-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SdYSePBUuWAIWc5ej0aqGp1ZXWnjRie4nJKErblZZwhqtt3fTaC5uAJ9oOOomNBF tlGDr20nKukZq46bgt2btQ== 0000950152-98-005690.txt : 19980708 0000950152-98-005690.hdr.sgml : 19980708 ACCESSION NUMBER: 0000950152-98-005690 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980629 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONRO MUFFLER BRAKE INC CENTRAL INDEX KEY: 0000876427 STANDARD INDUSTRIAL CLASSIFICATION: 7500 IRS NUMBER: 160838627 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-19357 FILM NUMBER: 98656808 BUSINESS ADDRESS: STREET 1: 200 HOLLEDER PKWY CITY: ROCHESTER STATE: NY ZIP: 14615-3808 BUSINESS PHONE: 7166476100 10-K405 1 MONRO MUFFLER BRAKE, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For Fiscal Year Ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission File Number 0-19357 MONRO MUFFLER BRAKE, INC. (Exact name of registrant as specified in its charter) New York 16-0838627 (State of incorporation) (I.R.S. Employer Identification No.) 200 Holleder Parkway, Rochester, New York 14615 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (716) 647-6400 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share (Title of Class) Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of June 1, 1998, the aggregate market value of voting stock held by non-affiliates of the registrant was $93,974,000. As of June 1, 1998, 7,915,797 shares of the registrant's Common Stock, par value $.01 per share, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive proxy statement (to be filed pursuant to Regulation 14A) for the 1998 Annual Meeting of Shareholders (the "Proxy Statement") are incorporated by reference into Part III hereof. 2 PART I ------ ITEM 1. BUSINESS GENERAL Monro Muffler Brake, Inc. ("Monro" or the "Company") is a chain of company-operated stores providing automotive undercar repair services in the United States. At March 31, 1998, Monro operated 350 stores in New York, Pennsylvania, Ohio, Connecticut, Massachusetts, West Virginia, Virginia, Maryland, Vermont, New Hampshire, New Jersey, North Carolina, South Carolina and Indiana. The Company's stores typically are situated in high-visibility locations in suburban areas and small towns. Monro serviced approximately 1,568,000 vehicles in fiscal 1998. * The predecessor to the Company was founded by Charles J. August in 1957 as a Midas Muffler franchise in Rochester, New York, specializing in mufflers and exhaust systems. In 1966, the Company discontinued its affiliation with Midas Muffler, and began to diversify into a full line of undercar repair services. An investor group led by Peter J. Solomon and Donald Glickman purchased a controlling interest in the Company in July 1984. At that time, Monro operated 59 stores, located primarily in upstate New York, with approximately $21 million in sales in fiscal 1984. Since 1984, Monro has added 291 stores and expanded its marketing area to include thirteen additional states. In addition, in April 1998, the Company signed a definitive agreement with Speedy Muffler King of Toronto, Canada to acquire 192 company-operated and 13 franchised Speedy stores in the United States. The transaction is scheduled to be consummated in August 1998. On February 17, 1998, Lawrence C. Day resigned his position as President and Chief Executive Officer and Jack M. Gallagher, who had served as President and Chief Executive Officer from 1987 to 1995, returned to serve as the interim President and Chief Executive Officer. The Company was incorporated in the State of New York in 1959. The Company's principal executive offices are located at 200 Holleder Parkway, Rochester, New York 14615, and its telephone number is (716) 647-6400. Monro provides a full range of services on passenger cars, light trucks and vans for mufflers and exhaust systems (estimated at 27% of fiscal 1998 sales); brakes (35%); and steering, drive train, suspension and wheel alignment (19%). The Company also provides other products and services including tires, scheduled maintenance and state inspections (19%). Monro specializes in the repair and replacement of parts which must be periodically replaced as they wear out. Normal wear on these parts generally is not covered by new car warranties. The Company typically does not perform under-the-hood repair services except for oil change services and a heating and cooling system "flush and fill" service. The Company does not sell parts or accessories to the do-it-yourself market. 2 3 The Company has a wholly-owned subsidiary, Monro Service Corporation, which is a Delaware corporation qualified to do business in the State of New York. Monro Service Corporation holds all assets, rights, responsibilities and liabilities associated with the Company's warehousing, purchasing, advertising, accounting, office services, payroll, cash management and certain other operations which are wholly performed within New York State. The Company believes that this structure has enhanced and will continue to enhance operational efficiency and provide cost savings. * References herein to fiscal years are to the Company's fiscal years ending or ended March 31 of each year (e.g., references to "fiscal 1998" are to the Company's fiscal year ended March 31, 1998). 3 4 INDUSTRY OVERVIEW According to industry reports, demand for automotive repair services, including undercar repair services, has increased due to the general increase in the number of vehicles registered, the growth in vehicle miles driven, the increase in the average age of vehicles and the increased complexity of vehicles, which makes it more difficult for a vehicle owner to perform do-it-yourself repairs. At the same time as demand for automotive repair services has grown, the Company believes that the number of general repair outlets has decreased, principally because fewer gas stations now perform repairs, and because there are fewer new car dealers. Monro believes that these factors present opportunities for increased sales by the Company, even though the number of specialized repair outlets (such as those operated by the Company and its direct competitors) has increased to meet the growth in demand. OPERATING STRATEGY Monro's operating strategy is to provide its customers with dependable, high-quality automotive service at a competitive price by emphasizing the following key elements. Products and Services All Monro stores provide a full range of undercar repair services for mufflers and exhaust systems, brakes, steering, drive train, suspension and wheel alignment. These services apply to all makes and models of domestic and foreign cars, light trucks and vans. In addition, Monro's stores provide many of the routine maintenance services (except engine diagnostic and major transmission repair) which automobile manufacturers suggest or require in the vehicle owners' manuals, and which fulfill manufacturers' requirements for new car warranty compliance. At the end of fiscal 1998, the Company introduced "Scheduled Maintenance" services in all of its stores whereby the aforementioned services are offered in a formal, packaged way to consumers based upon the year, make, model, and mileage of specific vehicles. Management believes that the Company is able to offer this service in a more convenient and cost competitive fashion than auto dealers can provide. Substantially all of the stores provide oil change services as well as tire sales and installation. All stores perform a heating and cooling system "flush and fill" service, a transmission "flush and fill" service, and install belts and hoses. Stores in New York, West Virginia, New Hampshire, Pennsylvania, Virginia, Massachusetts and North Carolina also perform annual state inspections. 4 5 Customer Satisfaction The Company has developed "The Monro Doctrine", a set of customer satisfaction principles, which is displayed in each store so that customers and employees will understand the Company's customer service philosophy. These principles are: free inspection of brakes, shocks, front end and exhaust systems; item-by-item review with customers of problem areas; free written estimates; written guarantees; drive-in service without an appointment; fair and reasonable prices as advertised; and repairs by professionally trained undercar specialists, many of whom are Automotive Service Excellence (ASE) certified in brakes and suspension. (See additional discussion under "Store Operations: Quality Control and Warranties.") Competitive Pricing, Advertising and Co-branding Initiatives The Company seeks to set competitive prices for quality services and products. The Company supports its pricing strategy by advertising through direct mail coupon inserts and in-store promotional signage and displays. In addition, the Company advertises through television, radio, yellow pages and newspapers to increase consumer awareness of the services offered. In fiscal 1997, the Company began testing co-branding initiatives to more quickly increase consumer awareness in certain markets. The Company believes that, especially in newer markets, customers may more readily be drawn into its stores because of their familiarity with national brand names. Some of these initiatives have included cross- promotional offers with national fast food chains, video rental stores and gasoline chains, as well as with regional supermarkets. Additionally, the Company introduced Bridgestone/Firestone tires into most of its stores in late fiscal 1997, where it had previously carried a private label tire. Through this initiative, the Company believes that it attracts some brand-loyal tire customers who otherwise might not have visited Monro. This gives the Company the opportunity to introduce itself to this new customer, and potentially sell other needed services. The increased tire sales resulting from adding this branded product have exceeded the Company's expectations thus far. In fiscal 1997, the Company signed a joint venture agreement with Q- Lube, Inc., a subsidiary of Quaker State Corporation. The agreement called for the two companies to jointly develop retail locations which offer both fast lube and undercar services. The centers are located adjacent to either existing or newly-developed Monro stores. After testing the concept in several locations during fiscal 1998, Company management decided to terminate the arrangement with Q-Lube in early fiscal 1999. Liquidation of the joint venture is not expected to have a material effect on fiscal 1999 results of operations. 5 6 Centralized Control Unlike many of its competitors, the Company owns and operates rather than franchises its stores. Monro believes that direct operation of all stores enhances its ability to compete by providing centralized control of such areas of operations as service quality, store appearance, promotional activity and pricing. A high level of technical competence is maintained throughout the Company as Monro requires, as a condition of employment, that employees participate in comprehensive training programs to keep pace with technology changes. Additionally, purchasing, distribution, merchandising, advertising, accounting and other store support functions are centralized in the Company's corporate headquarters in Rochester, New York, and are provided through the Company's subsidiary, Monro Service Corporation. The centralization of these functions results in efficiencies and gives management the ability to closely monitor and control costs. Comprehensive Training The Company provides ongoing, comprehensive training to its store employees. Monro believes that such training provides a competitive advantage by enabling its technicians to provide quality service to its customers in all areas of undercar repair. (See additional discussion under "Store Operations: Store Personnel and Training"). EXPANSION STRATEGY Monro has experienced significant growth due to the opening of new stores and increases in comparable store sales. Management believes that the continued growth in sales and profits of the Company is dependent, in large part, upon its continued ability to open and operate new stores on a profitable basis. In addition, overall profitability of the Company could be reduced if new stores do not attain profitability. As of March 31, 1998, Monro operated 350 stores located in 14 states. The following table shows the growth in the number of stores over the last five fiscal years: STORE OPENINGS AND CLOSINGS
Year ended March 31, -------------------- 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- Stores open at beginning of year......... 184 202 232 274 313 Stores opened during year................ 20 30 43 40 39 Stores closed during year (a)............ (2) 0 (1) (1) (2) ----- ----- ----- ---- ----- Stores open at end of year........ ...... 202 232 274 313 350 ===== ===== ===== ===== ====
(a) These stores were closed because they failed to achieve an acceptable level of profitability or because a new Monro store was opened in the same market at a more favorable location. 6 7 Monro believes that there are expansion opportunities in new as well as existing market areas which will result from a combination of constructing stores on vacant land and acquiring existing store locations. The Company believes that, as the industry consolidates due to the increasingly complex nature of automotive repair and the expanded capital requirements for state-of-the art equipment, there will be more opportunities for acquisitions of existing businesses or store structures. In that regard, the Company signed a definitive agreement in April 1998 with Speedy Muffler King Inc. of Toronto, Canada to acquire 192 company-operated and 13 franchised Speedy stores (the "Acquired Speedy Stores") in the United States (the "Speedy Acquisition"). The Acquired Speedy Stores are located primarily in complementary areas in Monro's existing markets in the Northeast, Mid-Atlantic and Midwest regions of the United States. The Company expects to close less than 20 of the Acquired Speedy Stores related to geographic conflicts and poor performance. (See additional discussion under Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations".) Additionally, the Company plans to open approximately 30 new stores in fiscal 1999. The Company has developed a systematic method for selecting new store locations and a more targeted approach to marketing new stores. Key factors in market and site selection include population, demographic characteristics, vehicle population and the intensity of competition. These factors are evaluated through the use of a proprietary computer model developed for the Company. The characteristics of each potential site are compared by the model to the profiles of existing stores, and the model then projects sales for that site. Monro attempts to cluster stores in market areas in order to achieve economies of scale in advertising, supervision and distribution costs. All new sites presently under consideration are within or contiguous to Monro's established marketing areas. In fiscal year 1998, the Company performed a comprehensive analysis of its historical and projected store opening strategy. As a result of this analysis, the Company established major market profiles, as defined by market awareness: mature, existing and new markets. Over the next several years, the Company expects to build a greater percentage of stores in mature and existing markets in order to capitalize on the Company's market presence and consumer awareness. The Company believes that management and operating improvements implemented over the last several fiscal years will enhance its ability to sustain its growth. Monro has a chain-wide computerized inventory control and electronic point-of-sale (POS) management information system, which has increased management's ability to monitor operations as the number of stores has grown. The system includes electronic cataloging which allows store managers to electronically research the specific parts needed for the make and model of car being serviced. In fiscal 1997, the Company upgraded its electronic credit card processing and added electronic mail to its stores. In fiscal 1998, the Company added software which contains data that mirrors the scheduled maintenance requirements in vehicle owner's manuals, specifically by make, model, year and mileage for every automobile. Management believes that this software will facilitate the presentation and sale of Scheduled Maintenance services to customers. 7 8 Enhancements continue to be made to the POS system annually which increase efficiency, improve the quality and timeliness of store reporting and enable the Company to better serve its customers. The financing to open a new store location may be accomplished in one of three ways: a store lease for the land and building (in which case, land and building costs will be financed primarily by the lessor), a land lease with the building constructed by the Company (with building costs paid by the Company), or a land purchase with the building constructed by the Company. In all three cases, each new store also will require approximately $136,000 for equipment (including a point-of-sale system), and approximately $68,000 in inventory. Because Monro generally does not extend credit to its customers, stores generate almost no receivables and a new store's actual net working capital investment is nominal. Total capital required to open a new store ranges, on average (based upon the last three fiscal years' openings), from $233,000 to $877,000 depending on the location and which of the three financing methods is used. In instances where Monro acquires an existing business, it may pay additional amounts for intangible assets such as customer lists, covenants not-to-compete and goodwill. At March 31, 1998 Monro leased the land and/or the building at 71% of its store locations and owned the land and building at the remaining locations. Monro's policy is to situate new stores in the best locations, without regard to the form of ownership required to develop the locations. New stores have average sales of approximately $360,000 in their first twelve months of operation. STORE OPERATIONS Store Format The typical format for a Monro repair store is a free-standing building of approximately 4,500 square feet consisting of a sales area, six fully-equipped service bays and a parts storage area, with a parking lot with space for approximately 17 cars. Most service bays are equipped with aboveground electric vehicle lifts. The typical store carries $68,000 of inventory and 3,000 stock keeping units ("SKUs"). Generally, each store is located within 35 miles of a "key" store which carries approximately 20% more inventory than a typical store and serves as a mini-distribution point of slower moving inventory for other stores in its area. The stores generally are situated in high-visibility locations in suburban areas or small towns and offer easy customer access. The typical store is open from 7:30 a.m. to 7:00 p.m. on Monday through Friday and from 7:30 a.m. to 5:00 p.m. on Saturday. In fiscal 1996, the Company opened its first "small town" concept store in Saranac Lake, New York. The prototypical "small town" concept store is a four, five or six bay store located in a town with a population of 15,000 people or less. In the past, the Company generally did not enter this type of market because it could not 8 9 support the typical six bay store. However, with few or no major competitors and a lower cost of entry, the small markets represent an attractive new growth avenue for the Company. Inventory Control and Management Information System All Monro stores are linked to the central office and warehouse by a computerized inventory control and electronic POS management information system, which enables the Company to collect sales and operational data on a daily basis, to adjust store pricing to reflect local conditions and to control inventory on a "real-time" basis. Additionally, each store has access through the POS system to the inventory carried by the seven stores nearest to it. Management believes that this feature improves customer satisfaction and store productivity by reducing the time required to locate out-of-stock parts. Quality Control and Warranties To maintain quality control, the Company conducts audits to rate its employees' telephone sales manner and the accuracy of pricing information given. All headquarters management personnel participate in the Company's day-in-the-store program by working in a store under the direction of the store manager, once every other month, to better understand the latest developments at the store level. Customer comment cards, pre-addressed to the headquarters office, are available at each store for customers to comment on the Company's services. Customer concerns are addressed via personal follow-up by field management. The Company has a customer survey program to monitor customer attitudes toward service quality, friendliness, speed of service, and several other factors for each store. This program includes four survey mailings per store annually. (Each mailing consists of approximately 90 surveys.) Customer concerns are addressed via letter and personal follow-up by field management. In fiscal 1994, the Company implemented its "Double Check for Accuracy Program." This quality assurance program requires that a technician and supervisory-level employee independently inspect a customer's vehicle, diagnose and document the necessary repairs, and agree on an estimate before presenting it to a customer. This process is formally documented on the written estimate by store personnel. The Company is an active member of the Motorist Assurance Program (MAP). MAP is an organization of automotive retailers, wholesalers and manufacturers which was established as part of an industry-wide effort to address the ethics and business practices of companies in the automotive repair industry. Participating companies are committed to improving consumer confidence and trust in the automotive repair industry by adopting "Uniform Inspection Guidelines" and "Standards of Service" established by MAP. These "Standards of Service" are posted in every Monro store and serve to provide consistent recommendations 9 10 to customers in the diagnosis and repair of a vehicle. Monro was the first major automotive chain to apply for MAP accreditation for all of its stores. Monro offers limited warranties on substantially all of the products and services that it provides. The Company believes that these warranties are competitive with industry practices. Store Personnel and Training The Company supervises store operations primarily through its six district managers who oversee 42 regional managers (as of June 1, 1998). The typical store is staffed by a store manager and four to six technicians, one of whom serves as the assistant manager. All store managers receive a base salary, and assistant managers receive hourly compensation. In addition, all store managers and assistant managers receive other compensation based on their store's customer relations, gross profit, labor cost controls, safety, sales volume and other factors. All store managers and assistant managers are eligible for a quarterly bonus based on performance in these same areas. Monro believes that the ability to recruit and retain qualified technicians is an important competitive factor in the automotive repair industry, which has historically experienced a high turnover rate. Monro makes a concerted effort to recruit individuals who will have a long-term commitment to the Company and offers an hourly rate structure and additional compensation based on productivity; a competitive benefits package, including health, life and disability insurance; profit-sharing and pension plans; as well as the opportunity to advance within the Company. Most of the Company's managers and regional managers started with Monro as technicians. Most of the Company's new technicians join the Company in their early twenties as trainees or apprentices. As they progress, they are promoted to technician and eventually master technician, the latter requiring ASE certification in both brakes and suspension. The Company offers a tool lease program through which trainee technicians can acquire their own set of tools. The Company also will reimburse technicians for the cost of ASE certification registration fees and test fees and encourages all technicians to become certified by providing a higher hourly wage rate following their certification. The Company's training department conducts in-house technical clinics for store personnel and management training programs for new store managers, and coordinates attendance at technical clinics offered by the Company's vendors. Each store maintains a library of 20-25 instructional videos. The Company issues technical bulletins to all stores on innovative or complex repair processes, and maintains a centralized data base for technical repair problems. In addition, the Company has established a telephone technical hotline to provide assistance to store personnel in resolving problems encountered while diagnosing and repairing vehicles. The help line is available during all hours of store operation. 10 11 In fiscal 1998, the Company established Monro University, which purpose is to provide comprehensive training and development of current and prospective store managers. Training is accomplished through an intensive two-week instructional program at a separate facility in Rochester, New York. Topics covered include sales training, customer service, time management, human resources (counseling, recruiting, interviewing, etc.), leadership, inventory control and financial management. The courses employ a variety of instructional techniques including video taping, role playing, and testing. The two week class follows a field training segment which ranges from two to six weeks depending upon the individual's level of experience. Monro management is closely tracking the performance of the managers who have completed the class. Early indications are that the program will lead to increased store profitability as well as longer retention of the store managers. Additionally, the Company trains apprentice technicians through a "buddy system" whereby the apprentice is assigned to work side-by-side with a master technician for approximately three weeks. The master technician receives a weekly stipend during the training period. He is also encouraged to mentor the apprentice technician after the apprentice is assigned to a store, and is rewarded with a bonus if the apprentice is still employed by the Company after 90, and then 180 days. Since most turnover occurs during the first 180 days of employment, management believes that this feature of the program helps to improve retention of these employees. PURCHASING AND DISTRIBUTION The Company, through its wholly-owned subsidiary Monro Service Corporation, selects and purchases parts and supplies for all stores on a centralized basis. Although purchases outside the centralized system are made when needed at the store level, these purchases are low by industry standards, and accounted for approximately 12% of all parts used in fiscal 1998. The Company's ten largest vendors accounted for approximately 55% of its parts purchases, with the largest vendor accounting for slightly over 15% of total purchases in fiscal 1998. The Company purchases parts from over 100 vendors and has no significant long-term contracts with any vendor. Management believes that the Company's relationships with vendors are excellent and that alternative sources of supply exist, at comparable cost, for substantially all parts used in the Company's business. The Company routinely obtains bids from vendors to ensure it is receiving competitive pricing and terms. Most parts are shipped by vendors to the Company's warehouse facility in Rochester, New York, and are distributed to stores through the Company- operated tractor/trailer fleet. Most stores are replenished once every week from the warehouse, and such replenishment fills, on the average, 96% of all items ordered by the stores' automatic POS-driven replenishment system. The warehouse stocks approximately 7,300 SKUs. 11 12 COMPETITION The Company competes in the retail automotive service industry. This industry is generally highly competitive and fragmented, and the number, size and strength of competitors varies widely from region to region. The Company believes that competition in this industry is based on customer service and reputation, store location, name awareness and price. Monro's primary competitors include national and local undercar specialty chains, both franchised and company-operated; car dealerships; and, to a lesser extent, gas stations and independent garages. Monro considers Midas International Corp., Meineke Discount Mufflers Inc. and Speedy Muffler King Inc. to be direct competitors. In most of the new markets that the Company has entered, at least one competitor was already present. In identifying new markets, the Company analyzes, among other factors, the intensity of competition. (See "Expansion Strategy" and "Management's Discussion and Analysis of Financial Condition and Results of Operations.") EMPLOYEES As of March 31, 1998, Monro had 2,141 employees, of whom 1,978 were employed in the field organization, 47 were employed at the warehouse and 116 were employed at the Company's corporate headquarters. Monro's employees are not members of any union. The Company believes that its relations with its employees are good. REGULATION The Company stores new oil and generates and handles used automotive oils and certain solvents, which are disposed of by licensed third-party contractors. Thus, the Company is subject to a number of federal, state and local environmental laws including the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"). In addition, the United States Environmental Protection Agency (the "EPA"), under the Resource Conservation and Recovery Act ("RCRA"), and various state and local environmental protection agencies regulate the Company's handling and disposal of waste. The EPA, under the Clean Air Act, also regulates the installation of catalytic converters by the Company and all other repair stores by periodically spot checking jobs and has the power to fine businesses that use improper procedures or materials. The EPA has the authority to impose sanctions, including civil penalties up to $25,000 per violation (or up to $25,000 per day for certain willful violations or failures to cooperate with authorities), for violations of RCRA and the Clean Air Act. The Company is subject to various laws and regulations concerning workplace safety, zoning and other matters relating to its business. The Company believes that it is in substantial compliance with all applicable environmental and other laws and regulations, and that the cost of such compliance is not material to the Company. The Company is environmentally conscious, and takes advantage of recycling opportunities both at its headquarters and at its stores. Cardboard, plastic shrink wrap and parts' cores are returned to the warehouse by the stores on the weekly stock truck. There, they are accumulated for sale to recycling companies or returned to parts manufacturers for credit. 12 13 SEASONALITY Although the Company's business is not highly seasonal, customers do require more undercar service during the period of March through October than the period of November through February, when miles driven tend to be lower. As a result, sales and profitability are lower during the latter period. ITEM 2. PROPERTIES The Company, through Monro Service Corporation, owns its office/warehouse facility of approximately 95,000 square feet, which is located on 12.7 acres of land in Holleder Industrial Park, in Rochester, New York. Of Monro's 350 stores at March 31, 1998, 103 were owned, 169 were leased and for 78, the land only was leased. In general, the Company leases store sites for a ten-year period with several five-year renewal options. Giving effect to all renewal options, over 90% of the non-capital leases (210 stores) expire after 2006. Certain of the leases provide for contingent rental payments if a percentage of annual gross sales exceeds the base fixed rental amount. The highest contingent percentage rent of any lease is 6.75%, and no such lease has adversely affected profitability of the store subject thereto. Certain officers and directors of the Company or members of their families are the lessors, or have interests in entities that are the lessors, with respect to 41 of the leases. No related party leases, other than renewals or modifications of leases on existing stores, have been entered into since May 1989, and no new related party leases are contemplated. The existing office and warehouse facility and 36 of the owned stores are subject to mortgages held by commercial banks or private investors. As of March 31, 1998, the outstanding amount under the mortgage on the headquarters office and warehouse facility was $2.6 million and the aggregate outstanding amount under the permanent mortgages on 36 of the owned stores was $10.2 million. There was also $.7 million outstanding under a mortgage held by the City of Rochester, New York, secured by the land on which the new headquarters office and warehouse is located, and a term loan of $.5 million secured by the existing headquarters facility. ITEM 3. LEGAL PROCEEDINGS The Company is not a party or subject to any legal proceedings other than certain routine claims and lawsuits that arise in the normal course of its business. The Company does not believe that such routine claims or lawsuits, individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1998. 13 14 ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY AS OF JUNE 1, 1998 The following persons are the executive officers of the Company, having been elected by and serving at the discretion of the Board of Directors of the Company: Name Age Position - - ---- --- -------- Jack M. Gallagher 61 Interim President and Chief Executive Officer G. Michael Cox 45 Executive Vice President - Store Operations Robert W. August 46 Sr. Vice President - Store Support, and Secretary Catherine D'Amico 42 Sr. Vice President - Finance, Chief Financial Officer and Treasurer Thomas J. Budreau 41 Vice President - Eastern Operations Michael C. Kucharski 38 Vice President - Central Operations The following is a brief account of the business experience of each of the executive officers of the Company: Jack M. Gallagher has been President and Chief Executive Officer since February 1998 following the resignation of Lawrence C. Day. Mr. Gallagher was Director - Special Projects from April 1995 to February 1998, and was President and Chief Executive Officer from October 1987 to March 31, 1995. Mr. Gallagher has been a member of the Company's Board of Directors since October 1987. Prior to joining the Company, Mr. Gallagher was President of Auto Works, a 240-store chain of discount auto parts stores headquartered in Pontiac, Michigan, from May 1985 to October 1987. Mr. Gallagher has held various other positions in the auto parts and service industries, including 20 years with Firestone Tire & Rubber Company, where he was Chief Executive of the Fidesta Company, a 200-store nationwide chain of tire and service centers. The Company is currently searching for a permanent replacement for Mr. Day. G. Michael Cox has been Executive Vice President - Store Operations since March 1997 and Senior Vice President - Store Operations from January 1995 to March 1997. Prior to joining the Company, Mr. Cox was Director of Affiliated Dealer Operations for Bridgestone/Firestone, Inc. from 1993 to January 1995, Director of Corporate Accounts for Bridgestone/Firestone, Inc. from 1992 to 1993 and a Zone Manager for Bridgestone/Firestone, Inc. from 1990 to 1992. Mr. Cox held various other management positions for Bridgestone/Firestone, Inc. from 1976 to 1990. Robert W. August has been Senior Vice President - Store Support since October 1996, Secretary since July 1984 and a director since June 1982. Mr. August was Senior Vice President - Marketing from May 1992 to October 1996, Vice President-Marketing from July 1989 to May 1992, Executive Vice President from 1984 to July 1989, and has worked for Monro in various other capacities since 1968. 14 15 Catherine D'Amico has been Senior Vice President - Finance, Chief Financial Officer and Treasurer since August 1993. Ms. D'Amico, a certified public accountant, was previously a Senior Audit Manager with Price Waterhouse LLP in Rochester, New York and was affiliated with such firm from 1978 to 1993. Thomas J. Budreau has been Vice President - Eastern Operations since October 1995. Prior to joining the Company, Mr. Budreau was the National Auto Express Service Manager for Montgomery Ward & Co., Incorporated from March 1994 to October 1995. From November 1990 to March 1994, Mr. Budreau was a Regional Auto Express Manager and from March 1988 to November 1990, a District Manager for Montgomery Ward & Co., Incorporated. From 1975 to March 1988, Mr. Budreau held various other management positions with Montgomery Ward & Co., Incorporated. Michael C. Kucharski has been Vice President - Central Operations since May 1997. Mr. Kucharski was a District Manager from February 1996 to May 1997, a Regional Manager from January 1990 to February 1996 and has worked for Monro in various other capacities since 1987. From 1981 through 1987, Mr. Kucharski held management positions with various retail and other companies. 15 16 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information The Common Stock is traded on the over-the-counter market and is quoted on the NASDAQ National Market System under the symbol "MNRO." The following table sets forth, for the Company's last two fiscal years, the range of high and low sales prices on the NASDAQ National Market System for the Common Stock:
FISCAL 1998 FISCAL 1997 ----------- ----------- QUARTER ENDED HIGH LOW HIGH LOW ------------------ ---- --- ---- --- June 30, 18 9/16 15 3/8 18 14 1/16 September 30, 18 1/4 14 1/4 20 3/4 16 7/16 December 31, 15 3/4 13 5/8 20 13 9/16 March 31, 16 3/4 13 7/8 18 1/16 14 3/4
Amounts in these tables have been adjusted to reflect the five percent stock dividends paid in August 1997 and August 1996. Holders At June 1, 1998, the Company's Common Stock was held by approximately 1,820 shareholders of record or through nominee or street name accounts with brokers. Dividends On May 13, 1998, the Company's Board of Directors declared a five percent stock dividend, payable June 18, 1998, to shareholders of record as of June 8, 1998. Information regarding the number of shares of Common Stock outstanding, as set forth in this Form 10-K, does not include any shares of Common Stock to be issued in connection with such dividend. While the Company has not paid any cash dividends on the Common Stock since its inception, any future determination as to the payment of dividends will be at the discretion of the Board of Directors and will depend on the Company's financial condition, results of operations, capital requirements, compliance with charter and contractual restrictions, and such other factors as the Board of Directors deems relevant. 16 17 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial and operating data of the Company for each year in the five-year period ended March 31, 1998. The financial data and certain operating data have been derived from the Company's financial statements which have been examined by Price Waterhouse LLP, independent accountants. This data should be read in conjunction with the Financial Statements and related notes included under Item 8 of this report and in conjunction with other financial information included elsewhere in this Form 10-K.
YEAR ENDED MARCH 31, -------------------- 1998 1997 1996 1995 1994 -------- ------ ------- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Sales............................... $154,294 $141,169 $117,104 $109,098 $93,620 Cost of sales including distribution and occupancy costs.............. 87,510 78,792 66,236 59,725 51,196 -------- ------ ------- ------- ------- Gross profit......................... 66,784 62,377 50,868 49,373 42,424 Operating, selling, general and administrative expenses............ 46,120 41,749 35,299 32,304 28,068 -------- -------- ------- ------- ------- Operating income..................... 20,664 20,628 15,569 17,069 14,356 Interest expense - net............... 3,829 3,224 2,637 1,939 2,080 Other expense - net.................. 331 475 330 22 107 ------- -------- ------- ------- ------- Income before provision for income taxes 16,504 16,929 12,602 15,108 12,169 Provision for income taxes........... 6,650 6,738 4,988 6,024 4,818 -------- -------- ------- ------- ------- Net income........................... $ 9,854 $ 10,191 $ 7,614 $ 9,084 $ 7,351 ======== ======== ======= ======= ======= Earnings per share(a) Basic.......... $ 1.25 $ 1.31 $ 1.01 $ 1.22 $ 1.02 ======== ======== ======= ======= ======= Diluted $ 1.15 $ 1.19 $ .90 $ 1.07 $ .87 ======== ======== ======= ======= ======= Weighted average number of Common Stock shares and equivalents (a) Basic 7,863 7,797 7,570 7,436 7,207 ======== ======== ======= ======= ======= Diluted 8,586 8,580 8,482 8,488 8,438 ======== ======== ======= ======= ======= SELECTED OPERATING DATA: Sales growth: Total.............................. 9.3% 20.5% 7.3% 16.5% 19.3% Comparable store (b)............... (0.2%) 7.9% (3.9%) 6.1% 9.5% Stores open at beginning of year..... 313 274 232 202 184 Stores open at end of year........... 350 313 274 232 202 Capital expenditures ................ $ 25,391 $ 27,562 $25,581 $20,299 $14,374 BALANCE SHEET DATA (AT PERIOD END): Net working capital.................. $ 13,517 $ 9,579 $ 8,891 $ 6,863 $ 7,894 Total assets......................... 159,088 146,267 120,055 93,042 77,042 Long-term debt....................... 54,102 54,850 45,459 28,749 24,326 Shareholders' equity................. 76,558 66,625 55,887 48,169 38,815 (a) Earnings per share for each fiscal year was computed by dividing net income by the weighted average number of shares of Common Stock and Common Stock equivalents outstanding during the respective year. All share and per share information has been adjusted to give retroactive effect to the five percent stock dividends paid in August 1997, August 1996 and in August 1995. (b) Comparable store sales data is calculated based on the change in sales of only those stores open as of the beginning of the preceding fiscal year.
17 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth income statement data of the Company expressed as a percentage of sales for the fiscal years indicated:
YEAR ENDED MARCH 31, -------------------- 1998 1997 1996 ---- ---- ---- Sales.................................................... 100.0% 100.0% 100.0% Cost of sales including distribution and occupancy costs. 56.7 55.8 56.6 ----- ----- ----- Gross profit............................................. 43.3 44.2 43.4 Operating, selling, general and administrative expenses.. 29.9 29.6 30.1 ----- ----- ----- Operating income......................................... 13.4 14.6 13.3 Interest expense - net................................... 2.5 2.3 2.2 Other expense - net...................................... 0.2 0.3 0.3 ----- ----- ----- Income before provision for income taxes................. 10.7 12.0 10.8 Provision for income taxes............................... 4.3 4.8 4.3 ----- ----- ----- Net income............................................... 6.4% 7.2% 6.5% ====== ===== =====
FORWARD-LOOKING STATEMENTS The statements contained in this Annual Report on Form 10-K which are not historical facts, including (without limitation) in particular, statements made in this Item and in "Item 1 - Business," may contain forward-looking statements that are subject to important factors that could cause actual results to differ materially from those in the forward-looking statement, including (without limitation) product demand, the effect of economic conditions, the impact of competitive services, products and pricing, product development, parts supply restraints or difficulties, industry regulation and the continued availability of capital resources and financing and other risks set forth or incorporated herein and in the Company's Securities and Exchange Commission filings. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company. RECENT DEVELOPMENTS In April 1998, the Company signed a definitive agreement with Speedy Muffler King Inc. of Toronto, Canada to acquire 192 company-operated and 13 franchised Speedy stores in the United States. The all-cash purchase transaction will be affected by the payment of $52 million and is subject to customary terms and conditions, including the obtaining of necessary consents and the Company's securing of financing necessary to consummate the transaction. The transaction is expected to close in August 1998. In May 1998, the Company received a favorable determination under the Hart-Scott-Rodino Act. Although the 205 Speedy stores are in the same general markets in which the Company competes, the Company's and Speedy's locations are mainly situated in non-overlapping areas. While Monro has tended to open stores in suburban and small town locations, Speedy has tended to locate in major metropolitan areas. Therefore, the combination represents an excellent geographic fit. The Company expects to close less than 20 Speedy stores related to conflicts and poor performance. 18 19 FISCAL 1998 AS COMPARED TO FISCAL 1997 Sales for fiscal 1998 increased $13.1 million, or 9.3% over sales for fiscal 1997. The increase was due to an increase of approximately $13.6 million for stores opened since April 1, 1996, partially offset by a comparable store sales decrease of .2%. During the year, 39 stores were opened and two were closed. At March 31, 1998, the Company had 350 stores in operation. Management believes that the comparable store sales decrease resulted in part, from a decline in vehicle population in the five to nine year old segment, reflecting the early 1990's recession, as well as the continuing effect of declining exhaust sales related to manufacturers' use of stainless steel mufflers on almost all new cars. However, management believes that these declines were offset, in part, by positive industry factors including an increase in the average age of vehicles, a decrease in the number of service bays, an increase in the number of registered vehicles, and a shift in the consumer mentality from "do-it-yourself" to "do-it-for-me" caused by the increased complexity of cars. Additionally, management believes that its strategy of product diversification and expanded manager training assisted in minimizing the comparable store sales decline vis-a-vis its competitors. The Company introduced "Scheduled Maintenance" services in its stores late in the fourth quarter of fiscal 1998. These services are required by vehicle manufacturers to comply with warranty schedules, and are offered by Monro in a more convenient and cost competitive fashion than auto dealers can provide. Management believes that these services will make a positive contribution to comparable store sales in future years, and help to mitigate the aforementioned challenges which negatively impacted fiscal 1998. Gross profit for fiscal 1998 was $66.8 million or 43.3% of sales, as compared with $62.4 million or 44.2% of sales for fiscal 1997. The reduction in gross profit as a percentage of sales is primarily attributable to an increase in occupancy costs as a percent of sales reflecting the impact of fixed costs (such as rent and depreciation) against a decline in comparable store sales. Additionally, labor costs increased over the prior year. During periods of slower sales when technicians may not be fully productive, they receive a minimum base-level wage which increases labor as a percent of sales. Operating, selling, general and administrative expenses for fiscal 1998 increased by $4.4 million to $46.1 million and, as a percentage of sales, increased by .3% as compared to fiscal 1997. The increase in total dollars expended is due, among other things, to additional supervision and advertising expense in newly added stores and regions, greater costs related to the Company's continuing investment in training, and additional store expenses related to the growth in the number of stores. Although expenses increased during fiscal 1998 as compared to fiscal 1997, the growth rate of these expenses (10.5%) was lower than the percentage increase in the number of stores (12.5%) due to ongoing, concerted efforts by management to control costs and operate within budgetary constraints. Accounting for a portion of the cost reductions were decreases in bonus and profit sharing expenses. Since the Company did not attain the minimum required percentage of targeted profit performance, employee bonus payments 19 20 were significantly reduced and were eliminated for executive officers, and profit sharing contributions were reduced. In addition, there was an increase, as a percent of sales, in the amount of cooperative advertising credits which the Company received during fiscal 1998 as compared to the previous year. Management was effective in improving various programs negotiated with vendors. Operating income in fiscal 1998 of $20.7 million, or 13.4% of sales, increased by $.1 million over the fiscal 1997 level of $20.6 million due to the factors discussed above. Interest expense, net of interest income, increased as a percent of sales from 2.3% in fiscal 1997 to 2.5% in fiscal 1998. The weighted average debt outstanding for the year ended March 31, 1998 was approximately $8.0 million greater than the amount outstanding for the year ended March 31, 1997. This was partially offset by a decrease in the weighted average interest rate of .3 of a percentage point. Other expense, net, at .2% of sales for the year ended March 31, 1998 decreased from .3% of sales for the year ended March 31, 1997. In the prior year, this line included carrying costs for the Company's former warehouse facility which was sold in the fourth quarter of fiscal 1997. The Company's effective tax rate was 40.3% of pre-tax income in fiscal 1998, as compared to 39.8% for fiscal 1997. Net income for fiscal 1998 decreased by $.3 million or 3.3% as compared to fiscal 1997 due to the factors discussed above. FISCAL 1997 AS COMPARED TO FISCAL 1996 Sales for fiscal 1997 increased $24.1 million, or 20.5% over sales for fiscal 1996. The increase was due to a comparable store sales increase of 7.9% and an increase of approximately $16.3 million for stores opened since April 1, 1995. During the year, 40 stores were opened and one was closed. At March 31, 1997, the Company had 313 stores in operation. Management believes that sales increases were driven, in part, by pent-up demand from previously deferred repairs, combined with a number of industry factors. These include an increase in the average age of vehicles, a decrease in the number of service bays, an increase in the number of registered vehicles, and a shift in the consumer mentality from "do-it-yourself" to "do-it-for-me" caused by the increased complexity of cars. Additionally, management believes that successful performance of its operating strategy, centered on owning and operating all of its stores, helped contribute to the sales increase. Company operated stores facilitate focused and consistent execution in key areas such as the Company's unwavering commitment to customer satisfaction, comprehensive training of service technicians and competitive pricing. Gross profit for fiscal 1997 was $62.4 million or 44.2% of sales, as compared with $50.9 million or 43.4% of sales for fiscal 1996. The improvement in gross profit as a percentage of sales is primarily due to increases in selling prices coupled with a reduction in certain material costs as a result of renegotiated pricing with various vendors. 20 21 Operating, selling, general and administrative expenses for fiscal 1997 increased by $6.5 million to $41.7 million and, as a percentage of sales, decreased by .5% as compared to fiscal 1996. The increase in total dollars expended is primarily attributable to increased store supervision and increased store support expenses related to the Company's expansion. These expenses declined as a percentage of sales largely due to management's continued focus on discretionary spending and controlling costs. One area accounting for a more significant portion of the decrease as a percent of sales was an increase in the amount of cooperative advertising credits which the Company received during fiscal 1997 as compared to the previous year. Management was effective in improving various programs negotiated with vendors. Operating income in fiscal 1997 of $20.6 million, or 14.6% of sales increased by $5.1 million over the fiscal 1996 level of $15.6 million due to the factors discussed above. Interest expense, net of interest income, was unchanged as a percent of sales for fiscal 1997 as compared to fiscal 1996. While average debt outstanding for the year ended March 31, 1997 was up approximately $11.0 million over the year ended March 31, 1996, the weighted average interest rate declined by approximately 1.5 percentage points. Other expense, net, at .3% of sales for the year ended March 31, 1997 remained unchanged as a percent of sales from the year ended March 31, 1996. This amount includes carrying costs for the Company's former warehouse facility which was sold in the fourth quarter of fiscal 1997. The Company's effective tax rate was 39.8% of pre-tax income in fiscal 1997 as compared to 39.6% for fiscal 1996. Net income for fiscal 1997 increased by $2.6 million or 33.8% over fiscal 1996, reflecting higher gross profit and lower operating expenses, partially offset by a higher effective tax rate. YEAR 2000 The Company is currently addressing a universal situation commonly referred to as the "Year 2000 Problem." The Year 2000 Problem relates to the inability of certain computer software programs to properly recognize and process date sensitive information relative to the year 2000 and beyond. During fiscal 1997, the Company developed a plan to devote the necessary resources to identify and modify systems impacted by the Year 2000 Problem, or implement new systems to become year 2000 compliant in a timely manner. The cost of executing this plan is not expected to have a material impact on the Company's results of operations or financial condition. In addition, the Company has contacted its major suppliers and vendors to ensure their awareness of the Year 2000 Problem. If the Company, its suppliers or vendors are unable to resolve issues related to the year 2000 on a timely basis, it could result in a material financial risk. 21 22 CAPITAL RESOURCES AND LIQUIDITY Capital Resources The Company's primary capital requirements for fiscal 1998 were the funding of its new store expansion program and the upgrading of facilities and systems in existing stores, totaling $25.6 million, and principal payments on long-term debt and capital leases of $60.6 million. In both fiscal years 1998 and 1997, these capital requirements were met by cash flow from operations and through the use of a Revolving Credit Facility. In fiscal year 1998, the Company also completed sale/leaseback transactions totalling $10.3 million. In fiscal 1999, in addition to the Acquired Speedy Stores, the Company intends to open approximately 30 new stores. Total capital required to open a new store ranges, on average (based upon the last three fiscal years' openings), from $233,000 to $877,000 depending on whether the store is leased, owned or land leased. Management believes that the Company has sufficient resources available (including cash and equivalents, cash flow from operations and bank financing) to expand its business as currently planned for the next several years. The Speedy Acquisition will be effected by a cash payment of $52 million (the "Purchase Price"). The Company is currently in negotiations to obtain financing from its primary lender in the form of a revised credit facility and a synthetic operating lease arrangement for a portion of the Purchase Price and additional working capital requirements. In addition, the Company is seeking financing from other sources to pay a portion of the Purchase Price. Liquidity At March 31, 1998, the Company had a $5.0 million line of credit for the purpose of issuing stand-by-letters of credit on an unsecured basis. The line requires fees aggregating .875% annually of the face amount of each stand-by-letter of credit, payable quarterly in advance. A total of $3.8 million of letters of credit were outstanding under this line at March 31, 1998. As of June 1, 1998, the Company had outstanding $1.8 million in principal amount of its 10.65% Senior Notes due 2000 (the "Senior Notes") with Massachusetts Mutual Life Insurance Company pursuant to a Senior Note Agreement. The fifth of six annual installments of principal of $1.8 million was paid on April l, 1998. Through February 1996, the Company had a real estate line of credit of $25.0 million to be used for the placement of store mortgages. This line was terminated in fiscal 1996 at the Company's initiative and replaced by a new unsecured Revolving Credit Facility. 22 23 Prior to the termination of the real estate line, the Company had utilized $13.2 million for permanent mortgages. Any of these mortgages may be converted from a floating rate to a fixed rate loan during the first five years of its seven-year term. Interest is payable monthly. Equal monthly installments of principal are required based on 20-year amortization periods. During fiscal 1997, the Company completed the modification of its LIBOR-based mortgages, reducing the various interest rates to LIBOR plus 1.0%. In February 1996, the Company finalized an unsecured Revolving Credit Agreement with two banks. Under the terms of the Agreement, the Company may borrow at the prime rate or at a LIBOR-based rate which fluctuates quarterly based upon Company performance. The Company must pay a facility fee of .125% annually on the unused portion of the facility. In fiscal 1998, the Agreement was modified to increase the amount available under the facility from $30 million to $50 million and extend the term to March 2000. Principal payments begin in April 2000 in equal monthly installments based on a five-year amortization period. The Company has available a line of credit of $7.5 million under a short-term borrowing agreement at the lower of the prime rate or other rate options available at the time of borrowing. There are no commitment fees associated with this line of credit. Based upon the Company's ability and intent to refinance the amount outstanding under the line of credit with its expanded Revolving Credit facility, the $1.8 million balance has been classified as long-term debt at March 31, 1997. During fiscal 1995, the Company purchased 12.7 acres of land for $.7 million from the City of Rochester, New York, on which its new office/warehouse facility is located. The City has provided financing for 100 percent of the cost of the land via a 20-year non-interest bearing mortgage, all due and payable in 2014. To finance its new office/warehouse building, the Company obtained permanent mortgage financing consisting of a 10-year mortgage for $2.9 million and an eight-year term loan in the amount of $.7 million. Both obligations require monthly interest payments, and each may be converted from a floating rate to a fixed rate loan before the last two years of their respective terms. The mortgage requires equal monthly installments of principal based on a 20-year amortization period, and the term loan requires equal monthly payments of principal to fully amortize the debt over the eight-year term. The Company entered into an interest rate swap agreement with a major financial institution which effectively fixes the interest rate over the terms of the aforementioned agreements at 7.15%. Certain of the Company's long-term debt agreements require, among other things, the maintenance of specified current ratios, interest and rent coverage ratios and amounts of tangible net worth, and also contain restrictions on dividend payments and capital expenditures. The Company was in compliance with these requirements at March 31, 1998, and does not believe that the covenants materially affect its business. 23 24 As of March 31, 1998, the Company had cash and equivalents of $5.3 million. Inflation The Company does not believe its operations have been materially affected by inflation. The Company has been successful, in many cases, in mitigating the effects of merchandise cost increases principally through the use of volume discounts and alternative vendors. Financial Accounting Standards Statement of Position (SOP) 93-7, "Reporting on Advertising Costs," which provides guidance on financial reporting on advertising costs, was issued in December 1993. This Statement was adopted by the Company in fiscal 1996 and had an immaterial effect on the results of operations. Effective in fiscal 1997, the Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". As permitted under SFAS 123, the Company will continue to measure stock-based compensation cost as the excess of the quoted market price of the Company's common stock at the grant date over the amount the employee must pay for the stock. Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share", was issued in February 1997. This Statement establishes standards for computing and presenting earnings per share ("EPS"), and simplifies the standards previously found in APB Opinion No. 15 ("APB 15"). It replaces the presentation of primary EPS with a presentation of basic EPS, and also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. The Company adopted the Statement in fiscal 1998. Prior periods have been restated to reflect the new standard. 24 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Report of Independent Accountants.......................................... 26 Audited Financial Statements: Consolidated Balance Sheet at March 31, 1998 and 1997............. 27 Consolidated Statement of Income for the three years ended March 31, 1998..................................... 28 Consolidated Statement of Changes in Shareholders' Equity for the three years ended March 31, 1998.......... 29 Consolidated Statement of Cash Flows for the three years ended March 31, 1998............................... 30 Notes to Consolidated Financial Statements........................ 31 Selected Quarterly Financial Information (Unaudited)....................... 46 25 26 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Monro Muffler Brake, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Monro Muffler Brake, Inc. and its subsidiary at March 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Rochester, New York May 18, 1998 26 27 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET - - --------------------------------------------------------------------------------
MARCH 31, --------- 1998 1997 ---- ---- (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and equivalents, including interest-bearing accounts of $5,315 in 1998 and $6,438 in 1997 $ 5,315 $ 6,438 Trade receivables 841 1,128 Inventories 27,492 20,010 Federal and state income taxes receivable 0 296 Deferred income tax asset 1,725 1,790 Other current assets 4,115 2,935 ---------------- -------------- Total current assets 39,488 32,597 ---------------- -------------- Property, plant and equipment 165,839 151,906 Less - Accumulated depreciation and amortization (49,429) (42,223) ---------------- -------------- Net property, plant and equipment 116,410 109,683 Other noncurrent assets 3,190 3,987 ================ ------------- Total assets $159,088 $146,267 ================ ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 3,582 $ 3,128 Trade payables 11,633 8,728 Federal and state income taxes payable 2 0 Accrued interest 233 270 Accrued payroll, payroll taxes and other payroll benefits 3,764 4,260 Accrued insurance 2,441 2,110 Other current liabilities 4,316 4,522 ---------------- -------------- Total current liabilities 25,971 23,018 Long-term debt 54,102 54,850 Other long-term liabilities 576 14 Deferred income tax liability 1,881 1,760 ---------------- -------------- Total liabilities 82,530 79,642 ---------------- -------------- Commitments Shareholders' equity: Class C Convertible Preferred Stock, $1.50 par value, $.227 and $.239 conversion value at March 31, 1998 and 1997, respectively; 150,000 shares authorized; 91,727 shares issued and outstanding in 1998 and 1997 138 138 Common Stock, $.01 par value, 15,000,000 shares authorized; 7,876,901 shares and 7,470,326 shares issued and outstanding in 1998 and 1997, respectively 79 75 Additional paid-in capital 29,284 22,190 Retained earnings 47,057 44,222 ---------------- -------------- Total shareholders' equity 76,558 66,625 ---------------- -------------- Total liabilities and shareholders' equity $159,088 $146,267 ================ ==============
The accompanying notes are an integral part of these financial statements. 27 28 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME - - -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1998 1997 1996 ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Sales $154,294 $141,169 $117,104 Cost of sales, including distribution and occupancy costs (a) 87,510 78,792 66,236 ------------- ----------- ------------ Gross profit 66,784 62,377 50,868 Operating, selling, general and administrative expenses 46,120 41,749 35,299 ------------- ----------- ------------ Operating income 20,664 20,628 15,569 Interest expense, net of interest income of $87 in 1998, $23 in 1997, and $39 in 1996 (a) 3,829 3,224 2,637 Other expense, net 331 475 330 ------------- ----------- ------------ Income before provision for income taxes 16,504 16,929 12,602 Provision for income taxes 6,650 6,738 4,988 ------------- ----------- ------------ Net income $ 9,854 $ 10,191 $ 7,614 ============= =========== ============ Earnings per share: Basic $ 1.25 $ 1.31 $ 1.01 ============= =========== ============ Diluted $ 1.15 $ 1.19 $ .90 ============= =========== ============ Weighted average number of shares of common stock and common stock equivalents used in computing earnings per share: Basic 7,863 7,797 7,570 ============= =========== ============ Diluted 8,586 8,580 8,482 ============= =========== ============ (a) Costs and expenses include charges for payments under operating and capital leases with affiliated parties totaling $1,786, $1,828, and $1,688 for the years ended March 31, 1998, 1997 and 1996, respectively.
The accompanying notes are an integral part of these financial statements. 28 29 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - - ------------------------------------------------------------------------------------------------------------------------------------
CLASS C CONVERTIBLE ADDITIONAL PREFERRED COMMON PAID-IN RETAINED STOCK STOCK CAPITAL EARNINGS TOTAL ----- ----- ------- -------- ----- (DOLLARS IN THOUSANDS) Balance at March 31, 1995 $ 138 $ 65 $10,959 $37,007 $48,169 Net income 7,614 7,614 Exercise of stock options 104 104 Stock dividend 4 5,998 (6,002) ------ ------ --------- ----------- ---------- Balance at March 31, 1996 138 69 17,061 38,619 55,887 Net income 10,191 10,191 Exercise of stock options 2 545 547 Stock dividend 4 4,584 (4,588) ------ ------ --------- ---------- ----------- Balance at March 31, 1997 138 75 22,190 44,222 66,625 Net income 9,854 9,854 Exercise of stock options 79 79 Stock dividend 4 7,015 (7,019) ------ ------ --------- ----------- ---------- Balance at March 31, 1998 $ 138 $ 79 $29,284 $47,057 $76,558 ======= ====== ======== ========== ==========
The accompanying notes are an integral part of these financial statements. 29 30 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS - - ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1998 1997 1996 ---- ---- ---- (DOLLARS IN THOUSANDS) INCREASE (DECREASE) IN CASH Cash flows from operating activities: Net income $9,854 $10,191 $ 7,614 --------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 9,259 8,099 6,762 Net change in deferred income taxes 186 192 (266) Loss (gain) on disposal of property, plant and equipment 42 (100) (1) Decrease (increase) in trade receivables 287 102 (174) Increase in inventories (7,482) (3,472) (2,721) Increase in other current assets (217) (717) (373) Increase in other noncurrent assets (441) (63) (462) Increase in trade payables 2,905 1,858 1,810 (Decrease) increase in accrued expenses (524) 3,541 270 Increase (decrease) in income taxes payable 298 (278) 10 Increase in other long-term liabilities 17 7 6 --------- --------- --------- Total adjustments 4,330 9,169 4,861 --------- --------- --------- Net cash provided by operating activities 14,184 19,360 12,475 --------- --------- --------- Cash flows from investing activities: Capital expenditures (25,391) (27,562) (25,581) Proceeds from the sale of property, plant and equipment 10,552 97 68 Payment for purchase of miscellaneous acquisitions (2,416) --------- --------- --------- Net cash used for investing activities (14,839) (27,465) (27,929) --------- --------- --------- Cash flows from financing activities: Proceeds from the sale of common stock 79 547 104 Proceeds from borrowings 60,099 58,220 38,514 Principal payments on long-term debt and capital lease obligations (60,646) (49,504) (22,739) --------- --------- --------- Net cash (used for) provided by financing activities (468) 9,263 15,879 --------- --------- --------- (Decrease) increase in cash (1,123) 1,158 425 Cash at beginning of year 6,438 5,280 4,855 --------- --------- --------- Cash at end of year $ 5,315 $ 6,438 $ 5,280 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 30 31 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES BACKGROUND Monro Muffler Brake, Inc. and its wholly owned subsidiary, Monro Service Corporation (the "Company"), had 350 automotive repair centers operating primarily in the northeast region of the United States as of March 31, 1998. The Company experienced a change in control during 1984 which was accounted for as a purchase and required the recording of a new basis for assets and liabilities. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with such principles requires the use of estimates by management during the reporting period. Actual results could differ from those estimates. A description of the Company's major accounting policies follows. FISCAL YEAR The Company's fiscal year ends on March 31. CONSOLIDATION The consolidated financial statements include the Company and its wholly owned subsidiary, Monro Service Corporation, after the elimination of intercompany transactions and balances. REVENUE RECOGNITION Sales are recorded upon completion of automotive undercar repair services provided to customers or upon the sale of incidental products and services to customers. INVENTORIES The Company's inventories consist of automotive parts and tires. Substantially all merchandise inventories are valued under the last-in, first-out (LIFO) method. Under the first-in, first-out (FIFO) method, these inventories would have been $426,000, $544,000 and $647,000 higher at March 31, 1998, 1997 and 1996, respectively. The FIFO value of inventory approximates the current replacement cost. PROPERTY, PLANT AND EQUIPMENT All property, plant and equipment are stated at cost. For assets acquired in conjunction with the 1984 change in control referred to above, cost represents an allocation of the total purchase price to individual assets based on their estimated fair values at the date of acquisition. Depreciation of property, plant and equipment is provided on the straight-line basis. Buildings and improvements are depreciated over lives varying from 10 to 39 years; machinery, fixtures and equipment over lives varying from 5 to 15 years; and vehicles over lives varying from 5 to 7 years. Certain leases have been capitalized and are classified on the balance sheet as fixed assets. These assets are being amortized on a straight-line basis over their estimated lives, which coincide with the terms of the leases (Note 3). 31 32 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- ADVERTISING The Company expenses the production costs of advertising the first time the advertising takes place, except for direct response advertising which is capitalized and amortized over its expected period of future benefits. Direct response advertising consists primarily of coupons for the Company's services. The capitalized costs of this advertising are amortized over the period of the coupon's validity. Advertising expense for the years ended March 31, 1998, 1997 and 1996 was not material to these financial statements. INTEREST RATE HEDGE AGREEMENTS The Company enters into interest rate hedge agreements which involve the exchange of fixed and floating rate interest payments periodically over the life of the agreement without the exchange of the underlying principal amounts. The differential to be paid or received is accrued as interest rates change and is recognized over the life of the agreements as an adjustment to interest expense. EARNINGS PER SHARE In fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Prior periods have been restated to reflect the new standard. All share and per share amounts have also been restated to reflect the five percent stock dividends paid in August 1997, 1996 and 1995 (Note 8). STOCK-BASED COMPENSATION The Company measures stock-based compensation cost as the excess of the quoted market price of the Company's common stock at the grant date over the amount the employee must pay for the stock. The Company's policy is to generally grant stock options at fair market value at the date of grant. STATEMENT OF CASH FLOWS For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments with a maturity of three months or less to be cash equivalents. RECLASSIFICATIONS Certain amounts in the Consolidated Balance Sheet and the Consolidated Statement of Cash Flows have been reclassified to improve reporting and maintain comparability among the periods presented. NOTE 2 - SUBSEQUENT EVENT: PENDING ACQUISITION OF SPEEDY U.S.A. STORES In April 1998, the Company signed a definitive agreement with Speedy Muffler King Inc. of Toronto, Canada to acquire 192 company-operated and 13 franchised Speedy stores in the United States. The all-cash purchase transaction will be affected by the payment of $52 million and is subject to customary terms and conditions, including the obtaining of necessary consents and the Company's securing of financing necessary to consummate the transaction. The transaction is expected to close in August 1998. In May 1998, the Company received a favorable determination under the Hart-Scott-Rodino Act. Although the 205 Speedy stores are in the same general markets in which the Company competes, the Company's and Speedy's locations are mainly situated in non-overlapping areas. The Company expects to close less than 20 underperforming Speedy stores. 32 33 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- An investment banking firm associated with a principal shareholder/director of the Company is serving as consultant to the Company in connection with the acquisition and related financing (Note 11). NOTE 3 - PROPERTY, PLANT AND EQUIPMENT The major classifications of property, plant and equipment are as follows:
MARCH 31, 1998 MARCH 31, 1997 -------------- -------------- OWNED LEASED TOTAL OWNED LEASED TOTAL ----- ------ ----- ----- ------ ----- (DOLLARS IN THOUSANDS) Land $23,772 $ 23,772 $ 21,398 $21,398 Buildings and improvements 76,062 $6,838 82,900 67,751 $6,838 74,589 Equipment, signage and fixtures 47,379 82 47,461 43,773 82 43,855 Vehicles 7,184 620 7,804 6,527 385 6,912 Construction-in- progress 3,902 3,902 5,152 5,152 -------------- -------------- -------------- ----------- ---------- ----------- 158,299 7,540 165,839 144,601 7,305 151,906 Less - Accumulated depreciation and amortization 45,712 3,717 49,429 38,358 3,865 42,223 -------------- -------------- -------------- ----------- ---------- ----------- $112,587 $3,823 $116,410 $106,243 $3,440 $109,683 ============== ============== ============== =========== ========== ===========
Interest costs capitalized aggregated $448,000 in 1998 and $568,000 in 1997. Amortization expense recorded under capital leases totaled $434,000, $398,000 and $360,000 for the years ended March 31, 1998, 1997 and 1996, respectively. NOTE 4 - OTHER NONCURRENT ASSETS Other noncurrent assets consist of the following:
MARCH 31, --------- 1998 1997 ---- ---- (DOLLARS IN THOUSANDS) Mortgage receivable $ 975 Deferred debt issuance costs $ 374 460 Non-compete agreements 485 544 Investment in limited partnership 326 339 Goodwill 1,454 1,342 Acquisition-related costs 223 Other 328 327 -------- ------- $3,190 $3,987 ======== =======
Accumulated amortization associated with noncurrent assets at March 31, 1998 and 1997 amounted to $1,837,000 and $1,562,000, respectively. Goodwill is being amortized on a straight-line basis over periods ranging from 5 to 20 years. 33 34 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- NOTE 5 - LONG-TERM DEBT Long-term debt consists of the following:
MARCH 31, --------- 1998 1997 ---- ---- (DOLLARS IN THOUSANDS) Revolving Credit Facility $34,800 $30,000 Line of Credit 1,800 10.65% Senior Notes, due in installments through fiscal year 2000 3,667 5,500 Mortgage Notes Payable, LIBOR plus 1.0%, secured by store properties, due in installments through 2003 (a) 9,018 9,578 Mortgage Note Payable, LIBOR plus .8%, secured by new warehouse and office building, due in installments through 2006 (a) 2,607 2,755 Term loan financing, LIBOR plus .8%, secured by new warehouse and office building, due in installments through 2004 (a) 517 609 Mortgage Note Payable, non-interest bearing, secured by new warehouse and office land, due in one installment in 2015 660 660 Other mortgages and notes, prime plus .75% to 8.0%, partially secured by store properties and equipment, due in installments through 2008 (a) 1,225 1,763 Obligations under capital leases, 6.0% to 16.8%, secured by store properties and certain equipment, due in installments through 2012 5,190 5,330 ------------- ------------- 57,684 57,995 Less - Unamortized debt discount (b) 17 ------------- ------------- 57,684 57,978 Less - Current portion 3,582 3,128 ------------- ------------- $54,102 $54,850 ============= ============= (a) The prime rate at March 31, 1998 was 8.5%. The London Interbank Offered Rate (LIBOR) at March 31, 1998 was 5.69%. (b) The debt discount is the result of valuing the debt at fair market value as of the 1984 purchase date.
34 35 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- At March 31, 1998, the Company has a $5.0 million line of credit for the purpose of issuing stand-by-letters of credit on an unsecured basis. The line requires fees aggregating .875% annually of the face amount of each stand-by-letter of credit, payable quarterly in advance. A total of $3.8 million of letters of credit were outstanding under this line at March 31, 1998. Through February 1996, the Company had a real estate line of credit of $25.0 million to be used for the placement of store mortgages. The real estate line of credit was terminated in fiscal 1996 at the Company's initiative and replaced by a new Revolving Credit facility. Prior to the termination of the real estate line of credit, the Company had utilized $13.2 million for permanent mortgages. Any of these mortgages may be converted from a floating rate to a fixed rate loan during the first five years of its seven-year term. Interest is payable monthly. Equal monthly installments of principal are required based on 20-year amortization periods. During fiscal 1997, the Company completed the modification of its LIBOR-based mortgages, reducing the various interest rates to LIBOR plus 1.0%. In February 1996, the Company finalized an unsecured Revolving Credit Agreement with two banks. Under the terms of the Agreement, the Company may borrow at the prime rate or at a LIBOR-based rate which fluctuates quarterly dependent upon Company performance. The Company must pay a facility fee of .125% annually on the unused portion of the commitment. In fiscal 1998, the Agreement was modified to increase the amount available under the facility from $30 million to $50 million and extend the term to March 2000. Principal payments begin in April 2000 in equal monthly installments based on a five-year amortization period. The Company has available an unsecured line of credit of $7.5 million under a short-term borrowing agreement at the lower of the prime rate or other rate options available at the time of borrowing. There are no commitment fees associated with this line of credit. Based upon the Company's ability and intent to refinance the amount outstanding under the line of credit with its expanded Revolving Credit facility, the $1.8 million balance was classified as long-term debt at March 31, 1997. During fiscal 1995, the Company purchased 12.7 acres of land for $.7 million from the City of Rochester, New York, on which its new office/warehouse facility is located. The City has provided financing for 100 percent of the cost of the land via a 20-year non-interest bearing mortgage, all due and payable in 2015. To finance its new office/warehouse building, the Company obtained permanent mortgage financing consisting of a 10-year mortgage for $2.9 million and an eight-year term loan in the amount of $.7 million. Both obligations require monthly interest payments, and each may be converted from a floating rate to a fixed rate loan before the last two years of their respective terms. The mortgage requires equal monthly installments of principal based on a 20-year amortization period, and the term loan requires constant monthly payments of principal to fully amortize the debt over the eight-year term. The Company entered into an interest rate swap agreement with a major financial institution which effectively fixes the interest rate over the terms of the aforementioned agreements at 7.15%. Certain of the Company's long-term debt agreements require, among other things, the maintenance of specified current ratios, interest and rent coverage ratios and amounts of tangible net worth, and also contain restrictions on dividend payments and capital expenditures. The Company is in compliance with these requirements at March 31, 1998. These agreements permit mortgages and specific financing lease arrangements with other parties with certain limitations. 35 36 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- Aggregate debt maturities over the next five years and thereafter are as follows:
CAPITAL LEASES -------------- AGGREGATE IMPUTED ALL OTHER YEAR ENDED MARCH 31, AMOUNT INTEREST DEBT TOTAL -------------------- ------ -------- ---- ----- (DOLLARS IN THOUSANDS) 1999 $1,197 $(806) $3,191 $ 3,582 2000 1,172 (749) 3,855 4,278 2001 1,178 (682) 9,891 10,387 2002 1,147 (599) 8,967 9,515 2003 877 (523) 9,894 10,248 Thereafter 5,013 (2,035) 16,696 19,674 ---------- Total $57,684 ==========
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments consisted of the following:
MARCH 31, 1998 MARCH 31, 1997 -------------- -------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ------ ----- ------ ----- (DOLLARS IN THOUSANDS) Long-term debt, including current portion $52,494 $52,224 $52,665 $52,284
The carrying amount of cash and cash equivalents approximates fair value because their maturity is generally less than one year in duration. Fair value of long-term debt was estimated using either quoted market prices for the same or similar issues, or the current rates offered to the Company for debt with similar maturities. 36 37 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- NOTE 7 - INCOME TAXES The components of the provision (benefit) for income taxes are as follows:
YEAR ENDED MARCH 31, -------------------- 1998 1997 1996 ---- ---- ---- (DOLLARS IN THOUSANDS) Currently payable - Federal $5,435 $5,418 $4,340 State 1,029 1,128 908 ---------- --------- --------- 6,464 6,546 5,248 Deferred - Federal 154 159 (219) State 32 33 (41) ---------- --------- --------- 186 192 (260) ---------- --------- --------- Total $6,650 $6,738 $4,988 ========== ========= =========
Deferred tax (liabilities) assets are comprised of the following:
YEAR ENDED MARCH 31, -------------------- 1998 1997 1996 ---- ---- ---- (DOLLARS IN THOUSANDS) Property and equipment basis differences $(2,232) $(2,014) $(1,352) Prepaid expenses (486) (397) (316) Tax shelter investment (302) (287) (263) Installment sale (180) (265) Other (193) (79) (33) ------------- ------------ ----------- Gross deferred tax liabilities (3,393) (3,042) (1,964) ------------- ------------ ----------- Capital leases 780 755 527 Insurance accruals 959 798 605 Inventory reserves 93 43 65 Vacation accrual 210 174 166 Warranty and other reserves 864 1,034 551 Other 331 268 272 ------------ ------------ ----------- Gross deferred tax assets 3,237 3,072 2,186 ------------ ------------ ----------- Net deferred tax (liability) asset $ (156) $ 30 $ 222 ============ ============ ===========
37 38 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- A reconciliation between the U. S. federal statutory tax rate and the effective tax rate reflected in the accompanying financial statements is as follows:
YEAR ENDED MARCH 31, -------------------- 1998 1997 1996 ---- ---- ---- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ------ ------- ------ ------- ------ ------- (DOLLARS IN THOUSANDS) Federal income tax based on statutory tax rate applied to income before taxes $5,722 34.7 $5,883 34.8 $4,311 34.2 State income tax, net of federal income tax benefit 693 4.2 758 4.5 570 4.5 Other 235 1.4 97 .5 107 .9 ----------- ------- ----------- ----------- ----------- ----------- $6,650 40.3 $6,738 39.8 $4,988 39.6 =========== ======= =========== =========== =========== ===========
NOTE 8 - CONVERTIBLE PREFERRED STOCK AND COMMON STOCK A summary of the changes in the number of shares of Class C preferred stock and common stock is as follows:
COMMON CLASS C STOCK CONVERTIBLE PREFERRED SHARES STOCK ------------ --------------------------- Balance at March 31, 1996 6,914,835 91,727 Stock options exercised 209,826 Stock dividend 345,665 ------------ ---------- Balance at March 31, 1997 7,470,326 91,727 Stock options exercised 33,151 Stock dividend 373,424 ------------ ---------- Balance at March 31, 1998 7,876,901 91,727 ============ ==========
On May 14, 1997, the Board of Directors declared a five percent stock dividend on the Company's common stock, paid August 4, 1997, to shareholders of record as of June 20, 1997. The Company also paid a five percent stock dividend on August 5, 1996, to shareholders of record as of June 21, 1996, and on August 7, 1995, to shareholders of record as of June 23, 1995. All share and per share information included in the accompanying financial statements and notes have been adjusted to give retroactive effect to these dividends. Additionally, in accordance with antidilution provisions of the Class C convertible preferred stock, the conversion value of the preferred stock was restated to $.227 per share. 38 39 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- Holders of at least 60% of the Class C preferred stock must approve any action authorized by the holders of common stock. In addition, there are certain restrictions on the transferability of shares of Class C preferred stock. Under the 1984 and 1987 Incentive Stock Option Plans, 693,021 shares (as retroactively adjusted for the five percent stock dividends) of the common stock were reserved for issuance to officers and key employees. The 1989 Incentive Stock Option Plan authorized an additional 165,005 shares (as retroactively adjusted for the five percent stock dividends) for issuance. In January 1994, May 1995 and May 1997, the Board of Directors authorized an additional 245,532, 104,737 and 200,000 shares, respectively (as retroactively adjusted for the stock dividends), for issuance under the 1989 Plan. These amounts were approved by shareholders in August 1994, August 1995 and August 1997, respectively. Generally, options vest with respect to 60% of the shares of common stock subject thereto three years after the date of grant. Options on 50% of the remaining shares vest on the fourth anniversary of the date of grant, and the balance vests on the fifth anniversary of the date of grant. The outstanding options have a duration of ten years and are exercisable through February 2008. A summary of changes in outstanding stock options (as retroactively adjusted for the five percent stock dividends) is as follows:
WEIGHTED AVERAGE AVAILABLE EXERCISE PRICE OUTSTANDING EXERCISABLE FOR GRANT -------------- ----------- ----------- --------- AT MARCH 31, 1995 $ 5.79 530,436 391,026 202,600 Authorized 104,737 Granted $ 13.80 174,636 (174,636) Became exercisable 23,031 Exercised $ 1.68 (62,971) (62,971) Canceled $ 13.31 (3,590) (1,702) 3,590 Rounding for stock dividend 10 1 ------------ ------------ ----------- AT MARCH 31, 1996 $ 8.34 638,521 349,384 136,292 Granted $ 14.70 118,239 (118,239) Became exercisable 54,215 Exercised $ 2.49 (220,317) (220,317) Canceled $ 14.19 (22,072) 22,072 Rounding for stock dividend (3) ------------ ------------ ----------- AT MARCH 31, 1997 $ 12.07 514,371 183,282 40,122 Authorized 200,000 Granted $ 14.17 124,175 (124,175) Became exercisable 51,102 Exercised $ 2.41 (33,151) (33,151) Canceled $ 14.24 (206,473) (8,946) 206,473 Rounding for stock dividend 5 ------------ ------------ ----------- AT MARCH 31, 1998 $ 12.40 398,927 192,287 322,420 ============ ============ ===========
39 40 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- The following table summarizes information about fixed stock options outstanding at March 31, 1998:
Options Outstanding Options Exercisable Weighted Weighted Weighted Average Average Average Range of Shares Remaining Exercise Shares Exercise Exercise Prices Under Option Life Price Under Option Price - - ------------------------------------------------------------------------------------------------------------ $ 1.00 - $10.00 59,205 2.42 $ 4.88 59,205 $ 4.88 $10.01 - $15.00 281,224 7.46 $13.22 107,714 $12.71 $15.01 - $19.75 58,498 7.29 $16.07 25,368 $15.74 - - ------------------------------------------------------------------------------------------------------------
In August 1994, subject to the approval of shareholders in August 1995, the Board of Directors authorized a non-employee directors' stock option plan. The plan initially reserved 63,669 shares of common stock (as retroactively adjusted for the five percent stock dividends), and provides for (i) the grant to each non-employee director as of August 1, 1994 of an option to purchase 2,894 shares of the Company's common stock (as retroactively adjusted for the five percent stock dividends) and (ii) the annual grant to each non-employee director of an option to purchase 2,894 shares (as retroactively adjusted for the five percent stock dividends) on the date of the annual meeting of shareholders beginning in 1995. The options expire ten years from the date of grant and have an exercise price equal to the fair market value of the Company's common stock on the date of grant. Options vest immediately upon issuance. In May 1997, the Board of Directors authorized an additional 65,000 shares for issuance under the Plan, which were approved by shareholders in August 1997. A summary of changes in these stock options is as follows:
OPTION PRICE AVAILABLE PER SHARE OUTSTANDING EXERCISABLE FOR GRANT --------- ----------- ----------- --------- AT MARCH 31, 1995 $14.85 20,258 20,258 43,410 Granted $13.38 20,258 20,258 (20,258) --------- --------- ------------ AT MARCH 31, 1996 $13.38 - $14.85 40,516 40,516 23,152 Granted $17.86 20,258 20,258 (20,258) --------- --------- ------------ AT MARCH 31, 1997 $13.38 - $17.86 60,774 60,774 2,894 Authorized 65,000 Granted $16.88 20,258 20,258 (20,258) --------- --------- ------------ AT MARCH 31, 1998 $13.38 - $17.86 81,032 81,032 47,636 ========= ========= ============
Effective in fiscal 1997, the Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." As permitted under SFAS 123, the Company will continue to measure stock-based compensation cost as the excess of the quoted market price of the Company's common stock at the grant date over the amount the employee must pay for the stock. 40 41 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- SFAS 123 requires disclosure of pro forma net income and pro forma net income per share as if the fair value-based method had been applied in measuring compensation cost for the stock-based awards granted subsequent to fiscal year 1995. Management believes that 1998 and 1997 pro forma amounts are not representative of the effects of stock-based awards on future pro forma net income and pro forma earnings per share because those pro forma amounts exclude the pro forma compensation expense related to unvested stock options granted before fiscal 1996. Reported and pro forma net income and earnings per share amounts are set forth below:
YEAR ENDED MARCH 31, -------------------- 1998 1997 1996 ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net income As reported $9,854 $ 10,191 $ 7,614 Pro forma 9,602 10,000 7,505 Earnings per share - diluted As reported $ 1.15 $ 1.19 $ .90 Pro forma 1.12 1.16 .88
The weighted average fair value per option at the date of grant for options granted during fiscal 1998, 1997 and 1996 was $7.03, $8.61 and $6.77, respectively. The fair values of the options granted were estimated on the date of their grant using the Black-Scholes option-pricing model based on the following weighted average assumptions:
YEAR ENDED MARCH 31, -------------------- 1998 1997 1996 ---- ---- ---- Risk free interest rate 5.85% 6.38% 6.19% Expected life 9 years 9 years 9 years Expected volatility 25.0% 26.0% 26.0% Expected dividend yield 0% 0% 0%
Forfeitures are recognized as they occur. NOTE 9 - OPERATING LEASES AND OTHER COMMITMENTS The Company leases retail facilities and store equipment under noncancellable lease agreements which expire at various dates through fiscal year 2013. In addition to stated minimum payments, certain real estate leases have provisions for contingent rentals when retail sales exceed specified levels. Generally, the leases provide for renewal for various periods at stipulated rates. Most of the facilities' leases require payment of property taxes, insurance and maintenance costs in addition to rental payments, and several provide an option to purchase the property at the end of the lease term. During fiscal 1998, the Company entered into an agreement for the sale/leaseback of certain stores, and into a second agreement for the sale/leaseback of store equipment. The Company has lease renewal options under the real estate agreement at projected future fair market values, and has both purchase and renewal options under the equipment lease agreement. At March 31, 1998, real estate with net book values totaling $5.8 million and equipment with net book values totaling $3.9 million have been removed from the balance sheet. Respective gains realized of $.1 million and $.5 million have been deferred and are being credited to income as rent expense adjustments over the lease terms. 41 42 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- Future minimum payments required under noncancellable leases are as follows:
AMOUNT ------ YEAR ENDED MARCH 31, (DOLLARS IN THOUSANDS) - - -------------------- ---------------------- 1999 $ 10,030 2000 9,958 2001 9,460 2002 8,473 2003 7,406 Thereafter 28,664 ------- Total $73,991 =======
Rent expense under operating leases totaled $7,944,000, $6,965,000 and $5,500,000 in 1998, 1997 and 1996, respectively, including contingent rentals of $589,000, $649,000 and $511,000 in each respective year. The Company has an employment agreement with its interim Chief Executive Officer. The Agreement, which commenced in February 1998, requires full-time services of the Executive during the "Interim Term", defined as the period during which the Executive serves as Chief Executive Officer. The "Interim Term" may not be extended beyond six months without the Executive's consent. The Agreement provides that subsequent to the "Interim Term", the Executive will continue in the employ of the Company, providing consulting services, at a reduced salary through February 2003. The Agreement includes a covenant against competition with the Company for two years after termination. NOTE 10 - EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS The Company has a noncontributory defined benefit plan covering most employees. Coverage under the plan begins after completing one year of service and attainment of age twenty-one. Benefits are based primarily on years of service and employees' pay near retirement. The Company's funding policy is consistent with the funding requirements of Federal law and regulations. Plan assets are invested in fixed income funds. Pension cost included the following components:
YEAR ENDED MARCH 31, -------------------- 1998 1997 1996 ---- ---- ---- (DOLLARS IN THOUSANDS) Service cost - benefits earned during the period $ 280 $ 259 $ 230 Interest cost on projected benefit obligation 315 293 277 Return on plan assets (290) (271) (227) Amortization of net transition asset (5) 4 14 -------- ------- ------- Net pension cost $ 300 $ 285 $ 294 ======== ======= =======
42 43 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- The plan's funded status was as follows:
MARCH 31, --------- 1998 1997 ---- ---- (DOLLARS IN THOUSANDS) Actuarial present value of benefit obligation: Vested benefit obligation $(3,900) $(3,382) ======== ========== Accumulated benefit obligation $(4,150) $(3.590) ======== ========== Projected benefit obligation $(5,080) $(4,325) Plan assets at fair value 4,395 3,566 -------- ---------- Projected benefit obligation in excess of plan assets (685) (759) Unrecognized net loss 1,030 622 Unrecognized prior service cost 20 24 Unrecognized net transition asset (115) (146) -------- ---------- Pension asset (liability) at March 31 $ 250 $ (259) ======== ========
The projected benefit obligation at March 31, 1998 and 1997 assumed discount rates of 7.0% and 7.5%, respectively. Increase in future compensation levels was assumed to be 5% in 1998 and 1997. The assumed long-term rate of return on plan assets at March 31, 1998 and 1997 was 8%. The unrecognized transition asset is being amortized over fifteen years beginning April 1, 1988. The unrecognized prior service cost is being amortized over fifteen years beginning April 1, 1990. The Company also has a profit sharing plan which covers full-time employees who meet the age and service requirements of the plan. The annual contribution to the plan is at the discretion of the Compensation and Benefits Committee of the Board of Directors and, before annual forfeitures which reduce the annual contribution, totaled $419,000 and $500,000 for the years ended March 31, 1998 and 1997, respectively. No contribution was made for the year ended March 31, 1996. The Company's management bonus plan provides for the payment of annual cash bonus awards to participating employees, as selected by the Board of Directors, based primarily on the Company's attaining pre-tax income targets established by the Board of Directors. Charges to expense applicable to the management bonus plan totaled $210,000, $779,000 and $104,000 for the years ended March 31, 1998, 1997 and 1996 respectively. Because the Company did not attain a minimum required percentage of targeted profit performance in fiscal 1998 and 1996, expense for those years does not include any bonus amounts for executive officers. NOTE 11 - RELATED PARTY TRANSACTIONS Certain (a) principal shareholders/directors of the Company, (b) partnerships in which such persons have interests or (c) trusts of which members of their families are beneficiaries are lessors of certain facilities to the Company. Payments under such operating and capital leases amounted to $1,786,000, $1,828,000 and $1,688,000 for the years ended March 31, 1998, 1997 and 1996, respectively. Amounts payable under these lease agreements totaled $82,000 and $88,000, respectively, at March 31, 1998 and 1997. No related party leases, other than renewals or modifications of leases on existing stores, have been entered into since May 1989 and no new leases are contemplated. 43 44 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- Effective July 1991, the Company entered into a management agreement with an investment banking firm associated with a principal shareholder/director of the Company to provide financial advice. The agreement provides for an annual fee of $160,000, plus reimbursement of out-of-pocket expenses. During fiscal 1998, 1997 and 1996, the Company incurred fees of $160,000 annually under this agreement. In addition, this investment banking firm, from time to time, provides additional investment banking services to the Company for customary fees. This firm is providing financial advisory services to the Company in connection with the acquisition of and financing for Speedy Muffler King Inc. (Note 2). NOTE 12 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION The following transactions represent noncash investing and financing activities during the periods indicated: YEAR ENDED MARCH 31, 1998 In connection with the declaration of a five percent stock dividend (Note 8), the Company increased common stock and additional paid-in capital by $4,000 and $7,015,000, respectively, and decreased retained earnings by $7,019,000. Capital lease obligations of $236,000 were incurred under various lease agreements. In anticipation of payment-in-full from a mortgagor for its former headquarters property, the Company reclassified $963,000 from other noncurrent assets to other current assets. YEAR ENDED MARCH 31, 1997 In connection with the declaration of a five percent stock dividend (Note 8), the Company increased common stock and additional paid-in capital by $4,000 and $4,584,000, respectively, and decreased retained earnings by $4,588,000. Capital lease obligations of $722,000 were incurred under various lease agreements. In connection with the sale of its former headquarters building, the Company reduced fixed assets and increased other assets (mortgage receivable) by $989,000. In connection with the termination of a capital lease, the Company reduced debt and fixed assets by $112,000. YEAR ENDED MARCH 31, 1996 In connection with the declaration of a five percent stock dividend (Note 8), the Company increased common stock and additional paid-in capital by $4,000 and $5,998,000, respectively, and decreased retained earnings by $6,002,000. Capital lease obligations of $772,000 were incurred under various lease agreements. In connection with the acquisition of several automotive repair stores, liabilities were assumed as follows:
(DOLLARS IN THOUSANDS) Fair value of assets acquired $2,835 Cash paid 2,416 --------- Liabilities assumed $ 419 =========
44 45 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - --------------------------------------------------------------------------------
YEAR ENDED MARCH 31, -------------------- 1998 1997 1996 ---- ---- ---- (DOLLARS IN THOUSANDS) Cash paid during the year: Interest, net $4,247 $3,867 $3,205 Income taxes, net $6,166 $6,823 $5,244
NOTE 13 - LITIGATION The Company and its subsidiary are involved in legal proceedings, claims and litigation arising in the ordinary course of business. It is possible that the outcome of such current legal proceedings could have a material effect on quarterly or annual operating results or cash flows when resolved in a future period. However, in the opinion of management, these matters will not materially affect the Company's consolidated financial position. NOTE 14 - SUBSEQUENT EVENT On May 13, 1998, the Board of Directors declared a five percent stock dividend, payable June 18, 1998, to common stockholders of record as of June 8, 1998. Shares of common or preferred stock included in the accompanying financial statements and notes have not been adjusted to reflect this dividend. 45 46 MONRO MUFFLER BRAKE, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - - -------------------------------------------------------------------------------- SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table sets forth income statement data by quarter for the fiscal years ended March 31, 1998 and 1997.
QUARTER ENDED ------------- JUNE 30, SEPT.30, DEC.31, MARCH 31, 1997 1997 1997 1998 ---- ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Sales..... ............................... $40,773 $41,540 $36,336 $35,645 Cost of sales including distribution and occupancy costs..................... 22,631 23,231 20,996 20,652 ------- ------- ------- ------- Gross profit.............................. 18,142 18,309 15,340 14,993 Operating, selling, general and administrative expenses............. 11,492 11,735 11,409 11,484 ------- ------- ------- ------- Operating income.......................... 6,650 6,574 3,931 3,509 Interest expense - net.................... 868 903 1,005 1,053 Other expense............................. 85 86 95 65 ------- ------- ------- ------- Income before provision for income taxes.. 5,697 5,585 2,831 2,391 Provision for income taxes................ 2,280 2,233 1,131 1,006 ------- ------- ------- ------- Net income................................ $ 3,417 $ 3,352 $ 1,700 $ 1,385 ======= ======= ======= ======= Basic earnings per share (b).............. $ .44 $ .43 $ .22 $ .18 Diluted earnings per share (a)(b)......... $ .40 $ .39 $ .20 $ .16 Weighted average number of shares of common stock and common stock equivalents used in computing earnings per share (b): Basic....... 7,850 7,867 7,867 7,867 Diluted..... 8,606 8,608 8,557 8,586 1996 1996 1996 1997 ---- ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Sales..................................... $37,745 $37,799 $33,560 $32,065 Cost of sales including distribution and occupancy costs..................... 20,666 20,291 19,867 17,968 ------- ------- ------- ------- Gross profit.............................. 17,079 17,508 13,693 14,097 Operating, selling, general and administrative expenses............. 10,645 10,386 9,978 10,740 ------- ------- ------- ------- Operating income.......................... 6,434 7,122 3,715 3,357 Interest expense - net.................... 814 851 837 722 Other expense............................. 16 55 205 199 ------- ------- ------- ------- Income before provision for income taxes.. 5,604 6,216 2,673 2,436 Provision for income taxes................ 2,225 2,474 1,064 975 ------- ------- ------- ------- Net income................................ $ 3,379 $ 3,742 $ 1,609 $ 1,461 ======= ======= ======= ======= Basic earnings per share (b).............. $ .44 $ .48 $ .21 $ .19 Diluted earnings per share (a)(b)......... $ .40 $ .43 $ .19 $ .17 Weighted average number of shares of common stock and common stock equivalents used in computing earnings per share (b): Basic.......... 7,670 7,832 7,843 7,844 Diluted........ 8,540 8,620 8,569 8,590
46 47 (a) Earnings per share for each period was computed by dividing net income by the weighted average number of shares of Common Stock and Common Stock equivalents outstanding during the respective quarters. (b) All share and per share information has been adjusted to give retroactive effect to the five percent stock dividends paid in August 1997, August 1996 and in August 1995. 47 48 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Information concerning the directors of the Company is incorporated herein by reference to the section captioned "Election of Directors" in the Proxy Statement. Information concerning the executive officers of the Company is set forth in Item 4A of Part I hereof. Information concerning required Section 16(a) disclosure is incorporated herein by reference to the section captioned "Compliance with Section 16(a) of the Exchange Act" in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION Information concerning executive compensation is incorporated herein by reference to the section captioned "Executive Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference to the sections captioned "Principal Shareholders" and "Election of Directors" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships and related transactions is incorporated herein by reference to the sections captioned "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" in the Proxy Statement. 48 49 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS Reference is made to Item 8 of Part II hereof. FINANCIAL STATEMENT SCHEDULES Schedules have been omitted because they are inapplicable, not required, or the information is included elsewhere in the Financial Statements or the notes thereto. EXHIBITS Reference is made to the Index to Exhibits accompanying this Form 10-K as filed with the Securities and Exchange Commission. The Company will furnish to any shareholder, upon written request, any exhibit listed in such Index to Exhibits upon payment by such shareholder of the Company's reasonable expenses in furnishing any such exhibit. REPORTS ON FORM 8-K A report on Form 8-K was filed on February 23, 1998 reporting the resignation of Lawrence C. Day as President and Chief Executive Officer and the appointment of Jack M. Gallagher as the interim President and Chief Executive Officer of the Company. 49 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MONRO MUFFLER BRAKE, INC. (Registrant) By /s/ Jack M. Gallagher ------------------------------------- Jack M. Gallagher President and Chief Executive Officer Date: June 29, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of June 29, 1998. Signature Title - - --------- ----- /s/ Catherine D'Amico Senior Vice President-Finance, Chief - - ------------------------ Financial Officer and Treasurer Catherine D'Amico (Principal Financial and Accounting Officer) Burton S. August* Director Charles J. August* Director Robert W. August* Director Frederick M. Danziger* Director Donald Glickman* Director Peter J. Solomon* Director Lionel B. Spiro* Director W. Gary Wood* Director *By /s/ Jack M. Gallagher ---------------------------------- Jack M. Gallagher Chief Executive Officer, Director and as Attorney-in-Fact 50 51 INDEX TO EXHIBITS ----------------- The following is a list of all exhibits filed herewith or incorporated by reference herein: Exhibit No. Page Document - - ----------- ---- -------- 3.01* Restated Certificate of Incorporation of the Company, dated July 23, 1991, with Certificate of Amendment, dated November 1, 1991. (1992 Form 10-K, Exhibit No. 3.01) 3.02* Restated By-Laws of the Company, dated July 23, 1991. (Amendment No. 1, Exhibit No. 3.04) 4.01* Revolving Credit Agreement, dated February 7, 1996, among Monro Muffler Brake, Inc., as borrower, and The Chase Manhattan Bank, N.A. and Fleet Bank as lenders, and The Chase Manhattan Bank, N.A. as agent. (1996 Form 10-K, Exhibit No. 4.01) 4.01a* Amendment One to Credit Agreement among the Chase Manhattan Bank, Fleet Bank, and the Company, dated June 25, 1997. (June 1997 Form 10-Q, Exhibit 10.1) 4.02* Senior Note Agreement, dated March 1, 1989, between the Company and Massachusetts Mutual Life Insurance Company. (Form S-1, Exhibit No. 4.02) 4.02a* Amendment No. 1, dated June 17, 1991, to Senior Note Agreement, between the Company and Massachusetts Mutual Life Insurance Company. (Amendment No. 1, Exhibit No. 4.02a) 4.03* 10.65% Senior Notes Due April 1, 1999, dated March 22, 1989, issued by the Company to Massachusetts Mutual Life Insurance Company. (Form S-1, Exhibit No. 4.03) 10.01* 1984 Employees' Incentive Stock Option Plan, as amended through December 23, 1992. (Form S-8, Exhibit No. 4-1)** 10.02* 1987 Employees' Incentive Stock Option Plan, as amended through December 23, 1992. (Form S-8, Exhibit No. 4-2)** 10.03* 1989 Employees' Incentive Stock Option Plan, as amended through December 23, 1992. (Form S-8, Exhibit No. 4-3)** 10.03a* Amendment, dated as of January 25, 1994, to 1989 Employees' Incentive Stock Option Plan. (1994 Form 10-K, Exhibit No. 10.03a)** 10.03b* Amendment, dated as of May 17, 1995 to the 1989 Employees' Incentive Stock Option Plan (1995 Form 10-K, Exhibit No. 10.03) ** 10.03c* Amendment, dated as of May 14, 1997 to the 1989 Employees' Incentive Stock Option Plan (1997 Form 10-K, Exhibit No. 10.03c)** 10.03d Amendment, dated as of January 29, 1998 to the 1989 Employees' Incentive Stock Option Plan** - - --------------------- 51 52 Exhibit No. Page Document - - ----------- ---- -------- 10.04* Retirement Plan of the Company, as amended and restated effective as of April 1, 1989. (September 1993 Form 10-Q, Exhibit No. 10)** 10.05* Profit Sharing Plan, amended and restated as of April 1, 1993. (1995 Form 10-K, Exhibit No. 10.05) ** 10.08* Mortgage, dated July 31, 1987, between the Company and Central Trust Company, with Mortgage Note, dated July 31, 1987, with respect to Shop No. 82. (Form S-1, Exhibit No. 10.09) 10.08a* Amendment, dated June 17, 1991, to Mortgage with respect to Shop No. 82, between the Company and Central Trust Company. (Amendment No. 1, Exhibit No. 10.09a) 10.12* Mortgage and Security Agreement, dated August 1, 1988, between the Company and Chase Lincoln First Bank, N.A., with Mortgage Note, dated August 9, 1988, and Conditional Assignment of Leases and Rents, dated August 1, 1988, with respect to Shop No. 120. (Form S-1, Exhibit No. 10.13) 10.13* Mortgage and Security Agreement, dated August 1, 1988, between the Company and Chase Lincoln First Bank, N.A., with Mortgage Note, dated August 9, 1988, and Conditional Assignment of Leases and Rents, dated August 1, 1988, with respect to Shop No. 124. (Form S-1, Exhibit No. 10.14) 10.14* Mortgage and Security Agreement, dated August 1, 1988, between the Company and Chase Lincoln First Bank, N.A., with Mortgage Note, dated August 9, 1988, and Conditional Assignment of Leases and Rents, dated August 1, 1988, with respect to Shop No. 125. (Form S-1, Exhibit No. 10.15) 10.16* Modification and Extension Agreement, dated August 12, 1991, between AA & L Associates, L.P. and the Company, with respect to Shop No. 1. (1992 Form 10-K, Exhibit No. 10.18) 10.17* Sublease, dated June 1, 1980, among August, August and Lane Co-venture and the Company, with Amendment of Lease, dated July 11, 1984, and assigned by August, August and Lane Co-venture to AA & L Associates, L.P., effective January 2, 1996 with respect to Shop No. 3. (Form S-1, Exhibit No. 10.19) 10.18* Lease, dated March 8, 1972, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, with respect to Shop No. 7. (Form S-1, Exhibit No. 10.20) 10.18a* Confirmation of Assignment of Lease, dated December 31, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and Stoneridge 7 Realty Partnership, with respect to Shop No. 7. (1992 Form 10-K, Exhibit No. 10.20a) - - --------------------- 52 53 Exhibit No. Page Document - - ----------- ---- -------- 10.19* Lease, effective December 1, 1985, among Chase Lincoln First Bank, N.A. and Burton S. August, as Trustees and the Company, with Assignment of Lease, dated June 7, 1991, among Chase Lincoln First Bank, N.A. and Burton S. August, as Trustees, and August, Eastwood & August, with respect to Shop No. 8. (Form S-1, Exhibit No. 10.21) 10.20* Lease, dated February 10, 1972, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company as amended July 11, 1984 and assigned to Lane, August, August Trust on June 7, 1991, and assigned to Lane, August, August LLC effective January 2, 1996, with respect to Shop No. 9. (Form S-1, Exhibit No. 10.22) 10.21* Lease, dated May 1, 1973, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and 35 Howard Road Joint Venture, with respect to Shop No. 10. (Form S-1, Exhibit No. 10.23) 10.22* Lease, dated May 7, 1973, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and assigned by Mssrs. August, August and Lane to AA & L Associates, L.P., effective January 2, 1996, with respect to Shop No. 12. (Form S-1, Exhibit No. 10.24) 10.23* Lease, dated July 25, 1974, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L. P., with respect to Shop No. 14. (Form S-1, Exhibit No. 10.25) 10.24* Lease, effective April 1, 1975, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and Lane, August, August Trust and assigned by Lane, August, August Trust to Lane, August, August LLC, effective January 2, 1996, with respect to Shop No. 15. (Form S-1, Exhibit No. 10.26) 10.25* Lease, dated as of September 25, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with respect to Shop No. 17. (1992 Form 10-K, Exhibit No. 10.27) 10.26* Lease, effective May 1, 1979, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 23. (Form S-1, Exhibit No. 10.28) - - --------------------- 53 54 Exhibit No. Page Document - - ----------- ---- -------- 10.27* Lease, effective May 1, 1980, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 25. (Form S-1, Exhibit No. 10.29) 10.28* Lease, effective March 1, 1980, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 27. (Form S-1, Exhibit No. 10.30) 10.29* Lease, effective July 1, 1980, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 28. (Form S-1, Exhibit No. 10.31) 10.30* Lease, effective November 1, 1980, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 29. (Form S-1, Exhibit No. 10.32) 10.31* Lease, effective August 1, 1983, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 30. (Form S-1, Exhibit No. 10.33) 10.32 62 Lease, dated March 3, 1997, between August, August and Lane of Rochester, LLC, with respect to Store No. 31. 10.33* Modification and Extension Agreement, dated August 12, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, and assigned by Mssrs. August, August and Lane to August, August and Lane of Rochester, LLC, effective January 2, 1996, with respect to Shop No. 33. (1992 Form 10-K, Exhibit No. 10.35) 10.34* Lease, effective December 1, 1981, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and assigned by Mssrs. August, August and Lane to August, August and Lane of Rochester, LLC, effective January 2, 1996, with respect to Shop No. 34. (Form S-1, Exhibit No. 10.36) - - --------------------- 54 55 Exhibit No. Page Document - - ----------- ---- -------- 10.35* Lease, dated April 10, 1984, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 35. (Form S-1, Exhibit No. 10.37) 10.36* Lease, effective October 1, 1983, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, with respect to Shop No. 36. (Form S-1, Exhibit No. 10.38) 10.36a* Assignment of Lease, dated October 1, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 36. (1992 Form 10-K, Exhibit No. 10.38a) 10.37* Lease, effective July 1, 1983, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 43. (Form S-1, Exhibit No. 10.39) 10.38* Lease, dated as of February 1, 1983, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and assigned by Mssrs. August, August and Lane to AA & L Associates, L.P., effective January 2, 1996, with respect to Shop No. 44. (Form S-1, Exhibit No. 10.40) 10.39* Sublease, dated as of May 1, 1979, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 45. (Form S-1, Exhibit No. 10.41) 10.40* Lease, effective October 1, 1985, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated as of July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Burton S. August, as Trustee, and Lane, August, August Trust, and assigned by Lane, August, August Trust to Lane, August, August LLC, effective January 2, 1996, with respect to Shop No. 48. (Form S-1, Exhibit No. 10.42) 10.41* Lease, dated as of January 1, 1984, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and assigned by Mssrs. August, August and Lane to AA & L Associates, L.P., effective January 2, 1996, with respect to Shop No. 49. (Form S-1, Exhibit No. 10.43) - - --------------------- 55 56 Exhibit No. Page Document - - ----------- ---- -------- 10.42* Lease, dated July 1, 1982, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and assigned by Mssrs. August, August and Lane to AA & L Associates, L.P., effective January 2, 1996, with respect to Shop No. 51. (Form S-1, Exhibit No. 10.44) 10.43* Lease, dated July 1, 1982, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, with respect to Shop No. 52. (Form S-1, Exhibit No. 10.45) 10.44* Lease, dated May 1, 1979, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 53. (Form S-1, Exhibit No. 10.46) 10.45* Lease, dated July 1, 1982, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, with respect to Shop No. 54. (Form S-1, Exhibit No. 10.47) 10.46* Lease, effective September 1, 1983, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 55. (Form S-1, Exhibit No. 10.48) 10.47* Lease, dated as of July 1, 1984, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, and Assignment of Lease, dated June 7, 1991, among Charles J. August, Burton S. August and Sheldon A. Lane and AA & L Associates, L.P., with respect to Shop No. 57. (Form S-1, Exhibit No. 10.49) 10.48* Lease, dated July 1, 1982, among Charles J. August, Burton S. August and Sheldon A. Lane and the Company, with Amendment of Lease, dated July 11, 1984, with respect to Shop No. 58. (Form S-1, Exhibit No. 10.50) 10.49* Modification and Extension Agreement, dated August 12, 1991, between AA & L Associates, L.P. and the Company, with respect to Shop No. 60. (1992 Form 10-K, Exhibit No. 10.51) 10.50* Lease, signed October 22, 1986, between the Company and Conifer Johnstown Associates, with respect to Shop No. 63. (Form S-1, Exhibit No. 10.52) 10.51* Lease, effective October 20, 1986, between the Company and Conifer Wappingers Falls Associates, with respect to Shop No. 79. (Form S-1, Exhibit No. 10.53) - - --------------------- 56 57 Exhibit No. Page Document - - ----------- ---- -------- 10.52* Lease, dated January 25, 1988, between the Company and Conifer Northeast Associates, with Letter Agreement, dated February 3, 1988, amending Lease and Amendment Agreement, dated January 6, 1989, with respect to Shop No. 107. (Form S-1, Exhibit No. 10.54) 10.53* Lease, dated March 16, 1988, between the Company and Conifer Northeast Associates, with Letter Agreement, dated February 3, 1988, amending Lease and Amendment Agreement, dated January 6, 1989, with respect to Shop. No. 109. (Form S-1, Exhibit No. 10.55) 10.54* Lease, dated February 11, 1988, between the Company and Conifer Northeast Associates, with Letter Agreement, dated February 3, 1988, amending Lease and Amendment Agreement, dated January 6, 1989, and Non-disturbance and Attornment Agreement, dated February 11, 1988, between the Company and Central Trust Company, with respect to Shop No. 114. (Form S-1, Exhibit No. 10.56) 10.55* Purchase Agreement, dated December 1, 1987, between the Company and Conifer Northeast Associates, with Lease, dated February 25, 1988, between the Company and Conifer Northeast Associates; Letter Agreement, dated February 3, 1988, amending Lease; Amendment Agreement, dated January 6, 1989; and Non-Disturbance and Attornment Agreement, dated February 25, 1988, between the Company and Central Trust Company, with respect to Shop No. 116. (Form S-1, Exhibit No. 10.57) 10.56* Lease, dated May 12, 1989, between the Company and Conifer Penfield Associates (as successor to Conifer Development, Inc.), with respect to Shop No. 132. (Form S-1, Exhibit No. 10.58) 10.57* Modification and Extension Agreement, dated November 1, 1993, between A & L Associates, L.P. and the Company, with respect to Shop Nos. 1, 23, 25, 27, 28, 29, 35, 53, 57 and 60. (1994 Form 10-K, Exhibit No. 10.57) 10.58* Form of Mortgage and Security Agreement, between the Company and The Chase Manhattan Bank, N.A., with Form of Mortgage Note and Form of Conditional Assignment of Leases and Rents, in connection with each of fifteen mortgages on Shop Nos. 137, 140, 143, 146, 162, 164, 168, 169, 172, 177, 179, 184, 185, 186 and 191 entered into since the filing of the 1992 Form 10-K. (1993 Form 10-K, Exhibit No. 10.57) 10.59* Form of Mortgage and Security Agreement, between the Company and The Chase Manhattan Bank, N.A., with Form of Mortgage Note and Form of Conditional Assignment of Leases and Rents, in connection with each of five mortgages on Shop Nos. 160, 183, 190, 192 and 193 entered into since the filing of the 1993 Form 10-K. (1994 Form 10-K, Exhibit No. 10.59) 10.60* Mortgage Agreement, dated September 28, 1994, between the Company and the the City of Rochester, New York. (1995 Form 10-K, Exhibit No. 10.60) - - --------------------- 57 58 Exhibit No. Page Document - - ----------- ---- -------- 10.61* Lease Agreement, dated October 11, 1994, between the Company and the City of Rochester, New York. (1995 Form 10-K, Exhibit 10.61) 10.62* Mortgage Notes, Collateral Security Mortgage and Security Agreement, Indemnification Agreement and Guarantee, dated September 22, 1995 between Monro Service Corporation, County of Monroe Industrial Development Agency, the Company and The Chase Manhattan Bank, N.A. (September 1995 Form 10-Q, Exhibit No. 10.02) 10.63* Form of Mortgage and Security Agreement, between the Company and The Chase Manhattan Bank, N.A., with Form of Mortgage Note and Form of Conditional Assignment of Leases and Rents, in connection with each of nine mortgages on Store Nos. 205, 207, 210, 213, 216, 226, 229, 230 and 236 entered into September 14, 1995. (September 1995 Form 10-Q, Exhibit No. 10.01) 10.64* Amendment to Lease Agreement, dated September 19, 1995 between the Company and the County of Monroe Industrial Development Agency. (September 1995 Form 10-Q, Exhibit No. 10.00) 10.65 Employment Agreement dated February 18, 1998, between the Company and Jack M. Gallagher.** 10.66* Asset Purchase Agreement by and between Monro Muffler Brake, Inc. as the buyer and Xpress Automotive Group, Inc. as the seller, as entered into July 25, 1995. (September 1995 Form 10-Q, Exhibit No. 10.03) 10.67* Mortgage Modification Agreement, dated October 11, 1996 between the Company and Chase Manhattan Bank, N.A., in connection with each of 33 mortgages for Store Nos. 78, 86, 87, 90, 137, 140, 143, 146, 160, 162, 164, 168, 169, 172, 177, 179, 183, 184, 185, 186, 190, 191, 192, 193, 205, 207, 210, 213, 216, 226, 229, 230 and 236. (September 1996 Form 10-Q, Exhibit No. 10) 10.68* Purchase Agreement between Walker Manufacturing Company, a division of Tenneco Automotive and Monro Muffler Brake, Inc. dated as of November 5, 1996. (December 1996 Form 10-Q, Exhibit 10.1) 10.69* Asset Purchase Agreement by and among Speedy Muffler King Inc., Bloor Automotive Inc., Speedy Car-X Inc., Speedy (U.S.A) Inc., Speedy Holding Corp. and Monro Muffler Brake Inc., dated as of April 13, 1998 (April 1998 Form 8-K, Exhibit 10.1) 10.70 Form of Agreement - "Purchase Agreement and Escrow Instructions" between Realty Income Corporation - buyer and Monro Muffler Brake, Inc. - seller dated November 12, 1997. 11.01 Computation of Per Share Earnings. 21.01 Subsidiaries of the Company. 23.01 Consent of Price Waterhouse. 24.01 Powers of Attorney. - - --------------------- 58 59 ** Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) hereof. * An asterisk "*" following an exhibit number indicates that the exhibit is incorporated herein by reference to an exhibit to one of the following documents: (1) the Company's Registration Statement on Form S-1 (Registration No. 33-41290), filed with the Securities and Exchange Commission on June 19, 1991 ("Form S-1"); (2) Amendment No. 1 thereto, filed July 22, 1991 ("Amendment No. 1"); (3) the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1992 ("1992 Form 10-K"); the Company's Registration Statement on Form S-8, filed with the Securities and Exchange Commission on December 24, 1992 ("Form S-8"); (5) the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993 ("1993 Form 10-K"); (6) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1993 ("September 1993 Form 10-Q"); (7) the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 ("1994 Form 10-K"); (8) the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995 ("1995 Form 10-K"); (9) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995 ("September 1995 Form 10-Q"); (10) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996 ("September 1996 Form 10-Q"); (11) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 1996 ("the December 1996 Form 10-Q"); (12) the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 ("1996 Form 10-K"); (13) the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997 ("1997 Form 10-K"); (14) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997 ("June 1997 Form 10-Q); or (15) the Company's Current Report on Form 8-K filed on April 28, 1998 ("April 1998 Form 8-K"). The appropriate document and exhibit number are indicated in parentheses. 59 EX-10.03.D 2 EXHIBIT 10.03D 1 EXHIBIT 10.03d AMENDMENT TO 1989 MONRO MUFFLER BRAKE EMPLOYEES' INCENTIVE STOCK OPTION PLAN THIS AMENDMENT, dated as of January 29, 1998 (the "Amendment") to the 1989 MONRO MUFFLER BRAKE EMPLOYEES' INCENTIVE STOCK OPTION PLAN, as previously amended (the "Plan"). WHEREAS, the Board of Directors of Monro Muffler Brake, Inc. (the "Company"), desires to clarify the discretionary abilities of the Board of Directors of the Company with respect to the terms of options granted under the Plan; and WHEREAS, Section 7 of the Plan grants the Board of Directors of the Company the authority to amend the Plan within the restrictions set forth in such Section 7; NOW, THEREFORE, the Plan is hereby amended as follows. 1. By adding "the Board of Directors may, in its sole discretion, approve the issuance of Options which, although not otherwise exercisable as of such date, become immediately exercisable in the event that the optionee ceases to be an employee of the Company or any of its subsidiaries or an employee of a corporation or a parent or a subsidiary of such corporation issuing or assuming an Option granted under the Plan in a transaction to which Section 424(a) of the Code applies; provided, further, that" to Section 4(f) of the Plan in the eleventh line after the phrase "provided, however, that." 2. By adding "The right to exercise Options which are not otherwise exercisable in the event of the cessation of optionee's employment pursuant to this Section 4(f) must be specifically granted by the Board of Directors in the letter or instrument granting such Option." to the end of Section 4(f). 3. By adding the following as new Section 4(h): (h) CHANGE OF CONTROL. The Board of Directors may, in its sole discretion, approve the issuance of options which, although not otherwise exercisable as of the date of a Change of Control (as defined below), become exercisable immediately prior to the date of such Change of Control. Any such terms referred to in this Section 4(h) shall be specifically stated in the letter or instrument granting Options hereunder. For purposes of the Plan, "Change of Control" means that any of the following events have occurred: (i) any person who is not an "affiliate" (as defined in Rule 12b-2 under the Exchange Act of 1934, as amended) of the Company as of the effective date of the Option grant becomes the beneficial owner, directly or indirectly, of 50% or more of the combined voting power of the then outstanding securities of the Company except pursuant to a public offering of securities of the Company; 1a 2 (ii) the sale of the Company substantially as an entirety (whether by sale of stock, sale of assets, merger, consolidation, or otherwise) to a person who is not an affiliate of the Company as of the effective date of the Option grant; (iii) any tender offer or exchange offer for shares of common stock of the Company by a person who is not an affiliate of the Company as of the effective date of the Option grant; or (iv) there occurs a merger, consolidation or other reorganization of the Company with a person who is not an affiliate of the Company as of the effective date of the Option grant, and in which the Company is not the surviving entity. 4. By moving Section 4(h) entitled "POWER TO ESTABLISH OTHER PROVISIONS" to a new Section 4(i) with no other changes to such new Section 4(i). 2b EX-10.32 3 EXHIBIT 10.32 1 EXHIBIT 10.32 LEASE THIS LEASE is made as of the 3rd day of March, 1997 between August, August, and Lane of Rochester, LLC. with an address of c/o Monro Muffler Brake, Inc., 200 Holleder Parkway, Rochester, New York 14615, ("Landlord") and Monro Muffler Brake, Inc., a New York Corporation with its office at 200 Holleder Parkway, Rochester, New York 14615 ("Tenant"). WITNESSETH: In consideration of the terms, covenants and conditions contained in this Lease, Landlord and Tenant agree as follows: 1. PREMISES Subject to the terms and conditions contained in this Lease, Landlord leases to Tenant and Tenant takes from Landlord a parcel of land and building known as 1268 Front Street, Chenango (Binghamton), New York as shown and described on Exhibits "A" (Map) and "B" (metes and bounds description) to be provided by Landlord prior to the full execution of this Lease and attached hereto and made a part of this Lease (the "Leased Premises"). 2. TERM and RENT COMMENCEMENT A. The term of this Lease shall be for ten (10) years and shall commence on the first day of the first full month following the Rent Commencement Date as defined below. B. The obligation to pay rent shall commence upon the expiration of the 1 2 existing Lease of the Leased Premises by and between Landlord and Tenant presently in force ("Rent Commencement Date"). 3. USE Tenant shall use the Leased Premises for the operation of an auto service center and, with Landlord's approval, which approval shall not be unreasonably withheld or delayed, for any other lawful purpose, except Tenant shall not use the Leased Premises for the display or sale of adult entertainment services or products nor as a drinking establishment, nor for the display or sale of tobacco products or alcohol products. Additionally, Tenant shall not use the Leased Premises for any other purpose that would tend to devaluate the Property, impair Landlord's reputation or the reputation of the Leased Premises. Landlord's approval shall not be unreasonably withheld or delayed. 4. RENT Tenant shall pay to Landlord, at the address above set forth or at such other place as Landlord may from time to time designate by notice given to Tenant in the manner provided in this Lease, annual rent as follows: YEARS ANNUAL RENT 1 - 2.5 $37,800.00 2.5 - 5 $39,690.00 6 - 7.5 $41,580.00 7.5 - 10 $43,470.00 OPTION YEARS ANNUAL RENT 11 - 12.5 $45,360.00 12.5 - 15 $47,250.00 16 - 17.5 $49,140.00 17.5 - 20 $51,030.00 2 3 Rent shall be paid in equal monthly payments in advance on the first day of each month during the term of this Lease. If the Rent Commencement Date, is other than the first day of a calendar month, the rent installment for the month in which the Rent Commencement Date occurs, shall be prorated from the Rent Commencement Date until the last day of that month and shall be payable on or before the Rent Commencement Date. In the event the Rent due hereunder is received after the tenth of the month in which it is due, Tenant shall incur a late charge equivalent to two percent (2%) of said amount due. Any outstanding balance due after thirty (30) days will bear interest of prime plus two (2) percent. If Rent is uncontested and remains unpaid on the tenth (10th) day following Tenant's receipt of Landlord's second notice (which may not be sent until the sixtieth (60th) day following Tenant's receipt of Landlord's first notice), Landlord may terminate this lease upon written notice to Tenant. 5. ADDITIONAL RENT A. Impositions. Tenant shall pay as additional rent all taxes, assessments, sewer charges, assessments for local, district and special district improvements that may be assessed against or become a lien upon the Leased Premises or any part thereof by virtue of any present or future law or regulation of any governmental authority ("Impositions"). Tenant shall forward to Landlord evidence of payment of all such taxes, 3 4 assessments and other charges. Upon receipt of such evidence of payment, Landlord shall reimburse Tenant for the proportionate share of taxes and other charges levied against additional leasable space which will be twenty-five percent (25%) unless further development by either party. Tenant shall also pay all utility charges for water, gas, fuel oil and electricity consumed on the Leased Premises. This Lease is a net Lease except that Tenant shall not be obligated to make any payments on any mortgages now or hereafter encumbering the Leased Premises, nor shall Tenant be obligated to pay any franchise, corporation, capital stock, capital levies, transfer, estate, excise, inheritance or income tax or excess profits tax which is or may become payable by Landlord or which may be imposed against Landlord or against the rents payable hereunder or upon the income or profits of Landlord by reason of any law now in force or hereafter enacted, unless such taxes are a result of a shift of the incidence of taxation now ordinarily imposed on realty. B. Penalties. Tenant shall pay all interest and penalties imposed upon the late payment of any Impositions caused by Tenant's late payment of same. Impositions shall be apportioned and paid between Tenant and Landlord on the dates of commencement and termination of this Lease; provided, however, that Tenant shall not be entitled to receive any apportionment from Landlord if Tenant shall be in default beyond the applicable cure period in the payment of rent or in the performance of any of the terms, covenants, conditions or agreements in this Lease provided. C. Late Payment. If Tenant shall fail, for ten (10) days after written notice 4 5 and demand by Landlord to Tenant to pay any Imposition on or before the last day upon which the same may be paid without interest or penalty, then Landlord may pay the same with all interest and penalties lawfully imposed upon the late payment thereof, and the amounts so paid by Landlord shall thereupon be and become immediately due and payable by Tenant to Landlord as additional rent. Any Imposition that remains unpaid after the aforementioned ten (10) day notice period shall be subject to a Late Penalty of two percent (2%) on the unpaid arrears. If Imposition remains unpaid after twenty (20) days, additional Late Charge of prime plus two (2%) percent shall be incurred by Tenant. D. Contest. Tenant, at its own cost and expense, shall have the right to contest the validity or amount of any Imposition, in which event Tenant may defer the payment thereof for such period as such contest shall be actively prosecuted and shall be pending undetermined; provided, however, that Tenant shall not allow any such Imposition so contested to remain unpaid for such length of time as shall permit the Leased Premises, or the lien thereon created by such item to be contested, to be sold by federal, state, county or municipal authority for the nonpayment thereof. Tenant may contest the validity or amount of such Imposition in Landlord's name, by suit or otherwise, in which event Tenant shall indemnify Landlord and save him harmless from all costs, charges and liabilities in connection with such contest. E. Assessments. With respect to assessments which may be payable in installments, Tenant shall be required to pay only those installments for those periods 5 6 which fall wholly within the term of this Lease and a proportionate part of any installments with respect to a period a portion of which falls within the term of this Lease. 6. MAINTENANCE AND REPAIR Tenant assumes the sole responsibility for the operation and maintenance of the Leased Premises. Landlord shall have no responsibility with respect thereof and shall have no liability for damage to the property of Tenant or any tenant, subtenant or other occupant of the Leased Premises or any portion thereof on any account or for any reason whatsoever except as caused by the negligent acts or omissions of the Landlord, its agents, employees or invitees. Notwithstanding anything to the contrary stated in this Lease, Tenant shall take good care of the Leased Premises and at its own expense make, as and when needed, all necessary repairs of any nature to the Leased Premises, including all mechanical systems located therein, windows, doors, the interior, all paving, and all structural and non-structural components of the Leased Premises. All repairs made by Tenant shall be done in a good and workmanlike manner. If Tenant shall fail to make such repairs or if after commencing them shall fail to complete them with reasonable diligence, then after written notice and opportunity to cure or dispute the need for such repairs, such repairs may be made or completed by Landlord in a good and workmanlike manner at Tenant's expense. Any reasonable amounts spent by Landlord to make or complete such repairs shall be repaid by Tenant as additional rent and shall be payable to Landlord on the first 6 7 day of the month following Tenant's receipt of a statement from Landlord for such amounts expended. A. Tenant shall keep its parking area free of debris, ice and snow and shall be responsible for routine repairs and maintenance of its parking lot surface including patching and sealing thereof and for the light bulbs for the exterior lighting fixtures on the parking area. B. Landlord shall be responsible for the cost of maintenance, repair and replacement of any separate part of the building over other tenant space on any new construction undertaken by Landlord: Tenant shall have no right to create any lien against the property and Tenant hereby completely and fully indemnifies Landlord against any Mechanics Lien or other lien or claim in connection with the making of such Tenant's repair. Landlord must satisfy and cause to be discharged within thirty (30) days of notification any liens brought upon the property as a result of Landlord's work. 7. ALTERATIONS While Tenant is not in default under any provision of this Lease, it may at any time and from time to time, make any alterations or additions to the Building or equipment upon the Leased Premises, provided that: A. such alterations or additions are made in a good and workmanlike manner and comply in every way with all other provisions of this Lease; B. such alterations or additions shall not reduce the rental income of the Leased Premises; and 7 8 C. the fair value of the Building or equipment after such change shall not be less than the fair value thereof prior to such change; and D. Any such alterations or additions shall be done only with Landlord's prior written approval (excepting equipment), which approval shall not be unreasonably withheld or delayed. If approved, a depreciation schedule of approved work will be provided to Landlord. Any and all alterations or additions made to the Leased Premises by Tenant, as well as any fixtures or articles or personal property (except movable trade fixtures and other property installed at the expense of Tenant listed on said Exhibit "C", all of which may be removed by Tenant) attached to the Building shall be deemed attached to the fee and become the property of Landlord without any payment or offset and shall not be detached or removed from the Leased Premises. 8. EMINENT DOMAIN If, during the initial term or any option term of this Lease, condemnation proceedings affecting the Leased Premises result in the total taking of the Leased Premises, or if as a result of a partial taking the Leased Premises shall be unsuitable for the conduct of Tenant's business, this Lease shall terminate, and Tenant shall be entitled to receive and shall receive that portion of the award or payment in condemnation which represents the unamortized value of its alterations and improvements, if any, value of its personal property and fixtures so taken, and the value of any capital improvement made 8 9 by Tenant after the date of this Lease. Landlord shall be entitled to receive the balance of the award or payment. The rent shall be adjusted as of the time of such termination, and any rent paid for a period thereafter shall be adjusted. If such condemnation proceedings result in a partial taking which does not render the Leased Premises unsuitable for Tenant's business, Tenant shall receive that portion of the award or payment that represents the value of its personal property and fixtures so taken and the value of any capital improvements made by Tenant after the date of this Lease and the rent payable hereunder shall be diminished by an amount which shall bear the same ratio to the rent as the area of the part of the Leased Premises taken bears to the area of the Leased Premises before such taking. Tenant shall apply such award to the prompt restoration of the Leased Premises. Any additional design or building cost as a result of Landlord changing design will be the full responsibility of Landlord. The Landlord shall receive the value of the reverter interest in the land taken. 9. INSURANCE and DESTRUCTION A. Tenant shall keep the Leased Premises and all attached building and improvements thereon insured throughout the term of this Lease against the following loss or damage by fire and such other risks as may be included in extended coverage insurance from time to time available in amounts sufficient to prevent the Landlord or the Tenant from becoming a coinsurer within the terms of the applicable policies, and in any event, in an amount not less than one hundred percent (100%) of replacement value. 9 10 Tenant shall submit to Landlord invoices providing evidence of payment of such premium(s). Landlord shall reimburse Tenant the proportionate share of the insurance premium for coverage of additional leasable space located on the Leased Premises. All policies of insurance required to be maintained by Tenant shall name Landlord, Tenant, and Landlord's Mortgagee as the insured as their interests may appear. Landlord shall obtain any necessary consent from any mortgagee to apply the proceeds of any claim to the repair or restoration of the Building and not to the payment of the mortgage debt. B. If the Building or other improvement upon the Leased Premises shall be damaged or destroyed by fire or other casualty, then Tenant shall proceed with reasonable diligence to carry out any necessary demolition and to restore, repair, replace and rebuild the Building and improvements at Tenant's own cost and expense; provided, however, that all insurance proceeds, if any, paid by reason of such fire or other casualty shall be paid to Tenant for application to the cost of such work. C. In the event any such fire or casualty renders the Leased Premises partially or totally untenantable, Tenant shall not he entitled to an abatement of Rents except in the event that such fire or other casualty is both a result of the acts or negligence or omissions of any other tenant located on the Leased Premises and Tenant shall be unable to conduct business in materially the same manner it did prior to casualty. In the event that the area surrounding the Leased Premises is damaged by fire or casualty, but the Leased Premises itself remains undamaged, Tenant will continue to pay rent without any 10 11 abatement provided Tenant's ability to conduct business or its customer's access to the Leased Premises is not materially affected. 10. DEFAULT This Lease is made upon the express condition that if Tenant shall default in the payment of the rent reserved in this Lease, or fails or neglects to perform any of Tenant's other obligations under this Lease; then Landlord at any time thereafter, shall give twenty (20) days written notice to Tenant to cure said default. In the event that Tenant does not cure the default within the twenty (20) days aforesaid, then Landlord shall give Tenant an additional written notice and an additional ten (10) days to cure the default or such reasonable time for Tenant to cure any such non-monetary default which may require more than ten (10) days to cure. After the notices and the continued failure of Tenant to cure or to have commenced and diligently pursued such cure, then the Landlord may, upon notice as required by New York State law, commence legal action to end this Lease Agreement and/or retake possession of the Leased Premises. Landlord may, after obtaining a final judgment in such legal action, either terminate this Lease, or, without terminating this Lease, retake possession, re-let the Leased Premises or any part thereof for such term or terms (which maybe for a term extending beyond the term of this Lease) and at such rent and upon such other terms and conditions which are the most favorable terms obtaining. Upon each such reletting Tenant shall be immediately liable to pay to Landlord, the necessary and reasonable costs and expenses of such reletting incurred by Landlord, including but not limited to reasonable applicable 11 12 brokerage commissions (non which shall be paid to Landlord). Tenant shall remain liable for repayment monthly as it accrues, of any deficiency if any, between the rent due under this Lease and the amount to be paid under the new lease. Landlord shall not be entitled to an acceleration of rent nor to any self-help remedies notwithstanding any law to the contrary. Landlord shall, at all times, have the obligation to mitigate its damages. 11. TENANT'S RIGHT TO CURE LANDLORD'S DEFAULT If Landlord shall at any time fail to pay any installment of principal or interest, or any other sum under any mortgage now or hereafter placed on the Leased Premises to which this Lease may be subordinate, the failure to make such payment constituting a default under such mortgage so as to permit foreclosure thereof, Tenant, if not in default hereunder, shall have the right, but not before the last ten (10) days of the period at the expiration of which the failure to make such payment would constitute such default, to pay such principal, interest and other sum, with respect to which Landlord may be in default as aforesaid, and to deduct the amount of such payment and the cost and expense attaching or incurred on account of such non-payment by Landlord, with interest thereon from the date of payment, from the next succeeding installment or installments of rent which shall become due and payable after such payment until Tenant shall have been fully reimbursed for such payment, cost, expense and interest as aforesaid. Landlord shall cause any mortgagee of the Leased Premises to send copies of any default notice under Landlord's mortgage to Tenant. 12 13 12. INDEMNIFICATION Tenant shall indemnify and hold Landlord harmless from and against any loss or damage due to personal injury, death or property damage occurring on the Leased Premises during the term of this Lease, unless such loss or damage shall have been caused by the acts, omissions or negligence of Landlord, its employees, agents, invitees or other tenants. To that end, Tenant shall maintain at its sole expense policies of public liability insurance relating to the Leased Premises with combined single limits of not less than $1,000,000 for personal injury or death and for property damage. Such policies shall name Landlord as an additional insured and shall provide for ten (10) days' notice to Landlord prior to any cancellation of such policies. If Tenant shall fail to pay the premiums for such policies as they come due, Landlord may pay such premiums and charge the cost thereof to Tenant as additional rent, which shall be paid to Landlord on the next rent day. Tenant shall furnish to Landlord certificates evidencing such policies concerning the Leased Premises. All insurance policies required by this paragraph shall be placed with companies qualified to do business within the State of New York. 13.SIGNS Tenant may install and maintain on the exterior and within the interior of the Building or elsewhere on the Leased Premises signs, advertising its business. Tenant shall obtain at its expense all permits and any other approvals from municipal or other authorities for the erection and maintenance of such signs. 13 14 14. ASSIGNMENT AND SUBLEASE Landlord hereby gives consent to Tenant to assign this Lease or any interest therein, or to sublease the Leased Premises or any part thereof, provided the assignee/sublessee is subject to the same Use provision as specified in section 3 hereof, but Tenant shall in no such event be released of its duties, obligations or liabilities hereunder and the same shall continue in full force and effect. 15. RENEWAL OPTIONS Tenant shall have one (1) successive option to renew this Lease upon expiration of the initial term hereof, provided that this Lease shall be in full force and effect immediately prior to said expiration. This Lease shall automatically renew unless Tenant shall give to Landlord no less than six (6) months before the expiration of the initial term or each additional term, written notice of its intention not to exercise each option. Said renewal term shall be for a period of ten (10) years under the same terms and conditions as under the initial term except for the rent as set forth in Paragraph 4. 16. SURRENDER OF LEASED PREMISES Tenant shall surrender the Leased Premises on the last day of the term hereof or any additional term or under any other provision for termination under this Lease; provided, however, if Tenant shall not then be in default under the terms of this Lease, any furniture, trade fixtures, business equipment, carpeting, interior and exterior signs, millwork, counters and cabinets and any items listed on Exhibit "C" may be removed by Tenant. Upon the removal of any such items, Tenant shall cause the Building and 14 15 Leased Premises to be restored to the condition prior to such removal subject to use, reasonable wear and tear during the term of this Lease. Roof to be turned over to Landlord in a water tight condition prior to termination. 17. RIGHT TO SHOW LEASED PREMISES Provided Tenant has given its notice not to renew, Landlord shall have the right to show the Leased Premises to prospective tenants or buyers during the later of the last six (6) months of this Lease term or renewal thereof. Landlord shall give reasonable notice to Tenant before showing the Leased Premises. 18. GOVERNMENTAL COMPLIANCE Tenant and Landlord shall comply with all laws, orders and regulations of federal, state, county and municipal authorities, and with any direction of any public officer and officers, pursuant to law, or any insurance company carrying any insurance on the Leased Premises, which shall impose any duty upon Landlord or Tenant with respect to the Leased Premises or the ownership use or occupation thereof. 19. SUBORDINATION Subject to the further provisions of this paragraph, Tenant agrees that this Lease (and any option renewals thereof) is subordinate to the existing mortgages, if any, or any and all mortgages, consolidated mortgages, or renewals, modifications and extensions thereof, or to any other forms or methods of financing of the Leased Premises, which are hereafter executed, delivered and recorded. Tenant shall, upon 15 16 demand at any time, execute, acknowledge and deliver any and all instruments that may be necessary or proper to further evidence this subordination. Landlord shall procure and deliver to Tenant an agreement in writing, duly executed by any future mortgagee, which agreement shall provide that, for so long as Tenant is not in default in its performance of the terms, conditions and provisions of this Lease, Tenant's rights hereunder shall not be disturbed by an action or suit on the debt or debts secured by such mortgages, deeds of trust or other forms or methods of financing or refinancing, and that any sale at foreclosure will be subject to this Lease. Tenant's agreement to subordinate its rights under this Lease is conditioned upon Landlord obtaining a non-disturbance agreement in the form attached hereto as Exhibit D. Landlord acknowledges that there is an existing lien against the Leased Premises. Landlord shall be obligated to obtain an agreement as aforementioned herein from the existing lien holder only in the event said lien is modified, extended or spread after the date of this Lease. Notwithstanding anything to the contrary a Non-Disturbance Agreement must be in place on June 1, 1998 if a mortgage is still in place. 20. RIGHT TO INSPECT Landlord shall have the right to inspect the Leased Premises during operating hours upon reasonable notice to Tenant. 16 17 21. MEMORANDUM OF LEASE The parties shall at any time, at the request of either one, promptly execute duplicate originals of an instrument, in recordable form, which shall constitute a memorandum of lease, setting forth any portions of this Lease, excepting the rent provisions, as either party may request. 22. HEADINGS The headings are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope or intent of this Lease, nor in any way affect this Lease. 23. BILL AND NOTICES All notices required or permitted pursuant to any provisions of this Contract shall be in writing, sent certified mail or overnight courier, and shall be effective upon receipt if sent certified mail or the second business day following delivery to an overnight courier. Copies shall be sent to each party herein and to the attorney for the other party as follows: If to Landlord: A.A.L. of Rochester, L.L.C. c/o Monro Muffler Brake, Inc. 200 Holleder Parkway Rochester, New York 14615 Copy to: Underberg & Kessler 1600 Chase Square Rochester, New York 14604 Attention: Irving Kessler, Esq. 17 18 If to Tenant: Monro Muffler Brake, Inc. 200 Holleder Parkway Rochester, New York 14615 ATTN: President Copy to: Underberg & Kessler 1800 Chase Square Rochester, New York 14604 Attention: Sr. Real Estate Partner Either party may designate by notice a new or other address to which notice or demand shall be thereafter so given. 24. CONDITIONS This Lease is conditioned upon Tenant conducting subsurface, ground-penetrating tests on the Leased Premises. The costs of said tests shall be split between Landlord and Tenant. If the results of said tests indicate the presence of any underground entity, Landlord or Tenant shall have the right to terminate this Lease with written notice to the other. 25. LANDLORD'S WARRANTIES Landlord warrants and agrees that: A. Any future construction by Landlord or its successors shall be in line with the Building and not closer to the fronting road than the present location of the Building on the Leased Premises. B. During the term of this Lease or any extension thereof Landlord shall not operate or allow to be operated any business other than Monro Muffler Brake, Inc. 18 19 which directly or indirectly engages in the automotive service business on any site owned by or under the control of Landlord within a radius of two (2) miles from the Leased Premises providing Tenant shall not be in default under this Lease. In addition, Tenant shall not be permitted to operate another Monro Muffler Brake, Inc. shop within a radius of two (2) miles from the Leased Premises prior to the final year of this lease or exercised options. C. During the term of this Lease or any extension thereof Landlord shall not operate or allow to be operated any business relating to sale or display of pornographic materials, alcohol and any other use that would damage the reputation of Monro Muffler Brake, Inc. 26. ENVIRONMENTAL REPRESENTATIONS A. REPRESENTATIONS AND WARRANTIES. Landlord and Tenant will comply with any and all federal, state and local rules, laws, statutes, ordinances and orders regulating the Environment which affect the ownership, use and occupation of the Leased Premises. Furthermore, Tenant agrees that no Hazardous Substance shall be stored and/or used on the Leased Premises except in strict compliance with such laws. "Environment" means all air, water, or water vapor, including surface water and groundwater, any land, including land surface or subsurface, and includes all fish, wildlife, biota and all other natural resources. "Hazardous Substance" means any materials or substances defined as or included in the definition of "Hazardous Substances", "Hazardous Materials", "Hazardous Wastes", "Toxic 19 20 Substances", or "Toxic Pollutants" under any applicable law regulating the Environment, including any substance which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or which contains polychlorinated biphenyls (PCBs), gasoline, diesel fuel, other petroleum hydrocarbons, or asbestos. Tenant indemnifies and holds Landlord harmless from and against any and all claims, demands, judgments, awards, actions, penalties and fines arising from the existence of Hazardous Substances which result from the acts or omissions of Tenant during the term of this Lease or the previous Lease by and between Landlord and Tenant on the Leased Premises. Landlord indemnifies and holds Tenant harmless from and against any and all claims, demands, judgments, awards, actions, penalties and fines arising from existence of Hazardous Substances on or below the surface of the Leased Premises which existence pre-dates Tenant's occupancy of the Leased Premises. 27. QUIET ENJOYMENT Landlord covenants and agrees with Tenant that, upon Tenant paying the annual rent and performing all of the covenants and conditions contained in this Lease on Tenant's part to be observed and performed, Tenant shall and may peaceably and quietly have, hold and enjoy the Leased Premises for the term of this Lease. 2O 21 28. ENTIRE AGREEMENT It is understood and agreed by the parties hereto that this Lease shall constitute the only agreement between them relative to the Leased Premises, and that no oral statement or no prior written matter extrinsic to this instrument shall have any force or effect. This Lease shall not be modified except by writing, subscribed by both parties. 29. FORCE MAJEURE In the event either Landlord or Tenant shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of fire, casualty, strikes, lockouts, labor trouble, inability to procure materials, permits or supplies, failure of power, governmental authority, riots, insurrections, war or other reason of like nature, where such delay, hindrance or prevention of performance shall not be within the reasonable control of the Landlord or the Tenant, and shall not be avoidable by diligence, then, the Landlord or the Tenant shall thereupon be excused for such period of delay. 30. BROKER'S COMMISSION The parties hereto agree that no broker brought about this lease. Landlord indemnifies and holds Tenant harmless from any costs or claims for broker's commissions arising hereunder. 21 22 31. PARTIES The conditions, covenants and agreement in this Lease shall be binding and inure to the benefit of the respective parties to this Lease, their legal representatives, successors and assigns. 32. EXECUTION If not executed by Landlord on or before March 3. 1997, then Tenant shall have the right to cancel this Lease by giving written notice to Landlord. 22 23 IN WITNESS WHEREOF, the parties hereto have set their hands and seals this 3rd day of March, 1997. LANDLORD: /s/ CHARLES J. AUGUST ------------------------------------ Charles J. August /s/ BURTON S. AUGUST ------------------------------------ Burton S. August STATE OF NEW YORK) COUNTY OF MONROE) ss: On this 3rd day of March, 1997, before me the subscriber, personally appeared Charles J. August to me personally known and to me to be the same person described in and who executed the foregoing instrument, and duly acknowledged to me that he executed the same. /s/ VALORIE J. SHORT ------------------------------------ Notary Public STATE OF NEW YORK) COUNTY OF MONROE) ss: On this 3rd day of March, 1997, before me the subscriber, personally appeared Burton S. August to me personally known and to me to be the same person described in and who executed the foregoing instrument, and duly acknowledged to me that he executed the same. /s/ VALORIE J. SHORT ------------------------------------ Notary Public 23 24 LANDLORD (Continued) /s/ BARBARA S. LANE ------------------------------------ Estate of Sheldon A. Lane STATE OF __________________) COUNTY OF __________) ss: On this __rd day of __________, 199_, before me the subscriber, personally appeared _________________________, on behalf of the Estate of Sheldon A. Lane to me personally known and to me to be the same person described in and who executed the foregoing instrument, and duly acknowledged to me that he executed the same. ------------------------------------ Notary Public TENANT STATE OF NEW YORK) COUNTY OF MONROE) ss: On this 3rd day of March, 1997, before me personally came LARRY DAY to me known, who being by me duly sworn did depose and say that he resides in Victor, New York, that he is the President of Monro Muffler Brake, Inc., the corporation described in and which executed the foregoing Instrument; and that he signed his name thereto by order of the board of directors of said corporation. /s/ VALORIE J. SHORT ------------------------------------ Notary Public 24 EX-10.65 4 EXHIBIT 10.65 1 EXHIBIT 10.65 EXECUTION COPY -------------- EMPLOYMENT AGREEMENT AGREEMENT made by and between MONRO MUFFLER BRAKE, INC., 200 Holleder Parkway, Rochester, New York 14615 (the "Company") and Jack M. Gallagher, residing at 30 Reedy Court, Manning, South Carolina 29102 ("Employee"). 1. EMPLOYMENT. The Company hereby employs Employee and Employee hereby accepts employment with the Company during the Term (as hereinafter defined) upon the terms and conditions hereinafter set forth. During the Interim Term (as hereinafter defined). Employee shall serve as the President and Chief Executive Officer of the Company responsible for the overall business and strategic planning, management and operations of the Company. Employee shall perform the customary duties of such positions and such other commensurate duties as may be assigned from time to time by the Company's Board of Directors, which duties shall be performed at the Company's headquarters, subject to reasonable travel requirements. During the Consulting Term (as hereinafter defined), Employee shall provide consulting services to the Company, as may be reasonably requested by its Board of Directors, Chairman, President or Chief Executive Officer. Such services shall not require more than two business day's work per month without Employee's consent and may be performed from Employee's home or, subject to the reimbursement of reasonable travel expenses and on reasonable notice, at such other location as the Company may request. Employee agrees to abide by the reasonable rules, regulations, instructions, personnel practices, employment manuals and policies of the Company, as they may exist or be modified from time to time by the Company. Employee during the Interim Term shall devote his 1 2 entire business time and attention and best efforts to the business of the Company. Employee shall perform his duties in a diligent, effective and loyal manner. Under no circumstances shall Employee take any action contrary to the best interests of the Company. 2. COMPENSATION. Employee shall be compensated by the Company for all services to be rendered pursuant to this Agreement as follows: (a) The Company shall pay Employee a salary (the "Initial Salary") at the rate of $35,000 per month during the Interim Term, and $2,000 per month during the Consulting Term (the "Consulting Salary"), in each case payable in accordance with the normal payroll practices of the Company applicable to its executive officers. (b) The Company also is granting Employee 90,000 stock options of the Company under the 1989 Employee's Stock Option Plan, as amended, in accordance with the form of grant letter attached hereto as Exhibit A. 3. BENEFITS. Employee shall also be entitled to receive the following benefits during the Interim Term: (a) Paid holidays as customarily provided to the Company's other comparable employees. (b) Life insurance as was heretofore provided to Employee under the Employment Agreement between Employee and Company, dated February 18, 1995 (the "Prior Agreement"). (c) Medical and dental insurance coverage as provided by the Company to its executive employees generally. (d) The automobile currently used by Employee in rendering services to the Company pursuant to the Prior Agreement shall be transferred to Employee, and while in 2 3 Rochester, New York an additional automobile shall be available for his use together with reimbursement for all gas, maintenance, insurance and repairs required by reason of his use of such vehicle. (e) Coverage in accordance with their terms of any pension, profit-sharing or retirement plans now existing or hereafter established by the Company and made generally available for executive employees. (f) Reimbursement for all reasonable expenses incurred by Employee during the Interim Term for advancing the Company's business in accordance with Company policies upon Employee's presentation, from time to time, of an itemized account and evidence and explanation reasonably satisfactory to the Company of such expenses including, without limitation, (i) reimbursement of travel expenses between Employee's home and the Company's headquarters and (ii) reimbursement for the cost of maintaining an apartment convenient to the Company's headquarters. (g) Such other benefits as the Company may, from time to time, provide generally to its other executive level officers. 4. TERM. The term of the Agreement (the "Term") shall commence on the date hereof and continue until the fifth anniversary of the date hereof. The period of Employee's full-time services hereunder (the "Interim Term") shall commence on the date hereof and continue until terminated by the Company; PROVIDED, HOWEVER, that (i) if the Interim Term is terminated by the Company within the first three months of Employee's employment hereunder, Employee shall be entitled to his Interim Salary through the end of such three month period payable in accordance with normal payroll practices of the Company and any unvested options granted to Employee pursuant to Section 2(b) shall fully vest; and (ii) the Company may not 3 4 extend the Interim Term beyond six months from the date hereof without the consent of Employee. The balance of the Term following the Interim Term is the Consulting Term (the "Consulting Term"). 5. (a) NON-DISCLOSURE. Employee will not, during the period of Employee's employment with the Company or at any time thereafter, regardless of the reason for the cessation of Employee's employment: (i) use any Confidential Information for Employee's own benefit or for the benefit of any person or entity other than the Company; (ii) disclose to any person or entity any Confidential Information; or (iii) remove from the Company's premises or make copies of any Confidential Information, in any form; except, in each case, as may be required within the scope of Employee's duties during Employee's employment by the Company. Upon termination of Employee's employment, or at any such time as the Company may request, Employee will deliver to the Company all copies in Employee's possession of any Confidential Information, in any form. Employee will not at any time assert any rights as against the Company in or with respect to any Confidential Information. For purposes of this Agreement, "Confidential Information" means any and all technical, research, operational, manufacturing, marketing, sales and financial information, customer lists and trade secrets of the Company or of any vendor, supplier, distributor or customer of the Company, regardless of how acquired or developed by the Company or any such vendor, supplier, distributor or customer, concerning any of their respective businesses. Confidential Information does not include information, knowledge or data which Employee can prove was in Employee's possession prior to the commencement of Employee's employment with the Company or information, knowledge or data which was or is in the public domain by reason other than the wrongful acts of Employee. 4 5 (b) NON-COMPETITION. Employee will not, during the period of Employee's employment with the Company, and for a period of two years after the termination of Employee's employment with the Company for any reason, directly or indirectly, on Employee's behalf or on behalf of any other person or entity, in any way, whether as an individual proprietor, partner, stockholder, officer, employee, consultant, director, joint venturer, investor, lender (other than as an employee of a bank or other financial institution) or in any other capacity with any entity materially engaged in the business of the Company, compete within the territory served, or contemplated to be entered, by Company on the date of such termination with the business of the Company. Nothing contained herein shall be construed as preventing Employee from owning beneficially or of record not more than five percent (5%) of the outstanding equity security of any entity whose equity securities are registered under the Securities Act of 1933, as amended, or are listed for trading on any recognizable United States or foreign stock exchange or market. The business of the Company shall be defined to include the undercar service and repair of automobile and light truck brake, exhaust and suspension systems, and related activities. (c) NON-SOLICITATION OF EMPLOYEES. Employee will not, during the period of Employee's employment with the Company, and for a period of two years after the termination of Employee's employment with the Company for any reason, directly or indirectly, recruit, solicit or otherwise induce or attempt to induce any employees of the Company to leave the employment of the Company, nor hire any such employee at any enterprise with which employee is then affiliated. (d) ENFORCEABILITY OF PROVISIONS. If any restriction set forth in this Paragraph 5 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it 5 6 shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable, it being understood and agreed that by the execution of this Agreement, the parties hereto regard the restrictions herein as reasonable and compatible with their respective rights. 6. GENERAL TERMS. (a) BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their personal representatives, successors and assigns. (b) ASSIGNMENT. This Agreement may not be assigned, in whole or in part, by any party hereto without the prior written consent of the other party. (c) ENTIRE AGREEMENT; PRIOR AGREEMENT. This Agreement contains the entire understanding between or among the parties hereto and supersedes any prior understanding, memoranda or other written or oral agreements between or among any of them respecting the within subject matter. There are no representations, agreements, arrangements or understandings, oral or written, between or among any of the parties relating to the subject matter of this Agreement which are not fully expressed herein. The Prior Agreement is hereby terminated. (d) MODIFICATIONS; WAIVER. No modification or waiver of this Agreement or any part hereof shall be effective unless in writing and signed by the party or parties sought to be charged therewith. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. No waiver of any breach or condition of this Agreement by or with respect to any party hereto shall be deemed to be a waiver of the same breach or condition with respect to any other party hereto. No course of dealing between or among any of the parties hereto will be deemed 6 7 effective to modify, amend or discharge any part of this Agreement or the rights or obligations of any party hereunder. (e) NO THIRD PARTY BENEFICIARY. None of the provisions of this Agreement shall be for the benefit of, or enforceable by, any person or entity not a party hereto. (f) PARTIAL INVALIDITY. In addition to the provisions of Paragraph 5(d) hereof, if any provision of this Agreement shall be held invalid or unenforceable by competent authority, such provision shall be construed so as to be limited or reduced to be enforceable to the maximum extent compatible with the law as it shall then appear. The total invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted. (g) NOTICES. Any notice or other communication required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given (i) upon hand delivery, or (ii) on the third day following delivery to the U.S. Postal Service as certified or registered mail, return receipt requested and postage prepaid, or (iii) on the first day following delivery to a nationally recognized United States overnight courier service, fee prepaid, return receipt or other confirmation of delivery requested, or (iv) when telecopied or sent by facsimile transmission if an additional notice is also given under (i), (ii) or (iii) above within three days thereafter. Any such notice or communication shall be delivered or directed to a party at its address set forth above or at such other address as may be designated by a party in a notice given to all other parties hereto in accordance with the provisions of this paragraph. 7 8 (h) GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York pertaining to contracts made and to be wholly performed within such state, without taking into account conflicts of laws principles. (i) JURISDICTION AND VENUE. In the event that any legal proceedings are commenced in any court with respect to any matter arising under this Agreement, the parties hereto specifically consent and agree that: (i) the courts of the State of New York and/or the United States Federal Courts located in the State of New York shall have jurisdiction over each of the parties hereto and over the subject matter of any such proceedings; and (ii) the venue of any such action shall be Monroe County, New York and/or the United States District Court for the Western District of New York. (j) INJUNCTIVE RELIEF. In the event of a breach or threatened breach of any of the terms of this Agreement, the Company shall be entitled to an injunction restraining Employee from committing any breach of this Agreement without showing or proving any actual damages and without diminishing any other right or remedy which the Company may have at law or in equity to enforce the provisions of this Agreement. Employee waives any right he may have to require the Company to post a bond or other security with respect to obtaining or continuing any injunction or temporary restraining order, releases the Company and its officers and directors from and waives any claim for damages against them which Employee may have with respect to the Company's obtaining any injunction or restraining order pursuant to this Agreement. (k) SURVIVAL. The provisions of Paragraph 5 shall survive the term of this Agreement as provided therein, and the provisions of this Paragraph 6 shall survive the term of this Agreement. 8 9 (l) HEADINGS. The headings contained in this Agreement are inserted for convenience only and do not constitute a part of this Agreement. (m) FAIR MEANING. This Agreement shall be construed according to its fair meaning, the language used shall be deemed the language chosen by the parties hereto to express their mutual intent, and no presumption or rule of strict construction will be applied against any party hereto. (n) GENDER. Whenever the context may require, any pronoun used herein shall include the corresponding masculine, feminine or neuter forms and the singular of nouns, pronouns and verbs shall include the plural and vice versa. (o) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of said counterparts together shall constitute but one and the same instrument. (p) REMEDIES. All rights and remedies of the Company or Employee, whether provided for herein or by operation of law, are cumulative and may be exercised singularly or concurrently, and the exercise of any such remedy shall not be deemed an election of remedies so as to preclude the election of any other remedy. 9 10 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of February __, 1998 COMPANY: MONRO MUFFLER BRAKE, INC. By: ------------------------------- Title: ---------------------------- EMPLOYEE: ---------------------------------- Jack M. Gallagher 10 11 MONRO MUFFLER BRAKE, INC. 200 Holleder Parkway Rochester, NY 14615 February 18, 1998 Mr. Jack M. Gallagher 30 Reedy Court Manning, South Carolina 29102 Re: NOTICE OF GRANT OF STOCK OPTION ------------------------------- Dear Employee: I am pleased to notify you that the Board of Directors of Monro Muffler Brake, Inc. ("Monro") has granted you a stock option pursuant to the 1989 Monro Muffler Brake Employees' Incentive Stock Option Plan, as amended (the "Plan"). The option granted to you is to purchase 90,000 shares of the $.01 par value common stock of Monro at the price of $14.00 per share. The date of grant is January 29, 1998 and the Board of Directors has determined in good faith that, on that date, the fair market value of Monro's $.01 par value common stock was $14.00 per share. This option shall be exercisable by you pursuant to the following schedule:
NUMBER OF SHARES EXERCISE DATE ---------------- ------------- 22,500 Immediate 33,750 March 31, 1999 33,750 March 31, 2000
A copy of the Plan governing the option granted to you is enclosed. Please be sure to read all of its provisions. 11 12 The option is, in all respects, limited and conditioned as provided in the Plan, including but not limited to the following: (a) The option may be exercised by you, but only until the earlier of the date which is three months after the termination date of your employment or the date which is ten years from the date of this letter. (b) You may not transfer the option other than by your will or by the laws of descent and distribution. (c) The option is exercisable, during your lifetime, only by you. (d) Monro Muffler Brake, Inc. retains the right to repurchase the shares at their fair market value after the expiration of a certain period of time as described in the Plan. (e) Exercisability of options not then vested shall (i) immediately occur in the event specified in Section 4 of the Employment Agreement dated the date hereof between you and the Company, (ii) immediately occur in the event of the death of the Employee or (iii) immediately occur prior to a Change of Control of the Company, as defined in the Plan. 12 13 At the time or times when you desire to exercise the option in whole or in part, please refer to the provisions of the Plan dealing with the formalities of exercise and see the Secretary of the company with respect to the exercise. I am personally pleased that the Board has decided to grant you this option. Sincerely, 13 EX-10.70 5 EXHIBIT 10.70 1 EXHIBIT 10.70 FORM OF AGREEMENT PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS ------------------------------------------ NOVEMBER 12, 1997 BUYER: ------ REALTY INCOME CORPORATION, A MARYLAND CORPORATION SELLER: ------- MONRO MUFFLER BRAKE, INC., A NEW YORK CORPORATION PROPERTY LOCATION: ------------------ Monro Muffler/Brake #XXX SPECIFIC ADDRESS 10 LOCATIONS AS FOLLOWS: 3411 Milan Road, Sandusky, OH 5021 Scatterfield, Anderson, IN 5200 Library Road, Bethel Park, PA 2196 West Union Blvd, Bethlehem, PA 3010 Easton Avenue, Bethlehem, PA 1970 Tiffin Avenue, Findlay, OH 1014 Coshocton, Mt. Vernon, OH 190 Milan Avenue, Norwalk, OH 3702 Franklin Rd., Roanoke, VA 2055 Queen Street, York, PA 2 PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS TABLE OF CONTENTS RECITALS ....................................................1 1. PURCHASE PRICE ........................................1 2. OPENING OF ESCROW .....................................1 3. TITLE TO PROPERTY .....................................2 4. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE ..........2 4.1 Approvals by Buyer ...............................2 4.2 Utilities ........................................4 4.3 Physical Characteristics of the Property .........4 4.4 Accuracy of Representations ......................4 4.5 No Hazardous Materials ...........................4 4.6 Foreign Investments ..............................4 4.7 Failure of Conditions ............................5 4.8 Lease ............................................5 5. CONDITIONS TO SELLER'S OBLIGATION TO SELL .............5 5.1 Performance by Buyer .............................5 5.2 Accuracy of Representations ......................5 5.3 Payment of Purchase Price ........................5 6. BUYER'S DELIVERIES TO ESCROW AGENT and seller .........6 6.1 Purchase Price ...................................6 6.2 Lease ............................................6 6.3 Failure to Deliver ...............................6 7. SELLER'S DELIVERIES TO ESCROW AGENT AND BUYER .........6 7.1 Deed .............................................6 7.2 Lease ............................................6 7.3 Documents Needed to Close ........................6 7.4 Failure to Deliver ...............................6 8. THE CLOSING ..........................................7 8.1 Date and Manner of Closing .......................7 8.2 Delay in Closing; Authority to Close .............7 9. PRORATION, COSTS AND EXPENSES .........................8 9.1 Prorations and Apportionments ....................8 9.2 Payment of Adjustments to Proration ..............8 9.3 Seller's Costs and Expenses ......................8 9.4 Buyer's Costs and Expenses .......................8 10. DISTRIBUTION OF FUNDS AND DOCUMENTS ...................9 10.1 Form of Distributions ............................9 10.2 Recorded Documents ...............................9 10.3 Non-Recorded Documents ...........................9 10.4 Cash Disbursements ...............................9 10.5 Copies of Documents ..............................9 11. RETURN OF DOCUMENTS AND FUNDS UPON TERMINATION ........9 11.1 Return of Seller's Documents .....................9 11.2 Return of Buyer's Documents .....................10 11.3 No Effect on Rights of Parties ..................10 11.4 Payment of Termination Fee ......................10 12. DEFAULT ..............................................10 12.1 Seller's Remedy .................................10 12.2 Buyer's Remedies ................................11 3 13. REPRESENTATIONS AND WARRANTIES OF SELLER .............11 13.1 Authority of Seller .............................11 13.2 Condition of Property ...........................11 13.3 Use and Operation ...............................11 13.4 Land Use Regulation .............................12 13.5 Reports, Contracts and Other Documents ..........12 13.6 Absence of Fraud and Misleading Statements ......12 13.7 Litigation ......................................12 13.8 Other Contracts to Convey .......................12 13.9 Environmental Compliance/Hazardous Materials ....13 13.10 Property Tax Assessment .........................13 13.11 Agreements Affecting the Property ...............13 13.12 Use Permits and Other Approvals .................14 13.13 Confidentiality .................................14 13.14 Survival.. ......................................14 13.15 No Broker .......................................14 14. REPRESENTATIONS & WARRANTIES OF BUYER ................15 14.1 Authority of Buyer...............................15 14.2 Absence of Fraud and Misleading Statements ......15 14.3 Litigation ......................................15 14.4 Financial Condition .............................15 14.5 Survival ........................................15 14.6 No Broker .......................................15 15. COVENANTS ............................................16 15.1 Indemnification by Parties ......................16 15.2 Maintenance .....................................16 15.3 Other Agreements ................................17 16. LOSS BY FIRE OR OTHER CASUALTY; CONDEMNATION .........17 16.1 Damage or Destruction ...........................17 16.2 Condemnation ....................................17 17. POSSESSION ...........................................17 18. NOTICES ..............................................18 19. GENERAL PROVISIONS ...................................18 19.1 Manner of Taking Title ..........................18 19.2 Gender; Number ..................................19 19.3 Captions ........................................19 19.4 Exhibits ........................................19 19.5 Entire Agreement ................................19 19.6 Modification. ...................................19 19.7 Attorneys' Fees .................................19 19.8 Joint and Several Liability .....................19 19.9 Governing Law ...................................20 19.10 Severability ....................................20 19.11 Successors and Assigns ..........................20 19.12 Information Provided ............................20 19.13 Counterparts ....................................21 EXHIBIT "A" LEGAL DESCRIPTION EXHIBIT "B" DEED (SAMPLE) EXHIBIT "C" - DOCUMENTS NEEDED TO CLOSE CHECKLIST (SAMPLE) EXHIBIT "D" - GUIDELINES FOR AS-BUILT SURVEYS 4 PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS This Purchase Agreement and Escrow Instructions (the "Agreement"), dated November 12, 1997 for reference purposes, is made by and between Monro Muffler Brake, Inc., a New York corporation ("Seller"), and Realty Income Corporation, a Maryland corporation ("Buyer"), and is made with reference to the recitals set forth below, and constitutes (i) a contract of purchase and sale between the parties and (ii) escrow instructions to Partners Title Company (the "Escrow Agent"). RECITALS A. Real Property. Seller owns certain real property together with all improvements located on the property (the "Property"), the legal description of which is attached hereto and made a part hereof as Exhibit "A," and is also known as: Monro Muffler/Brake - SPECIFIC ADDRESS B. Purchase and Sale. Seller desires to sell and Buyer desires to purchase all - Seller's right, title, and interest in and to the Property upon the terms and conditions set forth below. C. Leasehold Interest. Concurrently with the Closing (as defined in Section 8), Buyer, as landlord, shall lease the Property to Seller, as tenant, under a lease dated November 12, 1997 (the "Lease"). 1. PURCHASE PRICE In consideration of the covenants contained in this Agreement, Seller shall sell and Buyer shall purchase the Property for a total purchase price of SPECIFIC PRICE FOR THE LOCATION ( 10 PROPERTIES TOTALLED $6,072,600) (the "Purchase Price") which shall be delivered by Buyer to Escrow Agent on or before the Closing in Cash (defined as (i) United States currency, (ii) cashier's or certified check(s) currently dated, payable to Escrow Agent, and honored upon presentation for payment, (iii) an amount credited by wire transfer into Escrow Agent's bank account, or (iv) if monies are deposited with Escrow Agent within twenty (20) days prior to the Closing, funds in such form as Escrow Agent in its sole discretion requires). 2. OPENING OF ESCROW Within five (5) business days following the execution of this Agreement, Buyer and Seller shall open an escrow (the "Escrow") with Escrow Agent for the Property and shall deposit with Escrow Agent fully executed counterparts of this Agreement for use as escrow instructions. Buyer and Seller shall execute 5 Escrow Agent's usual form of supplemental escrow instructions for transactions of this type; provided, however, that such escrow instructions shall be for the purpose of implementing this Agreement, shall incorporate this Agreement by reference, and shall specifically provide that no provisions shall have the effect of modifying this Agreement unless it is so expressly stated and initialed on behalf of Buyer and Seller. 3. TITLE TO PROPERTY At Closing Seller shall convey to Buyer fee simple title to the Property by execution and delivery of a warranty deed in the form customarily used in connection with commercial real property transactions in the state in which the Property is located (the "Deed"). A form of the Deed is attached hereto as Exhibit "B." At the Closing Buyer shall receive from Commonwealth Land Title Insurance Company (the "Title Company") an ALTA Owner's Extended Policy of Title Insurance (the "Title Policy") with liability in the full amount of the Purchase Price insuring fee simple title to the Property in Buyer, subject only to exceptions approved by Buyer as provided in Section 4.1, deleting all standard printed exceptions (as deemed customary in the state in which the Property is located), together with such endorsements as may be reasonably requested by Buyer. Indemnification of the Title Company to induce it to insure any otherwise non-permitted exception to title shall not be allowed except with the prior written consent of Buyer after full disclosure to Buyer of the nature and substance of such exception and indemnity. The Title Policy shall provide for survey coverage and full coverage against mechanics' and materialmen's liens arising out of the construction, repair, or alteration of any of improvements located on the Property. 4. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE Buyer's obligation to purchase the Property is expressly conditioned upon each of the following: 4.1 Approvals by Buyer Buyer's receipt and approval for the Property of the following prior to the Closing: 4.1.1 ALTA Commitment for Policy of Title Insurance. As soon as reasonably possible after execution of this Agreement, Seller shall cause the issuance of an ALTA Commitment for Policy of Title Insurance, including complete legible copies of all encumbrances and liens of record (the "Commitment"), with respect to the Property to be forwarded to Buyer for approval. If no written disapproval of any items in the Commitment is received from Buyer on or before thirty (30) days after the later of delivery of the Commitment to Buyer or delivery of the Certified As-Built Survey 6 PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS EXHIBIT "D# GUIDELINES FOE AS-BUILT SURVEYS 1. Label: The survey must be labeled as an ALTA/ACSM Land Title Survey. 2. Boundary Lines: Boundary lines as described in the current title commitment. 3. Legal Description: Full legal description on the face of the survey (including a metes and bounds description even if not a part of the legal description used in the title commitment). 4. Title Commitment Exceptions: Location and size of all easements and other plotable matters of record, marked with book and page to correspond with the title commitment exceptions. If unplotable, statement indicating that such exceptions, if any, affect the fee parcel (or appurtenant easement parcel, as the case may be). 5. Easement Parcels: Easement parcel(s), if any, appurtenant to the fee parcel, if the same is/are part of the legal description to be insured (to the extent the same can be shown on the survey). 6. Encroachments: Statement identifying the existence and location of encroachments, if any. 7. Improvements: Location of the building and surrounding improvements. 8. Square Footage: Square footage of the building and land. 9. Utilities: Location of utilities (wires, cables, manholes, drains, etc.). 10. Access Ways: Location of parking areas, curb cuts, and driveways. 11. Vicinity map: Vicinity map showing the subject site and surrounding area. 12. Flood Zone: FEMA flood information. 13. Certification: Certification to insuring title company and Realty Income Corporation. 14. Zoning: Zoning designation, including description if possible. 15. No Loan: No reference made as to "Loan Purposes." 16. Signature: Surveyor's signature, seal, and date. 7 (as defined in Section 4.1.2), the Commitment shall be deemed approved by Buyer. 4.1.2 As-Built Survey. A survey of the Property (the "As-Built Survey") prepared by a licensed surveyor or civil engineer in sufficient detail to provide for the Title Policy, certified to Buyer and the Title Company, and conforming to the guidelines set forth on Exhibit "D," attached hereto and incorporated herein, without material boundary, encroachment, or survey exceptions. 4.1.3 Phase I Environmental Site Assessment Report. As soon as reasonably possible after execution of this Agreement, Seller shall cause a Phase I Environmental Site Assessment Report (the "Phase I") to be prepared for the Property in accordance with ASTM guidelines and certified to Buyer by an environmental consultant approved by Buyer. 4.1.4 Plans and Specifications. As soon as reasonably possible after the execution of this Agreement, Seller shall submit complete plans and specifications to Buyer, together with an itemized cost breakdown for all improvements, including on- and off-site improvements, from the contractor who has performed or is in the process of performing the construction of said improvements in accordance with the plans and specifications. 4.1.5 Appraisal. AS soon as reasonably possible after the execution of this Agreement, Buyer shall cause a narrative appraisal (the "Appraisal") to be prepared on a completed project basis, covering the land, improvements, and the Lease by an independent appraiser who is a member in good standing of a recognized professional appraisal association, and shall cause said Appraisal to be delivered to Buyer on or before fifteen (15) days prior to the Scheduled Closing Date (as defined in Section 8). 4.1.6 Certificate of Occupancy. If available Seller shall cause a notice of completion and/or certificate of occupancy or its equivalent certifying that construction has been completed to be delivered to Buyer. 4.1.7 Other Documents. All other documents listed on Exhibit "C" entitled "Documents Needed to Close Checklist" for the Property. 4.1.8 Statement of Matters Affecting Title. A statement of (and, if available, copies of) any other matters of any nature of which Seller has knowledge and 8 which affect title to any part of the Property, whether or not of record, whether or not visible or ascertainable by inspection of the Property, and whether or not otherwise known to Buyer. 4.2 Utilities Buyer's receipt and approval of evidence that all water, sewer, gas, electric, telephone, and drainage facilities and all other utilities required by law or by the normal use and operation of the Property are and at the time of Closing will be installed to the property lines of the Property, are and at the time of Closing will be connected and operating pursuant to valid permits, and are and at the time of Closing will be adequate to service the Property and to permit full compliance with all requirements of law and normal usage of the Property. 4.3 Physical Characteristics of the Property Buyer's review and approval, prior to the Closing, of the structural, mechanical, electrical, and other physical characteristics of the Property. 4.4 Accuracy of Representations All of Seller's representations and warranties contained in or made pursuant to this Agreement shall have been true and correct when made and shall be true and correct as of the Closing, and Seller shall have complied with all of Seller's covenants and agreements contained in or made pursuant to this Agreement. 4.5 NO Hazardous Materials Buyer's satisfaction that there are no Hazardous Materials (as defined in Section 13.9) on the Property. 4.6 Forelan Investments Buyer's receipt of the affidavit, certification, or notice required by Section 1445 of the Internal Revenue Code of 1954, as amended and the Regulations pursuant thereto, in a form sufficient to relieve Buyer of any potential transferee withholding liability under such Section. If Seller fails to deliver such affidavit, certification, or notice to Buyer prior to or at the Closing, or Buyer has knowledge or receives notice of the falsity of such document, then the transactions shall be completed at the Closing, but Buyer shall withhold ten percent (10%) of the "amount realized" (as set forth in the Regulations) by Seller and transmit it to the Internal Revenue Service Center, Philadelphia, PA 19255, all in accordance with Section 1445 and the Regulations pursuant thereto. 9 4.7 Failure of Conditions 4.7.1 The foregoing conditions contained in this Section 4 are intended solely for the benefit of Buyer. If any of the foregoing conditions are not satisfied or approved by Buyer, Buyer shall have the right at its sole election either (i) to waive the condition in question and proceed with the purchase of the Property pursuant to all of the other terms of this Agreement, reserving all of its other rights and remedies available to it under this Agreement or otherwise at law or in equity by reason of such failure of condition or (ii) to terminate this Agreement. 4.7.2 By written agreement, the Closing may be extended for a reasonable time if required to allow the conditions contained in this Section 4 to be satisfied, subject to Buyer's further rights to terminate this Agreement upon the expiration of the period of any extension if all such conditions have not then been satisfied. 4.8 Lease Execution by Buyer and Seller of the Lease for the Property. 5. CONDITIONS TO SELLER'S OBLIGATION TO SELL Seller's obligation to sell is expressly conditioned upon each of the following: 5.1 Performance by Buyer Timely performance of each obligation, covenant, and delivery required of Buyer. 5.2 Accuracy of Representations Ail of Buyer's representations and warranties contained in or made pursuant to this Agreement shall have been true and correct when made and shall be true and correct at the Closing, and Buyer shall have complied with all of Buyer's covenants and agreements contained in or made pursuant to this Agreement. 5.3 Payment of Purchase Price Payment of the Purchase Price at the Closing in the manner provided in this Agreement. 10 6. BUYER'S DELIVERIES TO ESCROW AGENT AND SELLER 6.1 Purchase Price Buyer shall deliver in Cash to Escrow Agent the Purchase Price as set forth in Section 1, less adjustments pursuant to Section 9. Escrow Agent shall deposit the Purchase Price in an interest bearing account, the interest upon which shall accrue to the benefit of Buyer. 6.2 Lease On or before the Closing, Buyer shall deliver to Escrow Agent the Memorandum of Lease for the Property executed and acknowledged by Seller and Buyer, which Memorandum of Lease shall be filed for record by Escrow Agent upon the close of Escrow. On the Closing, Buyer shall deliver to Seller the Lease for the Property executed by Buyer and Seller. 6.3 Failure to Deliver The failure of Buyer to make any required delivery within the specified time shall constitute a material breach by Buyer. 7. SELLER'S DELIVERIES TO ESCROW AGENT AND BUYER 7.1 Deed On or before the Closing, Seller shall deliver to Escrow Agent the Deed for the Property executed and acknowledged by Seller. 7.2 Lease Before the Closing, Seller shall deliver to Buyer the Lease for the Property executed by Seller. In addition, before the Closing, Seller shall deliver to Buyer the Memorandum of Lease for the Property executed and acknowledged by Seller. 7.3 Documents Needed to Close On or before the Closing, Seller shall deliver to Buyer each and every document described in Section 4, subject to Buyer's right to waive delivery. 7.4 Failure to Deliver The failure of Seller to make any required delivery within the specified time shall constitute a material breach by Seller. 11 8. THE CLOSING 8.1 Date and Manner of Closing Escrow Agent shall close the Escrow (the "Closing") on a date mutually agreeable to Buyer and Seller but which is in no event later than sixty (60) days following the date upon which this Agreement is last executed by Buyer or Seller (the "Scheduled Closing Date"), provided that all of the conditions to Buyer's obligation to purchase have been either satisfied Or waived. The Escrow shall be deemed closed when (i) Title Company is irrevocably committed to issuing the Title Policy and (ii) Escrow Agent delivers the funds and documents for the Property as set forth in Section t0. Distribution of funds and documents shall occur WHEN AND ONLY WHEN each of the following conditions has been satisfied: 8.1.1 All documents required to be delivered to Buyer and Escrow Agent pursuant to this Agreement have been delivered or delivery of such document(s) has been waived. 8.1.2 The Title Company is prepared to issue the Title Policy for the Property. 8.1.3 All funds for the Property required to be delivered to Seller and Escrow Agent pursuant to this Agreement have been delivered. 8.2 Delay in Closing: Authority to Close If Escrow Agent cannot close the Escrow on or before the Scheduled Closing Date, it will nevertheless close when all conditions have been satisfied or waived, notwithstanding that one or more of such conditions was not timely performed, unless after the Scheduled Closing Date and prior to the close of the delayed Escrow, Escrow Agent receives a written notice to terminate the Escrow and this Agreement from a party who, at the time such notice is delivered, is not in default. Neither (i) the exercise of the right of termination, (ii) delay in the exercise of the right of termination, nor (iii) the return of monies and documents, shall affect the right of the party giving notice of termination to pursue legal or equitable remedies for the other party's breach of this Agreement. Nor shall (i) the giving of such notice, (ii) the failure to object to termination of the Escrow, or (iii) the return of monies and documents affect the right of the other party to pursue legal or equitable remedies for the breach of the party who gives notice. 12 9. PRORATION, COSTS AND EXPENSES 9.1 Prorations and Apportionments Contemporaneously with the Closing, Seller intends to lease the Property from Buyer. Therefore, the parties do not anticipate the need to prorate revenues or expenses. However, in the event an item of expense or revenue must be prorated, it shall be prorated and apportioned as of 12:01 a.m. on the date of the Closing so that Seller shall bear all expenses with respect to the Property and shall have the benefit of all income with respect to the Property through and including the period preceding the date of the Closing. Any taxes or other amounts which cannot be ascertained with certainty as of the Closing shall be prorated on the basis of the parties' reasonable estimates of such amount(s) and shall be the subject of a final proration thirty (30) days after the Closing or as soon thereafter as the precise amounts can be ascertained. 9.2 Payment of Adjustments to Proration Either party owing the other party a sum of money based on adjustments made to prorations after the Closing shall promptly pay that sum to the other party, together with interest thereon at the rate of twelve percent (12%) per annum to the date of payment if payment is not made within ten (10) days after mutual agreement of the amount due. 9.3 Seller's Costs and Expenses Seller shall pay for: (i) the As Built Survey, (ii} the Phase I, (iii) one-half (1/2) the cost of procuring the Title Policy, {iv) one-half (1/2) the cost of any documentary or other transfer taxes applicable to the sale, (v) one-half (1/2) of the costs and charges of the Escrow, including, without limitation, Escrow Agent's fee, and (vi) Seller's own attorneys' fees. 9.4 Buyer's Costs and Expenses Buyer shall pay for: (i) the Appraisal; (ii) brokerage commission in the amount of one percent (1%) of the Purchase Price to Horn Capital Realty, 3303 Lee Parkway, Suite 335, Dallas, TX 75219; (214) 522-4676; (iii) one-half (1/2) the cost of procuring the Title Policy, (iv) one-half (1/2) the cost of any documentary or other transfer taxes applicable to the sale, (v) one-half (1/2) of the costs and charges of the Escrow, including, without limitation, Escrow Agent's fee, and (vi) Buyer's own attorneys' fees. 13 10. DISTRIBUTION OF FUNDS AND DOCUMENTS 10.1 Form of Distributions All disbursements by Escrow Agent shall be made by checks of Escrow Agent or by wire transfers to the account of, and as directed by, the receiving party. 10.2 Recorded Documents Escrow Agent shall cause the County Recorder of the County in which the Property is located to mail the Deed (and any other documents which are required by this Agreement to be, or by general usage are, recorded) after recordation, to the grantee, beneficiaries, or person (i) acquiring rights under the documents or (ii) for whose benefit the documents were acquired. 10.3 Non-Recorded Documents Escrow Agent shall, at the Closing, deliver by United States mail (or shall hold for personal pickup, if requested), each non-recorded document received by Escrow Agent to the payee or person (i) acquiring rights under the document or (ii) for whose benefit the documents were acquired. 10.4 Cash Disbursements At the Closing, Escrow Agent shall hold for personal pickup or shall arrange for wire transfer (i) to Seller, or order, the cash plus any proration or other credits to which Seller shall be entitled for the Property and less any appropriate proration or other charges and (ii) to Buyer, or order, any excess funds previously delivered to Escrow Agent by Buyer. 10.5 Copies of Documents Following the Closing, Escrow Agent shall deliver to Buyer and to Seller a copy of the Deed (conformed to show recording data) and each other recorded document for the Property. 11. RETURN OF DOCUMENTS AND FUNDS UPON TERMINATION 11.1 Return of Seller's Documents In the event the Escrow is terminated for any reason (other than the default of Seller), Buyer shall, within fifteen (15) calendar days following the termination, deliver to Seller all documents and materials, if any, relating to the Property previously delivered to Buyer by Seller. Escrow Agent shall deliver all documents and materials relating to the Property previously deposited by Seller and then in Escrow Agent's possession to Seller. 14 11.2 Return of Buyer's Documents In the event the Escrow is terminated for any reason (other than the default of Buyer), Seller shall, within fifteen (15) calendar days following termination, deliver to Buyer all funds and documents, if any, relating to the Property, previously delivered to Seller by Buyer. Escrow Agent shall deliver all documents, materials, and funds relating to the Property previously deposited by Buyer and then in Escrow Agent's possession to Buyer. .- 11.3 No Effect on Rights of Parties The return of documents and monies as set forth above shall not affect the right of either party to seek the legal or equitable remedies that the party may have with respect to the enforcement of this Agreement. 11.4 Payment of Termination Fee Escrow Agent may condition its deliveries upon payment of a termination fee by the party requesting delivery. Notwithstanding the foregoing, any termination fee shall be paid (or reimbursed) by the defaulting party, or paid equally if neither party is then in default. 12. DEFAULT 12.1 Seller's Remedy If Buyer fails to complete the acquisition of the Property by reason of any default by Buyer, Seller shall be released from any further obligations and shall be entitled to the following: INSOFAR AS IT WOULD BE EXTREMELY IMPRACTICABLE AND DIFFICULT TO ESTIMATE THE DAMAGE AND HARM WHICH SELLER WOULD SUFFER IN THE EVENT BUYER DEFAULTS AND FAILS TO COMPLETE THE SALE OR ACQUISITION OF THE PROPERTY, AND INSOFAR AS A REASONABLE ESTIMATE OF THE TOTAL NET DETRIMENT THAT SELLER WOULD SUFFER IN THE EVENT OF BUYER'S DEFAULT AND FAILURE TO DULY COMPLETE THE SALE OR ACQUISITION OF THE PROPERTY IS THE SUM OF TEN THOUSAND DOLLARS ($10,000), SELLER SHALL BE ENTITLED TO THE SUM OF TEN THOUSAND DOLLARS ($10,000) AS AND FOR SELLER'S SOLE REMEDY FOR DAMAGES ARISING FROM BUYER'S FAILURE TO COMPLETE THE SALE OR ACQUISITION OF THE PROPERTY IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT. BY PLACING THEIR INITIALS BELOW, 15 THE PARTIES ARE CONFIRMING THE ACCURACY OF THE STATEMENTS SET FORTH ABOVE. BUYER-Initials SELLER-Initials 12.2 Buyer's Remedies In the event that the transaction fails to close on account of Seller's fault or Seller's breach of this Agreement, Buyer shall be entitled to such remedies for breach of contract as may be available under applicable law, including, without limitation, the remedy of specific performance. 13. REPRESENTATIONS AND WARRANTIES OF SELLER The following representations and warranties by Seller are now and shall, at the Closing, be true and correct. If during the period between the execution of this Agreement and the Closing, Seller learns of or has a reason to believe that any of the following representations and warranties may cease to be true, Seller covenants to give notice thereof to Buyer immediately. 13.1 Authority of Seller Seller is a New York corporation duly organized and validly existing and in good standing under the laws of the State of New York and has the authority to own and convey the Property. This Agreement and all documents executed by Seller which are to be delivered to Buyer are, or at the time of the Closing will be, duly authorized, executed, and delivered by Seller and do not, and at the time of the Closing will not, violate any provisions of any agreement or judicial order to which Seller is a party or to which Seller or the Property are subject. 13.2 Condition of Property There are now, and at the Closing there will be, no material physical or mechanical defects of the Property, including, without limitation, the plumbing, heating, air conditioning, ventilating; emergency safety systems, and electrical systems, and all such items are in good operating condition and repair and in compliance with all applicable governmental laws, ordinances, regulations, and requirements, including, but not limited to, the Americans with Disabilities Act. In addition, there are no existing leases on the Property, other than N/A. 13.3 Use and Operation The use and operation of the Property now is, and at the time of Closing will be, in full compliance with applicable building codes, safety, fire, environmental, zoning, and land use 16 laws, and other applicable local, state, and federal laws, ordinances, regulations, and requirements. Seller knows of no facts nor has Seller failed to disclose to Buyer any fact which would prevent Buyer from using and operating the Property after the Closing in the manner in which the Property has been used, leased, and operated prior to the date of this Agreement. 13.4 Land Use Regulation There are no condemnation, environmental, zoning, or other land use regulation proceedings instituted which could detrimentally affect the use or operation of the Property or the value of the Property, nor has Seller received notice of any special assessment proceedings affecting the Property. 13.5 Reports, Contracts and Other Documents Contracts or documents delivered to Buyer pursuant to this Agreement are, and at the time of Closing will be, true and correct copies, are and at the time of Closing will be in full force and effect, and contain no inaccuracies or misstatements of fact. All documents which are required by this Agreement to be delivered to Buyer have been or will be delivered to Buyer. 13.6 Absence of Fraud and Misleading Statements No representation, warranty, or statement of Seller in this Agreement or in any document, certificate, or schedule furnished or to be furnished to Buyer pursuant thereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements or facts not misleading. All representations, warranties, or statements of Seller are based upon current, accurate, and complete information as of the time of their making and there has been no subsequent material change in the information. 13.7 Litigation There is no litigation, pending or threatened, against Seller or any basis therefor that arises out of the ownership of the Property, or that might detrimentally affect the use or operation of the Property for its intended purpose or the value of the Property, or adversely affect the ability of Seller to perform its obligations under this Agreement. 13.8 Other Contracts to Convey Seller has not committed nor obligated itself in any manner whatsoever to sell the Property to any party other than Buyer. Seller has not hypothecated or assigned any rents or income from the Property in any manner. 17 13.9 Environmental Compliance/Hazardous Materials The Property is not, and as of the Closing will not be, in violation of any federal, state, or local law, ordinance, or regulation relating to industrial hygiene or to the environmental conditions on, under, or about the Property including, but not limited to, soil and groundwater conditions. There are no Hazardous Materials (as defined below) present on the Property, other than As disclosed in that certain phase one environmental site assessment dated December 12, 1997 which is/are used in compliance with all applicable laws, ordinances, and regulations. Seller further warrants and represents that during the time in which Seller owned the Property, neither Seller nor, to the best of Seller's knowledge, any third party has used, generated, manufactured, produced, stored, or disposed of on, under, or about the Property or transported to or from the Property any Hazardous Materials in violation of applicable laws, ordinances, and regulations. Seller has not received notification of any proceeding or inquiry by any governmental authority with respect to the presence of Hazardous Materials on the Property or the migration of Hazardous Materials from or to the Property. There are no storage tanks located in or under the Property. The term "Hazardous Material" means, but is not limited to, any substance, material, or waste which is toxic, ignitable, reactive, or corrosive; which is or can be injurious to the health, safety, or welfare of the public or environment, and which is or becomes regulated by any local or state governmental authority or the United States Government. The term "Hazardous Material" includes, without limitation, any material or substance which is (i) defined as a "hazardous waste," "extremely hazardous waste," "restricted hazardous waste," "hazardous substance," "pollutant or contaminant," or "hazardous material," by any local or state law, (ii) oil and petroleum products and their byproducts, (iii) asbestos or asbestos-containing materials, (iv) designated as a "hazardous substance" pursuant to the Federal Water Pollution Control Act, (v) defined as a "hazardous waste" pursuant to the Federal Resource Conservation and Recovery Act, or (vi) defined as a "hazardous substance" pursuant to the Comprehensive Environmental Response, Compensation and Liability Act. Seller has disclosed to Buyer in writing all information in Seller's possession or control which relates to the environmental condition of the Property. 13.10 Property Tax Assessment Notwithstanding any other provision of this Agreement to the contrary, if Buyer shall become liable after the Closing for payment of any property taxes assessed against the Property for any period of time prior to the Closing, Seller shall immediately pay to Buyer on demand an amount equal to such tax assessment. 13.11 Agreements Affecting the Property At the Closing there will be no leases, easements, encumbrances, or other agreements affecting the Property except as 18 shown in the Commitment for the Property or as otherwise disclosed to Buyer by Seller in writing and approved by Buyer. 13.12 Use Permits and Other Approvals Seller has obtained all licenses, permits, approvals, easements, and rights of way required from all governmental authorities having jurisdiction over the Property or from private parties for the normal use and operation of the Property and to ensure free and unimpeded vehicular and pedestrian ingress to and egress from the Property as required to permit the normal intended usage of the Property. Seller has materially complied with all licenses and permits and has not received any notice that any licenses or permits will not be renewed upon expiration, or of any material conditions which will be imposed in order to receive any renewal. 13.13 Confidentiality Seller shall hold as confidential all information concerning Buyer and this transaction. Seller shall not release any such information to third parties without Buyer's prior written consent, except pursuant to a court order requiring such release or as otherwise may be required by law. Buyer shall hold as confidential all information concerning Seller and this transaction. Buyer shall not release any such information to third parties without Seller's prior written consent, except pursuant to a court order requiring such release or as otherwise may be required by law. Notwithstanding the foregoing, subsequent to the Closing, either party publicly may announce (provided such announcement is factually accurate): (i) Seller sold and Buyer purchased the Property; (ii) the Property is subject to the Lease; (iii) the industry of Tenant; (iv) the total number of properties Seller sold to Buyer and Buyer purchased from Seller, including, without limitation, the Property; and (v) the total value of the transaction, i.e., the Purchase Price. 13.14 Survival The representations and warranties of Seller contained herein shall survive the Closing. 13.15 NO Broker Seller warrants that except for brokerage commission due Horn Capital Realty, which commission is payable by Buyer pursuant to Section 9.4, there are no brokerage commissions payable as a result of the Closing herein. Seller shall indemnify and hold harmless Buyer from any claims, costs, damages, or liability based on any statement, representations, or agreement by Seller with respect to the payment of any brokerage commissions or finders' fees. 19 14. REPRESENTATIONS & WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller as follows: 14.1 Authority of Buyer Buyer is a corporation duly organized and validly existing under the laws of the State of Maryland. This Agreement and all documents executed by Buyer which are to be delivered to Seller at the Closing are, or at the time of Closing will be duly authorized, executed, and delivered by Buyer, and are, or at the Closing will be, legal, valid, and binding obligations of Buyer, and do not, and at the time of Closing will not, violate any provisions of any agreement or judicial order to which Buyer is a party or to which it is subject. 14.2 Absence of Fraud and Misleading Statements No representation, warranty, or statement of Buyer in this Agreement or in any document, certificate, or schedule furnished or to be furnished to Seller pursuant thereto contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements or facts not misleading. Ail representations, warranties, or statements of Buyer are based upon current, accurate, and complete information as of the time of their making and there has been no subsequent material change in the information. 14.3 Litigation There is no litigation pending or, to Buyer's knowledge, threatened, against Buyer or any basis therefor before any court or administrative agency which might adversely affect the ability of Buyer to perform its obligations under this Agreement. 14.4 Financial Condition Buyer has adequate financial resources to make timely payment of all sums due from Buyer hereunder and to perform all of its obligations hereunder. 14.5 Survival The representations and warranties of Buyer contained herein shall survive the Closing. 14.6 No Broker Buyer warrants that except for brokerage commission due Horn Capital Realty, which commission is payable by Buyer pursuant to Section 9.4, there are no brokerage commissions payable as a result of the Closing herein. Buyer shall indemnify and hold harmless Seller from any claims, costs, damages, or liability based on any statement, representations, or agreement by Buyer 20 with respect to the payment of any brokerage commissions or finders' fees. 15. COVENANTS Matters as to which Escrow Agent need not be concerned, Seller and Buyer covenant and agree with one another as follows: 15.1 Indemnification by Parties Each party shall indemnify the other party and hold the other party harmless from and against any and all claims, demands, liabilities, liens, costs, expenses, penalties, damages, and losses, including, without limitation, reasonable attorneys' fees and costs, suffered as a direct or indirect result of: 15.1.1 Any misrepresentation, breach of warranty, or breach of covenant made pursuant to this Agreement or in any document, certificate, or exhibit given or delivered pursuant to or in connection with this Agreement; and 15.1.2 Any and all obligations, liabilities, claims, liens, or encumbrances, whether direct, contingent, or consequential and no matter how arising or accruing, which are in any way related to or arising from any act, conduct, omission, contract, or commitment of a party (or any of its agents or employees) at any time or times before the Closing, including indemnification by Seller of Buyer, without limitation, of (i) all foreseeable and all unforeseeable consequential damages, directly or indirectly arising out of the use, generation, storage, or disposal of Hazardous Materials by Seller and (ii) the cost of any required or necessary repair, cleanup, remediation, removal, or detoxification and the preparation of any closure or other required plans, or actions, whether such action is required or necessary prior to or following transfer of title to the Property, to the full extent that such action is attributable, directly or indirectly, to the presence, use, generation, storage, release, threatened release, treatment, or disposal of Hazardous Materials by title to Buyer. The provisions of this Section shall survive the execution and delivery of this Agreement, the delivery of the Deed, and transfer of title. 15.2 Maintenance Closing, Seller shall, at Seller's sole cost and expense, maintain 21 the Property in good order, condition, and repair, reasonable wear and tear excepted, and shall operate the Property in the same manner as before the making of this Agreement as though Seller were retaining the Property. 15.3 Other Agreements Seller shall not enter into or terminate any contracts or agreements pertaining to the Property without in each case obtaining Buyer's prior written consent thereto. 16. LOSS BY FIRE OR OTHER CASUALTY; CONDEMNATION 16.1 Damage or Destruction In the event that any of the improvements on the Property are damaged or destroyed by fire or other casualty prior to the Closing, then Seller may terminate this Agreement or may offer to restore and repair such damage. Termination shall be by written notice to Buyer within five (5) days after the occurrence of the damage or destruction. Buyer shall have no obligation to accept Seller's offer to restore and repair such damage if such restoration and repair would cause the Scheduled Closing Date to be extended. Seller shall pay escrow and related costs, if any, that exist as a result of terminating this Agreement under this Section. 16.2 Condemnation In the event that prior to the Closing a governmental entity shall commence any eminent domain proceeding to take any portion of the Property, Buyer shall have the option to make either of the following elections: 16.2.1 Terminate this Agreement by written notice to Seller within five (5} days of its receiving notice of such action of condemnation; or 16.2.2 Proceed with the transaction in which case the Purchase Price shall not be reduced and Buyer shall be entitled to the net award paid to Seller or Seller's mortgagee for the taking, if any, and Seller shall assign and transfer to Buyer all right, title, and interest in and to any awards. 17. POSSESSION Possession of the Property shall be delivered to Buyer at the Closing. 22 18. NOTICES Ail notices, requests, or demands herein provided to be given or made, or which may be given or made by either party to the other, shall be given or made only in writing and shall be deemed to have been duly given: (1) when delivered personally at the address set forth below, or to any agent of the party to whom notice is being given, or (ii) on the date delivered when sent via Overnight Mail, properly addressed and postage prepaid, or (iii) on the date sent via facsimile transmission, or (iv) seventy-two (72) hours after the time the same is deposited in the United States mail, properly addressed and first class postage prepaid, return receipt requested. The proper address to which notices, requests, or demands may be given or made by either party shall be the address set forth at the end of this Section or to such other address or to such other person as any party shall designate. Such address may be changed by written notice given to the other party in accordance to this Section. If to Buyer: Realty Income Corporation Attn: Legal Department 220 West Crest Street Escondido, CA 92025-1707 {760) 741-2111 (760) 741-8674 (Fax number) If to Seller: Thomas M. Aspenleiter Monro Muffler Brake, Inc. 200 Holleder Parkway Rochester, NY 14615-3808 (716) 647-6400 (716) 647-0945 (Fax number) If to Escrow: P.J. Whitworth Partners Title Company 712 Main Street, Suite 2000E Houston, TX 77002-3218 (713) 238-9181 (713) 238-9180 (Fax number) 19. GENERAL PROVISIONS 19.1 Manner of Taking Title Buyer shall have the right to take title to the Property at the Closing in a name other than Buyer's name. 23 19.2 Gender - Number The use of (i) the neuter gender includes the masculine and feminine and (ii) the singular number includes the plural whenever the context requires. 19.3 Captions Captions in this Agreement are inserted for the convenience of reference only and do not define, describe, or limit the scope or the intent of this Agreement or any of its terms. 19.4 Exhibits All attached exhibits are a part of this Agreement and are incorporated in full by this reference. 19.5 Entire Agreement This Agreement contains the entire agreement between the parties relating to the transactions contemplated hereby and all prior or contemporaneous agreements, understandings, representations, and statements, oral or written, are merged into this Agreement. 19.6 Modification No modification, waiver, amendment, discharge, or change of this Agreement shall be valid unless it is in writing and signed by the party against which the enforcement of the modification, waiver, amendment, discharge, or change is or may be sought. 19.7 Attorneys' Fees Should any party employ an attorney for the purpose of enforcing or construing this Agreement, or any judgment based on this Agreement, in any legal proceeding whatsoever, including insolvency, bankruptcy, arbitration, declaratory relief, or other litigation, the prevailing party shall be entitled to receive from the other party or parties, reimbursement for all attorneys' fees and all costs, including, but not limited to, service of process, filing fees, court and court reporter costs, investigative costs, expert witness fees, and the cost of any bonds, whether taxable or not, and that such reimbursement shall be included in any judgment or final order issued in that proceeding. 19.8 Joint and Several Liability If any party consists of more than one person or entity, the liability of each such person or entity signing this Agreement shall be joint and several. 24 19.9 Governing Law This Agreement shall be construed and enforced in accordance with the laws of the state in which the Property is located. 19.10 Severability In the event any term, covenant, condition, or provision of this Agreement is held to be invalid, void, or otherwise unenforceable by any court of competent jurisdiction, the fact that such term, covenant, condition, or provision is invalid, void, or otherwise unenforceable shall in no way affect the validity or enforceability of any other term, covenant, condition, or provision of this Agreement. 19.11 Successors and Assigns All terms of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by the parties and their respective legal representatives, successors, and assigns. 19.12 Information Provided Seller warrants and represents that all information Seller has provided to Buyer is accurate and correct and Seller acknowledges that Buyer has relied upon such information in entering into this Agreement. Buyer warrants and represents that all information Buyer has provided to Seller is accurate and correct and Buyer acknowledges that Seller has relied upon such information in entering into this Agreement. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK 25 19. 13 Counterparts SELLER: Catherine D'Amico (signature) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. counterparts shall together constitute but one agreement. Monro Muffler Brake, Inc., a New BUYER: Richard G. Collins (signature) York corporation Realty Income Corporation, a Maryland corporation - Senior Vice President, Date: Dec 18, 1997 DEC 18, 1997 Portfolio Acquisitions ESCROW AGENT: PJ Whitworth Partners Title Company Date: 12/19/97 26 PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS EXHIBIT "A" LEGAL DESCRIPTION OF REAL PROPERTY LOCATION: Monro Muffler/Brake #xxx SPECIFIC ADDRESS (To be taken from the Commitment for Policy of Title Insurance.) 27 PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS EXHIBIT "B" SAMPLE DEED 28 PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS EXHIBIT "C" DOCUMENTS NEEDED TO CLOSE CHECKLIST LOCATION: Monro Muffler/Brake #xxx SPECIFIC ADDRESS ITEM RECEIVED 1. Aerial Photograph 2. Certified Boundary Survey (if Available) 3. Area/Location Map 4. Area Demographics 5. Acceptable Commitment Of Title Insurance 6. Copy Of The Deed 7. Zoning Permits And Regulations 8. Insurance Certificates 9. Copy Of Tax Bill 10. Corporate Resolution Or Partnership Agreement 11. Standard Parcel Map Or Subdivision Plat 12. Site Plan 13. Soils Report 14. Phase 1 Environmental Site Assessment Report & Reliance Letter 15. Land Purchase Escrow Closing Statement 16. Project Pro Forma\Operating Profit & Loss Statement 17. Construction Contract (Including itemized Breakdown) 18. Plans and Specifications 19. Verification of Built-to Plans 20. Certified As-Built Survey (ALTA) Showing Land and Building 21. MAI Leased Fee Appraisal (Including Land Valuation) 22. Completion Notice/Certificate of Occupancy (If Available) EX-11.01 6 EXHIBIT 11.01 1 Exhibit 11.01 MONRO MUFFLER BRAKE, INC. & SUBSIDIARY COMPUTATION OF PER SHARE EARNINGS - - -------------------------------------------------------------------------------- Net income per share was computed by dividing net income by the weighted average number of common and common equivalent shares outstanding.
YEAR ENDED MARCH 31, 1998 1997 1996 ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) DILUTED EARNINGS Net income available to common shares $9,854 $10,191 $7,614 ========== ========== ========= SHARES Weighted average number of common shares 7,863 7,797 7,570 Assuming conversion of Class C Convertible Preferred Stock 605 605 605 Dilutive effect of outstanding options 118 178 307 ---------- ---------- --------- Total common and common equivalent shares 8,586 8,580 8,482 ========== ========== ========= DILUTED EARNINGS PER SHARE $ 1.15 $ 1.19 $ .90 ========== ========== ========= BASIC EARNINGS Net income available to common shares $9,854 $10,191 $7,614 ========== ========== ========= SHARES Weighted average number of common shares 7,863 7,797 7,570 ========== ========== ========= BASIC EARNINGS PER SHARE $ 1.25 $ 1.31 $ 1.01 ========== ========== =========
EX-21.01 7 EXHIBIT 21.01 1 Exhibit 21.01 SUBSIDIARIES OF THE COMPANY --------------------------- Monro Service Corporation Speedy Holding Corporation EX-23.01 8 EXHIBIT 23.01 1 EXHIBIT 23.01 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 33-56458) of Monro Muffler Brake, Inc. of our report dated May 18, 1998, appearing in Item 8 of the Monro Muffler Brake, Inc. Annual Report on Form 10-K for the year ended March 31, 1998. PRICE WATERHOUSE LLP Rochester, New York May 18, 1998 EX-24.01 9 EXHIBIT 24.01 1 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"), constitutes and appoints JACK M. GALLAGHER to be his true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities in connection with the filing of the Annual Report of Form 10-K of the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with the Securities and Exchange Commission, to sign the Form 10-K and any and all amendments related thereto and to file the same, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, or his substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this power of attorney has been signed by the following director on June 22, 1998. /s/ Robert W. August ------------------------- Robert W. August 2 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"), constitutes and appoints JACK M. GALLAGHER to be his true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities in connection with the filing of the Annual Report of Form 10-K of the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with the Securities and Exchange Commission, to sign the Form 10-K and any and all amendments related thereto and to file the same, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, or his substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this power of attorney has been signed by the following director on June 24, 1998. /s/ Frederick M. Danziger ------------------------- Frederick M. Danziger 3 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"), constitutes and appoints JACK M. GALLAGHER to be his true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities in connection with the filing of the Annual Report of Form 10-K of the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with the Securities and Exchange Commission, to sign the Form 10-K and any and all amendments related thereto and to file the same, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, or his substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this power of attorney has been signed by the following director on June 29, 1998. /s/ Peter J. Solomon ------------------------- Peter J. Solomon 4 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"), constitutes and appoints JACK M. GALLAGHER to be his true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities in connection with the filing of the Annual Report of Form 10-K of the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with the Securities and Exchange Commission, to sign the Form 10-K and any and all amendments related thereto and to file the same, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, or his substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this power of attorney has been signed by the following director on June 24, 1998. /s/ Donald Glickman ------------------------- Donald Glickman 5 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"), constitutes and appoints JACK M. GALLAGHER to be his true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities in connection with the filing of the Annual Report of Form 10-K of the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with the Securities and Exchange Commission, to sign the Form 10-K and any and all amendments related thereto and to file the same, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, or his substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this power of attorney has been signed by the following director on June 24, 1998. /s/ Lionel B. Spiro ------------------------- Lionel B. Spiro 6 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"), constitutes and appoints JACK M. GALLAGHER to be his true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities in connection with the filing of the Annual Report of Form 10-K of the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with the Securities and Exchange Commission, to sign the Form 10-K and any and all amendments related thereto and to file the same, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, or his substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this power of attorney has been signed by the following director on June 24, 1998. /s/ Burton S. August ------------------------- Burton S. August 7 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of Monro Muffler Brake, Inc., a New York corporation (the "Corporation"), constitutes and appoints JACK M. GALLAGHER to be his true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities in connection with the filing of the Annual Report of Form 10-K of the Corporation for the fiscal year ended March 31, 1998 (the "Form 10-K") with the Securities and Exchange Commission, to sign the Form 10-K and any and all amendments related thereto and to file the same, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, or his substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this power of attorney has been signed by the following director on June 23, 1998. /s/ W. Gary Wood ------------------------- W. Gary Wood EX-27 10 EXHIBIT 27
5 1,000 YEAR MAR-31-1998 APR-01-1997 MAR-31-1998 5,315 0 841 0 27,492 39,488 165,839 (49,429) 159,088 25,971 0 0 138 79 29,284 159,088 154,294 154,294 87,510 87,510 46,120 0 3,829 16,504 6,650 9,854 0 0 0 9,854 1.25 1.15
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