q Lube Facilities.
iv. Tool Packages; Inventory. The Company shall purchase
and provide for each Center a Tool Package and all inventory
reasonably required for the operation of each Center.
8. INVESTMENT EQUALIZATION. It is the intent of the Parties that each
Party's investment in each Center equal its respective Ownership Interest in
the Company. To that end, upon completion of a Center, each Party shall submit
to the Company an accounting of all actual, reimbursable, out-of-pocket
expenses incurred in meeting their respective construction, development and
start-up obligations under this Agreement. Reimbursable expenses shall be
those expenses mutually agreed upon by the Parties. All expenses shall be
subject to audit by the Company, by Q Lube or by Discount. If one Party has
expended more funds with relation to a particular Center, the Party which has
expended the lesser amount shall pay to the other Party a percentage of the
excess so as to make the Parties' respective investments in each Center equal
to their respective Ownership Interest in the Company. For purposes of
investment equalization, any Premises conveyed and transferred to the Company
shall be deemed to have a value equal to the fair market value of the Premises
on the date of transfer to the Company. For investment equalization purposes
only, the value of any lease shall be determined as follows:
a. As part of Site Approval, the parties will agree upon the fair
market value of the Premises prior to construction of Center improvements, and
will also agree upon a discount rate for use in determining a commercially
reasonable lease payment for the Premises.
b. The parties will agree upon a term of the lease, in years.
c. The parties will next apply an agreed discount rate to the stream
of fair market lease payments calculated pursuant to the terms of paragraph
8(a) to determine the present value of the stream of net lease payments over
the term of the lease. The present value so calculated will be deemed to be
the value of the lease for investment equalization purposes.
10
<PAGE> 15
d. If the parties are not able to agree upon the fair market value of
the Premises, the term of the lease, or any applicable discount rate, either
party may refuse to grant Site Approval.
The value of any personal property transferred or conveyed to the Company shall
be the fair market value of such personal property on the date of transfer or
conveyance. All Centers shall be valued individually, and investment
equalization shall occur with regard to each individual Center.
9. COMPANY OPERATIONS.
a. Franchise Agreement. The Company shall execute a Q Lube
Franchise Agreement for and on behalf of each Center, and each Center shall
thereby become a franchise facility of Q Lube. The Franchise Agreement for
each Center shall be modified as follows:
i. Q Lube shall waive the Initial Franchise Fee
(described in Paragraph 3(A) of the Franchise Agreement) and any
Initial Franchise Fee(s) for future renewals for each Center. Q
Lube's waiver of such Initial Franchise Fees shall release it from any
obligation (under Paragraph 3(A) of the Franchise Agreement) to
contribute funds towards the grand opening of any Center.
ii. In addition to the royalty reduction thresholds set
forth in Paragraph 3(B) of the Franchise Agreement, Q Lube shall agree
that such Paragraph 3(B) shall contain the following royalty reduction
threshold for the Company's Centers located within the same DMA:
Sales Subject to Royalty Royalty
$7,500,000 2.50%
iii. Paragraph 5(A)(2) of the Franchise Agreement
obligates the "Franchisee" of each Center to pay Q Lube a continuing
advertising contribution equal to 7.5% of the Gross Revenues generated
at each Franchised Center ("ADVERTISING CONTRIBUTION"). Q Lube agrees
that the Company shall be entitled to a credit against the Advertising
Contribution for each Center equal to Discount's actual out-of-pocket
expenses spent on Approved Advertising in the geographical area of
each Center; provided that the Company's credit against its
Advertising Contribution for a particular Center shall not exceed 5%
of the Company's 7.5% Advertising Contribution for such Center.
"APPROVED ADVERTISING" shall be defined as advertising and/or
promotions of its retail auto parts stores, which also directly
advertises and/or promotes the services of the adjacent Centers and
which has been previously approved in writing by Q Lube in its
reasonable discretion. The Company shall reimburse Discount for any
such amounts credited the Company by Q Lube.
11
<PAGE> 16
Should there be inconsistencies between this Agreement and the
Franchise Agreements, the terms of this Agreement shall control.
b. Management of Centers. Upon completion of each Center, the
Company shall engage Q Lube to operate and manage each Center. The Company and
Q Lube shall execute a written management agreement in a form acceptable to
both Q Lube and Discount, which form shall be appended hereto as Exhibit "A".
c. Real Property Subleases. In the event the Company shall
desire to utilize a Leased Premises Discount Site as a Company Site, the
Company shall execute and deliver to Discount and/or to Discount's Lessor of
the subject Leased Premises Discount Site a triple net real property sublease
for each such Leased Premises Discount Site. The Company shall lease or
sublease the Leased Premises Discount Site from Discount or its Lessor for the
same amount due under Discount's lease of the Leased Premises Discount Site.
All expenses shall be treated as an expense to the Company.
d. Building; Personal Property Leases. Q Lube shall execute and
deliver to the Company a bill of sale, deed or lease to the Building on each
Site. Q Lube and the Company will determine whether each subject Building will
be sold, deeded or leased on a case by case basis. The Company shall execute
and deliver to Q Lube a lease or leases for all equipment, computers and other
personal property owned by Q Lube and used for a Center. The Company shall
lease all equipment, computers and other personal property provided by Q Lube
(excluding the Tool Packages which it shall purchase) from Q Lube for an amount
equal to the fair market lease value of such personal property.
e. Common Area Maintenance, Real Property Taxes. Unless
otherwise agreed in writing, Discount shall be solely responsible for the
maintenance of the respective Discount and Company parcels of real property,
and shall be responsible to maintain any areas jointly used by the Company and
Discount. Such maintenance shall include necessary snow, ice, and garbage
removal, as well as maintenance and repair of paving, concrete repair, utility
repair, and landscaping. Discount shall be responsible for the payment of real
property taxes. The cost associated with common area maintenance and the
payment of real property taxes shall be allocated pro-rata between Discount and
the Company, based upon their respective square footage of real property.
10. FINANCIAL AND ACCOUNTING.
a. Books and Records. The Company shall keep accurate books and
records of account in accordance with generally accepted accounting principles
consistently applied showing all information necessary for the review and
determination of all financial matters pertaining to or relating to the Company
and the Centers. The books and records of the Company and each Center shall be
open during normal business hours for inspection by the Parties and their
respective accountants, in order to determine, with respect to any calendar
year
12
<PAGE> 17
ending not more than six (6) years prior to the date of such request for
inspection, the correctness of any report or payment made hereunder and to
otherwise determine compliance with this Agreement. Any accounting claim under
this section not made within six (6) years after the claim has accrued shall
be deemed waived by the Party to whom such claim is otherwise accrued. The
Company, the Parties, and their respective accountants and agents shall not
reveal any knowledge or information obtained pursuant to any such inspection
except: (a) as may be relevant to compliance with this Agreement; (b) as may be
required by applicable securities laws, regulations, exchanges or markets; or
(c) to the Party's respective banks, lenders and professional advisors for
legitimate business purposes. The Company shall provide to the Parties all
monthly financial statements and reports as the Parties may hereafter from time
to time designate by mutual agreement, but not later than thirty (30) days
after the end of each month.
b. Accounting. Upon either Parties' request, the Company's books
and records shall be audited on an annual basis, at the Company's expense,
which audit shall be performed by an accounting firm approved by both Parties.
Both Parties must agree upon the audit procedure and mechanism. No funds shall
be expended for audit services beyond those which are reasonably necessary for
sound accounting. The Company shall keep accurate books and records of account
in accordance with generally accepted accounting principles consistently
applied showing all information necessary for the review and determination of
all financial matters pertaining to or relating to the Company or the Centers.
All accounting matters shall be on an accrual basis unless otherwise agreed by
the Parties. The Company shall be responsible for the cost of preparing and
filing any and all tax returns.
c. Net Profits.
i. Party Entitlement. The Company shall allocate the
net profits from Company operations for each fiscal year in accordance
with the Parties' respective Ownership Interests in the Company. The
determination of profitability or Cash Flow of one Center shall not be
impacted by the profitability or Cash Flow of any other Center.
ii. Calculation and Payment. The profits of the Centers,
as determined on an accrual basis, shall be distributed to the Parties
semi-annually on the last day of June and December. The first
semi-annual payment of each calendar year shall be equal to the
applicable share of the Cash Flow gained by the respective Parties
over the first six months of the calendar year. The second
semi-annual payment of each calendar year shall be equal to the
difference between the applicable share of actual annual profits and
the first semi-annual payment made to the Parties during the calendar
year. In the event there has been any overpayment to any Party in a
given year, such excess payments may be offset against amounts (i.e.
profit shares) which become due and owing the following year(s) for
the same Center. Each semi-annual payment of profits shall be paid
within thirty (30) days of the end of the semi-annual period.
13
<PAGE> 18
d. Medium of Payment. All payments or exchanges of monies made
pursuant to this Agreement shall be made by cash, certified check, wire
transfer, or any other immediately available funds.
e. Place of Payment. Payment of all amounts due and owing to
the Parties under this Agreement shall be delivered to the place and to the
person identified in Paragraph 21 herein, or to such other place or person as
the payee may hereafter designate to the payor in writing.
f. Taxes. To the extent that any taxes, duties or government
assessments are applicable to any of the services, properties, or possessions
provided by or in use by the Company, such payment shall be made by the Company
and treated as an operating expense of the Company.
11. REGULATORY COMPLIANCE. The Company shall comply with the laws,
regulations, ordinances and requirements of all relevant states, counties,
jurisdictions and government agencies (including federal, state and municipal).
The Company shall obtain all necessary permits, licenses and authorizations
from the relevant governmental authorities necessary for the construction and
operation of each Center. Upon completion of a Center, the Company shall be
responsible for compliance with all applicable environmental laws and
regulations. If and to the extent that Company activities under this Agreement
require any approval, permit, license or authorization by, or any registration
or filing with, any government, agency or other authority within the
province(s) in which the Center is located, or under any law, regulation,
ordinance or requirement, then the Company shall obtain or make such approval,
permit, license, authorization, registration or filing on a timely basis, at
the expense of the Company.
12. INSURANCE.
a. General. The Company shall maintain a policy of general
liability insurance on each Center, including but not limited to coverage for
bodily injury, property damage, and employer liability, in the amount of Five
Million Dollars ($5,000,000.00) per person and Five Million Dollars
($5,000,000.00) per occurrence. The required limits may be satisfied by any
combination of a primary policy and an excess or umbrella policy.
b. Party Insurance. Nothing herein shall be construed to
prohibit the Company from entering into an agreement with the Parties seeking
to extend existing Party insurance to the operations of the Company.
13. PROPERTY TITLE AND OWNERSHIP. At all times during this Agreement, and
upon the termination thereof, and/or the termination of operations at any
specific Center:
14
<PAGE> 19
a. Real Property and Buildings. All real property (except Leased
Premises Discount Sites) and Site Improvements (including Company Buildings,
fixtures and equipment) conveyed to the Company by deed or bill of sale shall
remain the sole property of the Company. Any lease rights in and to any Leased
Premises Discount Site, leased Site, or leased Building shall remain the sole
property of the Company, until transferred by the Company, and title in and to
such leased property, whether real or personal, shall remain as provided for by
applicable lease provision and/or other official records.
b. Q Lube Personal Property. The fixtures, computer hardware and
software and all operation related equipment shall remain the sole property of
Q Lube.
c. Joint Property. All inventory, supplies, and personal
property of the Company shall remain the sole property of the Company.
14. TERMINATION.
a. On Default. Either Party may, for itself or on behalf of the
Company, terminate the operation of any Center upon the occurrence of an event
of default and compliance with all notices and actions required by Paragraph 21
herein.
b. By Agreement. This Agreement, or the operations of Center may
be terminated upon the written consent of all Parties and the Company.
c. Bankruptcy. Either Party may, for itself or on behalf of the
Company, terminate this Agreement upon the filing of any petition for relief
under applicable bankruptcy law by the other Party, or upon the failure to get
any involuntary bankruptcy filing dismissed within sixty (60) days from the
date of such bankruptcy filing.
d. Non-Profitability. Either Party may, for itself or on behalf
of the Company, terminate operations of a Center upon determination that the
Center did not generate a Net Profit for two (2) consecutive years, or upon the
determination that the Company Facility has had a Net Loss of Thirty Thousand
Dollars ($30,000) or more in any year. For purposes of this Paragraph 14(d)
only, "NET PROFIT" shall mean the net gain for a specific period where total
sales, revenue and income receipts are greater than the customary and
reasonable operating expenses and taxes incurred for the same period, as
calculated in accordance with generally accepted accounting principles, and
"NET LOSS" shall mean the net loss for a specific period where total sales,
revenue and income receipts are less than the customary and reasonable
operating expenses and taxes incurred for the same period, as calculated in
accordance with generally accepted accounting principles.
e. Conditions of Termination by Q Lube. In the event Q Lube
shall terminate a Center upon any grounds authorized in this Agreement:
15
<PAGE> 20
(1) Discount may, within (30) days of Q Lube's notice of
termination, elect in writing to continue operation of the Center. If
Discount does timely elect to continue operation of the Center, Q Lube
shall authorize the Company to assign its leases with the Company to
Discount, which leases shall be re-negotiated to then fair market
value. Discount shall indemnify the Company against any and all
claims arising under any Company lease assigned to Discount. Discount
shall purchase at fair market value any Company and/or Q Lube title
or ownership interest in the Premises, Building, and Site
Improvements. Discount shall purchase all useable inventory and all
other Company property located at the subject Center for book value.
Upon such purchase, Discount shall continue to operate the Center as
a Q Lube franchisee pursuant to the terms of the Applicable Franchise
Agreement, and the Company shall assign to Discount such Franchise
Agreement.
(2) If Discount does not elect to continue operation, and
either the Premises, Site Improvements and/or Building are owned by
the Company, then:
(i) Discount shall have the first right to purchase
any Company and/or Q Lube title or interest in the Premises
and Site Improvements for fair market value, and Q Lube shall
have the first right to purchase any Company and/or Discount
title or interest in the Building for fair market value;
(ii) In the event either Discount and/or Q Lube
shall refuse to purchase the Premises/Site Improvements and/or
the Building, the other party shall have the second right to
purchase the same;
(iii) In the event the Premises/Site Improvements
and/or the Building shall not be purchased by either Party,
any interest of the Company in the same shall be liquidated
with all proceeds to be treated as liquidation proceeds;
(iv) The cost of removing such Company owned
Building purchased by a Party or third party purchaser shall
be borne solely by the purchasing entity, and purchasing
entity shall be required to restore the Site to its prior
condition, unless this condition is waived by the Parties; and
(v) All tools and inventory will be transferred
to other Centers or liquidated.
(3) If Discount does not elect to continue operation, and
the Building is owned by Q Lube, then with respect to the Building:
(i) Q Lube may at its option remove the Building or
sell the same to Discount or any third party purchaser;
16
<PAGE> 21
(ii) In the event the Building shall be purchased
by Discount or any third party purchaser, such purchasing
entity shall pay all costs of moving the Building, if any, and
restoring the Site to its prior condition;
(iii) In the event Q Lube shall move the Building
off the Site, the cost of removing the Building to a
destination designated by Q Lube and the cost of restoring
the Site to its prior condition shall be borne by Q Lube
and Discount in proportion to their ownership interest in
the Company.
f. Conditions of Termination by Discount. In the event Discount
shall terminate a Center upon any grounds authorized in this Agreement then:
(1) Q Lube may, within (30) days of Discount's notice of
termination, elect in writing to continue operation of the Center. If
Q Lube does timely elect to continue operation of the Centers, then:
(i) Discount shall authorize the Company to assign
to Q Lube any of its leases with Discount pertaining to the
Premises, which leases shall be re-negotiated to then fair
market value;
(ii) Q Lube will purchase the useable inventory and
all joint Company property located at the Center for book
value.
(iii) If the Premises and/or Site Improvements
shall be owned by Discount, Discount shall, at the sole
election of Discount, either sell the Premises to Q Lube at
fair market value, or enter into a lease with Q Lube for fair
market rent for a minimum lease term of fifteen (15) years;
(iv) If the Premises and/or Site Improvements shall
be owned by the Company, Q Lube shall purchase the Premises
and Site Improvements at fair market value;
(v) Q Lube shall purchase all useable inventory and
all other Company property located at the Center for book
value.
(2) If Q Lube does not elect to continue operations, and
either the Premises, Site Improvements and/or Building are owned by
the Company, then all conditions of Section 14(e)(2) shall apply.
(3) If Q Lube does not elect to continue operation, and
the Building is owned by Q Lube then the provisions of Section
14(e)(3) shall apply.
17
<PAGE> 22
g. Termination After Initial Term of Agreement. Unless
otherwise mutually agreed, at the end of the initial Term or any automatic
extension thereto, a terminating Party will not have the right to terminate
this Agreement as to any less than all Centers.
15. INDEMNITIES.
a. Company Indemnity. With respect to each Center, the Company
shall indemnify Q Lube and Discount, and their respective officers, agents,
officers, directors, employees, and representatives, of and from any and all
claims, demands, damages, actions, causes of action, or suits at law or equity,
from all costs accruing or to accrue, on account of any and all known and
unknown injuries, losses or damages, directly or indirectly sustained to or in
any manner related to:
i. Any Hazardous Substances found to exist at a
non-Discount Site Center, either prior to or subsequent to
commencement of Company operations on the Site by the Company, or any
employee, agent, invitee or representative thereof, including without
limitation all cleanup or remediation or liability of and for
hazardous Substances, closure and/or removal of Storage Tanks, and any
other actions or omissions related thereto.
ii. The Company's negligence.
iii. Any malfeasance, fraud, tortious conduct, dishonesty,
misrepresentation, or criminal activity of the Company.
b. Discount Indemnities.
i. Physical Condition; Title; Environmental. As to any
Discount Site or Leased Premises Discount Site used by the Company for
a Center, Discount shall indemnify Q Lube, its agents, officers,
directors, employees, and representatives, of and from any and all
claims, demands, damages, actions, causes of action, or suits at law
or equity, from all costs accruing or to accrue, on account of any and
all known and unknown injuries, losses or damages, directly or
indirectly sustained to or in any manner related to:
(1) any Hazardous Materials found to exist upon
any Discount Site leased to the Company, which contamination
is found to have existed prior to Company operations of the
Center;
(2) latent, underground, or other hidden
conditions, conditions undisclosed to Q Lube, conditions of
which Q Lube has no actual knowledge or which are otherwise
not readily observable by visual inspection conducted by
walking through the property, or which are otherwise illegal,
unsafe, damaging to property or interest, or violative of any
ordinance, rule, regulation, or other
18
<PAGE> 23
provision of law of any local, municipal, county, state,
district or federal entity, agency or regulatory body in
such a manner as to materially or adversely affect the Site
for use as a Center (hereafter "UNKNOWN CONDITIONS"); and
(3) any liability which may arise due to
the continued use of any Center which is caused by or
related to the Unknown Conditions which materially or
adversely affects the Site for use as a Center.
(4) the Site's noncompliance or violation of any
ordinance, rule, regulation, or other provision of law of any
local, municipal, county, state, district or federal entity,
agency or regulatory body (with the exception of environmental
violations associated with Site's deeded to the Company) which
occurred prior to the date of transfer of the Premises to the
Company.
ii. Condition of Ownership, Occupancy or Other Prior
Right. The indemnity set forth in Paragraph 15(b)(i) above is
conditioned upon Discount (or a related entity) being the fee owner of
the Site, or Discount occupying the Site prior to presenting the Site
to Q Lube for approval as a joint Center.
c. Q Lube Indemnities.
i. Building. As to any Building constructed or provided
by Q Lube and sold to or leased by the Company for a Center, Q Lube
shall indemnify Discount, its agents, officers, directors, employees,
and representatives, of and from any and all of the following which
materially or adversely affect the Building for use in association
with a Center:
(1) claims, demands, damages, actions, causes of
action, or suits at law or equity, from all costs accruing or
to accrue, on account of any and all known and unknown
injuries, losses or damages, directly or indirectly sustained
by Discount which relate to defects in workmanship, materials,
and construction of the Building;
(2) The Building's noncompliance or violation of
any ordinance, rule, regulation, or other provision of law of
any local, municipal, county, state, district or federal
entity, agency or regulatory body which occur prior to the
date of transfer of the Building to the Company.
ii. Condition of Ownership, Occupancy or Other Prior
Right. The indemnity set forth in Paragraph 15(c)(i) above is
conditioned upon Q Lube being the owner of the Building at all times
prior to the date of issuance of the initial occupancy permit (or
equivalent thereof) for the Building..
19
<PAGE> 24
d. Mutual Indemnities. The Parties anticipate and acknowledge
that both Parties shall be involved in construction activities in connection
with the Centers. Pursuant thereto, the Parties hereby indemnify each other
against all claims, demands, damages, actions, causes of action, or suits at
law or equity, and from all costs accruing or to accrue, on account of any and
all known and unknown injuries, losses or damages, directly or indirectly
sustained to or in any manner related to their own construction activities
occurring on, around, or in connection with the Centers, or other construction
activities relating to the Party's private facilities or private operation at
the Site, if any.
16. WARRANTIES AND CONDITIONS.
a. Q Lube Warranties.
i. Authorization. Q Lube warrants that the person
executing this Agreement on behalf of Q Lube is the duly authorized
officer of Q Lube and that by such signature, said officer does act
for and on behalf of Q Lube in binding Q Lube to the terms of this
Agreement. Q Lube has the corporate power and authority to execute
and deliver this Agreement, and to perform hereunder.
ii. Corporate Status. Q Lube is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware. Q Lube has all necessary corporate powers to own
its properties and conduct the business in which it is now engaged.
iii. No Conflict. The execution, delivery and
performance of this Agreement will not violate the terms of any
instrument, document or agreement to which Q Lube is a party, or by
which Q Lube is bound, or be in conflict with, result in a breach of,
or constitute (with the giving of notice or lapse of time or both) a
default under any such instrument, document or agreement, or result in
the creation or imposition of any lien upon any of the property or
assets of Q Lube.
iv. Valid and Binding Obligations. This Agreement
constitutes the valid and legally binding obligation of Q Lube,
enforceable in accordance with its terms, and no consent, approval or
authorization of any governmental authority, bureau or agency is
required in connection with the execution, delivery and performance of
this Agreement, or the validity and enforceability of this Agreement.
v. Center Materials. Q Lube warrants that all materials
provided by Q Lube for construction of the Center Buildings shall be
first rate quality, such quality being that quality of other newly
constructed Q Lube Facilities. The Parties acknowledge and agree that
many, if not all of the Buildings, will be prefabricated or modular.
20
<PAGE> 25
vi. Title to Assets. Q Lube warrants that it has clear
title to all assets conveyed by it to the Company pursuant to this
Agreement.
b. Discount Warranties.
i. Authorization. Discount warrants that the
person executing this Agreement on behalf of Discount is the duly
authorized officer of Discount and that by such signature, said
officer does act for and on behalf of Discount in binding Discount to
the terms of this Agreement. Discount has the corporate power and
authority to execute and deliver this Agreement, and to perform
hereunder.
ii. Corporate Status. Discount is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Florida. Discount has all necessary corporate powers to own
its properties and conduct the business in which it is now engaged.
iii. No Conflict. The execution, delivery and
performance of this Agreement will not violate the terms of any
instrument, document or agreement to which Discount is a party, or by
which Discount is bound, or be in conflict with, result in a breach
of, or constitute (with the giving of notice or lapse of time or both)
a default under any such instrument, document or agreement, or result
in the creation or imposition of any lien upon any of the property or
assets of Discount.
iv. Valid and Binding Obligations. This Agreement
constitutes the valid and legally binding obligation of Discount,
enforceable in accordance with its terms, and no consent, approval or
authorization of any governmental authority, bureau or agency is
required in connection with the execution, delivery and performance of
this Agreement, or the validity and enforceability of this Agreement.
v. Hazardous Materials. Discount hereby warrants to Q
Lube that to the best of its knowledge each Discount Site shall be
substantially free of Hazardous Materials prior to the commencement of
Center construction, or alternatively warrants that it shall make full
disclosure of all Hazardous materials upon a Discount Site in the Site
Development Plan. Discount shall provide to Q Lube the MSDS sheets
for the materials used in Discount's operations. Said Discount MSDS
sheets shall be updated by Discount annually.
vi. Center Materials. Discount warrants that all
materials provided by Discount for construction of the Site
Improvements shall be first rate quality, such quality being that same
quality required for newly constructed Discount Centers.
vii. Title to Assets. Discount warrants that it has
clear title to all assets conveyed by it to the Company pursuant to
this Agreement.
21
<PAGE> 26
c. Condition to Performance. Both Q Lube and Discount shall have
thirty (30) days from the date hereof to obtain such approval. Each approval
will be evidenced by a corporate resolution duly executed by the governing
Board of Directors granting approval to enter into this Agreement, and to be
bound by the terms, obligations and covenants herein contained, and to convey
the benefits herein bestowed. Neither Q Lube nor Discount shall be bound by the
terms of this Agreement until such time as their respective Boards of Directors
approve the terms hereof.
17. NON-COMPETITION COVENANTS.
a. Non-Competition by Discount. Commencing upon the execution of
this Agreement and continuing for a period of two (2) years after the later
termination of this Agreement or the termination of the last franchise
agreement or operations at the last Center, Discount shall not provide
Quick-lube Services in any state in which Q Lube provides Quick-Lube Services,
within a ten (10) mile radius of any then existing Q Lube business providing
quick lube services or a prior operating Q Lube on a Discount Site, either as
an independent or as a franchisee or a joint venture partner, with any third
party other than Q Lube. As used herein, "QUICK-LUBE SERVICES" shall mean the
provision of oil change/lubrication services by an operation which receives 25%
or more of its revenues from oil change/lubrication services.
b. Non-Competition by Q Lube. Commencing upon the execution of
this Agreement and continuing for a period of three (2) years after the later
termination of this Agreement or the termination of operations at the last
Center, Q Lube shall not, in any state in which the Parties operate a joint
venture, within a ten (10) mile radius of any then existing Discount Auto Parts
store, engage in the operation of a traditional auto parts business or engage
in the sale of auto parts and accessories, either as an independent, or as a
franchisee or a joint venture partner with any third party other than Discount.
As used herein "traditional auto parts business" or to "engage in the sale of
auto parts and accessories" shall mean any entity which receives 50% or more of
its revenues from the sale of automotive parts or accessories. The terms "auto
parts" and "accessories" as used in this Section 17(b) shall not include any
auto parts or auto part accessories manufactured by Q Lube, Quaker State, or
any affiliated company, including without limitation, products such as "Slick
50," Blue Coral" and other Q Lube or Quaker State brand products.
c. Other Joint Ventures. Q Lube represents to Discount that as
of the Effective Date, and except as previously disclosed to Discount, Q Lube
does not have plans, nor is it negotiating with other entities, to develop Q
Lube Facilities within the State of Florida other than its joint business
agreement with Discount pursuant to this Agreement. The Parties acknowledge
and agree that nothing contained in this Agreement shall restrict Q Lube from
developing Q Lube Facilities in Florida, whether company owned, franchised or
joint ventured; PROVIDED however, if Q Lube reasonably anticipates developing
automotive quick lube facilities within the State of Florida, Q Lube shall
reasonably notify and consult with Discount prior to proceeding with any
substantial negotiations or development. Q Lube hereby grants to Discount the
right of
22
<PAGE> 27
first refusal to acquire a fifty percent (50%) interest in any Q Lube company
owned or jointly developed Q Lube automotive quick lube facility in the state
of Florida. Discount acknowledges that each such facility, as well as all other
Q Lube automotive quick lube franchises, will be entitled to a two mile
protected zone surrounding such facility, which may limit Q Lube, Discount, or
the Company in developing additional quick lube facilities. Nothing contained
herein shall entitle Discount to participate with Q Lube in any business
relationship other than those involving automotive quick lube services.
Discount will not have any right to participate in Q Lube's marine lubrication
program.
18. ASSIGNMENT. This Agreement, and all rights and obligations
thereunder, may not be assigned or transferred by either Party without the
express written consent of the non-assigning Party, which consent shall be in
the sole discretion of the non-assigning Party.
19. CONFIDENTIALITY. The Company and Parties shall keep confidential and
not disclose any of the terms of this Agreement, trade secrets, customer lists,
proprietary information, or financial information to any third party, except to
the Party's accountants, tax advisors, attorneys, or when under court order, or
when required to carry out the obligations of the Parties under this Agreement,
or where reasonable justification otherwise exists. Where reasonable
justification is deemed by a Party to exist, the disclosing Party shall
contractually require, for the benefit of the non-disclosing Party, that such
third party maintain absolute confidentiality regarding the terms of this
Agreement and all other related information disclosed by the disclosing Party.
Neither Party will issue any press releases relating to this Agreement or the
operations of any Center without the express written consent of the other Party
as to the timing and content of each press release, which consent shall not be
unreasonably withheld.
20. NOTICES. All notices permitted or required to be given pursuant to
the terms of this Agreement shall be sent by certified mail, return receipt
requested, to the Parties as follows:
Q Lube: Q Lube, Inc.
c/o Kirk Umphrey, President
1385 West 2200 South
Salt Lake City, Utah 84119
Tel: (801) 972-6667
Fax: (801) 975-4627
with copy to: Stephen K. Christensen, Esq.
ALLEN NELSON RASMUSSEN & CHRISTENSEN
215 State Street, Suite 900
Salt Lake City, Utah 84111
Tel: (801) 531-8400
Fax: (801) 363-3614
23
<PAGE> 28
Discount: Discount Auto Parts, Inc.
Attn: C. Michael Moore
4900 Frontage Road South
Lakeland, Florida 33801
Tel: (941) 687-9220
(800) 481-4824
Fax: (941) 284-2063
with copy to: Taso M. Milonas
BROWN CLARK & WALTERS
Sarasota City Center, Suite 1100
1819 Main Street
Sarasota, Florida 34236
Tel: (941) 957-3800
Fax: (941) 957-3888
a. Change of Address or Addressee. Either Party may at any time
notify the other Party at their last provided address of any change of address
or persons to which notices under this Paragraph shall be made.
21. DEFAULT.
a. Generally. Any failure by any Party to fulfill, perform, or
comply with any of the obligations or covenants herein set forth shall
constitute a breach and default under the terms of this Agreement.
b. Notice of Default and Cure. Upon default by any Party of any
obligations or covenants contained in this Agreement, the non-defaulting Party
shall, as prerequisite to remedy entitlement, provide the defaulting Party with
a written "NOTICE OF DEFAULT", specifying the nature of the default. The
defaulting Party shall thereafter have thirty (30) days from the date of
receipt of the Notice of Default to cure such default, or if such default
cannot be reasonably cured within such thirty (30) day period, the defaulting
Party shall have thirty (30) days to take substantial and material steps in
curing said default, and shall diligently and continuously pursue such cure
efforts until such default is fully remedied. In the event the default has not
been cured, or a diligent effort has not been made to cure said default within
thirty (30) days from the receipt of the Notice of Default as set forth above,
the non-defaulting Party shall provide the defaulting Party one additional ten
(10) day Notice of Default. In the event the default has not been cured within
such second cure period, the non-defaulting Party may declare this Agreement
terminated as to the Center(s) at which such default occurred.
24
<PAGE> 29
22. REMEDIES.
a. General Remedies. Upon the failure of any Party to remedy its
breach or otherwise cure any outstanding default or breach as provided in
Paragraph 21 herein, the non-defaulting Party shall be entitled to recover all
actual damages which are incurred as the direct or proximate result of such
default or breach.
b. Litigation Expenses. In any controversy, claim or dispute
arising out of, or relating to this Agreement, or the method or manner of
performance thereof, or the breach thereof, the prevailing Party shall be
entitled to (in the discretion of a court or arbitration panel) and awarded, in
addition to any other relief, all of its reasonable litigation or arbitration
expenses, to be paid by the other Party. If no Party wholly prevails, the
Party that substantially prevails shall be awarded a reasonable sum for
litigation or arbitration expenses (in the discretion of a court or arbitration
panel), to be paid by the other Party. In determining what are reasonable
litigation or arbitration expenses, the actual amount of attorneys fees the
Party is obligated to pay its attorney or attorneys shall be presumed to be
reasonable, which presumption is rebuttable, and the actual expense incurred in
the proceeding, including but not limited to travel expenses, court costs, and
fees, shall be presumed to be reasonable, which presumption is also rebuttable.
For purposes of this provision, the term "proceeding" shall include
arbitration, administrative hearing or proceeding, bankruptcy, and all judicial
proceedings, including appeals therefrom.
c. Cumulative Remedies. The remedies of the Parties under this
Agreement are cumulative, and no election by any Party of one remedy shall
preclude the exercise, enforcement or award of any other remedy to which a
Party is entitled either by provision by this Agreement or by any other law,
source or principle of equity.
23. DISPUTES. Any and all disputes arising between the Parties shall
resolved in accordance with the following:
a. Non-Binding Arbitration. Any controversy or claim between or
among the Parties, including but not limited to those arising out of or
relating to this Agreement or any agreements or instruments relating hereto or
delivered in connection herewith, and including but not limited to a claim
based on or arising from an alleged tort, shall at the request of either Party
first be determined by non-binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The place
of arbitration proceedings shall be determined by the type of claim or dispute
and in accordance with Subparagraph b.
b. Arbitrators. The arbitrator(s) or referee(s) shall be
selected in accordance with the rules of the American Arbitration Association
from panels maintained by the Association. A single arbitrator or referee
shall be knowledgeable in the subject matter of the dispute. Where three
arbitrators or referees conduct an arbitration or reference proceeding, the
claim shall be decided by a majority vote of the three arbitrators or referees,
at least one of whom must be knowledgeable in the subject matter of the dispute
and at least one of whom must be a practicing
25
<PAGE> 30
attorney. The arbitrator(s) or Referee(s) shall award recovery of all costs
and fees (including reasonable attorneys' fees, administrative fees,
arbitrators' fees, and court costs). The arbitrator(s) or referee(s) also may
grant provisional or ancillary remedies such as, for example, injunctive
relief, attachment, or the appointment of a receiver, either during the
pendency of the arbitration or reference proceeding or as part of the
arbitration or reference award.
c. Choice of Law and Consent to Jurisdiction.
i. Any claim or dispute arising out of this Agreement
shall be governed by the laws of the State of Florida and, subject to
the provisions of Paragraph 23, the Parties hereby agree to submit to
the jurisdiction of the state and federal courts in Florida to resolve
all claims or disputes arising out of this Agreement.
ii. Any claim or dispute arising out of a particular
Franchise Agreement shall be governed by the laws of the State of Utah
and, subject to the provisions of Paragraph 23, the Parties hereby
agree to submit to the jurisdiction of the state and federal courts in
Utah to resolve all claims or disputes arising out of a particular
Franchise Agreement.
iii. Any claim or dispute arising out of the
landlord-tenant relationship between the Discount and the Company
shall be governed by the laws of the state in which the Leased
Premises are located and, subject to the provisions of Paragraph 23,
the Parties hereby agree to submit to the jurisdiction of the state
and federal courts in which the Lease Premises are located to resolve
all such claims or disputes.
24. MISCELLANEOUS PROVISIONS.
a. Trade Secrets, Trademarks and Other Intellectual Property. It
is understood and agreed that all Protected Property of the respective Parties
shall remain the sole possession of the Party owning such Protected Property.
Notwithstanding any provision of this Agreement to the contrary, nothing herein
shall be construed as a grant, conveyance or vestiture by either Party to the
other, or to any third party of any rights, interest or entitlement in and to
Protected Property, and no use shall be made of a Party's Protected Property
for any purpose other than the Company without the written consent of the Party
owning the Protected Property. Furthermore, Discount agrees that Q Lube's
Protected Property shall not be utilized by Discount, any Additional Entities
or Discount related parties in quick lube operations which are not Company
operations or Q Lube franchise operations, and further agrees to execute any
further documents and agreements as may be reasonably necessary to enforce such
agreement of non-utilization.
b. Bankruptcy/Insolvency. In the event of bankruptcy or
insolvency by either Party, the bankrupt Party's interest in this Agreement
shall not pass to any trustee or receiver or assignee for the benefit of
creditors or otherwise by operation of law, except as may specifically be
provided pursuant to the Bankruptcy Code (11 USC Section 101, et. seq.), as the
same may be amended from time to time.
26
<PAGE> 31
c. Severability. If any provision of this Agreement is invalid,
unenforceable, or in conflict with applicable law, such provision shall be
narrowed, limited and otherwise amended to the extent necessary to make it
valid, enforceable and not in conflict with applicable law, with as little
change as possible to the original intent and purpose of the provision. If
necessary, the provision shall be severed from this Agreement and the remainder
of the Agreement shall be enforced unless such enforcement would be
inequitable.
d. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which when
taken together, shall constitute one and the same instrument. The signature
page of any counterpart may be detached therefrom without impairing the legal
effect of the signature(s) thereon, provided such signature page is attached to
any other counterpart identical thereto, except having additional signature
pages executed by other Parties to this Agreement attached hereto.
e. Waiver. Acceptance by either Party of any performance less
than required under the terms of this Agreement shall not be deemed to be a
waiver of the rights of such Party to enforce all of the terms and conditions
hereof. No waiver of any such right hereunder shall be binding unless reduced
to writing and signed by the Party to be charged therewith.
f. Time. Time is of the essence.
g. Integration and Amendment. This Agreement (including its
Exhibits): (i) represents the entire agreement between the Parties relating to
the subject matter of this Agreement, and (ii) supersedes all prior agreements,
understandings, representations and warranties relating to the subject matter
of this Agreement. This Agreement may only be amended, modified or changed
with the written consent of the Parties, regardless of the amount of their then
respective Ownership Interests.
h. Best Efforts and Good Faith. The Parties hereby agree to
exercise good faith, cooperation, and reasonable due diligence in carrying out
the intent of this Agreement and in carrying out the performance of obligations
hereunder. To such extent, the Parties agree to execute all additional
documents which may be reasonably required to further carry out the express
intent of this Agreement. Neither Party to this Agreement shall commit any act
or take any action which frustrates or hampers the rights of the other Party
under this Agreement. Each Party shall act in good faith and engage in fair
dealing when taking any action under or related to this Agreement.
i. No Brokers. The Parties represent and agree that no
commission, broker fees, finder's fee or similar fees or expenses will accrue
or be paid by either Party with respect to this Agreement.
j. Force Majeure. Except for the payment of money,
non-performance of either Party shall be excused to the extent that performance
is rendered impossible or impracticable by
27
<PAGE> 32
strike, fire, flood, governmental acts or orders or restrictions, failure of
suppliers, labor shortage, or any other reason where failure to perform is
beyond the control of the non-performing Party.
k. Construction. This Agreement represents the wording selected
by the Parties to define their agreement and no rule of strict construction
shall apply against either Party. Whenever the context reasonably permits, the
singular shall include the plural, the plural shall include the singular, and
the whole shall include any part thereof.
l. Successors. This Agreement shall be binding upon and inure to
the benefit of the Parties and their respective successors and assigns.
WHEREFORE, the Parties having set forth their agreement, do hereby
witnesseth the same on the dates herein set forth.
BY: DISCOUNT AUTO PARTS, INC.
A FLORIDA CORPORATION
By: /s/ C. Michael Moore
---------------------------------
Its: Chief Financial Officer
--------------------------------
Date: March 28, 1997
-------------------------------
BY: Q LUBE, INC., A DELAWARE CORPORATION
By: /s/ Shane D. Smoot
---------------------------------
Its: EVP
-------------------------------
Date: March 31, 1997
------------------------------
28
<PAGE> 33
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On March 31, 1997, before me, Helen C. Wright, a Notary Public in
and for said State, personally appeared Shane D. Smoot of Q Lube, Inc.,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument Q Lube, Inc., the corporation upon
behalf of which he acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Helen C. Wright
----------------------------
NOTARY PUBLIC
*********************************************************************
STATE OF FLORIDA )
: ss.
COUNTY OF POLK )
On March 28, 1997, before me, Katherine N. Mercier, a Notary Public in
and for said State, personally appeared C. Michael Moore of Discount Auto
Parts, Inc., personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the instrument Discount Auto Parts,
Inc., the corporation upon behalf of which he acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Katherine N. Mercier
------------------------
NOTARY PUBLIC
29
<PAGE> 34
EXHIBIT "A"
[Management Agreement]
<PAGE> 35
EXHIBIT "B"
[Franchise Agreement]
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-03-1997
<PERIOD-START> MAY-29-1996
<PERIOD-END> MAR-04-1997
<EXCHANGE-RATE> 1
<CASH> 6,214
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 135,441
<CURRENT-ASSETS> 154,898
<PP&E> 298,855
<DEPRECIATION> 47,562
<TOTAL-ASSETS> 407,019
<CURRENT-LIABILITIES> 61,426
<BONDS> 106,949
0
0
<COMMON> 166
<OTHER-SE> 234,941
<TOTAL-LIABILITY-AND-EQUITY> 407,019
<SALES> 297,765
<TOTAL-REVENUES> 297,765
<CGS> 189,238
<TOTAL-COSTS> 189,238
<OTHER-EXPENSES> 73,409
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,364
<INCOME-PRETAX> 30,754
<INCOME-TAX> 11,831
<INCOME-CONTINUING> 18,923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,923
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
</TABLE>
