-----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, D7J6N97Ji9Pl1N+yUz4JHETZQh2E3BdANdZNoscx/AH9mgvi1h5coHRQXf5v0Z7M K4GC6nMmqxRUM3rBtY3dqg== 0000950152-99-001149.txt : 19990217 0000950152-99-001149.hdr.sgml : 19990217 ACCESSION NUMBER: 0000950152-99-001149 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONRO MUFFLER BRAKE INC CENTRAL INDEX KEY: 0000876427 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTOMOTIVE REPAIR, SERVICES & PARKING [7500] IRS NUMBER: 160838627 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19357 FILM NUMBER: 99542762 BUSINESS ADDRESS: STREET 1: 200 HOLLEDER PKWY CITY: ROCHESTER STATE: NY ZIP: 14615-3808 BUSINESS PHONE: 7166476400 10-Q 1 MONRO MUFFLER BRAKE, INC. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1998. ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from __________ to ___________ Commission File No. 0-19357 ------- MONRO MUFFLER BRAKE, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New York 16-0838627 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification #) 200 Holleder Parkway, Rochester, New York 14615 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code 716-647-6400 ------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- As of February 1, 1999, 8,321,701 shares of the Registrant's Common Stock, par value $ .01 per share, were outstanding after giving effect to the five percent stock dividend, paid June 18, 1998 to stockholders of record as of June 8, 1998. 2 MONRO MUFFLER BRAKE, INC. INDEX ----- Part I. Financial Information Page No. -------- Consolidated Balance Sheet at December 31, 1998 and March 31, 1998 3 Consolidated Statement of Income for the quarter and nine months ended December 31, 1998 and 1997 4 Consolidated Statement of Changes in Common Shareholders' Equity for the nine months ended December 31, 1998 5 Consolidated Statement of Cash Flows for the nine months ended December 31, 1998 and 1997 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Exhibit Index 17 - 2 - 3 MONRO MUFFLER BRAKE, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, MARCH 31, 1998 1998 ---- ---- (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and equivalents, including interest-bearing accounts of $852 at $ 852 $ 5,315 December 31, 1998 and $5,315 at March 31, 1998 Trade receivables 1,231 841 Inventories, at LIFO cost 41,601 27,492 Deferred income tax asset 1,725 1,725 Other current assets 5,264 4,115 --------- --------- Total current assets 50,673 39,488 --------- --------- Property, plant and equipment 202,786 165,839 Less - Accumulated depreciation and amortization (56,511) (49,429) --------- --------- Net property, plant and equipment 146,275 116,410 Other noncurrent assets 9,327 3,190 --------- --------- Total assets $ 206,275 $ 159,088 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 4,832 $ 3,582 Trade payables 9,845 11,633 Federal and state income taxes payable 34 2 Accrued expenses and other current liabilities Accrued interest 216 233 Accrued payroll, payroll taxes and other payroll benefits 4,316 3,764 Accrued insurance 2,142 2,441 Accrued restructuring costs 3,000 Other current liabilities 7,114 4,316 --------- --------- Total current liabilities 31,499 25,971 Long-term debt 82,862 54,102 Other long-term liabilities 3,469 576 Accrued long-term restructuring costs 4,484 Deferred income tax liability 1,768 1,881 --------- --------- Total liabilities 124,082 82,530 --------- --------- Commitments Shareholders' equity: Class C Convertible Preferred Stock, $1.50 par value, $.216 and $.227 conversion value at December 31, 1998 and March 31, 1998, respectively; 150,000 shares authorized; 91,727 shares issued and outstanding 138 138 Common Stock, $.01 par value, 15,000,000 shares authorized; 8,321,701 shares and 7,876,901 shares issued and outstanding at December 31, 1998 83 79 and March 31, 1998, respectively Additional paid-in capital 36,370 29,284 Retained earnings 45,602 47,057 --------- --------- Total shareholders' equity 82,193 76,558 --------- --------- Total liabilities and shareholders' equity $ 206,275 $ 159,088 ========= =========
These financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K (File No. 0-19357), filed by the Company with the Securities and Exchange Commission on June 29, 1998. - 3 - 4 MONRO MUFFLER BRAKE, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 ---- ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Sales $ 53,672 $ 36,336 $144,169 $118,649 Cost of sales, including distribution and occupancy costs (a) 33,844 20,996 84,933 66,858 -------- -------- -------- -------- Gross profit 19,828 15,340 59,236 51,791 Operating, selling, general and administrative expenses 19,449 11,409 46,168 34,637 -------- -------- -------- -------- Operating income 379 3,931 13,068 17,154 Interest expense, net of interest income for the quarter of $18 in 1998 and $21 in 1997 (a) 1,598 1,005 3,579 2,775 Other expense, net 322 95 625 267 -------- -------- -------- -------- (Loss) income before provision for income taxes (1,541) 2,831 8,864 14,113 (Recovery of) provision for income taxes (618) 1,131 3,518 5,644 -------- -------- -------- -------- Net (loss) income $ (923) $ 1,700 $ 5,346 $ 8,469 ======== ======== ======== ======== Basic (loss) earnings per share (b) $ (.11) $ .21 $ .64 $ 1.03 ======== ======== ======== ======== Diluted (loss) earnings per share $ (.11) $ .19 $ .59 $ .94 ======== ======== ======== ======== Weighted average number of shares of common stock and common stock equivalents used in computing earnings per share: Basic 8,322 8,260 8,301 8,254 ======== ======== ======== ======== Diluted (b) 8,322 8,984 9,002 9,019 ======== ======== ======== ======== (a) Amounts paid under operating and capital leases with affiliated parties totaled $408 and $417 for the quarters ended December 31, 1998 and 1997, respectively, and $1,371 and $1,374 for the nine months ended December 31, 1998 and 1997, respectively. (b) The antidilutive effect of the Class C Convertible Preferred Stock and outstanding options resulted in their exclusion from the calculation of weighted average diluted shares outstanding, and thereby increased the loss per share by $.01.
These financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K (File No. 0-19357), filed by the Company with the Securities and Exchange Commission on June 29, 1998. - 4 - 5 MONRO MUFFLER BRAKE, INC. CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY Nine Months Ended December 31, 1998 (UNAUDITED)
COMMON STOCK ADDITIONAL --------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS ------ ------ --------- ---------- (Amounts in thousands) Balance at March 31, 1998 7,877 $ 79 $ 29,284 $ 47,057 Net income 5,346 Other comprehensive income: Minimum pension liability adjustment (171) Exercise of stock options 49 462 5% stock dividend 396 4 6,625 (6,629) Rounding (1) (1) -------- -------- -------- -------- Balance at December 31, 1998 8,322 $ 83 $ 36,370 $ 45,602 ======== ======== ======== ========
These financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K (File No. 0-19357), filed by the Company with the Securities and Exchange Commission on June 29, 1998. - 5 - 6 MONRO MUFFLER BRAKE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, ----------------- 1998 1997 ---- ---- (DOLLARS IN THOUSANDS) INCREASE (DECREASE) IN CASH Cash flows from operating activities: Net income $ 5,346 $ 8,469 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 8,164 6,921 (Gain) loss on disposal of property, plant and equipment (101) 36 (Increase) decrease in trade receivables (390) 388 Increase in inventories (4,262) (7,475) Decrease in other current assets 1,061 1,201 (Increase) decrease in other noncurrent assets (1,867) 67 (Decrease) increase in trade payables (2,792) 935 (Decrease) in accrued expenses (921) (1,082) Increase in federal and state income taxes payable 32 1,197 Increase in other long-term liabilities 1,330 Decrease in deferred tax liability (113) --------- --------- Total adjustments 141 2,188 --------- --------- Net cash provided by operating activities 5,487 10,657 --------- --------- Cash flows from investing activities: Capital expenditures (17,575) (18,792) Proceeds from the disposal of property, plant and equipment 81 6,228 Payment for purchase of Speedy stores (21,488) --------- --------- Net cash used for investing activities (38,982) (12,564) --------- --------- Cash flows from financing activities: Proceeds from the sale of common stock 462 52 Proceeds from borrowings 130,755 47,631 Principal payments on long-term debt and capital lease obligations (102,185) (45,359) --------- --------- Net cash provided by financing activities 29,032 2,324 --------- --------- (Decrease) increase in cash (4,463) 417 Cash at beginning of year 5,315 6,438 --------- --------- Cash at December 31 $ 852 $ 6,855 ========= =========
These financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K (File No. 0-19357), filed by the Company with the Securities and Exchange Commission on June 29, 1998. - 6 - 7 MONRO MUFFLER BRAKE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Acquisition of Speedy Stores - ------------------------------------- In September 1998, the Company completed the acquisition of 189 company-operated and 14 franchised Speedy stores, all located in the United States, from SMK Speedy International Inc. of Toronto Canada. Speedy stores provide automotive repair services, specializing in undercar care, in 11 states located primarily in the Northeast. The acquisition was accounted for as a purchase, and accordingly, the operating results of Speedy have been included in the Company's consolidated financial statements since the date of the acquisition. Approximately $51 million was borrowed under a new $135 million secured credit facility to pay the all-cash purchase price, with an additional $16 million to be borrowed to provide for the closing of up to 20 underperforming or redundant Speedy stores, capital expenditures at remaining Speedy stores and transaction expenses. The excess of the aggregate purchase price over the fair value of net assets acquired is being amortized on a straight-line basis over 20 years. The accrued restructuring charge of approximately $7.5 million at December 31, 1998 represents estimated closing costs associated with poorly performing or duplicative Speedy store locations resulting from the acquisition. Note 2 - Stock Dividend - ----------------------- On May 13, 1998, the Board of Directors declared a five percent stock dividend, paid June 18, 1998, to stockholders of record as of June 8, 1998. The consolidated financial statements, including all share information therein, have been restated to reflect this dividend. Additionally, in accordance with antidilution provisions of the Class C Convertible Preferred Stock, the conversion value of the preferred stock was restated from $.227 per share to $.216 per share. Shares reserved for issuance to officers and key employees under outstanding options under the 1984, 1987 and 1989 Incentive Stock Option Plans have also been retroactively adjusted for the five percent stock dividend. Note 3 - Inventories - -------------------- The Company's inventories consist of automotive parts and tires. Substantially all merchandise inventories are valued under the last-in, first-out (LIFO) method. Under the first-in, first-out (FIFO) method, these inventories would have been $534,000 and $426,000 higher at December 31, 1998 and March 31, 1998, respectively. The FIFO value of inventory approximates the current replacement cost. Note 4 - Cash and Equivalents - ----------------------------- The Company's policy is to invest cash in excess of operating requirements in income producing investments. Cash equivalents of $852,000 at December 31, 1998 and $5,315,000 at March 31, 1998 include money market accounts which have maturities of three months or less. - 7 - 8 MONRO MUFFLER BRAKE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Supplemental Disclosure of Cash Flow Information - --------------------------------------------------------- The following transactions represent noncash investing and financing activities during the periods indicated: NINE MONTHS ENDED DECEMBER 31, 1998: Capital lease obligations of $754,000 were incurred under various lease obligations. In connection with the declaration of a five percent stock dividend (see Note 2), the Company increased accrued expenses common stock and additional paid-in capital by $1,000, $4,000 and $6,624,000, respectively, and decreased retained earnings by $6,629,000. In connection with the acquisition of Speedy stores (see Note 1), liabilities were assumed as follows: Fair value of assets acquired $36,134,000 Cash paid 21,488,000 ----------- Liabilities assumed $14,646,000 =========== NINE MONTHS ENDED DECEMBER 31, 1997: Capital lease obligations of $236,000 were incurred under various lease obligations. In connection with the declaration of a five percent stock dividend (see Note 1), the Company increased common stock and additional paid-in capital by $4,000 and $7,015,000, respectively, and decreased retained earnings by $7,019,000. CASH PAID DURING THE PERIOD:
NINE MONTHS ENDED DECEMBER 31, --------------- 1998 1997 ---- ---- Interest, net $3,835,000 $ 3,041,000 Income taxes, net 3,488,000 4,448,000
Note 6 - Other - -------------- These financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K (File No. 0-19357), filed by the Company with the Securities and Exchange Commission on June 29, 1998. - 8 - 9 MONRO MUFFLER BRAKE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this Form 10-Q which are not historical facts, including (without limitation) statements made in the Management's Discussion and Analysis of Financial Condition and Results of Operations, may contain statements of future expectations and other forward-looking statements that are subject to important factors that could cause actual results to differ materially from those in the forward-looking statements, including (without limitation) product demand, the effect of economic conditions, the impact of competitive services and pricing, product development, parts supply restraints or difficulties, industry regulation, the continued availability of capital resources and financing and other risks set forth or incorporated elsewhere herein and in the Company's Securities and Exchange Commission filings. RESULTS OF OPERATIONS The following table sets forth income statement data of Monro Muffler Brake, Inc. ("Monro" or the "Company") expressed as a percentage of sales for the fiscal periods indicated.
Quarter Ended December 31, Nine Months Ended December 31, -------------------------- ------------------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Sales ......................................... 100.0% 100.0% 100.0% 100.0% Cost of sales, including distribution and occupancy costs .......................... 63.1 57.8 58.9 56.3 ------- ------- ------- ------- Gross profit .................................. 36.9 42.2 41.1 43.7 Operating, selling, general and administrative expenses ...................... 36.2 31.4 32.0 29.2 ------- ------- ------- ------- Operating income .............................. .7 10.8 9.1 14.5 Interest expense - net ........................ 3.0 2.8 2.5 2.4 Other expenses - net .......................... .6 .2 .5 .2 ------- ------- ------- ------- (Loss) income before provision for income taxes ....................................... (2.9) 7.8 6.1 11.9 Provision for income taxes .................... (1.2) 3.1 2.4 4.8 ------- ------- ------- ------- Net (loss) income ............................. (1.7)% 4.7% 3.7% 7.1% ======= ======= ======= =======
- 9 - 10 THIRD QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THIRD QUARTER AND NINE MONTHS ENDED DECEMBER 31, 1997. In December 1998, the Company appointed Robert G. Gross as President and Chief Executive Officer, replacing Jack M. Gallagher who returned as interim President and Chief Executive Officer in February 1998. Mr. Gross began full-time responsibilities on January 1, 1999. On September 17, 1998, the Company completed its acquisition of 189 company-owned and 14 franchised Speedy stores, all located in the United States, from SMK Speedy International Inc. of Toronto Canada (the "Acquisition"). Sales for the fiscal year ended January 3, 1998 for the 189 company-operated stores, some of which were opened only part of the year, were approximately $86 million. While management expects the acquisition to have a dilutive impact on earnings in the current 1999 fiscal year, management anticipates that the acquired operations should begin to contribute to earnings per share during fiscal 2000, and should be increasingly accretive in subsequent years. Sales were $53.7 million for the quarter ended December 31, 1998 compared with $36.3 million for the quarter ended December 31, 1997. The sales increase of $17.4 million, or 47.7%, was due to an increase in sales of approximately $18.1 million relating to stores opened since the beginning of fiscal 1998, including $15.7 million from the newly-acquired Speedy stores. This increase was partially offset by a decrease in comparable store sales of 0.8%. Sales for the nine months ended December 31, 1998 were $144.2 million compared with $118.6 million for the same period of the prior year. The sales increase of $25.5 million, or 21.5%, was due to an increase in sales of approximately $27.3 million relating to stores opened since the beginning of fiscal 1998, including $18.2 million from the newly-acquired Speedy stores. This increase was partially offset by a decrease in comparable store sales of 0.7%. At December 31, 1998, the Company had 532 company-operated stores (including the stores acquired from Speedy) compared to 341 at December 31, 1997. In the third quarter of fiscal 1999, the weakness of Speedy's sales represents a continuation of a decline which was most pronounced prior to the Acquisition in September 1998. The conversion of systems and inventory at all Speedy stores also impacted the performance of these locations. These conversions, all of which occurred during this quarter, involved the installation of new point-of-sale systems in all Speedy stores, as well as the lifting of slow moving items and restocking with more popular parts, representing approximately half of the inventory in the Speedy stores. Although essential to margin improvement in future periods, this conversion process was very disruptive to the operations of the Speedy stores in the quarter ended December 31, 1998. Gross profit for the quarter ended December 31, 1998 was $19.8 million, or 36.9% of sales, compared with $15.3 million, or 42.2% of sales, for the quarter ended December 31, 1997. Gross profit for the nine months ended December 31, 1998 was $59.2 million, or 41.1% of sales, compared to $51.8 million or 43.7% of sales, for the nine months ended December 31, 1997. The decline in gross profit as a percentage of sales for Monro stores was due, in part, to an increase in outside purchases. During periods of slower sales, store personnel will more readily accept repair work outside of the normal recurring services the store usually provides. In addition, Company personnel assigned to controlling outside purchases were diverted during the Speedy due diligence process, away from the Monro stores. However, beginning late in the second quarter of fiscal 1999, the Company has refocused its resources in order to reduce outside purchases at the Monro stores. In that regard, the Company will be lifting older, slow moving inventory from the Monro stores, and restocking them with faster moving items during the fourth quarter of fiscal 1999. Secondly, there was an increase in distribution and occupancy costs as a percent of sales for the third quarter of fiscal 1999 as compared to the third quarter of fiscal 1998, primarily due to an increase in the number of stores and increased occupancy costs against negative comparable store sales. In addition, labor costs increased as a percentage of sales during the third quarter of fiscal 1999 as compared to the same quarter of the prior year. During periods of slower sales when technicians may not be fully productive, they will receive a minimum base level wage. - 10 - 11 Additionally, the Speedy stores accounted for 2.5 percentage points of the decline in gross profit as a percent of sales, in part in the "cost of goods" component of cost of sales. Historically, Speedy's cost of goods has averaged approximately six percentage points more than the Company's due to more expensive parts acquisition costs. This resulted from a higher percentage of outside purchases, and Speedy's distribution methods (store-door from vendors vs. Monro's central distribution facility). Management is confident that, over time, the Speedy stores will experience the same lower cost of goods as the Monro stores. One measure leading to this is the inclusion of all Speedy stores in the Company's central distribution/automatic replenishment system. As of December 31, 1998, all Speedy stores were receiving product from the Company's central warehouse facility in Rochester, New York. The Company experienced improved margins during the few weeks after conversion of the Speedy stores from Speedy's distribution system to Monro's distribution system. Since all stores were not converted until mid-December, the real impact of the improvement will not be seen until the fourth quarter of fiscal 1999. The Speedy stores also experienced higher than anticipated labor and occupancy costs as a percentage of sales due to the weakness in Speedy sales in the quarter. Operating, selling, general and administrative expenses for the quarter ended December 31, 1998 increased by $8.0 million to $19.4 million over the quarter ended December 31, 1997, and were 36.2% of sales compared to 31.4% in the same quarter of the prior year. For the nine months ended December 31, 1998, these expenses increased by $11.5 million to $46.2 million over the comparable period of the prior year and were 32.0% of sales compared to 29.2% in the comparable period of the prior year. During the third quarter of fiscal 1999, costs associated with the Speedy stores and acquisition-related activities accounted for 4.0 percentage points of the increase. The remainder is primarily due to increases in fixed, store-related operating and support costs (such as store supervision and utilities) against negative comparable store sales. Net interest expense for the quarter ended December 31, 1998, increased by approximately $.6 million compared to the same period in the prior year, and increased from 2.8% to 3.0% as a percentage of sales for the same periods. Net interest expense for the nine months ended December 31, 1998, increased by approximately $.8 million compared to the comparable period in the prior year, and rose from 2.4% to 2.5% as a percentage of sales for the same periods. The increase in expense is due to an increase in the weighted average debt outstanding for the quarter and nine months ended December 31, 1998 as compared to the same periods in the previous year. The net loss for the quarter ended December 31, 1998 of approximately $.9 million represents a 154.3% decrease from the net income reported for the quarter ended December 31, 1997. For the nine months ended December 31, 1998, net income of approximately $5.3 million decreased 36.9%, due to the factors discussed above. Interim Period Reporting The data included in this report are unaudited and are subject to year-end adjustments; however, in the opinion of management, all known adjustments (which consist only of normal recurring adjustments) have been made to present fairly the Company's operating results for the unaudited periods. The results for interim periods are not necessarily indicative of results to be expected for the fiscal year. - 11 - 12 Year 2000 Computer Issue As the year 2000 approaches, the Company, along with other companies, could experience potentially serious operational problems, since many computer programs that were developed in the past may not properly recognize calendar dates beginning with the year 2000. Further, there are embedded chips contained within equipment that may be date sensitive. PLANS: The Company's overall plan for dealing with the Year 2000 problem covers Information Technology ("IT") systems, non-IT systems, and third party providers. The Company has established a dedicated Year 2000 team to lead the Company's activities relating to its Year 2000 issues. The Company's current state of readiness with respect to each of these elements is discussed below. 1.) All IT SYSTEMS that the Company considers to be critical at this time have been evaluated for Year 2000 problems. In connection with this process, the Company has developed detailed plans that establish phases of the work to be done for each major area: 1.) An assessment of all systems and equipment. 2.) Development of detailed workplans and timelines for remediation. 3.) Remediation/modification. 4.) Testing and validation. 5.) Acceptance and deployment. 6.) Independent validation and 7.) Contingency planning. Although the Company has identified seven different phases of the project, in some cases the phases are done concurrently. For example, certain component systems may be completely tested and redeployed, while others are still being remediated. Management of the Company believes these systems will have been diagnosed, modified, tested and deployed by September 1, 1999. 2.) NON-IT SYSTEMS typically include embedded technology such as microcontrollers. The Company's non-IT systems include machinery and equipment in its buildings such as elevators, telephone equipment, HVAC, security and alarm systems, copiers, fax machines and computerized alignment equipment. The Company is reviewing these systems for Year 2000 compliance with third party providers, and believes that full compliance will be achieved by September 1, 1999. 3.) The Company uses a variety of third party providers and vendors in the normal course of conducting its day to day operations. Year 2000 problems may result in a loss of service from these providers/vendors. The Company believes that loss of electric power, phone, banking or certain outsourced processing services, as well as a vendor's inability to deliver product on a timely basis, could have an immediate and critical adverse material impact on the Company's operations. The Company is contacting each of its major third party providers and vendors to determine if the provider/vendor is Year 2000 compliant. If a provider is not currently Year 2000 compliant, and its plans to become Year 2000 compliant are uncertain, then the Company intends to seek other providers/vendors. - 12 - 13 CONTINGENCY PLANS: The Company's Year 2000 plans also include the development and implementation of contingency plans in the event of Year 2000 failures, both within the Company and by third parties. The Company expects to have these plans completed during calendar 1999 for all major systems. As discussed above with regard to third party providers/vendors, if a provider is not currently Year 2000 compliant, and its plans to become Year 2000 compliant are uncertain, then the Company intends to seek other providers/vendors. COSTS: The Company's incremental costs to address the Year 2000 issues did not have a material impact on the Company's operations in fiscal 1998 or during the nine months ended December 31, 1998, and are not expected to have a material impact on the remainder of fiscal 1999 or fiscal 2000. RISKS: The failure to correct for Year 2000 problems, either by the Company or third parties, could result in significant disruptions of the Company's operations. At this point in time, based upon the progress to date and information received from third parties, the Company is unable to determine its most likely worst case scenario. Certain statements included in this discussion regarding Year 2000 compliance are forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934. These statements include management's best estimates for completion dates for the various phases and testing to be performed, costs to be spent for compliance, and the risks associated with non-compliance either by the Company or third parties. These forward-looking statements are subject to various factors, which may materially affect the Company's efforts with Year 2000 compliance. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, which could cause a change in the estimated completion date of a particular phase, the ability to locate and correct all relevant software and embedded components, the compliance of critical vendors, and similar uncertainties. The Company's assessments of the effects of Year 2000 on the Company are based, in part, upon information received from third parties, and the Company's reasonable reliance on that information. Therefore, the risk that inaccurate information is supplied by third parties upon which the Company reasonably relied must be considered as a risk factor that might affect the Company's Year 2000 efforts. The Company is attempting to reduce the risks by utilizing an organized approach, extensive testing and allowance of contingency time to address issues identified by tests. Despite the Company's efforts to address its Year 2000 issues, there can be no assurances that Year 2000 related failures of the Company's software, or that Year 2000 related failures by third parties with which the Company interacts, will not have a material adverse affect on the Company. CAPITAL RESOURCES AND LIQUIDITY Capital Resources Other than the funding of the Acquisition, the Company's primary capital requirement has been the funding of its new store expansion program and the upgrading of facilities and systems in existing shops. For the nine months ended December 31, 1998, the Company spent $18.4 million for equipment and new store construction. Funds for equipment and new store construction were provided primarily by cash flow from operations. Management believes that the Company has sufficient resources available (including cash and equivalents, cash flow from operations and bank financing) to expand its business as currently planned for the next several years. - 13 - 14 Liquidity Concurrent with the closing of the Acquisition, Monro obtained a new $135 million secured credit facility from lenders led by The Chase Manhattan Bank. Approximately $51 million was borrowed under this facility to pay the all-cash purchase price in the Acquisition, with an additional $16 million to be borrowed to provide for the closing of up to 20 underperforming or redundant Speedy stores, capital expenditures at remaining Speedy stores and transaction expenses. In addition, Monro refinanced approximately $35 million of indebtedness through the new credit facility, with the balance of the facility available for future working capital needs. More specifically, the new financing structure consists of a $25 million term loan (all of which was outstanding at December 31, 1998), a $75 million Revolving Credit facility (of which approximately $42 million was outstanding at December 31, 1998), and synthetic lease (off-balance sheet) financing for a significant portion of the Speedy real estate, totaling $35 million. The loans bear interest at the prime rate or other LIBOR-based rate options tied to the Company's financial performance. The Company has outstanding $1.8 million in principal amount of its 10.65% Senior Notes due 1999 (the "Senior Notes") with Massachusetts Mutual Life Insurance Company pursuant to a Senior Note Agreement. The fifth of six equal annual installments of principal in the amount of $1.8 million was paid on April 1, 1998. Certain of the Company's stores were financed by mortgages currently bearing interest at LIBOR plus 100 basis points. The Company has financed its office/warehouse facility via a 10 year mortgage with a current balance of $2.5 million, amortizable over 20 years, and an eight year term loan with a balance of $.5 million. Certain of the Company's long-term debt agreements require, among other things, the maintenance of specified current ratios, interest and rent coverage ratios and amounts of tangible net worth. They also contain requirements concerning Y2K compliance and restrictions on cash dividend payments. The Company enters into interest rate hedge agreements which involve the exchange of fixed and floating rate interest payments periodically over the life of the agreement without the exchange of the underlying principal amounts. The differential to be paid or received is accrued as interest rates change and is recognized over the life of the agreements as an adjustment to interest expense. - 14 - 15 MONRO MUFFLER BRAKE, INC. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- a. Exhibits 10.1 - Amended and Restated Employment Agreement, dated February 16, 1999, by and between the Company and Robert G. Gross. 10.2 - Amended and Restated Secured Loan Agreement, dated February 16, 1999, by and between the Company and Robert G. Gross. 10.3 - Company's 1998 Stock Option Plan Amendment. (*Subject to the approval of the shareholders of the Company.) 11 - Statement of Computation of Per Share Earnings. b. Reports on Form 8-K. The Company filed a report on Form 8-K on December 3, 1998 in connection with the appointment of Robert G. Gross as President and Chief Executive Officer of the Company. c. Reports on Form 8-K/A The Company filed a report on Form 8-K/A on December 1, 1998 presenting financial statements and pro forma financial information related to the acquisition of 189 company-owned and 14 franchised stores from Bloor Automotive and Speedy Car-X on September 17, 1998. - 15 - 16 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MONRO MUFFLER BRAKE, INC. DATE: February 12, 1999 By /s/ Robert G. Gross --------------------------------------- Robert G. Gross President and Chief Executive Officer DATE: February 12, 1999 By /s/ Catherine D'Amico --------------------------------------- Catherine D'Amico Senior Vice President-Finance, Treasurer and Chief Financial Officer - 16 - 17 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 10.1 Amended and Restated Employment Agreement, dated February 16, 1999, by and between the Company and Robert G. Gross. 10.2 Amended and Restated Secured Loan Agreement, dated February 16, 1999, by and between the Company and Robert G. Gross. 10.3 Company's 1998 Stock Option Plan Amendment. (*Subject to the approval of the shareholders of the Company.) 11 Statement of Computation of Per Share Earnings. 27 Financial Data Schedule - 17 - EX-10.1 2 EXHIBIT 10.1 1 Exhibit 10.1 AMENDED EMPLOYMENT AGREEMENT ---------------------------- AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of February 16, 1999, between Monro Muffler Brake, Inc. (the "Company") and Robert Gross (the "Executive"). WHEREAS, the Company wishes to hire the Executive and the Executive desires to serve in the employ of the Company upon the terms and conditions hereinafter provided. IT IS THEREFORE AGREED AS FOLLOWS: 1. EMPLOYMENT AND DUTIES. 1.1 EMPLOYMENT BY THE COMPANY. The Company hereby agrees to employ the Executive for the Term (as herein defined), to render exclusive and full-time services in the capacity of President and Chief Executive Officer of the Company, subject to the control and direction of the Company's Board of Directors (the "Board of Directors"). 1.2 DUTIES/AUTHORITY. The Executive shall have responsibility for the conduct of the business and fiscal affairs of the Company and the general supervision of and control over the properties, business interests, and agents of the Company, in each case subject to the control and direction of the Board of Directors. The Executive's duties hereunder shall be consistent with the duties, responsibilities, and authority generally recognized for the offices of Chief Executive Officer and President. 1.3 DIRECTORSHIP. The Company shall use its best efforts to cause the Executive to be elected as a director by February 18, 1999. 2. TERM OF EMPLOYMENT. The term of the Executive's employment under this Agreement (the "Term") shall commence on the Effective Date (as defined in Section 9.10) and shall end on December 1, 2003, unless sooner terminated as provided herein. 3. COMPENSATION. 3.1 SALARY. As compensation for all services to be rendered pursuant to this Agreement, the Company shall pay the Executive (i) for the period from the Effective Date through December 31, 1998, the sum of $7,500 payable on January 5, 1999, and (ii) thereafter during the Term a salary of $420,000 per annum (the "Base Salary"), payable in the case of payments under this clause (ii) not less frequently than monthly, less such amounts as shall be required to be withheld by applicable law and regulations. 3.2 INITIAL BONUS. The Company shall pay the Executive an initial bonus of $150,000, payable on the later of January 15, 1999 and the date on which the Executive completes his stock purchase obligation pursuant to Section 4 hereof, less such amounts as shall be required to be withheld by applicable law and regulations. 2 3.3 ANNUAL BONUS. Pursuant to the Company's bonus plan (the "Bonus Plan"), the Company shall pay the Executive, within 120 days of its fiscal year end, a bonus in respect of each year during the Term beginning with the fiscal year ending in March, 2000, of 60% of Base Salary if the Company achieves its performance targets set by the Board of Directors with respect to such years, increased up to a maximum of 120% of Base Salary if the Company exceeds such performance targets by amounts to be determined by the Board of Directors (the "Annual Bonus"), less such amounts as shall be required to be withheld by applicable law and regulations. If this Agreement terminates other than at the end of a fiscal year end and if the Executive is entitled to a pro rata bonus for such partial year pursuant to Section 5.5, such pro rata bonus shall be equal to the bonus he would have received under the Bonus Plan had he been employed by the Company for the entire fiscal year multiplied by a fraction the numerator of which shall be the number of days during such fiscal years he was so employed and the denominator of which shall be 365. 3.4 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall be permitted during the Term, if and to the extent eligible, to participate in any group life, hospitalization or disability insurance plan, health program (including either coverage thereunder for his wife notwithstanding any pre-existing condition or separate reimbursement of his wife's medical expenses by the Company), or any pension plan or similar benefit plan of the Company, which is available generally to other senior executives of the Company. 3.5 EXPENSES. Subject to such policies generally applicable to senior executives of the Company, as may from time to time be established by the Board of Directors, the Company shall pay or reimburse the Executive for all reasonable expenses (including travel expenses) actually incurred or paid by the Executive during the Term in the performance of the Executive's services under this Agreement ("Expenses") upon presentation of expense statements or vouchers or such other supporting information as it may require. 3.6 VACATION. The Executive shall be entitled to such amount of vacation which is available generally to other senior executives of the Company; PROVIDED, HOWEVER, that in no event shall the Executive be entitled to less than three weeks of vacation in each twelve-month period following the commencement of the Term. 3.7 STOCK OPTIONS. (a) As of the Effective Date, the Executive shall be granted under the Monro Muffler Brake, Inc. 1989 Stock Option Plan (the "Stock Option Plan") incentive stock options (the "ISOs"), within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to purchase 225,000 shares of the Company's common stock. The ISOs shall have an exercise price equal to the fair market value of the Company's common stock on the Effective Date and shall have a 10 year term. The ISOs shall vest and become exercisable, subject to approval of the Company's stockholders, in accordance with the following schedule, provided that on each such date the Executive continues to be employed by the Company: (i) on the Effective Date and on January 1, 2003, a number of options covering that number of shares which equals $100,000 divided by the fair market value per share of the Company's common stock on the date of grant, and (ii) on December 1, 1999, December 1, 2000, -2- 3 December 1, 2001 and December 1, 2002, 25% of the difference between 225,000 shares and the number of shares subject to clause (i); PROVIDED, HOWEVER, that if the Executive's employment is terminated by the Company without Cause prior to December 1, 2000, an aggregate (including those theretofore vested) of 50% of the ISOs shall be vested and immediately exercisable as of the date of termination. (b) As of the Effective Date the Executive shall be granted under the 1998 Stock Option Plan non-qualified stock options (the "NSOs") to purchase 200,000 shares of the Company's common stock. The NSOs shall have an exercise price equal to the fair market value of the Company's common stock on the Effective Date and shall have a 5 year term. The NSOs shall vest and become exercisable, subject to approval of the Company's stockholders, as follows: (i) 50% shall vest and become exercisable at the time when the closing price of the Company common stock has been at least $13 per share for 20 consecutive trading days, provided the Executive continues to be employed by the Company on such date; and (ii) the remaining 50% shall vest and become exercisable at the time when the closing price of the Company common stock has been at least $16 per share for 20 consecutive trading days, provided the Executive continues to be employed by the Company on such date. (c) Within thirty days after preparation of the Company's federal income tax return for a year during which the Executive exercises an NSO granted to the Executive pursuant to this Agreement, the Company shall pay the Executive, in cash, the net Federal income tax benefit to the Company from such exercise. Such net tax benefit shall be determined by comparing the Federal income tax liability that the Company would have incurred in the absence of such exercise to the actual Federal income tax liability of the Company in the taxable year in which such exercise occurs (the "Exercise Tax Year") taking into account such exercise; PROVIDED, HOWEVER, that if the Company suffers a net operating loss in the Exercise Tax Year, the Company shall also pay to the Executive, in cash, the net Federal income tax benefit it reasonably expects to result from a carryback of such net operating loss to the extent such carryback results from any deduction attributable to such exercise, the amount of such benefit being determined by comparing the Federal income tax liability that the Company would have incurred in the year or years to which such net operating loss deduction may be carried back in the absence of such exercise to the actual Federal income tax liability of the Company in the year or years to which such net operating loss may be carried back taking into account such exercise. The amount of the payment required under this Section 3.7(c) shall be determined by the independent public accounting firm that audits the Company's financial reports at the time such payment is due, the determination of which firm shall be binding and conclusive on the Company and the Executive in the absence of manifest error. 3.8 ADDITIONAL BENEFITS. The Executive shall be entitled to the following additional benefits under this Agreement: (a) the use of an automobile comparable to that provided to other senior executives in connection with the rendering of services to the Company pursuant to this Agreement, together with reimbursement for all gas, maintenance, insurance and repairs required by reason of his use of such vehicle; -3- 4 (b) reimbursement for all reasonable moving costs associated with Executive's relocation in connection with his commencement of employment under this Agreement; PROVIDED, HOWEVER, that the Executive shall not be entitled to reimbursement for any loss on the sale of Executive's residence; (c) reimbursement for all reasonable housing expenses, including, but not limited to, the cost of maintaining an apartment convenient to the Company's headquarters, incurred by the Executive for the period ending May 31, 1999; and (d) reimbursement for all reasonable commuting and travel expenses between the Executive's home and the Company's headquarters incurred by the Executive for the period ending May 31, 1999. 4. STOCK PURCHASE. (a) The Executive shall purchase, in the open market, 100,000 shares of Company common stock (the "Shares") no later than January 31, 1999; PROVIDED, HOWEVER, that, in the event the aggregate purchase price for the Shares is greater than $850,000, the Executive shall be required to purchase only the number of shares of Company common stock that can be purchased for an aggregate purchase price of $850,000. (b) In connection with the purchase of the Shares, Executive agrees to pay the amount equal to the purchase price necessary for the purchase of the first 25,000 shares (the "Out-of-Pocket Sum"). Pursuant to a Secured Note Agreement between the Company and the Executive, the Company shall lend to the Executive, on a full-recourse basis, as and when needed to effect the purchases, the balance required for the purchase of the remaining 75,000 Shares above the Out-of-Pocket Sum (the "Loan"); PROVIDED, HOWEVER, that under no circumstances shall the principal amount of the Loan exceed $650,000. The Loan shall be due and payable by the Executive, with such payment made in cash, in five annual installments, each equaling 20% of the principal amount of the Loan (the "Installment Payments"), with all accrued interest and other charges due and payable on the fifth anniversary of the date of the Loan; PROVIDED, HOWEVER, that if the Executive is employed with the Company pursuant to this Agreement at the time any Installment Payment is due, such Installment Payment shall be forgiven by the Company. 5. TERMINATION. 5.1 TERMINATION UPON DEATH. If the Executive dies during the Term, this Agreement shall terminate and the Company shall have no further obligations under this Agreement. 5.2 TERMINATION UPON DISABILITY. If during the Term the Executive becomes physically or mentally disabled, whether totally or partially, so that the Executive is unable substantially to perform his services hereunder for a period or periods aggregating 90 days during any twelve month period, the Company may at any time after such 90th day of disability, by written notice to the Executive, terminate the Term of the Executive's employment hereunder. -4- 5 5.3 TERMINATION FOR CAUSE. The Company may at any time, by written notice to the Executive, terminate the Term of the Executive's employment hereunder for Cause and the Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of such notice, except for the payment of any Base Salary earned, and any Expenses incurred but not yet paid to the Executive and benefits in accordance with Section 5.5 hereof. For purposes hereof, the term "Cause" shall mean: (a) conviction of, or a plea of nolo contendere or guilty by, the Executive for any crime constituting a felony in the jurisdiction in which committed or for any other criminal act against the Company; (b) failure or refusal of the Executive in any material respect (i) to perform the duties of his employment or to follow the lawful and proper directives of the Board of Directors, provided such duties or directives are consistent with this Agreement and such duties or directives have been given to the Executive in writing, or (ii) to comply with the reasonable and substantial written policies, practices, standards or regulations of the Company as may be established from time to time, if such failure or refusal under either clause (i) or clause (ii) continues uncured for a period of 10 days after written notice thereof, specifying the nature of such failure or refusal and requesting that it be cured, is given by the Company to the Executive; (c) any willful or intentional act of the Executive committed for the purpose, or having the reasonably foreseeable effect, of injuring the Company, its business or reputation or of improperly or unlawfully converting for the Executive's own personal benefit any property of the Company; or (d) any violation or breach of the provisions of Section 7 of this Agreement. 5.4 TERMINATION WITHOUT CAUSE. During the Term, the Company may terminate the Executive's employment without Cause upon 10 days' written notice. If the Company terminates the Executive's employment without Cause, the Executive shall receive (i) his Base Salary, payable in accordance with the provisions of Section 3.1 hereof, until the later of (a) one year from the date of such termination and (b) December 1, 2000, and (ii) the Annual Bonus for the year prior to the year in which the Executive is terminated, to the extent not yet paid. 5.5. BENEFITS UPON TERMINATION. Notwithstanding termination of this Agreement pursuant to Section 5.1 or 5.2, the Executive shall continue to be entitled to compensation and benefits accrued through the date of death or disability as the case may be. Except as provided in Sections 5.4 and 6 hereof, all of the Executive's rights to bonuses and fringe benefits accruing after any termination of this Agreement, if any, shall cease upon such termination; PROVIDED, HOWEVER, that (i) the Executive shall be entitled to any amounts payable to the Executive under any Company profit sharing or other employee benefit plan up to the date of termination; (ii) nothing contained in this Agreement is intended to limit or otherwise restrict the availability of any benefits to the Executive required to be provided pursuant to Section 4980B of the Code; (iii) if the employment of the Executive terminates pursuant to Section 5.1, 5.2 or 5.4 other than at the end of a fiscal year, he shall be entitled to a pro rata bonus under the Bonus Plan in respect of such year as provided in Section 3.3; and (iv) the benefits provided in Section 3.7(c) shall continue. 6. CHANGE IN CONTROL. In the event of the occurrence of a Change in Control of the Company, the Executive shall remain employed by the Company, pursuant to the terms and conditions of this Agreement. If, after the Change in Control, the Executive's employment is -5- 6 terminated without Cause or the Executive resigns following a material diminution in his duties as set forth in Section 1.2 of this Agreement, then the Executive shall continue to receive his Base Salary for the remainder of the Term, and the ISOs and NSOs granted to the Executive shall become fully vested and exercisable as of the date of termination or resignation, as the case may be. For purposes of this Agreement, a "Change in Control" shall mean any of the following: (i) any person who is not an "affiliate" (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of the Company as of the date of this Agreement becomes the beneficial owner, directly or indirectly, of 50% or more of the combined voting power of the then outstanding securities of the Company except pursuant to a public offering of securities of the Company; (ii) the sale of the Company substantially as an entirety (whether by sale of stock, sale of assets, merger, consolidation, or otherwise) to a person who is not an affiliate of the Company as of the date of this Agreement; or (iii) there occurs a merger, consolidation or other reorganization of the Company with a person who is not an affiliate of the Company as of the date of this Agreement, and in which the Company is not the surviving entity. 7. NON-COMPETITION AND CONFIDENTIALITY. 7.1 NON-DISCLOSURE. The Executive will not, during the period of the Executive's employment with the Company or at any time thereafter, regardless of the reason for the cessation of the Executive's employment: (i) use any Confidential Information for the Executive's own benefit or for the benefit of any person or entity other than the Company; (ii) disclose to any person or entity any Confidential Information; or (iii) remove from the Company's premises or make copies of any Confidential Information, in any form; except, in each case, as may be required within the scope of the Executive's duties during the Executive's employment by the Company. Upon termination of the Executive's employment, or at any such time as the Company may request, the Executive will deliver to the Company all copies in the Executive's possession of any Confidential Information, in any form. The Executive will not at any time assert any rights as against the Company in or with respect to any Confidential Information. For purposes of this Agreement, "Confidential Information" means any and all technical, research, operational, manufacturing, marketing, sales and financial information, customer lists and trade secrets of the Company or of any vendor, supplier, distributor or customer of the Company, regardless of how acquired or developed by the Company or any such vendor, supplier, distributor or customer, concerning any of their respective businesses. Confidential Information does not include information, knowledge or data which the Executive can prove was in the Executive's possession prior to the commencement of the Executive's employment with the Company or information, knowledge or data which was or is in the public domain by reason other than the wrongful acts of the Executive. 7.2 NON-COMPETITION. The Executive will not, during the period of the Executive's employment with the Company, and for (i) a period of two years after the termination of the Executive's employment with the Company for any reason other than termination by the Company without Cause, or (ii) if for termination by the Company without Cause, for the period he continues to receive his Base Salary pursuant to Section 5.4, directly or indirectly, on the Executive's behalf or on behalf of any other person or entity, in any way, whether as an individual proprietor, partner, stockholder, officer, employee, consultant, director, joint venturer, investor, -6- 7 lender (other than as an employee of a bank or other financial institution) or in any other capacity with any entity materially engaged in the business of the Company, compete within the territory served, or contemplated to be entered, by the Company on the date of such termination of employment. Nothing contained herein shall be construed as preventing the Executive from owning beneficially or of record not more than five percent (5%) of the outstanding equity security of any entity whose equity securities are registered under the Securities Act of 1933, as amended, or are listed for trading on any recognizable United States or foreign stock exchange or market. The business of the Company shall be defined to include the undercar service and repair of automobile and light truck brake, exhaust and suspension systems, and related activities. 7.3 NON-SOLICITATION OF EMPLOYEES. The Executive will not, during the period of the Executive's employment with the Company, and for a period of two years after the termination of the Executive's employment with the Company for any reason, directly or indirectly, recruit, solicit or otherwise induce or attempt to induce any employee of the Company to leave the employment of the Company, nor hire any such employee at any enterprise with which the Executive is then affiliated. 7.4 ENFORCEABILITY OF PROVISIONS. If any restriction set forth in this Section 7 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable, it being understood and agreed that by the execution of this Agreement, the parties hereto regard the restrictions herein as reasonable and compatible with their respective rights. 7.5 REMEDY FOR BREACH. The Executive hereby acknowledges that the provisions of this paragraph 7 are reasonable and necessary for the protection of the Company and its respective subsidiaries and affiliates. In addition, the Executive further acknowledges that the Company and its respective subsidiaries and affiliates will be irrevocably damaged if such covenants are not specifically enforced. Accordingly, the Executive agrees that, in addition to any other relief to which the Company may be entitled, the Company will be entitled to seek and obtain injunctive relief (without the requirement of any bond) from a court of competent jurisdiction for the purposes of restraining the Executive from an actual or threatened breach of such covenants. In addition, and without limiting the Company's other remedies, in the event of any breach by the Executive of such covenants, the Company will have no obligation to pay any of the amounts that remain payable by the Company under Section 5.4 of this Agreement. 8. EXECUTIVE REPRESENTATIONS. (a) The Executive hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by the Executive does not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which the Executive is a party or by which he is bound, (ii) the Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity, (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of the -7- 8 Executive, enforceable in accordance with its terms, and (iv) the Executive is under no physical or mental disability that would hinder him in the performance of his duties hereunder. (b) The Executive shall indemnify and hold harmless the Company from and against any and all claims, liabilities, damages and reasonable costs of defense and investigation arising out of any breach or inaccuracy in any of the foregoing representations and warranties. 9. OTHER PROVISIONS. 9.1 NOTICES. Any notice or other communication required or which may be given hereunder shall be in writing and shall be delivered personally, telecopied, or sent by certified, registered or express mail, postage prepaid, to the parties at the following addresses or at such other addresses as shall be specified by the parties by like notice, and shall be deemed given when so delivered personally, telecopied or if mailed, two days after the date of mailing, as follows: (a) if to the Company, to it at: Monro Muffler Brake, Inc. 200 Holleder Parkway Rochester, New York 14615 Attention: Peter Solomon (b) if to the Executive, to him at: 10 Moraine Road Edison, New Jersey 08820 9.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto. 9.3 WAIVERS AND AMENDMENTS. This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. 9.4 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and construed and enforced in accordance with and subject to, the laws of the State of New York applicable to agreements made and to be performed entirely within such state. The courts of New York and the United States District Courts for New York shall have jurisdiction over the parties -8- 9 with respect to any dispute or controversy between them arising under or in connection with this Agreement. 9.5 ASSIGNMENT. This Agreement shall inure to the benefit of and shall be binding upon the Company and its successors and permitted assigns and upon the Executive and his heirs, executors, legal representatives, successors and permitted assigns. However, neither party may voluntarily assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this Agreement or any of its or his rights hereunder without the prior written consent of the other party, and any such attempted assignment, transfer, pledge, encumbrance, hypothecation or other disposition without such consent shall be null and void without effect. 9.6 COUNTERPARTS. This Agreement may be executed in two counterparts, each of which shall be deemed an original but both of which together shall constitute one and the same instrument. 9.7 HEADINGS. The headings in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 9.8 SEVERABILITY. If any term, provision, covenant or restriction of this Agreement, or any part thereof, is held by a court of competent jurisdiction of any foreign, federal, state, county or local government or any other governmental, regulatory or administrative agency or authority to be invalid, void, unenforceable or against public policy for any reason, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 9.9 SHAREHOLDER APPROVAL. The Company shall use its best efforts to obtain shareholder approval of the Stock Option Plan at the next annual meeting of shareholders. 9.10. EFFECTIVE DATE. Notwithstanding the date and execution of this Agreement, this Agreement shall not become effective until the Executive notifies the Company of his resignation from his current employer (the "Effective Date"), provided that this Agreement shall terminate completely if the Effective Date does not occur by December 4, 1998. -9- 10 IN WITNESS WHEREOF, the parties have executed this Amended and Restated Employment Agreement as of the date first above written. MONRO MUFFLER BRAKE, INC. By:__________________________________ Name:________________________________ Title:_______________________________ _____________________________________ Robert Gross EX-10.2 3 EXHIBIT 10.2 1 Exhibit 10.2 AMENDED AND RESTATED SECURED NOTE AGREEMENT ------------------------------------------- AMENDED AND RESTATED AGREEMENT, dated as of this 16th day of February, 1999 (the "Agreement"), between Monro Muffler Brake, Inc. (the "Lender"), and Robert Gross (the "Borrower"). WHEREAS, the Lender and the Borrower entered into an employment agreement as of November 18, 1998, and effective as a date specified therein, as amended (the "Employment Agreement"), whereby, under the terms thereof, the Lender agreed to employ the Borrower to render exclusive and full-time services in the capacity of President and Chief Executive Officer of the Lender; and WHEREAS, pursuant to the Employment Agreement, the Borrower is required to purchase, in the open market, up to 100,000 shares of Lender common stock (the "Shares") no later than January 31, 1999; and WHEREAS, in connection with the purchase of the Shares, the Borrower agreed to pay an amount equal to the purchase price necessary for the purchase of the first 25,000 of the 100,000 Shares (the "Out-of-Pocket Sum"); and WHEREAS, pursuant to the Employment Agreement, the Lender agreed to lend to the Borrower, on a full-recourse basis, the balance required for the purchase of the remaining 75,000 Shares above the Out-of-Pocket Sum, up to $650,000; and WHEREAS, the Lender is prepared to make available to the Borrower, pursuant to this Agreement, such funds above the Out-of-Pocket Sum as are necessary for the purchase of the Shares. NOW THEREFORE, the parties hereto agree as follows: 1. LOAN The Lender hereby agrees to make available to the Borrower a loan in lawful money of the United States in the principal amount (the "Principal Amount") of up to $650,000 pursuant to the terms of this Agreement (the "Loan"). 2. REPAYMENT OF PRINCIPAL The Principal Amount shall be due and payable by the Borrower, with such payment made in cash, in five annual installments, each equaling 20% of the Principal Amount (the "Installment Payments"), such that the first Installment Payment shall be due and payable on the first anniversary of the date of this Agreement and the last Installment Payment shall be due and payable on the fifth anniversary of the date of this Agreement; PROVIDED, HOWEVER, that if the 2 Borrower is employed with the Lender pursuant to the Employment Agreement at the time any Installment Payment is due under this Section 2, such Installment Payment shall be forgiven by the Lender. 3. INTEREST The Borrower agrees to pay interest on the unpaid Principal Amount outstanding under this Agreement, which interest shall be due and payable on the fifth anniversary of the date of this Agreement, at a rate per annum of 5 1/2%, compounded annually, as of the date the Lender loans the Principal Amount to the BorroweR hereunder; PROVIDED, HOWEVER, that if the Borrower is employed with the Lender pursuant to the Employment Agreement on the fifth anniversary of the date of this Agreement, the interest payment due under this Section 3 shall be forgiven by the Lender. 4. USE OF FUNDS The Borrower covenants and agrees that the Principal Amount shall be used solely to finance the purchase of the Shares. 5. SECURITY INTEREST To secure the full and timely payment when due of the Principal Amount, interest and other charges on the Loan, the Borrower hereby pledges and grants a first priority security interest in favor of the Lender in the Shares purchased by the Borrower with the proceeds of the Loan and shall deliver to the Lender as promptly as possible the certificates representing the Shares, duly endorsed in blank or accompanied by executed stock powers, as collateral (the "Collateral"). On any date that a portion of the principal amount of the Loan is forgiven pursuant to Section 2, a portion of the Shares shall be released from pledge hereunder equal to the lesser of (i) a number of Shares equal to the same percentage of the total number of Shares originally pledged as the percentage of the original principal amount then forgiven, and (ii) a number of shares such that, after such release, the remaining pledged shares have a fair market value of at least 150% of the remaining principal amount of the Loan. 6. DEFAULTS If any of the following events shall occur: (a) a default by the Borrower in the payment of any of the obligations or liabilities of the Borrower to the Lender hereunder which default is not cured within 5 days following the applicable payment date; (b) the appointment of a custodian, trustee, liquidator or receiver for or for any of the property of, or an assignment for the benefit of creditors by, the Borrower; or (c) the Borrower shall admit in writing that he is unable to pay his debts as such debts become due (collectively, "Events of Default"); then, at the option of the Lender, all obligations of the Borrower under this Agreement shall become due and payable forthwith, upon declaration to that effect by the Lender, without notice to the Borrower, anything contained herein or in any other document, instrument or agreement the contrary notwithstanding, and the Lender shall be entitled to exercise any and all of the rights and remedies available to it 2 3 pursuant to Section 7 hereof, including, without limitation, any and all of the rights and remedies of a secured party under the Uniform Commercial Code of the State of New York, as it may be amended from time to time. All obligations of the Borrower under this Agreement shall become immediately and automatically due and payable, without presentment, demand, protest or notice of any kind, upon the commencement by or against the Borrower of a case or proceeding under any bankruptcy, insolvency or other law relating to the relief of debtors, the readjustment, composition or extension of indebtedness or reorganization or liquidation. 7. REMEDIES IN CASE OF EVENT OF DEFAULT In case an Event of Default shall have occurred and be continuing, the Lender shall be entitled to exercise all of the rights, powers and remedies (whether vested in it by this Agreement or by law) for the protection and enforcement of its rights in respect of the Collateral, and the Lender shall be entitled, without limitation, to exercise the following rights: (a) to receive all distributions payable in respect of the Collateral; (b) to transfer all or any part of the Borrower's interest in the Collateral into the Lender's name or the name of its nominee or nominees; (c) to vote all or any part of the Borrower's interest in the Collateral (whether or not transferred into the name of the Lender) and give all required consents, waivers and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (the Borrower hereby irrevocably constituting and appointing the Lender the proxy and attorney-in-fact of the Borrower, with full power of substitution to do so); and (d) without limiting the foregoing, at any time or from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Collateral, or any interests therein, at any public or private sale without demand of performance, advertisement or notice of intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by the Borrower), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk, and for such price or prices and on such terms as the Lender in its absolute discretion may determine. 8. GOVERNING LAW The provisions of this Agreement shall be construed and interpreted and all rights and obligations hereunder shall be determined in accordance with the laws of the State of New York, without regard to the conflicts of laws provisions thereof. 9. WAIVER OF JURY TRIAL The Borrower hereby waives trial by jury, presentment, demand, notice of demand, notice of dishonor, protest, non-payment and all other notices in connection with the loan. 10. ASSIGNMENT The obligations or rights of the Lender hereunder shall be assignable or transferable in full or in part by the Lender without the consent of the Borrower. No obligation or 3 4 rights of the Borrower hereunder can be assigned or transferred without the prior written consent of the Lender. 11. NO WAIVER; CUMULATIVE REMEDIES No failure on the part of the Lender to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as waiver thereof, nor shall any single or partial exercise by the Lender of any right, remedy or power hereunder preclude any other or future exercises of any other right, remedy or power. Each and every right, remedy and power hereby granted to the Lender shall be cumulative and not exclusive of any other such right, remedy or power, and may be exercised by the Lender from time to time. 12. SEVERABILITY Every provision of this Agreement is intended to be severable. If any term, provision, covenant or restriction of this Agreement, or any part thereof, is held by a court of competent jurisdiction of any foreign, federal, state, county or local government or any other governmental, regulatory or administrative agency or authority to be invalid, void, unenforceable or against public policy for any reason, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 13. HEADINGS The section headings in this Agreement are for convenience only and are not intended to affect the interpretation or construction of the provisions of this Amended and Restated Secured Note Agreement. Executed as of the date and year first above written. MONRO MUFFLER BRAKE, INC. ____________________________ ____________________________ By: Robert Gross Title: 4 EX-10.3 4 EXHIBIT 10.3 1 Exhibit 10.3 MONRO MUFFLER BRAKE, INC. 1998 STOCK OPTION PLAN ARTICLE 1 ESTABLISHMENT AND PURPOSE 1.1 Establishment and Effective Date. Monro Muffler Brake, Inc., a New York corporation (the "Company"), hereby establishes a stock option plan to be known as the Monro Muffler Brake, Inc. 1998 Stock Option Plan (the "Plan"). The Plan shall become effective as of November 18, 1998, subject to the approval of the Company's stockholders. 1.2 Purpose. The purpose of the Plan is to encourage and enable all eligible employees (subject to such requirements as may be prescribed by the Stock Option Committee (the "Committee")) of the Company and its subsidiaries to acquire a proprietary interest in the Company through the ownership of the Company's common stock, par value $0.01 per share ("Common Stock"). Such ownership will provide such employees with a more direct stake in the future welfare of the Company and encourage them to remain with the Company and its subsidiaries. It is also expected that the Plan will encourage qualified persons to seek and accept employment with the Company and its subsidiaries. ARTICLE 2 AWARDS 2.1 Form of Awards. Awards under the Plan may be granted in the form of incentive stock options ("Incentive Stock Options") meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options ("Non-qualified Stock Options) that are not intended to qualify as incentive stock options under Section 422 of the Code (collectively, "Options"). 2.2 Maximum Shares Available. The maximum aggregate number of shares of Common Stock available for award under the Plan is 750,000, subject to adjustment pursuant to Article 8 hereof. Shares of Common Stock issued pursuant to the Plan may be either authorized but unissued shares or issued shares reacquired by the Company. In the event that prior to the end of the period during which Options may be granted under the Plan, any Option expires unexercised or is terminated, surrendered or canceled without being exercised in whole for any reason, the shares of Common Stock covered by such Option shall be available for subsequent awards of Options under the Plan upon such terms as the Committee may determine. In addition, shares of Common Stock withheld in payment of taxes relating to Options, and the number of shares of Common Stock equal to the number of shares surrendered in payment of the exercise price of Options or taxes relating to Options, shall be available for subsequent awards of Options under the Plan upon such terms as the Committee may determine. -1- 2 2.3 Return of Prior Awards. As a condition to any subsequent award, the Committee shall have the right, at its discretion, to require employees to return to the Company Options previously granted under the Plan. Subject to the provisions of the Plan, such new Option shall be upon such terms and conditions as are specified by the Committee at the time the new award is granted. ARTICLE 3 ADMINISTRATION 3.1 Committee. Awards shall be determined, and the Plan shall be administered by, the Committee as appointed from time to time by the Board of Directors of the Company (the "Board"), which Committee shall consist of not less than two (2) members of the Board. Except as permitted by Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the "Act"), and by Section 162(m) of the Code (or Regulations promulgated thereunder), no member of the Board may serve on the Committee if such member: (i) is or has been granted or awarded stock, stock options or any other equity security or derivative security of the Company or any of its affiliates pursuant to the Plan or any other plan of the Company or its affiliates either while serving on the Committee or during the one year period prior to being appointed to the Committee; (ii) is an employee or former employee of the Company; or (iii) receives remuneration from the Company, either directly or indirectly, in any capacity other than as a director. 3.2 Powers of Committee. Subject to the express provisions of the Plan, the Committee shall have the power and authority (i) to grant Options and to determine the purchase price of the Common Stock covered by each Option, the term of each Option, the number of shares of Common Stock to be covered by each Option and any performance objectives or vesting standards applicable to each Option; (ii) to designate Options as Incentive Stock Options or Non-qualified Stock Options; and (iii) to determine the employees to whom, and the time or times at which, Options shall be granted. 3.3 Delegation. The Committee may delegate to one or more of its members or to any other person or persons such ministerial duties as it may deem advisable. The Committee may also delegate to the Chief Executive Officer of the Company the authority, subject to such terms as the Committee shall determine, to perform any and all functions as the Committee may determine. The Committee may also employ attorneys, consultants, accountants or other professional advisors and shall be entitled to rely upon the advice, opinions or valuations of any such advisors. 3.4 Interpretations. The Committee shall have sole discretionary authority to interpret the terms of the Plan, to adopt and revise rules, regulations and policies to administer the Plan and to make any other factual determinations which it believes to be necessary or advisable for the administration of the Plan. All actions taken and interpretations and determinations made by the Committee in good faith shall be final and binding upon the Company, all employees who have received awards under the Plan and all other interested persons. -2- 3 3.5 Liability; Indemnification. No member of the Committee, nor the Chief Executive Officer, or any person to whom ministerial duties have been delegated, shall be personally liable for any action, interpretation or determination made with respect to the Plan or Options granted thereunder, and each member of the Committee, the Chief Executive Officer and each person to whom ministerial duties have been delegated shall be fully indemnified and protected by the Company with respect to any liability he or she may incur with respect to any such action, interpretation or determination, to the extent permitted by applicable law and to the extent provided in the Company's Certificate of Incorporation and Bylaws, as amended from time to time, or under any agreement between such member, the Chief Executive Officer and the Company. ARTICLE 4 ELIGIBILITY Options may be granted to all employees of the Company or any of its subsidiaries (subject to such requirements as may be prescribed by the Committee), including officers of the Company; PROVIDED, HOWEVER, that no employee may receive a grant of an Option to purchase more than 500,000 shares of Common Stock in the aggregate in any fiscal year of the Company. Options may be granted to a director of the Company, provided that the director is also an employee. In determining the employees to whom Options shall be granted and the number of shares to be covered by each Option, the Committee shall take into account the nature of the services rendered by such employees, their present and potential contributions to the success of the Company and its subsidiaries, and such other factors as the Committee in its sole discretion shall deem relevant. As used herein, the term "subsidiary" shall mean any present or future corporation, partnership or joint venture in which the Company owns, directly or indirectly, 40% or more of the economic interests. Notwithstanding the foregoing, only employees of the Company and any present or future corporation which is or may be a "subsidiary corporation" of the Company (as such term is defined in Section 424(f) of the Code) shall be eligible to receive Incentive Stock Options. ARTICLE 5 STOCK OPTIONS 5.1 Grant of Options. Options may be granted under the Plan for the purchase of shares of Common Stock. Options shall be granted in such form and upon such terms and conditions, including the satisfaction of corporate or individual performance objectives and other vesting standards, as the Committee shall from time to time determine. 5.2 Designation as Non-qualified Stock Option or Incentive Stock Option. In connection with any grant of Options, the Committee shall designate in the written agreement required pursuant to Article 10 hereof whether the Options granted shall be Incentive Stock -3- 4 Options or Non-qualified Stock Options, or in the case both are granted, the number of shares of each. 5.3 Option Price. The purchase price per share under each Incentive Stock Option shall be the Market Price (as hereinafter defined) of the Common Stock on the date the Incentive Stock Option is granted. The purchase price per share under each Non-qualified Stock Option shall be specified by the Committee. In no case, however, shall the purchase price per share of an Option be less than the par value of the Common Stock ($0.01). Notwithstanding the foregoing, to the extent required by the Code, the purchase price per share under each Non-qualified Stock Option granted to an employee who is treated as a "covered employee" (as defined in Section 162(m)(3) of the Code) on the date such Non-qualified Stock Option is exercised shall not be less than 100% of the Market Price of the Common Stock on the date of grant. In the case of an Incentive Stock Option granted to an employee owning (actually or constructively under Section 424(d) of the Code), more than 10% of the total combined voting power of all classes of stock of the Company or of a subsidiary (a "10% Stockholder"), the option price shall not be less than 110% of the Market Price of the Common Stock on the date of grant. The "Market Price" of the Common Stock on any day shall be determined as follows: (i) if the Common Stock is listed on a national securities exchange or quoted through the NASDAQ National Market System, the Market Price on any day shall be the average of the high and low reported Consolidated Trading sales prices, or if no such sale is made on such day, the average of the closing bid and asked prices reported on the Consolidated Trading listing for such day; (ii) if the Common Stock is quoted on the NASDAQ inter-dealer quotation system, the Market Price on any day shall be the average of the representative bid and asked prices at the close of business for such day; or (iii) if the Common Stock is not listed on a national stock exchange or quoted on NASDAQ, the Market Price on any day shall be the average of the high bid and low asked prices reported by the National Quotation Bureau, Inc. for such day. 5.4 Limitation on Amount of Incentive Stock Options. In the case of Incentive Stock Options, the aggregate Market Price (determined at the time the Incentive Stock Option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any optionee during any calendar year (under all plans of the Company and any subsidiary) shall not exceed $100,000. 5.5 Limitation on Time of Grant. No grant of an Incentive Stock Option shall be made under the Plan more than ten (10) years after the date the Plan is approved by stockholders of the Company. 5.6 Exercise and Payment. Options may be exercised in whole or in part. Common Stock purchased upon exercise of Options shall be paid for in full at the time of purchase. Such payment shall be made in cash or, in the discretion of the Committee, through delivery of shares of Common Stock or a combination of cash and Common Stock, in accordance with procedures to be established by the Committee. Any shares so delivered shall be valued at their Market Price on the date of exercise. -4- 5 5.7 Term. The term of each Option granted under the Plan shall be determined by the Committee; PROVIDED, HOWEVER, that, notwithstanding any other provision of the Plan, in no event shall an Incentive Stock Option be exercisable after ten (10) years from the date it is granted, or in the case of an Incentive Stock Option granted to a 10% Stockholder, five (5) years from the date it is granted. 5.8 Rights as a Stockholder. A recipient of Options shall have no rights as a stockholder with respect to any shares issuable or transferable upon exercise thereof until the date a stock certificate is issued to such recipient representing such shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for cash dividends or other rights for which the record date is prior to the date such stock certificate is issued. 5.9 General Restrictions. Each Option granted under the Plan shall be subject to the requirement that, at any time the Board shall determine, in its discretion, that the listing, registration or qualification of the shares issuable or transferable upon exercise thereof upon any securities exchange or under any state or Federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the issue, transfer, or purchase of shares thereunder, such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Board. The Board or the Committee may, in connection with the granting of any Option, require the individual to whom the Option is to be granted to enter into an agreement with the Company stating that as a condition precedent to each exercise of the Option, in whole or in part, such individual shall if then required by the Company represent to the Company in writing that such exercise is for investment only and not with a view to distribution, and also setting forth such other terms and conditions as the Board or the Committee may prescribe. ARTICLE 6 NONTRANSFERABILITY OF OPTIONS No Option may be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except as provided by will or the applicable laws of descent and distribution, and no Option shall be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option not specifically permitted herein shall be null and void and without effect. An Option may be exercised by the recipient only during his or her lifetime, or following his or her death pursuant to Section 7.3 hereof. Notwithstanding anything to the contrary in the preceding paragraph, the Committee may, in its sole discretion, cause the written agreement relating to any Options granted under the Plan to provide that the recipient of such Options may transfer any such Options other than by will or the laws of descent and distribution in any manner authorized under applicable law. -5- 6 ARTICLE 7 EFFECT OF TERMINATION OF EMPLOYMENT, RELOCATION EVENT, DISABILITY, RETIREMENT, DEATH OR SPECIAL EVENT 7.1 General Rule. Except as expressly determined by the Committee in its sole discretion, no Option shall be exercisable after [thirty (30) days] following the recipient's termination of employment with the Company or a subsidiary, unless such termination of employment occurs by reason of: (i) Retirement (as defined in Section 7.2), (ii) Disability (as defined in Section 7.2), or (iii) death. Options shall not be affected by any change of employment so long as the recipient continues to be employed by either the Company or a subsidiary. The Committee may, in its sole discretion, cause any Option to be forfeited upon an employee's termination of employment if the employee was terminated for one (or more) of the following reasons: (i) the employee's conviction, or plea of guilty or nolo contendere to the commission of a felony; (ii) the employee's commission of any fraud, misappropriation or misconduct which causes demonstrable injury to the Company or a subsidiary; (iii) an act of dishonesty by the employee resulting or intended to result, directly or indirectly, in gain or personal enrichment at the expense of the Company or a subsidiary; or (iv) any breach of the employee's fiduciary duties to the Company as an employee. It shall be within the sole discretion of the Committee to determine whether the employee's termination was for one of the foregoing reasons, and the decision of the Committee shall be final and conclusive. 7.2 Disability or Retirement. Except as expressly provided otherwise in the written agreement relating to any Option granted under the Plan, in the event of the Disability or Retirement of a recipient of Options, the Options which are held by such recipient on the date of such Disability or Retirement, whether or not otherwise exercisable on such date, shall be exercisable for [one (1) year following such Disability or Retirement]. "Disability" shall mean any termination of employment with the Company or a subsidiary because of a long-term or total disability, as determined by the Committee in its sole discretion. "Retirement" shall mean a termination of employment with the Company or a subsidiary either: (i) on a voluntary basis by a recipient who is at least sixty-five (65) years of age and who has at least ten (10) years of service with the Company or a subsidiary; or (ii) otherwise with the written consent of the Committee in its sole discretion. The decision of the Committee with respect to a determination regarding Disability or Retirement shall be final and conclusive. 7.3 Death. In the event of the death of a recipient of Options while an employee of the Company or any subsidiary, Options which are held by such employee at the date of death, whether or not otherwise exercisable on the date of death, shall be exercisable by the beneficiary designated by the employee for such purpose (the "Designated Beneficiary") or if no Designated Beneficiary shall be appointed or if the Designated Beneficiary shall predecease the employee, by the employee's personal representatives, heirs or legatees, at any time within [one (1) year] from the date of death, at which time such Options shall terminate. -6- 7 In the event of the death of a recipient of Options following a termination of employment due to Retirement or Disability, if such death occurs before the Options are exercised, the Options which are held by such recipient on the date of termination of employment, whether or not otherwise exercisable on such date, shall be exercisable by such recipient's Designated Beneficiary, or if no Designated Beneficiary shall be appointed or if the Designated Beneficiary shall predecease such recipient, by such recipient's personal representatives, heirs or legatees, to the same extent such Options were exercisable by the recipient following such termination of employment. 7.4 Leave of Absence. In the case of an employee on an approved leave of absence, the Options of such employee shall not be affected unless such leave is longer than [three (3) months]. The date of exercisability of any Options of an employee which are unexercisable at the beginning of an approved leave of absence lasting longer than [three (3) months] shall be postponed for a period equal to the length of such leave of absence. Notwithstanding the foregoing, the Committee may, in its sole discretion, waive in writing any such postponement of the date of exercisability of any Options due to a leave of absence. 7.5 Change in Control. Notwithstanding any provisions of the Plan to the contrary, if there should be a Change in Control of the Company (i) the Company shall give each recipient of Options written notice of such Change in Control as promptly as practicable prior to the effective date thereof, and (ii) all of the Options held by employees not currently exercisable shall become exercisable immediately prior to the effective date of such Change in Control; PROVIDED, HOWEVER, that all or a portion of such Options shall not be exercisable to the extent that the exercise would cause the employee to be subject to taxes under Section 4999 of the Code. "Change in Control" shall mean any of the following: (i) any person who is not an "affiliate" (as defined in Rule 12b-2 of the Act) of the Company as of the effective date of the Plan becomes the beneficial owner, directly or indirectly, of 50% or more of the combined voting power of the then outstanding securities of the Company except pursuant to a public offering of securities of the Company; (ii) the sale of the Company substantially as an entirety (whether by sale of stock, sale of assets, merger, consolidation, or otherwise) to a person who is not an affiliate of the Company as of the effective date of the Plan; or (iii) there occurs a merger, consolidation or other reorganization of the Company with a person who is not an affiliate of the Company as of the effective date of the Plan, and in which the Company is not the surviving entity. -7- 8 ARTICLE 8 ADJUSTMENT UPON CHANGES IN CAPITALIZATION Notwithstanding any other provision of the Plan, the Committee may: (i) at any time, make or provide for such adjustments to the Plan or to the number and class of shares available thereunder; or (ii) at the time of grant of any Options, provide for such adjustments to such Options as the Committee shall deem appropriate to prevent dilution or enlargement of rights, including, without limitation, adjustments in the event of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, spin-offs, reorganizations, liquidations and the like. ARTICLE 9 AMENDMENT AND TERMINATION The Board may suspend, terminate, modify or amend the Plan, provided that any amendment that would (i) materially increase the aggregate number of shares which may be issued under the Plan, (ii) materially increase the benefits accruing to employees under the Plan, or (iii) materially modify the requirements as to eligibility for participation in the Plan, shall be subject to the approval of the Company's stockholders, except that any such increase or modification that may result from adjustments authorized by Article 8 hereof shall not require such stockholder approval. If the Plan is terminated, the terms of the Plan shall, notwithstanding such termination, continue to apply to awards granted prior to such termination. No suspension, termination, modification or amendment of the Plan may, without the consent of the employee to whom an award shall theretofore have been granted, adversely affect the rights of such employee under such award. ARTICLE 10 WRITTEN AGREEMENT Each award of Options shall be evidenced by a written agreement containing such restrictions, terms and conditions, if any, as the Committee may require. In the event of any conflict between a written agreement and the Plan, the terms of the Plan shall govern. ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1 Tax Withholding. The Company shall have the right to require employees or their Designated Beneficiaries, personal representatives, heirs or legatees to remit to the Company an amount sufficient to satisfy Federal, state and local withholding tax requirements, or to deduct from all payments under the Plan amounts sufficient to satisfy all withholding tax -8- 9 requirements. The Committee may, in its sole discretion, permit an employee to satisfy his or her tax withholding obligation either by: (i) surrendering shares of Common Stock owned by the employee; or (ii) having the Company withhold from shares of Common Stock otherwise deliverable to the employee. Shares of Common Stock surrendered or withheld shall be valued at their Market Price as of the date on which income is required to be recognized for income tax purposes. 11.2 Successor. The obligations of the Company under the Plan shall be binding upon any successor Company or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor Company or organization succeeding to all or substantially all of the assets and business of the Company. In the event of any of the foregoing, the Committee may, at its discretion prior to the consummation of the transaction and subject to Article 9 hereof, cancel, offer to purchase, exchange, adjust or modify any outstanding awards, at such time and in such manner as the Committee deems appropriate and in accordance with applicable law. 11.3 General Creditor Status. Employees shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any employee or Designated Beneficiary, personal representative, heir or legatee of such employee. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made under the Plan shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. 11.4 No Right to Employment. Nothing in the Plan or in any written agreement entered into pursuant to Article 10 hereof, nor the grant of any award, shall confer upon any employee any right to continue in the employ of the Company or a subsidiary or to be entitled to any remuneration or benefits not set forth in the Plan or such written agreement or interfere with or limit the right of the Company or a subsidiary to modify the terms of or terminate such employee's employment at any time. 11.5 Notices. Notices required or permitted to be made under the Plan shall be sufficiently made if personally delivered to the employee or sent by regular mail addressed: (i) to the employee at the employee's address as set forth in the books and records of the Company or its subsidiaries; or (ii) to the Company or the Committee at the principal office of the Company clearly marked "Attention: Stock Option Committee." 11.6 Severability. In the event that any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. -9- 10 11.7 Governing Law. To the extent not preempted by Federal law, the Plan, and all agreements thereunder, shall be construed in accordance with and governed by the laws of the State of New York. -10- EX-11 5 EXHIBIT 11 1 MONRO MUFFLER BRAKE, INC. Exhibit 11 STATEMENT OF COMPUTATION OF PER SHARE EARNINGS Earnings per share for each period was computed by dividing net income for such period by the weighted average number of shares of Common Stock and common stock equivalents outstanding during such period. All share data have been restated to reflect the 5% stock dividend paid June 18, 1998. (See Note 2 of Notes to Consolidated Financial Statements). Calculations reflect the adoption of the provisions of Financial Accounting Standards ("FAS") No. 128, "Earnings per Share" effective for periods ending after December 15, 1997.
QUARTER ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 ---- ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) DILUTED EARNINGS Net Income $ (923) $ 1,700 $ 5,346 $ 8,469 ======= ======= ======= ======= SHARES Weighted average number of shares of common shares 8,322 8,260 8,301 8,254 Assuming conversion of Class C Convertible Preferred Stock 636 636 636 Dilutive effect of outstanding options 88 65 129 ------- ------- ------- ------- Total common and common equivalent shares 8,322 8,984 9,002 9,019 ======= ======= ======= ======= DILUTED (LOSS) EARNINGS PER SHARE $ (.11) $ .19 $ .59 $ .94 ======= ======= ======= ======= BASIC EARNINGS Net Income $ (923) $ 1,700 $ 5,346 $ 8,469 ======= ======= ======= ======= SHARES Weighted average number of common shares 8,322 8,260 8,301 8,254 BASIC (LOSS) EARNINGS PER SHARE $ (.11) $ .21 $ .64 $ 1.03 ======= ======= ======= =======
- 18 - EX-27 6 EXHIBIT 27
5 1,000 9-MOS MAR-31-1999 APR-01-1998 DEC-31-1998 852 0 1,231 0 41,601 50,073 202,786 (50,511) 206,275 31,499 0 0 138 83 81,972 200,275 144,169 144,169 84,933 84,933 46,168 0 3,579 8,864 3,518 5,346 0 0 0 5,346 .64 .59
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