AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1997.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRECISION AUTO CARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
VIRGINIA 7539 54-1847851
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
748 MILLER DRIVE, S.E.
LEESBURG, VIRGINIA 20175
(703) 777-9095
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
PETER KENDRICK
748 MILLER DRIVE, S.E.
LEESBURG, VIRGINIA 20175
(703) 777-9095
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN B. FRISCH, ESQUIRE JOEL J. HUGHEY, ESQUIRE
MILES & STOCKBRIDGE, ALSTON & BIRD LLP
A PROFESSIONAL CORPORATION 1201 W. PEACHTREE STREET
10 LIGHT STREET ATLANTA, GEORGIA 30309-3424
BALTIMORE, MARYLAND 21202 (404) 881-7490
(410) 385-3507
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
Registration Statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective Registration Statement
for the same offering: [ ]
If delivery of the prospectuses is expected to be made pursuant to Rule
434, check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.01 per share...................... $29,095,000 $8,817
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) of the rules and regulations under the
Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION DATED , 1997.
PROSPECTUS
- ----------
2,300,000 SHARES
PRECISION AUTO CARE, INC.
COMMON STOCK
------------------------
All of the 2,300,000 shares of Common Stock being offered hereby are being
offered by Precision Auto Care, Inc. ("Precision Auto Care" or the "Company").
Prior to this offering (the "Offering"), there has been no public market for the
Common Stock of the Company. The initial public offering price of the Common
Stock is estimated to be between $10.00 and $12.00 per share. See "Underwriting"
for information relating to the factors to be considered in determining the
initial public offering price. Application has been made to have the Company's
shares of Common Stock included for quotation on the Nasdaq National Market
under the symbol "PACI" following the consummation of the Offering.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS AND
PRICE TO PUBLIC COMMISSIONS(1) PROCEEDS TO COMPANY(2)
<S> <C> <C> <C>
Per Share..................... $ $ $
Total(3)...................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated to be $ payable by the Company.
(3) The Company has granted the Underwriters a 30-day option from the date of
this Prospectus to purchase up to 345,000 additional shares of Common Stock
on the same terms and conditions as set forth above solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to the
Company will be $ , $ , $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the Underwriters' right to withdraw, cancel or modify such offer and to reject
orders in whole or in part. It is expected that delivery of the shares of Common
Stock offered hereby will be made on or about , 1997.
------------------------
A.G. EDWARDS & SONS, INC. FERRIS, BAKER WATTS
Incorporated
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
INSIDE FRONT COVER: A map of all existing retail and manufacturing
operations for Precision Tune Auto Care, Precision Auto Wash and Precision Lube
Express.
GATEFOLD: Photos of the auto care, car wash and lube facilities as well as
artist renderings of future prototype centers.
INSIDE BACK COVER: Product photos from the facilities -- i.e. technician
interacting with engine analyzer, receptionist providing maintenance log at
check out, etc.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by independent certified public
accountants and quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Simultaneously with, and as a condition to, the closing of the Offering, the
Company will acquire, in a series of separate merger and exchange offer
transactions, businesses engaged in (i) franchising and operating automobile
repair and maintenance service centers ("Precision Tune Auto Care"), (ii)
operating self-service and automated car wash centers ("Precision Auto Wash"),
and (iii) franchising and operating fast oil change and lubrication service
centers ("Precision Lube Express"), in exchange for shares of Common Stock (the
"Combination"). Unless the context otherwise requires, all references herein to
the "Company" or "Precision Auto Care" shall mean Precision Auto Care, Inc., a
Virginia corporation, and the Constituent Companies (as defined herein), taken
as a whole, and assume that the Combination has been consummated. See "The
Combination." Unless otherwise indicated, the information in this Prospectus
does not give effect to the Underwriters' over-allotment option. References to
system wide retail sales for Precision Tune Auto Care and Precision Lube Express
and information derived therefrom have been based upon information obtained from
the Company's franchisees.
THE COMPANY
Precision Auto Care is an international provider of automotive maintenance
services which are offered principally as franchise operations and will be
marketed under the "Precision" brand. The Company's operations include: (i)
Precision Tune Auto Care, an international franchisor of automotive service
centers; (ii) Precision Auto Wash, an operator and franchisor of self-service
and touchless automatic car wash centers; and (iii) Precision Lube Express, an
operator and franchisor of modular fast oil change and lube centers. The
Company's management team has developed a strategic plan to capitalize on the
market opportunities currently presented to the Company. These opportunities
include leveraging Precision Tune Auto Care's existing brand name recognition
and current market position into a broader "Precision" brand which symbolizes a
high-quality, convenient and high-value auto services provider. Other
opportunities involve the cross-selling of each service offering to existing and
potential franchisees in order to provide multiple services and one-stop
shopping to its customers and consolidating the automotive maintenance service
industry through strategic acquisitions.
Precision Tune Auto Care is a leading franchisor of automotive service
centers with 556 centers owned and operated by franchisees as of June 30, 1997.
Total system wide retail sales were approximately $207 million for the fiscal
year ended June 30, 1997. Precision Auto Wash operates 35 company-owned
touchless automatic and self-service car wash centers and has developed a
proprietary marketing and operating system which provides computerized central
control of its car wash system. Precision Lube Express owns and franchises
express automobile oil and lubrication centers predicated upon a modular,
above-ground building configuration designed to minimize the up-front cost of
construction and provide flexibility in site selection and relocation. As of
June 30, 1997, there were 21 fast oil change and lubrication centers in
operation. In support of its franchisees and retail services, the Company
manufactures and sells car wash equipment, modular fast oil change and lube
buildings and car wash chemicals. The Company also distributes automotive parts,
equipment and supplies. Pro forma revenue and operating income were $41.2
million and $4.3 million for the year ended June 30, 1997, respectively.
The domestic automotive service, car wash and fast oil change and lube
sectors totalled approximately $100 billion in 1996, up from $95 billion in 1995
and there are approximately 200 million cars and light trucks in the United
States. The Company expects that the market for the services it provides will
continue to grow as more consumers seek to have services performed for them
("do-it-for-me") rather than performing those services themselves
("do-it-yourself"). The do-it-for-me segment of the total automotive service
market increased from 67% to 72% from 1985 to 1995 while the do-it-yourself
segment showed a corresponding decrease. In addition, the automotive service and
car wash industries are highly fragmented. The Company believes that it will be
uniquely positioned to consolidate these industries and grow its market share on
a regional and national basis. The Company further believes that its vertically
integrated manufacturing and distribution capabilities will allow the Company to
consolidate these industries more quickly and cost effectively.
The Company intends to maximize the profitability of individual centers
through superior operating systems and procedures and the advantages associated
with cross-promoting the three Precision-branded services. In addition, the
Company intends to offer the Precision Auto Wash and Precision Lube Express
franchise products to existing Precision Tune Auto Care franchisees and to other
potential franchisees through Precision Tune Auto Care's franchise marketing
organization. To facilitate franchise sales and increase Company revenue growth
and profitability, the Company intends to develop a division of Company-owned
centers, which individually may then be sold as a franchised operation through a
"turnkey program." The Company also intends to continue to leverage its
manufacturing and distribution capabilities, particularly as it strives to
aggressively consolidate, directly or through franchising, the competing service
providers in the automotive service industry.
3
<PAGE>
THE COMBINATION
The Company was formed in April 1997 and will have conducted no business
operations prior to the Combination. Prior to the Combination, the Company will
not have operated under the Precision Auto Wash or Precision Lube Express names.
Simultaneously with, and as a condition to, the closing of the Offering, the
Company will consummate the Combination. The consideration to be paid by the
Company in the Combination will consist of shares of Common Stock as set forth
in the Plan of Reorganization and Agreement for Share Exchange Offers dated
August , 1997 (the "Combination Agreement"), that the Company has entered into
with WE JAC Corporation ("WE JAC"), Miracle Industries, Inc. ("Miracle
Industries"), Lube Ventures, Inc. ("Lube Ventures"), Rocky Mountain Ventures,
Inc. ("Rocky Mountain I"), Rocky Mountain Ventures II, Inc. ("Rocky Mountain
II"), Prema Properties, Ltd. ("Prema Properties"), Miracle Partners, Inc.
("Miracle Partners"), Ralston Car Wash Ltd. ("Ralston Car Wash"), and KBG, LLC
("KBG").
WE JAC is a holding company that conducts its operations through Precision
Tune Auto Care, Inc., a wholly-owned subsidiary. For purposes of this
Prospectus, WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky
Mountain II, Prema Properties, Miracle Partners, Ralston Car Wash and KBG are
hereinafter referred to individually as a "Constituent Company" and collectively
as the "Constituent Companies." In addition, the financial statements of Miracle
Industries, Lube Ventures and Prema Properties have been combined and are
referred to as the "Ohio Group" for purposes of presenting the Selected
Financial Data and the Management's Discussion and Analysis of Financial
Condition and Results of Operations portions of this Prospectus. The Ohio Group
has been presented in this format because Miracle Industries, Lube Ventures and
Prema Properties are under common ownership, control and management. The
financial statements of Rocky Mountain I, Rocky Mountain II, Ralston Car Wash
and Miracle Partners have been combined and presented as "All Other Constituent
Companies" for purposes of presenting the Selected Financial Data and
Management's Discussion and Analysis of Financial Condition and Results of
Operations because prior to the Combination each of these Constituent Companies
has been operating independently from WE JAC and the Company believes that an
independent presentation of information for the entities within that group would
not be material to an investor's understanding of the Combination. The results
of operations of KBG are not included in the Summary Financial Data, the Pro
Forma Combined Financial Statements, Selected Financial Data, or Management's
Discussion and Analysis of Financial Condition and Results of Operations
portions of the Prospectus because that Constituent Company was formed for the
purpose of conveying certain proprietary software and intellectual property and
has never conducted any operations.
The Combination Agreement provides for the allocation of the shares of
Common Stock among the Constituent Companies and their owners. The aggregate
consideration to be paid by the Company in the Combination will consist of
approximately 2,780,695 shares of Common Stock (valued at $30.6 million, based
upon an assumed initial Offering price of $11.00 per share). Approximately
1,145,236 shares of Common Stock (valued at $12.6 million, based upon an assumed
initial Offering price of $11.00 per share) will be paid to persons who are
owners of certain Constituent Companies, and who will be executive officers or
directors of the Company immediately following the Combination. As a result of
this payment of shares of Common Stock and shares such persons will be able to
obtain upon the exercise of options which will be exercisable within 60 days of
the Combination, such persons will beneficially own approximately 26.3% of the
outstanding Common Stock immediately following the Offering. See "Risk
Factors -- Control by Management and Principal Shareholders," " -- Benefits to
Management and Principal Shareholders," "The Combination," "Certain
Transactions" and "Shares Eligible for Future Sale."
The consummation of the Combination is contingent on the satisfaction of
certain customary closing conditions. See "The Combination" for a more complete
description of the Combination Agreement and related transactions.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company........................... 2,300,000 shares
Common Stock to be outstanding after the Offering............. 5,080,695 shares(1)
Use of Proceeds............................................... To repay certain outstanding indebtedness of the Constituent
Companies assumed in connection with the Combination, to
provide a point of sale management information system for each
center, to assist franchisees in converting to current image
requirements and to fund an acquisition. See "Use of
Proceeds."
Proposed Nasdaq Symbol........................................ "PACI"
</TABLE>
- ---------------
(1) Includes 2,780,695 shares of Common Stock to be issued in the Combination.
Does not include 685,100 shares of Common Stock issuable upon the exercise
of stock options granted under the Company's stock option plans (177,000 of
which are expected to be granted effective at the closing of the Offering)
or 345,000 shares of Common Stock that may be issued pursuant to the
Underwriters' over-allotment option. See "Management -- Compensation
Pursuant to Plans" and "Underwriting."
The Company was incorporated in the Commonwealth of Virginia on April 14,
1997. The Company's principal address is 748 Miller Drive, S.E., Leesburg,
Virginia 20175.
SUMMARY FINANCIAL DATA
The following table presents unaudited combined pro forma financial data of
the Constituent Companies. The data should be read in conjunction with the
historical audited and unaudited financial statements and notes thereto of the
individual Constituent Companies and the unaudited Pro Forma Combined Financial
Statements appearing elsewhere in this Prospectus. The presentation of financial
information of the Company in the future will reflect WE JAC as the acquiror of
the other Constituent Companies reflecting the ownership interest in the Company
WE JAC shareholders will receive and the composition of the Company's board of
directors and management immediately following the Combination. Accordingly, WE
JAC will continue to be accounted for using the historical cost basis while
other Constituent Companies will be accounted for at fair value as determined in
accordance with Accounting Principles Board Opinion No. 16. See "Unaudited Pro
Forma Combined Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
--------------------------------------------
PRO FORMA
PRO FORMA COMBINED
COMBINED AS ADJUSTED
AS ADJUSTED FOR OFFERING
PRO FORMA FOR AND
COMBINED(1) OFFERING(2) ACQUISITION(3)
----------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Revenue............................................................................ $41,198 $41,198 $ 43,017
Operating income................................................................... 4,281 4,281 4,722
Net income......................................................................... 746 1,935 2,122
Earnings per share(4).............................................................. $ 0.26 $ 0.37 $ 0.41
EBITDA(5).......................................................................... 7,006 7,006 7,505
EBITDA per share(4)(5)............................................................. 2.42 1.35 1.45
Weighted average shares(4)......................................................... 2,893 5,193 5,193
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
--------------------------------------------
PRO FORMA
PRO FORMA COMBINED
COMBINED AS ADJUSTED
AS ADJUSTED FOR OFFERING
PRO FORMA FOR AND
COMBINED(1) OFFERING(2) ACQUISITION(3)
----------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET:
Working capital.................................................................... $(7,913)(6) $ 5,034 $ 3,273
Total assets....................................................................... 57,676 61,206 62,406
Total debt......................................................................... 22,325 3,825 5,025
Total shareholders' equity......................................................... 26,212 48,242 48,242
</TABLE>
- ---------------
(1) Pro Forma Combined financial data reflects the Combination of all
Constituent Companies, adjusted to reflect goodwill resulting from the
Combination and amortization thereon; the provision for income taxes for
those Constituent Companies not previously taxed at the corporate level; and
the elimination of management fee income. See "Unaudited Pro Forma Combined
Financial Statements."
(2) As adjusted to reflect the sale of 2,300,000 shares of common stock offered
hereby at an assumed public offering price of $11.00 per share after
deducting underwriting discounts and estimated offering expenses payable by
the Company, the repayment of $18.5 million of outstanding debt with the
proceeds from the Offering and a $2.5 million upgrade to existing Precision
Tune Auto Care centers, $2.0 million of which will be funded from proceeds
of the Offering and the balance of which will be funded from borrowings
under a revolving credit facility.
(3) As adjusted to reflect the $2.7 million purchase of the capital stock and
the inclusion of the revenues of Worldwide Drying Systems, Inc.
("Worldwide") as if such transaction had occurred on July 1, 1996. The
purchase will be financed by $1.5 million in proceeds from the Offering, and
$1.2 million in seller financing ($261,000 of which will be classified as
current), as described in "Use of Proceeds."
(4) The weighted average shares outstanding used to calculate pro forma combined
earnings per share and EBITDA per share is based on the number of shares of
common stock and common stock equivalents of the Company issued in the
Combination, as if such shares had been outstanding for all periods
presented, and is comprised of the 2,780,695 shares to be issued in
connection with the Combination and 112,505 shares outstanding using the
treasury stock method on options and warrants. The weighted average shares
outstanding used to calculate pro forma combined as adjusted for offering
and acquisition earnings and EBITDA per share also includes 2,300,000 shares
to be issued in the Offering.
(5) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is not intended to represent cash flow from operations
as defined by generally accepted accounting principles and should not be
considered as an alternative to operating income or net income as an
indicator of the Company's operating performance or to cash flows as a
measure of liquidity.
(6) WE JAC's line of credit and $8.6 million term loan mature during its fiscal
year ended June 30, 1998 and, accordingly, are included as current
liabilities. All of this debt will be discharged with proceeds from this
Offering.
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the shares of Common Stock offered hereby. This discussion also
identifies important cautionary factors that could cause the Company's actual
results to differ materially from those projected in forward looking statements
of the Company made by, or on behalf of, the Company. In particular, the
Company's forward looking statements, including those regarding the successful
integration of the businesses of the Constituent Companies, the effective
implementation of the Company's operating strategy, including the consolidation
of the Company's services under the "Precision" brand and the cross-marketing of
such services, the availability of additional businesses or centers for
acquisition or conversion, the adequacy of the Company's capital resources and
other statements regarding trends relating to various revenue and expense items,
could be affected by a number of risks and uncertainties including those
described below.
ABSENCE OF COMBINED OPERATING HISTORY; OPERATIONS UNDER NEW NAMES
The Company was founded in April 1997, and it will not conduct any
operations of the Constituent Companies as a combined entity until the
Combination is consummated. The Constituent Companies have never operated the
auto wash and lube express businesses under the "Precision Auto Wash" or
"Precision Lube Express" names. Accordingly, there can be no assurance that the
Company will be able to operate profitably or to integrate successfully the
businesses of the Constituent Companies, including their franchising activities,
manufacturing and distributing activities, and Company-owned center operations.
The Company may experience delays, complications and expenses in implementing
and integrating such operations, which delays could have a material adverse
effect on the Company's operations, net revenue and earnings. There can be no
assurance that the Company's management group will be able to manage effectively
the combined entity and to implement effectively the Company's operating and
expansion strategies. Failure to integrate successfully the Constituent
Companies or to implement the Company's operating and expansion strategies could
have a material adverse effect on the Company's financial condition and results
of operations. See "Business -- Strategy" and "The Combination." In addition
there can be no assurance that operating under the "Precision" brand will be
successful or will not lead to confusion in the market for consumers, existing
franchisees or for potential franchisees.
RISKS ASSOCIATED WITH EXPANSION
The success of the Company's expansion strategy will depend on a number of
factors, including (i) the Company's ability to locate existing businesses or
centers for acquisition, (ii) the availability of adequate financing to develop
or acquire additional businesses and centers, (iii) the Company's ability to
integrate successfully the operations of businesses or centers acquired in the
future into the Company's operations and (iv) the acceptance of the Precision
Auto Wash and Precision Lube Express brand among consumers, current Precision
Tune Auto Care franchisees and potential franchisees. There can be no assurance
that the Company's expansion strategy will be successful, that modifications to
the Company's strategy will not be required, or that the Company will be able to
obtain adequate financing on reasonable terms to develop or acquire additional
businesses or centers. There can be no assurance that future acquisitions will
not have an adverse effect on the Company's financial condition and results of
operations, particularly in the fiscal quarters immediately following the
completion of such acquisitions while the operations of the acquired business
are being integrated into the Company's operations. Once integrated, acquired
operations may not achieve levels of revenues, profitability or productivity
comparable with those achieved by the Company's existing operations, or achieve
standards otherwise expected in the Company's operations. In addition, the
Company will be competing for acquisition and expansion opportunities with
companies that have substantially greater resources. The Company also plans to
expand through direct franchising, franchising through area developers and by
developing Company-owned and operated centers. The success of all of these
expansion activities will depend on a number of factors including the ability of
the Company to establish and maintain support services for new franchisees and
Company-owned centers, to distribute parts and equipment in a timely fashion,
and to provide administrative resources necessary to maintain oversight of
center operations to promote compliance with the Company's concepts and
operating standards. The Company's success will also be dependent upon the
acceptance of the Precision Auto Wash and Precision Lube Express brand among
consumers, current Precision Tune Auto Care franchisees and potential
franchisees. See "Business -- Strategy."
COMPETITION
The Company encounters competition in all aspects of its business,
including the sale by Precision Tune Auto Care, Precision Auto Wash and
Precision Lube Express centers of automotive maintenance and repair services,
self-service and automatic car wash services and fast oil and lubrication
services, respectively. The Company believes that automobile dealerships,
including recently emerging national and regional new and used auto dealerships,
represent Precision Tune Auto
7
<PAGE>
Care's principal competitors; however, the Company also competes with national
and regional tire companies, major oil manufacturers, local service stations,
and local and regional automobile repair specialists. The Company believes the
principal competitive factors in its market are location, name recognition and
reputation, quality of service and price.
The Company also competes with these and other parties in the sale of
franchises, based on startup costs, royalty rates and Company support for the
franchisee, and in the sale of supplies and equipment, based on availability,
price and ability to provide prompt delivery. As the Company grows and expands
into new markets, it will be necessary to establish and maintain local and
regional support services for new franchisees and also parts and equipment
distribution, and the failure to do so in a timely manner could have a material
adverse effect on the Company's financial condition and results of operations.
The Company's manufacturing and distribution divisions compete with a
number of manufacturers and distributors of automotive and car wash supplies and
equipment. Many of these competitors are large and have a substantially longer
operating history than the Company.
Certain competitors in each of the areas discussed above may have greater
financial resources than the Company, and there is no assurance that the Company
or individual Precision Auto Care centers will be able to compete effectively.
See "Business -- Competition."
RELIANCE ON FRANCHISEES; FRANCHISING
Franchise royalties are a significant component of the Company's revenue
base. Therefore, the Company depends upon the ability of its franchisees to
promote and capitalize upon the Precision Tune Auto Care, Precision Auto Wash
and Precision Lube Express concepts and the Company's reputation for quality and
value. There can be no assurance that the Company or its area developers will
recruit franchisees with the business abilities or financial resources necessary
to open Precision Tune Auto Care, Precision Auto Wash and Precision Lube Express
centers on schedule or that the franchisees will conduct operations profitably
and in a manner consistent with the Company's concepts and standards. In
addition, the Company's growth strategy is dependent in part upon the acceptance
of the Precision Auto Wash and Precision Lube Express brands among its existing
Precision Tune Auto Care franchisees. None of the existing Precision Tune Auto
Care franchisees have been offered the Precision Auto Wash or Precision Lube
Express franchises. In addition a substantial number of the existing Precision
Tune Auto Care centers do not have the required space to add a Precision Auto
Wash or Precision Lube Express to their existing center site. Accordingly, there
can be no assurance that Precision Tune Auto Care franchisees will become
Precision Auto Wash or Precision Lube Express franchisees. See "Business."
The Company is subject to various state, federal and international laws
relating to the franchisor-franchisee relationship. The failure by the Company
to comply with these laws could subject the Company to liability to franchisees
and to fines or other penalties imposed by governmental authorities. In
addition, the Company may become subject to litigation or other claims filed
with state, federal or international authorities by franchisees or area
developers based on alleged unfair trade practices, implied covenants of good
faith and fair dealing or express violations of agreements. The Company believes
it is in material compliance with state, federal and international laws with
regard to its franchising activities, and that its relations with franchisees
and area developers is good. See "Business -- Government Regulation."
RELIANCE ON AREA DEVELOPERS
As of June 30, 1997, 505 of the 556 Precision Tune Auto Care centers, and 6
of the 21 fast-oil change and lube centers were in territories covered by area
development and international master license agreements. The Company relies, in
part, on the assistance of area developers to identify and recruit franchisees,
to assist in the development of a center, and to support franchisees' continuing
operations. Most area development agreements specify a schedule for opening
Precision Auto Care centers in the territory covered by the agreement. In the
past, the Company has agreed to extend or waive the development schedules for
certain of its area developers and there can be no assurance that area
developers will be able to meet their contractual development schedules.
Although the Company also expects to emphasize direct franchising in open areas
in its future growth, the development schedules of the Company's area developers
will remain a substantial part of the basis of the Company's expectations
regarding the number and timing of new center openings.
Specifically, the Company will be depending on its area developers to
promote the Precision Tune Auto Care, Precision Auto Wash and Precision Lube
Express franchises in their territories. Reluctance on their part to participate
in the development of these franchises and delays in Precision Auto Care center
openings could adversely effect the financial condition and results of
operations of the Company. The Company expects that it may encounter resistance
to introducing the Precision Lube Express brand and offering Precision Lube
Express franchises or opening Company-owned centers in areas covered by
8
<PAGE>
Precision Tune Auto Care area subfranchisor agreements. While the Company is
confident that it is entitled to operate Company-owned centers and offer and
sell Precision Lube Express franchises directly or through others in such areas,
there can be no assurance that the Company will not become subject to legal
proceedings or otherwise expend Company resources in connection with disputes
concerning the Company's ability to offer and sell Precision Lube Express
franchises or open Company-owned centers in such areas. It also may be difficult
for the Company to enforce its area development agreements or to terminate the
rights of area developers who fail to meet development schedules or other
standards and requirements imposed by the Company, limiting the ability of the
Company to develop the territories of such developers. See "Business --
Operations."
AUTOMOTIVE TECHNOLOGY ADVANCES
The demand for the services offered by the Company's Precision Tune Auto
Care and Precision Lube Express centers could be adversely affected as
automotive technology improves and automobiles are designed to have longer
overall lifetimes and to require regularly scheduled service and maintenance at
less frequent intervals. For example, some automobile manufacturers now
recommend that consumers change oil at 10,000 mile intervals, an increase from
the mileage intervals currently recommended by most manufacturers. The demand
for the Company's services also could be adversely affected by longer and more
comprehensive warranty programs offered by automobile manufacturers.
LABOR AVAILABILITY
The provision of high quality maintenance services by Precision Tune Auto
Care centers requires an adequate supply of skilled labor. In addition, the
operating costs of such centers may be adversely affected by high turnover in
skilled technicians. Accordingly, a center's ability to increase productivity
and revenues could be affected by its inability to maintain the continued
employment of skilled technicians necessary to provide the center's required and
optional services. There can be no assurance that Precision Tune Auto Care or
its franchisees will be able to maintain an adequate skilled labor force
necessary to efficiently operate these centers or that labor expenses will not
increase as a result of a shortage in the supply of skilled technicians.
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL
The Company's success depends to a significant extent on the performance
and continued services of senior management and certain key personnel with
experience in developing, financing and operating the various types of Precision
Auto Care centers and the Company's related franchising and manufacturing and
distribution activities. The Company has employment agreements with John F.
Ripley, President and Chief Executive Officer of the Company, James A. Hay,
Senior Vice President-Retail Operations, Arnold Janofsky, Senior Vice President
and General Counsel, Peter Kendrick, Senior Vice President and Chief Financial
Officer, Grant G. Nicolai, Senior Vice President Franchise Development, and
William R. Klumb, Vice President-Car Wash Operations. The loss of the services
of one or more of these key employees could have a material adverse impact on
the Company's financial condition and results of operations. Each of the
employment agreements contains certain noncompetition provisions that survive
the termination of employment in certain circumstances. The Company also has
obtained certain noncompetition agreements from several other members of
management and key personnel who are not subject to employment agreements.
However, there can be no assurance such noncompetition agreements will be
enforceable. See "Management" and "The Combination -- The Combination
Agreement."
SEASONAL NATURE OF PORTIONS OF THE BUSINESS
Seasonal changes may impact various sectors of the Company's business
differently and, accordingly, the Company's operations may be affected by
seasonal trends in certain periods. In particular, severe weather in winter
months can adversely affect the Company because such weather makes it difficult
for consumers in affected parts of the country to travel to Precision Tune Auto
Care, Precision Lube Express and Precision Auto Wash centers and obtain
services. Severe winter weather and rainy conditions also adversely impact the
Company's sale and installation of car wash equipment. Conversely, the Precision
Auto Wash business is favorably impacted by the normal winter weather conditions
as demand for the Company's car wash service increases substantially in winter
months.
CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Following completion of the Offering, directors and executive officers of
the Company will beneficially own approximately 26.3% of the outstanding Common
Stock. Accordingly, these persons will have substantial influence over the
affairs
9
<PAGE>
of the Company, including the ability to influence the election of directors,
the outcome of votes by the Company's shareholders on major corporate
transactions, including mergers, sales of substantial assets, acquisitions and
going-private transactions, and other matters requiring shareholder approval.
See "Principal Shareholders."
BENEFITS TO MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Former owners of the Constituent Companies who are executive officers or
directors of the Company will receive an aggregate of approximately 1,145,236
shares of Common Stock as consideration in the Combination. In addition,
approximately $18.5 million of the net proceeds of the Offering will be used to
repay certain indebtedness of the Constituent Companies which is guaranteed by
executive officers or directors of the Company, or indebtedness for which such
persons are contingently liable. Certain former owners, including directors and
officers of the Company, are also entitled to purchase certain Precision Lube
Express buildings and Precision Auto Wash equipment on terms more favorable than
terms the Company extends to third parties. See "Use of Proceeds" and "Certain
Transactions."
In addition to the consideration to be paid in the Combination, certain of
the owners of the Constituent Companies and executive officers and directors of
the Company have received options to purchase shares of Common Stock. See
"Management" and "Certain Transactions."
GOVERNMENT REGULATION
The Company is subject to federal, international and state laws and
regulations, including the regulations of the Federal Trade Commission as well
as similar authorities in individual states, in connection with the offer, sale
and termination of franchises, the operation of Precision Auto Care centers and
the regulation of the franchisor/franchisee relationship. The failure of the
Company to obtain or maintain approvals to sell franchises, or otherwise comply
with applicable franchise laws and regulations could have a material adverse
effect on the Company's financial condition and results of operations. Precision
Tune Auto Care and Precision Lube Express centers store new oil and handle large
quantities of used automotive oils and fluids. Precision Auto Wash centers
utilize chemicals in the washing process which are then discharged in the waste
water along with oils, fluids and other chemicals washed off of the vehicle. As
a result of these activities, the Company, its area developers and its
franchisees are subject to various environmental laws and regulations dealing
with the transportation, storage, presence, use, disposal and handling of
hazardous materials and hazardous wastes, discharge of stormwater, and
underground fuel storage tanks. The Company is not aware of any spills or
hazardous substance contamination on its properties or the properties of any
franchisees and believes that its operations are in material compliance with
existing environmental laws and regulations. However, if any such substances
were found on the Company's property or the property of any franchisee,
including leased properties, or if the Company were found to be in violation of
applicable laws and regulations, the Company could be responsible for clean-up
costs, property damage and fines or other penalties, any one of which could have
a material adverse effect on the Company's financial condition and results of
operations. See "Business -- Government Regulation."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws
and Virginia law may make a change in the control of the Company more difficult
to effect, even if a change in control were in the shareholders' interests. The
Virginia Stock Corporation Act prevents an "interested shareholder" (defined
generally as a person owning 10% or more of the Company's outstanding voting
stock) from engaging in an "affiliated transaction" with the Company for three
years following the date such person became an interested shareholder unless
certain conditions, including approval by the Company's Board of Directors, are
met. The Company's Articles of Incorporation allow the Board to determine the
terms of the preferred stock which may be issued by the Company without approval
of the holders of the Common Stock. The ability of the Company to issue
preferred stock in such manner could enable the Board to prevent changes in
management and control of the Company. The Board of the Company is divided into
three classes of directors, with directors being elected for staggered
three-year terms. Such staggered terms may affect the ability of the holders of
the Common Stock to change control of the Company. See "Description of Capital
Stock -- Anti-Takeover Provisions."
ABSENCE OF PRIOR PUBLIC MARKET; RELATIONSHIP OF OFFERING PRICE TO MARKET PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Although the Company has applied for listing of the Common Stock on the
Nasdaq National Market, there can be no assurance that an active trading market
will develop or continue after the Offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price of the Common Stock will be determined by
negotiations among the Company
10
<PAGE>
and representatives of the Underwriters, and may not be indicative of the market
price for shares of Common Stock after the Offering. Prices for the shares of
Common Stock after the Offering will be determined in the market and may be
influenced by many factors, including the depth and liquidity of the market for
the Common Stock, investor perception of the Company, the automotive aftercare
industry as a whole and general economic and market conditions. See
"Underwriting."
VOLATILITY OF MARKET PRICE FOR COMMON STOCK
From time to time after the Offering, there may be significant volatility
in the market price of the Common Stock. Quarterly operating results of the
Company or of other companies in the automotive aftercare market, changes in
earnings estimated by analysts, changes in general conditions in the economy or
the financial markets or other developments affecting the Company could cause
the market price of the Common Stock to fluctuate substantially. In addition, in
recent years the stock market has experienced extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to their operating
performance.
DILUTION
The purchasers of the Common Stock offered hereby will experience immediate
and substantial dilution of $7.34 per share, the amount by which the purchase
price of the Common Stock offered hereby exceeds the net tangible book value of
the Common Stock immediately following the Offering. In the event the Company
issues additional Common Stock in the future, including shares which may be
issued in connection with future acquisitions or the exercise of outstanding
stock options, purchasers of Common Stock in this Offering may experience
further dilution in net tangible book value per share of the Common Stock. See
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be 5,080,695 shares of Common
Stock outstanding. Of these shares, the 2,300,000 shares sold in the Offering
(together with any shares sold upon exercise of the over-allotment option) will
be freely tradeable without restriction, except for any shares purchased by an
"affiliate" of the Company within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). The remaining 2,780,695 shares of Common Stock
were issued in the Combination and registered under the Securities Act.
Shareholders of the Constituent Companies who will own in excess of 3,000 shares
of the Company's Common Stock following the consummation of the Combination have
agreed pursuant to the Combination Agreement not to sell or dispose of their
shares for a period of 180 days following closing without the Company's prior
consent. The Company has agreed it will not permit such shareholders to sell
their shares without the prior consent of the representatives of the
underwriters. Otherwise, such shares will be freely tradable without restriction
except for shares acquired by "affiliates" of the Constituent Companies which
will be subject to the restrictions on transfer provided in Rule 145 of the
Securities Act. In addition, the Company and each of its directors and officers
have agreed, for a period of 180 days from the date of this Prospectus, not to
sell or otherwise dispose, directly or indirectly, of any shares of Common Stock
in the public market, without the prior written consent of the Underwriters.
Commencing 180 days after the completion of the Offering, all of the issued and
outstanding shares of Common Stock except 1,445,228 shares held by affiliates of
the Constituent Companies will be eligible for sale in the public market, and an
additional 658,100 shares will be available for issuance upon the exercise of
outstanding stock options. The market price of the Common Stock could be
materially and adversely affected by the sale or availability for sale of shares
now held by the existing shareholders of the Company or of shares which may be
issued under the Company's stock incentive plan.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,300,000 shares of
Common Stock offered hereby, at an assumed public offering price of $11.00 per
share, are estimated to be approximately $22.0 million ($25.6 million if the
Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated offering expenses.
In connection with the Combination, the Company plans to use approximately
$18.5 million of the net proceeds of the Offering to repay certain indebtedness
of the Constituent Companies assumed pursuant to the Combination. At June 30,
1997, such indebtedness had interest rates ranging between 7.5% and 12.5% and
had a weighted average interest rate of 9.3%. Such indebtedness, if not prepaid,
would otherwise mature at various dates through February 2026. See "The
Combination" and "Certain Transactions."
11
<PAGE>
The Company intends to spend approximately $2.5 million to upgrade and
equip each center in the Precision Tune Auto Care system with current signage
and a "point of sale" computer system, which will communicate sales results and
other data to the Company's corporate office. Following the Combination, each
center will receive up to $2,500 toward the purchase of the Company's
proprietary "point of sale" system and up to $2,500 to upgrade its signage to
current image standards. $2.0 million of the net proceeds from the Offering will
be used for this purpose and the balance will be financed through borrowings
under a revolving credit facility.
The Company recently entered into a letter of understanding to purchase all
of the outstanding capital shares of Worldwide Drying Systems, Inc.
("Worldwide") for $2.7 million. Worldwide manufactures and distributes drying
systems for installation in automatic car washes. The terms of the agreement
call for a cash payment at closing of $1.5 million and seller financing of $1.2
million. The promissory note will bear interest at a rate of 9% per annum and
require monthly payments of principal and interest over a four-year term. The
Company expects to close the transaction immediately following the consummation
of the Offering and the Combination. The Company intends to use $1.5 million of
the net proceeds of the Offering to pay the cash portion of the purchase price.
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, investment grade or
government, interest-bearing securities.
DIVIDEND POLICY
As a newly formed corporation, the Company has never declared or paid
dividends on its Common Stock. The Company expects that future earnings, if any,
will be retained to finance the growth and development of the Company's business
and, accordingly, does not intend to declare or pay any dividends on the Common
Stock for the foreseeable future. The declaration, payment and amount of future
dividends, if any, will be subject to the discretion of the Company's Board of
Directors and will depend upon the future earnings, results of operations,
financial condition and capital requirements of the Company, among other
factors. The Company expects that the terms of its revolving credit facility
will prohibit the Company from paying dividends while amounts are outstanding
under the revolving credit facility. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of June 30, 1997 on a pro forma basis to reflect the Combination and on a pro
forma as adjusted to give effect to the Combination and the sale of the
2,300,000 shares of Common Stock offered by the Company in the Offering and the
application of the net proceeds therefrom, which are estimated to be
approximately $22.0 million based on an assumed initial offering price of $11.00
per share. The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Unaudited Pro Forma Combined Financial Statements of the Company included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------
PRO FORMA
COMBINED
AS ADJUSTED(1)
PRO FORMA FOR THE
COMBINED OFFERING
--------- ----------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
Short-term debt, including current portion of long-term debt and notes payable to
related parties....................................................................... $11,417 $ 261
--------- ----------------
--------- ----------------
Long-term debt less current portion..................................................... $10,908 $ 4,764
Shareholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares authorized, no shares
outstanding........................................................................ -- --
Common Stock, $.01 par value; 19,000,000 shares authorized; 2,780,695 shares issued
and outstanding, pro forma combined; 5,080,695 shares issued and outstanding, pro
forma as adjusted.................................................................. 28 51
Additional paid-in capital............................................................ 26,184 48,191
--------- ----------------
Total shareholders' equity......................................................... 26,212 48,242
--------- ----------------
Total capitalization............................................................... $37,120 $ 53,006
--------- ----------------
--------- ----------------
</TABLE>
- ---------------
(1) Does not include 685,100 shares of Common Stock issuable upon the exercise
of stock options granted under the Company's stock option plans (177,000 of
which are expected to be granted effective at the closing of the Offering)
or 345,000 shares of Common Stock that may be issued pursuant to the
Underwriters' over-allotment option. See "Management -- Compensation
Pursuant to Plans" and "Underwriting."
12
<PAGE>
DILUTION
At June 30, 1997, after giving effect to the Combination, the unaudited pro
forma combined net tangible book deficit of the Company was $(3.6 million), or
$(1.28) per share. Pro forma combined net tangible book deficit is the tangible
net worth (tangible assets less total liabilities) of the Combined Constituent
Companies immediately following the Combination and prior to the Offering. After
giving effect to the Combination and the sale by the Company of the 2,300,000
shares of Common Stock offered hereby at an assumed initial offering price of
$11.00 per share, the pro forma combined net tangible book value of the Company
would have been $16.7 million or $3.29 per share. This represents an immediate
increase in pro forma net tangible book value of $4.57 per share to existing
shareholders and an immediate dilution in pro forma net tangible book value of
$7.71 per share to new investors purchasing the shares of Common Stock in the
Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price...................................................... $ 11.00
Pro forma net tangible book deficit prior to the Offering(1)............................. $(1.28)
Increase attributable to new investors................................................... 4.57
------
Pro forma net tangible book value after the Offering....................................... 3.29
-------
Pro forma dilution in net tangible book value to New Investors............................. $ 7.71
-------
-------
</TABLE>
The following table sets forth at June 30, 1997, the number of shares of
Common Stock purchased from the Company, the total consideration to the Company
and the average price per share paid to the Company by existing shareholders
after giving effect to the Combination and by the new investors purchasing
shares of Common Stock in the Offering:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
-------------------- ------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)(2)......................................... 2,780,695 54.7% $ 11,272 30.8% $ 4.05
New investors....................................................... 2,300,000 45.3% 25,300 69.2% $ 11.00
---------- ------- -------- -------
Total.......................................................... 5,080,695 100.0% $ 36,572 100.0%
---------- ------- -------- -------
---------- ------- -------- -------
</TABLE>
- ---------------
(1) This calculation is based on the 2,780,695 shares of Common Stock to be
issued in the Combination.
(2) Total consideration for the existing shareholders represents the net cash
investment made by the owners of the Constituent Companies prior to the
Combination.
The foregoing table assumes no exercise of the Underwriters' over-allotment
option or any of the Company's other outstanding options or warrants. Upon the
closing of the Combination, there will be outstanding options and warrants to
purchase 685,100 shares of Common Stock at a weighted average exercise price of
$9.31 per share (177,000 of which are expected to be issued at the closing of
the Offering with an exercise price equal to the initial offering price). To the
extent that any of the outstanding options are exercised, there will be further
dilution to new investors. See "Shares Eligible for Future Sale."
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
combination of Precision Auto Care and the Constituent Companies as more fully
described herein. See "The Combination." The unaudited pro forma financial
statements have been prepared by the Company based on the historical financial
statements of WE JAC, which is deemed the acquirer of the remaining Constituent
Companies in this Prospectus for financial statement purposes, adjusted to
reflect the purchase (as defined by Accounting Principle Board Opinion No. 16)
of the remaining Constituent Companies. The unaudited pro forma combined
financial statements reflect purchase adjustments based upon certain preliminary
estimates and assumptions deemed appropriate by management of the Company, but
do not include any expected benefits or cost reductions, if any, anticipated by
the Constituent Companies following consummation of the Combination. The
unaudited pro forma combined balance sheets at June 30, 1997, give effect to (i)
the consummation of the Combination, (ii) the consummation of the Combination
and this Offering and (iii) the consummation of the Combination, this Offering
and the acquisition of the assets of Worldwide Drying Systems, Inc., as if such
transactions had occurred on such date. The unaudited pro forma statements of
operations for the year ended June 30, 1997 give effect to (i) the Combination,
(ii) the Combination and the Offering and (iii) the Combination, the Offering
and the acquisition of Worldwide Drying Systems, Inc. as if such transactions
were completed on July 1, 1996.
The unaudited pro forma financial statements should be read in conjunction
with the historical financial statements of WE JAC and the individual
Constituent Companies comprising the Ohio Group, including the notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" that appear elsewhere in this Prospectus.
13
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMBINED
COMBINED AS ADJUSTED
WE JAC AS ADJUSTED FOR OFFERING
HISTORICAL PRO FORMA FOR AND
(AUDITED) COMBINED(1) OFFERING(2) ACQUISITION(3)
---------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Current assets................................................. $ 7,811 $11,659 $13,189 $ 11,689
Property plant and equipment................................... 854 12,593 14,593 15,543
Goodwill....................................................... 16,579 29,782 29,782 31,532
Other.......................................................... 1,450 3,642 3,642 3,642
---------- ----------- ----------- --------------
Total assets................................................... $ 26,694 $57,676 $61,206 $ 62,406
---------- ----------- ----------- --------------
---------- ----------- ----------- --------------
Current liabilities............................................ $ 15,053 $19,572 $ 8,155 $ 8,416
Long term debt................................................. 622 10,908 3,825 4,764
Other.......................................................... 725 984(4) 984(4) 984(4)
---------- ----------- ----------- --------------
Total liabilities.............................................. 16,400 31,464 12,964 14,164
Shareholders' equity........................................... 10,294 26,212 48,242 48,242
---------- ----------- ----------- --------------
Total liabilities and shareholders equity...................... $ 26,694 $57,676 $61,206 $ 62,406
---------- ----------- ----------- --------------
---------- ----------- ----------- --------------
</TABLE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA COMBINED
COMBINED AS ADJUSTED
WE JAC AS ADJUSTED FOR OFFERING
HISTORICAL PRO FORMA FOR AND
AUDITED COMBINED(1) OFFERING(2) ACQUISITION(3)
---------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue........................................................ $ 27,457 $41,198 $41,198 $ 43,107
Direct cost.................................................... 20,291 30,934 30,934 32,021
---------- ----------- ----------- --------------
Contribution................................................... 7,166 10,264 10,264 11,086
General and administrative expenses............................ 2,522 4,604 4,604 4,927
Amortization expense........................................... 968 1,408(5) 1,408 1,466(6)
Company owned stores held for resale........................... 29 29 29 29
---------- ----------- ----------- --------------
Operating income............................................... 3,705 4,281 4,281 4,722
Other income (expense)......................................... (1,179) 2,308 (359)(7) (456)(8)
---------- ----------- ----------- --------------
Income before income taxes..................................... 2,526 1,973 3,922 4,266
Provision for income taxes..................................... 1,271 1,227(9) 1,987(9) 2,144(9)
---------- ----------- ----------- --------------
Net income..................................................... $ 1,255 $ 746 $ 1,935 $ 2,122
---------- ----------- ----------- --------------
---------- ----------- ----------- --------------
Earnings per share............................................. $ 0.26(10) $ 0.37(10) $ 0.41(10)
----------- ----------- --------------
----------- ----------- --------------
</TABLE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENT ADJUSTMENTS
(1) Reflects the historical financial data of WEJAC, giving effect to the
Combination, the issuance of 2,780,695 shares of Common Stock in the
Combination, and the elimination of retained earnings or accumulated
deficit for all Constituent Companies except WE JAC.
(2) As adjusted to reflect the sale of 2,300,000 shares to the public at an
assumed initial offering price of $11.00 per share; payments of $18.5
million of outstanding debt, and a $2.0 million upgrade to existing
Precision Tune Auto Care company centers with proceeds from the Offering as
described in "Use of Proceeds."
14
<PAGE>
(3) As adjusted to reflect the proceeds and use of proceeds from the Offering
as described in footnote (2), and the $2.7 million purchase of the capital
stock of Worldwide as if such transactions had occurred on June 30, 1997.
The purchase was financed by $1.5 million in proceeds from the Offering,
and $1.2 million of seller financing, ($261,000 of which is classified as
current) as described in "Use of Proceeds."
(4) Reflects the resulting deferred tax liability of the Constituent Companies
which, other than WE JAC, were previously organized as Subchapter S
corporations, partnerships or limited liability companies.
(5) Reflects additional straight line amortization of goodwill over 30 years
($440,000 for the year ended June 30, 1997).
(6) Reflects additional straight line amortization of goodwill over 30 years
including $1.8 million related to the purchase of the capital stock of
Worldwide ($498,000 for the year ended June 30, 1997).
(7) Reflects the reduction in interest expense ($2.0 million for the year ended
June 30, 1997) on debt to be repaid with proceeds of the Offering.
(8) Reflects the net effect of the reduction in interest expense ($1.9 million
for the year ended June 30, 1997) on debt to be repaid with the proceeds of
the Offering and the increase in interest expense on seller financing to be
incurred to purchase Worldwide.
(9) Reflects a provision for income taxes on the combined pro forma earnings at
the effective rate of 39%, after considering non-deductible goodwill
amortization.
(10) The weighted average shares outstanding used to calculate pro forma
combined earnings per share is based on the number of shares of common
stock and common stock equivalents of the Company issued in the
Combination, as if such shares had been outstanding for all periods
presented, and is comprised of the following: 2,780,695 shares to be issued
in connection with the Combination, and 112,505 shares outstanding using
the treasury stock method on options and warrants. The weighted average
shares outstanding used to calculate pro forma combined as adjusted for
offering and acquisition earnings per share also include 2,300,000 shares
to be issued in the Offering.
15
<PAGE>
SELECTED FINANCIAL DATA
Simultaneous with, and as a condition to, the closing of the Offering the
Company will acquire all of the Constituent Companies in a series of mergers and
share exchanges. The presentation of the financial information of the Company in
the future will reflect WE JAC as the acquiror of the other Constituent
Companies due to the ownership interest in the Company WE JAC shareholders will
receive and the composition of the Company's board of directors and managers
immediately following the Combination. The Combination will be accounted for
using the historical cost basis of WE JAC, and the fair value of the other
Constituent Companies, as determined in accordance with Accounting Principles
Board Opinion No. 16. Miracle Industries, Lube Ventures and Prema Properties
have been combined and are referred to as the "Ohio Group" for purposes of
presenting the Selected Financial Data below and the Management's Discussion and
Analysis of Financial Condition and Results of Operations portion of this
Prospectus. The Ohio Group has been presented in this format because Miracle
Industries, Lube Ventures and Prema Properties are under common ownership,
control and management. Rocky Mountain I, Rocky Mountain II, Ralston Car Wash
and Miracle Partners have been combined and presented as "All Other Constituent
Companies" for purposes of presenting the Selected Financial Data below and
Management's Discussion and Analysis of Financial Condition and Results of
Operations because prior to the Combination each of these Constituent Companies
has been operating independently from WE JAC and the Company believes that the
combination of related entities within that group would not be material to an
investor's understanding of the Combination.
WE JAC
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes thereto
included elsewhere herein. The consolidated statement of operations data set
forth below with respect to the years ended June 30, 1995, 1996 and 1997 and the
balance sheet data as of June 30, 1996 and 1997, is derived from the audited
consolidated financial statements of WE JAC included elsewhere in this
Prospectus. The statement of operations data set forth below with respect to the
years ended April 30, 1993 and June 30, 1994 and the balance sheet data as of
April 30, 1993 and June 30, 1994 are derived from audited consolidated financial
statements not included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED YEARS ENDED JUNE 30,
APRIL 30, -----------------------------------------------
1993(1) 1994(1) 1995 1996 1997
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue....................................................... $ 24,323 $ 24,814 $ 26,579 $ 26,734 $ 27,457
Direct cost................................................... 17,688 18,224 20,042 19,708 20,291
---------- -------- -------- -------- --------
Contribution.................................................. 6,635 6,590 6,537 7,026 7,166
General and administrative expenses........................... 2,640 2,388 2,888 2,276 2,522
Amortization expense.......................................... 1,056 975 1,015 964 968
Company owned stores held for resale (loss)................... (173) (171) (351) (455) 29
---------- -------- -------- -------- --------
Operating income.............................................. 2,766 3,056 2,283 3,331 3,705
Other income (expenses)....................................... (1,361) (1,431) (2,435) (1,083) (1,179)
---------- -------- -------- -------- --------
Income (loss) before taxes.................................... 1,405 1,625 (152) 2,248 2,526
Provision for income taxes.................................... 23 868 72 1,178 1,271
Extraordinary gain............................................ -- -- 157 -- --
---------- -------- -------- -------- --------
Net income (loss)............................................. $ 1,382 $ 757 $ (67) $ 1,070 $ 1,255
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
<CAPTION>
SYSTEM STATISTICS: (IN THOUSANDS, EXCEPT NUMBER OF CENTERS)
<S> <C> <C> <C> <C> <C>
System wide retail sales(2)................................... $160,434 $172,028 $189,568 $196,549 $207,777
Number of centers opened during period........................ 43 45 51 76 62
Number of centers closed during period........................ 28 120 16 46 39
Number of centers in operation at end of period............... 556 481 516 546 569(4)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
APRIL 30, ----------------------------------------
1993 1994 1995 1996 1997
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
- -------------------
Working capital (deficit)............................................ $ 1,994 $ 1,599 $ (940) $ 180 $(7,242)(3)
Total assets......................................................... 24,725 25,325 24,810 25,654 26,694
Total debt(3)........................................................ 10,433 9,011 8,633 8,462 9,379
Shareholders' equity................................................. 9,837 9,260 9,193 11,406 10,294
</TABLE>
- ---------------
(1) In February 1996, WE JAC's Board of Directors approved a change in the
Company's fiscal year end from April 30 to June 30. Results of operations
for May 1993 and June 1993 were not materially different from annualized
results.
(2) System wide retail sales are not included in the financial statements of WE
JAC. They are, however, the basis for royalty payments to WE JAC and are
based on reports provided to WE JAC by franchisees. The Company intends to
use a portion of the net cash proceeds from the Offering to upgrade its
existing point of sale system to provide more timely data from franchisees.
Currently, sales data is manually calculated and reported and as such there
is often a lag time before that data is received in the Company's offices
for reporting purposes. Accordingly, the information presented for the
fiscal year ended June 30, 1997 contains sales estimates for franchisees who
have not yet reported sales to the Company for portions of that period.
(3) The line of credit and term loan of $8.6 million for WE JAC mature in its
fiscal year ended June 30, 1998 and, accordingly, are included as current
liabilities. It is anticipated that all of this debt will be paid off with
proceeds from this Offering.
(4) Includes 13 centers temporarily closed for relocation.
THE OHIO GROUP
The following selected combined financial data should be read in
conjunction with the financial statements and the notes thereto of the entities
comprising the Ohio Group included elsewhere herein. The combined statement of
operations data set forth below with respect to the year ended December 31, 1996
and the balance sheet data as of December 31, 1996 is derived from the
individual audited financial statements of the entities comprising the Ohio
Group included elsewhere in this Prospectus. The combined statement of
operations data set forth below with respect to the year ended December 31, 1995
and the combined balance sheet data as of December 31, 1995 is derived from the
individual audited financial statements of Miracle Industries and the individual
unaudited financial statements of Lube Ventures and Prema Properties included
elsewhere in this Prospectus. The combined statement of operations data set
forth below with respect to the six month periods ended June 30, 1996 and 1997
and the balance sheet data as of June 30, 1997 are derived from the individual
unaudited financial statements of the entities comprising the Ohio Group
included elsewhere in this Prospectus. The combined statement of operations set
forth below with respect to the year ended December 31, 1994 and the balance
sheet data as of December 31, 1994 are derived from unaudited individual
financial statements of the entities comprising the Ohio Group not included in
this Prospectus. The unaudited combined financial statements include all normal
recurring adjustments that the entities comprising the Ohio Group consider
necessary for a fair presentation of their financial position and results of
operations. The results of operations for the six month period ended June 30,
1997 are not necessarily indicative of the results that may be expected for the
full year ended December 31, 1997, or any other future period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ----------------------------
1994 1995 1996 1996(2) 1997
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................................... $3,148 $4,888 $ 11,793 $ 4,492 $ 4,450
Direct cost...................................... 2,134 4,120 9,552 3,723 3,883
------------ ------------ ------------ ------------ ------------
Contribution..................................... 1,014 768 2,241 769 567
General and administrative expenses.............. 780 782 1,505 744 722
------------ ------------ ------------ ------------ ------------
Operating income (loss).......................... 234 (14) 736 25 (115)
Other income (expense)........................... (172) (338) (650) (310) (413)
------------ ------------ ------------ ------------ ------------
Income (loss)(1)................................. $ 62 $ (352) $ 86 $ (285) $ (568)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------- JUNE 30,
1994 1995 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
- -------------------
Working capital (deficit)........................ $ 229 $ 594 $ (515)(3) $ (417)(3)
Total assets..................................... 6,591 7,262 13,405 13,359
Total debt....................................... 3,548 3,969 8,362 9,321
Shareholder's equity............................. 2,690 2,763 2,854 2,420
</TABLE>
- ---------------
(1) The Ohio Group consists of legal entities that are taxed as partnerships and
therefore no income tax expense is included.
(2) Results for the six months ended June 30, 1996 reflect the acquisition of a
90% interest in HydroSpray by Miracle Industries effective March 1, 1996.
The amounts presented do not include results of operations for January and
February 1996. HydroSpray has historically generated negative contribution
and losses from operations during those months due to seasonal factors. If
these months had been included, combined income for the Ohio Group would
have been reduced by $95,000, for the year ended December 31, 1996.
(3) In November 1996, Miracle Industries acquired a 50% investment in Indy
Ventures with proceeds from a short term credit facility.
ALL OTHER CONSTITUENT COMPANIES
The combined statement of operations data set forth below with respect to
the year ended December 31, 1996 and the balance sheet data as of December 31,
1996 are derived from the individual audited financial statements of the
entities comprising All Other Constituent Companies not included in this
Prospectus. The combined statement of operations data set forth below with
respect to the year ended December 31, 1995 and for the six months ended June
30, 1996 and 1997 and the combined balance sheet data as of June 30, 1997 are
derived from the individual unaudited financial statements the entities
comprising All Other Constituent Companies not included in this Prospectus. The
combined statement of operations data set forth below with respect to the year
ended December 31, 1995 and the combined balance sheet data as of December 31,
1994 are derived from the individual unaudited financial of the entities
comprising All Other Constituent Companies not included in this Prospectus. Such
unaudited financial statements include all normal recurring adjustments that the
Other Constituent Companies consider necessary for a fair presentation of their
financial position and results of operations. The results of operations for the
six months ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the full year ended December 31, 1997, or any other
future period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- ----------------
1994 1995 1996 1996 1997
------ ------ ------------ ------ ------
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue.............................................................. $2,017 $2,070 $2,175 $1,185 $1,197
Direct cost.......................................................... 893 1,131 1,158 580 605
------ ------ ------------ ------ ------
Contribution......................................................... 1,124 939 1,017 605 592
General and administrative expenses.................................. 764 600 611 360 362
------ ------ ------------ ------ ------
Operating income..................................................... 360 339 406 245 230
Other income (expenses).............................................. (348) (256) (218) (146) (111)
------ ------ ------------ ------ ------
Income(1)............................................................ $ 12 $ 83 $ 188 $ 99 $ 119
------ ------ ------------ ------ ------
------ ------ ------------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------------- --------
1994 1995 1996 1997
------- ------ ------------ --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
- -------------------
Working capital (deficit)............................................ $(2,687) $ (380) $ (679) $ (140)
Total assets......................................................... (5,027) 5,256 5,130 5,183
Total debt........................................................... 3,875 3,998 3,855 3,781
Shareholder's equity................................................. 946 822 996 1,115
</TABLE>
- ---------------
(1) Each of the All Other Constituent Companies are legal entities that are
taxed as partnerships and therefore no income tax expense is included.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Prospectus contain, in addition to historical
information, forward-looking statements which involve risks and uncertainties.
The Company's actual results could differ significantly from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors."
OVERVIEW
Contemporaneously with the closing of the Offering, the Company will
acquire the Constituent Companies in a series of mergers and share exchanges.
Management's Discussion and Analysis of Financial Condition and Results of
Operations is presented in four components. The first component is the Pro Forma
Combined Financial Results for the year ended June 30, 1997, which include the
accounts of the Constituent Companies as if the Combination had occurred on July
1, 1996. The next three components of Management's Discussion and Analysis of
Financial Condition and Results of Operations are the financial results for WE
JAC, the Ohio Group, and All Other Constituent Companies. The Ohio Group
consists of Miracle Industries, Lube Ventures and Prema Properties. Financial
results for these entities are combined because the companies are under common
ownership and control. All Other Constituent Companies consist of Miracle
Partners, Rocky Mountain I, Rocky Mountain II and Ralston Car Wash. Prior to the
Combination, each of these companies has been operating separately and
independently from WE JAC and the Ohio Group. The results of KBG, LLC are not
included because that Constituent Company was formed for the purpose of
conveying certain proprietary software and intellectual property and has never
conducted any operations.
Although all but the largest Constituent Company report financial results
on a calendar year basis, the resulting combined Company will report on a June
30 fiscal year end and, as a result, historical information appearing in this
Prospectus relating to all but the largest Constituent Company may not be
comparable to future results of the combined entity.
PRO FORMA COMBINED COMPANY
GENERAL
Company revenues are derived from four primary areas: franchising,
company-operated center retail operations, manufacturing, and the distribution
of parts and supplies. Franchise revenue is derived from royalties paid by
individual franchisees to the Company, as well as the sale of individual
franchises and franchise development rights. Retail operations revenue is
derived from the operation of company-owned automotive centers and car wash
facilities. Manufacturing revenues are composed of the sale and installation of
car wash equipment and fast oil change and lubrication buildings. Parts and
supply revenue is derived from the sale of automotive parts and equipment and
car wash parts, supplies and chemicals. Direct costs consist of the cost of
parts and equipment, fees paid to area developers for the sale of new franchises
and for supporting franchisees, corporate costs associated with directly
supporting the franchise system, and the cost of operating Company-owned car
washes and fast oil change and lube centers. General and administrative expenses
include all legal, accounting, general overhead, information technology and
corporate staff expenses. Other income and expense items consist of
amortization, interest income and expense and the operating results of centers
held for resale by the Company.
The Company believes that on an individual basis, the Constituent Companies
have not had the resources required to more fully penetrate the automotive
aftermarket. The resulting combined Company strategy is to leverage name
recognition and existing market position by providing multiple complementary
lines of business with additional manufacturing and distribution capabilities.
As a result of the Combination, the Company believes there are several
areas where economies of scale can be achieved. Such areas include employee
benefits, advertising, insurance and parts and supplies purchasing arrangements.
The Company believes that its combined infrastructure will more efficiently
support the Company's operations. The Company cannot presently predict the
effect, if any, on its financial performance from any of these or other similar
opportunities to improve the operations of the Constituent Companies. The
Constituent Companies have been managed throughout the periods presented as
independent, privately owned companies and, as such, their results of operations
reflect different tax structures which have influenced, among other things,
their historical levels of owners' compensation.
Miracle Industries, Lube Ventures, Miracle Partners, Rocky Mountain I, and
Rocky Mountain II are corporations which historically have elected to be subject
to subchapter S of the Internal Revenue Code of 1986, as amended. Prema
Properties and Ralston Car Wash are limited liability companies and are taxed as
partnerships. Upon consummation of the Combination,
19
<PAGE>
the Company will file as a consolidated group for federal income tax purposes.
For purposes of the Pro Forma Combined Financial Statements presented in this
Prospectus, federal and state income taxes have been provided for these
companies, as if they had been taxable as C corporations during the periods.
The historical results of operations of the Constituent Companies have also
been adjusted to reflect certain purchase accounting adjustments, including (i)
the amortization of goodwill arising from the Combination and (ii) the
elimination of management fees charged between certain Constituent Companies.
Accordingly, the Combination results in additional goodwill of $13.2 million for
a total of $29.8 million of goodwill on the combined Company's balance sheet. As
a result, the Company will incur a non-cash and non-tax deductible expense of
approximately $1.0 million per year for the amortization of goodwill.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the operations and growth of the Constituent Companies have
been financed through private equity capital, internally generated working
capital, and borrowings from commercial banks or other lenders. Management
expects that approximately $18.5 million of the net proceeds of the Offering
will be used to repay substantially all of the outstanding indebtedness of the
Constituent Companies. These borrowings are generally secured by substantially
all of the assets of the respective Constituent Company as well as the personal
guarantees of the respective owners.
The Company intends to enter into an agreement with a commercial bank to
establish a revolving credit facility upon the completion of the Offering and
anticipates receiving a commitment from a commercial bank for such revolving
credit facility in the principal amount of $20 million. Borrowings under the
credit facility will be secured by first priority liens on all assets of the
Company, including stock of its subsidiaries, and will bear interest at a LIBOR
based rate. The definitive loan documents are expected to contain standard
representations, covenants, conditions, events of defaults and indemnities. The
Company expects it will be required to pay a facility fee at closing of
approximately $40,000 and customary annual commitment fees. Principal and
interest will be payable quarterly.
The Company intends to spend approximately $1.5 million over a period of 18
months to upgrade substantially all of the Company-owned car wash facilities
with the full complement of HydroSpray car wash equipment and the proprietary
operating and marketing features of the Precision Auto Wash System described
herein. This will include building and facility improvements and the
installation and replacement of car wash equipment. The Company also intends to
invest approximately $500,000 in the Company's management information and
accounting systems at the retail and corporate level. The Company intends to
fund these expenditures through internally generated funds and, if necessary,
borrowings under the revolving credit facility.
Under the terms of the Combination Agreement, each of the Constituent
Companies (other than WE JAC) is entitled to distribute amounts of cash to its
owners necessary to enable the owners to pay the 1997 tax liabilities they are
expected to incur with respect to the operation of the applicable Constituent
Company through the Closing Date. Each of the Constituent Companies (including
WE JAC) also is entitled to distribute cash to their owners in amounts equal to
the amount of professional fees associated with the Combination and actually
paid by the Constituent Company prior to the closing of the Combination.
Management believes that the proceeds of the Offering, together with
internally generated working capital and any additional borrowings, will be
adequate to fund operations of the Company for the foreseeable future. The
Company may incur, from time to time, additional bank indebtedness and may
issue, in public or private transactions, equity or debt securities. Although
the Company expects to obtain a revolving credit facility, as discussed above,
there can be no assurance that sufficient additional financing will be available
on terms acceptable to the Company. Failure to obtain additional financing on
reasonable terms could have a negative effect on the Company.
Management intends to increase the Company's market share in part through
the acquisition and development of additional centers. Acquisitions may vary in
size and the Company may consider larger acquisition opportunities which could
be material to the Company. The Company expects it will use cash, stock, debt,
seller financing or a combination thereof to effect such transactions. There can
be no assurance that the Company will be able to acquire additional centers or
that additional centers that might be acquired would be successfully integrated
into the Company's operations.
20
<PAGE>
WE JAC
WE JAC revenues principally are derived from royalties paid by individual
franchisees to WE JAC, the sale of automotive parts and equipment to franchisees
and other automotive parts resellers, and the sale of individual franchises and
the sale of franchise development rights for specific geographic areas. Direct
costs consist of the portion of royalty payments made by franchisees that WE JAC
pays to area developers, the cost of parts and equipment, fees paid to area
developers for the sale of new franchises and corporate costs directly
associated with servicing and supporting the franchisee system. General and
administrative expenses include all legal, accounting, general overhead,
information technology and corporate staff expenses. Other income and expense
items consist of amortization, interest income and expense and other
miscellaneous costs. From time to time, WE JAC assumes the operation of
individual franchisee centers to maintain market position and system stability.
WE JAC incurs additional expenses when this occurs. The centers typically are
renovated, operations brought up to WE JAC standards, and remarketed to a new
franchisee.
SYSTEM OVERVIEW
The Precision Tune Auto Care system has been undergoing strategic change
since the early 1990's. At that time, company management began to expand the
retail menu of services offered at its centers in response to the advancing
technology of automotive engines and the diminished need for a traditional
tune-up. Menu additions included brake service, oil change and lubrication
services, and scheduled factory maintenance, among other things. A number of the
Company's underperforming franchised centers that were unable or unwilling to
transition their service offerings to keep pace with changes in automotive
technology were closed during the last four years.
WE JAC's current management team has continued this strategic repositioning
effort by preparing a definitive operations policy and procedures manual, adding
experienced field supervisory personnel, attempting to reposition the Company's
service menu in the eyes of the consumer by adding "Auto Care" to the name, and
redesigning the company's marketing and advertising materials to clearly
articulate the one-stop-shopping capabilities of a Precision Tune Auto Care
center. Once fully implemented, the Company believes that these efforts will
enable Precision Tune Auto Care franchisees to increase their sales per center.
RESULTS OF OPERATIONS
The following table sets forth certain income statement items as a
percentage of net revenue for the fiscal years ended June 30, 1995, 1996 and
1997 for WE JAC.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------
1995 1996 1997
---- ---- ----
(PERCENTAGE OF REVENUE)
<S> <C> <C> <C>
Net revenue..................................................................... 100% 100% 100%
Direct cost..................................................................... 75 74 74
--- --- ---
Contribution.................................................................... 25 26 26
General and administrative expenses............................................. 11 8 9
Amortization expense............................................................ 4 4 4
Company owned stores held for resale............................................ 2 2 0
--- --- ---
Operating income................................................................ 8 12 13
Other income (expense).......................................................... (9) (4) (4)
--- --- ---
Income (loss) before taxes...................................................... (1) 8 9
Provision for income taxes...................................................... 0 4 4
--- --- ---
Net income (loss)............................................................... (1)% 4% 5%
--- --- ---
--- --- ---
</TABLE>
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Revenue. Revenue increased $723,000 or 3% to $27.4 million for the year
ended June 30, 1997 from $26.7 million for the year ended June 30, 1996. This
reflects increases in royalty revenue, franchise revenue and other revenues
which were offset by decreases in revenues generated from the sale of equipment
and parts. The increase in royalty revenue resulted from an increase in
system-wide sales reflecting the Company's emphasis on a wider range of vehicle
maintenance services instead of specialty tune ups. While this has resulted in a
lower average price per service visit, the volume of service visits increased
during the period. The increase in franchise revenue reflects the sale of
international master licenses, consistent
21
<PAGE>
with the Company's strategy to expand into international markets. The Company's
emphasis on providing a wider range of vehicle maintenance services has resulted
in a lower average cost per service and a corresponding decrease in average
parts sales per visit.
Direct Cost. Direct cost increased $583,000 or 3%, to $20.3 million for the
year ended June 30, 1997 from $19.7 million for the year ended June 30, 1996.
Direct cost as a percentage of revenue remained constant at 74% for 1997 and
1996, notwithstanding a $400,000 increase in expenses associated with franchisee
field operations and training support, marketing and communication costs focused
on the strategic repositioning of the business, and international and domestic
sales development costs.
Contribution. Contribution increased $140,000 or 2%, to $7.2 million for
the year ended June 30, 1997 from $7.0 million for the year ended June 30, 1996.
Contribution margin as a percentage of revenue remained constant at 26% for 1997
and 1996.
General and Administrative Expenses. General and administrative expenses
increased $246,000 or 11%, to $2.5 million for the year ended June 30, 1997 from
$2.2 million for the year ended June 30, 1996. General and administrative
expenses as a percentage of revenue increased to 9% for the year ended June 30,
1997 from 8% for the year ended June 30, 1996. This increase was primarily due
to the hiring of additional personnel and improvements made to the Company's
management information system.
Operating Income. Operating income increased $374,000 or 11%, to $3.7
million for the year ended June 30, 1997 from $3.3 million for the year ended
June 30, 1996. Operating income as a percentage of revenues increased to 13% for
the year ended June 30, 1997 from 12% for the year ended June 30, 1996. This
increase reflects the divestiture of Company-owned stores which were operated by
the Company in 1996 and negatively impacted the Company during that fiscal year.
Other Income (Expense). Other expense increased $96,000 or 9% to $1.2
million for the year ended June 30, 1997 from $1.1 million for the year ended
June 30, 1996. Other expense increased by $150,000 which was offset by net
interest income of $55,000.
Income Before Taxes. Income before taxes increased $278,000 or 12% to $2.5
million for the year ended June 30, 1997 from $2.2 million for the year ended
June 30, 1996. Income before taxes as a percentage of revenue increased to 9%
for the year ended June 30, 1997 from 8% for the year ended June 30, 1996.
Provision for Income Taxes. Provision for income taxes increased $93,000 or
8%, to $1.3 million for the year ended June 30, 1997 from $1.2 million for the
year ended June 30, 1996 due to the increase in income before taxes.
Net Income. Net income increased $185,000 or 17%, to $1.3 million for the
year ended June 30, 1997 from $1 million for the year ended June 30, 1996. Net
income as a percentage of revenue increased to 5% for the year ended June 30,
1997 from 4 % for the year ended June 30, 1996.
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
Revenue. Revenue increased $155,000, or 1%, to $26.7 million for the year
ended June 30, 1996 from $26.6 million for the year ended June 30, 1995. WE JAC
revenues remained stable for the year as the Company continued to refocus the
services offered from engine tune-ups to vehicle maintenance.
Direct Cost. Direct cost decreased $334,000, or 2%, to $19.7 million for
the year ended June 30, 1996 from $20.0 million for the year ended June 30,
1995. Direct cost as a percentage of revenues decreased from 75% for the year
ended June 30, 1995 to 74% for the year ended June 30, 1996. Direct cost
decreased as a result of a reduction in the allocation of corporate expense
associated with open area and center operations in the amount of $257,000.
Additionally, there was a $100,000 reduction in the cost of parts and equipment
due to improved purchasing procedures.
Contribution. Contribution increased $489,000, or 8%, to $7.0 million for
the year ended June 30, 1996 from $6.5 million for the year ended June 30, 1995.
Contribution as a percentage of revenues remained constant at 26% for the year
ended June 30, 1996.
General and Administrative Expenses. General and administrative expenses
decreased $612,000, or 21%, to $2.3 million for the year ended June 30, 1996
from $2.9 million for the year ended June 30, 1995. As a percentage of revenue,
general and administrative expenses decreased to 8% for the year ended June 30,
1996 from 11% for the year ended June 30, 1995. General and administrative
expenses were lower for the year as a result of a reduction in legal expenses.
This factor combined with a focus on cost containment had a significant effect
on general and administrative expenses.
22
<PAGE>
Operating Income. Operating income increased $1 million, or 46%, to $3.3
million for the year ended June 30, 1996 from $2.3 million for the year ended
June 30, 1995. As a percentage of revenue, operating income increased to 12% for
the year ended June 30, 1996 from 8% for the year ended June 30, 1995. This
reflects decreased direct costs and general and administrative expenses.
Other Income (Expense). Other expense decreased $1.4 million, or 56%, to $1
million for the year ended June 30, 1996 from $2.4 million for the year ended
June 30, 1995. Other expense decreased primarily because the 1995 results of
operations included the settlement of and legal fees associated with disputes
involving an area subfranchisor and franchisee in the amount of $1.2 million.
Income Before Taxes. Income before taxes increased $2.4 million to $2.2
million for the year ended June 30, 1996 from $(152,000) for the year ended June
30, 1995. Income before taxes as a percentage of revenue increased to 8% for the
year ended June 30, 1996 from a loss for the year ended June 30, 1995. This
increase can be attributed to the one time charge in 1995 related to legal fees
and settlement costs of franchisee litigation recorded in fiscal 1995.
Provision for Income Taxes. Provision for income taxes increased $1.1
million to $1.2 million for the year ended June 30, 1996 from $72,000 for the
year ended June 30, 1995 due to the increase in income before taxes.
Net Income. Net income increased $1.2 million to $1.1 million for the year
ended June 30, 1996 from a loss of $67,000 for the year ended June 30, 1995. Net
income as a percentage of revenue increased to 4% for the year ended June 30,
1996 from a loss for the year ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of WE JAC:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by operating activities..................................................... $ 1,949 $ 462 $ 2,207
Net cash used in investing activities......................................................... (504) (1,176) (891)
Net cash provided by (used in) financing
activities.................................................................................. (1,852) 933 (1,491)
------- ------- -------
Change in cash and cash equivalents........................................................... $ (407) $ 219 $ (175)
------- ------- -------
------- ------- -------
</TABLE>
From July 1, 1996 through June 30, 1997, WE JAC generated $2.2 million in
net cash from operating activities. This amount was higher than the net cash
provided by operating activities for the year ended June 30, 1996 principally
because of changes in working capital, most notably, accounts payable and
accrued expenses, and income taxes. Cash used in investing activities consisted
of $296,000 used to purchase property and equipment, $545,000 used to purchase
franchise agreements and rights. Cash used in financing activities was primarily
attributable to $2.8 million received from a term loan offset against the
purchase of treasury stock from a former officer for $2.4 million and the
repayment of long-term debt and notes payable of $2,000,000.
From July 1, 1995 through June 30, 1996, WE JAC generated $462,000 in net
cash from operating activities. This amount was substantially lower than the net
cash provided by operating activities for the year ended June 30, 1995 in spite
of higher net income because of changes in working capital, principally accounts
payable and accrued expenses, and income taxes. Cash used in investing
activities consisted of $358,000 used to purchase property and equipment, and
$754,000 to purchase franchise rights. Cash provided from financing activities
was attributable to $1.1 million received from the sale of stock less $170,000
in net decreases in debt.
From July 1, 1994 through June 30, 1995, WE JAC generated $1.9 million in
net cash from operating activities. During this period, $67,000 resulted from a
net loss, and the remainder was generated from reductions in working capital.
Cash used in investing activities consisted of $504,000 used to purchase
property and equipment. Cash used in financing activities was attributable to
$1.1 million in net payments on debt, and a repurchase of stock warrants of
$750,000.
THE OHIO GROUP
Ohio Group revenue is derived primarily from the operation of car wash
centers, the sale of car wash equipment and fast-oil change buildings and to a
lesser extent the sale of parts and supplies. Direct costs are those related to
the manufacture
23
<PAGE>
and installation of car wash equipment and automobile lubrication facilities, as
well as direct costs associated with the operation of Company-owned car wash and
fast oil change and lube centers. General and administrative expenses include
all accounting, general overhead, information technology and corporate staff.
Other income/expense consists of other expenses associated with Company-owned
store operations, amortization, depreciation and interest expense.
The Ohio Group acquired HydroSpray in February 1996. Because the HydroSpray
division sells both equipment and parts and supplies, the Ohio Group has shifted
the sales of its parts and supplies to HydroSpray after it was acquired.
Sales by the Ohio Group are impacted by seasonal factors. Low sales by the
HydroSpray division for quarters ended March 31, reflect the difficulty in
delivering and installing car wash equipment in winter months. Severe winter
weather and rainy conditions can also negatively impact car wash operations
while normal winter conditions increase the demand for car wash services.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of revenue for the years ended December 31, 1994, 1995 and 1996 and
for the six months ended June 30, 1996 and 1997 for the Ohio Group:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ --------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C> <C>
Revenue.............................................. 100% 100% 100% 100% 100%
Direct cost.......................................... 68 84 81 83 87
--- --- --- --- ---
Contribution......................................... 32 16 19 17 13
General and administrative expenses.................. 25 16 13 17 16
--- --- --- --- ---
Operating income (loss).............................. 7 0 6 0 (3)
Other income (expense)............................... (5) (7) (5) (7) (10)
--- --- --- --- ---
Income (loss)........................................ 2% (7)% 1% (7)% (13)%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenue. Revenue decreased $42,000, or 1%, to $4.4 million for the six
months ended June 30, 1997 from $4.5 million for the six months ended June 30,
1996. The decrease was attributable to a decrease in service revenues resulting
from severe rains and poor weather in the spring of 1997 which adversely
impacted car wash equipment installation and car wash sales. The decrease in
revenue was offset by increased sales in Lube Ventures, the fast oil change and
lubrication operation.
Direct Cost. Direct cost increased $160,000, or 3%, to $3.8 million for the
six months ended June 30, 1997 from $3.7 million for the six months ended June
30, 1996. Direct cost as a percentage of revenue increased to 87% for the six
months ended June 30, 1997 from 83% for the six months ended June 30, 1996.
Contribution. Contribution decreased $202,000, or 26% to $567,000 for the
six months ended June 30, 1997 from $769,000 for the six months ended June 30,
1996. The decrease is primarily attributable to increased marketing expenses and
the adverse impact of the poor spring weather.
General and Administrative Expenses. General and administrative expenses
decreased $22,000, or 3%, to $722,000 for the six months ended June 30, 1997
from $744,000 for the six months ended June 30, 1996. General and administrative
expenses as a percentage of revenues decreased to 16% in 1997 from 17% in 1996.
Operating Loss. Operating loss increased $180,000 to $(155,000) for the six
months ended June 30, 1997 from operating income of $25,000 for the six months
ended June 30, 1996. Operating loss as a percentage of revenue decreased to (3)%
in 1997 from 0% in 1996. The 1996 operating loss would have been increased by
$95,000 had the acquisition of HydroSpray occured prior to February 29, 1996, as
the quarter ending March 31 is generally the least profitable quarter.
Other Income (Expenses). Other expense increased $103,000, or 33%, to
$413,000 for the six months ended June 30, 1997 from $310,000 for the six months
ended June 30, 1996. The change was a result of the increase in interest expense
associated with the assumption of the debt obligations of HydroSpray and
indebtedness incurred in connection with the acquisition of new car wash
facilities.
24
<PAGE>
Net Income (Loss). Net loss increased $283,000, or 99%, to $568,000 for the
six months ended June 30, 1997 from $285,000 for the six months ended June 30,
1996. Net loss as a percentage of revenue increased to (13)% for the six months
ended June 30, 1997 from (7)% for the six months ended June 30, 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue. Revenue increased $6.9 million, or 141%, to $11.8 million for the
year ended December 31, 1996 from $4.9 million for the year ended December 31,
1995. This change was due to the acquisition of a 90% interest in HydroSpray
representing approximately $6.0 million in sales, increased sales in Lube
Ventures, the fast oil change and lubrication operation, and the purchase of
five additional car washes operated as company-owned centers. These increases
were partially offset by an anticipated decrease in parts sales from
discontinued lines.
Direct Cost. Direct cost increased $5.4 million, or 132%, to $9.6 million
for the year ended December 31, 1996 from $4.1 million for the year ended
December 31, 1995. Direct cost as a percentage of revenue decreased to 81% for
the year ended December 31, 1996 from 84% for the year ended December 31, 1995.
This reflects the positive impact of the HydroSpray operations.
Contribution. Contribution increased $1.5 million, or 192%, to $2.2 million
for the year ended December 31, 1996 from $768,000 for the year ended December
31, 1995. The increase is primarily a result of an increase in revenues relating
to the acquisition of HydroSpray.
General and Administrative Expenses. General and administrative expenses
increased $722,000, or 92%, to $1.5 million for the year ended December 31, 1996
from $782,000 for the year ended December 31, 1995. General and administrative
expenses as a percentage of revenue decreased to 13% in 1996 from 16% in 1995 as
expenses were spread across a larger revenue base.
Operating income. Operating income increased $750,000 to $736,000 for the
year ended December 31, 1996 from a loss for the year ended December 31, 1995.
Operating income as a percentage of revenue increased to 6% for the year ended
December 31, 1996 from a loss for the year ended December 31, 1995.
Other Income (Expense). Other expense increased $312,000, or 92%, to
$650,000 for the year ended December 31, 1996 from $338,000 for the year ended
December 31, 1995. The increase primarily consisted of a $160,000 increase in
interest expense relating to HydroSpray and $137,000 in interest expense related
to new indebtedness incurred in connection with building new car wash
operations.
Net Income (Loss). Net income increased $438,000 to $86,000 for the year
ended December 31, 1996 from a loss of $(352,000) for the year ended December
31, 1995. Net income as a percentage of revenue increased to 1% for the year
ended December 31, 1996 from a loss for the year ended December 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue. Revenue increased $1.7 million, or 55%, to $4.8 million for the
year ended December 31, 1995 from $3.1 million for the year ended December 31,
1994. Revenue increased from the purchase of the Lube Venture operation which
represented $1.3 million of the $1.7 million increase.
Direct Cost. Direct cost increased $2.0 million, or 93%, to $4.1 million
for the year ended December 31, 1995 from $2.1 million for the year ended
December 31, 1994. Direct cost as a percentage of revenue increased to 84% for
the year ended December 31, 1995 from 68% for the year ended December 31, 1994.
Direct costs increased from the initial costs associated with developing the
franchising operation for Lube Ventures.
Contribution. Contribution decreased $246,000, or 24%, to $768,000 for the
year ended December 31, 1995 from $1.0 million for the year ended December 31,
1994. Contribution as a percentage of revenue decreased to 16% for the year
ended December 31, 1995 from 32% for the year ended December 31, 1994.
Contribution decreased as a result of the increase in direct costs.
General and Administrative Expenses. General and administrative expenses
remained flat at approximately $780,000 in both 1994 and 1995. General and
administrative expenses as a percentage of revenues decreased to 16% for the
year ended December 31, 1995 from 25% for the year ended December 31, 1994. The
percentage decrease was due to the larger revenue
25
<PAGE>
base that general and administrative cost were applied against. An increase in
the actual dollar cost of general and administrative costs was associated with
adding the franchising capability of the Lube Venture operation and the
increased costs of a larger operation.
Operating Loss. Operating loss increased $248,000 to $(14,000) for the year
ended December 31, 1995 from operating income of $234,000 for the year ended
December 31, 1994. Operating loss as a percentage of revenue decreased to 0% for
the year ended December 31, 1995 from 7% for the year ended December 31, 1994.
Income from operations decreased as a result of the additional initial costs
incurred with the Lube Ventures purchase.
Other Income (Expense). Other expense increased $166,000, or 96%, to
$338,000 for the year ended December 31, 1995 from $172,000 for the year ended
December 31, 1994. Additional interest costs from the acquisition increased
other expenses.
Net Income (Loss). Net income decreased $414,000 to $(352,000) for the year
ended December 31, 1995 from $62,000 for the year ended December 31, 1994. Net
loss as a percentage of revenue decreased to (7)% for the year ended December
31, 1995 from net income as a percentage of revenue of 2% for the year ended
December 31, 1994. Net income decreased from the additional initial costs of
acquisition and franchising.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of the Ohio Group:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- ----------------------------------
1995 1996 1996 1997
-------------- -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities.......................................... $ 176 $ 740 $ (757) $ (720)
Net cash used in investing activities............... (971) (3,604) (3,782) (344)
Net cash provided by financing activities........... 1,124 2,670 4,330 1,096
-------------- -------------- -------------- --------------
Change in cash and cash equivalents................. $ 329 $ (194) $ (209) $ 32
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
During the six months ended June 30, 1997, the Ohio Group used cash of
$720,000 in operating activities. This is consistent with the same period in the
prior year in which the Ohio Group used cash of $757,000 in operations. In the
first six months ended June 30, 1996, the Ohio Group used $3.8 million in
investing activities largely for the acquisition of a 90% interest in HydroSpray
Equipment Co., Ltd. and additional car wash facilities. During the six months
ended June 30, 1997, the Ohio Group generated cash from financing activities of
$4.3 million consisting of $995,000 from the sale of common stock and $3.2
million in net proceeds from debt.
From January 1, 1995 through December 31, 1996, the Ohio Group generated
$916,000 in net cash from operating activities. During this period, $875,000 was
generated from net income before non-cash charges, and $42,000 from reductions
in working capital. Cash used in investing activities was attributable to $4.3
million in purchases of property and equipment (primarily related to the
HydroSpray acquisition), $150,000 from a net increase in outstanding notes
receivable, $62,000 for investments, and $50,000 in other purchases. Cash used
in financing activities was attributable to $330,000 for the purchase of
treasury stock, and $33,000 in payment of dividends. Financing sources consisted
of $995,000 received upon the sale of common stock and $3.2 million in net
proceeds from debt.
ALL OTHER CONSTITUENT COMPANIES
Revenues for All Other Constituent Companies are derived primarily from car
wash operation sales. Contribution margin consists of direct costs related to
car wash operations including facilities, personnel, utilities, maintenance and
supplies. General and administrative expenses include all accounting, general
overhead, information technology and executive expenses. Other income/expense
consists of other expenses associated with company-owned store operations,
amortization and depreciation expense and interest expense.
Sales by all other Constituent Companies are impacted by several factors.
Severe winter weather and rainy conditions can negatively impact car wash
operations while normal winter conditions generally increase the demand for car
wash services.
26
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain income statement items as a
percentage of revenue for the years ended December 31, 1994, 1995 and 1996 and
for the six months ended June 30, 1996 and 1997 for All Other Constituent
Companies.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ --------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C> <C>
Revenue.......................................... 100% 100% 100% 100% 100%
Direct cost...................................... 44 55 53 49 51
--- --- --- --- ---
Contribution..................................... 56 45 47 51 49
General and administrative expenses.............. 38 29 28 30 30
--- --- --- --- ---
Operating income................................. 18 16 19 21 19
Other income (expense)........................... (17) (12) (10) (14) (9)
--- --- --- --- ---
Income........................................... 1% 4% 9% 7% 10%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenue. Revenue remained essentially constant at $1.2 million for the six
months ended June 30, 1997 and for the six months ended June 30, 1996. The
relatively constant sales were attributed to severe rain conditions that reduced
sales from the Ohio operations which offset a 4% increase in sales from the
Denver operations.
Direct Cost. Direct cost increased $25,000 or 4%, to $605,000 for the six
months ended June 30, 1997 from $580,000 for the six months ended June 30, 1996.
Direct cost as a percentage of revenue increased to 51% for the six months ended
June 30, 1997 from 49% for the six months ended June 30, 1996. Direct cost, as a
percentage of revenue increased principally as a result of relatively fixed
direct costs associated with the Ohio operation coupled with reduced sales
during the period.
Contribution. Contribution decreased $13,000 or 2%, to $592,000 for the six
months ended June 30, 1997 from $605,000 for the six months ended June 30, 1996.
Contribution was adversely affected by the reduction in sales from the Ohio
operation, combined with no offsetting decrease in fixed direct costs.
General and Administrative Expenses. The level of general and
administrative expenses remained relatively constant during the period and have
remained essentially constant as a percentage of revenue.
Operating Income. Operating income decreased $15,000 or 5%, to $230,000 for
the six months ended June 30, 1997 from $245,000 for the six months ended June
30, 1996. Operating income as a percentage of revenue decreased to 19% for the
six months ended June 30, 1997 from 21% for the six months ended June 30, 1996.
Other Income (Expense). Other expense decreased $35,000 or 31%, to $111,000
for the six months ended June 30, 1997 from $161,000 for the six months ended
June 30, 1996. Other expense as a percentage of revenue decreased to 9% for the
six months ended June 30, 1997 from 14% for the six months ended June 30, 1996.
The decrease consists primarily of a reduction in interest expense.
Net Income. Net income increased $20,000 or 20%, to $119,000 for the six
months ended June 30, 1997 from $99,000 for the six months ended June 30, 1996.
Net income as a percentage of revenue increased to 10% for the six months ended
June 30, 1997 from 7% for the six months ended June 30, 1996. The change in net
income is principally attributed to the decrease in other expense.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue. Revenue increased $105,000, or 5%, to $2.2 million for the year
ended December 31, 1996 from $2.1 million for the year ended December 31, 1995.
This change was primarily due to sales increases at each of the facilities,
particularly at the Company's prototype operation located in Denver, Colorado.
Direct Cost. Direct cost increased $27,000, or 2%, to $1.2 million for the
year ended December 31, 1996 from $1.1 million for the year ended December 31,
1995. Direct cost as a percentage of revenue decreased to 53% for the year ended
December 31, 1996 from 55% for the year ended December 31, 1995. Direct costs,
as a percentage of revenue, decreased by holding fixed costs constant as
revenues increased.
27
<PAGE>
Contribution. Contribution increased $78,000, or 8%, to $1.0 million for
the year ended December 31, 1996 from $939,000 for the year ended December 31,
1995. This change is attributable to the revenue increase and stability of
direct costs.
General and Administrative Expenses. General and administrative expenses
increased $11,000 or 2%, to $611,000 for the year ended December 31, 1996 from
$600,000 for the year ended December 31, 1995. This increase was due primarily
to increased professional fees and personnel costs required to support continued
growth. General and administrative expenses remained constant as a percentage of
revenue.
Operating Income. Operating income increased $67,000, or 20%, to $406,000
for the year ended December 31, 1996 from $339,000 for the year ended December
31, 1995. Operating income as a percentage of revenue increased to 19% for the
year ended December 31, 1996 from 16% for the year ended December 31, 1995. The
change in operating income improved through increased revenue and stable direct
costs.
Other Income (Expense). Other expense decreased $38,000, or 15%, to
$218,000 for the year ended December 31, 1996 from $256,000 for the year ended
December 31, 1995. Other expense as a percentage of revenue decreased to 10% for
the year ended December 31, 1996 from 12% for the year ended December 31, 1995.
The decrease consists of a reduction in interest and rent expense.
Net Income. Net income increased $105,000, or 126%, to $188,000 for the
year ended December 31, 1996 from $83,000 for the year ended December 31, 1995.
Net income as a percentage of revenue increased to 9% for the year ended
December 31, 1996 from 4% for the year ended December 31, 1995. The change in
net income is attributed to the increase in revenues while holding or reducing
direct and other costs.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue. Revenue increased $53,000, or 26%, to $2.1 million for the year
ended December 31, 1995 from $2.0 million for the year ended December 31, 1994.
Revenues increased from the increased use of repeat customer promotions and
targeted advertising.
Direct Cost. Direct cost increased $238,000, or 27%, to $1.1 million for
the year ended December 31, 1995 from $893,000 for the year ended December 31,
1994. Direct cost as a percentage of revenue increased to 55% for the year ended
December 31, 1995 from 44% for the year ended December 31, 1994. Direct costs
increased from an additional investment in control systems and new facilities
and a re-allocation of certain general and administrative expenses to direct
costs.
Contribution. Contribution decreased $185,000, or 16%, to $939,000 for the
year ended December 31, 1995 from $1.1 million for the year ended December 31,
1994. Contribution as a percentage of revenue decreased to 45% for the year
ended December 31, 1995 from 56% for the year ended December 31, 1994.
Contribution decreased as a result of the increase in direct costs.
General and Administrative Expenses. General and administrative expenses
decreased $164,000, or 21%, to $600,000 for the year ended December 31, 1995
from $764,000 for the year ended December 31, 1994. General and administrative
expenses as a percentage of revenues decreased to 29% for the year ended
December 31, 1995 from 38% for the year ended December 31, 1994. To more
accurately reflect the nature of the costs of the business, a re-allocation of
costs from general and administrative to direct was made. This accounts for the
majority of the increase in direct costs and decrease in general and
administrative costs.
Operating Income. Operating income decreased $21,000, or 6%, to $339,000
for the year ended December 31, 1995 from $360,000 for the year ended December
31, 1994. Operating income as a percentage of revenue decreased to 16% for the
year ended December 31, 1995 from 18% for the year ended December 31, 1994.
Operating income decreased as a result of the increase in direct costs
associated with new systems development.
Other Expenses. Other expenses decreased $92,000, or 26%, to $256,000 for
the year ended December 31, 1995 from $348,000 for the year ended December 31,
1994. Other expenses as a percentage of revenue decreased to 12% for the year
ended December 31, 1995 from 17% for the year ended December 31, 1994. Other
expenses decreased from debt refinancing and cost control.
Net Income. Net income increased $71,000, or 591%, to $83,000 for the year
ended December 31, 1995 from $12,000 for the year ended December 31, 1994. Net
income from operations as a percentage of revenue increased to 4% for the year
28
<PAGE>
ended December 31, 1995 from 1% for the year ended December 31, 1994. Net income
benefited from the reduction in other expenses which was partially offset by the
increase in direct costs.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of all other Constituent Companies:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ----------------
1995 1996 1996 1997
----- ----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by operating activities...................................... $ 390 $ 481 $ 154 $ 295
Net cash used in investing activities.......................................... (464) (153) (76) (168)
Net cash used in financing activities.......................................... 109 (331) (96) (125)
----- ----- ----- -----
Change in cash and cash equivalents............................................ $ 35 $ (3) $ (18) $ 2
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
During the six months ended June 30, 1997, the Other Constituent Companies
generated cash from operating activities of $295,000 as compared to $154,000 in
the same period in the prior year. The majority of cash flows from operations
relates to non-cash charges of $130,000 and $243,000 during 1996 and 1997,
respectively. In the six months ended June 30, 1997, All Other Constituent
Companies used $168,000 in investing activities largely attributable to the
acquisition of property and equipment. During the six months ended June 30,
1997, All Other Constituent Companies used cash in financing activities of
$125,000 which was attributable to payments on long-term debt.
From January 1, 1995 through December 31, 1996, All Other Constituent
Companies generated $871,000 in net cash from operating activities. During this
period, $880,000 was generated from net income before non-cash charges, and
$9,000 was used in the reduction of working capital. Cash used in investing
activities was attributable to $635,000 in purchases of property and equipment.
Investing sources consisted of $265,000 from a net decrease in outstanding notes
receivable. Cash used in financing activities was attributable to $109,000 in
net payments on debt, $83,000 for the purchase of treasury stock, and $31,000 in
other financing activities.
29
<PAGE>
BUSINESS
GENERAL
Upon completion of the Offering and the Combination, management believes
that Precision Auto Care will be a leading provider of comprehensive automotive
maintenance services. These services will be marketed under the "Precision"
brand and include three distinct operations: (i) Precision Tune Auto Care, an
existing international chain of automotive service franchises; (ii) Precision
Auto Wash, an operator and franchisor of a chain of self-service and touchless
automatic car wash centers; and (iii) Precision Lube Express, an operator and
franchisor of a chain of modular fast oil change and lube centers. The Company's
mission is to be the premier provider of quality car care services worldwide by
exceeding its customers' expectations.
The management team headed by John F. Ripley, the Company's president and
chief executive officer, joined Precision Tune Auto Care, the operating
subsidiary of WE JAC Corporation (the largest Constituent Company), in July of
1995 and developed a strategic plan to capitalize on the market opportunities
presented to Precision Tune Auto Care. The primary goal of the strategic plan is
to grow the Company into a multiple-solutions provider of automotive services by
effectively cross-marketing the depth and breadth of the Company's services.
The Company intends to employ the following strategies to accomplish its
objectives:
(Bullet) Leverage Precision Tune Auto Care's broad brand name recognition
and existing market position in the automotive services business
into the car wash and fast oil change and lube sectors of the
automotive aftermarket;
(Bullet) Provide existing Precision Tune Auto Care franchisees with
cross-selling opportunities to their customer base and local
market position by adding Precision Auto Wash and Precision Lube
Express operations at or in close proximity to their existing
centers;
(Bullet) Develop cross-marketing programs among franchisees throughout the
Precision Auto Care system that would enable franchisees to
maximize their returns on advertising spending;
(Bullet) Capitalize on the Company's vertically integrated manufacturing
and distributing capabilities to provide a broad array of products
to franchisees, including automotive parts and service equipment,
car wash equipment, chemicals and supplies, and modular fast oil
change and lube buildings; and
(Bullet) Consolidate the automotive maintenance service industry through
strategic acquisitions and the conversion of centers operated by
competitors into Precision Auto Care franchises or Company-owned
centers.
The market for automotive services is large, growing and highly fragmented.
The Company expects that the market for its services will continue to grow
primarily due to a continuing shift of consumer preference from the
"do-it-yourself" to the "do-it-for-me" sector. The Company believes that no
national brand leader currently markets the full range of automotive maintenance
services the Company provides and that the fragmented nature of the industry
presents a unique opportunity to amass market share. The Company's manufacturing
capabilities will provide an opportunity for the Company to make cost-effective
conversions of its competitors' car washes and fast oil change and lube centers
into Precision Auto Care franchises or Company-owned centers, enabling the
Company to consolidate these sectors of the industry more quickly.
At June 30, 1997, the Company had 556 franchise Precision Tune Auto Care
centers, 35 Company-owned car washes and 20 franchise and 1 Company-owned fast
oil change and lube express centers. For the year ended June 30, 1997, pro forma
Company revenue and operating income were $41.2 million and $ 4.3 million,
respectively.
INDUSTRY OVERVIEW
The automotive maintenance service market is large, growing and highly
fragmented. Management believes these characteristics present a unique
opportunity for a quality national brand to achieve internal growth and to gain
market share through consolidation.
The domestic automotive service, car wash and quick lube sectors totaled
approximately $100 billion in 1996, up from $95 billion in 1995 according to the
Automotive Parts and Accessories Association and the International Car Wash
Association. According to the Automotive Parts and Accessories Association 1996
Aftermarket Factbook, there are approximately 200 million cars and light trucks
in the United States today.
The Company expects that the market for the services it provides will
continue to grow as more consumers seek to have services performed for them
("do-it-for-me") rather than performing those services themselves
("do-it-yourself"). According
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to Lang Marketing Resources, Inc., the do-it-for-me segment increased from 67%
to 72% from 1985 to 1995 while the do-it-yourself format showed a corresponding
decrease. The Company believes the principal factors causing this shift in
consumer preference are as follows:
(Bullet) The consumer desire for one-stop shopping, convenience and value;
(Bullet) An aging and time sensitive population;
(Bullet) The increase in two wage-earning households;
(Bullet) Greater technical complexity in today's vehicles; and
(Bullet) Competitive pricing to many "do-it-yourself" services.
The FIND/SVP (March 1995) Report, Market for Aftermarket Services estimates that
this trend should continue and projects annual growth rates of 5.8%, 6.8% and
13.6% in oil change, tune-up, and brake services sectors, respectively, through
1999. Additional industry factors which the Company believes will increase the
demand for its services include (i) a continuing decline in the number of
service bays at automobile dealerships, (ii) the increasing cost of new cars and
the relative percentage of that cost to median family income and (iii) the
increasing age of the average vehicle (9.3 years in 1996 compared to 6.9 years
in 1981).
The Company's consumer research indicates that the fragmentation of the
industry is exemplified in the fact that automobile dealerships, which do not
currently have significant national or international name brand recognition,
represent Precision Tune Auto Care's primary competition. Other participants in
the automotive service sector include parts suppliers, tire companies, and
regional service specialists, none of which are deemed by management to be
national service providers with strong top-of-mind brand awareness. The
International Car Wash Association estimates that there are approximately 75,000
car wash facilities in North America. The Company is not aware of any national
or significant regional competitors in this sector. Precision Lube Express
competes in a fast lube industry marked with national chains such as Jiffy Lube,
Q Lube, Texaco's Express Lube and Valvoline's Instant Oil Change, as well as a
number of smaller, regional chains and independent operators.
The Company believes that the size, growth and fragmentation of the markets
in which it operates present significant opportunities for a national brand with
a reputation for quality. For example, the car wash business and significant
portions of the fast oil change and lube business historically have been
populated with local operators who rarely upgrade or improve their facilities.
Moreover, recent technological improvements in car wash equipment and chemicals
now allow for more consistent and higher quality service. The Company believes
that a large national brand can attract a greater part of the market as
consumers become aware of these features and experience consistent quality,
appearance and service standards throughout the Precision Auto Care system.
COMPETITIVE STRENGTHS
Precision Auto Care believes that the following characteristics provide
competitive advantages:
Strong Brand Awareness. Although the Company has not conducted operations
under the Precision Auto Wash or Precision Lube Express name, Precision Tune
Auto Care has been in existence since 1977 and, with 468 domestic centers and 88
international centers as of June 30, 1997, has achieved significant awareness of
the Precision brand name. The Company's centers are located in 39 states and
five countries. The logos, signage, and building identity package for Precision
Lube Express and Precision Auto Wash have been designed to be complementary with
and to extend this brand awareness, which management believes will provide
significant opportunities for cross promotion of the three businesses. The
Company expects that this cross promotion will allow the Company to utilize
national broadcast advertising more effectively and earlier than would otherwise
be the case, creating top-of-the mind brand awareness among consumers.
One-Stop-Shop "Do-It-For-Me" Service Capability. In addition to providing a
full range of automotive maintenance services at Precision Tune Auto Care, the
Company believes its franchisees can successfully add Precision Lube Express
bays to Precision Auto Wash centers and Precision Auto Wash touchless wash bays
to Precision Tune Auto Care and Precision Lube Express centers, thereby
maximizing customer convenience and Company and franchisee revenues and
earnings. The Company believes that positioning the Company as a one-stop,
multiple-solutions provider of automotive maintenance services (many of which
are essential to vehicle maintenance) will be very attractive to today's
drivers, many of whom are faced with increasing time pressures.
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Experienced and Proven Full Service Franchising Capability. Precision Tune
Auto Care has been engaged in franchising for 20 years and has been named as one
of the top franchises in the United States and the world by publications such as
Entrepreneur Magazine, Success Magazine, Money Magazine, and Franchise Buyer.
The Company supports its franchisees with a vertically integrated support
system, including operations, customer service, marketing and training support
and computerized systems at the retail level, site selection and service center
development assistance, parts and supplies distribution, auto wash equipment
manufacturing and installation, lube express building manufacturing and
installation, and if desired, monthly accounting and financial reporting
assistance. The Company utilizes a dual approach to sell franchises. There
currently are 31 Precision Tune Auto Care area developers who have existing
rights to develop certain territories. The Company's new management has recently
refocused the Company's infrastructure to market sales of franchises directly to
prospective franchisees in areas not covered by these subfranchisors.
Superior Technical Capabilities and Customer Service. Precision Tune Auto
Care's highly trained technicians specialize in high end "under-the-hood"
automotive maintenance services and engine diagnostics. Given the increasing
complexity of today's vehicles, management believes that the Company's highly
trained technicians give the Company a competitive advantage over many of its
competitors, whose technicians are not as well trained, and over
"do-it-yourself" consumers, who typically are unqualified to repair and maintain
modern engine systems. The Company supports its services with a comprehensive
warranty program. The Company's technical capabilities also are supported by a
series of quality-oriented programs, including the training of center personnel
in how to provide high quality customer service, centralized customer service
"800" numbers, extensive store evaluation and "mystery shopper" programs,
computerized in-store educational kiosks, use of quality parts, and a pricing
policy which aims to provide customers with Precision Value, which the Company
defines as quality, service and convenience at a fair price.
Attractive Unit Economics. When operated in accordance with Company
guidelines, each of the three types of retail centers can provide attractive
economic returns to the owner. The Company believes that these economic
opportunities will be enhanced by the ability to cross promote the Precision
brand through the three different types of retail centers. The Company also
believes that the levels of initial investment required of franchisees make the
Company's franchises economically attractive. Of particular note is the
relatively low cost of entry into the fast oil change and lube business
facilitated by the Company's modular fast lube building. Management believes the
modular fast oil change and lube building provides a significant competitive
advantage over its competitors which require more expensive build-to-suit
buildings with pits or a basement.
Motivated Owner-Operators. Although the Precision Tune Auto Care system has
several successful franchisees who own large numbers of centers, the average
franchisee owns between one and three centers. Management believes that a
substantial majority of these franchisees operate Precision Tune Auto Care
centers as their primary source of income and are therefore highly motivated to
maximize their retail center sales and profits.
Experienced Management. As a team, the Company's senior officers have
extensive experience in the automotive aftermarket sector, franchising
operations, and the management of publicly-held growth companies. This
management team has implemented a series of programs designed to give the
Company a common vision, shared goals and a culture of responsibility and
accountability.
GROWTH STRATEGY
The Company's growth strategy centers on the following elements:
Maximizing Service Center Profitability. The Company believes that
maximizing service center profitability is vital to the stability and growth of
the Precision Auto Care system. Accordingly, the Company continually seeks to
identify, develop and promote systems, products, and practices that enhance the
awareness of the Precision name, grow retail sales, and control service center
operating costs. The Company has identified a strategy to become a nationally
recognized leader in the automotive service industry by offering the services of
its three types of operating units under one brand name. In addition to
providing cross-promotional and other marketing opportunities, the Company
believes that the combination of up to the three types of individual services
offered by the Company at the same location or in close proximity will provide
added customer convenience and can generate superior economic returns to the
center operators. For example, if space is available Precision Lube Express bays
can quickly and economically be added to an existing Precision Auto Wash
facility. Such combinations increase the level of service to the customer,
allowing the operator to provide cross-promotions to encourage the frequent
usage of the services offered by each unit.
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Service Center Growth. Precision Tune Auto Care intends to utilize its
franchising capability and experience and its existing center base to cross-sell
Precision Auto Wash and Precision Lube Express franchises. The Company's
domestic franchising efforts seek to establish critical mass in regional
markets. Although it has relied heavily on area subfranchisors in the past, the
Company intends to utilize direct franchising versus franchising through area
developers in the future. The Company's international expansion efforts will
continue to utilize master franchise arrangements and will focus primarily in
areas of the world where Precision Tune Auto Care already has developed a
presence, namely Southeast Asia, the Americas, and the Caribbean.
Management believes that the availability of two new franchise products to
offer existing franchisees could result in significant franchise sales as those
franchisees seek to obtain incremental market penetration and revenue growth by
complementing existing centers with one or more of the other types of centers.
To simplify the process of starting a new franchise or adding an additional
franchise, the Company presently intends to initiate two new programs:
(Bullet) The Precision Asset Leasing Program will be intended to minimize
the up-front cash investment required by the franchisee. This
program will provide franchisees the opportunity to lease the
equipment required for operation of a Precision Tune Auto Care or
Precision Auto Wash center, as well as the building and equipment
required for a Precision Lube Express center.
(Bullet) The Precision Turnkey Program will be designed to allow a
franchisee to purchase an existing company-operated center and
will be offered at management's discretion in certain
predetermined areas. The franchisee will purchase a franchise
license and the center's assets, including goodwill, and, if
applicable, will rent the underlying real property from the
Company. The program is designed to enhance franchise sales by
providing readily available and immediately operational sites of
Company-selected locations.
Acquisition or Conversion of Competitor Centers. The Company aggressively
will seek to acquire or convert competitors, directly or through franchising, to
the Precision Auto Care system. Because the car wash industry is dominated by
one-to-three center operators, this business will be a particular focus for this
strategy. Management estimates that approximately 2,000 of the existing car wash
centers in the United States use equipment similar to the equipment that will be
used in Precision Auto Wash centers. The Company believes that significant sales
increases could be achieved upon the acquisition or conversion of such centers
once they are upgraded to Precision Auto Wash operating and marketing standards
and enjoy the competitive advantages of the comprehensive and proprietary
Precision Auto Wash system and Precision brand name awareness. A number of
competing auto care and fast lube chains will also be targeted for acquisition
or conversion.
Company Store Division. The Company plans to develop a division of Company
owned Precision Tune Auto Care, Precision Auto Wash, and Precision Lube Express
centers. This will enable the Company to capture revenue and profits at the
service center operating level, increase Precision brand market share and
potentially derive capital gains through the subsequent sale and franchising of
such units pursuant to the Precision Turnkey Program. At June 30, 1997 this
division included 31 auto wash centers owned directly by the Company, 4 auto
wash centers which the Company manages and in which it holds a 50% equity
interest and four fast oil change and lube centers. Future development efforts
will initially focus principally on Precision Auto Wash and Precision Lube
Express centers targeted in the Colorado and Ohio regions in order to take
advantage of the base of existing operations.
Manufacturing and Distribution. In addition to providing its franchisees
with superior service and support, manufacturing and distribution activities
also generate significant revenue and operating profits for the Company.
Furthermore, these activities are designed to allow the Company to promote
uniform quality across its franchised locations. Precision Tune Auto Care
distributes parts and equipment to Precision Tune Auto Care centers through its
warehouse distribution division. The Company manufactures and installs the
HydroSpray equipment and operating system required to operate a Precision Auto
Wash franchise and also offers chemicals, parts and supplies to franchisees. The
Company manufactures and installs the prefabricated buildings from which
Precision Lube Express operations are conducted. The Company believes that the
HydroSpray equipment and prefabricated building operations will provide the
Company with significant cost advantages in connection with its acquisition and
conversion of competitor operated centers by allowing the Company to more easily
and economically upgrade the acquired facilities.
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OPERATIONS
PRECISION TUNE AUTO CARE
Precision Tune Auto Care is an automotive service specialist engaged in the
business of providing quality automobile maintenance services. At June 30, 1997
these services were provided at 556 Precision Tune Auto Care Centers owned and
operated by Precision Tune Auto Care franchisees. The automotive maintenance
services provided by Precision Tune Auto Care centers include the diagnosis,
maintenance and repair of ignition systems, fuel systems, computerized engine
control systems, cooling systems, starting/charging systems, emissions control
systems, engine drive train systems, electrical systems, air conditioning
systems, oil and other fluid systems, and brake systems. Precision Tune Auto
Care believes it is a leading provider of automotive maintenance services in the
United States, that it enjoys a reputation for providing quality service quickly
and conveniently for a fair price and that it has benefitted from the growth in
the "do-it-for-me" versus the "do-it-yourself" market. For the year ended June
30, 1997, Precision Tune Auto Care system-wide retail sales, and the Company's
franchising revenues derived from the Precision Tune Auto Care system were
$207.7 million and $15.6 million, respectively.
Prototype Center. The prototype Precision Tune Auto Care center typically
is free-standing and currently consists of eight service bays, four of which are
drive-through and include pits to facilitate fast oil change and lubrication
services. The center also includes storage space for parts and inventory, a
manager's office, a fully-furnished customer service and reception area, and
restrooms. An optional children's play area can be added to make the center more
family friendly. The center is located on a 15,000 to 20,000 square foot lot,
generally in a high traffic, commercial area. Each center is identified with
Precision Tune Auto Care signage, including the Precision Tune Auto Care logo
and trade dress, to create a consistent image and heightened customer
recognition. Precision Tune Auto Care Centers are generally open six days a week
from 8:00 a.m. until 6:00 p.m. Each center maintains an inventory of over 3,000
SKU's, including oil and other automotive fluids, having an aggregate average
value of approximately $15,000. The design and operation of each center is
intended to provide the customer with a superior experience by offering the
customer high quality services quickly in clean, well-run facilities.
Existing centers presently consist of between two and fourteen bays. All
centers are required to provide oil change and lubrication services (unless
otherwise restricted under the terms of a lease); however, a substantial number
of existing centers do not have drive through capabilities. For those existing
centers not currently able to offer fast oil change and lube services, the
Company believes that the modular system offered by Precision Lube Express will
present an excellent opportunity to penetrate this market segment and increase
revenue and earnings for franchisees who are able to locate a Precision Lube
Express center on their existing site or on a site in close proximity to their
Precision Tune Auto Care operation. Franchisees typically develop Precision Tune
Auto Care centers either by entering into a build to suit lease, under which the
landlord constructs the center and leases it to the franchisee, or by purchasing
land and building the facility.
Precision Tune Auto Care seeks half-acre sites in commercial areas which
have a minimum of 50,000 people within a five mile radius and 24-hour drive-by
traffic of at least 20,000 cars. In addition, the Company aims to cluster
existing markets before opening centers in markets where Precision Tune Auto
Care has no presence in order to create and take advantage of advertising
efficiencies. The Company actively assists franchisees with site selection and
evaluation of the proposed site, after which the Company has the right to reject
sites selected by franchisees.
Retail Marketing. Precision Tune Auto Care's marketing objectives at the
retail level are to increase sales penetration, enhance first time customers'
trial experience, and bolster customer retention efforts. To further these
objectives, Precision Tune Auto Care has developed and implemented a
comprehensive marketing plan containing numerous programs and materials for use
by Precision Tune Auto Care centers. The plan includes targeted marketing
programs designed to reach key market segments, in-store merchandising materials
designed to enhance retail sales and first time customer trials, and other local
marketing materials (e.g., second car discounts, service reminder cards, and ATM
receipt coupons) designed to generate first time customer trials and improve
customer retention. The Company's current data base includes approximately three
million names. The Company uses this data to analyze services provided by
Precision Tune Auto Care centers. Moreover, franchisees can access the data for
the purpose of issuing service reminder notices and other promotional purposes.
Precision Tune Auto Care, in conjunction with an advertising cooperative funded
by franchisees, provides a variety of marketing materials to franchisees,
including television and radio commercials, newspaper, direct mail material, and
instore promotional material. In addition, a number of sales promotion program
packages, including grand opening, anniversary and peak season promotional
packages, have been developed. Precision Tune Auto Care recently introduced a
marketing campaign designed to enhance awareness of the variety of Precision
Tune Auto Care services and to establish Precision Tune Auto Care as the
convenient and cost-effective alternative to the new car dealer for automotive
maintenance. The Company has also recently initiated a fleet service program
pursuant to which the Company services automotive fleets at volume discounts.
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Training and Operational Support. A significant element of Precision Tune
Auto Care's commitment to quality service is its intensive training program for
franchisees. Franchisees are required to successfully complete 80 hours of
initial training prior to opening their centers. This training runs for two
weeks at the Company's national training center in Leesburg, Virginia. The
Company also offers a full line of technical training, including courses on
engine performance, fuel systems and emissions, automotive electronics, fuel
injection, and brake certification. These courses, which consist of between 40
and 80 hours of classroom and hands-on training, are designed to allow
franchisees and service center technicians to maintain and update their
technical capability to service today's more technically complex vehicles. In
addition to classes conducted at the Company's national training headquarters,
Precision Tune Auto Care offers a program through which trainers are available
to franchisees onsite. Generally, area subfranchisors also are required to
maintain a training facility and have one certified trainer on staff to provide
local technical training and certification. Upon opening a new center, training
crews are onsite for at least the first two business days.
The Company has designed a policies and procedures manual to simplify the
management and operational challenges faced by a franchisee, maximize the
franchisee's revenue and earnings, and provide a consistent customer experience
throughout the Precision Tune Auto Care system. Each center in the system
receives an evaluation utilizing a standard evaluation report on a quarterly
basis and shorter monthly visitation reports by an operations manager employed
by the Company or an area subfranchisor as appropriate. Recent management
initiatives have also included the retention of an independent service to
"mystery shop" approximately one-third of Precision Tune Auto Care centers each
year.
Management also has developed the Precision Information Network ("PIN"), a
proprietary point of sale computer system, and has made this system available to
franchisees. This Windows-based system employs touch-screen technology designed
to be user friendly. The PIN or a similar system is required to be used under
current franchise agreements. Reports provided by the PIN system include
productivity, cost of goods, labor, inventory and product class. In addition,
PIN contains a marketing database module that facilitates the tracking of
customer information for the development of direct mail marketing campaigns and
other marketing strategies. Remote-location polling of information and
electronic ordering from the Company's parts and equipment division are features
currently under development. Upon completion of the Offering each center will
receive up to $2,500 to upgrade its existing computer system to PIN or to
install a PIN system if the center does not already have a computer system.
Franchise Marketing. Precision Tune Auto Care has been engaged in
franchising Precision Tune Auto Care centers since 1977. The Company has a
comprehensive franchise sales process that starts with the placement of
advertising in appropriate franchise and business publications. The Company also
maintains a home page on the Internet through which interested parties may
submit a franchise inquiry. Prospective franchisees are asked to complete a
Confidential Qualifications Report which serves as the initial screen to
determine whether a prospect is qualified. The Company seeks individuals with
management experience who will commit full time to the operation of their
franchise and who have a minimum of $50,000 and $150,000 in liquid assets and
net worth, respectively. Franchise sales seminars are conducted on a regular
basis at the corporate office and provide qualified prospective franchisees with
the opportunity to investigate the franchise arrangements thoroughly in
connection with their decision to become a franchisee.
Precision Tune Auto Care's area development system has played a major role
in the Company's franchise development efforts. Under this system, Precision
Tune Auto Care has entered into area development agreements that grant area
developers the right and obligation to develop franchises on Precision Tune Auto
Care's behalf within specific geographic regions for stated periods of time.
Franchise agreements within the area are between Precision Tune Auto Care and
the franchisee. The area developer typically receives up to one-half of the
initial franchise fee, one-half of the subsequent royalty revenues and one-half
of franchise renewal and transfer fees. After the creation of a franchise, the
area developer performs some or all of Precision Tune Auto Care's franchisor
obligations. The Company is free to establish and operate Company-owned centers
in areas in which it has granted development rights to area developers. In that
event the Company is required to pay the area developer amounts equal to the
royalty payments that the area developer would otherwise receive if the center
was being operated by a franchisee. As of June 30, 1997, 32 area developers had
an ownership interest in a total of 169 Precision Tune Auto Care centers and
provided support to another 336 centers.
The map below reflects territories within the United States that are
presently covered by area development agreements.
[MAP TO BE SUPPLIED]
Open Area Development. Precision Tune Auto Care's current strategy is to
pursue aggressively the direct development of open areas in which area
developers have not been granted rights. To facilitate this strategy, Precision
Tune Auto Care has implemented an open area development plan that is supported
by a devoted franchise development team on the corporate
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payroll. This plan addresses such factors as market demographics, development
resources (e.g., advertising and public relations vehicles, developers of
commercial real estate), criteria for initial center development, and criteria
for additional center development. Based on these factors, a specific expansion
strategy for each target area has been developed. The Company believes that
significant expansion potential exists in areas not controlled currently by area
developers.
PRECISION AUTO WASH
Precision Auto Wash operates 35 Company-owned touchless automatic and
self-service car wash centers. The Company owns 31 of these centers and manages
and holds a 50% interest in the remaining four. The Company intends to commence
the sale of Precision Auto Wash franchises promptly following the Combination
and after the Company complies with applicable state franchise filing and other
regulations.
The Company believes that touchless automatic and self-service car washes
present the following significant competitive advantages relative to other
sectors of the car wash industry:
(Bullet) Price: According to studies commissioned in 1996 by the
Professional Carwashing and Detailing Magazine, the average cost
of a basic in-bay automatic wash was $3.40 as compared to $5.98
for an exterior-only cloth wash and $9.28 for a full-service
tunnel wash.
(Bullet) Convenience: Self-service and touchless automatic washes are open
24 hours per day, 365 days per year as opposed to exterior-only
cloth washes and full service tunnels which typically are open
8-10 hours per day and are closed on holidays.
(Bullet) Capital investment: The capital investment required to build a
self-service and touchless automatic wash is significantly lower
than that required for full service tunnel and exterior-only cloth
washes.
(Bullet) Labor: Self-service and touchless automatic washes do not require
the same level of labor required to operate other types of washes.
(Bullet) No-touch operation: Recent advances in chemical technology allow a
self-service or touchless automatic car wash to provide a
high-quality wash without friction, which lowers the risk of
vehicle damage.
These factors are the driving forces behind management's belief fact that
touchless automatic and self-service car wash systems are the fastest growing
segment of the car wash industry.
Precision Auto Wash has developed a system that management believes
represents the state-of-the-art in modern touchless automatic and self-service
car washing capabilities. Substantially all Precision Auto Wash centers will
feature HydroSpray equipment and the proprietary operating system developed by
the Precision Auto Wash Constituent Companies. The Company believes that both
the HydroSpray equipment and the proprietary operating system are superior to
the technologies utilized by its competitors and, therefore, provide the Company
with a significant competitive advantage.
This operating system includes the following features:
(Bullet) Total computerized control of the wash system which allows the
operator to change time cycles and equipment functions, and to
monitor the status of operations, quickly, easily and
cost-effectively, even from a remote location on a laptop personal
computer.
(Bullet) The ability for customers to quickly and easily contact a central
national customer help center on a dedicated toll-free number in
the event of an equipment malfunction, and for the help center to
immediately rectify such problem on-line.
(Bullet) A frequent wash card system, utilizing bar-code technology,
rewards customers with free washes based upon wash frequency.
(Bullet) Through its exclusive integrated voice, LED display and video
instruction features, the system provides the customer with an
understanding of how to operate the system.
(Bullet) A grace period feature permits the customer to continue the wash
cycle by inserting one or more quarters after his or her initial
time has expired.
(Bullet) A bonus time feature allows customers more time per coin during
off-peak hours.
The system also includes several important mechanical features which
provide the motorist with a superior car wash. In the automatic bay, the
HydroSpray unit travels around the vehicle in a heated, galvanized track
enabling the car wash to be
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open 24 hours a day, even during the coldest times of the year. Three rotating
wands and 8 high pressure nozzles continuously sweep dirt and grime from the
vehicle. Each wash is finished with a spot-free rinse. In the self-service bay,
the customer controls the entire wash process by means of a wash wand and
foaming brush system. Many motorists prefer self-service car washing because
they maintain total control over the entire wash process and the amount of money
they spend. Utilized properly, the self-serve wash produces results similar to
those of the automatic wash. Because the system is operated by a completely
integrated computer control system, the foregoing features may be modified and
tailored to each specific location, depending on customer needs and market
conditions.
Centers will include powerful vacuums that deliver maximum cleaning power
and feature clear, graphic instructions. A timer offers a "Last Coin Alert,"
"Extra-Time" service, and a "Count-Down" display of time remaining. All
Precision Auto Wash centers will also offer a complete line of auxiliary vending
items such as towels, wet towels and Armor All(Register mark). Depending on
market conditions and requirements, other services may be offered as well such
as fragrance-dispensing machines and carpet shampooers.
The Company intends to use approximately $1.5 million in borrowings under a
credit facility and internally generated operating funds to outfit all of the 35
Company-operated centers with the full complement of HydroSpray equipment,
proprietary operating and marketing features of the Precision Auto Wash system,
and the Precision brand signage. The Company expects to complete this conversion
within 18 months of the consummation of the Offering.
Precision Auto Wash will aggressively pursue new market development. Its
strategies will focus on acquiring and upgrading existing car wash facilities in
selected markets, developing Company-owned centers, and marketing both existing
and new centers to franchisees. Targeted markets will be selected based on the
presence of suitable car wash facilities and existing centers controlled by
Precision Auto Wash. Development efforts initially will be focused on clustering
in Colorado and Ohio markets, where Precision Auto Wash facilities already
exist. Management believes that the highly-fragmented car wash market is ripe
for consolidation, and that the Company's ability to upgrade acquired washes to
Precision Auto Wash standards at wholesale prices through its HydroSpray
equipment division represents a significant competitive advantage.
Prototype Center. An auto wash center prototype was developed in 1995 in
Aurora, Colorado to demonstrate that a self-service car wash could gain
significant market share through sound marketing and operating practices. This
center contains 5 self-service and one automatic car wash bays.
Precision Auto Wash centers are generally located on half-acre sites in
high-traffic, commercial areas.
Retail Marketing. The Company believes that Precision Auto Wash should
enjoy significant benefits from the Precision Tune Auto Care national marketing
program. In addition, retail sales should be stimulated by the name recognition
and cross marketing opportunities generated through Precision Auto Wash's
association with the Precision Tune Auto Care and Precision Lube Express
systems.
At present, marketing initiatives at the retail level include (i) a grand
opening ceremony to publicize the opening of each new center, (ii) frequent
usage/swipe card system to encourage repeat business, (iii) direct mail
marketing, (iv) quarterly newsletter publication and distribution to customers,
(v) advertising on the back of grocery store receipts, (vi) customer
appreciation days, and (vii) fleet account solicitation.
Training and Operational Support. A three-day formal pre-opening training
program is required for all Precision Auto Wash franchisees prior to the opening
of a center.
Precision Auto Wash will provide its franchisees with an operations policy
and procedures manual, and perform a thorough center evaluation on a quarterly
basis. Precision Auto Wash centers will participate in "mystery shopper" and
customer service programs. Field operations, marketing and training support will
be provided by Company personnel.
Franchise Marketing. After the Offering, the Precision Auto Wash franchise
sales effort will be combined into and become part of the overall franchise
sales process for all three Precision-branded products. Therefore, prospective
Precision Auto Wash franchisees will be recruited and granted franchises in
accordance with the same processes and techniques that are used to recruit and
license prospective Precision Tune Auto Care franchisees. Precision Tune Auto
Care's area subfranchisors who agree to become a Precision Auto Wash area
subfranchisor in their territory will be paid a portion of the initial
franchisee fee and continuing royalty in consideration for assisting in the
development and ongoing support of a Precision Auto Wash center.
Precision Auto Wash franchisees will be required to purchase the HydroSpray
equipment and operational system package from the Company.
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PRECISION LUBE EXPRESS
Precision Lube Express owns and franchises "Lube Depot" centers, which
provide fast automobile oil change, lubrication, filter replacement and related
basic services. In addition, Precision Lube Express manufactures modular Lube
Express buildings that it will sell to franchisees and independent entities.
Precision Lube Express will also be an approved supplier of oil filters, air
filters, additives and tools used in franchised operations. Immediately after
the Offering, the Lube Depot name will be changed to Precision Lube Express and
all of the existing Lube Depot centers will be offered the opportunity to
convert to Precision Lube Express centers. The Company will pay all of the costs
incident to the conversion and estimates that this would cost approximately
$150,000 if all 24 centers converted. The Company will fund these costs from
internally generated funds or its revolving credit facility. The Company intends
to commence the sale of Precision Lube Express franchises promptly following the
Combination and after the Company complies with applicable state franchise
filing and other regulations.
The "above-ground" configuration of the modular Lube Express building
manufactured and sold by the Company enables Precision Lube Express operators to
commence operations more quickly and with lower levels of initial investment
than many of its competitors. Unlike traditionally constructed fast oil change
and lube centers, the Company's modular centers can be relocated or expanded
quickly. In addition, the modular Lube Express building can be located on a
relatively small piece of property. Unlike certain of its competitors, Precision
Lube Express centers do not perform transmission and differential fluid changes,
radiator flushes or other automotive maintenance or repair work. Accordingly,
the Company believes that this enables Precision Lube Express operators to
provide services more inexpensively than their competitors because Precision
Lube Express operations require less skilled labor.
The Company also believes that the Precision Lube Express operations can be
combined with Precision Auto Wash and Precision Tune Auto Care centers to gain
competitive advantages associated with being a one-stop retail shop and the
benefits associated with operating under the "Precision" brand name. Because the
Precision Lube Express building is modular and relatively small, it can be
located on the same site as a Precision Auto Wash or Precision Tune Auto Care
center, or on other retail locations as well.
At June 30, 1997, there were 21 Lube Depot centers in operation. These
franchises are located in Ohio, Pennsylvania, Iowa, Delaware, Kentucky,
Illinois, Indiana, and West Virginia.
Prototype Center. The prototype Precision Lube Express center consists of a
one or two bay unit which provides oil and filter replacement and chassis
lubrication services. Precision Lube Express centers also check and fill all
vital fluids, and conduct vehicle safety inspections, including inspection of
exhaust systems, tires and chassis parts. Precision Lube Express customers may
also purchase air filters, PCV valves, breather filters, wiper blades and
assorted engine additives. Precision Lube Express centers top off vital fluids
between customer's oil changes at no charge.
Retail Marketing. Precision Lube Express marketing emphasizes the basic
"hassle-free" fast oil change and lube services Precision Lube Express provides.
Precision Lube Express believes it can compete effectively with other fast lube
regional and national chains because the basic nature of its services minimizes
the amount of services and accessories that may be sold and added to a
customer's invoice. In addition, retail sales are expected to benefit from the
name recognition and cross marketing opportunities generated through Precision
Lube Express' association with other Precision Auto Care brands.
Specific marketing initiatives at the retail level include (i) VIP cards,
granting customers special rates and other benefits, (ii) point-of-sale
marketing materials, including frequent usage cards that provide customers with
free oil changes to encourage repeat business, (iii) television, radio and print
media advertising, and (iv) direct mail marketing.
After the Offering, Precision Lube Express will expand its existing local
fleet marketing efforts by tapping into the Precision Tune Auto Care national
fleet marketing program.
Training and Operational Support. Precision Lube Express provides a
one-week training program that franchisees will be required to complete
successfully before opening a Precision Lube Express center. The program will
address the following areas: computer system operations, lubrication equipment
training, center operations, customer service, and advertising.
Each Precision Lube Express franchisee is provided with an operations
policy and procedures manual. In addition, each center will receive operational
visits similar to Precision Tune Auto Care centers and will be included in
mystery shopper and customer service programs. Field operations, marketing and
training support will be provided using the existing Precision Tune Auto Care
structure, with area subfranchisor personnel or corporate personnel, as
applicable.
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Franchise Marketing. After the Offering, the Precision Lube Express
franchise sales effort will be combined into and become part of the overall
franchise sales process for all three Precision-branded products. Therefore,
prospective Precision Lube Express franchisees will be recruited and granted
franchises in accordance with the same processes and techniques that are used to
recruit and license prospective Precision Tune Auto Care franchisees. In areas
where Precision Tune Auto Care has an area developer, those area developers will
be offered the opportunity to enter into a Precision Lube Express development
schedule or the Company will develop Precision Lube Express centers in those
areas directly. Lube Depot currently has agreements in place covering the
development of areas including territories in the states of Arizona, California,
Delaware, Maryland, Nevada, New Jersey, Ohio, Oregon, Pennsylvania, Washington
and West Virginia. Upon consummation of the Combination, Lube Depot's prior
practice of selling territories to area developers will be discontinued.
MANUFACTURING AND DISTRIBUTION
The Company's manufacturing and distribution account for a significant
portion of the Company's revenues and are more fully described below:
Precision Tune Auto Care. Precision Automotive Components ("PAC"), a
distributor of automotive parts and equipment located in Winchester, Virginia,
has been an integral part of the Precision Tune Auto Care system since its
inception. PAC sells a complete line of quality ignition parts, oil and air
filters, brake parts, diagnostic equipment, signage, and other items necessary
and incidental to the outfitting and operation of Precision Tune Auto Care
centers. PAC carries an inventory of approximately 5,500 SKU's, many of which
are private labeled for the Precision brand. PAC provides two-day delivery to
centers anywhere in the United States. After the Combination, PAC will supply
oil and air filters, and other supplies, to Precision Lube Express centers and
will, over time, supply spare parts and other supplies to Precision Auto Wash
centers. PAC revenues totaled $11.8 million for the year ended June 30, 1997.
Precision Auto Wash. HydroSpray Car Wash Equipment Ltd. ("HydroSpray"), a
Company subsidiary, manufactures, distributes and sells the car wash equipment
used in Precision Auto Wash centers. Management believes that the HydroSpray
equipment package is a leading car wash equipment package on the market because
it includes such unique features as an integrated computer system that controls
the auto wash system and allows remote dial-in access for system status reports
and the diagnosis of maintenance problems. HydroSpray will sell equipment to
Precision Auto Wash franchisees and to other third parties for installation in
car wash centers that are not franchised or otherwise affiliated with Precision
Auto Wash. HydroSpray revenues totaled $7.5 million for the year ended June 30,
1997.
While the Company has a welding shop and fabricates some of its components
onsite, HydroSpray's operations principally include the assembly of parts that
have been manufactured by suppliers to HydroSpray specifications. This process
is conducted at HydroSpray's 40,000 square foot manufacturing facility located
in Cedar Falls, Iowa. The finished materials are generally constructed of
stainless steel and galvanized steel.
Miracle Chemicals blends and distributes the chemical solutions used in
Precision Auto Wash centers including the "Mean Green" presoak and other
solutions which are required in the Precision Auto Wash system. Miracle
Chemicals makes its chemicals and supplies available to Precision Auto Wash
franchisees and other third parties who are not franchisees or otherwise
affiliated with Precision Auto Wash. Miracle Chemical's revenues for the year
ended June 30, 1997 were $811,000.
Precision Lube Express. A modular building division manufactures and
installs the modular building and equipment system utilized by Precision Lube
Express centers. The Company also sells these buildings to others for various
commercial applications. The buildings are delivered, installed, field-tested,
and outfitted with all of the supplies and tools necessary to commence
operations immediately. Most installations are complete within three to five
business days from the date of shipment, thus providing competitive time and
cost advantages over traditional construction. This division produced $1.8
million in revenues for the year ended June 30, 1997.
The Company conducts these manufacturing operations at a 27,000 square foot
facility located in Mansfield, Ohio. The Company purchases parts from
third-party suppliers which are manufactured to the Company's specifications.
Following the assembly of a steel subframe, an aluminum skin is attached to the
frame to form the exterior. Doors and windows are then installed together with
insulation, wiring, piping and other components. The buildings are finally spray
painted and shipped to customers for installation. The Company is not dependent
upon any single supplier and the parts and materials the Company uses in
connection with its manufacturing process can be obtained from a variety of
suppliers.
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FRANCHISE ARRANGEMENTS
Precision Tune Auto Care. Precision Tune Auto Care has been engaged in
franchising Precision Tune Auto Care centers since 1977. Precision Tune Auto
Care enters into franchise agreements pursuant to which a franchisee is granted
the right to establish and operate a Precision Tune Auto Care center. As of June
30, 1997, substantially all of the Company's Precision Tune Auto Care centers
were owned and managed by franchisees. Precision Tune Auto Care's franchises
have been sold during the preceding years under franchise agreements that vary
in detail as the Precision Tune Auto Care's franchise program has evolved.
Currently, the Precision Tune Auto Care's standard form of franchise agreement
requires payment to Precision Tune Auto Care of an initial franchise fee of
$25,000 and a continuing royalty of 7.5% of weekly gross receipts (but not less
than $100 per week). In addition, the franchisee is required to spend 9% of
weekly gross receipts on advertising, 1.5% of which is paid into the national
advertising fund and 7.5% of which is spent locally. The current franchise
agreement has an initial term of ten years and provides for a number of five
year renewal options.
Under the terms of a program implemented recently by the Company, qualified
franchisees are eligible to have their royalty rate reduced to 6% if they
satisfy certain criteria. Under the program, franchisees are also provided with
an incentive to purchase additional Precision Tune Auto Care franchises. Any
franchisee who has owned and operated a center for at least one year in
accordance with this program will be charged an initial franchise fee of $15,000
for a second franchise and $10,000 for each additional franchise purchased,
rather than the standard initial franchise fee of $25,000.
Under its current form of franchise agreement, the Company has a continuing
obligation to provide technical and administrative support, supervisory
services, centralized advertising, and training and related support to its
franchisees. In certain regions, the Company has delegated these duties on area
developers under its area developer system.
Upon non-renewal and transfer, the Company has the first right to purchase
the operating assets and obtain an assignment of leased facilities in certain
cases. The Company occasionally repurchases franchise rights. The decision to
repurchase is made solely at the Company's discretion and is not a contractual
obligation. The Company also periodically obtains possession of some
franchisees' franchise rights by exchanging for such rights notes payable or
other consideration, or by exercising rights outlined in the Franchise
Agreements.
Precision Tune Auto Care also enters into master franchise agreements to
develop international markets. Generally, the master franchisee pays a license
fee and is required to develop Precision Tune Auto Care centers in accordance
with an agreed upon schedule within the defined area. Franchise agreements
within the area are between the master franchisee and the unit franchisee. The
master franchisee is required to perform all of the obligations of the
franchisor, and Precision Tune Auto Care generally receives 20% of the initial
franchise fee and up to one-third of ongoing royalty fees.
Precision Auto Wash. The Company intends to establish relationships with
Precision Auto Wash franchisees pursuant to the terms of a standard franchise
agreement. The Company expects that the terms of its standard franchise
agreement will call for the payment of an initial franchise fee of $20,000. The
initial franchise fee includes a $5,000 credit that may be applied towards parts
and supplies purchased from the Company. Franchisees will be required to pay
continuing royalties of 5% of weekly gross receipts (with a minimum of $50 per
week).
Franchisees will also be required to contribute an amount equal to 2% of
their monthly gross receipts to a national advertising fund and an additional
amount of their gross receipts royalties to a local advertising cooperative. In
addition, a franchisee will receive franchise protection within a specified
area. The Company expects that the franchise agreements will have an initial
term of ten years and provide for five-year renewal options.
Precision Lube Express. The Lube Depot franchise agreements currently in
effect have an initial ten-year term and may be renewed at the end of the
initial term for up to two additional five-year terms. Under the agreements, the
franchisee agrees to pay a royalty rate of between 3% and 5% of retail sales
generated by the franchise. Some franchisees currently pay a flat fee of between
$400 and $600 per month in lieu of a percentage royalty. The current franchise
agreements also called for the franchisee to pay an initial franchisee fee of
$10,000. The Company expects that the standard franchise agreement Precision
Lube Express will employ after the Combination will call for the payment of an
initial franchise fee of $12,500. Franchisees will be required to pay continuing
royalties of 5% of weekly gross receipts (with a minimum of $25 per week).
Franchisees also will be required to contribute an amount equal to 2% of their
monthly gross receipts to a national advertising fund and an additional amount
of their gross receipts royalties to a local advertising cooperative. The
Company expects that the franchise agreements will have an initial term of ten
years and provide for five-year renewal options.
The Precision Lube Express Constituent Company has entered into area
representative agreements which provide for the licensing of individuals and
entities to serve as area representatives and to assist with promotion,
marketing and the sale of
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centers within a particular territory. Area representatives have the right to
construct, own and operate franchise centers within their territories. Precision
Lube Express has granted area rights in Arizona, California, Delaware, Maryland,
Nevada, New Jersey, Ohio, Oregon, Pennsylvania, Washington and West Virginia.
COMPETITION
The Company encounters competition in all aspects of its business,
including the sale by Precision Tune Auto Care, Precision Auto Wash and
Precision Lube Express centers of automotive maintenance and repair services,
self-service and automatic car wash services and fast oil and lubrication
services, respectively. The Company believes that automobile dealerships,
including recently emerging national and regional new and used auto dealerships,
represent Precision Tune Auto Care's principal competitors. Other Precision Tune
Auto Care competitors include tire companies and regional under-the-hood service
specialists. National competitors within Precision Tune Auto Care's market
include Sears Auto Center and the automotive maintenance centers operated by
Goodyear, Firestone and Penske, among others. Its regional competitors include
All Tune and Lube, EconoLube and Tune, Tunex, Tune-Up Masters and Speedy Oil
Change and Tune-Up, among others. The Company believes that the greater
technical complexity of today's vehicles provides a substantial barrier to entry
for competitors in the "under-the-hood" segment of the automotive maintenance
services industry.
Precision Auto Wash will compete not only with other self-service
automobile car washes but with car wash services provided by full-service
tunnels, exterior only tunnels, hand washes, oil company washes, and
do-it-yourself car washing.
Precision Lube Express also competes in the service segment of the
automotive aftermarket industry. According to the American Oil Change
Association, an estimated 650 million oil changes are performed annually in cars
and light trucks. These oil changes are performed by individuals (the
"do-it-yourself" market segment) or are performed professionally (the
"do-it-for-me" market segment). Professional oil changes are performed in all
types of automotive aftermarket outlets including fast oil change and
lubrication facilities such as those operated by the Company, car dealerships,
and gasoline stations. On a national level, Precision Lube Express will compete
with a number of major oil manufacturers dominating the fast lube market. These
include Pennzoil Company (Jiffy Lube International, Inc.), Quaker State Corp.
(Q-Lube Inc.), Valvoline Company/Ashland Oil Inc. (Instant Oil Change) and
Texaco Inc. (Express Lube), among others. In addition, Precision Lube Express
will compete with regional fast oil and lubrication operations including All
Tune and Lube (East Coast), EconoTune and Lube (West Coast), Tunex International
Inc. (Rocky Mountain region) and Speedee Oil Change and Tune-Up (Southern
region), among others.
The Company believes that the Precision Tune Auto Care, Precision Auto Wash
and Precision Lube Express centers will compete on the basis of customer
awareness through advertising, service, convenience and location and, to a
lesser extent, on price. The Company believes that the potential ability to
offer all of the services provided by each of the operations at one center or in
centers in close proximity to one another will be a significant competitive
advantage.
The Company's HydroSpray subsidiary competes with many other manufacturers
of self-service and touchless automatic car wash equipment manufacturers. Many
of these competitors are larger and well-established. The Company's competitors
include, but are not limited to, Mark VII Industries, Inc., Ryko, PDQ and many
smaller businesses. Some of these companies are well capitalized and have long
standing relationships with large oil companies who frequently purchase their
equipment for installation at car washes located on or adjacent to gasoline
stations.
TRADEMARKS
The Company has registered (subject to certain limited exceptions) a number
of trademarks and service marks with the United States Patent and Trademark
Office and has recently filed trademark and service mark applications with
respect to the names "Precision Tune Auto Care," "Precision Auto Wash" and
"Precision Lube Express." The Company's failure to obtain trademark and service
mark registration could have a material adverse effect on the Company's
operations. The Company has also registered and made application to register
trademarks in foreign countries where master franchise licenses have been
granted.
GOVERNMENT REGULATION
As a franchisor, the Company must comply with regulations adopted by the
Federal Trade Commission (the "FTC") and with several state laws that regulate
the offer and sale of franchises. The Company also must comply with a number of
state laws that regulate certain substantive portions of the
franchisor-franchisee relationship. The FTC's Trade Regulation Rule on
Franchising (the "FTC Rule") requires that the Company furnish prospective
franchisees with a franchise offering circular
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containing information prescribed by the FTC Rule. State laws that regulate the
offer and sale of franchises require the Company to register before the offer
and sale of a franchise can be made in that state.
State laws that regulate the franchisor-franchisee relationship presently
exist in a substantial number of states. Those laws regulate the franchise
relationship, for example, by requiring the franchisor to deal with its
franchisees in good faith, by prohibiting interference with the right to free
association among franchisees, and by regulating discrimination among
franchisees with respect to charges, royalties or fees. Those laws generally
also restrict a franchisor's rights with regard to the termination of a
franchise agreement by, first, requiring "good cause" to exist as a basis for
the termination; second, requiring the franchisor to give advance notice to the
franchisee of the termination; third, requiring the franchisor to provide the
franchisee with an opportunity to cure any default; and fourth, requiring the
franchisor to repurchase the franchisee's inventory or provide other
compensation. To date, those laws have not precluded the Company from seeking
franchisees in any given area and have not had a material adverse effect on the
Company's operations.
Precision Tune Auto Care centers and Precision Lube Express centers store
new oil and generate and handle large quantities of used automotive oils and
fluids. Precision Auto Wash centers utilize chemicals in the car wash process
which are then discharged in the waste water along with oils, fluids and other
chemicals washed off the vehicle. Accordingly, the Company and its franchisees
are subject to numerous federal, state and local environmental laws.
Non-compliance with such laws and regulations, especially with regard to leaks
in the Precision Tune Auto Care and Precision Lube Express centers' underground
storage tanks, could result in substantial costs. In its franchise agreements,
WE JAC requires its franchisees to comply with all applicable laws and
regulations. Certain states may also require the Precision Tune Auto Care,
Precision Auto Wash and Precision Lube Express centers to register or obtain a
license to perform certain services.
The failure of the Company or its franchisees to comply with any applicable
laws, rules or regulations could have a material adverse effect on the Company's
business, financial condition and operations.
PROPERTIES
The Company's corporate headquarters are located in approximately 24,000
square feet of leased office space in Leesburg, Virginia pursuant to a lease
that expires in 2002. The Company also leases 32,000 square feet in Winchester,
Virginia pursuant to a lease that expires in 2002. The Winchester facility
houses PAC, which warehouses the parts that are distributed to the Company's
Precision Tune Auto Care operation. The Company's annual rental obligations on
the headquarters and warehouse leases aggregate $311,500.
The Company conducts its HydroSpray car wash equipment manufacturing
operations from a 40,000 square foot Company-owned facility located in Cedar
Falls, Iowa. For information concerning the terms of this lease, see "The
Combination" and "Certain Transactions -- Real Estate Transactions."
The Company conducts its car wash chemical blending and distribution
operations from an 8,000 square foot Company-owned facility located in Columbus,
Ohio and operates its modular building manufacturing facility from a 27,000
square foot Company-owned building located in Mansfield, Ohio.
The Company believes that the three manufacturing facilities described
above will provide the Company with sufficient manufacturing capacity for the
foreseeable future.
The Company owns 28 of its Company-owned car wash centers and leases three
of its Company-owned car wash centers from unaffiliated third parties. The
Company made rental payments aggregating $40,000 with respect to the three
Company-owned centers it leases from unaffiliated third parties during the year
ended June 30, 1997. All four of the other Company-operated centers are owned by
the entities in which the Company holds 50% equity interest. In connection with
the Combination, the Company granted options to certain owners of Constituent
Companies to purchase properties from the Company at fair market value. In the
event such owners exercise their options, the Company will lease the properties
from such owners at fair market rental rates. For information concerning these
option and lease arrangements, see "The Combination" and "Certain
Transactions -- Real Estate Transactions."
The Company also owns a small piece of property in Lake Charles, Louisiana
that previously had been the site of a Precision Tune Auto Care center.
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EMPLOYEES
As of June 30, 1997, the Constituent Companies employed 165 full-time and
38 part-time employees in the aggregate. The Constituent Companies consider
their relations with their employees to be good. None of the Constituent
Companies' employees is covered by a collective bargaining agreement.
LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to routine litigation in the
ordinary course of business, including contract, franchisee and
employment-related litigation. In the course of enforcing its rights under
existing and former franchise agreements, the Company is subject to complaints
and letters threatening litigation concerning the interpretation and application
of these agreements, particularly in the case of defaults and terminations. None
of these routine matters, individually or in the aggregate, are believed by the
Company to be material to its business or financial condition or results of
operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth certain information concerning each of the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- ---- ------------------------------------------------------------------------------
<S> <C> <C>
Lynn E. Caruthers(1)(3) 45 Chairperson of the Board and Class III Director
John F. Ripley(1) 40 President, Chief Executive Officer and Class I Director
James A. Hay 41 Senior Vice President -- Retail Operations
Arnold Janofsky 54 Senior Vice President, Secretary & General Counsel
Peter Kendrick 43 Senior Vice President -- Chief Financial Officer and Treasurer
Grant G. Nicolai 50 Senior Vice President -- Franchise Development
William R. Klumb 39 Vice President -- Precision Auto Wash Operations and Class III Director
Woodley A. Allen(2) 50 Class II Director, Chairman of the Audit Committee
George Bavelis(1) 60 Class III Director
Bernard H. Clineburg(1) 48 Class III Director, Chairman of the Executive Committee
Clarence E. Deal 52 Class I Director
Effie Eliopulos 58 Class III Director
Bassam N. Ibrahim(3) 35 Class II Director
Richard O. Johnson(2) 69 Class I Director
Arthur Kellar(1)(3) 75 Class II Director, Chairman of the Organization and Compensation Committee
Harry G. Pappas, Jr.(2) 49 Class I Director
Gerald Zamensky 56 Class II Director
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Organization and Compensation Committee.
Precision Auto Care's officers are elected by and serve at the discretion
of the Board of Directors. Precision Auto Care's Board of Directors is divided
into three classes. Class I and Class II each consist of four members and Class
III consists of five members. At each annual shareholders meeting, directors of
one class are elected to three year terms. The terms of Messrs. Johnson, Deal,
Ripley and Pappas expire in 1998, Messrs. Zamensky, Kellar, Ibrahim and Allen in
1999 and Messrs. Bavelis, Klumb, Clineburg and Ms. Caruthers and Ms. Eliopulos
in 2000. See "Description of Capital Stock -- Anti-Takeover Provisions."
Lynn E. Caruthers was elected a member of the Board of Directors of WE JAC
in August 1991 and has served as Chairperson of the Board since September 1994.
She has been the general partner of Caruthers Properties, Ltd. of Arlington,
Virginia, a commercial real estate developer, for the past five years.
John F. Ripley has served as the President and Chief Executive Officer of
WE JAC and as a member of WE JAC's Board of Directors since July 1995. Mr.
Ripley was Chief Operating Officer of the Juvenile Justice Division of Youth
Services International, Inc. (YSI) from March 1994 to July 1995. He also served
as the Executive Vice President and Chief Financial Officer of YSI from January
1991 to September 1994. Mr. Ripley co-founded YSI and was instrumental in its
development and initial public offering. From March 1990 to January 1991, Mr.
Ripley was an independent financial planner with Chesapeake Financial Group,
Inc. in Ellicott City, Maryland. From August 1985 to March 1990, Mr. Ripley
served in various capacities at Jiffy Lube International, Inc., including Vice
President -- Eastern Division Retail Operations, Vice President and Corporate
Controller, and Director of Internal Audit. Mr. Ripley began his career with
Ernst & Young LLP in 1979.
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James A. Hay was named Senior Vice President of Retail Operations in April
1997. From 1993 until joining WE JAC, he was Chief Operating Officer with
Decorating Den Systems, Inc. Mr. Hay was Chief Executive Officer with Window
Works of Annapolis from 1987 to 1993. He also held positions with Window Works
International, Pepsi-Cola, Inc. and Procter and Gamble.
Arnold Janofsky joined WE JAC as Senior Vice President, Secretary and
General Counsel in October 1995. From 1992 to September 1995, Mr. Janofsky was
with The Structure Group, specializing in franchise consulting. From 1981 to
1991, he was Vice President and General Counsel of Jiffy Lube International,
Inc.
Peter J. Kendrick was named Senior Vice President and Chief Financial
Officer in May 1997. From 1996 until joining WE JAC, he was a principal with
Corporate Finance of Washington, a private investment banking firm serving
companies in the Washington metropolitan area. Mr. Kendrick was Vice President
and Chief Financial Officer with Capital Carousel, a wholesale distributor of
wall coverings and fabrics, from 1991 to 1996.
Grant G. Nicolai was named Senior Vice President-International Development
and Operations of WE JAC in October 1995. He previously served as Director of
International Development and Operations beginning in October 1994. Prior to his
employment with WE JAC, Mr. Nicolai was involved in international business
development for six years with LTV Aerospace and Defense, which later became
Vought Aircraft Company. In November 1988, he retired from the U.S. Air Force.
William R. Klumb has been President of Rocky Mountain I since its
incorporation in March 1987 and President of Rocky Mountain II since it was
incorporated in September 1988. In addition, Mr. Klumb has served as the
Managing Member of Ralston Car Wash since its formation in September 1991. From
March 1978 to April 1990, he was Vice President of W.H. Klumb Masonry, Inc., a
masonry contracting company he co-founded.
Woodley A. Allen became a member of WE JAC's Board of Directors in August
1991 and was elected Vice Chairman of the Board in April 1992. He has been
President of Allen Management Services, an Oakton, Virginia management
consulting firm, since May 1992. Mr. Allen was Chief Financial Officer of EZ
Communications, Inc. of Reston, Virginia from March 1973 to May 1992.
George Bavelis has served as the Chairman, President and Chief Executive
Officer of Pella Co., a corporation engaged in real estate development, since
1973. Mr. Bavelis has also served as the Chairman and President of Coin Op.
Vending Co., since 1983. Mr. Bavelis currently serves as a director of Heartland
Bancorp, First Family Bank and Sterling BancGroup. He has served as a director
of these financial institutions since 1988, 1992 and 1995, respectively.
Bernard H. Clineburg was elected a Director of WE JAC in October 1993.
Since October, 1990, he has been President, Chief Executive Officer and member
of the Boards of Directors of both The George Mason Bank of Fairfax, Virginia
and George Mason Bankshares, Inc. He also has served as Chairman of the Board of
George Mason Mortgage Corporation.
Clarence E. Deal has served as the President of Lube Ventures since
November 1994 and as President of Miracle Partners since 1988.
Effie Eliopulos has served as the Chairperson and Chief Executive Officer
of Miracle Industries, since 1991.
Bassam N. Ibrahim was elected a Director of WE JAC in October 1993. Mr.
Ibrahim has been an attorney with the Washington, D.C. law firm of Burns, Doane,
Sweeker & Mathis, LLP since August 1996. He was an attorney with the Washington,
D.C. law firm of Popham, Haik, Schnobrich & Kaufmann from June 1994 to August
1996. From June 1990 to June 1994, Mr. Ibrahim was an attorney with the
Washington, D.C. law firm of Mason, Fenwick & Lawrence.
Richard O. Johnson Mr. Johnson has been a director of Miracle Industries
since 199 . He also served as president of JJ-AGRO, Inc. a farming and farm
services business for the past 46 years. Mr. Johnson has been a director of
First Nations Bank of Zanesville since 1987. He has also served as a director of
National Gas and Oil Company since 1983 and Muskingum Livestock, Inc. since
1976.
Arthur Kellar has been a Director of WE JAC since August 1991 and served as
Chairman of the Board of Directors from April 1992 to September 1994. He also
has been Chairman of the Board of Directors of EZ Communications, Inc. of
Reston, Virginia for the past 25 years.
Harry G. Pappas, Jr. was elected a Director of WE JAC on February 28, 1996
and served as Chief Financial Officer from February 1997 to May 1997. From July
1992 to the present, Mr. Pappas has been the principal of Harry G. Pappas, Jr.
Consulting, specializing in financial consulting services to businesses and
business owners. Mr. Pappas acted as the Chief Financial Officer of Youth
Services International, Inc. from September 1994 to May 1995 and Chief Financial
Officer of
45
<PAGE>
Meridian Healthcare from July 1993 to May 1994. From February 1991 to July 1992,
he was Vice Chairman and Chief Financial Officer of MBNA Corporation, Newark,
Delaware. Prior to this, Mr. Pappas was Chief Financial Officer at both MNC
Financial, Inc. and Equitable Bancorporation, and was a partner with Ernst &
Young LLP.
Gerald Zamensky is currently a self-employed manufacturing consultant. From
1975 to 1995, Mr. Zamensky served as the President and Chief Executive Officer
of Southeastern Plastics, Inc., a company engaged in custom injection molding of
plastics.
The Board of Directors has standing Executive, Audit and Compensation
Committees. The Executive Committee has authority to take any action which could
be taken by the Board, except actions reserved for other committees or which may
be taken only by the full Board under law or Precision Auto Care's bylaws. The
Audit Committee will annually recommend to the Board the appointment of
independent certified public accountants as auditors for Precision Auto Care,
review the scope and fees of the annual audit and any special audit and review
the results with the auditors, review accounting practices and policies of
Precision Auto Care with the auditors, review the adequacy of the accounting and
financial controls of Precision Auto Care and submit recommendations to the
Board regarding oversight and compliance with accounting principles and legal
requirements. The Compensation Committee reviews and make recommendations to the
Board regarding salaries and benefits of executive officers and employees of
Precision Auto Care and administers Precision Auto Care's stock option and
employee stock purchase plans.
COMPENSATION OF DIRECTORS
Directors who attend Board of Directors' meetings in person will receive a
fee of $1,000 for each meeting attended. Directors attending telephonic board
meetings will receive a fee of $500 per meeting. Directors who attend committee
meetings will receive a fee of $200 per committee meeting attended.
In addition to the foregoing, the Board of Directors of WE JAC granted
options to purchase 10,000 shares of WE JAC Common Stock at an exercise price of
$10.00 per share to each of Lynn E. Caruthers, Woodley A. Allen, Bernard
Clineburg, Bassam N. Ibrahim, and Arthur Kellar on February 19, 1997. Options
with respect to 5,000 shares vested with respect to each such director at the
time of grant. The options with respect to the remaining 5,000 shares awarded to
each director are to vest upon the consummation of the Offering. In addition, WE
JAC granted Harry Pappas options to purchase 12,500 shares of WE JAC Common
Stock at an exercise price of $10.00 per share. Options with respect to 5,000
shares vested at the time of grant and options with respect to the remaining
7,500 shares awarded to Mr. Pappas are to vest upon the consummation of the
Offering. These options will be assumed by Precision Auto Care in connection
with the Combination.
The Company intends to grant each of Mr. Klumb and Ms. Eliopulos options to
purchase 12,500 shares of Common Stock effective at the closing of the
Combination. Such options will have an exercise price per share equal to the
initial offering price and one third of the options will vest on each of the
first three anniversary dates of the Combination.
EXECUTIVE COMPENSATION
Precision Auto Care was organized in April 1997, and its operation since
that time has related primarily to its formation and to the Combination. The
Company anticipates that during its fiscal year ending June 30, 1998 its most
highly compensated executive officers will be Messrs. Ripley, Hay, Janofsky,
Kendrick and Nicolai (the "Named Executive Officers"), each of whom will be paid
an annual salary of $200,000, $120,000, $120,000, $120,000 and $120,000,
respectively.
In addition to base salary, the Named Executive Officers will be eligible
to participate in bonus and incentive compensation plans as are from time to
time made available to senior executive officers of the Company. The Company
intends to grant options to purchase 20,000, 3,500, 20,000 and 12,500 shares of
the Company's Common Stock to Messrs. Hay, Janofsky, Kendrick and Nicolai,
respectively. These options, which shall be effective upon the closing of the
Combination and the Offering, will be granted pursuant to the Company's 1997
Stock Option Plan. Such options will have an exercise price per share equal to
the initial Offering price and one-third of the shares under each option will be
exercisable one year from the date of grant, another one-third will be
exercisable two years from the date of grant, and the final one-third will be
exercisable three years from the date of grant.
In addition to the foregoing, as of the closing of the Offering Mr. Ripley
will hold options to purchase 193,100 shares of Common Stock (at a weighted
average exercise price of $8.69), Mr. Hay will hold options to purchase 5,000
shares of Common Stock (at an exercise price of $10.00), Mr. Janofsky will hold
options to purchase 21,500 shares of Common Stock (at a weighted average
exercise price of $8.58), Mr. Kendrick will hold options to purchase 5,000
shares of Common Stock (at an exercise price of $10.00), and Mr. Nicolai will
hold options to purchase 12,500 shares of Common Stock (at a
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<PAGE>
weighted average exercise price of $8.25). These options result from the manner
in which options to purchase WE JAC common stock that were granted to such
holders prior to the Combination are to be converted into options to purchase
the Company's Common Stock in connection with to the Combination.
EMPLOYMENT ARRANGEMENTS
Mr. Ripley entered into an employment agreement with Precision Tune Auto
Care, Inc., WE JAC's principal operating subsidiary, pursuant to which Mr.
Ripley agreed to serve as Precision Tune Auto Care's President and Chief
Executive Officer for a period of three years commencing July 1, 1995. The
agreement also provides that Mr. Ripley will serve as a member of WE JAC's board
of directors. The agreement provides that Mr. Ripley will receive a base salary
of $200,000 per annum and a performance bonus of 10% of his base salary if the
corporation's before-tax net profits exceed $2,000,000. Mr. Ripley is provided
an additional bonus of 5% of his base salary for each $100,000 of before-tax net
profit over $2,000,000 earned by the Company up to a maximum of 50% of his base
salary during the fiscal year. Under the terms of the employment agreement, Mr.
Ripley is required to maintain the confidentiality of proprietary business or
technical information he obtains in the course of his employment with WE JAC,
and he is prohibited from competing with WE JAC in the United States during any
time he is performing duties for WE JAC and for a period of two years
thereafter. In the event Mr. Ripley's employment is terminated by WE JAC other
than for cause, or is terminated by Mr. Ripley for good reason, Mr. Ripley will
be entitled to receive a severance benefit equal to his base salary in effect at
the time of termination for the remainder of his initial term or 18 months,
whichever is greater, and will be entitled to receive any salary and benefits
accrued, vested or unpaid as of the date of termination. In the event of such
termination, Mr. Ripley also will be entitled to receive a pro rata portion of
his performance bonus. The Company intends to execute a new employment agreement
with Mr. Ripley containing terms substantially identical to the terms of his
agreement with WE JAC immediately following the closing of the Offering.
In connection with Mr. Ripley's employment, WE JAC granted to Mr. Ripley an
option to purchase an aggregate of 80,338 shares of WE JAC's common stock at an
exercise price of $7.05 per share, subject to antidilution adjustments. In
connection with the option agreement, WE JAC and Mr. Ripley also entered into an
agreement providing that in the event WE JAC issues any common stock or any
other securities convertible into or exercisable for common stock (other than
the issuance of common stock to employees pursuant to employee benefit plans),
Mr. Ripley shall be granted, at the time of such issuance, an option to purchase
such number of shares as will result in his having a right to purchase (pursuant
to outstanding options or otherwise) or holding as a result of the exercise, in
whole or in part, 5% of WE JAC's common stock, assuming the exercise or
conversion of all outstanding options, warrants or rights or similar securities
that are convertible into or exercisable for shares of common stock. This
agreement terminates upon the consummation of the Offering. Pursuant to this
antidilution agreement, Mr. Ripley has been awarded additional options as
follows: 7,920 for a private offering of 149,850 shares at a price of $8.00 per
share, and 4,842 for options awarded to board members and warrants issued to WE
JAC's commercial lender at a price of $10.00 per share.
On October 23, 1996, WE JAC awarded Mr. Ripley 100,000 additional options
to purchase WE JAC Common Stock at an exercise price of $10 per share. All of
the options are to vest on the date that the Combination is consummated. The
options will expire and will not vest in the event the Combination is not
consummated. For additional information concerning the options awarded to Mr.
Ripley and the manner and basis on which they will be converted into Common
Stock in the Combination, see "The Combination -- Interests of Certain Persons."
Each of Messrs. Hay, Janofsky, Kendrick and Nicolai have entered into
employment agreements to serve as senior vice presidents for a period of three
years commencing August 1, 1997. Mr. Klumb has entered into an employment
agreement to serve as a vice president for a period of three years commencing on
the date the Company successfully completes its initial public offering. The
agreements provide that each senior vice president will receive a base salary of
$120,000 per annum, Mr. Klumb will receive a base salary of $90,000 per annum,
and each of them will be entitled to receive a performance bonus under a plan to
be developed for all of the Company's senior vice presidents and vice
presidents, respectively. Under the terms of the each employment agreement, each
senior vice president and Mr. Klumb is required to maintain the confidentiality
of proprietary business or technical information obtained during the course of
employment with the Company. Each senior vice president is prohibited from
competing with the Company in the United States during the time he is employed
by the Company and for a period of two years thereafter. Mr. Klumb is prohibited
from competing with the Company in the United States during the time he is
employed by the Company and for a period of one year thereafter. In the event
any senior vice president's employment is terminated by the Company other than
for cause, or is terminated by the senior vice president for good reason, the
senior vice president will be entitled to receive a severance benefit equal to
18 months of base salary in effect at the time of termination and will be
entitled to receive any salary and benefits accrued, vested or unpaid as of the
date
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<PAGE>
of termination as well as any other benefits to which the employee is entitled
under any benefit plan, policy or program maintained by the Company in which the
senior vice president participated. Mr. Klumb's agreement contains substantially
the same severance benefit upon termination of his employment by the Company
other than for cause, or by him for good reason as that received by the senior
vice presidents with the exception that his benefit will be equal to 12 months
of his base salary in effect at the time of termination.
COMPENSATION PURSUANT TO PLANS
Stock Option Plans. As a result of the Combination, the Company has
reserved a total of 175,000 shares of Common Stock for issuance pursuant to the
WE JAC Stock Option Plan. This plan was established in August 1995 to provide
incentives to members of the Board of Directors of WE JAC and key employees to
expand and improve the profits and prosperity of WE JAC. The plan provides for
the grant of incentive stock options and non-qualified stock options. As of the
date of this Prospectus, all of the options available for grant under the plan
have been granted and are outstanding, and no options have been exercised. The
exercise price for each share under option is to be not less than the "fair
market value" of the Company's stock at the date of grant as determined in good
faith by the Company's Board of Directors upon the recommendation of the
Committee administering the plan. In determining the fair market value of WE
JAC's common stock at the date of grant, the Board of Directors considered a
number of factors including the financial condition and business prospects of
the Company and any advice solicited or received from outside advisors. All of
the options granted to date have exercise prices ranging from $8.00 to $10.00.
With respect to substantially all of the options currently granted, one-third of
the shares under each option are exercisable one year from the date of grant,
another one-third are exercisable two years from the date of grant, and the
final one-third are exercisable three years from the date of grant.
The Company has also adopted a 1997 Precision Auto Care Stock Option Plan
and has reserved 400,000 shares of Common Stock for issuance pursuant to this
plan. The terms of the 1997 Precision Auto Care Stock Option Plan are identical
in all material respects to the WE JAC Stock Option Plan.
1997 Employee Stock Purchase Plan. As a result of the Combination, the
Company has reserved a total of 20,000 shares of Common Stock for issuance
pursuant to the WE JAC 1997 Employee Stock Purchase Plan (the "Plan"). This Plan
was established to promote the long-term success of WE JAC by providing
employees of WE JAC the opportunity to become shareholders. The Plan commenced
on November 1, 1996. Employees who are participating in the Plan have until
October 31, 1997 to acquire the shares they had subscribed for at a purchase
price of 85% of the "fair market value" of WE JAC's common stock on the date of
grant, as determined in good faith by the Company's Board of Directors or by an
independent appraiser. Participating employees purchase the shares with amounts
they have contributed to the Plan through payroll deductions of up to 10% of the
employees base income, lump sum cash payments, or a combination of both. The
Board set the fair market value of common stock at the November 1 and February 1
grant dates at $8.00 per share and at the May 1 grant date at $10.00 per share.
The Plan has been fully subscribed by WE JAC's employees. The Plan provides that
the Company may repurchase any shares of common stock issued to an employee for
a period of 90 days following the employee's termination of employment. Any such
repurchases are to be made at the then current fair market value of WE JAC
common stock. The Company will assume these options in accordance with their
terms in connection with the Combination.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the Company's Articles of Incorporation and Bylaws, the Company
is obligated to indemnify each of its directors and officers to the fullest
extent permitted by law with respect to all liability and losses suffered and
reasonable expenses incurred by such person in any action, suit or proceeding in
which such person was or is made or threatened to be made a party or is
otherwise involved by reason of the fact that such person is or was a director
or officer of the Company. The Company is obligated to pay the reasonable
expenses of the directors or officers incurred in defending such proceedings if
the indemnified party agrees to repay all amounts advanced by the Company if it
is ultimately determined that such indemnified party is not entitled to
indemnification. See "Description of Capital Stock -- Limitations on Liability
of Officers and Directors."
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<PAGE>
PRINCIPAL SHAREHOLDERS
The table below sets forth information regarding the beneficial ownership
of the Common Stock by (i) each person known to the Company to be the beneficial
owner of more than 5% of the outstanding shares of Common Stock, (ii) each
director and executive officer of the Company and (iii) all directors and
executive officers of the Company as a group. Unless otherwise indicated, each
of the shareholders listed below has sole voting and investment power with
respect to the shares beneficially owned. The information is presented as in
effect immediately following the Combination.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL OWNERSHIP
--------------------------------------------------
PERCENTAGE OWNED
------------------------------
BEFORE AFTER
SHARES OFFERING OFFERING(1)
---------- -------- -----------
<S> <C> <C> <C>
John F. Ripley(2)........................................................ 205,050 6.90 3.89
Lynn E. Caruthers(3)..................................................... 135,381 4.85 2.66
James A. Hay............................................................. 0 0 *
Arnold Janofsky(4)....................................................... 7,794 * *
Peter Kendrick........................................................... 0 0 0
Grant G. Nicolai(5)...................................................... 11,919 * *
William R. Klumb......................................................... 56,086 2.02 1.10
Woodley A. Allen(6)...................................................... 12,000 * *
George Bavelis........................................................... 97,398 3.50 1.92
Bernard H. Clineburg(7).................................................. 12,500 * *
Clarence E. Deal......................................................... 205,167 7.38 4.04
Effie Eliopulos.......................................................... 269,531 9.69 5.31
Bassam N. Ibrahim(8)..................................................... 13,850 * *
Richard O. Johnson....................................................... 57,590 2.07 1.13
Arthur Kellar(9)......................................................... 155,029 5.56 3.05
Harry G. Pappas, Jr.(10)................................................. 27,500 * *
Gerald Zamensky(11)...................................................... 134,041 4.82 2.64
All directors and executive officers as a group (17 persons)............. 1,400,836 46.14 26.25
</TABLE>
- ---------------
* Represents less than 1%.
(1) Assumes the Underwriters' over-allotment option is not exercised.
(2) Includes options to purchase 193,100 shares Mr. Ripley may exercise within
60 days of the Offering. The stockholder's address is 748 Miller Drive,
S.E., Leesburg, Virginia 20175.
(3) Includes 36,750 shares held by CARFAM Associates and 77,938 shares held by
Caruthers Properties, Ltd., limited partnerships in which Ms. Caruthers
holds limited partnership interests and options to purchase 10,000 shares
which Ms. Caruthers may exercise within 60 days of the Offering.
(4) Includes options to purchase 5,833 shares that are exercisable within 60
days of the Offering.
(5) Includes options to purchase 4,167 shares that are exercisable within 60
days of the Offering.
(6) Includes options to purchase 10,000 shares that are exercisable within 60
days of the Offering.
(7) Includes options to purchase 10,000 shares that are exercisable within 60
days of the Offering.
(8) Includes options to purchase 10,000 shares that are exercisable within 60
days of the Offering.
(9) Includes options to purchase 10,000 shares that are exercisable within 60
days of the Offering.
(10) Includes options to purchase 12,500 shares that are exercisable within 60
days of the Offering.
(11) Includes 47,731 shares held by Mr. Zamensky's spouse.
THE COMBINATION
Simultaneously with, and as a condition to, the closing of the Offering,
the Company will consummate the Combination. The consideration to be paid by the
Company in the Combination will consist of shares of Common Stock, as set forth
in the Combination Agreement, which provides for the allocation of shares of
Common Stock among the Constituent Companies and their owners.
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<PAGE>
THE COMPANIES
The following description summarizes the business conducted by the Company
and each of the Constituent Companies.
The Company. The Company was formed in April 1997 solely for the purpose of
consummating the Combination. The Company has not conducted any operations and
has no material assets or liabilities.
WE JAC. WE JAC is the parent corporation of Precision Tune Auto Care, Inc.,
a Virginia corporation ("PTAC"). Precision Tune, an automotive service
specialist, has been engaged in the business of providing quality comprehensive
automobile maintenance services since 1976. At June 30, 1997, these services
were provided at 556 Precision Tune Auto Care centers owned and operated by
Precision Tune Auto Care franchisees. The automotive maintenance services
provided by Precision Tune Auto Care centers includes the diagnosis, maintenance
and repair of ignition systems, fuel systems, computerized engine control
systems, cooling systems, starting/charging systems, emissions control systems,
engine drive train systems, electrical systems, air conditioning systems, oil
and other fluid systems and brake systems. WE JAC derives a substantial portion
of its revenues from the distribution of automotive parts and equipment to
Precision Tune Auto Care centers and others. Another division of PTAC
distributes a complete line of quality ignition parts, oil and air filters,
brake parts, diagnostic equipment, signage and other items necessary and
incidental to the outfitting and operating of Precision Tune Auto Care centers.
Miracle Industries. Miracle Industries commenced operations in 1990 and is
involved in the manufacture, sale and distribution of car wash chemicals which
it sells directly and through a limited network of distributors. Miracle
Industries also owns and operates ten self-service car wash centers located
throughout central Ohio which facilities include in the aggregate 51
self-service bays and seven automatic bays. Each car wash center is supported by
self-serve vacuums, carpet shampooers and vending machines to provide additional
car wash accessories. In addition to operating its own car wash facilities,
Miracle Industries is actively engaged in the sale, service, and installation of
car wash facilities for third parties throughout Ohio. Miracle Industries owns
HydroSpray, which is a manufacturer of self-service and touchless automatic car
wash equipment. HydroSpray operates a manufacturing facility in Cedar Falls,
Iowa and sells and installs car wash equipment in the United States, Mexico and
Canada. HydroSpray is a successor to Don R. Havens Car Wash Systems which was
engaged in the manufacture of touchless car wash equipment since the mid-1980's.
Miracle Industries also owns a 50% interest in Indy Venture, L.L.C., an Indiana
limited liability company which owns and operates three car wash centers and two
Lube Depot fast oil change and lube centers in Indiana.
Lube Ventures. Lube Ventures commenced operations in 1994 and is engaged in
the manufacture of modular buildings specifically designed for the fast oil
change and lube business and in the sale of franchise rights to its "Lube Depot"
fast oil change and lube systems throughout the United States. Lube Ventures
markets its buildings to both franchisees and non-franchisees and utilizes the
buildings in its operation of three Company-owned stores. While the Lube
Ventures modular building is specifically designed for the oil change industry,
the company has made sales outside the oil change industry on a limited basis.
Lube Ventures operates one Company-owned Lube Depot centers and has franchised
26 Lube Depot centers.
Rocky Mountain I. Rocky Mountain I was founded in 1987 and owns and
operates one self-service car wash center in the Denver metropolitan area. This
car wash has seven self-service and one automatic bay and utilizes the
HydroSpray proprietary operating system. The site is usually staffed by one
attendant during specified business hours seven days a week.
Rocky Mountain II. Rocky Mountain II has been in operation since 1988.
Rocky Mountain II owns and operates seven self-service car wash centers in the
Denver metropolitan area. The Company operates an aggregate of 33 self-service
and 6 automatic bays. Three of the car wash sites utilize the HydroSpray
proprietary system and the remainder are operated through control systems
located at each car wash site. The HydroSpray system is being phased in at Rocky
Mountain II's other car wash sites and the Company intends to use a portion of
the net proceeds from the Offering to complete this upgrade following the
closing of the Combination.
Miracle Partners. Miracle Partners commenced operations in 1988 and owns
and operates five car wash centers in the State of Ohio. Miracle Partners is
currently operating 41 bays throughout its system, one of which is a completely
automated bay which utilizes the HydroSpray system and 40 of which are
self-service car wash bays. Miracle Partners also owns and operates a Lube Depot
franchise and leases property to a Lube Depot fast oil change and lube center
franchisee.
Prema Properties. Prema Properties, which was founded in 1994, owns and
operates seven car wash centers in Ohio and owns a 50% equity interest in
another car wash it is responsible for operating. The centers are located
primarily in central Ohio and the Cleveland, Ohio area. The eight car wash
centers contain in the aggregate 58 self-service units and seven automatic
units. Six of the automatic units have been installed within the last two years
and all of the automatic units include HydroSpray car wash equipment. At each of
the car wash sites, the company has vending equipment and self-serve vacuums to
provide additional services to the customer. Each of the car wash centers has a
part-time attendant assigned to it and the
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company utilizes area managers in both the Cleveland area and in central Ohio.
In addition to the company's car wash operations, Prema Properties is the
owner/operator of a Lube Depot franchise unit located in Brookpark, Ohio.
Ralston Car Wash. Ralston Car Wash has owned and operated one self-service
car wash center in the Denver metropolitan area since 1990. The car wash
consists of 9 self-service and one automatic bay and the center utilizes the
HydroSpray proprietary operating system. The car wash is usually staffed by an
attendant during specified business hours seven days a week.
KBG. KBG does not conduct any operations and has been formed solely for the
purpose of conveying the computer software portion of the HydroSpray proprietary
operating system to the Company in the Combination.
COMBINATION PURCHASE PRICE
The Company will exchange in the Combination 2,780,695 shares of Common
Stock (valued at $30.6 million, based upon an assumed initial Offering price of
$11.00 per share) for all of the capital stock and membership interests in the
Constituent Companies. The Company plans to use approximately $18.5 million of
the net proceeds from the Offering to discharge certain outstanding indebtedness
of the Constituent Companies assumed by the Company in connection with the
Combination. Approximately 1,145,236 shares of Common Stock (valued at $12.6
million based upon an assumed initial Offering price of $11.00 per share) will
be delivered to owners of the Constituent Companies who are executive officers
or directors of the Company. As a result of the delivery of such shares and
shares such persons will be able to obtain upon the exercise of options which
will be exercisable within 60 days of the Combination, such persons will
beneficially own approximately 26.3% of the outstanding Common Stock immediately
following the Offering. See "Risk Factors -- Control by Management and Principal
Shareholders," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Certain Transactions" and "Shares Eligible for Future Sale" and the
Unaudited Pro Forma Combined Financial Statements appearing elsewhere in this
Prospectus.
The following table sets forth the shares of the Company's common stock to
be exchanged by the Company with the owners of each of the Constituent Companies
in the Combination:
<TABLE>
<CAPTION>
PERCENTAGE OWNED
-----------------------------
BEFORE AFTER
CONSTITUENT COMPANY SHARES OFFERING(1) OFFERING(1)(2)
- ------------------- ---------- ----------- --------------
<S> <C> <C> <C>
WE JAC Corporation.................................................................... 1,333,625 48.0% 26.2%
Miracle Industries, Inc............................................................... 749,250 26.9 14.7
Lube Ventures, Inc.................................................................... 169,168 6.1 3.3
Prema Properties, LLC................................................................. 148,889 5.4 2.9
Miracle Partners, Inc................................................................. 94,320 3.4 1.9
Rocky Mountain Ventures, Inc.......................................................... 64,223 2.3 1.3
Rocky Mountain Ventures II, Inc....................................................... 179,648 6.5 3.5
Ralston Car Wash, LLC................................................................. 29,161 1.0 0.6
KBG, LLC.............................................................................. 12,411 0.4 0.2
---------- ----------- --------------
Total............................................................................ 2,780,695 100.0% 54.7%
---------- ----------- --------------
---------- ----------- --------------
</TABLE>
- ---------------
(1) Does not give effect to the exercise of any options that will be held by
directors and officers of Precision Auto Care.
(2) Assumes the Underwriters' over-allotment option is not exercised.
The number and value of shares to be exchanged by the Company with respect
to each of the Constituent Companies, except WE JAC, was determined by
arm's-length negotiations between the Company and the representatives of the
respective Constituent Companies. The factors considered by the Company in
determining the consideration to be paid included, among others, the historical
operating results, the net worth, the levels and types of indebtedness and the
future prospects of each of the Constituent Companies. The negotiations between
WE JAC and the Company were not arm's-length due to substantial overlap in
management of the Company and WE JAC at the time of such negotiation. However,
because the terms of all of the Combination Agreement value each Constituent
Company in relation to the value of each of the other Constituent Companies, the
value of WE JAC was subject to scrutiny by and negotiation with representatives
of the other Constituent Companies.
Upon consummation of the Combination, the Company will hold all of the
issued and outstanding shares of the capital stock and membership interests of
the Constituent Companies.
51
<PAGE>
THE COMBINATION AGREEMENT
Common Stock
The shares of the Company's common stock issuable upon the closing of the
Combination to various owners of the Constituent Companies generally will be
freely tradeable without restrictions under the Securities Act except that
shares of the Company's Common Stock received by persons who are deemed to be
"affiliates" (as that term is defined in Rule 144 of the Securities Act) of a
Constituent Company may be resold by such affiliates only in transactions
permitted by the resale provisions of Rule 145 or as otherwise permitted under
the Securities Act. In addition, the terms of the Combination Agreement provide
that holders who receive in excess of 3,000 shares of the Company's Common Stock
pursuant to the Combination will be prohibited from selling or otherwise
disposing of the shares of the Company's Common Stock for value for a period of
180 days following the consummation of the Offering. The Company expects that
2,682,913 shares of the Company's Common Stock issued in the Combination will be
subject to this 180-day restriction. See "Shares Eligible for Future Sale."
Representations and Warranties of the Constituent Companies
The Combination Agreement contains customary representations and warranties
from each of the Constituent Companies relating to, among other things, the due
organization and good standing of each Constituent Company, a description of the
capital structure and equity ownership of the Constituent Company, the amount
and nature of the Constituent Company's contingent liabilities, the title to the
Constituent Company's assets, the insurance coverage maintained by each
Constituent Company, the accuracy of the Constituent Company's financial
statements, the status of litigation involving each Constituent Company, and
compliance with applicable laws.
Limited Escrow Arrangements
Indemnity Escrow. Pursuant to the Combination Agreement, the Company will
deposit into escrow at the Closing of the Combination 10% of the shares issuable
to each former owner of a Constituent Company (the "Indemnity Escrow Shares") in
order to satisfy claims it may have with respect to the breach of certain
representations, warranties and covenants made by such Constituent Company in
the Combination Agreement. Except in the case of fraud, the Company will not be
able to proceed against any owner individually in the event that the Company's
losses exceed the amounts represented by the Indemnity Escrow Shares. In the
event that the Company validly asserts a claim for indemnification against the
Indemnity Escrow Shares, the Company will be able to reacquire, liquidate and
retire Indemnity Escrow Shares of the former owners of a Constituent Company
with a value equal to the full amount of the damages, liabilities and expenses,
including reasonable attorney's fees, suffered or incurred by the Company as a
result of any such breach. The Company also will have the right to retire,
reacquire and liquidate Indemnity Escrow Shares if it suffers damages by reason
of any untrue statement of a material fact relating to the Constituent Company
or its owners that is contained in any preliminary prospectus, a registration
statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or any omission to state therein a material fact relating to
the Constituent Company or its owners required to be stated therein or necessary
to make such statements therein not misleading.
The number of Indemnity Escrow Shares the Company shall be entitled to
reacquire, liquidate and retire shall be equal to the amount determined by
dividing the amount of the damages, costs and expenses incurred by the Company
by the Initial Public Offering price. When the Company proceeds against
Indemnity Escrow Shares attributable to a Constituent Company the Indemnity
Escrow Shares of each former owner of that Constituent Company shall be
reacquired, liquidated and retired ratably. The Indemnity Escrow Shares will
remain in escrow until the first anniversary of closing or until any unresolved
claim in respect of them has been finally resolved in cases where a claim has
been asserted by the Company prior to the first anniversary of closing.
Accordingly, each former owner of the applicable Constituent Company shall
receive his ratable portion of any Indemnity Escrow Shares which remain in
escrow on the first anniversary of closing (or immediately following the time
that a final determination has been made with respect to such shares in the case
of unresolved claims which have been asserted by the Company prior to the first
anniversary of closing).
Indebtedness Escrow. The Combination Agreement further provides that the
debt level of each Constituent Company will not exceed a specified level as of
the closing of the Combination. For purposes of the Combination Agreement, debt
means and includes all indebtedness of a Constituent Company for borrowed money,
capitalized lease obligations and guarantees of the obligations of others.
Pursuant to the Combination Agreement, the Company will deposit into escrow at
the Closing an additional 10% of the shares issuable to the owners of the
Constituent Companies at the Closing of the Combination (the "Indebtedness
Escrow Shares") in order to secure compliance with the maximum debt levels
allowed each of the
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Constituent Companies as of the closing of the Combination. To the extent that
the actual debt level of a Constituent Company exceeds the specified debt level,
the Company will have the right to reacquire, liquidate and retire Indebtedness
Escrow Shares having a value equal to the dollar amount of the excess debt.
Indebtedness Escrow Shares of the former owners of the Constituent Company
reacquired, liquidated or retired by the Company shall be valued at the Offering
Price. The table below sets forth the required debt level for each Constituent
Company.
<TABLE>
<CAPTION>
DEBT LEVEL AT REQUIRED DEBT LEVEL
CONSTITUENT COMPANY JUNE 30, 1997 AT CLOSING
- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C>
WE JAC $9,379,000 $10,600,000
Miracle Industries 4,218,000 4,810,000
Lube Ventures 1,301,000 1,223,000
Rocky Mountain I 478,314 478,000
Rocky Mountain II 1,640,802 1,761,000
Miracle Partners 1,353,199 1,600,000
Prema Properties 2,428,823 3,000,000
Ralston Car Wash 239,386 240,000
</TABLE>
Under the terms of the Combination Agreement, the required debt levels
specified above may be increased to reflect certain transactions permitted by
the terms of the Combination Agreement or transactions approved by a majority
vote of a committee comprising two WE JAC representatives and one representative
of each of the Ohio Group and All Other Constituent Companies.
Escrowed Shares Are Exclusive Remedy. As noted above, except in the case of
fraud, in the event that the Company suffers losses in excess of the Indemnity
Escrow Shares or in the event that the difference between a Constituent
Company's debt level at Closing and its required debt level exceeds the value of
the Indebtedness Escrow Shares, the Company will have no further remedy against
the Constituent Company or the owners because the obligations of the Constituent
Company and the owners are limited to the amount of the Indemnity Escrow Shares
and the Indebtedness Escrow Shares, respectively. In the event that the losses
the Company suffers with respect to a Constituent Company (including losses
which arise because a Constituent Company's debt level is higher than the level
required at Closing) exceed the value of the Indemnity Escrow Shares or
Indebtedness Escrow Shares, the business and financial condition of the Company
could be materially adversely affected.
Indemnification by the Company
Pursuant to the Combination Agreement, the Company has agreed to indemnify,
defend and hold harmless each of the owners of the Constituent Companies and
their respective successors and assigns against any and all claims, losses,
damages, liabilities and expenses, including reasonable attorney's fees,
suffered because of (i) the untruth, inaccuracy, misrepresentation, omission,
breach or nonfulfillment by the Company or any representation, warranty,
covenant or other agreement contained in the Combination Agreement or (ii) any
untrue statement of a material fact relating to the Company that is contained in
the preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based on any omission or alleged omission to state therein a material fact
relating to the Company required to be stated therein or necessary to make the
statements therein not misleading.
Conditions Precedent to the Closing of the Combination Agreement
The obligation of the Company to consummate the Combination is subject to
certain conditions, including among others, (i) that the financial statements of
each of the Constituent Companies comply in all material respects with all
applicable accounting requirements and are fairly presented in conformity with
generally accepted accounting principles, (ii) that favorable opinions of
counsel to the owners of the Constituent Companies are received by the Company,
(iii) that all necessary consents have been received, (iv) that the Registration
Statement has become effective, (v) that the aggregate amount of cash required
to be paid to Constituent Company owners who validly perfect their right to
dissent to certain mergers which form a part of the Combination (or have voted
against a merger and are entitled to later perfect their right to dissent by
taking additional actions following closing in accordance with applicable laws)
shall not exceed 10% of the net cash proceeds estimated to be realized by the
Company in the Offering, assuming that each such dissenting owner would be
entitled to receive for his shares in the Constituent Company cash in an amount
equal to the initial Offering price, multiplied by the number of shares of the
Company Common Stock that they would have been entitled to receive had they not
exercised dissenters' rights, (vi) that specified percentages (which in no case
are lower than 75%) of the total equity ownership of each Constituent Company
which the Company is to acquire pursuant to exchange offers which form a part of
the Combination are
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<PAGE>
tendered to the Company pursuant to such exchange offers and (viii) the Offering
is consummated. The obligation of each Constituent Company and its owners to
consummate the Combination is subject to certain conditions, including the
accuracy of the representations and warranties of the Company contained in the
Combination Agreement, the receipt of a favorable opinion of counsel to the
Company and the receipt of an opinion of Ernst & Young LLP with respect to
certain tax matters.
ASSUMPTION OF OPTION PLANS AND STOCK OPTIONS
Pursuant to the terms of the Combination Agreement, the Company will assume
all of the outstanding stock option plans, stock purchase plans and stock option
agreements to which WE JAC is a party. As a result of the foregoing, options to
purchase 508,100 shares of WE JAC Common Stock at a weighted average exercise
price of $8.72 per share will be converted into options to purchase an identical
number of shares of the Company's Common Stock at the same weighted exercise
price per share upon the consummation of the Combination. See "Certain
Transactions."
EMPLOYMENT AGREEMENTS AND COVENANTS NOT TO COMPETE
In connection with the Combination, certain individuals entered into
employment agreements with the Company. For a discussion of the employment
agreements between the Company and its executive officers, see
"Management -- Employment Agreements." In addition, each holder of 10% or more
of the common stock or membership interests of a Constituent Company is required
to execute and deliver an Agreement Not to Compete in favor of the Company. The
terms of these agreements generally provide that, for a period of four years
following the Closing of the Combination, such persons will not compete with the
Company in the line of business engaged in by the Constituent Company of which
such person is a stockholder or member as of Closing within specified geographic
areas.
REAL ESTATE OPTIONS AND RELATED LEASE ARRANGEMENTS
Under the terms of the Combination Agreement partnerships formed by owners
of Lube Ventures, Prema Properties and Miracle Partners have been granted the
option to purchase specified parcels of real estate from the Company following
closing. If these options are exercised, the Company will lease these parcels of
real estate back from the partnership on terms and conditions set forth in the
Combination Agreement. For additional information concerning these options and
the terms of the related leases see "Certain Transactions".
DISTRIBUTIONS PRIOR TO CLOSING
The Combination Agreement provides that, prior to the closing of the
Combination, each of the Constituent Companies which are subject to taxation
under Subchapter S of the Internal Revenue Code or as partnerships shall be
entitled to distribute to their shareholder or members, on a pro rata basis,
cash in amounts sufficient to enable them to discharge their federal, state and
local income tax liabilities which will arise by reason of their being
stockholders or members thereof during tax year 1997. The Combination Agreement
also provides that the Constituent Companies shall have the right to declare and
pay to their stockholders or members cash dividends or distributions in an
amount equal to the amount of the professional fees and expenses paid by such
Constituent Company prior to the Closing in connection with the transactions
contemplated by the Combination Agreement.
The Combination Agreement permits certain of the Constituent Companies to
distribute prior to the Closing to their stockholders and members certain assets
held, directly or indirectly, by such Constituent Companies. In this regard,
Rocky Mountain I is permitted to distribute to its stockholders a certain
$190,000 promissory note held by Rocky Mountain I or the cash proceeds thereof;
Lube Ventures is permitted to distribute to its members certain unimproved real
estate; Prema Properties is permitted to distribute to its members certain
improved rental real estate and unimproved real estate; and Miracle Industries
is permitted to distribute to its stockholders certain improved rental real
estate, unimproved real estate and a car wash and is also permitted to cause
Indy Ventures to distribute certain unimproved real estate and a car wash to its
members (including Miracle Industries, which may redistribute such property to
its stockholders).
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
Common Stock Issued in Combination. In connection with the Combination,
certain officers and directors of the Company will receive shares of Common
Stock with respect to the shares of common stock or membership interests, as the
case may be, they currently hold in their respective Constituent Companies as
follows: Woodley A. Allen: 2,000 shares; George Bavelis: 97,398 shares; Lynn E.
Caruthers: 125,381 shares; Bernard H. Clineburg: 2,500 shares; Clarence E. Deal:
205,167
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<PAGE>
shares; Effie Eliopulos: 269,531 shares; Bassam N. Ibrahim: 3,850 shares; Arnold
Janofsky: 1,961 shares; Richard O. Johnson: 57,590 shares; Arthur Kellar:
145,029 shares; William R. Klumb: 56,086 shares; Grant G. Nicolai: 7,752 shares;
Harry G. Pappas, Jr.: 15,000 shares; John F. Ripley: 11,950 shares; and Gerald
Zamensky: 134,041 shares.
Conversion and Acceleration of Stock Options. Pursuant to the terms of the
Combination Agreement and the terms of outstanding WE JAC stock options, all of
the options to purchase WE JAC Common Stock that are outstanding on the closing
date are to be converted into options to purchase the Company's Common Stock.
Because WE JAC Common Stock is being converted into the Company's Common Stock
on a one-share-for-one-share basis, each option to purchase WE JAC Common Stock
shall be converted into an option to purchase the same number of shares of the
Company's Common Stock at the same exercise price. The chart below indicates as
to the specified directors and officers of the Company the number of options
that each person will hold following closing and the current weighted average
exercise price per share.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTION HOLDER OPTION SHARES EXERCISE PRICE PER SHARE
- ------------- ------------- ------------------------
<S> <C> <C>
Woodley A. Allen 10,000 $10.00
Lynn E. Caruthers 10,000 10.00
Bernard Clineburg 10,000 10.00
Bassam N. Ibrahim 10,000 10.00
James A. Hay 5,000 10.00
Arnold Janofsky 21,500 8.58
Arthur Kellar 10,000 10.00
Robert Kelly 10,000 10.00
Grant G. Nicolai 12,500 8.25
Harry G. Pappas, Jr. 12,500 10.00
John F. Ripley 193,100 8.69
</TABLE>
The vesting of options held by the executives and directors of WE JAC
identified in the table above (other than Messrs. Hay, Janofsky and Nicolai)
will accelerate and vest upon consummation of the Combination. Accordingly,
options to purchase 142,500 shares of WE JAC Common Stock (which, pursuant to
the Combination, will be converted into options to purchase 142,500 shares of
Precision Auto Care Common Stock at the same price per share) in the aggregate
held by such directors and executive officers of WE JAC will vest immediately
following consummation of the Combination.
Grants of Additional Options. The Company intends to grant each of Mr.
Klumb and Ms. Eliopulos options to purchase 12,500 shares of Common Stock
effective at the closing of the Combination. Such options will have an exercise
price per share equal to the initial offering price and one third of the options
will vest on each of the first three anniversary dates of the Combination. The
Company also intends to grant options to purchase an aggregate of 37,500 shares
of Common Stock to two other former owners of Constituent Companies other than
WE JAC. These options will be effective at the closing of the Combination and
will have an exercise price equal to the initial public offering price. One
third of the options will vest on each of the first three anniversary dates of
the Combination.
REAL ESTATE TRANSACTIONS
Under the terms of the Combination Agreement, certain real property which
the Company will acquire from Lube Ventures, Prema Properties, and Miracle
Partners, by reason of the mergers and exchange offers forming the Combination,
will be subject to the terms of certain options granted to limited partnerships
formed by the owners of Lube Ventures, Prema Properties and Miracle Partners.
Pursuant to the Combination Agreement each of the partnerships will be granted
the option to purchase certain real estate (the 27,000 square foot modular
building manufacturing facility in the case of Lube Ventures, nine car wash
centers in the case of Prema Properties, and five car wash centers in the case
of Miracle Partners).
The options may only be exercised during a one year period which will
commence on the second anniversary date of the Combination. If the options are
exercised in whole or in part, the limited partnerships would purchase the
parcels of real estate at a purchase price equal to their then-current fair
market value. The Company would then be required to lease the real estate back
from the partnerships on a triple net basis and at a base rent equal to the fair
rental value of the property. The leases would have an initial term of ten years
and the Company would have the right to renew the leases for two successive ten
year terms.
Mr. Bavelis, Mr. Deal and Ms. Eliopulos, directors of the Company, will
each have a 15.12% interest in the partnership holding the options covering the
Prema Properties parcels of real estate. Mr. Deal and Ms. Elipulos will hold a
50% and 25%
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interest, respectively, in the partnership holding the option to pruchase the
Lube Ventures parcel of real estate. Mr. Deal will hold 100% of the partnership
interests in the partnership holding the options to purchase the Miracle
Partners' parcels of real estate.
FRANCHISE TRANSACTIONS
Under the terms of the Combination Agreement, the Company has agreed to
sell six Precision Auto Wash franchises and eight Precision Lube Express
franchises to companies formed by certain former owners of the Constituent
Companies (other than WE JAC). Five of the Precision Auto Wash and Precision
Lube Express centers will be combined and operated on five sites. The other four
franchises will be operated on four sites. The other four franchises will be
operated as stand-alone operations. The companies formed by the former owners
will pay the standard initial franchise fees. Such companies will pay standard
royalties, in the case of Precision Auto Wash, and $400 per month on single bay
Precision Lube Express centers and $500 per month on double bay Precision Lube
Express franchises instead of the variable monthly royalties charged to other
franchisees.
The Company has also agreed to sell the Precision Auto Wash equipment and
the Precision Lube Express modular buildings to these businesses at a discount
of 10% from the normal price at which the equipment and buildings are sold by
the Company to its high volume distributors. This will result in a discount of
approximately $250,000 in the aggregate from such prices. Gene Deal, a director
of the Company, has interests ranging from 16.5% to 33% in five of the companies
which will own, in the aggregate, five of the Precision Lube Express franchises
and three of the Precision Auto Wash franchises. Effie Eliopulos, a director of
the Company, has interests ranging from 16.5% to 75% in companies which will
own, in the aggregate, four of the Precision Lube Express franchises and four of
the Precision Auto Wash franchises. Mr. Klumb, a director of the Company, owns a
25% interest in a company that will operate one of the Precision Lube Express
franchises. Mr. Bavelis, a director of the Company, owns a 25% interest in a
company that will operate one of the Precision Auto Wash franchises.
OTHER TRANSACTIONS
Under the terms of the Combination Agreement, the Company will discharge
substantially all of the indebtedness of each of the Constituent Companies at
closing. Messrs. Bavelis, Deal, Klumb, Zamensky, and Ms. Eliopulos have
personally guaranteed indebtedness in the principal amounts of $2.6 million,
$3.4 million, $2.4 million, $2.4 million, and $7.6 million, respectively, that
is to be discharged at closing.
COMPANY POLICY
It is anticipated that future transactions with affiliates of the Company
will be minimal and will be approved by a majority of the disinterested members
of the Board of Directors or will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 19,000,000 shares of Common Stock and
1,000,000 shares of preferred stock, $.01 par value per share (the "Preferred
Stock"). Upon completion of the Offering and giving effect to the Combination,
the Company will have 5,080,695 shares of Common Stock and no shares of
Preferred Stock outstanding. The following description of capital stock of the
Company is qualified in its entirety by reference to the Company's Articles of
Incorporation, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Additional shares of Common
Stock are reserved for issuance upon exercise of employee and director stock
options. See "Management -- Compensation Pursuant to Plans."
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
on which shareholders are entitled to vote generally. Shareholders have no right
to cumulate their votes in the election of directors. Accordingly, holders of a
majority of the outstanding shares of Common Stock entitled to vote in any
election of directors may elect all of the directors standing for election.
Holders of Common Stock may receive dividends and other distributions when, as
and if declared from time to time by the Board of Directors out of funds legally
available therefor. The Company does not intend to declare or pay any dividends
on the shares of its Common Stock in the near future. See "Dividend Policy." In
the event of a voluntary or involuntary liquidation, dissolution or winding up
of the Company, after any preferential amounts to be distributed to the
Preferred Stock and any other class or series of stock having a preference over
the outstanding Common Stock, the holders of Common Stock are entitled to share
ratably in proportion to the number of shares held by each holder in all assets
remaining after payment of liabilities, including all distributions to holders
of Preferred Stock having a liquidation preference over the Common Stock. The
Company's Articles of Incorporation states that no holder of any class or series
of stock of the Company shall have any preemptive rights. The Company may, in
its sole discretion, redeem certain of the shares of the Company's stock in
accordance with Virginia Law. All outstanding shares of Common Stock are, and
the shares offered hereby will be, when issued and paid for, fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may become subordinate, to the rights of holders of
shares of any series of Preferred Stock which the Company may designate and
issue in the future from time to time.
PREFERRED STOCK
Under the Articles of Incorporation, the Board of Directors is authorized
to issue Preferred Stock, in one or more series, and to fix the number of shares
constituting such series and the designation of such series, the voting powers
(if any) of the shares of such series, and the preferences and relative,
participating, optional or other special rights, if any, and any qualifications,
limitations or restrictions thereof, of the shares of such series. The Company
has no present intention to issue any series of Preferred Stock.
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The Company's Articles of Incorporation provide for mandatory
indemnification of the officers and directors of the Company to the fullest
extent permitted by Virginia law, including some instances in which
indemnification is otherwise discretionary under Virginia law. The Articles of
Incorporation contains provisions that eliminate the personal liability of the
Company's directors for monetary damages resulting from breaches of their
fiduciary duty as directors other than for acts or omissions which involve
intentional misconduct or a knowing violation of law, payment of unlawful
distributions, or for any transaction from which the director derived an
improper personal benefit. The Company believes that these provisions are
essential to attracting and retaining qualified persons as directors.
There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, and the
Company is not aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
ANTI-TAKEOVER PROVISIONS
Under the Virginia Stock Corporation Act's control share acquisitions law,
voting rights of shares of stock of a Virginia corporation acquired by an
acquiring person at ownership levels of (i) more than 20% but less than 33 1/3%,
(ii) more than 33 1/3% but less than a majority or (iii) a majority or more of
all outstanding shares of voting stock may, under certain circumstances, be
denied unless conferred by a special stockholder vote of a majority of the
outstanding shares entitled to
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<PAGE>
vote for directors, other than shares held by the acquiring person and officers
and certain directors of the corporation or, among other exceptions, such
acquisition of shares is made pursuant to a merger agreement with the
corporation. If authorized in the corporation's articles or by-laws (and the
Company's articles contain this authorization), the statute also permits the
corporation to redeem the acquired shares at the average per share price paid
for them if the voting rights are not approved or if the acquiring person does
not file a "control share acquisition statement" with the corporation within
sixty days of the last acquisition of such shares. If voting rights are approved
for control shares comprising more than fifty percent of the corporation's
outstanding stock, objecting shareholders may have the right to have their
shares repurchased by the corporation for "fair value."
The Virginia Stock Corporation Act sets forth restrictions on "affiliated
transactions" (including, among other various transactions: (i) mergers; (ii)
share exchanges; (iii) sales, leases, exchanges, mortgages, pledges, transfers
or other dispositions of assets of the Company having an aggregate fair market
value of more than 5% of the Company's net worth; (iv) certain reclassifications
of securities; and (v) dissolutions involving an "interested shareholder"
(generally the beneficial owner of more than 10% of any class of the
corporation's outstanding voting shares). During the three years following the
date a shareholder becomes an interested shareholder, any affiliated transaction
with the interested shareholder must be approved by both a majority of the
"disinterested directors" (those directors who were directors before the
interested shareholder became an interested shareholder or who were recommended
for election by a majority of disinterested directors) and by the affirmative
vote of the holders of two-thirds of the corporation's voting shares other than
shares beneficially owned by the interested shareholder. The foregoing
supermajority voting requirement does not apply to affiliated transactions if
(i) the affiliated transaction has been approved by a majority of the
disinterested directors, or (ii) subject to certain additional requirements, in
the affiliated transaction the holders of each class or series of voting shares
will receive consideration meeting specified fair price and other requirements
designed to insure that all shareholders receive fair and equivalent
consideration, regardless of when they tender their shares.
The Company's Articles of Incorporation contain certain anti-takeover
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and that may have the
effect of delaying, deferring or preventing a future takeover or change in
control of the Company unless such takeover is approved by the Board of
Directors. These provisions include the classification of the Board of Directors
into three classes. Each class of directors is to serve for a three-year term.
Such provisions may also render the removal of the current Board of Directors
more difficult than would be the case in the absence of such provisions.
The Company's Articles of Incorporation and Bylaws provide that the Board
of Directors shall consist of not less than 10 and not more than 20 directors
(subject to any rights of the holders of shares of Preferred Stock to elect
additional directors), with the exact number to be fixed by the Board of
Directors pursuant to a resolution adopted by a majority of the entire Board.
The Board of Directors is divided into three classes of directors, which classes
are as nearly equal in number as possible. One class of directors is elected
each year for a term of three years. Directors may be removed from office only
for cause and only by the affirmative vote of the holders of at least 80% of the
voting power of all outstanding shares of capital stock of the Company entitled
to vote generally in the election of directors (the "Voting Stock"), voting as a
single class. Subject to any rights of the holders of shares of Preferred Stock,
vacancies in the Board of Directors and newly created directorships are filled
for the unexpired term only by the vote of a majority of the remaining directors
in office. Pursuant to the Articles of Incorporation, advance notice of
shareholder nominations for the election of directors must be given in the
manner provided in the Company's Bylaws. The Bylaws provide that written notice
of the intent of a shareholder to make a nomination at, or to bring other
business before, a meeting of shareholders must be delivered to the Secretary of
the Company generally not less than 90 days prior to the anniversary of the date
of the previous year's meeting, in the case of an annual meeting, and not
earlier than the 90th day prior to the meeting and not later than the close of
business on the later of the 70th day prior to the special meeting or the 10th
day following the day on which public announcement of the date of the special
meeting is first made, in the case of a special meeting. The notice must contain
certain background information about the shareholder and, in the case of an
intent to make a nomination, the nominee and the number of shares of the
Company's capital stock beneficially owned by the nominee.
Under the Articles of Incorporation and Bylaws, except as otherwise
required by law and subject to the rights of the holders of shares of Preferred
Stock, shareholders may not call a special meeting of shareholders. Only the
Board of Directors, pursuant to a resolution adopted by a majority of the entire
Board, may call a special meeting of shareholders. The Virginia Stock
Corporation Act provides that any action required or permitted to be taken by
shareholders of a corporation may be taken without a meeting, without prior
notice, and without a shareholder vote if a written consent or consents setting
forth the action to be taken is signed by the holders of outstanding shares of
capital stock having the requisite number of votes that would be necessary to
authorize or take such action at a meeting of shareholders. The Company's
Articles of
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Incorporation requires that shareholder action be taken at a meeting of
shareholders and prohibits shareholder action by written consent.
The purpose of certain provisions of the Articles of Incorporation and
Bylaws discussed above relating to (i) a classified Board of Directors; (ii) the
removal of directors and the filling of vacancies; (iii) the prohibition of
shareholder action by written consent; and (iv) the supermajority voting
requirements for the repeal of provisions (i) through (iii) is to help assure
the continuity and stability of the business strategies and policies of the
Company and to discourage certain types of transactions that involve an actual
or threatened change of control of the Company. They are designed to make it
more difficult and time-consuming to change majority control of the Board of
Directors and thus to reduce the vulnerability of the Company to an unsolicited
takeover proposal or to an unsolicited proposal for the restructuring or sale of
all or part of the Company. Such provisions in the Company's Articles of
Incorporation and Bylaws may make more difficult or discourage a proxy contest,
or the assumption of control, by a holder of a substantial block of shares of
Common Stock, or the removal of the incumbent Board of Directors, and could thus
increase the likelihood that incumbent directors will retain their positions.
The provisions of the Articles of Incorporation and Bylaws and the Virginia
Stock Corporation Act help ensure that the Board of Directors, if confronted
with an unsolicited proposal from a third party who has acquired a block of
shares of Common Stock, will have sufficient time to review the proposal and
develop appropriate alternatives, if any, on behalf of the Company's
shareholders. These provisions are intended to encourage persons seeking to
acquire control of the Company to initiate such an acquisition through
arm's-length negotiations with the Board of Directors. Such provisions may have
the effect of discouraging a third party from making an unsolicited tender offer
or otherwise attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and its shareholders.
The Articles of Incorporation require the vote of the holders of 80% or
more of the voting power of the outstanding shares of voting stock of the
corporation, voting together as a single class to amend the provisions of the
Articles of Incorporation and Bylaws which govern (i) redemption rights, (ii)
the Board of Directors, (iii) shareholder actions, (iv) the amendment of the
Articles of Incorporation and Bylaws, and (v) the limitation of director and
officer liability and indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is First
Union Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common
Stock. Sales of substantial amounts of Common Stock into the public market after
the Offering, or the perception that such sales could occur, could adversely
affect the prevailing market price for the Common Stock and the ability of the
Company to raise equity capital. The Company can make no prediction as to the
effect, if any, that the sale or availability for future sale of shares of
additional Common Stock will have on the market price of the Common Stock
prevailing from time to time.
Upon completion of the Offering, the Company will have 5,080,695 shares of
Common Stock outstanding (assuming no exercise of options or warrants after the
date of this Prospectus). These shares will consist of 2,780,695 shares of
Common Stock issued to the owners of the Constituent Companies in the
Combination and 2,300,000 shares of Common Stock issued in the Offering. See
"The Combination."
The 2,300,000 shares of Common Stock sold in the Offering (plus any
additional shares sold upon exercise of the Underwriters' over-allotment option)
will be freely tradable, except that any shares purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations of
Rule 144 ("Rule 144") under the Securities Act, as described below.
The 2,780,695 shares of Common Stock that will be issued to the owners of
the Constituent Companies will be registered under the Securities Act, and,
accordingly, such shares will be freely tradeable, except that shares acquired
in the Combination by an Affiliate of a Constituent Company may generally only
be sold in compliance with Rule 145 under the Securities Act ("Rule 145") as
described below. In addition pursuant to the terms of the Combination Agreement,
the Constituent Company owners who receive more than 3,000 shares of Common
Stock in the Combination will not be permitted to sell any shares of Common
Stock issued to them at the closing of the Combination for a period of 180 days
following such closing. After the expiration of such 180-day period, all of such
shares (other than shares held by Affiliates of the Company or the Constituent
Companies) may be sold freely. Of the shares of Common Stock that will be issued
to the owners of the Constituent Companies, 2,682,913 shares will be subject to
this 180-day restriction.
59
<PAGE>
As noted above, shares of Common Stock held by Affiliates of the Company or
the Constituent Companies may only be sold in compliance with the limitations of
Rule 144 under the Securities Act or in compliance with Rule 145, as the case
may be. Pursuant to Rule 144 and Rule 145 as currently in effect, beginning 90
days after the Offering, a person (or persons whose shares are aggregated) is
entitled to sell within any three-month period a number of shares of Common
Stock that does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly reported trading volume of the Common Stock
during the four calendar weeks preceding such sale. Sales under Rule 144 and 145
are also subject to certain restrictions relating to the manner of sale, notice
and the availability of current public information about the Company. These
provisions will be binding upon Affiliates of Constituent Companies for a period
of one year following the date on which the Combination is consummated.
Following that time, such persons will be able to sell their shares of Common
Stock freely, so long as they are not an Affiliate of the Company at that time.
A person who is not an Affiliate of the Company at any time during the
three-months preceding a sale will be entitled to sell such shares immediately
without regard to volume limitations, manner of sale provisions or notice or
other requirements of Rule 144.
In addition to the shares of Common Stock that will be outstanding, an
aggregate of up to 685,100 shares of Common Stock could be issued upon exercise
of options and warrants that will be outstanding after the Offering. These
options and warrants will be exercisable as follows: (i) options and warrants to
purchase up to 383,895 shares of Common Stock will be exercisable immediately;
(ii) options to purchase up to 491,429 shares of Common Stock will become
exercisable between the closing of the Offering and the first anniversary of the
closing of the Offering; (iii) options to purchase up to 604,657 shares of
Common Stock will become exercisable between the first anniversary of the
closing of the Offering and the second anniversary of the closing of the
Offering; (iv) options to purchase up to 679,509 shares of Common Stock will
become exercisable between the second anniversary of the closing of the Offering
and the third anniversary of the closing of the Offering; (v) options to
purchase up to 683,684 shares of Common Stock will become exercisable between
the third anniversary of the closing of the Offering and the fourth anniversary
of the closing of the Offering; and (vi) options to purchase up to 683,684
shares of Common Stock will become exercisable between the fourth anniversary of
the closing of the Offering and the fifth anniversary of the closing of the
Offering. The Company intends to file one or more registration statements on
Form S-8 under the Securities Act to register all shares of Common Stock subject
to these stock options and warrants. The Company expects to file these
registration statements promptly after the closing of this Offering, and such
registration statements will become effective upon filing. The shares covered by
these registration statements will be eligible for sale in the public markets,
subject to the lock-up agreements discussed above, if applicable.
60
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom A.G. Edwards &
Sons, Inc. and Ferris, Baker Watts, Incorporated are acting as representatives
(the "Representatives"), have severally agreed, subject to the terms and
conditions set forth in the underwriting agreement (the "Underwriting
Agreement"), to purchase from the Company the numbers of shares of Common Stock
set forth below opposite their respective names at the initial public offering
price less the underwriting discount set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
A.G. Edwards & Sons, Inc..........................................................
Ferris, Baker Watts, Incorporated.................................................
Total........................................................................
---------
---------
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any of such shares are
purchased.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share of
Common Stock. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share to other dealers. The initial
offering price and the concessions and discount to dealers may be changed by the
Underwriters after the initial public offering.
The Company has granted to the Underwriters an option exercisable for 30
days from the date of this Prospectus, to purchase up to an additional shares
of Common Stock at the initial offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of the
Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters and controlling
persons, if any, against, certain liabilities, including liabilities under the
Securities Act or will contribute to the payments the Underwriters or any
controlling persons may be required to make in respect thereof.
The Company, its directors and executive officers and certain existing
shareholders have agreed for a period of 180 days from the date of this
Prospectus, not to, directly or indirectly, offer, sell, offer to sell, contract
to sell, grant any option to purchase, or otherwise dispose (or announce any
offer, sale, grant of any option to purchase or other disposition) of any shares
of Common Stock, or any securities convertible into, or exercisable or
exchangeable for, shares of Common Stock in the public market without the prior
written consent of A.G. Edwards & Sons, Inc. on behalf of the Underwriters
provided, however, the Company may grant stock options under, and issue shares
of Common Stock upon the exercise of outstanding stock options granted under,
the Company's stock option plans.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives. Among
the factors to be considered in determining the initial offering price include
the financial and operational history and trends of the Company, the history of
and the prospects for the industry in which the Company competes, an assessment
of the Company's management, its past and present operations, its past and
present earnings and the trend of such earnings, the general condition of the
securities markets at the time of the Offering and the price-earnings multiples
and market prices of publicly traded companies the Representatives and the
Company believe to be comparable to the Company.
Application has been made to include the Common Stock for quotation on the
Nasdaq National Market under the symbol "PACI." The Company has been advised by
the Representatives that each of the Representatives presently intend to make a
market in the Common Stock offered hereby, however, the Representatives are not
obligated to do so, and any market making activity may be discontinued at any
time. There can be no assurance that an active public market for the Common
Stock will develop and continue after the Offering.
In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions
61
<PAGE>
effected in accordance with Rule 104 of Regulation M promulgated under the
Securities Exchange Act of 1934, as amended, pursuant to which such persons may
bid for or purchase the Common Stock for the purpose of stabilizing their
respective market prices. The Underwriters also may create a short position for
the account of the Underwriters by selling more Common Stock in connection with
the Offering than they are committed to purchase from the Company, and in such
case may purchase Common Stock in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriters may
also cover all or a portion of such short position, up to 345,000 shares of
Common Stock, by exercising the over-allotment option referred to above. In
addition, the Underwriters may impose "penalty bids" under contractual
arrangements with dealers whereby they may reclaim from a dealer participating
in the Offering for the account of the Underwriters the selling concession with
respect to the Common Stock that is distributed in the offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
prices of the Common Stock at a level above that which might otherwise prevail
in the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.
Ferris, Baker Watts, Incorporated ("FBW") was engaged by WE JAC Corporation
to provide financial advisory and investment banking services in connection with
the formation of the Company and the structuring of the Combination. In
connection with the engagement, FBW has received a financial advisory fee of
$40,000 and will receive an additional $160,000 upon consummation of the
Combination.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock are being passed upon for the Company by Miles & Stockbridge, a
Professional Corporation, Baltimore, Maryland. Certain legal matters will be
passed upon for the Underwriters by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The financial statements appearing in this Prospectus and Registration
Statement of WE JAC Corporation for the three years in the period ended June 30,
1997, of Miracle Industries for the two years in the period ended December 31,
1996, of Lube Ventures for the year ended December 31, 1996 and of Prema
Properties for the year ended December 31, 1996, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which is a part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement and the exhibits and schedules filed
as a part thereof. Statements contained in the Prospectus concerning the
provisions or contents of any contract, agreement or any other document referred
to herein are not necessarily complete. With respect to each such contract,
agreement or document filed as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description of the matters
involved, and each statement shall be deemed qualified in its entirety by such
reference to the copy of the applicable document filed with the Commission. A
copy of the Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following Regional Offices of the Commission: New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of the Registration Statement and the exhibits and schedules
thereto can be obtained from the Public Reference Section of the Commission upon
payment of prescribed fees. The Commission maintains an Internet web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The address of
that site is http://www.sec.gov.
Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Upon effectiveness of the Registration Statement, the Company will become
subject to the informational and periodic reporting requirements of the Exchange
Act, and in accordance therewith, will file periodic reports, proxy statements
and other information with the Commission. Such periodic reports, proxy
statements and other information will be available for inspection and copying at
the public reference facilities and other regional offices referred to above.
The Company intends to register the securities offered by the Registration
Statement under the Exchange Act simultaneously with the effectiveness of the
Registration Statement and to furnish its shareholders with annual reports
containing audited financial statements and quarterly reports for the first
three fiscal quarters of each fiscal year containing unaudited interim financial
information.
62
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WE JAC CORPORATION
Report of Independent Auditors....................................................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and June 30, 1997.................................................... F-3
Consolidated Statements of Operations for the three years in the period ended June 30, 1997.......................... F-4
Consolidated Statements of Stockholders' Equity for the three years in the period ended June 30, 1997................ F-5
Consolidated Statements of Cash Flows for the three years in the period ended June 30, 1997.......................... F-6
Notes to Consolidated Financial Statements........................................................................... F-7
MIRACLE INDUSTRIES, INC.
Report of Independent Auditors....................................................................................... F-15
Consolidated Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (unaudited)........................... F-16
Consolidated Statements of Operations for the years ended December 31, 1995 and 1996 and the six months ended June
30, 1996 and 1997 (unaudited)..................................................................................... F-17
Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 1995 and 1996 and the six
months ended June 30, 1996 and 1997 (unaudited)................................................................... F-18
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1996 and the six months ended June
30, 1996 and 1997 (unaudited)..................................................................................... F-19
Notes to Consolidated Financial Statements........................................................................... F-20
LUBE VENTURES, INC.
Report of Independent Auditors....................................................................................... F-26
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited)................................................. F-27
Statements of Operations for the years ended December 31, 1995 (unaudited) and 1996 and the six months ended June 30,
1996 and 1997 (unaudited)......................................................................................... F-28
Statements of Changes in Stockholders' Equity for the years ended December 31, 1995 (unaudited) and 1996 and the six
months ended June 30, 1996 and 1997 (unaudited)................................................................... F-29
Statements of Cash Flows for the years ended December 31, 1995 (unaudited) and 1996 and the six months ended June 30,
1996 and 1997 (unaudited)......................................................................................... F-30
Notes to Financial Statements........................................................................................ F-31
PREMA PROPERTIES, LTD.
Report of Independent Auditors....................................................................................... F-35
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited)................................................. F-36
Statements of Operations and Members' Equity for the years ended December 31, 1995 (unaudited) and 1996 and the six
months ended June 30, 1996 and 1997 (unaudited)................................................................... F-37
Statements of Cash Flows for the years ended December 31, 1995 (unaudited) and 1996 and the six months ended June 30,
1996 and 1997 (unaudited)......................................................................................... F-38
Notes to Financial Statements........................................................................................ F-39
PRECISION AUTO CARE, INC.
Report of Independent Auditors....................................................................................... F-42
Balance Sheet as of June 30, 1997.................................................................................... F-43
Notes to Financial Statement......................................................................................... F-44
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
WE JAC CORPORATION
We have audited the accompanying consolidated balance sheets of WE JAC
Corporation and subsidiary as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the three years in the period ended June 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
WE JAC Corporation and subsidiary at June 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the three
years in the period ended June 30, 1997 in conformity with generally accepted
accounting principles.
Vienna, Virginia
August 15, 1997
F-2
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................................... $ 751,472 $ 576,608
Accounts receivable, net of allowance of $534,009 and $301,227............................... 3,012,906 4,080,216
Inventory.................................................................................... 1,133,858 768,496
Notes receivable, current portion, net of allowance of $97,281 and $136,526.................. 363,759 512,960
Prepaid expenses............................................................................. 361,646 404,300
Deferred costs............................................................................... -- 1,211,257
Deferred income taxes........................................................................ 880,000 257,000
----------- -----------
Total current assets........................................................................... 6,503,641 7,810,837
Notes receivable, noncurrent portion, net of allowance of $82,175 and $61,085.................. 1,041,607 1,360,958
Property, plant and equipment, net............................................................. 939,327 853,626
Other assets:
Franchise rights, net of accumulated amortization of $8,715,572 and $9,682,348............... 16,298,618 15,879,157
Deferred loan costs, net..................................................................... 159,804 89,292
Deposits, trademarks and other............................................................... 711,290 700,398
----------- -----------
Total other assets............................................................................. 17,169,712 16,668,847
----------- -----------
Total assets................................................................................... $25,654,287 $26,694,268
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..................................................... $ 3,383,172 $ 5,202,650
Income taxes payable......................................................................... 757,011 680,000
Current maturities, notes payable............................................................ 129,550 161,098
Current maturities, term loan................................................................ 1,600,000 7,066,667
Current maturities, revolving line-of-credit................................................. -- 1,529,301
Deferred revenue, current portion............................................................ 453,882 413,465
----------- -----------
Total current liabilities...................................................................... 6,323,615 15,053,181
Notes payable, net of current portion.......................................................... 645,413 622,308
Term loan, net of current portion.............................................................. 4,533,333 --
Revolving line-of-credit, net of current portion............................................... 1,554,108 --
Deferred revenue, net of current portion....................................................... 997,308 529,837
Lease deposits................................................................................. 194,557 194,557
----------- -----------
Total liabilities.............................................................................. 14,248,334 16,399,883
Stockholder's equity:
Common stock, $.01 par; 2,600,000 shares authorized; 1,562,393 and 1,580,740 shares issued;
1,562,393 and 1,333,700 shares outstanding, in 1996 and 1997, respectively................ 15,624 15,807
Additional paid-in capital................................................................... 8,302,396 8,407,722
Retained earnings............................................................................ 3,087,933 4,342,813
Treasury stock, at cost; 247,040 shares in 1997.............................................. -- (2,471,957)
----------- -----------
Total stockholders' equity..................................................................... 11,405,953 10,294,385
----------- -----------
Total liabilities and stockholder's equity..................................................... $25,654,287 $26,694,268
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales:
Royalties..................................................................... $12,845,393 $12,998,505 $13,755,440
Equipment and parts........................................................... 12,178,256 12,203,414 11,852,062
Franchise..................................................................... 1,246,737 1,316,055 1,551,097
Other......................................................................... 308,569 216,340 298,332
----------- ----------- -----------
Total sales..................................................................... 26,578,955 26,734,314 27,456,931
Direct cost:
Royalty....................................................................... 7,240,287 7,211,061 7,788,266
Equipment and parts........................................................... 11,310,372 11,280,924 11,085,165
Franchise..................................................................... 1,082,280 1,063,895 1,239,444
Other......................................................................... 409,046 152,195 178,299
----------- ----------- -----------
Total direct cost............................................................... 20,041,985 19,708,075 20,291,174
----------- ----------- -----------
Contribution.................................................................... 6,536,970 7,026,239 7,165,757
General and administrative expense.............................................. 2,887,747 2,276,124 2,521,775
Amortization of franchise rights................................................ 1,015,580 964,311 968,072
Company-owned stores held for resale (loss)..................................... (351,537) (454,668) 29,194
----------- ----------- -----------
Operating income................................................................ 2,282,106 3,331,136 3,705,104
Other income (expense):
Interest expense.............................................................. (1,230,015) (1,031,705) (1,056,597)
Interest income............................................................... 92,477 67,353 147,638
Other......................................................................... (1,297,352) (118,798) (270,405)
----------- ----------- -----------
(2,434,890) (1,083,150) (1,179,364)
Income (loss) before income tax expense and extraordinary gain.................. (152,784) 2,247,986 2,525,740
Provision for income taxes...................................................... 71,743 1,177,810 1,270,860
----------- ----------- -----------
Income (loss) before extraordinary gain......................................... (224,527) 1,070,176 1,254,880
Extraordinary gain on repurchase of stock warrants related to debt (net of
applicable income taxes of $156,000).......................................... 157,328 -- --
----------- ----------- -----------
Net income (loss)............................................................... $ (67,199) $ 1,070,176 $ 1,254,880
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS STOCK TOTAL
--------- ------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994................... 1,414,418 $14,144 $7,160,983 $2,084,956 -- $ 9,260,083
Net loss................................. -- -- -- (67,199) -- (67,199)
--------- ------- ---------- ---------- ----------- -----------
Balance at June 30, 1995................... 1,414,418 14,144 7,160,983 2,017,757 -- 9,192,884
Private placement of stock............... 147,975 1,480 1,141,413 -- -- 1,142,893
Net income............................... -- -- -- 1,070,176 -- 1,070,176
--------- ------- ---------- ---------- ----------- -----------
Balance at June 30, 1996................... 1,562,393 15,624 8,302,396 3,087,933 -- 11,405,953
Issuances of common stock................ 18,347 183 105,326 -- -- 105,509
Treasury stock purchase.................. (247,040) -- -- -- (2,471,957) (2,471,957)
Net income............................... -- -- -- 1,254,880 -- 1,254,880
--------- ------- ---------- ---------- ----------- -----------
Balance at June 30, 1997................... 1,333,700 $15,807 $8,407,722 $4,342,813 $(2,471,957) $10,294,385
--------- ------- ---------- ---------- ----------- -----------
--------- ------- ---------- ---------- ----------- -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................................................ $ (67,199) $ 1,070,176 $ 1,254,880
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, amortization and interest expense................................ 1,441,923 1,234,705 1,251,462
Loss on disposal of property, plant, and equipment............................. -- 306,705 207,256
Extraordinary gain on repurchase of stock warrants............................. (313,828) -- --
Deferred income taxes.......................................................... (261,000) (67,000) 623,000
Changes in operating assets and liabilities:
Accounts and notes receivable............................................... (64,097) (768,799) (1,535,862)
Inventory................................................................... 49,706 (43,044) 365,362
Prepaid expenses, recoverable income taxes, deposits and other.............. (157,981) (72,420) (1,193,484)
Accounts payable and accrued liabilities.................................... 1,442,618 (1,349,981) 1,819,478
Income taxes payable........................................................ (345,576) 701,363 (77,011)
Deferred revenue, net....................................................... 224,524 (549,833) (507,888)
----------- ----------- -----------
Net cash provided by operating activities........................................ 1,949,090 461,872 2,207,193
INVESTING ACTIVITIES:
Purchases of property and equipment............................................ (504,520) (358,392) (296,088)
Purchase of franchise agreements and rights.................................... -- (754,545) (545,730)
Purchase of trademarks......................................................... -- (62,949) (49,535)
----------- ----------- -----------
Net cash used in investing activities............................................ (504,520) (1,175,886) (891,353)
FINANCING ACTIVITIES:
Repurchase of stock warrants................................................... (750,000) -- --
Treasury stock purchases....................................................... -- -- (2,471,957)
Issuance of common stock....................................................... -- 1,142,893 105,509
Loan acquisition costs......................................................... (220,603) (39,374) (41,226)
Proceeds from term loan and line of credit..................................... 8,408,058 -- 2,816,667
Proceeds from notes payable.................................................... 472,626 1,593,808 101,642
Repayments of long-term debt and notes payable................................. (9,761,636) (1,764,374) (2,001,339)
----------- ----------- -----------
Net cash (used in) provided by financing activities.............................. (1,851,555) 932,953 (1,490,704)
----------- ----------- -----------
Net change in cash and cash equivalents.......................................... (406,985) 218,939 (174,864)
Cash and cash equivalents at beginning of year................................... 939,518 532,533 751,472
----------- ----------- -----------
Cash and cash equivalents at end of year......................................... $ 532,533 $ 751,472 $ 576,608
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
WE JAC Corporation (WE JAC or the Company) is a Delaware Corporation that
was incorporated on December 23, 1986. The Company commenced operations when it
acquired all of the stock of Precision Tune Auto Care, Inc., a Virginia
corporation, on April 30, 1987. On April 30, 1987, WE JAC Acquisitions, Inc., a
wholly owned subsidiary of WE JAC, acquired all of the stock of Precision Tune
Auto Care, Inc. (Precision Tune Auto Care), and the two companies were merged.
Precision Tune Auto Care was the surviving company and became a wholly owned
subsidiary of WE JAC. The acquisition was accounted for by WE JAC as a purchase
for financial accounting purposes, and, accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed on the basis of
estimated fair values. On July 25, 1989, Precision Tune Auto Care acquired
National 60 Minute Tune, Inc. (N60MT).
NATURE OF OPERATIONS
Precision Tune Auto Care, Inc. is an international franchising company
which sells individual franchises for automotive service businesses known as
Precision Tune Auto Care centers, as well as development rights for multiple
franchises in specific geographic areas. A Precision Tune Auto Care center is a
retail service business specializing in automotive maintenance services,
including engine performance, oil change and lubrication, and brake services.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
WE JAC Corporation and its wholly owned subsidiary, Precision Tune Auto Care.
During 1996, Precision Tune Auto Care operated thirteen Precision Tune Auto Care
centers. As of June 30, 1996, the Company had divested ten of these centers,
leaving three still in operation. During the year ended June 30, 1997, the
Company divested the three remaining Precision Tune Auto Care centers. Revenues
and expenses from the company-owned centers are included as a net amount in the
consolidated statements of operations and are listed in detail in the table
below. All significant intercompany transactions and balances have been
eliminated in consolidation.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue........................................................................... $ 3,597,772 $ 2,980,153 $ 195,866
Expense........................................................................... (3,949,309) (3,434,821) (166,672)
----------- ----------- -----------
$ (351,537) $ (454,668) $ 29,194
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
REVENUE RECOGNITION
The Company recognizes revenue from the sale of a franchise as certain
obligations to the franchisee are met.
The Company, through its Precision Tune Auto Care subsidiary, enters into
domestic Area Subfranchise Agreements and international Master License
Agreements (Agreements) which grant the subfranchisor and master licensor,
respectively, the right to sell, on the Company's behalf, Precision Tune Auto
Care franchises (PTAC franchise) within a specific geographic region. Revenue
from the sale of area subfranchise rights is deferred and recognized ratably
over the terms of the Agreement, generally 10 years, because the Company's
obligation under the Agreement does not depend significantly upon the number of
PTAC franchises opened. Revenue from the sale of master license rights is
recognized upon signing the Agreement as the Company is not required to support
the international PTAC franchises as there is no contractual agreement between
the Company and the international PTAC franchisees.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of highly liquid instruments with
original maturities of three months or less.
F-7
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
INVENTORY
Inventory consists primarily of auto parts and is priced at the lower of
cost or market, using the moving-average cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the related assets. The
estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Building and leasehold improvements.................................... 7-15
Furniture and fixtures................................................. 3-8
Equipment.............................................................. 3-8
Other items............................................................ 3-7
</TABLE>
FRANCHISE RIGHTS
Purchase price in excess of the fair market value of net assets acquired is
included in franchise agreements and is amortized principally over 30 years on a
straight-line basis.
The Company occasionally repurchases franchise rights. The decision to
repurchase is made solely at management's discretion and is not a contractual
obligation. The Company also will periodically obtain possession of franchise
rights by exchanging notes payable or exercising rights outlined in the
franchise agreements. The Company's policy is to capitalize the rights
reacquired at the lower of the cost of reacquisition or fair market value. The
Company amortizes the repurchased franchise rights over the remaining terms of
the franchise agreements using a straight-line basis.
DEFERRED LOAN COSTS
Deferred loan costs are amortized and charged to interest expense over the
initial term of the loan.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under the
liability method, deferred income tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities. A valuation allowance is established, if necessary, to reduce
deferred income tax assets to the amount expected to be realized. For financial
reporting purposes, the Company computes its federal and state income taxes on a
separate company basis.
STOCK BASED COMPENSATION
On July 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). The
provisions of SFAS No. 123 allow companies to either expense the estimated fair
value of stock options or to continue to follow the intrinsic value method set
forth in APB Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25)
but disclose the pro forma effects on net income (loss) had the fair value of
the options been expensed. The Company has elected to continue to apply APB 25
in accounting for its stock option incentive plans. (See Note 8).
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets or other assets for impairment
periodically. In completing this evaluation, the estimated future undiscounted
cash flows associated with the asset is compared to the asset's carrying amount
to determine if a write-down is required. If a write-down is required, the
Company prepares a discounted cash flow analysis to determine the amount of the
write-down.
F-8
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of trade accounts receivable and
notes receivable. The Company periodically performs credit evaluations of
customers' financial condition.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CHANGE IN FISCAL YEAR END
In February 1996, the Board of Directors approved a change in the Company's
fiscal year end from April 30 to June 30. All years presented reflect this
change.
2. DEFERRED COSTS
During the latter part of 1997, the Company incurred $1,221,116 in expenses
related to its efforts to raise permanent equity capital. These costs are being
deferred and will be deducted from the equity proceeds once the transaction is
completed, or the Company's portion will be charged to operations if the
Company's initial public offering (IPO) is not completed. If the IPO is not
completed, several other companies that are a party to a merger and exchange
offer transaction that would occur simultaneously with the IPO, have agreed to
reimburse the Company for their portion of the costs, estimated at 45% of the
total. At June 30, 1997, most of these costs are unpaid and are included in
accounts payable and accrued liabilities.
3. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Land...................................................................... $ 57,865 $ 57,865
Building and leasehold improvements....................................... 131,552 128,551
Furniture and fixtures.................................................... 561,159 829,256
Equipment................................................................. 797,463 561,831
Other items............................................................... 51,866 36,631
---------- ----------
1,599,905 1,614,134
Accumulated Depreciation.................................................. (660,578) (760,508)
---------- ----------
Property, plant and equipment, net........................................ $ 939,327 $ 853,626
---------- ----------
---------- ----------
</TABLE>
During the years ended June 30, 1995, 1996 and 1997, the Company's
depreciation expense was $208,000, $217,000, and $175,000 respectively.
4. INCOME TAXES
Income tax expense consists of the following items:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Current tax expense - federal and state...................... $ 488,743 $1,244,810 $ 647,860
Deferred tax expense (benefit) - federal and state........... (261,000) (67,000) 623,000
--------- ---------- ----------
Total income tax expense..................................... $ 227,743 $1,177,810 $1,270,860
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
F-9
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES -- Continued
The effective tax rate differed from the statutory rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------
1995 1996 1997
---- ------ ------
<S> <C> <C> <C>
Statutory federal rate.......................................................... 34% 34% 34%
Franchise agreement amortization................................................ 147 11 11
State taxes..................................................................... 22 5 5
Permanent differences due to purchase accounting................................ (32) -- --
Other........................................................................... (29) 2 --
--- ----- -----
Effective tax rate.............................................................. 142% 52% 50%
--- ----- -----
--- ----- -----
</TABLE>
The percentages for 1995 are distorted due to the small pretax operating
loss and the impact of the extraordinary gain on repurchase of stock warrants
related to debt.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. The significant temporary differences result from
different revenue recognition policies and amortization methods. Significant
components of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1996 1997
---------- --------
<S> <C> <C>
Deferred tax liabilities:
Area rights................................................................. $ 153,585 $252,342
Expense related to acquisition.............................................. 135,151 153,537
Royalties................................................................... 44,000 44,000
Other, net.................................................................. -- 14,000
---------- --------
Total deferred tax liabilities.............................................. 332,736 463,879
Deferred tax assets:
Reserve for bad debts....................................................... 267,620 127,424
Deferred revenue............................................................ 896,567 593,455
Other, net.................................................................. 96,184 --
---------- --------
Total deferred tax assets................................................... 1,260,371 720,879
Valuation allowance for deferred tax assets................................. (47,635) --
---------- --------
Deferred tax assets, net of allowance....................................... 1,212,736 720,879
---------- --------
Net deferred tax assets..................................................... $ 880,000 $257,000
---------- --------
---------- --------
</TABLE>
During the years ended June 30, 1995, 1996 and 1997, respectively, the
Company paid income taxes of $771,000 and $150,000 and $756,000, respectively.
5. TERM LOAN AND REVOLVING LINE OF CREDIT
The Company has a $10,500,000 credit facility (the Loan Agreement or
Facility) with its primary lender (the Lender) which consists of an $8,000,000
term loan and a $2,500,000 revolving line of credit and is secured by all the
assets of the Company. The term loan accrues interest, payable monthly,
calculated daily, at a rate equal to the index rate (which approximates the
prime rate) plus 2% (10.25% and 10.50% at June 30, 1996 and June 30, 1997,
respectively). On January 27, 1997, the third amendment (the Amendment) to the
Loan Agreement was executed which provided, among other things, an increase in
the term loan of approximately $2,700,000. The Amendment required the proceeds
from the term loan increase to be used to repurchase shares of the Company's
common stock and warrants from a related party (See Note 9) and to satisfy
working capital requirements. As consideration for the term loan increase, the
Company granted warrants to the Lender and another bank (See Note 8). The
$8,000,000 term loan is payable in monthly installments of approximately
$133,000 with the
F-10
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. TERM LOAN AND REVOLVING LINE OF CREDIT -- Continued
balance due on April 1, 1998. At June 30, 1996 and 1997, approximately
$6,133,000 and $7,067,000, respectively, was outstanding under the term loan.
The Company has begun discussions with its lender and expects to negotiate an
extension of the Facility to April 1, 2001.
The revolving line of credit accrues interest, payable monthly, at the
lender's prime rate plus 1 1/2%. Collection of the Company's accounts receivable
and proceeds from other Collateral, as defined in the Loan Agreement, are
applied daily to reduce principal amounts outstanding under the revolving line
of credit. Unpaid principal and interest outstanding on the revolving line of
credit is payable April 1, 1998. At June 30, 1996 and 1997, approximately
$1,554,000 and $1,529,000, respectively, were outstanding under the revolving
line of credit.
The Loan Agreement contains affirmative, negative and financial covenants.
Among these covenants is a requirement to submit additional payments if "excess
cash flow," as defined in the lending agreement, is generated by the Company. As
of June 30, 1997, the Company was not in compliance with a provision of the Loan
Agreement which restricts capital expenditures. The Lender subsequently agreed
to amend the terms of the capital requirements covenant for the year ended June
30, 1997.
During the years ended June 30, 1995, 1996 and 1997, the Company paid
interest of approximately $1,166,000, $875,000 and $845,000, respectively.
6. NOTES PAYABLE
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
--------- ----------
<S> <C> <C>
Various notes and obligations payable in monthly installments. Notes
payable to banks, principal and interest payable in monthly and quarterly
installments at interest rates ranging from 10% to prime plus 3%,
collateralized by liens on vehicles and equipment........................ $ 774,963 $ 783,406
Less: current maturities................................................... (129,550) (161,098)
--------- ----------
Long-term portion.......................................................... $ 645,413 $ 622,308
--------- ----------
--------- ----------
</TABLE>
7. LEASE COMMITMENTS
At June 30, 1997, the Company has lease commitments for office space, a
training center, and a number of service center locations. These leases expire
between 1997 and 2008, with renewal options in certain of the leases. Most of
the service center location leases are subleased to franchisees. Rent expense
for office space and warehouse facilities of approximately $300,000, $308,000
and $326,000 is included in operating expenses for the year ended June 30, 1995,
1996 and 1997, respectively. Rent expense for service center locations of
approximately $465,000, $488,000 and $100,000 is recorded net of sublease income
of $114,000, $288,000 and $912,000, for the years ended June 30, 1995, 1996 and
1997, respectively.
F-11
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LEASE COMMITMENTS -- Continued
The future minimum lease payments and related sublease payments for leases
with terms in excess of one year as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
FUTURE MINIMUM SUBLEASE
LEASE PAYMENTS INCOME NET
-------------- ---------- ----------
<S> <C> <C> <C>
1998.................................................... $1,104,000 $ 820,000 $ 284,000
1999.................................................... 899,000 535,000 364,000
2000.................................................... 743,000 371,000 372,000
2001.................................................... 663,000 353,000 310,000
2002.................................................... 617,000 353,000 264,000
Thereafter.............................................. 1,176,000 1,148,000 28,000
-------------- ---------- ----------
$5,202,000 $3,580,000 $1,622,000
-------------- ---------- ----------
-------------- ---------- ----------
</TABLE>
The above minimum lease payment schedule includes lease payments and
sublease income for N60MT and PTW, Inc. For a majority of the N60MT leases
referred to above, the sublessor remits payments directly to the landlord.
8. RELATED PARTY TRANSACTIONS
Pursuant to a Management Agreement approved by the Board of Directors of
Precision Tune Advertising Fund, Inc. (P.T.A.F., Inc.) (which includes both
franchisees and Company personnel), the Company manages the operation of
P.T.A.F., Inc. - the national advertising fund for Precision Tune Auto Care
centers. The Company charged P.T.A.F., Inc. $384,000, $384,000 and $416,000 for
administrative and other expenses incurred on behalf of P.T.A.F., Inc., during
the years ended June 30, 1995, 1996, and 1997, respectively. Based on the timing
of receipts and disbursements, it is common for amounts to be due to and from
the Company and P.T.A.F., Inc. At June 30, 1996 and 1997, the net amounts due
from P.T.A.F., Inc. were $45,000 and $44,000, respectively. These amounts are
included in accounts receivable.
Mr. John F. Ripley loaned the Company the sum of $250,000 on June 10, 1996,
in connection with the Company's acquisition of Accutune. The funds were loaned
to the Company at an interest rate of prime plus 2%. The entire loan was repaid
by the Company to Mr. Ripley on June 17, 1996, including interest of $498.26.
9. STOCKHOLDERS' EQUITY
COMMON STOCK
During the year ended June 30, 1996, the Company completed a private
placement of 147,975 shares of Common Stock and received proceeds of
approximately $1,143,000, net of direct expenses of approximately $41,000.
TREASURY STOCK
In January 1997, the Company purchased from a former officer of the Company
and another company 247,040 shares of outstanding common stock and options to
purchase another 84,865 shares of common stock for a total price of
approximately $2,472,000. The transaction was recorded as treasury stock at
cost. To finance the purchase, the Company borrowed from its term loan in
January 1997. (See Note 4).
COMMON STOCK OPTION PLANS
In February 1996, the Company adopted the Executive Stock Option Plan under
which 175,000 shares of WE JAC Corporation common stock were reserved for the
exercise of options granted to employees or directors of the Company. The Board
of Directors determines the recipients of the award to be granted, exercise
price, vesting period, and number of shares underlying the options.
The Company applies APB 25 in accounting for its Stock Option Plan, and,
accordingly, recognizes compensation expense for any difference between the fair
value of the underlying common stock and the grant price of the option at the
F-12
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY -- Continued
date of grant. The effect of applying SFAS No. 123 on 1996 and 1997 net income
and pro forma net loss as stated below is not necessarily representative of the
effects on reported net income or loss for future years due to, among other
things, (1) the vesting period of the stock options, and (2) the fair market
value of additional stock option grants in future years. Had compensation
expense been determined based upon the fair market value at the grant date for
awards under the plans consistent with the methodology prescribed under SFAS No.
123, the Company's net income in 1996 and 1997 would have been approximately
$1,037,000 and $1,140,000, respectively. The fair value of the options granted
during 1996 and 1997 are estimated as $2.02 and $2.59 per share, respectively,
on the date of grant using the minimum value method with the following
assumptions: dividend yield 0%, risk-free interest rate of 6%, expected life of
5 years, and a 10 year contractual life.
Additional information with respect to Stock Option activity is summarized
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------------ ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year............................... 84,865 $ 2.23 84,865 $2.23 315,991 $ 6.31
Options granted.............................................. -- -- 231,126 7.80 213,974 10.00
Options exercised............................................ -- -- -- -- -- --
Options canceled or expired.................................. -- -- -- -- (97,365) 3.00
Outstanding, end of year..................................... 84,865 2.23 315,991 6.31 432,600 9.79
------ -------- ------- ------- ------- --------
Options exercisable.......................................... 84,865 $ 2.23 87,865 $2.43 111,875 $ 8.52
------ -------- ------- ------- ------- --------
------ -------- ------- ------- ------- --------
</TABLE>
The options outstanding at June 30, 1997 range in price from $7.05 to
$10.00 and have a weighted average remaining contractual life of 9.21 years.
During July 1995, the Board of Directors granted the current President of
the Company an option to purchase 80,338 shares of WE JAC Corporation common
stock at $7.05 per share. The number of shares shall increase proportionally in
order that the option continues to equal five percent of the Company's fully
diluted, issued and outstanding common stock less shares pursuant to employee
stock option and stock purchase plans. The per share price of all additional
options are at the then fair market value of the Company's common stock. At June
30, 1997, additional options totaling 12,762 have been granted. The option
expires ten years from the date of the grant. The options vest in three equal
annual installments commencing one year from the date of the grant.
On October 23, 1996, the Board of Directors granted the current President
of the Company an option to purchase 100,000 shares of WE JAC at $10.00 per
share. One half of the options vest upon the earlier of (1) the first
anniversary date of an IPO, or (2) the time following an IPO when any of the
stock of the Company held by the directors and executive officers may be sold.
The remaining 50,000 options vest upon the earlier of (1) the second anniversary
date of an IPO, or (2) the time following an IPO when any of the stock of the
Company held by the directors and executive officers may be sold.
In November 1995 and 1996, the Company offered an Employee Stock Purchase
Plan (the Plan) to encourage and facilitate the purchase of Common Stock by
employees of the Company. Under the Plan, employees of the Company who elect to
participate may purchase Common Stock at 85% of the fair market value of the
Common Stock on the commencement date of each offering period. The Plan permits
an enrolled employee to make contributions through the use of payroll deductions
or lump sum payments. The aggregate amount of stock which may be purchased under
the November 1996 plan is 20,000 shares.
COMMON STOCK WARRANTS
In December 1995, an area subfranchisor was issued a warrant to purchase
28,000 shares of common stock at the then current fair market value of $7.07 per
share. The warrants were exercisable beginning in fiscal year 1996. The warrants
expire December 31, 2002.
F-13
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY -- Continued
On January 27, 1997, the Company granted its Lender and another bank
warrants (Warrant Shares) to purchase 12,000 and 3,000 shares, respectively, of
Common Stock at $8.00 per share. The Warrant Shares expire upon the earlier of
the fifth anniversary of an IPO or April 1, 1998. Commencing June 30, 1997, the
number of Warrant Shares will be increased by 19.3334 shares per day until the
earlier of the date of the IPO or March 31, 1998.
10. JOINT VENTURE WITH PRAXIS CORPORATION
During the year ended June 30, 1996, the Company acquired a fifteen percent
interest in a joint venture with Praxis Corporation in exchange for the area
development rights to Puerto Rico and $100,000. Revenue was recognized for the
exchange of the area development rights in the amount of $100,000. The Company
also obtained an option to acquire an additional fifteen percent interest over a
three year period for a total of $150,000. The goal of the joint venture is to
incorporate a company for the purpose of acquiring and carrying on a parts
distribution business in Latin America. The Company accounts for its investment
in the joint venture using the cost method.
11. EMPLOYEES' SAVINGS PLAN
The Company maintains a 401(k) plan under which the Company may contribute
up to 50% of an employee's first 6% of compensation deferred under the plan.
Employees become eligible after attaining the age of 21 and completing six
months of employment with the Company. The employees may elect to contribute up
to 15% of their annual compensation subject to limitations set forth in the
Internal Revenue Code. Employees' contributions vest immediately. The matching
contribution vests 20% after two years and in increments of 20% each additional
year.
12. PURCHASE OF FRANCHISE RIGHTS
During the year ended June 30, 1996, Bay Area Precision, Inc. (BAP), an
area subfranchisor of the Company, acquired all of the stock of Acc-U-Tune
(AUT). AUT owned twenty-six franchise agreements located in the San Francisco
Bay Area. The Company purchased from BAP the franchise agreements and trademarks
of AUT for $850,000. Simultaneously, the Company granted BAP additional area
franchise rights for the territory occupied by the AUT franchises. The franchise
rights acquired from BAP were valued at the acquisition price less the area
franchise rights sold. Accordingly, no revenue or expense was recognized by the
Company relating to this transaction.
13. CONTINGENCIES
The Company is involved in certain litigation and is subject to unasserted
claims arising in the ordinary course of business. In the opinion of counsel and
management, the ultimate liability, if any, arising from the settlement of these
cases will not have a material adverse effect on the financial operations or
position of the Company.
14. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT
In late August 1997, the Company plans to enter into a Plan of
Reorganization and Agreement for Share Exchange Offers (the Agreement) with
Precision Auto Care, a newly formed corporation. In connection with the
Agreement, Precision Auto Care formed a wholly-owned subsidiary, WE JAC
Acquisition Company. If the agreement is approved by the Company's stockholders,
WE JAC Acquisition Company will be merged into the Company and the Company will
become a wholly-owned subsidiary of Precision Auto Care. Each outstanding share
of the Company will be converted into a right to receive a share of Precision
Auto Care common stock.
F-14
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
We have audited the accompanying consolidated balance sheets of Miracle
Industries, Inc. (an S Corporation) as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Miracle
Industries, Inc. at December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Vienna, Virginia
March 28, 1997
F-15
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- -----------
1996 1995 1997
---------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................................. $ 83,388 $ 287,580 $ 59,786
Accounts receivable, less allowance of
$40,000 and $4,000 at December 31, 1996
and 1995, respectively........................................................ 794,377 214,911 610,218
Inventories...................................................................... 1,771,496 428,301 1,873,727
Prepaid expenses and other current assets........................................ 26,644 79,781 28,613
---------- ----------- ----------
Total current assets............................................................... 2,675,905 1,010,573 2,572,344
Investment in Indy Ventures, Ltd................................................... 251,286 -- 407,468
Property and equipment, net........................................................ 3,853,375 2,641,115 3,746,280
Notes receivable-related parties................................................... -- 150,000 --
Intangible assets, net:
Goodwill......................................................................... 1,515,664 482,294 1,626,428
Other............................................................................ 155,104 117,302 135,592
---------- ----------- ----------
1,670,768 599,596 1,762,020
---------- ----------- ----------
Total assets....................................................................... $8,451,334 $ 4,401,284 $8,488,112
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................................ $ 469,948 $ 223,000 $ 444,950
Lines of credit.................................................................. 395,766 100,000 758,652
Accounts payable, trade.......................................................... 1,198,825 140,301 794,161
Accrued taxes and other liabilities.............................................. 490,251 157,233 502,957
---------- ----------- ----------
Total current liabilities.......................................................... 2,554,790 620,534 2,500,720
Long-term debt, net of current portion............................................. 3,449,605 1,681,741 3,809,406
Minority interest in subsidiary.................................................... 174,720 -- 163,620
---------- ----------- ----------
Total liabilities.................................................................. 6,179,115 2,302,275 6,473,746
Stockholders' equity:
Common stock, no par value; 100,000 shares
authorized; 36,919 issued and 33,619
outstanding at December 31, 1996 and 33,254
issued and outstanding at December 31, 1995................................... 2,339,700 1,973,200 2,476,100
Retained earnings (deficit)...................................................... 262,519 125,809 (131,734)
---------- ----------- ----------
2,602,219 2,099,009 2,344,366
Treasury stock, at cost (3,300 shares)........................................... (330,000) -- (330,000)
---------- ----------- ----------
Total stockholders' equity......................................................... 2,272,219 2,099,009 2,014,366
---------- ----------- ----------
Total liabilities and stockholders' equity......................................... $8,451,334 $ 4,401,284 $8,488,112
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
See accompanying notes.
F-16
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1997
---------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Product and equipment sales....................................... $8,091,675 $2,259,758 $2,948,604 $2,786,412
Services.......................................................... 976,209 974,412 570,052 464,986
---------- ---------- ---------- ----------
9,067,884 3,234,170 3,518,656 3,251,398
Cost of sales and operations:
Product and equipment sales....................................... 6,879,500 1,938,418 2,494,359 2,562,722
Services.......................................................... 565,890 499,820 288,714 302,637
---------- ---------- ---------- ----------
7,445,390 2,438,238 2,783,073 2,865,359
Gross profit........................................................ 1,622,494 795,932 735,583 386,039
General and administrative expenses................................. 1,126,030 561,138 486,668 539,233
---------- ---------- ---------- ----------
Operating income (loss)............................................. 496,464 234,794 248,915 (153,194)
Other income (expense):
Other income (expense), net....................................... 26,579 3,200 (50,692) (21,372)
Interest income................................................... 13,290 10,495 -- 74
Interest expense.................................................. (341,629) (181,600) (136,378) (230,861)
---------- ---------- ---------- ----------
(301,760) (167,905) (187,070) (252,159)
---------- ---------- ---------- ----------
Income (loss) before minority interest.............................. 194,704 66,889 61,845 (405,353)
Minority interest in earnings (loss) of subsidiary.................. 24,720 -- (6,390) 11,100
---------- ---------- ---------- ----------
Net income (loss)................................................... $ 169,984 $ 66,889 $ 68,235 $ (394,253)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
F-17
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
TOTAL
NUMBER OF RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT EARNINGS STOCK EQUITY
--------- ----------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1995.............................. 32,909 $ 1,938,700 $ 58,920 $ -- $ 1,997,620
Issuance of common stock............................... 345 34,500 -- -- 34,500
Net income for 1995.................................... -- -- 66,889 -- 66,889
--------- ----------- ---------- --------- -------------
Balance at December 31, 1995............................. 33,254 1,973,200 125,809 -- 2,099,009
Issuance of common stock............................... 3,665 366,500 -- -- 366,500
Purchase of treasury stock............................. ( 3,300) -- -- (330,000) (330,000)
Net income for 1996.................................... -- -- 169,984 -- 169,984
Distributions to stockholders.......................... -- -- (33,274) -- (33,274)
--------- ----------- ---------- --------- -------------
Balance at December 31, 1996............................. 33,619 2,339,700 262,519 (330,000) 2,272,219
Net loss (unaudited)................................... -- -- (394,253) -- (394,253)
Issuance of common stock (unaudited)................... 1,364 136,400 -- -- 136,400
--------- ----------- ---------- --------- -------------
Balance at June 30, 1997 (unaudited)..................... 34,983 $ 2,476,100 $ (131,734) $(330,000) $ 2,014,366
--------- ----------- ---------- --------- -------------
--------- ----------- ---------- --------- -------------
</TABLE>
See accompanying notes.
F-18
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------ --------------------------
1996 1995 1996 1997
----------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................................................... $ 169,984 $ 66,889 $ 68,235 $(394,253)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................................. 413,275 287,431 227,508 253,004
Other.......................................................... 65,879 -- -- (11,100)
Changes in operating assets and liabilities:
Accounts receivable......................................... (466,637) 78,354 (896,220) 184,159
Inventories................................................. (460,041) (5,550) (1,136,437) (102,231)
Prepaid expenses and other current assets................... 108,668 (26,305) 38,565 (1,969)
Accounts payable............................................ 655,763 (85,621) 794,859 (391,958)
Accrued taxes and other liabilities......................... 109,186 (40,972) 410,161 --
----------- --------- ----------- -----------
Net cash provided by (used in) operating activities.............. 596,077 274,226 (493,329) (464,348)
INVESTING ACTIVITIES
Purchases of property and equipment............................ (1,521,082) (161,336) (2,090,948) (125,000)
Issuance of notes receivable -- related parties............... -- (150,000) -- --
Purchase of intangible assets.................................. -- -- -- (112,161)
Investment in Indy Ventures, Ltd............................... -- -- -- (156,182)
----------- --------- ----------- -----------
Net cash used in investing activities............................ (1,521,082) (311,336) (2,090,948) (393,343)
FINANCING ACTIVITIES
Proceeds from long-term debt................................... 2,181,947 553,662 2,242,701 400,000
Repayments of long-term debt................................... (1,464,360) (315,000) -- (65,197)
Net proceeds on Line of Credit................................. -- -- -- 362,886
Distributions to stockholders.................................. (33,274) -- -- --
Purchase of treasury stock..................................... (330,000) -- (330,000) --
Issuance of common shares...................................... 366,500 34,500 452,500 136,400
----------- --------- ----------- -----------
Net cash provided by financing activities........................ 720,813 273,162 2,365,201 834,089
----------- --------- ----------- -----------
Net (decrease) increase in cash and cash equivalents............. (204,192) 236,052 (219,076) (23,602)
Cash and cash equivalents, beginning of period................... 287,580 51,528 287,580 83,388
----------- --------- ----------- -----------
Cash and cash equivalents, end of period......................... $ 83,388 $ 287,580 $ 68,504 $ 59,786
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
In 1996, the Company purchased 90% of the capital stock of HydroSpray by
converting a $500,000 note receivable into common shares of HydroSpray. See Note
3.
See accompanying notes.
F-19
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Miracle Industries, Inc. and subsidiary (the Company) owns and operates
self-serve car wash facilities in Central Ohio, and distributes and installs car
wash equipment, chemicals and supplies nationwide.
PRINCIPALS OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its 90% owned subsidiary, HydroSpray Car Wash Equipment Co., Ltd.
(HydroSpray). HydroSpray was formed in February 1996 to acquire the assets of
Don R. Havens Company. HydroSpray manufactures and installs brushless automatic
car wash equipment. All significant intercompany accounts and transactions have
been eliminated upon consolidation.
The Company's 50% investment interest in Indy Ventures, Inc. is accounted
for using the equity method. The Company recorded an $1,800 loss related to this
investment in 1996 which is included in other expense.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of cash equivalents and trade accounts receivable. The
Company places its cash and cash equivalents with high quality financial
institutions. The Company periodically performs credit evaluations of its
customers' financial condition. Large sales of car wash equipment require
advance deposits with the balance due upon delivery and installation of the
system. A majority of the Company's revenues are to self-serve and automatic car
wash owners and operators.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market using the average
cost method and consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- --------
<S> <C> <C>
Manufacturing raw materials................................................. $ 524,239 $ 37,395
Work-in-process............................................................. 882,362 --
Finished goods.............................................................. 11,393 40,057
Equipment and supplies for resale........................................... 336,802 327,703
Other supplies.............................................................. 16,700 23,146
---------- --------
$1,771,496 $428,301
---------- --------
---------- --------
</TABLE>
REVENUE RECOGNITION
Car wash revenues are recognized at the time of service. Revenues earned on
sales of car wash equipment, chemicals and supplies are recognized upon shipment
to customers.
LONG-LIVED ASSETS, INCLUDING INTANGIBLE ASSETS AND GOODWILL
The Company periodically evaluates its long-lived assets to determine
whether any events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable. This evaluation is based on the nature of
the asset, the future economic benefit of the asset, historical or future
profitability measures and external market conditions. If factors indicate that
the carrying amount of the asset may not be recoverable, the Company would
determine whether an impairment had occurred through the use of an undiscounted
cash flow analysis. If an impairment has occurred, the Company would
F-20
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
recognize a loss for the difference between the carrying amount and the
estimated fair value of the asset. No such impairments have occurred.
Intangible assets consist of loan fees, organization costs, covenants not
to compete, original product formulas, software development and goodwill. Loan
costs are amortized over the term of the loans, which range up to ten years.
Organization costs are amortized on a straight line basis over five years.
Covenants not-to-compete are amortized on a straight line basis over five years
and are fully amortized at December 31, 1996. Original product formulas are
amortized on a straight line basis over twenty five years. Software development
costs are being amortized over three years. Goodwill, which represents the
excess of the purchase price over the fair value of tangible net assets
acquired, is amortized on a straight line basis principally over forty years.
Amortization expense of approximately $114,000 and $90,000 was recorded during
1996 and 1995, respectively.
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Loan costs................................................................ $ 112,546 $ 112,547
Organization costs........................................................ 196,271 161,330
Covenant not-to-compete................................................... 200,000 200,000
Product formulas.......................................................... 50,000 50,000
Software development...................................................... 36,800 --
Goodwill.................................................................. 1,612,620 499,500
---------- ----------
2,208,237 1,023,377
Accumulated amortization.................................................. (537,469) (423,781)
---------- ----------
$1,670,768 $ 599,596
---------- ----------
---------- ----------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
principally on a straight line basis over the estimated useful lives of the
related assets. Estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................ 40
Equipment............................................................. 10
Vehicles.............................................................. 5
Office furniture and equipment........................................ 6-10
</TABLE>
INCOME TAXES
Miracle Industries, Inc. is a subchapter S Corporation for federal income
tax purposes. HydroSpray Car Wash Equipment Company, Ltd. is a partnership for
federal income tax purposes. The tax effects of the companies' income or loss
are passed through to the shareholders or partners individually, and no income
tax expense or liability for federal income tax purposes is provided for in
these financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash, accounts receivable, accounts
payable and borrowings under its short term line of credit arrangements
approximate their fair values.
ADVERTISING COSTS
Costs of advertising are expensed when incurred and totaled approximately
$221,000 and $50,000 during the years ended December 31, 1996 and 1995,
respectively.
F-21
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect certain amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Land...................................................................... $ 646,650 $ 607,650
Buildings and improvements................................................ 2,267,290 1,242,799
Equipment................................................................. 1,330,741 1,059,162
Vehicles.................................................................. 204,810 177,779
Office furniture and equipment............................................ 187,142 126,303
---------- ----------
4,636,633 3,213,693
Accumulated depreciation.................................................. (783,258) (572,578)
---------- ----------
Net property, plant and equipment......................................... $3,853,375 $2,641,115
---------- ----------
---------- ----------
</TABLE>
Depreciation expense was approximately $206,000 and $185,000 during 1996
and 1995, respectively.
3. ACQUISITIONS
Effective February 29, 1996, the Company acquired a 90% interest in
HydroSpray. The acquisition was accounted for as a purchase and accordingly, the
purchase price has been allocated to the assets purchased, and liabilities
assumed based on the fair values at the date of acquisition. The excess purchase
price over the fair value of net assets acquired was approximately $1.1 million,
which the Company recorded as goodwill. The results of operations of the
acquired business have been consolidated with those of the Company since the
date of acquisition. The Company has the option to purchase the remaining 10% of
HydroSpray for $300,000. The net purchase price of HydroSpray was allocated as
follows:
<TABLE>
<S> <C>
Current assets......................................................................... $ 1,127,260
Property, plant and equipment.......................................................... 798,700
Goodwill............................................................................... 1,113,120
Current liabilities.................................................................... (1,044,031)
Long-term liabilities.................................................................. (1,345,049)
-----------
Net assets acquired.................................................................. $ 650,000
-----------
-----------
</TABLE>
The pro forma unaudited results of operations for the years ended December
31, 1996 and assuming the purchase of HydroSpray had been consummated as of
January 1, 1996, are as follows:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Revenues............................................ $9,308,389
----------
Net income.......................................... $ 74,728
----------
----------
</TABLE>
F-22
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. LINES OF CREDIT
Miracle Industries, Inc. has two $100,000 revolving lines of credit with a
bank. Interest accrues at prime plus one-half percent and is payable monthly.
HydroSpray has a $250,000 revolving line of credit with a bank. Interest accrues
at the prime rate and is payable monthly. The lines are collateralized by
specific assets of the Company and are guaranteed by the stockholders of the
company. At December 31, 1996 and 1995, $54,200 and $100,000 was available under
these lines.
5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- -----------
<S> <C> <C>
Note payable to a bank; monthly payments of $15,000 plus interest at prime
plus 1/2% through August 2005; collateralized by specific assets and
guaranteed by the stockholders of the company........................... $1,544,000 $1,724,000
Note payable to a bank; monthly payments of $17,267 plus interest at the
prime rate (fixed at 8.25% until March 1998) through March 2006;
collateralized by specific assets and guaranteed by the stockholders of
the company............................................................. 1,326,039 --
Note payable to a former stockholder; annual payments of $50,000 plus
interest at 6% through March 2001; collateralized by treasury stock..... 250,000 --
Notes payable to banks in monthly installments plus interest at rates
ranging from 6.75% to 10.75%; collateralized by specific assets and/or
guaranteed by stockholders of the company............................... 438,693 180,741
Notes payable to various local community and economic development
organization; monthly and semi-annual payments including interest up to
6%; some collateralized by specific assets and guaranteed by
stockholders of the company............................................. 112,324 --
Other..................................................................... 248,497 --
---------- -----------
Total long-term debt...................................................... 3,919,553 1,904,741
Less current maturities................................................... 469,948 223,000
---------- -----------
Long-term debt, net of current maturities................................. $3,449,605 $1,681,741
---------- -----------
---------- -----------
</TABLE>
Maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................ $ 469,948
1998............................................................ 471,594
1999............................................................ 429,514
2000............................................................ 417,557
2001............................................................ 537,152
Thereafter...................................................... 1,593,788
----------
$3,919,553
----------
----------
</TABLE>
Loan agreements with the Company's two major bank lenders require the
Company to maintain certain financial ratios and covenants. These ratios and
covenants include, but are not limited to, cash flow ratio, ratio of liabilities
to tangible net worth, minimum tangible net worth requirements and minimum debt
service coverage. The Company was not in compliance with certain covenants as of
December 31, 1996; however, lenders granted waivers of defaults through March
28, 1998.
The Company paid interest of approximately $342,000 and $182,000 during
1996 and 1995, respectively.
F-23
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. COMMITMENTS
At December 31, 1996, the Company has lease commitments for two car wash
facilities, vehicles and equipment. Rent expense under these operating leases of
approximately $104,000 and $36,000 is included in operating expenses for 1996
and 1995, respectively. The future minimum lease payments under non-cancelable
operating leases with terms in excess of one year as of December 31 are as
follows:
<TABLE>
<S> <C>
1997.............................................................. $111,000
1998.............................................................. 59,000
1999.............................................................. 38,000
2000.............................................................. 39,000
2001.............................................................. 40,000
Thereafter........................................................ 84,000
--------
$371,000
--------
--------
</TABLE>
The Company co-guaranteed $1,000,000 of borrowings by Indy Ventures, Ltd.
(Note 1). HydroSpray has guaranteed approximately $260,000 owed by a customer
who financed a car wash equipment package during 1996.
7. RELATED PARTY TRANSACTIONS
PREMA PROPERTIES, LTD.
The Company sold supplies and equipment of approximately $282,000 and
$100,000 during 1996 and 1995, respectively, to Prema Properties, Ltd., a car
wash operation of which three stockholders of Miracle Industries collectively
own 45%.
DON R. HAVENS COMPANY
A $50,000 note receivable from Don R. Havens Company outstanding at
December 31, 1995, was applied towards the purchase of HydroSpray in February
1996 (Note 1).
LUBE VENTURES, INC.
During 1995, the Company loaned Lube Ventures, Inc. $100,000 payable on
demand plus interest at 9%. Lube Ventures is wholly owned by three stockholders
of the Company. During 1996, the Company purchased $113,000 of equipment from
Lube Ventures and applied the total principal and interest due towards that
purchase.
NOTES RECEIVABLE
At December 31, 1995, the Company is owed $150,000 in notes receivable from
related parties.
MANAGEMENT FEE
The Company had a five-year management agreement with a related management
company jointly owned by four common stockholders that expired in August 1996.
The annual management fee was $85,000. Expense for 1996 and 1995 was $56,700 and
$85,000, respectively.
CONSULTING AGREEMENT
The Company agreed to compensate a consultant in shares of common stock
valued at $100 per share up to $30,000 per year through 1998. At December 31,
1996 and 1995, the Company accrued compensation expense of $30,000 and issued
300 shares of common stock.
During February 1997, a stockholder loaned the Company $500,000 for
short-term working capital requirements. The note accrues interest at prime plus
one-half percent ( 1/2%) and is due August 1997.
F-24
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. PROFIT SHARING PLAN
In 1996, the Company adopted a 401(k) profit sharing plan under which it
may make discretionary matching contributions. Employees become eligible after
attaining the age of 21 and completing one year of service. Employees may elect
to contribute up to 15% of their annual compensation subject to limitations set
forth by the Internal Revenue Service. Matching contributions vest after seven
years of service. The Company made a matching contribution in 1996 of
approximately $8,400.
9. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT
In August 1997, the Company plans to enter into a Plan of Reorganization
and Agreement for Share Exchange Offers (the Agreement) with Precision Auto
Care, a newly formed corporation. In connection with the Agreement, Precision
Auto Care formed a wholly-owned subsidiary, Miracle Industries Acquisition
Company. If the Agreement is approved by the Company's stockholders, Miracle
Industries Acquisition Company will be merged into the Company and the Company
will become a wholly-owned subsidiary of Precision Auto Care. Each outstanding
share of the Company's common stock will be converted into a right to receive
21.442 shares of Precision Auto Care common stock.
F-25
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE STOCKHOLDERS
OF LUBE VENTURES, INC.
We have audited the accompanying balance sheet of Lube Ventures, Inc. (an S
corporation) as of December 31, 1996 and the related statements of operations,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lube Ventures, Inc. as of
December 31, 1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Vienna, Virginia
March 21, 1997
F-26
<PAGE>
LUBE VENTURES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................................................... $ 63,143 $ 152,668
Accounts receivable............................................................................ 105,535 328,321
Inventory...................................................................................... 515,017 459,612
Prepaid expenses............................................................................... 4,817 3,132
------------ -----------
Total current assets............................................................................. 688,512 943,733
Investment in Wintersville Lube Depot, LLC....................................................... 83,375 --
Property and equipment, net...................................................................... 881,707 860,740
Intangible assets, net........................................................................... 45,489 58,510
Other............................................................................................ -- 5,808
------------ -----------
Total assets..................................................................................... $1,699,083 $ 1,868,791
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................................... $ 83,070 $ 139,425
Accrued expenses............................................................................... 48,747 27,379
Demand note payable to a related party......................................................... 60,000 40,000
Line of credit................................................................................. 250,000 250,000
Customer deposits.............................................................................. 76,133 68,347
Current portion, long term debt................................................................ 131,984 65,100
Deferred revenue............................................................................... 32,000 14,001
------------ -----------
Total current liabilities........................................................................ 681,934 604,252
Long term debt, net of current portion........................................................... 628,142 945,753
------------ -----------
Total liabilities................................................................................ 1,310,076 1,550,005
Stockholders' equity:
Common shares, $1 stated value; 850 shares authorized, 100 shares issued and outstanding....... 100 100
Additional paid-in capital..................................................................... 743,856 743,856
Accumulated deficit............................................................................ (354,949) (425,170)
------------ -----------
Total stockholders' equity....................................................................... 389,007 318,786
------------ -----------
Total liabilities and stockholders' equity....................................................... $1,699,083 $ 1,868,791
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-27
<PAGE>
LUBE VENTURES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- ---------------------------
1996 1995 1996 1997
---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Product........................................................... $1,751,272 $ 1,165,689 $ 594,733 $ 690,119
Service........................................................... 231,058 134,680 55,100 56,681
Franchise and royalty............................................. 71,004 -- 11,681 62,411
---------- ----------- ----------- -----------
2,053,334 1,300,369 661,514 809,211
Cost of goods sold.................................................. 1,497,510 1,447,283 565,732 695,363
---------- ----------- ----------- -----------
Gross profit...................................................... 555,824 (146,914) 95,782 113,848
General and administrative expenses................................. 326,560 196,451 226,698 159,899
---------- ----------- ----------- -----------
Operating income (loss)............................................. 229,264 (343,365) (130,916) (46,051)
Other income (expense):
Interest expense.................................................. (123,090) (130,059) (51,866) (50,754)
Non-operating rebates............................................. -- 36,633 -- 301
Other............................................................. 3,625 5,000 1,000 26,283
---------- ----------- ----------- -----------
(119,465) (88,426) (50,866) (24,170)
---------- ----------- ----------- -----------
Net income (loss)................................................... $ 109,799 $ (431,791) $(181,782) $ (70,221)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-28
<PAGE>
LUBE VENTURES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------
NUMBER ADDITIONAL TOTAL
OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 (unaudited).......................... 100 $100 $ 149,900 $ (32,957) $ 117,043
Net loss for 1995 (unaudited)................................. -- -- (431,791) (431,791)
Contributed capital (unaudited)............................... -- -- 593,956 -- 593,956
------ ------ ---------- ----------- -------------
Balance at December 31, 1995 (unaudited)........................ 100 100 743,856 (464,748) 279,208
Net income for 1996........................................... -- -- -- 109,799 109,799
------ ------ ---------- ----------- -------------
Balance at December 31, 1996.................................... 100 100 743,856 (354,949) 389,007
Net loss (unaudited).......................................... -- -- -- (70,221) (70,221)
------ ------ ---------- ----------- -------------
Balance at June 30, 1997 (unaudited)............................ 100 $100 $ 743,856 $(425,170) $ 318,786
------ ------ ---------- ----------- -------------
------ ------ ---------- ----------- -------------
</TABLE>
See accompanying notes.
F-29
<PAGE>
LUBE VENTURES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------- ---------------------------
1996 1995 1996 1997
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................................................... $ 109,799 $(431,791) $(181,782) $ (70,221)
Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:
Depreciation and amortization....................................... 78,740 49,043 47,184 35,375
Changes in operating assets and liabilities:
Accounts receivable.............................................. (11,437) (94,098) (11,668) (222,786)
Inventory........................................................ (91,801) 88,016 (62,819) 55,405
Accounts payable and accrued expenses............................ (12,306) 125,659 41,335 27,201
Deferred revenue................................................. 32,000 -- (17,999)
Other............................................................ 10,773 55,278 (3,038) (22,896)
--------- --------- ----------- -----------
Net cash provided by (used in) by operating activities................ 115,768 (207,893) (170,788) (215,921)
INVESTING ACTIVITIES
Purchase of property and equipment.................................. (132,416) (449,373) (43,134) (8,656)
Purchase of intangible assets....................................... -- (26,984) -- --
Purchase of investment.............................................. -- -- (60,000) --
Net sale of investment.............................................. -- -- -- 83,375
Issuance of note receivable......................................... -- -- 52,853 --
Other............................................................... 4,250 -- -- --
--------- --------- ----------- -----------
Net cash provided by (used in) investing activities................... (128,166) (476,357) (50,281) 74,719
FINANCING ACTIVITIES
Net proceeds (payments) long-term debt.............................. 115,560 (13,983) 136,308 230,727
Net proceeds (payments) of related party loans...................... (130,339) 185,000 -- --
Proceeds from contributed capital................................... -- 593,956 -- --
Payments on shareholder loans....................................... -- (15,522) 9,661 --
--------- --------- ----------- -----------
Net cash (used in) provided by financing activities................... (14,779) 749,451 145,969 230,727
--------- --------- ----------- -----------
Net (decrease) increase in cash....................................... (27,177) 65,201 (75,100) 89,525
Cash, beginning of period............................................. 90,320 25,119 90,320 63,143
--------- --------- ----------- -----------
Cash, end of period................................................... $ 63,143 $ 90,320 $ 15,220 $ 152,668
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
See accompanying notes.
F-30
<PAGE>
LUBE VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Lube Ventures, Inc. (the Company) manufactures and franchises modular
automobile oil change and lubrication facilities and owns and operates one
automobile lubrication retail site, which services individual motorists.
Franchisees purchase a modular oil change facility, pay an initial franchise
fee, pay royalty fees of 5% of monthly franchise gross revenues or a flat
monthly rate.
INVESTMENT
The Company's 50% investment interest in Wintersville Lube Depot, LLC, a
limited liability company, is accounted for using the equity method. The Company
recorded income of approximately $2,600 in 1996 related to this investment which
is included in other income. (See Note 7).
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of cash equivalents and trade accounts receivable. The
Company places its cash and cash equivalents with high quality financial
institutions. The Company periodically performs credit evaluations of its
customers' financial condition. Although customers are occasionally granted
interim credit, sales of modular units are typically paid in full upon delivery
and installation of the unit. The market for quick automobile oil change and
lubrication services is primarily individuals and businesses owning automobiles.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are priced at the lower of cost or market using the average
cost method and consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Manufacturing raw materials....................................... $131,391
Work-in-process................................................... 22,348
Finished goods.................................................... 325,851
Supplies.......................................................... 35,427
--------
$515,017
--------
--------
</TABLE>
REVENUE RECOGNITION
Revenues from automobile oil change and lubrication services are generally
paid in cash and are recognized at the time of service. Revenue earned on sales
of modular automobile lubrication units is recognized upon shipment to
customers. Revenue from the sale of a franchise is recognized once certain
obligations to the franchisee are met. Revenue from royalty fees are recognized
when received.
LONG-LIVED ASSETS
The Company periodically evaluates its long-lived assets to determine
whether any events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable. This evaluation is based on the nature of
the asset, the future economic benefit of the asset, historical or future
profitability measures and external market conditions. If factors indicate that
the carrying amount of the asset may not be recoverable, the Company would
determine whether an impairment had occurred through the use of an undiscounted
cash flow analysis. If an impairment has occurred, the Company would recognize a
loss for the difference between the carrying amount and the estimated fair value
of the asset. No such impairments have occurred.
F-31
<PAGE>
LUBE VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
INTANGIBLE ASSETS
Intangible assets consist primarily of franchise rights, facility plans and
drawings and organization costs and are amortized on a straight line basis over
five years. Amortization expense was approximately $12,000 and $10,000 during
1996 and 1995, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
principally on a straight line basis over the estimated useful lives of the
related assets. Estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................. 40
Equipment.............................................................. 10
Vehicles............................................................... 5
Office furniture and equipment......................................... 6-10
</TABLE>
INCOME TAXES
The Company is a subchapter S corporation for federal income tax purposes.
The tax effects of the Company's income or loss are passed through to the
shareholders individually, and no income tax expense or liability for federal
income tax purposes is provided for in these financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash, accounts receivable, accounts
payable and borrowings under its short term lines of credit arrangements
approximate their fair values.
ADVERTISING COSTS
Costs of advertising are expensed when incurred and totaled approximately
$78,000 and $69,000 during the years ended December 31, 1996 and 1995,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Land.................................................................................... $202,275
Buildings and improvements.............................................................. 466,140
Equipment............................................................................... 37,762
Vehicles................................................................................ 112,698
Office furniture and equipment.......................................................... 108,202
Property under capital lease............................................................ 62,971
------------
990,048
Accumulated depreciation................................................................ (108,341)
Net property, plant and equipment....................................................... $881,707
------------
------------
</TABLE>
F-32
<PAGE>
LUBE VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. PROPERTY, PLANT AND EQUIPMENT -- Continued
Depreciation expense was approximately $66,000 and $39,000 in 1996 and
1995, respectively. The cost and net book value of assets recorded under capital
leases was $62,971 at December 31, 1996. Amortization of leased assets is
included in depreciation and amortization expense.
3. FRANCHISE OBLIGATIONS, FEES AND ROYALTIES
The Company offers its modular oil change and lubrication units to
customers through ten year franchise agreements. The purchased franchise, "Lube
Depot," provides the franchisee the lubrication unit, auxiliary equipment,
training, delivery and assembly. During 1996, the Company recorded $60,600 in
franchise fee revenue and $10,400 in royalty revenue. Included in intangible
assets at December 31, 1996 are franchise organization costs of approximately
$19,000.
4. LINE OF CREDIT
The Company has a $250,000 revolving line of credit with a bank which
expires in November 1999. Interest accrues at prime plus one and one-half
percent and is payable monthly. The line is collateralized by real estate,
equipment, inventories and is guaranteed by the stockholders of the Company. At
December 31, 1996, no further borrowings were available under the line.
5. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Notes payable to banks and capital lease obligations, monthly payments ranging from $500
to $5,000 plus interest rates ranging from 9.5% to 10.75%, collateralized by specific
assets and guaranteed by the stockholders of the Company............................... $ 760,126
Less current maturities.................................................................. (131,984)
---------
Long-term debt, net of current maturities................................................ $ 628,142
---------
---------
</TABLE>
Maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997...................................................................................... $131,984
1998...................................................................................... 143,086
1999...................................................................................... 147,848
2000...................................................................................... 100,170
2001...................................................................................... 69,951
Thereafter................................................................................ 167,087
--------
$760,126
--------
--------
</TABLE>
The Company was not in compliance with covenants in certain loan agreements
with respect to approximately $328,000 of outstanding long-term debt. The
lenders involved have amended the related agreements to permit the Company to be
in compliance with such covenants through March 21, 1998.
The Company paid interest of approximately $123,000 and $130,000 during
1996 and 1995, respectively.
6. RELATED PARTY TRANSACTIONS
MIRACLE INDUSTRIES, INC.
During 1995, the Company borrowed $100,000 from Miracle Industries, Inc., a
related party through common ownership, payable on demand plus interest at 9%.
During 1996, the Company sold two modular lubrication facilities and a computer
for a total sales price of $113,000 to Miracle Industries, Inc. In lieu of cash
payment, Miracle Industries, Inc. applied the purchase price to the principal
and interest balance due.
F-33
<PAGE>
LUBE VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. RELATED PARTY TRANSACTIONS -- Continued
MIRACLE PARTNERS, INC.
During 1996, the Company borrowed $81,500 from Miracle Partners, Inc. The
balance was repaid at December 31, 1996. A $25,000 note payable to Miracle
Partners, Inc. outstanding at December 31, 1995, was repaid during 1996.
ACCOUNTS RECEIVABLE
At December 31, 1996, the Company is owed approximately $67,000 in accounts
receivable from related parties.
DEMAND NOTES PAYABLE
At December 31, 1996, the Company owes $60,000 in demand notes to related
parties.
7. SUBSEQUENT EVENTS
In February 1997, the Company sold its 50% interest in Wintersville Lube
Depot, LLC for $100,000.
Effective March 6, 1997, the Company received a guaranty loan in the amount
of $750,000 from the First National Bank of Zanesville. Seventy-five percent of
the loan is guaranteed by the U.S. Small Business Administration. The interest
rate on the guaranteed portion is 9.75% and 8.25% on the unguaranteed portion,
to be adjusted every five years. The loan will expire in March 2020. The
majority of the proceeds were used to pay off the line of credit and selected
outstanding debt balances.
8. EVENT SUBSEQUENT TO DATE OF AUDITOR'S REPORT
In August 1997, the Company plans to enter into a Plan of Reorganization
and Agreement for Share Exchange Offers (the Agreement) with Precision Auto
Care, a newly formed corporation. In connection with the Agreement, Precision
Auto Care formed a wholly-owned subsidiary, Lube Ventures Acquisition Company.
If the Agreement is approved by the Company's stockholders, Lube Ventures
Acquisition Company will be merged into the Company and the Company will become
a wholly-owned subsidiary of Precision Auto Care. Each outstanding share of the
Company's common stock will be converted into a right to receive 1,691.680
shares of Precision Auto Care common stock.
F-34
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND PARTNERS
PREMA PROPERTIES, LTD.
We have audited the accompanying balance sheet of Prema Properties, Ltd. (a
Limited Liability Company) as of December 31, 1996 and the related statements of
operations, members' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Prema Properties, Ltd., as
of December 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Vienna, Virginia
March 21, 1997
F-35
<PAGE>
PREMA PROPERTIES, LTD.
(A LIMITED LIABILITY COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash........................................................................................... $ 66,825 $ 31,960
Inventory...................................................................................... 12,000 12,000
------------ -----------
Total current assets............................................................................. 78,825 43,960
Investment....................................................................................... 67,698 67,698
Property and equipment, net...................................................................... 3,108,087 3,031,981
------------ -----------
Total assets..................................................................................... $3,254,610 $ 3,143,639
------------ -----------
------------ -----------
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Note payable, related party.................................................................... $ 448,793 $ 578,793
Accounts payable............................................................................... 85,080 48,363
Current maturities, capital lease obligations.................................................. 14,960 16,500
Current maturities, long term debt............................................................. 172,600 228,300
------------ -----------
Total current liabilities........................................................................ 721,433 871,956
Capital lease obligations, net of current maturities............................................. 114,242 105,479
Long term debt, net of current maturities........................................................ 2,226,097 2,078,544
------------ -----------
Total liabilities................................................................................ 3,061,772 3,055,979
Total members' equity............................................................................ 192,838 87,660
------------ -----------
Total liabilities and members' equity............................................................ $3,254,610 $ 3,143,639
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-36
<PAGE>
PREMA PROPERTIES, LTD.
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS AND MEMBERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30,
------------------------ --------------------------
1996 1995 1996 1997
--------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue.................................................................. $ 672,161 $ 353,854 $ 311,927 $ 389,682
Direct operating costs................................................... 608,705 234,738 374,278 323,263
--------- ----------- ----------- -----------
Gross profit........................................................... 63,456 119,116 (62,351) 66,419
General and administrative expenses...................................... 52,354 24,834 31,060 23,454
--------- ----------- ----------- -----------
Operating income (loss).................................................. 11,102 94,282 (93,411) 42,965
Other income (expense):
Interest expense....................................................... (214,143) (76,659) (77,935) (148,143)
Other income (expense)................................................. 10,578 (4,380) -- --
--------- ----------- ----------- -----------
(203,565) (81,039) (77,935) (148,143)
--------- ----------- ----------- -----------
Net (loss) income........................................................ (192,463) 13,243 (171,346) (105,178)
Members' equity, beginning of year....................................... 385,301 372,058 385,301 192,838
--------- ----------- ----------- -----------
Members' equity, end of year............................................. $ 192,838 $ 385,301 $ 213,955 $ 87,660
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-37
<PAGE>
PREMA PROPERTIES, LTD.
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1996 1995 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income.................................................. $ (192,463) $ 13,243 $ (171,346) $(105,178)
Adjustments to reconcile net (loss) income to cash
provided by operating activities:
Depreciation and amortization.................................... 164,473 86,490 65,790 101,844
Other............................................................ (10,578) 4,380 -- --
Changes in operating assets and liabilities:
Inventory..................................................... (7,500) (4,500) (12,500) --
Accounts payable.............................................. 74,623 10,457 25,629 (36,717)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities................ 28,555 110,070 (92,427) (40,051)
INVESTING ACTIVITIES
Net purchases of property and equipment.......................... (1,931,950) (122,248) (1,640,376) (25,738)
Purchase of investment........................................... -- (61,500) -- --
Other.............................................................. (23,365) -- -- --
----------- ----------- ----------- -----------
Net cash used in investing activities:............................. (1,955,315) (183,748) (1,640,376) (25,738)
FINANCING ACTIVITIES
Proceeds from notes payable...................................... 348,793 185,000 117,398 130,000
Principal payments under capital lease obligation................ (4,548) -- -- (7,223)
Proceeds from long-term debt..................................... 1,766,482 -- 1,700,954 --
Principal payments on long-term debt............................. (146,780) (83,230) -- (91,853)
----------- ----------- ----------- -----------
Net cash provided by financing activities.......................... 1,963,947 101,770 1,818,352 30,924
----------- ----------- ----------- -----------
Net increase (decrease) in cash.................................... 37,187 28,092 85,549 (34,865)
Cash, beginning of period.......................................... 29,638 1,546 29,638 66,825
----------- ----------- ----------- -----------
Cash, end of period................................................ $ 66,825 $ 29,638 $ 115,187 $ 31,960
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-38
<PAGE>
PREMA PROPERTIES, LTD.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Prema Properties, Ltd. (the Company), owns and operates self-serve car wash
facilities and a quick lube facility in eight locations throughout Ohio.
Virtually all of the Company's customers are individual automobile owners.
INVESTMENTS
The Company's 50% investment interest in Tamarack Circle Car Wash, a
general partnership, is accounted for using the equity method. The Company
recorded approximately $11,000 of income in 1996 related to this investment
which is included in other income.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories consist of chemicals and supplies and are priced at the lower
of cost or market using the average cost method.
REVENUE RECOGNITION
Car wash revenues are received in cash and recognized at the time of
service.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
principally on a straight line basis over the estimated useful lives of the
related assets. Estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements................................. 40
Equipment.................................................. 10
</TABLE>
INCOME TAXES
The Company is an Ohio limited liability corporation, and is treated as a
partnership for federal income tax purposes. The tax effect of the Company's
income or loss is passed through to the members individually and no income tax
expense or liability for federal income tax purposes is provided for in these
financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash, accounts payable and demand
notes payable approximate their fair values.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect certain amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-39
<PAGE>
PREMA PROPERTIES, LTD.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31,
1996:
<TABLE>
<S> <C>
Land........................................................................ $ 471,352
Buildings and improvements.................................................. 1,118,934
Equipment................................................................... 1,764,726
----------
3,355,012
Accumulated depreciation.................................................... (246,925)
----------
Net property, plant and equipment........................................... $3,108,087
----------
----------
</TABLE>
Depreciation expense was approximately $164,000 and $86,000 during 1996 and
1995 respectively. During 1996, the Company purchased $133,750 in office
equipment under capital leases. The net book value of these assets was $128,177
at December 31, 1996. Amortization of leased assets is included in depreciation
and amortization expense.
3. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Various notes payable to banks; monthly payments ranging from $1,200 to
$9,600, plus interest at rates ranging from 9% to 10.25%; collateralized
by real estate............................................................ $2,398,697
Less current maturities..................................................... 172,600
----------
Long-term debt, net of current maturities................................... $2,226,097
----------
----------
</TABLE>
Maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................ $ 172,600
1998................................................ 326,000
1999................................................ 514,500
2000................................................ 123,500
2001................................................ 133,900
Thereafter.......................................... 1,128,197
----------
$2,398,697
----------
----------
</TABLE>
The Company paid interest of approximately $214,000 and $77,000 during 1996
and 1995, respectively.
Included in 1996 interest expense is approximately $31,000 of interest paid
to a related party. (See Note 5).
4. CAPITAL LEASE OBLIGATIONS
The future minimum lease payments under capital lease obligations as of
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.......................................................................... $ 31,862
1998.......................................................................... 37,884
1999.......................................................................... 40,895
2000.......................................................................... 40,895
2001.......................................................................... 27,264
--------
Net minimum lease payments.................................................... 178,800
Amount representing interest.................................................. (49,598)
--------
Present value of net minimum lease payments, including current maturities of
$14,960..................................................................... $129,202
--------
--------
</TABLE>
F-40
<PAGE>
PREMA PROPERTIES, LTD.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. RELATED PARTY TRANSACTIONS
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
The Company purchased car wash supplies and equipment of approximately
$282,000 and $100,000 during 1996 and 1995, respectively from Miracle
Industries, Inc., a company with common ownership. At December 31, 1996,
accounts payable to Miracle Industries, Inc. totaled $58,436.
NOTE PAYABLE
The Company holds a note payable to Pella Company, which bears interest at
9.25% and is payable on demand. Pella Company is a related party through common
ownership, and manages the operations of the Company. The note was extended to
the Company to finance the purchase of additional property and equipment. At
December 31, 1996 the balance due was $448,793. (See Note 3).
6. EVENTS SUBSEQUENT TO DATE OF AUDITOR'S REPORT
In August 1997, the Company plans to enter into a Plan of Reorganization
and Agreement for Exchange Share Offers (the Agreement) with Precision Auto
Care, a newly formed corporation. In connection with the Agreement, Precision
Auto Care has agreed to make an offer to exchange 1,488.890 shares of Precision
Auto Care common stock for each outstanding one percentage membership interest
of the Company.
F-41
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
PRECISION AUTO CARE, INC.
We have audited the accompanying balance sheet of Precision Auto Care, Inc.
as of June 30, 1997. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Precision Auto Care, Inc. at
June 30, 1997 in conformity with generally accepted accounting principles.
Vienna, Virginia
August 15, 1997
F-42
<PAGE>
PRECISION AUTO CARE, INC.
BALANCE SHEET
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Cash............................................................................................................... $1,000
------
------
LIABILITIES AND STOCKHOLDER EQUITY
Preferred stock, $.01 par; 1,000,000 shares authorized;
0 shares issued and outstanding................................................................................. --
Common stock; $.01 par; 19,000,000 shares authorized; 100 shares issued and
outstanding..................................................................................................... 1
Additional paid-in capital......................................................................................... $ 999
------
$1,000
------
------
</TABLE>
See accompanying Notes.
F-43
<PAGE>
PRECISION AUTO CARE, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION
Precision Auto Care, Inc. was incorporated in April 1997 and has conducted
no business as of June 30, 1997 and was organized to carry out a proposed Plan
of Reorganization.
F-44
<PAGE>
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER TO SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE OFFICERS OF THE COMPANY SINCE THE DATE
HEREOF OR SINCE THE DATE AS OF WHICH INFORMATION IS SET FORTH HEREIN.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................. 3
Summary Financial Data.......................... 5
Risk Factors.................................... 7
Use of Proceeds................................. 11
Dividend Policy................................. 12
Capitalization.................................. 12
Dilution........................................ 13
Unaudited Pro Forma Combined Financial
Statements.................................... 13
Selected Financial Data......................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 19
Business........................................ 30
Management...................................... 44
Principal Shareholders.......................... 49
The Combination................................. 49
Certain Transactions............................ 54
Description of Capital Stock.................... 57
Shares Eligible for Future Sale................. 59
Underwriting.................................... 61
Legal Matters................................... 62
Experts......................................... 62
Available Information........................... 62
Index to Financial Statements................... F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,300,000 SHARES
[LOGO TO BE SUPPLIED]
COMMON STOCK
----------------
PROSPECTUS
----------------
A.G. EDWARDS & SONS, INC.
FERRIS, BAKER WATTS,
Incorporated
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses in connection with the
distribution of the securities being registered hereunder, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission Fee....................................................... $8,817
NASD filing fee.............................................................................. 3,500
Blue Sky fees and expenses................................................................... *
Printing and engraving expenses.............................................................. *
Legal fees and expenses...................................................................... *
Accounting fees and expenses................................................................. *
Transfer agent and registrar's fees.......................................................... *
Miscellaneous expenses....................................................................... *
------
Total................................................................................... $ *
------
------
</TABLE>
-------------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of the Company provide that, to the fullest
extent permitted by the Virginia Stock Corporation Act, the Company shall
indemnify current and former directors and officers of the Company against any
and all liabilities and expenses in connection with their services to the
Company in such capacities. The Articles of Incorporation further mandate that
the Company shall advance expenses to its directors and officers to the full
extent permitted by the Virginia Stock Corporation Act. The Articles of
Incorporation also permit the Company, by action of its Board of Directors, to
indemnify its employees and agents with the same scope and effect as the
foregoing indemnification of directors and officers.
The Articles of Incorporation of the Company provide that, to the fullest
extent permitted by the Virginia Stock Corporation Act, no director or officer
of the Company shall be personally liable to the Company or its stockholders for
monetary damages. Under current Virginia law, the effect of this provision is to
eliminate the rights of the Company and its stockholders to recover monetary
damages against a director or officer except for the director or officer's (a)
willful misconduct, (b) knowing violation of any criminal law or of any federal
or state securities law, including (without limitation), any claim of unlawful
insider trading or manipulation of the market for any security, or (c) payment
of unlawful distributions, including dividends and stock redemptions.
The Articles of Incorporation of the Company authorize the Company to
purchase liability insurance for its officers and directors and the Company
currently maintains such insurance coverage on behalf of its officers and
directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the organization of the Company, 100 shares of Common
Stock were issued to WE JAC Corporation for a purchase price of $1,000 in
transactions which were exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section
4(2) thereof. WE JAC Corporation represented that it was acquiring such shares
for investment purposes only and not with a view to distribution within the
meaning of the Securities Act. The stock certificates representing such shares
bear restrictive legends. Such shares will be canceled in connection with the
closing of the Mergers.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement among Precision Auto Care, Inc. (the "Company"), A.G. Edwards & Sons, Inc.
and Ferris, Baker Watts, Incorporated.*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Plan of Reorganization and Agreement for Combination of Businesses dated as of August 27, 1997 by and
among the Company, WE JAC Corporation, Miracle Industries, Inc., Lube Ventures, Inc., Rocky Mountain
Ventures, Inc., Rocky Mountain Ventures II, Inc., Miracle Partners, Inc., Prema Properties, LLC, Ralston
Car Wash, LLC and KBG LLC.
3.1 Articles of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1 Form of stock certificate.*
5 Opinion of Miles & Stockbridge, a Professional Corporation.*
10.1 WE JAC Corporation 1996 Stock Option Plan.
10.2 WE JAC Corporation 1997 Employee Stock Purchase Plan.
10.3 Precision Auto Care 1997 Stock Option Plan.
10.4 Employment Agreement between the Company and John F. Ripley*.
10.5 Employment Agreement between the Company and James A. Hay.
10.6 Employment Agreement between the Company and William Klumb*.
10.7 Employment Agreement between the Company and Arnold Janofsky.
10.8 Employment Agreement between the Company and Grant G. Nicolai.
10.9 Employment Agreement between the Company and Peter Kendrick.
10.10 Consulting Agreement between the Company and Ernest Malas.*
21 Subsidiaries of the Company.*
23.1 Consents of Ernst & Young LLP, independent auditors.
23.2 Consent of Miles & Stockbridge, a Professional Corporation (included in the opinion filed as Exhibit 5).*
24 Powers of Attorney.
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions of its
Certificate of Incorporation, Bylaws or laws of the Commonwealth of Virginia or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration in reliance upon Rule 403A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baltimore, State of
Maryland, on August 27, 1997.
PRECISION AUTO CARE, INC.
*
By:___________________________________
JOHN F. RIPLEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on this 27th day of August, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director August 27, 1997
- ---------------------
LYNN E. CARUTHERS
* President and Chief Executive Officer and August 27, 1997
- --------------------- Director
JOHN F. RIPLEY
/s/ Peter Kendrick Senior Vice President and Chief Financial August 27, 1997
- --------------------- Officer (Principal Financial and
PETER KENDRICK Accounting Officer)
* Director August 27, 1997
- ---------------------
WOODLEY A. ALLEN
* Director August 27, 1997
- ---------------------
GEORGE BAVELIS
* Director August 27, 1997
- ---------------------
BERNARD H. CLINEBURG
* Director August 27, 1997
- ---------------------
CLARENCE E. DEAL
* Director August 27, 1997
- ---------------------
EFFIE ELIOPULOS
* Director August 27, 1997
- ---------------------
BASSAM IBRAHIM
* Director August 27, 1997
- ---------------------
ARTHUR KELLAR
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director August 27, 1997
- ---------------------
RICHARD O. JOHNSON
* Director August 27, 1997
- ---------------------
HARRY G. PAPPAS, JR.
* Director August 27, 1997
- ---------------------
GERALD ZAMENSKY
* Director August 27, 1997
- ---------------------
WILLIAM R. KLUMB
*By:/s/ Arnold Janofsky
- -----------------------
ARNOLD JANOFSKY
ATTORNEY-IN-FACT
</TABLE>
II-4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLAN OF REORGANIZATION
----------------------
AND
---
AGREEMENT FOR SHARE EXCHANGE OFFERS
-----------------------------------
Dated as of August [27], 1997
by and among
PRECISION AUTO CARE, INC.
a Virginia corporation
(the "Holding Company")
WE JAC CORPORATION MIRACLE INDUSTRIES, INC.
a Delaware corporation an Ohio corporation
("WEJAC") ("Miracle Industries")
LUBE VENTURES, INC. MIRACLE PARTNERS, INC.
a Delaware corporation a Delaware corporation
("Lube Ventures") ("Miracle Partners")
ROCKY MOUNTAIN VENTURES, INC. ROCKY MOUNTAIN VENTURES II, INC.
a Colorado corporation a Colorado corporation
("Rocky Mountain I") ("Rocky Mountain II")
PREMA PROPERTIES, LTD. RALSTON CAR WASH, LTD.
an Ohio limited liability company a Colorado limited liability company
("Prema Properties") ("Ralston Car Wash")
and
THE KARL BYRER GROUP, INC.
a Colorado corporation
("KBG")
<PAGE>
TABLE OF CONTENTS
-----------------
i
<PAGE>
SCHEDULES
- ---------
Schedule 5.5(j) Sales of Assets Outside of Ordinary Course
Schedule 5.14 Option Property of Prema Property
Schedule 5.15 Option Property of Lube Ventures
Schedule 5.16 Option Property of Miracle Partners
Schedule 13.5 Encumbrances against Software
Schedule 19.1 Debt Level Guarantees
Schedule 22.1 WE JAC Options and Warrants
Schedule 23.1 Debt to be Discharged
EXHIBITS
- --------
Exhibit A Articles of Incorporation
Exhibit B By Laws
Exhibit C Non-Compete Agreements
Exhibit D Tax Opinion
Exhibit E Financial Statements
ii
<PAGE>
PLAN OF REORGANIZATION
----------------------
AND
---
AGREEMENT FOR SHARE EXCHANGE OFFERS
-----------------------------------
THIS PLAN OF REORGANIZATION AND AGREEMENT FOR SHARE EXCHANGE OFFERS
(together with the Schedules and Exhibits hereto, hereinafter referred to as
this "Agreement") is made and entered into as of the 27th day of August, 1997,
by and among PRECISION AUTO CARE, INC., a Virginia corporation (the "Holding
Company"), WE JAC CORPORATION, a Delaware corporation, having its principal
place of business at 748 Miller Drive, S.E., Leesburg, Virginia ("WE JAC"),
MIRACLE INDUSTRIES, INC., an Ohio corporation having its principal place of
business at 1458 Park Avenue West, Mansfield, Ohio 44906 ("Miracle Industries"),
LUBE VENTURES, INC., a Delaware corporation having its principal place of
business at 1237 West Fourth Street, Mansfield, Ohio 44906 ("Lube Ventures"),
MIRACLE PARTNERS, INC., a Delaware corporation having its principal place of
business at 1237 West Fourth Street, Mansfield, Ohio 44906 ("Miracle Partners"),
PREMA PROPERTIES, LTD., an Ohio limited liability company having its principal
place of business at 52 East 15th Avenue, Columbus, Ohio 43201 ("Prema
Properties"), ROCKY MOUNTAIN VENTURES, INC., a Colorado corporation having its
principal place of business at 15200 East Girard Avenue, Suite 2700, Aurora,
Colorado 80014-5039 ("Rocky Mountain I"), ROCKY MOUNTAIN VENTURES II, INC., a
Colorado corporation having its principal place of business at 15200 East Girard
Avenue, Suite 2700, Aurora, Colorado 80014-5039 ("Rocky Mountain II"), RALSTON
CAR WASH, LTD., a Colorado limited liability company having its principal place
of business at 15200 East Girard Avenue, Suite 2700, Aurora, Colorado 80014-5039
("Ralston Car Wash"), and THE KARL BYRER GROUP, INC., a Colorado corporation
having its principal place of business at 2171 S. Trenton Way #215, Denver,
Colorado 80231 ("KBG").
Certain capitalized terms used herein without definition shall have the
meanings given to such terms in Section 25.10 hereof.
EXPLANATORY STATEMENT:
---------------------
1. WE JAC is the holder, directly and indirectly, of all of the issued
and outstanding capital stock of, among other corporations, Precision Tune Auto
Care, Inc., a Virginia corporation, which are engaged in the businesses of (i)
owning and operating retail centers devoted to providing automotive services for
automobiles and light trucks and (ii) franchising a system of operating such
retail centers; and
2. Miracle Industries is engaged in the businesses of (i) owning and
operating a chain of car washes in the central Ohio area and (ii) manufacturing
chemicals for use by operators of car wash businesses, and is the holder of a
90% membership interest in Hydro-Spray and a 50% membership interest in Indy
Ventures; and Hydro-Spray is engaged in the business of manufacturing and
selling equipment designed for use in the car wash business; and Indy Ventures
is engaged in the business of owning and operation a chain of car wash
businesses in the Indianapolis, Indiana area; and
<PAGE>
3. Prema Properties is engaged in the business of owning and operating
a chain of car washes, as well as a franchised "Lube Depot" fast lube center, in
the Columbus, Ohio area; and
4. Lube Ventures is engaged in the businesses of (i) manufacturing and
selling modular fast lube center buildings, (ii) owning and operating fast lube
centers and (iii) franchising a system for the operation of fast lube centers;
and
5. Rocky Mountain I, Rocky Mountain II and Ralston Car Wash are each
engaged in the business of owning and operating car washes in the greater
Denver, Colorado area; and
6. Miracle Partners is engaged in the business of owning and operating
a chain of car washes in the Columbus, Ohio area; and
7. KBG has developed a proprietary computer software system designed to
operate car wash centers; and
8. Each of the parties hereto believes that it would be in their
respective best interests to combine the ownership of their respective
businesses in the manner provided for herein, and, in connection with such
combination, to initiate an initial public offering of a portion of the capital
stock of the Holding Company following such combination;
NOW, THEREFORE, this Agreement witnesseth that, in consideration of the
foregoing premises and the mutual covenants and agreements of the parties
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
---------
FORMATION OF HOLDING COMPANY
----------------------------
AND
---
REGISTRATION OF A PORTION OF THE SHARES OF THE HOLDING COMPANY
--------------------------------------------------------------
FOR OFFER AND SALE TO THE PUBLIC
--------------------------------
Section 1.1 Formation of Holding Company.
1.1.1 Form of Holding Company. Each of the parties to this
Agreement hereby confirms and ratifies their authorization and approval of the
formation by WE JAC, on their behalf, of a corporation under the laws of the
Commonwealth of Virginia, known as "Precision Auto Care, Inc." Following the
consummation of the transactions described in Article III hereof, the
corporation so formed by WE JAC shall be the "holding company" for the various
subsidiary corporations and other entities that will arise as a result of the
transactions contemplated hereby, and such corporation shall be referred to
hereinafter as the "Holding Company." WE JAC has capitalized the Holding Company
initially by contributing to the Holding Company the amount of $1000, for which
WE
2
<PAGE>
JAC has received in exchange 100 shares of the Common Stock, par value $.01 of
the Holding Company, as the nominee of each of the parties hereto. All of the
shares of Common Stock of the Holding Company issued to WE JAC pursuant to its
initial capitalization shall be redeemed by the Holding Company substantially
contemporaneously with, but immediately prior to, the consummation of the
transactions contemplated by the provisions of Article III of this Agreement.
1.1.2 Charter and Bylaws. The Articles of Incorporation of the
Holding Company shall be substantially in the form attached hereto as Exhibit A
and the Bylaws of the Holding Company shall be substantially in the form
attached hereto as Exhibit B. Neither the Articles of Incorporation nor the
Bylaws of the Holding Company shall be amended or modified in any manner prior
to the Closing of the transactions contemplated hereby, except with the prior
written consent of each of the parties to this Agreement.
1.1.3 Initial Officers and Directors. The initial officers of
the Holding Company shall be the following persons, each of whom shall hold the
offices and have the titles indicated opposite their respective names, and shall
serve in such capacities until the first annual meeting of the Board of
Directors of the Holding Company held after the first annual meeting of the
stockholders of the Holding Company, or until his or her earlier death or
resignation, or until such later time as may be specified in a written
Employment Agreement with such person, and until his or her respective successor
shall have been duly elected and qualified:
Name Offices and Titles
---- ------------------
Lynn E. Caruthers Chairman of the Board
Bernard H. Clineberg Vice Chairman of the Board
John F. Ripley President and Chief Executive Officer
Arnold Janofsky Senior Vice President, Secretary & General
Counsel
Peter Kendrick Senior Vice President, Chief Financial Officer
and Treasurer
Grant G. Nicolai Senior Vice President - Franchise
Development
James A. Hay Senior Vice President - Retail Operations
William R. Klumb Vice President - Precision Auto Wash
Operations
Paul E. Bernstein Vice President - Communications
Karl W. Byrer Vice President - Precision Auto Wash
Development
Alan Caldwell Vice President - Precision Auto Care
and
Precision Lube Express Operations
Carol Cothern Vice President - Controller
Effie Eliopulos Vice President
3
<PAGE>
Glyn D. Massingill Vice President - Precision Auto Care M&D
Kevin Rooney Vice President - Franchise Sales
Notwithstanding anything contained in the Articles of Incorporation or
the Bylaws which may be inconsistent or to the contrary, none of the persons
named herein to serve as an initial officer of the Holding Company shall be
removed from any such office prior to the closing of the IPO except with the
prior written approval of each of the parties to this Agreement.
The parties have agreed that the initial Board of Directors of the
Holding Company shall consist of thirteen (13) directors, of which the WE JAC
Group shall have the right to designate seven (7) directors, the Ohio Group
shall have the right to designate five (5) directors and the Rocky Mountain
Group shall have the right to designate one (1) director. Consistent with the
foregoing, the parties agree that the initial directors of the Holding Company
shall be the following persons, each of whom shall be appointed to the Class of
directorship indicated opposite their respective names, and shall serve in such
capacities until the expiration of the term of the Class of directorship to
which he or she has been appointed, as provided in the Articles of Incorporation
of the Holding Company, or until his or her earlier death or resignation, and
until his or her respective successor shall have been duly elected and
qualified:
Name Class of Directors
---- ------------------
Lynn E. Caruthers III (initial 3 year term)
John F. Ripley I (initial 1 year term)
Harry G. Pappas, Jr. I (initial 1 year term)
Woodley A. Allen II (initial 2 year term)
Bernard H. Clineburg III (initial 3 year term)
Bassam Ibrahim II (initial 2 year term)
Arthur Kellar II (initial 2 year term)
Effie Eliopulos III (initial 3 year term)
Richard O. Johnson I (initial 1 year term)
Gerald Zamensky II (initial 2 year term)
George Bavelis III (initial 3 year term)
C. Eugene Deal I (initial 1 year term)
William R. Klumb III (initial 3 year term)
Notwithstanding anything contained in the Articles of Incorporation or
the Bylaws which may be inconsistent or to the contrary, none of the persons
named herein to serve as an initial director of the Holding Company shall be
removed as a director prior to the closing of the IPO except with the prior
written approval of the Participant Group which was entitled to designate such
person as a director of the Holding Company. In the event that a director dies
or resigns prior to the closing of the IPO, the Participant Group which was
entitled to designate such person as a director of the Holding Company shall
have the right to designate his successor.
The parties have further agreed that, initially, there shall be at
least 3 committees of the Board of Directors of the Holding Company; namely, an
Audit Committee, an Executive Committee and a Finance Committee. Although the
members of the Audit Committee and the Executive Committee have yet to be
determined, Effie Eliopulos, William R. Klumb, John F. Ripley and Lynn E.
Caruthers shall be the initial members of the Finance Committee. The Finance
Committee shall have all of the powers of the Board of Directors delegated to
the Finance Committee pursuant to the Bylaws of the Holding Company as well as
the power and authority to take the actions contemplated by Section 18.3 of this
Agreement. Notwithstanding anything contained in the Articles of Incorporation
or the Bylaws which may be inconsistent or to the contrary, none of the persons
named herein to serve as an initial member of the Finance Committee shall be
removed by the Board of Directors as a member of the Finance Committee prior to
the closing of the IPO except with the prior written approval of the Participant
Group which was entitled to designate such person as a director of the Holding
Company.
Section 1.2 Registration of Shares of the Holding Company.
---------------------------------------------
4
<PAGE>
1.2.1 Engagement of Securities Counsel. Each of the parties
hereby agrees and consents to, and ratifies, the prior engagement by WE JAC on
behalf of the Holding Company of the law firm of Miles & Stockbridge, a
Professional Corporation, a Maryland professional corporation ("M&S"), to act as
counsel to the Holding Company, and agrees that the legal fees of such legal
counsel and the expenses incurred by them in rendering services for the Holding
Company shall be deemed to be part of the Transaction Expenses. Each of the
parties hereto (other than WE JAC) hereby acknowledges that it or he understands
that (i) M&S has represented WE JAC and its Subsidiaries as its principal
outside legal counsel, (ii) M&S has represented, and will continue to represent,
WE JAC in connection with the negotiations relating to this Agreement and the
preparation of this Agreement, and (iii) M&S also will be representing the
Holding Company in connection with negotiations relating to this Agreement. Each
such party acknowledges that it has been advised by M&S and their respective
legal counsel that there may be potential conflicts of interest as a result of
such dual representation by M&S. WE JAC further acknowledges that it has been
advised by M&S that in the event of a conflict between WE JAC and the Holding
Company, M&S could not ethically favor either WE JAC's or the Holding Company's
interests over the interests of the other, and that M&S' representation of the
Holding Company in connection with these transactions may limit the protections
that normally would be afforded to WE JAC by the attorney/client privilege
doctrine as it relates to communications between WE JAC and M&S relating to
these matters and that M&S may be required to disclose to the other parties to
this Agreement certain otherwise confidential communications between WE JAC and
M&S. The parties to this Agreement also understand and agree that in the event
that any dispute or controversy should arise by and between or by and among any
of the parties to this Agreement (other than disputes between WE JAC and the
Holding Company), M&S will continue to represent WE JAC and its interests in
connection with such dispute or controversy. Nevertheless, despite having been
advised as to these matters, each of the parties hereto, in the interest of
cost-savings and efficiency, consents to the dual representation by M&S of the
Holding Company and WE JAC. M&S may rely on the acknowledgments, agreements and
consents of the parties pursuant to this Section 1.2.1.
1.2.2 Engagement of Underwriters. Each of the parties hereby
agrees and consents to, and ratifies, the prior engagement by WE JAC on behalf
of the Holding Company of the firm of A.G. Edwards & Sons, Inc. to act as the
lead underwriter for the proposed IPO and the engagement by WE JAC on behalf of
the Holding Company of Ferris Baker Watts, Incorporated to act as co- managing
underwriter for the proposed IPO.
1.2.3 Engagement of Certified Public Accountants. Each of the
parties hereby agrees and consents to, and ratifies, the prior engagement by WE
JAC on behalf of the Holding Company of the accounting firm of Ernst & Young LLP
("Ernst & Young") to act as the certified independent public accountants for the
Holding Company, and agrees that the fees of such accounting firm and the
expenses incurred by Ernst & Young in rendering services for the Holding Company
shall be deemed to be part of the Transaction Expenses.
1.2.4 Preparation of Registration Statement(s).
----------------------------------------
5
<PAGE>
(a) Form S-4 Registration Statement; Proxy
Statement. From and after the date hereof, the Holding Company shall (and each
of the parties hereto agrees to devote its or his reasonable best efforts to
cause the Holding Company to) prepare a registration statement or registration
statements (including a joint proxy statement or proxy statements to be included
therein) on Form S-4 for registration with the Commission of each of the shares
of the Common Stock of the Holding Company to be issued by the Holding Company
in connection with the transactions contemplated by Article III hereof, and file
such Form S-4 Registration Statement with the Commission as soon as reasonably
practicable. Each of the parties hereto further agrees to cooperate with the
other parties and the Holding Company in connection with the preparation thereof
and to devote its reasonable best efforts to having the same declared effective
by the Commission.
(b) Form S-1 Registration Statement. From and
after the date hereof, the Holding Company shall (and each of the parties hereto
agrees to devote its or his reasonable best efforts to cause the Holding Company
to) prepare a registration statement (and the prospectus to be included in such
registration statement) on Form S-1 for registration with the Commission for
offer and sale to the public following the Closing on account of the Holding
Company of 2,645,000 shares of the Common Stock of the Holding Company, and up
to 19% of the number of shares to be issued to the Selling Stockholders and the
Selling Members by the Holding Company pursuant to the transactions contemplated
by Article III, and shall file such Form S-1 Registration Statement with the
Commission as soon as reasonably practicable. Each of the parties hereto further
agrees to cooperate with the other parties in the preparation thereof, and to
devote its reasonable best efforts to having such Form S-1 Registration
Statement declared effective by the Commission.
(c) Obligations of the Holding Company. The
Holding Company shall (i) use its reasonable best efforts to prepare and file
with the Commission the registration statements, proxy statements and
prospectuses contemplated hereby, and shall use its reasonable best efforts
thereafter to cause such registration statements to become and remain effective
until the sale or exchange of all of the shares of the Common Stock of the
Holding Company covered thereby; (ii) prepare and file with the Commission such
amendments and supplements to the registration statements and the prospectuses
filed by the Holding Company as may be reasonably necessary to keep such
registration statements effective until the sale or exchange of all of the
shares of the Common Stock of the Holding Company covered thereby; (iii) use its
reasonable best efforts to register or qualify the shares of the Common Stock of
the Holding Company covered by such registration statements under the securities
or blue sky laws of such jurisdictions as may be applicable to the transactions
contemplated by Article III hereof or as may be directed by the underwriter in
the IPO; and (iv) do any and all other acts and things which may be reasonably
necessary or advisable to enable the Holding Company to consummate the issuance,
sale or exchange of the shares of the Common Stock of the Holding Company in
such jurisdictions.
(d) Information to be Provided to the Holding
Company. Each of the Predecessor Companies agrees that, from and after the date
hereof through and including the earlier to occur of the Closing or the
termination of this Agreement, in order to enable the Holding Company to prepare
and file the registration statements contemplated by this Agreement, it shall
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provide to the Holding Company and to the underwriters for the proposed IPO (and
to their respective employees, counsel, accountants and other representatives),
so long as each remains a party to this Agreement, all information concerning
the business, operations, assets, liabilities, properties, indebtedness,
condition, finances or prospects of such Predecessor Company reasonably
available to the management of such Predecessor Company, and such other material
information as may be reasonably necessary to ensure that the information so
requested may be properly evaluated so as not to be misleading. Each of the
Predecessor Companies hereby further represents and warrants to the Holding
Company that all of the information to be provided to the Holding Company or the
underwriters pursuant to the terms of this Section 1.2.4(d) by such Predecessor
Company shall not contain any untrue or misleading statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading.
(e) Effective Date of Registration Statements.
The parties shall use their reasonable best efforts to cause the Holding Company
to file all such registration statements with the Commission on or before August
28, 1997 and to have all such registration statements declared effective by the
Commission, such that the Closing and the IPO may be consummated on or before
November 14, 1997.
ARTICLE II
----------
TRANSACTION EXPENSES
--------------------
Section 2.1 Agreement as to Transaction Expenses. Except as otherwise
provided for herein, all attorneys', brokers', accountants', investment banking
and finders fees and other expenses incurred by each of the Predecessor
Companies prior to the date hereof in connection with the preparation and
negotiation of this Agreement and the transactions contemplated hereby that the
parties have agreed will be Transaction Expenses pursuant to the terms of the
Memorandum of Understanding and which are to be incurred by each of the
Predecessor Companies from and after the date hereof in taking all actions
contemplated by this Agreement to be taken prior to or at the Closing of the
transactions contemplated by this Agreement (other than Income Taxes and other
Taxes imposed upon gross receipts and recordation, transfer, stamp duties,
documentary or notarial fees or Taxes imposed upon or incurred by any of the
parties in connection with the transactions contemplated by this Agreement and
other fees and expenses that the parties have specified herein will not be
considered part of the Transaction Expenses), or otherwise reasonably necessary
to consummate the Closing and the IPO, including those expenses that the parties
have agreed will be Transaction Expenses pursuant to Sections 1.2.1 and 1.2.3 of
this Agreement, except for costs and expenses previously or hereafter incurred
by the Predecessor Companies for meals, travel and lodging of its officers,
agents and representatives and managerial time incurred in connection with or
devoted to the transactions contemplated hereby (collectively, the "Transaction
Expenses"), will be paid for or contributed to by the Contributing Companies as
follows (hereinafter, the "Transaction Expense Shares"): the members of the Ohio
Group will be responsible, jointly and severally, for 32.5% of the aggregate
dollar amount of the Transaction Expenses; the members of the Rocky Mountain
Group will be responsible, jointly and severally, for 8.3% of the aggregate
dollar amount
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of the Transaction Expenses; Miracle Partners will be responsible for 2.9% of
the aggregate dollar amount of the Transaction Expenses; and the members of the
WE JAC Group will be responsible, jointly and severally, for 56.3% of the
aggregate dollar amount of the Transaction Expenses. KBG will not be obligated
to contribute to the Transaction Expenses, unless KBG shall fail to comply with
the provisions of Section 3.2.4(a) of this Agreement or fail to exchange its
Membership Interest in KBG, LLC for shares of the Common Stock of the Holding
Company pursuant to the terms of the KBG Exchange. If KBG shall fail to comply
with the provisions of Section 3.2.4(a) of this Agreement or fail to exchange
its Membership Interest in KBG, LLC for shares of the Common Stock of the
Holding Company pursuant to the terms of the KBG Exchange, KBG shall be liable
to contribute $100,000 toward the Transaction Expenses, as liquidated damages
for its failure to do so, which amount shall be allocated and disbursed to the
Contributing Companies in accordance with their respective Transaction Expense
Shares.
Section 2.2 Accounting for Transaction Expenses. From and after the
date hereof through and including the Closing or the earlier termination of this
Agreement, the Holding Company and each of the Contributing Companies shall
maintain detailed records of all Transaction Expenses incurred by them and shall
account to each other for the Transaction Expenses they have incurred on a
monthly basis.
Section 2.3 Reimbursement of Certain Fees and Expenses. Notwithstanding
the terms of the Memorandum of Understanding, from and after the date hereof
through and including the Closing or the earlier termination of this Agreement,
each of the Contributing Companies and the Holding Company shall pay for all of
the Transaction Expenses that are comprised of fees and expenses of third party
providers of services (including investment bankers, lawyers, accountants,
printers and architectural and environmental consultants) incurred by them
respectively through the Closing Date (the "Professional Expenses") as the same
become due and payable, and, notwithstanding anything contained herein which may
be inconsistent or to the contrary, each of the Contributing Companies shall be
entitled to declare and pay, prior to the Closing Date, a dividend or
distribution in an amount equal to the aggregate dollar amount actually expended
by such Contributing Company for Professional Expenses in connection with the
transactions contemplated hereby (the "Professional Expense Dividend");
provided, however, that each Contributing Company shall only be entitled to
declare such a dividend or distribution and to the extent that, such
Professional Expenses would qualify as Transaction Expenses pursuant to the
terms of this Agreement. If this Agreement shall terminate and the transactions
contemplated hereby shall not be consummated, to the extent that they have not
already done so, each of the Contributing Companies shall, within 10 business
days following the date of such termination, make appropriate contributions to
and reimbursements of each of the other Contributing Companies in respect of all
Transaction Expenses incurred by each such Contributing Company and the Holding
Company through the date of the termination of this Agreement in accordance with
their respective Transaction Expense Shares (it being understood and agreed that
the obligations of each of the Contributing Companies to contribute to and to
reimburse the other Contributing Companies in respect of Transaction Expenses
shall survive the termination of this Agreement). If, however, the Closing of
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the transactions contemplated hereby shall be consummated, the Holding Company
shall discharge, out of the net cash proceeds received by the Holding Company in
the IPO, all of the Transaction Expenses incurred by the Holding Company and
each of the Contributing Companies which have not been discharged as of the
Closing Date. No interest shall be payable on any declared but unpaid
Professional Expense Dividend.
ARTICLE III
-----------
PLAN OF REORGANIZATION
----------------------
AND
---
AGREEMENT FOR SHARE EXCHANGE OFFERS
-----------------------------------
Section 3.1 Plan of Reorganization of Corporate Predecessor
Companies.
3.1.1 Formation of Merger Subsidiaries. Following the
execution of this Agreement and prior to the Closing Date, the Holding Company
shall form, solely for the purpose of consummating the transactions contemplated
by this Section 3.1, five subsidiary corporations (hereinafter referred to as
the "Merger Subsidiaries") under the laws of the jurisdictions which correspond
to the jurisdiction in which the corporation into which each such Merger
Subsidiary shall merged as hereinafter provided, which shall be known,
respectively, as follows: (i) "WE JAC Acquisition Subsidiary, Inc." (hereinafter
referred to as "WE JAC Acquisition"); (ii) "Miracle Industries Acquisition
Subsidiary, Inc." (hereinafter referred to as "Miracle Industries Acquisition");
(iii) "Lube Ventures Acquisition Subsidiary, Inc." (hereinafter referred to as
"Lube Ventures Acquisition"); (iv) "Rocky Mountain I Acquisition Subsidiary,
Inc." (hereinafter referred to as "Rocky Mountain I Acquisition"); and (v)
"Rocky Mountain II Acquisition Subsidiary, Inc." (hereinafter referred to as
"Rocky Mountain II Acquisition").
3.1.2 Merger of WE JAC Acquisition with and into WE JAC.
(a) WE JAC Merger. Subject to the prior
satisfaction of each of the conditions precedent set forth in Section 4.1
hereof, and of each of the conditions precedent set forth in Section 4.2, which
have not been waived in writing by WE JAC, and of each of the conditions
precedent set forth in Section 4.10, which have not been waived in writing by
the Holding Company, on the Closing Date, WE JAC Acquisition shall be merged
with and into WE JAC (the "WE JAC Merger"); whereupon, (i) the separate
existence of WE JAC Acquisition shall cease; (ii) WE JAC shall continue in
existence and shall thereafter possess all of the purposes and powers of WE JAC
Acquisition; (iii) WE JAC shall succeed to all of the assets, rights,
properties, licenses, franchises and privileges of WE JAC Acquisition (if any),
which shall be transferred to, vested in and devolved upon WE JAC without
further act or deed, subject to all of the debts and obligations of WE JAC
Acquisition (if any); and (iv) WE JAC shall thereafter be liable and responsible
for all of the liabilities, duties, indebtedness, obligations and
responsibilities of WE JAC Acquisition (if any).
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The Certificate of Incorporation and Bylaws of WE JAC in effect as of the
Effective Time of the WE JAC Merger shall continue to be the Certificate of
Incorporation and Bylaws of WE JAC. In addition, as part of the WE JAC Merger,
each warrant and option to purchase shares of WE JAC Common Stock issued and
outstanding immediately prior to the Effective Time of the WE JAC Merger shall
be converted into a warrant or an option, as the case may be, to purchase the
same number of shares of the Common Stock of the Holding Company on the same
terms as set forth in such warrant or option.
(b) Conversion of Shares. As part of the WE JAC
Merger, each share of the WE JAC Common Stock issued and outstanding immediately
prior to the Effective Time of the WE JAC Merger (other than WE JAC Dissenting
Shares) shall be converted into one share of the Common Stock of the Holding
Company, and all of the authorized but unissued shares of WE JAC, if any, shall
be canceled and retired, all without the need for further act or deed. Each of
the shares of the capital stock of WE JAC Acquisition issued and outstanding at
the Effective Time of the WE JAC Merger shall be converted into one share of the
Common Stock, par value $0.01, of WE JAC, which shall be held of record by the
Holding Company following the WE JAC Merger.
(c) WE JAC Dissenting Shares. Notwithstanding
the foregoing, each of the shareholders of WE JAC shall have the rights provided
to them under Section 262 of the Delaware Corporation Law (the "DCL") as in
effect at the Effective Time of the WE JAC Merger ("WE JAC Dissenter's Rights")
with respect to their shares of WE JAC Common Stock, and, notwithstanding
anything contained herein which may be inconsistent or to the contrary, none of
the shares of WE JAC Common Stock issued and outstanding at the Effective Time
of the WE JAC Merger that are held by any WE JAC shareholder who has the right,
to the extent that such right is available by law, to exercise WE JAC
Dissenter's Rights pursuant thereto shall be converted into shares of the
Holding Company Common Stock pursuant to the WE JAC Merger, unless such
shareholder shall have failed to perfect his or her WE JAC Dissenter's Rights or
shall have withdrawn or lost the same in accordance with the terms of the DCL.
If, however, any WE JAC shareholder shall fail to perfect or shall withdraw or
lose his or her WE JAC Dissenter's Rights with respect to his or her shares of
WE JAC Common Stock, each of his or her shares shall be deemed to have been
converted into shares of the Common Stock of the Holding Company as provided for
herein effective as of the Effective Time of the WE JAC Merger.
(d) WE JAC Merger Filings. The WE JAC Merger
shall be accomplished as follows: WE JAC and WE JAC Acquisition shall each cause
a Certificate of Merger in form suitable for filing with the Delaware Secretary
of State (the "WE JAC Certificate of Merger") to be executed by the appropriate
officers of each of them and filed with the Delaware Secretary of State on the
Closing Date.
(e) Effective Time of the WE JAC Merger. The WE
JAC Merger shall become effective at the time that the WE JAC Certificate of
Merger shall become effective with the Delaware Secretary of State in accordance
with the DCL (the "Effective Time of the WE JAC Merger").
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(f) Surrender and Exchange of Common Stock of WE
JAC. After the Effective Time of the WE JAC Merger, each holder of shares of WE
JAC Common Stock outstanding as of the Effective Time of the WE JAC Merger
(other than shares held by those holders who have perfected or could perfect WE
JAC Dissenter's Rights) shall surrender to the Exchange Agent all outstanding
certificates theretofore evidencing shares of the Common Stock of WE JAC, and
shall receive in exchange therefor, upon delivery to the Exchange Agent together
with satisfactory and customary delivery requirements, certificates evidencing
the full number of shares of the Common Stock of the Holding Company into which
such shares of the WE JAC Common Stock have been converted pursuant to the WE
JAC Merger, less the number of Indemnity Escrow Shares and Debt Level Escrow
Shares attributable to each such holder, plus a cash payment in lieu of
fractional shares in the amount determined under Section 3.3. Until so
surrendered or exchanged, each outstanding certificate evidencing shares of the
WE JAC Common Stock shall be deemed for all purposes solely as evidencing the
number of shares of the Common Stock of the Holding Company into which such
shares shall have been converted pursuant to the WE JAC Merger; provided,
however, that no dividends or other distributions, if any, declared by the
Holding Company after the Effective Time of the WE JAC Merger in respect of any
shares of the Common Stock of the Holding Company payable to holders of record
after the Effective Time of the WE JAC Merger shall be paid to the holders of
any unsurrendered certificates evidencing shares of WE JAC Common Stock until
such certificates shall have been surrendered to the Exchange Agent. After the
surrender and exchange of such certificates, the record holders thereof will be
entitled to receive any such dividends or distributions, without interest
thereon, to the extent that the same shall have become payable with respect to
the number of shares of the Common Stock of the Holding Company for which such
certificate was exchangeable. The Exchange Agent shall be authorized to require
an indemnification agreement or the posting of a bond or other financial
accommodation satisfactory to the Exchange Agent from any holder of shares of WE
JAC Common Stock in the event that such holder shall allege that any certificate
evidencing shares of the WE JAC Common Stock shall have been lost, stolen or
destroyed prior to surrender thereof to the Exchange Agent.
3.1.3 Merger of Lube Ventures Acquisition with and into
Lube Venture.
(a) Lube Ventures Merger. Subject to the prior
satisfaction of each of the conditions precedent set forth in Section 4.1
hereof, and of each of the conditions precedent set forth in Section 4.3, which
have not been waived in writing by Lube Ventures, and of each of the conditions
precedent set forth in Section 4.10, which have not been waived in writing by
the Holding Company, on the Closing Date, Lube Ventures Acquisition shall be
merged with and into Lube Ventures (the "Lube Ventures Merger"); whereupon, (i)
the separate existence of Lube Ventures Acquisition shall cease; (ii) Lube
Ventures shall continue in existence and shall thereafter possess all of the
purposes and powers of Lube Ventures Acquisition; (iii) Lube Ventures shall
succeed to all of the assets, rights, properties, licenses, franchises and
privileges of Lube Ventures Acquisition (if any), which shall be transferred to,
vested in and devolved upon Lube Ventures without further act or deed, subject
to all of the debts and obligations of Lube Ventures Acquisition (if any); and
(iv) Lube Ventures shall thereafter be liable and responsible for all of the
liabilities, duties, indebtedness, obligations and responsibilities of Lube
Ventures Acquisition (if any). The Certificate of
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Incorporation and Bylaws of Lube Ventures in effect as of the Effective Time of
the Lube Ventures Merger shall continue to be the Certificate of Incorporation
and Bylaws of Lube Ventures.
(b) Conversion of Shares. As part of the Lube
Ventures Merger, each of the 100 shares of the Lube Ventures Common Stock issued
and outstanding immediately prior to the Effective Time of the Lube Ventures
Merger (other than Lube Ventures Dissenting Shares) shall be converted into
1,691.68 shares of the Common Stock of the Holding Company and all of the
authorized but unissued shares of Lube Ventures, if any, shall be canceled and
retired, all without the need for further act or deed. Each of the shares of the
capital stock of Lube Ventures Acquisition issued and outstanding at the
Effective Time of the Lube Ventures Merger shall be converted into one share of
the Common Stock, par value $0.00, of Lube Ventures, all which shall be held of
record by the Holding Company following the Lube Ventures Merger.
(c) Lube Ventures Dissenting Shares.
Notwithstanding the foregoing, each of the shareholders of Lube Ventures shall
have the rights provided to them under Section 262 of the DCL as in effect at
the Effective Time of the Lube Ventures Merger ("Lube Ventures Dissenter's
Rights") with respect to their shares of Lube Ventures Common Stock, and,
notwithstanding anything contained herein which may be inconsistent or to the
contrary, none of the shares of Lube Ventures Common Stock issued and
outstanding at the Effective Time of the Lube Ventures Merger that are held by a
Lube Ventures shareholder who has the right, to the extent that such right is
available by law, to exercise Lube Ventures Dissenter's Rights pursuant thereto
shall be converted into shares of the Holding Company Common Stock pursuant to
the Lube Ventures Merger, unless such shareholder shall have failed to perfect
his or her Lube Ventures Dissenter's Rights or shall have withdrawn or lost the
same in accordance with the terms of the DCL. If, however, any Lube Ventures
shareholder shall fail to perfect or shall withdraw or lose his or her Lube
Ventures Dissenter's Rights with respect to his or her shares of Lube Ventures
Common Stock, each of his or her shares shall be deemed to have been converted
into shares of the Holding Company Common Stock as provided for herein effective
as of the Effective Time of the Lube Ventures Merger.
(d) Merger Filings. The Lube Ventures Merger
shall be accomplished as follows: Lube Ventures and Lube Ventures Acquisition
shall each cause a Certificate of Merger (the "Lube Ventures Certificate of
Merger") in form suitable for filing with the Delaware Secretary of State to be
executed by its appropriate officers and filed with the Delaware Secretary of
State in accordance with the DCL on the Closing Date.
(e) Effective Time of the Lube Ventures Merger.
The Lube Ventures Merger shall become effective at the time that the Lube
Ventures Certificate of Merger shall become effective with the Delaware
Secretary of State shall become effective in accordance with the DCL (the
"Effective Time of the Lube Ventures Merger").
(f) Surrender and Exchange of Common Stock of
Lube Ventures. After the Effective Time of the Lube Ventures Merger, each
holder of shares of Lube Ventures Common Stock outstanding as of the Effective
Time of the Lube Ventures Merger (other than shares held by
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those holders who have perfected or could perfect Lube Ventures Dissenter's
Rights) shall surrender to the Exchange Agent all outstanding certificates
theretofore evidencing shares of the Common Stock of Lube Ventures, and shall
receive in exchange therefor, upon delivery to the Exchange Agent together with
satisfactory and customary delivery requirements, certificates evidencing the
greatest whole number of shares of the Common Stock of the Holding Company into
which such shares of the Lube Ventures Common Stock have been converted pursuant
to the Lube Ventures Merger, less the number of Indemnity Escrow Shares and Debt
Level Escrow Shares attributable to each such holder, plus a cash payment in
lieu of fractional shares in the amount determined under Section 3.3. Until so
surrendered or exchanged, each outstanding certificate evidencing shares of the
Lube Ventures Common Stock shall be deemed for all purposes solely as evidence
of the number of shares of the Common Stock of the Holding Company into which
such shares shall have been converted pursuant to the Lube Ventures Merger;
provided, however, that no dividends or other distributions, if any, declared by
the Holding Company after the Effective Time of the Lube Ventures Merger in
respect of any shares of the Common Stock of the Holding Company payable to
holders of record after the Effective Time of the Lube Ventures Merger shall be
paid to the holders of any unsurrendered certificates evidencing shares of Lube
Venture Common Stock until such certificates shall have been surrendered to the
Exchange Agent. After the surrender and exchange of such certificates, the
record holders thereof will be entitled to receive any such dividends or
distributions, without interest thereon, to the extent that the same shall have
become payable with respect to the number of shares of the Common Stock of the
Holding Company for which such certificate was exchangeable. The Exchange Agent
shall be authorized to require an indemnification agreement or the posting of a
bond or other financial accommodation satisfactory to the Exchange Agent from
any holder of shares of Lube Ventures Common Stock in the event that such holder
shall allege that any certificate evidencing shares of the Lube Ventures Common
Stock shall have been lost, stolen or destroyed prior to surrender thereof to
the Exchange Agent.
3.1.4 Merger of Miracle Industries Acquisition with and
into Miracle Industries.
(a) Miracle Industries Merger. Subject to the
prior satisfaction of each of the conditions precedent set forth in Section 4.1
hereof, and of each of the conditions precedent set forth in Section 4.4, which
have not been waived in writing Miracle Industries, and of each of the
conditions precedent set forth in Section 4.10, which have not been waived in
writing by the Holding Company, on the Closing Date, Miracle Industries
Acquisition shall be merged with and into Miracle Industries (the "Miracle
Industries Merger"); whereupon, (i) the separate existence of Miracle Industries
Acquisition shall cease; (ii) Miracle Industries shall continue in existence and
shall thereafter possess all of the purposes and powers of Miracle Industries
Acquisition; (iii) Miracle Industries shall succeed to all of the assets,
rights, properties, licenses, franchises and privileges of Miracle Industries
Acquisition (if any), which shall be transferred to, vested in and devolved upon
Miracle Industries without further act or deed, subject to all of the debts and
obligations of Miracle Industries Acquisition (if any); and (iv) Miracle
Industries shall thereafter be liable and responsible for all of the
liabilities, duties, indebtedness, obligations and responsibilities of Miracle
Industries Acquisition (if any). The Certificate of Incorporation and Bylaws of
Miracle Industries in effect as
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of the Effective Time of the Miracle Industries Merger shall continue to be the
Certificate of Incorporation and Bylaws of Miracle Industries.
(b) Conversion of Shares. As part of the
Miracle Industries Merger, each of the 34,943 shares of the Miracle Industries
Common Stock issued and outstanding immediately prior to the Effective Time of
the Miracle Industries Merger (other than Miracle Industries Dissenting Shares)
shall be converted into 21.442 shares of the Holding Company Common Stock and
all of the authorized but unissued shares of Miracle Industries, if any, shall
be canceled and retired, all without the need for further act or deed. Each of
the shares of the capital stock of Miracle Industries Acquisition issued and
outstanding at the Effective Time of the Miracle Industries Merger shall be
converted into one share of the Common Stock, par value $0.00, of Miracle
Industries, all which shall be held of record by the Holding Company following
the Miracle Industries Merger.
(c) Miracle Industries Dissenting Shares.
Notwithstanding the foregoing, each of the shareholders of Miracle Industries
shall have the rights provided to them under Section 1701.84(A) of the Ohio
General Corporation Law (the "OGCL") as in effect at the Effective Time of the
Miracle Industries Merger ("Miracle Industries Dissenter's Rights") with respect
to their shares of Miracle Industries Common Stock, and, notwithstanding
anything contained herein which may be inconsistent or to the contrary, none of
the shares of Miracle Industries Common Stock issued and outstanding at the
Effective Time of the Miracle Industries Merger that are held by a Miracle
Industries shareholder who has the right, to the extent that such right is
available by law, to exercise Miracle Industries Dissenter's Rights pursuant
thereto shall be converted into shares of the Common Stock of the Holding
Company pursuant to the Miracle Industries Merger, unless such shareholder shall
have failed to perfect his or her Miracle Industries Dissenter's Rights or shall
have withdrawn or lost the same in accordance with the terms of the OGCL. If,
however, any Miracle Industries shareholder shall fail to perfect or shall
withdraw or lose his or her Miracle Industries Dissenter's Rights with respect
to his or her shares of Miracle Industries Common Stock, each of his or her
shares shall be deemed to have been converted into shares of the Common Stock of
the Holding Company as provided for herein effective as of the Effective Time of
the Miracle Industries Merger.
(d) Merger Filings. The Miracle Industries
Merger shall be accomplished as follows: Miracle Industries and Miracle
Industries Acquisition shall each cause Articles of Merger in form suitable for
filing with the Ohio Secretary of State (the "Miracle Industries Articles of
Merger") to be executed by its appropriate officers and filed with the Ohio
Secretary of State in accordance with OGCL on the Closing Date.
(e) Effective Time of the Miracle Industries
Merger. The Miracle Industries Merger shall become effective at the time that
the Miracle Industries Articles of Merger shall become effective with the Ohio
Secretary of State in accordance with the OGCL (the "Effective Time of the
Miracle Industries Merger").
(f) Surrender and Exchange of Common Stock of
Miracle Industries. After the Effective Time of the Miracle Industries Merger,
each holder of shares of Miracle
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Industries Common Stock outstanding as of the Effective Time of the Miracle
Industries Merger (other than shares held by those holders who have perfected or
could perfect Miracle Industries Dissenter's Rights) shall surrender to the
Exchange Agent all outstanding certificates theretofore evidencing shares of the
Common Stock of Miracle Industries, and shall receive in exchange therefor, upon
delivery to the Exchange Agent satisfactory and customary delivery requirements,
certificates evidencing the greatest whole number of shares of the Common Stock
of the Holding Company into which such shares of the Miracle Industries Common
Stock have been converted pursuant to the Miracle Industries Merger, less the
number of Indemnity Escrow Shares and Debt Level Escrow Shares attributable to
each such holder, plus a cash payment in lieu of fractional shares as determined
pursuant to Section 3.3. Until so surrendered or exchanged, each outstanding
certificate evidencing shares of the Miracle Industries Common Stock shall be
deemed for all purposes solely as evidence of the number of shares of the Common
Stock of the Holding Company into which such shares shall have been converted
pursuant to the Miracle Industries Merger; provided, however, that no dividends
or other distributions, if any, declared by the Holding Company after the
Effective Time of the Miracle Industries Merger in respect of any shares of the
Common Stock of the Holding Company payable to holders of record after the
Effective Time of the Miracle Industries Merger shall be paid to the holders of
any unsurrendered certificates evidencing shares of Miracle Industries Common
Stock until such certificates shall have been surrendered to the Exchange Agent.
After the surrender and exchange of such certificates, the record holders
thereof will be entitled to receive any such dividends or distributions, without
interest thereon, to the extent that the same shall have become payable with
respect to the number of shares of the Common Stock of the Holding Company for
which such certificate was exchangeable. The Exchange Agent shall be authorized
to require an indemnification agreement or the posting of a bond or other
financial accommodation satisfactory to the Exchange Agent from any holder of
shares of Miracle Industries Common Stock in the event that such holder shall
allege that any certificate evidencing shares of the Miracle Partners Common
Stock shall have been lost, stolen or destroyed prior to surrender thereof to
the Exchange Agent.
3.1.5 Merger of Rocky Mountain I Acquisition with and into
Rocky Mountain I.
(a) Rocky Mountain I Merger. Subject to the
prior satisfaction of each of the conditions precedent set forth in Section 4.1
hereof, and of each of the conditions precedent set forth in Section 4.5, which
have not been waived in writing by Rocky Mountain I, and of each of the
conditions precedent set forth in Section 4.10, which have not been waived in
writing by the Holding Company, on the Closing Date, immediately following the
consummation of the transactions contemplated by Section 3.2 of this Agreement,
Rocky Mountain I Acquisition shall be merged with and into Rocky Mountain I (the
"Rocky Mountain I Merger"); whereupon, the separate existence of Rocky Mountain
I Acquisition shall cease; (ii) Rocky Mountain I shall continue in existence and
shall thereafter possess all of the purposes and powers of Rocky Mountain I
Acquisition; (iii) Rocky Mountain I shall succeed to all of the assets, rights,
properties, licenses, franchises and privileges of Rocky Mountain I Acquisition
(if any), which shall be transferred to, vested in and devolved upon Rocky
Mountain I without further act or deed, subject to all of the debts and
obligations of Rocky Mountain I Acquisition (if any); and (iv) Rocky Mountain I
shall thereafter
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be liable and responsible for all of the liabilities, duties, indebtedness,
obligations and responsibilities of Rocky Mountain I Acquisition (if any). The
Articles of Incorporation and Bylaws of Rocky Mountain I in effect as of the
Effective Time of the Rocky Mountain I Merger shall continue to be the Articles
of Incorporation and Bylaws of Rocky Mountain I.
(b) Conversion of Shares. As part of the Rocky
Mountain I Merger, each of the 5,198 shares of the Rocky Mountain I Common Stock
issued and outstanding immediately prior to the Effective Time of the Rocky
Mountain I Merger (other than Rocky Mountain I Dissenting Shares) shall be
converted into 12.355 shares of the Common Stock of the Holding Company and all
of the authorized but unissued shares of Rocky Mountain I, if any, shall be
canceled and retired, all without the need for further act or deed. Each of the
shares of the capital stock of Rocky Mountain I Acquisition issued and
outstanding at the Effective Time of the Rocky Mountain I Merger shall be
converted into one share of the Common Stock, par value $100.00, of Rocky
Mountain I, all which shall be held of record by the Holding Company following
the Rocky Mountain I Merger.
(c) Rocky Mountain I Dissenting Shares.
Notwithstanding the foregoing, each of the shareholders of Rocky Mountain I
shall have the rights provided to them under Article 113 of the Colorado
Business Corporation Act (the "CBCA") as in effect at the Effective Time of the
Rocky Mountain I Merger ("Rocky Mountain I Dissenter's Rights") with respect to
their shares of Rocky Mountain I Common Stock, and, notwithstanding anything
contained herein which may be inconsistent or to the contrary, none of the
shares of Rocky Mountain I Common Stock issued and outstanding at the Effective
Time of the Rocky Mountain I Merger that are held by any Rocky Mountain I
shareholder who has the right, to the extent that such right is available by
law, to exercise Rocky Mountain I Dissenter's Rights pursuant thereto shall be
converted into shares of the Holding Company Common Stock pursuant to the Rocky
Mountain I Merger, unless such shareholder shall have failed to perfect his or
her Rocky Mountain I Dissenter's Rights or shall have withdrawn or lost the same
in accordance with the terms of the CBCA. If, however, any Rocky Mountain I
shareholder shall fail to perfect or shall withdraw or lose his or her Rocky
Mountain I Dissenter's Rights with respect to his or her shares of Rocky
Mountain I Common Stock, each of his or her shares shall be deemed to have been
converted into shares of the Common Stock of the Holding Company as provided for
herein effective as of the Effective Time of the Rocky Mountain I Merger.
(d) Merger Filings. The Rocky Mountain I Merger
shall be accomplished as follows: Rocky Mountain I and Rocky Mountain I
Acquisition shall each cause Articles of Merger in form suitable for filing with
the Colorado Secretary of State (the "Rocky Mountain I Articles of Merger") to
be executed by its appropriate officers and filed with the Colorado Secretary of
State on the Closing Date.
(e) Effective Time of the Rocky Mountain I
Merger. The Rocky Mountain I Merger shall become effective at the time that the
Rocky Mountain I Articles of Merger shall become effective with the Colorado
Secretary of State in accordance with the CBCA (the "Effective Time of the Rocky
Mountain I Merger").
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(f) Surrender and Exchange of Common Stock of
Rocky Mountain I. After the Effective Time of the Rocky Mountain I Merger, each
holder of shares of Rocky Mountain I Common Stock outstanding as of the
Effective Time of the Rocky Mountain I Merger shall surrender to the Exchange
Agent (other than those holders who have perfected or could perfect Rocky
Mountain I Dissenter's Rights) all outstanding certificates theretofore
evidencing shares of the Common Stock of Rocky Mountain I, and shall receive in
exchange therefor, upon delivery to the exchange agent together with
satisfactory and customary delivery requirements, certificates evidencing the
greatest whole number of shares of the Common Stock of the Holding Company into
which such shares of the Rocky Mountain I Common Stock have been converted
pursuant to the Rocky Mountain I Merger, less the number of Indemnity Escrow
Shares and Debt Level Escrow Shares attributable to each such holder, plus a
cash payment in lieu of fractional shares in the amount determined pursuant to
Section 3.3. Until so surrendered or exchanged, each outstanding certificate
evidencing shares of the Rocky Mountain I Common Stock shall be deemed for all
purposes solely as evidencing the number of shares of the Common Stock of the
Holding Company into which such shares shall have been converted pursuant to the
Rocky Mountain I Merger; provided, however, that no dividends or other
distributions, if any, declared by the Holding Company after the Effective Time
of the Rocky Mountain I Merger in respect of any shares of the Common Stock of
the Holding Company payable to holders of record after the Effective Time of the
Rocky Mountain I Merger shall be paid to the holders of any unsurrendered
certificates evidencing shares of Rocky Mountain I Common Stock until such
certificates shall have been surrendered to the Exchange Agent. After the
surrender and exchange of such certificates, the record holders thereof will be
entitled to receive any such dividends or distributions, without interest
thereon, to the extent that the same shall have become payable with respect to
the number of shares of the Common Stock of the Holding Company for which such
certificate was exchangeable. The Exchange Agent shall be authorized to require
an indemnification agreement or the posting of a bond or other financial
accommodation satisfactory to the Exchange Agent from any holder of shares of
Rocky Mountain I Common Stock in the event that such holder shall allege that
any certificate evidencing shares of the Rocky Mountain I Common Stock shall
have been lost, stolen or destroyed prior to surrender thereof to the Exchange
Agent.
3.1.6 Merger of Rocky Mountain II Acquisition with and into
Rocky Mountain II.
(a) Rocky Mountain II Merger. Subject to the
prior satisfaction of each of the conditions precedent set forth in Section 4.1
hereof, and of each of the conditions precedent set forth in Section 4.6, which
have not been waived in writing by Rocky Mountain II, and of each of the
conditions precedent set forth in Section 4.10, which have not been waived in
writing by the Holding Company, on the Closing Date, immediately following the
consummation of the transactions contemplated by Section 3.2 of this Agreement,
Rocky Mountain II Acquisition shall be merged with and into Rocky Mountain II
(the "Rocky Mountain II Merger"); whereupon, (i) the separate existence of Rocky
Mountain II Acquisition shall cease; (ii) Rocky Mountain II shall continue in
existence and shall thereafter possess all of the purposes and powers of Rocky
Mountain II Acquisition; (iii) Rocky Mountain II shall succeed to all of the
assets, rights, properties, licenses, franchises and privileges of Rocky
Mountain II Acquisition (if any), which shall be transferred to, vested in and
devolved upon Rocky Mountain II without further act or deed, subject to all of
the
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debts and obligations of Rocky Mountain II Acquisition (if any); and (iv) Rocky
Mountain II shall thereafter be liable and responsible for all of the
liabilities, duties, indebtedness, obligations and responsibilities of Rocky
Mountain II Acquisition (if any). The Articles of Incorporation and Bylaws of
Rocky Mountain II in effect as of the Effective Time of the Rocky Mountain II
Merger shall continue to be the Articles of Incorporation and Bylaws of Rocky
Mountain II.
(b) Conversion of Shares. As part of the Rocky
Mountain II Merger, each of the 14,539 shares of the Rocky Mountain II Common
Stock issued and outstanding immediately prior to the Effective Time of the
Rocky Mountain II Merger (other than Rocky Mountain II Dissenting Shares) shall
be converted into 12.356 of shares of the Holding Company Common Stock, and all
of the authorized but unissued shares of Rocky Mountain II, if any, shall be
canceled and retired, all without the need for further act or deed. Each of the
shares of the capital stock of Rocky Mountain II Acquisition issued and
outstanding at the Effective Time of the Rocky Mountain II Merger shall be
converted into one share of the Common Stock, par value $1.00, of Rocky Mountain
II, all which shall be held of record by the Holding Company following the Rocky
Mountain II Merger.
(c) Rocky Mountain II Dissenting Shares.
Notwithstanding the foregoing, each of the shareholders of Rocky Mountain II
shall have the rights provided to them under Article 113 of the CBCA as in
effect at the Effective Time of the Rocky Mountain II Merger ("Rocky Mountain II
Dissenter's Rights") with respect to their shares of Rocky Mountain II Common
Stock, and, notwithstanding anything contained herein which may be inconsistent
or to the contrary, none of the shares of Rocky Mountain II Common Stock issued
and outstanding at the Effective Time of the Rocky Mountain II Merger that are
held by any Rocky Mountain II shareholder who has the right, to the extent that
such right is available by law, to exercise Rocky Mountain II Dissenter's Rights
pursuant thereto shall be converted into shares of the Holding Company Common
Stock pursuant to the Rocky Mountain II Merger, unless such shareholder shall
have failed to perfect his or her Rocky Mountain II Dissenter's Rights or shall
have withdrawn or lost the same in accordance with the terms of the CBCA. If,
however, any Rocky Mountain II shareholder shall fail to perfect or shall
withdraw or lose his or her Rocky Mountain II Dissenter's Rights with respect to
his or her shares of Rocky Mountain II Common Stock, each of his or her shares
shall be deemed to have been converted into shares of the Holding Company Common
Stock as provided for herein effective as of the Effective Time of the Rocky
Mountain II Merger.
(d) Merger Filings. The Rocky Mountain II
Merger shall be accomplished as follows: Rocky Mountain II and Rocky Mountain II
Acquisition shall each cause Articles of Merger in form suitable for filing with
the Colorado Secretary of State (the "Rocky Mountain II Articles of Merger") to
be executed by its appropriate officers and filed with the Colorado Secretary of
State on the Closing Date.
(e) Effective Time of the Rocky Mountain II
Merger. The Rocky Mountain II Merger shall become effective at the time that
the Rocky Mountain II Articles of Merger
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become effective with the Colorado Secretary of State in accordance with the
CBCA (the "Effective Time of the Rocky Mountain II Merger").
(f) Surrender and Exchange of Common Stock of
Rocky Mountain II. After the Effective Time of the Rocky Mountain II Merger,
each holder of shares of Rocky Mountain II Common Stock outstanding as of the
Effective Time of the Rocky Mountain II Merger shall surrender to the Exchange
Agent (other than those holders who have perfected or could perfect Rocky
Mountain II Dissenter's Rights) all outstanding certificates theretofore
evidencing shares of the Common Stock of Rocky Mountain II, and shall receive in
exchange therefor, upon delivery to the exchange agent together with
satisfactory and customary delivery requirements, certificates evidencing the
greatest whole number of shares of the Common Stock of the Holding Company into
which such shares of the Rocky Mountain II Common Stock have been converted
pursuant to the Rocky Mountain II Merger, less the number of Indemnity Escrow
Shares and Debt Level Escrow Shares attributable to each such holder, plus a
cash payment in lieu of fractional shares in an amount determined pursuant to
Section 3.3. Until so surrendered or exchanged, each outstanding certificate
evidencing shares of the Rocky Mountain II Common Stock shall be deemed for all
purposes solely as evidencing the number of shares of the Common Stock of the
Holding Company into which such shares shall have been converted pursuant to the
Rocky Mountain II Merger; provided, however, that no dividends or other
distributions, if any, declared by the Holding Company after the Effective Time
of the Rocky Mountain II Merger in respect of any shares of the Common Stock of
the Holding Company payable to holders of record after the Effective Time of the
Rocky Mountain II Merger shall be paid to the holders of any unsurrendered
certificates evidencing shares of Rocky Mountain II Common Stock until such
certificates shall have been surrendered to the Exchange Agent. After the
surrender and exchange of such certificates, the record holders thereof will be
entitled to receive any such dividends or distributions, without interest
thereon, to the extent that the same shall have become payable with respect to
the number of shares of the Common Stock of the Holding Company for which such
certificate was exchangeable. The exchange agent shall be authorized to require
an indemnification agreement or the posting of a bond or other financial
accommodation satisfactory to the exchange agent from any holder of shares of
Rocky Mountain II Common Stock in the event that such holder shall allege that
any certificate evidencing shares of the Rocky Mountain II Common Stock shall
have been lost, stolen or destroyed prior to surrender thereof to the Exchange
Agent.
Section 3.2 Exchange Offers.
3.2.1 Miracle Partners Exchange Offer.
(a) As provided in Section 5.1.2, the Holding
Company shall commence an offer, in accordance with the terms and conditions set
forth in the Form S-4 Registration Statement and the form of Letter of
Transmittal reasonably satisfactory to the Board of Directors of the Holding
Company, to each of the holders of the issued and outstanding shares of the
capital stock of Miracle Partners which offer shall provide that each of the 500
issued and outstanding shares capital
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stock of Miracle Partners may be exchanged pursuant to such offer for 188.64
shares of the Common Stock of the Holding Company (the "Miracle Partners
Exchange Offer").
(b) Subject to the prior satisfaction of each of
the conditions precedent to the obligations of the Holding Company set forth in
Sections 4.1 and 4.10, which have not been waived in writing by the Holding
Company, at the Closing, the Holding Company shall issue to each holder of
shares of the capital stock of Miracle Partners who elects to exchange his or
her shares for shares of the Common Stock of the Holding Company, against the
receipt by the Exchange Agent of all outstanding certificates evidencing shares
of the capital stock of Miracle Partners and other satisfactory and customary
delivery requirements, certificates evidencing the greatest whole number of
shares of the Common Stock of the Holding Company for which such shares may be
exchanged as provided herein, less the number of Indemnity Escrow Shares and
Debt Level Escrow Shares attributable to each such holder, plus a cash payment
in lieu of fractional shares in an amount determined pursuant to Section 3.3.
(c) The terms of the Miracle Partners Exchange
Offer shall provide that the tender by the holder of shares of the capital stock
of Miracle Partners of his or her shares for exchange pursuant to such offer
shall be irrevocable. The Exchange Agent shall be authorized to require an
indemnification agreement or the posting of a bond or other financial
accommodation satisfactory to the Exchange Agent from any holder of shares of
the capital stock of Miracle Partners who tenders his or her shares for exchange
in the event that such holder shall allege that any certificate evidencing
shares of Miracle Partners shall have been lost, stolen or destroyed prior to
surrender thereof to the Exchange Agent.
3.2.2 Prema Properties Exchange Offer.
(a) As provided in Section 5.1.2, the Holding
Company shall commence an offer, in accordance with the terms and conditions set
forth in the Form S-4 Registration Statement and in a form of Letter of
Transmittal reasonably satisfactory to the Board of Directors of the Holding
Company, to each of the Prema Properties members to exchange an aggregate of
1,488.89 shares of the Common Stock of the Holding Company for each 1%
Percentage Interest in the profits of Prema Properties represented by such
Membership Interest (the "Prema Properties Exchange Offer").
(b) Subject to the prior satisfaction of each of
the conditions precedent to the obligations of the Holding Company set forth in
Sections 4.1 and 4.10, which have not been waived in writing by the Holding
Company, at the Closing, the Holding Company shall issue to each Prema
Properties Member who elects to exchange his or her Membership Interests for
shares of the Common Stock of the Holding Company pursuant to the Prema
Properties Exchange Offer, against the receipt by the Exchange Agent of an
Assignment of Membership Interest in a form reasonably satisfactory to the Board
of Directors of the Holding Company, duly executed with signatures guaranteed,
and other satisfactory and customary delivery requirements, certificates
evidencing the greatest whole number of shares of the Common Stock of the
Holding Company for which each
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such Membership Interest may be exchanged as provided herein, less the number of
Indemnity Escrow Shares and Debt Level Escrow Shares attributable to each of the
Prema Properties Members who elects to exchange his or her Membership Interests
for shares of the Common Stock of the Holding Company pursuant to the Prema
Properties Exchange Offer, plus cash payment in lieu of fractional shares in the
amount determined pursuant to Section 3.3.
(c) The Prema Properties Exchange Offer shall
further provide that the tender by a Prema Properties Member of his or her
Membership Interest for exchange in accordance with the Prema Properties
Exchange Offer shall be irrevocable.
3.2.3 Ralston Car Wash Exchange Offer.
(a) As provided in Section 5.1.2, the Holding
Company shall commence an offer, in accordance with the terms and conditions set
forth in the Form S-4 Registration Statement and a form of Letter of Transmittal
reasonably satisfactory to the Board of Directors of the Holding Company to each
of the Ralston Car Wash Members to exchange 291.61 shares of the Common Stock of
the Holding Company for each 1% Percentage Interest in the profits of Ralston
Car Wash represented by such Membership Interest (the "Ralston Car Wash Exchange
Offer").
(b) Subject to the prior satisfaction of each of
the conditions precedent to the obligations of the Holding Company set forth in
Sections 4.1 and 410, which have not been waived in writing by the Holding
Company, at the Closing, the Holding Company shall issue to each of the Ralston
Car Wash Members who elects to exchange his or her Membership Interest for
shares of the Common Stock of the Holding Company, against the receipt by the
Exchange Agent of an Assignment of Membership Interest in a form reasonably
satisfactory to the Board of Directors of the Holding Company, duly executed
with signatures guaranteed, and other satisfactory and customary delivery
requirements, certificates evidencing the greatest whole number of shares of the
Common Stock of the Holding Company for which each such Membership Interest may
be exchanged as provided herein, less the number of Indemnity Escrow Shares and
Debt Level Escrow Shares attributable to each Ralston Car Wash Member who elects
to exchange his or her Membership Interest for shares of the Common Stock of the
Holding Company, plus a cash payment in lieu of fractional shares in the amount
determined pursuant to Section 3.3.
(c) The Ralston Car Wash Exchange Offer shall
further provide that the tender by any Ralston Car Wash Member of his or her
Membership Interest for exchange pursuant to the Ralston Car Wash Exchange Offer
shall be irrevocable.
3.2.4 KBG Car Wash Exchange Offer.
(a) KBG has formed a limited liability company
under and pursuant to the laws of the State of Maryland known as "KBG, LLC."
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(b) As provided in Section 5.1.2 the Holding
Company shall commence an offer to KBG, in accordance with the terms and
conditions set forth in the Form S-4 Registration Statement and a form of Letter
of Transmittal reasonably satisfactory to the Board of Directors of the Holding
Company, to exchange an aggregate of 12,411 shares of the Common Stock of the
Holding Company for all of the Membership Interests in KBG, LLC, subject to the
compliance by KBG with the terms of this Agreement (the "KBG Exchange Offer").
The terms of the KBG Exchange Offer shall, among other things, require KBG to
contribute to KBG, LLC prior to the Closing Date, in exchange for all of the
Membership Interests of KBG, LLC, all of the right, title and interest of KBG
and Byrer in and to the Proprietary Car Wash Software System, together with any
and all copyrights therein, patents of any portion thereof, pending applications
for patents of any portion thereof, patent rights therein, and pending
applications for registrations of copyrights therein, anywhere in the world, and
all of its rights, title and interest in and to any and all licenses or
privileges granted by KBG with respect thereto, free and clear of any and all
liens, claims, charges, encumbrances, rights, licenses or privileges of any
other party whatsoever, except those approved in writing by the Board of
Directors of the Holding Company or its designee, pursuant to an Assignment of
Intellectual Property Rights in form and content reasonably acceptable to the
Board of Directors of the Holding Company.
(c) Pursuant to the KBG Exchange Offer, and
subject to the prior satisfaction of each of the conditions precedent to the
obligations of the Holding Company set forth in Sections 4.1 and 4.10, which
have not been waived in writing by the Holding Company, at the Closing, the
Holding Company shall issue to KBG, against the receipt by the Exchange Agent of
an Assignment of Membership Interests, duly executed with signatures guaranteed,
covering all of the Membership Interests of KBG, LLC, and other satisfactory and
customary delivery requirements, certificates evidencing the full number of
shares of the Common Stock of the Holding Company for which each such Membership
Interest may be exchanged as provided herein, less the number of Indemnity
Escrow Shares attributable to KBG.
Section 3.3 Fractional Shares. The Holding Company shall not issue any
fractional shares pursuant to any of the Subsidiary Mergers or any of the
Exchange Offers. Rather, in lieu of the issuance of fractional shares, the
Holding Company shall issue to each holder of shares of or a Membership Interest
in a Predecessor Company who otherwise would be entitled to receive fractional
shares pursuant to consummation of any of the Subsidiary Mergers or any of the
Exchange Offers cash in an amount equal to the product obtained by multiplying
such fractional share interest by the price per share at which shares of the
Common Stock shall be offered to the public pursuant to the IPO. No interest
shall be paid by the Holding Company on any cash payment to be made by the
Holding Company in lieu of fractional shares.
ARTICLE IV
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CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES
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Section 4.1 Conditions to the Obligations of Each of the Parties. The
obligations of each of the parties to this Agreement to consummate the
transactions contemplated by Article III to be consummated at the Closing and to
perform the other obligations under this Agreement which are to be performed at
and after the Closing are subject to the satisfaction at or prior to the Closing
of each of the conditions precedent set forth in this Section 4.1:
4.1.1 Effective Registration Statements.
(a) Form S-1 Registration Statement. A
registration statement on Form S-1 covering the issuance, offer and sale to the
public by the Holding Company of not more than 2,645,000 shares of the Common
Stock of the Holding Company in the proposed IPO for the account of the Company,
and, subject to the limitations provided for in Section 22.7 of this Agreement,
such number of Combination Shares that the Selling Stockholders and Selling
Members shall have elected in accordance with the terms of this Agreement to
include therein, shall have been filed by the Holding Company with the
Commission in accordance with the Securities Act and declared effective by the
Commission, and be effective as of the Closing Date, and no stop order shall
have been issued and be in effect as of the Closing Date with respect thereto.
(b) Form S-4 Registration Statement; Joint Proxy
Statement. A registration statement on Form S-4 covering the issuance by the
Holding Company of the shares of the Common Stock of the Holding Company to be
issued by the Holding Company pursuant to the transactions contemplated by
Article III of this Agreement shall have been filed by the Holding Company with
the Commission in accordance with the Securities Act and declared effective by
the Commission, and be effective as of the Closing Date, and no stop order shall
have been issued and be in effect as of the Closing Date with respect thereto.
4.1.2 Underwriting Agreement. The Holding Company shall have
entered into an underwriting agreement which shall provide for (i) the issuance
and sale by the Holding Company to the several underwriters who are parties to
the underwriting agreement, on a firm commitment basis, of all of the IPO Shares
(and, subject to the limitations provided for in this Agreement, all of the
Combination Shares that the Selling Stockholders and the Selling Members shall
have elected to include therein in accordance with the terms of this Agreement),
and (ii) the issuance and sale by the Holding Company of the IPO Shares (and
such Combination Shares) at a gross price to the public (before the deduction of
underwriting discounts) of at least $10 per share or such lower price as may be
approved by the Finance Committee or the Board of Directors of the Holding
Company pursuant to Section 18.3, and shall further provide that each of the IPO
Shares and Combination Shares to be offered and sold to the public shall be
deemed to be "stapled" and part of a common pool of shares, such that each
investor in the IPO shall be deemed to have purchased from the underwriters a
proportionate interest in the IPO Shares and the Combination Shares (the
"Underwriting Agreement"). The Underwriting Agreement shall be in full force and
effect as of the Closing Date, each of the conditions precedent to the
obligations of the parties thereunder shall have been satisfied or waived in
writing by the party entitled to the benefit thereof, and the underwriters shall
be ready, willing and able to perform their obligations thereunder, subject only
to the occurrence of the Closing hereunder.
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4.1.3 Compliance with the Terms of this Agreement. Each of the
parties to this Agreement shall have performed or complied with in all material
respects all of the covenants and agreements made by each of them, respectively,
which are to be performed or complied with prior to the Closing Date or at the
Closing pursuant to the terms of this Agreement unless the failure to have so
performed or complied with such covenants and agreements in the aggregate has
not had or is not reasonably likely to have a Material Adverse Effect on the
Predecessor Companies taken as a whole.
4.1.4 Representations and Warranties True. Each of the
representations and warranties made by the parties to this Agreement pursuant to
the terms of this Agreement shall have been true and correct as of the date
hereof and be true and correct in all material respects as of the Closing Date
(except with respect to those representations and warranties made with respect
to a certain date other than the date of this Agreement or the Closing Date,
which representations and warranties need be true and correct only as of such
certain date) unless the falsety or inaccuracy of such representations and
warranties in the aggregate has not had or is not reasonably likely to have
Material Adverse Effect on the Predecessor Companies taken as a whole.
4.1.5 Consents and Approvals Obtained. Each of the parties
shall have obtained, prior to the Closing, all consents, approvals, waivers, and
authorizations from governmental authorities, courts, lenders and other third
parties whose consent, approval, waiver or authorization is necessary or
advisable in order to consummate the transactions contemplated hereby unless the
failure to obtain such consents, approvals, waivers or authorizations in the
aggregate is not reasonably likely to have a Material Adverse Effect on the
Predecessor Companies taken as whole.
4.1.6 No Injunctions or Restraining Orders. There shall be no
injunction, restraining order or decree of any nature whatsoever that is in
effect which restrains or prohibits the consummation of the transactions
contemplated hereby.
4.1.7 Agreements Not to Compete. Each natural person who as of
the Closing Date is the holder of 10% or more of the common stock or membership
interests of a Predecessor Company (other than any such Person who is subject to
another agreement not to compete with the Holding Company) shall have entered
into Agreements Not to Compete with the Holding Company substantially in the
forms attached hereto collectively as Exhibit C and, subject to the occurrence
of the Closing, each such Agreement Not to Compete shall be in full force and
effect as of the Closing Date.
4.1.8 Waivers of Indemnification Rights. Each of the officers
and directors of the Corporate Predecessor Companies who also are Selling
Stockholders and entitled to be indemnified under the terms of the applicable
charter or bylaws of a Corporate Predecessor Company and each of the members of
Prema Properties and of Ralston Car Wash who also are Selling Members and
entitled to be indemnified under an operating agreement of any Predecessor
Company shall have executed and delivered in favor of the Holding Company and
such Predecessor Company a written waiver of such rights to indemnification from
such Predecessor Company to the extent that the Holding Company may be entitled
to indemnification from each such Person pursuant to the terms of this
Agreement.
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4.1.9 Closing Documentation. Each of the parties to this
Agreement shall have received duplicate originals of all of the documents,
instruments or certificates required by Article XV hereof to be executed and
delivered by the parties to this Agreement at the Closing.
4.1.10 Financial Statements. The Financial Statements of each
of the Predecessor Companies for their respective fiscal years of 1994, 1995,
1996 and 1997 (and any other applicable periods that the Holding Company
reasonably determines it must include in the registration statements that the
Holding Company intends to file with the Commission in the manner contemplated
by this Agreement) shall have been audited (except for unaudited financial
statements that the Holding Company reasonably determines can be included in
such registration statements) and shall comply in all material respects with
GAAP and the accounting requirements of the Securities Act and the Commission,
consistently applied. Each of the Predecessor Companies shall have provided to
the Holding Company consents from Ernst & Young to the inclusion of their audit
reports in all filings to be made by the Holding Company with the Commission,
"comfort letters" and such other assurances from Ernst & Young and its other
independent accountants that may be reasonably requested by the Holding Company
or any underwriter involved in the public offering by the Holding Company of its
common stock or other securities.
4.1.11 Exercise of Dissenter's Rights. The aggregate amount of
cash that will be required to be paid to the former stockholders of the
Corporate Predecessor Companies who validly exercise and perfect "dissenter's
rights" with respect to any applicable Subsidiary Merger under the laws of the
jurisdiction in which any such Corporate Predecessor Company shall be
incorporated (or who have voted against an applicable Subsidiary Merger and have
taken the necessary steps to perfect "dissenter's rights"and are entitled to
perfect "dissenter's rights" after the Closing by taking additional actions in
accordance with applicable law), assuming that each such dissenting stockholder
would be entitled to receive cash in exchange for each dissenting share of a
Corporate Predecessor Company equal to the gross price to the public (before the
deduction of underwriting discounts) of each of the IPO Shares multiplied by the
exchange ratio provided in Article III for each dissenting share shall not
exceed 10% of the amount of the net cash proceeds expected to be realized by the
Holding Company pursuant to the IPO.
4.1.12 Tender of Shares and Interests. The stockholders of
Miracle Partners shall have tendered to the Holding Company for exchange in
accordance with the terms of the Miracle Partners Exchange Offer all of the
issued and outstanding shares of the capital stock of Miracle Partners; the
members of Prema Properties (or other holders of interests in Prema Properties)
shall have tendered to the Holding Company for exchange in accordance with the
terms of the Prema Properties Exchange Offer all of their respective rights,
title and interests in and to Membership Interests in Prema Properties
representing at least 75% of all of the Percentage Interests in Prema
Properties; the members of Ralston Car Wash (or other holders of interests in
Ralston Car Wash) shall have tendered to the Holding Company for exchange in
accordance with the terms of the Ralston Car Wash Exchange Offer all of their
respective rights, title and interests in and to Membership Interests in Ralston
Car Wash representing at least 95% of all of the Percentage Interests in Ralston
Car Wash; and KBG shall have tendered to the Holding Company for exchange
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in accordance with the terms of the KBG Exchange Offer all of its right, title
and interest in and to all of the Membership Interests in KBG, LLC.
4.1.13 Resignations of Officers and Directors of Predecessor
Companies. Each of the officers and directors of each of the Corporate
Predecessor Companies shall have resigned from their respective offices and
directorships, effective as of the Closing; the General Manager of Prema
Properties shall have resigned as General Manager, effective as of the Closing;
and the Manager of Ralston Car Wash shall have resigned as Manager, effective as
of the Closing.
4.1.14 Environmental Due Diligence. With respect to each of
the properties of the Predecessor Companies, (i) the Holding Company shall have
been satisfied with the environmental condition of such property, (ii) each
Predecessor Company owning any property the environmental condition of which the
Holding Company finds unsatisfactory shall have remediated such unsatisfactory
environmental condition (or adequately provided for such remediation) to the
satisfaction of the Holding Company or (iii) each Predecessor Company owning any
property the environmental condition of which the Holding Company finds
unsatisfactory and the other parties hereto shall have agreed to an appropriate
reduction in the number of Combination Shares to be issued by the Holding
Company to the Selling Stockholders or Selling Members of such Predecessor
Company as contemplated in Section 5.20.
Section 4.2 Additional Conditions to the Obligations of WE JAC. In
addition to the conditions precedent set forth in Section 4.1 above, the
obligations of WE JAC to consummate the transactions contemplated by Article III
to be consummated by WE JAC at the Closing and to perform its other obligations
under this Agreement which are to be performed at and after the Closing by WE
JAC are subject to the satisfaction at or prior to the Closing of each of the
conditions precedent set forth in this Section 4.2:
4.2.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to WE JAC and its shareholders, in substantially the form
attached hereto as Exhibit D.
4.2.2 Fairness Opinion. The Board of Directors of WE JAC shall
have received the written opinion of Ferris, Baker Watts, Incorporated, dated as
of the date that the Form S-4 Registration Statement is declared effective by
the Commission, that the terms of the WE JAC Merger and of this Agreement, as
ultimately negotiated by the parties, is fair, from a financial point of view,
to the shareholders of WE JAC.
4.2.3 Shareholder Approval. The shareholders of WE JAC shall
have approved and authorized the WE JAC Merger in the manner and by the vote
required by its Certificate of Incorporation and Bylaws and the applicable
provisions of the DCL.
Section 4.3 Conditions to the Obligations of Lube Ventures. In addition
to the conditions precedent set forth in Section 4.1 above, the obligations of
Lube Ventures to consummate the transactions contemplated by Article III to be
consummated by Lube Ventures at the Closing and to perform its other obligations
under this Agreement which are to be performed at and after the Closing by Lube
Ventures are subject to the satisfaction at or prior to the Closing of each of
the conditions precedent set forth in this Section 4.3:
4.3.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to Lube Ventures and its shareholders, in substantially the form
attached hereto as Exhibit D.
4.3.2 Shareholder Approval. The shareholders of Lube Ventures
shall have approved and authorized the transactions contemplated by this
Agreement in the manner and by the vote required by its Certificate of
Incorporation and Bylaws and the applicable provisions of the DCL.
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Section 4.4 Additional Conditions to the Obligations of Miracle
Industries. In addition to the conditions precedent set forth in Section 4.1
above, the obligations of Miracle Industries to consummate the transactions
contemplated by Article III to be consummated by Miracle Industries at the
Closing and to perform its other obligations under this Agreement which are to
be performed at and after the Closing by Miracle Industries are subject to the
satisfaction at or prior to the Closing of each of the conditions precedent set
forth in this Section 4.4:
4.4.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to Miracle Industries and its shareholders, in substantially
the form attached as Exhibit D.
4.4.2 Shareholder Approval. The shareholders of Miracle
Industries shall have approved and authorized the transactions contemplated by
this Agreement in the manner and by the vote required by its Certificate of
Incorporation and Bylaws and the applicable provisions of the DCL.
Section 4.5 Additional Conditions to the Obligations of Rocky Mountain
I. In addition to the conditions precedent set forth in Section 4.1 above, the
obligations of Rocky Mountain I to consummate the transactions contemplated by
Article III to be consummated by Rocky Mountain I at the Closing and to perform
its other obligations under this Agreement which are to be performed at and
after the Closing by Rocky Mountain I are subject to the satisfaction at or
prior to the Closing of each of the conditions precedent set forth in this
Section 4.5:
4.5.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to Rocky Mountain I and its shareholders, in substantially the
form attached as Exhibit D.
4.5.2 Fairness Opinion. The Board of Directors of Rocky
Mountain I shall have received the written opinion of Quist Financial, Inc.,
dated as of the date that the S-4 Registration Statement is declared effective
by the Commission, that the terms of the Rocky Mountain I and of this Agreement,
as ultimately negotiated by the parties, is fair, from a financial point of
view, to the shareholders of Rocky Mountain I.
4.5.3 Shareholder Approval. The shareholders of Rocky Mountain
I shall have approved and authorized the transactions contemplated by this
Agreement in the manner and the vote required by its Articles of Incorporation
and Bylaws and the applicable provisions of the CBCA.
Section 4.6 Additional Conditions to the Obligations of Rocky Mountain
II. In addition to the conditions precedent set forth in Section 4.1 above, the
obligations of Rocky Mountain II to consummate the transactions contemplated by
Article III to be consummated by Rocky Mountain II at the Closing and to perform
its other obligations under this Agreement which are to be performed at and
after the Closing by Rocky Mountain II are subject to the satisfaction at or
prior to the Closing of each of the conditions precedent set forth in this
Section 4.6:
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4.6.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to Rocky Mountain II and its shareholders, in substantially the
form attached as Exhibit D.
4.6.2 Fairness Opinion. The Board of Directors of Rocky
Mountain II shall have received the written opinion of Quist Financial, Inc.,
dated as of the date that the Form S-4 is declared effective by the Commission,
that the terms of the Rocky Mountain I and of this Agreement, as ultimately
negotiated by the parties, is fair, from a financial point of view, to the
shareholders of Rocky Mountain II.
4.6.3 Shareholder Approval. The shareholders of Rocky Mountain
II shall have approved and authorized the transactions contemplated by this
Agreement in the manner and the vote required by its Articles of Incorporation
and Bylaws and the applicable provisions of the CBCA.
Section 4.7 Additional Condition to the Obligations of the Miracle
Partners Stockholders. Notwithstanding the fact that all tenders made by the
holders of capital stock of Miracle Partners in acceptance of the Miracle
Partners Exchange Offer will be irrevocable, subject to the terms of the Miracle
Partners Exchange Offer, the obligation of the holders of shares of the capital
stock of Miracle Partners to consummate the exchange of their shares at the
Closing, and to perform their other obligations under this Agreement which are
to be performed at and after the Closing, also are subject to the satisfaction
at or prior to the Closing of the following condition precedent:
4.7.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to Miracle Partners and its shareholders, in substantially the
form attached as Exhibit D.
Section 4.8 Additional Condition to the Obligations of the Ralston Car
Wash Members. Notwithstanding the fact that all tenders of Membership Interests
in Ralston Car Wash made by the Ralston Car Wash Members in acceptance of the
Ralston Car Wash Exchange Offer will be irrevocable, subject to the terms of the
Ralston Car Wash Exchange Offer, the obligation of the Ralston Car Wash Members
to consummate the exchange of their Membership Interests in Ralston Car Wash at
the Closing, and to perform their other obligations under this Agreement which
are to be performed at and after the Closing, also are subject to the
satisfaction at or prior to the Closing of the each of the following conditions
precedent set forth in this Section 4.8:
4.8.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to the Ralston Car Wash Members, in substantially the form
attached as Exhibit D.
Section 4.9 Additional Conditions to the Obligations of the Prema
Properties Members. Notwithstanding the fact that all tenders of Membership
Interests in Prema Properties made by the Prema Properties Members in acceptance
of the Prema Properties Exchange Offer will be irrevocable, subject to the terms
of the Prema Properties Exchange Offer, the obligation of the Prema Properties
Members to consummate the exchange of their Membership Interests in Prema
Properties at the Closing, and to perform their other obligations under this
Agreement which are to be
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performed at and after the Closing, also are subject to the satisfaction at or
prior to the Closing of the following condition precedent:
4.9.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to the Prema Properties Members, in substantially the form
attached as Exhibit D.
Section 4.10 Additional Condition to the Obligations of the Holding
Company. In addition to the conditions precedent set forth in Section 4.1 above,
the obligations of the Holding Company to consummate the transactions
contemplated by Article III to be consummated by the Holding Company at the
Closing and to cause the Merger Subsidiaries to consummate the Subsidiary
Mergers in accordance with the terms of Article III, and to perform its other
obligations under this Agreement which are to be performed at and after the
Closing by the Holding Company are subject to the satisfaction at or prior to
the Closing of each of the condition precedent set forth in this Section 4.10:
4.10.1 No Material Adverse Effects. None of the Predecessor
Companies shall have suffered any casualty and no event shall have occurred
which has had a Material Adverse Effect on such Predecessor Company or which
would be reasonably likely to have a Material Adverse Effect on such Predecessor
Company following the Closing.
Section 4.11 Additional Condition to the Obligations of KGB.
Notwithstanding the fact that all tenders of Membership Interests in KBG made by
the KBG Members in acceptance of the KBG Exchange Offer will be irrevocable,
subject to the terms of the KBG Exchange Offer, the obligation of the KBG
Members to consummate the exchange of their Membership Interests in KBG at the
Closing, and to perform their other obligations under this Agreement which are
to be performed at and after the Closing, also are subject to the satisfaction
at or prior to the Closing of the following condition precedent:
4.11.1 Tax Opinion. Ernst & Young shall have rendered a
written opinion to the KBG Members, in substantially the form attached as
Exhibit D.
ARTICLE V
---------
COVENANTS AND AGREEMENTS RELATING TO PRE-CLOSING PERIOD
-------------------------------------------------------
Section 5.1
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Special Shareholder Meetings/Exchange Officers. The parties
shall cooperate and use their reasonable best efforts to cause the Form S-4
Registration Statement to be filed with, and declared effective by, the
Securities and Exchange Commission as soon as practicable. Each of WE JAC, Lube
Ventures, Miracle Industries, Rocky Mountain I and Rocky Mountain II shall call,
provide notice of, and convene a special meeting of its shareholders for the
purpose of considering and voting upon the approval of the transactions
contemplated by, and the adoption of the terms of, this Agreement (or solicit
the appropriate written consent of their shareholders). Such special meetings
and consent solicitations shall be conducted in accordance with the respective
charters, bylaws and the applicable corporation laws of the jurisdiction in
which each such party is incorporated. Each of Miracle Partners, Prema
Properties, Ralston Car Wash and KBG shall commence the Exchange Offers
contemplated by this Agreement in accordance with the terms of Section 3.2
hereof. The parties shall cooperate in order to cause their respective special
meetings and consent solicitations and their respective Exchange Offers to be
commenced as soon as practicable and as soon as such meetings and Exchange
Offers may be lawfully called, conducted and commenced, taking into account the
parties' responsibilities under applicable securities laws, including the
responsibility to deliver the Joint Proxy Statement/Prospectus forming a part of
the Form S-4 Registration Statement to each of the parties' respective
stockholders or members. The Boards of Directors of each of the Corporate
Predecessor Companies and the Managing Member of each of the LLC Predecessor
Companies each acknowledge and agree that such Proxy Statement-Prospectus shall
state that each such Board or Managing Member approves of and supports such
transactions and the terms of this Agreement and recommends that its respective
stockholders vote in favor of the same or tender their membership interests, as
the case may be. Furthermore, in the event that a special meeting of
stockholders or shareholders of any such corporation shall be held as provided
for herein, at such special meeting, the Boards of Directors of each of the
Corporate Predecessor Companies actively shall encourage its respective
stockholders or shareholder to vote in favor of the transactions contemplated
hereby and in favor of the terms of this Agreement.
Section 5.2 Corporate Status. From and after the date hereof through
and including the Closing Date or the earlier termination of this Agreement,
each of the corporate parties to this Agreement shall take all actions,
corporate or otherwise, reasonably necessary or appropriate to maintain its
respective status as a corporation validly existing and in good standing under
the laws of its the state of its incorporation and to maintain its
qualifications as a foreign corporation in good standing under the laws of each
jurisdiction in which the conduct of its business or the ownership or operation
of its assets and properties requires such qualification. In addition, from and
after the date hereof through and including the Closing or the earlier
termination of this Agreement, Miracle Industries and Lube Ventures shall each
take all actions, corporate or otherwise, as may be reasonably necessary to
maintain its respective election under the Code to be subject to federal income
taxation as a "small business corporation" under Subchapter S of the Code.
Section 5.3 Status of Limited Liability Companies.
5.3.1 Prema Properties. From and after the date hereof through
and including the Closing Date or the earlier termination of this Agreement,
Prema Properties shall take all actions
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reasonably necessary or appropriate to maintain the status of Prema Properties
as a limited liability company validly existing and in good standing under the
laws of the state of its organization and to maintain its qualifications as a
foreign limited liability company in good standing under the laws of each
jurisdiction in which the conduct of its business or the ownership or operation
of its assets and properties requires such qualification. In addition, from and
after the date hereof through and including the Closing Date or the earlier
termination of this Agreement, Prema Properties shall take all actions
reasonably necessary or appropriate to maintain the status of Prema Properties
as a "partnership" for federal income tax purposes.
5.3.2 Ralston Car Wash. From and after the date hereof through
and including the Closing Date or the earlier termination of this Agreement,
Ralston Car Wash shall take all actions reasonably necessary or appropriate to
maintain the status of Ralston Car Wash as a limited liability company validly
existing and in good standing under the laws of the state of its organization
and to maintain its qualifications as a foreign limited liability company in
good standing under the laws of each jurisdiction in which the conduct of its
business or the ownership or operation of its assets and properties requires
such qualification. In addition, from and after the date hereof through and
including the Closing Date or the earlier termination of this Agreement, Ralston
Car Wash shall take all actions reasonably necessary or appropriate to maintain
the status of Ralston Car Wash as a "partnership" for federal income tax
purposes.
5.3.3 Hydro-Spray and Indy Ventures. From and after the date
hereof through and including the Closing Date or the earlier termination of this
Agreement, Miracle Industries shall take all actions reasonably necessary or
appropriate to maintain the status of each of Hydro-Spray and Indy Ventures as
limited liability companies validly existing and in good standing under the laws
of the state of their respective organization and to maintain their respective
qualifications as foreign limited liability companies in good standing under the
laws of each jurisdiction in which the conduct of their respective businesses or
the ownership or operation of their respective assets and properties requires
such qualification. In addition, from and after the date hereof through and
including the Closing Date or the earlier termination of this Agreement, Miracle
Industries shall take all actions reasonably necessary or appropriate to
maintain the status of each of Hydro-Spray and Indy Ventures as a "partnership"
for federal income tax purposes.
Section 5.4 Access to Information. Except as prohibited or limited by
law or regulation, each of the parties to this Agreement shall, from and after
the date of this Agreement and until the Closing Date or the earlier termination
of this Agreement, provide to each of the other parties, and their respective
employees, counsel, accountants and other representatives, so long as each
remains a party to this Agreement, full and complete access upon reasonable
notice during normal business hours, to all officers, employees, offices,
properties, agreements, records and affairs of such party and its business, and
will provide copies of such information concerning such party and its business
as any other party hereto may reasonably request in connection with the
transactions contemplated by this Agreement.
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Section 5.5 Conduct of Businesses of Predecessor Companies Pending
Closing. From and after the date hereof through the Closing Date or the earlier
termination of this Agreement, except with the prior written consent of a
majority of the Operating Committee each of the Predecessor Companies shall
conduct their respective businesses in the ordinary course in a manner
consistent with its past practices (it being understood and agreed that (i) the
Constituent Companies of the WE JAC Group shall have the right hereafter to
enter into strategic alliances, joint ventures and other arrangements even
though not consistent with its past practices if the Board of Directors of WE
JAC determines in good faith that to do so would be in the best interests of the
WE JAC Group and would not materially adversely affect the transactions
contemplated hereby. In addition, without limiting the generality of the
foregoing, each of the Predecessor Companies covenants and agreement that, from
and after the date hereof through and including the Closing, it shall abide by
and comply with the following:
(a) No Changes in Accounting Methods. None of
the Predecessor Companies shall adopt any change in any method of accounting or
accounting practice, except as contemplated or required by GAAP or in order to
conform such methods or practices to GAAP;
(b) No Amendments to Corporate or Similar
Documents. None of the Predecessor Companies shall, in the case of
corporations, amend its charter or by-laws, or, in the case of limited liability
companies, amend its articles of organization or operating agreement, and
Miracle Industries shall not agree to any amendment of the Articles of
Organization or Operating Agreements of Hydra-Spray or Indy Ventures;
(c) No New Employees or Employee Benefits.
Except as may be required in accordance with contractual obligations existing on
the date hereof that are contained in written agreements in effect on the date
hereof which have been disclosed in the Disclosure Letter submitted by such
party to the other parties pursuant to this Agreement, none of the Predecessor
Companies shall employ any additional employees otherwise than as may be
necessary in the ordinary course of business, pay to any current or former
Employee any benefit that is not required by any Employee Benefit Plan or
Benefit Arrangement or adopt, amend, or increase any benefits payable under, any
Employee Benefit Plan or Benefits Arrangement, trust, agreement or other
arrangement covering any existing or former Employee (or beneficiary or
dependent);
(d) No Mergers, Etc. None of the Predecessor
Companies shall merge or consolidate with, or agree to merge or consolidate
with, or purchase or agree to purchase all or substantially all of the assets
of, or otherwise acquire, or make any investments in any other business entity
or interest therein or enter into any joint venture or similar arrangement with
any other person, party or business entity except as may be contemplated
specifically by the terms of this Agreement without the prior written consent of
a majority or more of the Operating Committee (it being understood and agreed
that the purchase by Precision Tune from time to time of area subfranchise
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rights or area development rights from its area subfranchisors or master
licensees shall not be deemed to be a violation of the foregoing covenant);
(e) No Issuance or Redemption of Securities.
Except as may be required in accordance with obligations under options,
warrants, or other contractually enforceable obligations to sell or issue stock
or equity interests or securities convertible into or exchangeable for stock or
equity interests, none of the Predecessor Companies shall authorize for
issuance, issue or sell any additional shares of its capital stock or any
additional equity interests or any securities or obligations convertible into or
exchangeable for shares of its capital stock or equity interests or issue or
grant any option, warrant or other right to purchase any shares of its capital
stock or equity interests or redeem, purchase or otherwise acquire, or propose
or commit to, redeem, purchase or otherwise acquire, any shares of its capital
stock or other equity interests or securities or any securities or obligations
convertible into or exchangeable for shares of its capital stock or equity
interests;
(f) No New Debt or Debt Restructuring. Except
(i) in the ordinary course of business, (ii) to pay Transaction Expenses or pay
a Professional Expense Dividend, (iii) with the prior approval of the Operating
Committee or (iv) in connection with transactions otherwise permitted by this
Section 5.5, none of the Predecessor Companies shall incur or agree to incur any
Debt or restructure any existing Debt, nor shall any of the Predecessor
Companies make any loans, advances or capital contributions to, or investments
in, any Person without the prior written consent of a majority or more of the
Operating Committee.
(g) Payments; Amortization of Debt. From and
after the date hereof, each of the Predecessor Companies shall pay its current
liabilities as they become due and amortize its Debt in the ordinary course of
business in accordance with the contractual agreements evidencing such Debt,
and, except in accordance with contractual obligations existing on the date
hereof that are contained in written agreements in effect on the date hereof
which have been disclosed in the Disclosure Letter submitted by such party to
the other parties pursuant to this Agreement, none of the Predecessor Companies
shall make, or agree to make, except in the ordinary course of business,
consistent with past practices, any payments to any Person on account of Debt or
otherwise without the prior written consent of a majority or more of the
Operating Committee or as may be otherwise permitted by this Agreement (it being
understood and agreed that the purchase by Precision Tune from time to time of
area subfranchise rights or area development rights from its area subfranchisors
or master licensees shall not be deemed to be a violation of the foregoing
covenant);
(h) No New Bids or Proposals. Except as may be
approved in advance by the Board of Directors of the Holding Company, none of
the Predecessor Companies shall make or submit any bid, proposal or commitment
to provide services or to purchase or distribute any products (in response to a
request for proposal or otherwise) otherwise than in the ordinary course of
business consistent with its past practices;
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(i) No Dividends or Distributions. Except as
provided for in Section 2.3, 5.17 and 5.18 of this Agreement, none of the
Predecessor Companies shall declare or distribute or pay any dividend or make
any other distribution of cash or any other asset to any stockholder,
shareholder or member;
(j) No Sales of Assets Except in Ordinary
Course. Except as provided in Schedule 5.5(j), none of the Predecessor
Companies shall sell or agree to sell any assets, rights or properties otherwise
than in the ordinary course of business, or create, or suffer to exist, any
Encumbrance on any of its assets, rights and properties other than Encumbrances
existing as of the date of this Agreement;
(k) No New Material Contracts Except in Ordinary
Course. Except in the ordinary course of business, none of the Predecessor
Companies shall make any capital expenditures exceeding $10,000 individually or
enter into or become a party to any arrangement or contract of a type that would
require the expenditure of more than $50,000 in any 12 month period or which
would otherwise be required to be disclosed by such party in its Disclosure
Letter without the prior written consent of a majority or more of the Operating
Committee; and
(l) No Changes to Compensation Arrangements.
Except as required by law or contractual obligations existing on the date hereof
that are contained in written agreements in effect on the date hereof which have
been disclosed in the Disclosure Letter submitted by such party to the other
parties pursuant to this Agreement, none of the Predecessor Companies shall (i)
increase in any manner the compensation (other than increases in the ordinary
course of business and consistent with past practice) of, or enter into any new
bonus or incentive agreement or arrangement with, any of its Employees, officers
or directors, (ii) pay or agree to pay any pension, retirement allowance or
similar employee benefit to any Employee, officer, or director, (iii) enter into
any new employment, severance, consulting or other compensation agreement with
any existing Employee, officer, or director; (iv) commit itself to any
additional pension, profit-sharing, deferred compensation, group insurance,
severance pay, retirement or other employee benefit plan, fund or similar
arrangement or amend or commit itself to amend any of such plans, funds or
similar arrangements in existence on the date hereof.
Section 5.6 Covenants Binding Only Upon KBG. From and after the date
hereof through and including the Closing, KBG hereby covenants and agrees that
it shall not sell, license, transfer, assign, pledge or otherwise create any
Encumbrance upon the Proprietary Car Wash Computer Software except as
contemplated by Section 3.2.4 of this Agreement.
Section 5.7 Consents. From and after the date hereof, each of the
Predecessor Companies shall use their reasonable best efforts to (i) obtain all
consents, waivers and authorizations and make all filings with and give all
notices that may be necessary or reasonably required to consummate the
transactions contemplated hereby, and (ii) cause each of the conditions
precedent to the obligations of each of the other parties to this Agreement to
be satisfied.
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Section 5.8 Public Statements. From and after the date hereof until the
earlier of the Closing or the termination of this Agreement, none of the
Predecessor Companies shall disclose to any Person other than its shareholders
or members the terms of this Agreement, or release any information concerning
any of the transactions contemplated hereby, that is intended for or is
reasonably likely to result in public dissemination thereof without the prior
written consent of a majority or more of the Operating Committee.
Section 5.9 Update of Disclosure. From and after the date hereof
through and including the earlier of the Closing or the termination of this
Agreement, each of the Predecessor Companies shall promptly notify the other
parties hereto of the occurrence of any material facts or circumstances that
would have required disclosure pursuant to the representations and warranties
made by such parties pursuant to the terms of this Agreement if such facts or
circumstances had been known to them prior to the execution of this Agreement
and of any other matters that would cause any representation or warranty to be
untrue, incorrect or misleading.
Section 5.10 Employee Benefit Contributions. On or prior to the Closing
Date, each of the Predecessor Companies shall make, and shall cause each of its
Affiliates to make, all contributions, and shall pay all premiums, or shall
cause each of its ERISA Affiliates to pay all premiums, with respect to
liabilities arising under any Benefit Arrangement or Employee Benefit Plan
provided to its current or former Employees, with respect to liabilities or
obligations which have accrued on or prior to the Closing Date or which will
accrue following the Closing Date in respect of periods prior to and through the
Closing Date.
Section 5.11 Lock-Up; No Shopping, Solicitations or Competing
Negotiations. Each of the parties to this Agreement hereby agrees that, from and
after the date hereof through and including the Closing or the earlier
termination of this Agreement, none of them shall encourage, solicit, entertain
or hold any negotiations or other discussions with any other Person relating to
the possible acquisition of all or any part of their respective businesses,
whether pursuant to a sale of assets, merger, consolidation, share exchange,
tender offer or otherwise.
Section 5.12 Audits. Promptly upon the execution of this Agreement, if
and to the extent they have not already done so, each of the Predecessor
Companies shall assist Ernst and Young, LLP with audits of their respective
financial statements at such dates and for such periods as the Holding Company
reasonably determines it must include in the registration statements the Holding
Company files with the Commission in the manner contemplated by this Agreement),
and shall make their respective books and records, financial statements,
employees, officers and facilities open to such auditors at reasonable hours
upon reasonable advance notice and to otherwise cooperate, and cause their
respective certified public accountants and other outside auditors to cooperate,
with such auditors in conducting such audits. Each of the Predecessor Companies
also shall provide the Holding Company with any unaudited financial statements
for any periods the Holding Company reasonably determines it must include in the
registration statements the Holding Company files with the Commission in the
manner contemplated by this Agreement. Each of the Predecessor Companies shall
also promptly provide to the Holding Company consents from Ernst & Young LLP
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to the inclusion of their audit reports in filings with the Commission, "comfort
letters" and such other assurances from Ernst & Young LLP and other independent
accountants of such Predecessor Company that may reasonably be requested by the
Holding Company or any underwriter involved in the public offering of the
Holding Company's securities. All of the financial statements provided to the
Holding Company pursuant to this Section 5.12 shall be prepared in accordance
with GAAP (and Regulation S-X of the Commission) consistently applied.
Section 5.13 Acquisition by Miracle Industries of Minority Interests in
Hydro-Spray. Promptly following the execution and delivery of this Agreement by
each of the parties hereto, Miracle Industries shall form a subsidiary
corporation under the laws of the State of Ohio solely for the purpose of
acquiring the minority membership interests in Hydro-Spray which are held
currently by Donald Havens and Dale Hughson, respectively, and shall cause such
subsidiary corporation to acquire such minority membership interests on or prior
to the Closing Date (but prior to the Closing) for an aggregate purchase price,
including debts and obligations, if any, assumed by Miracle Industries or such
subsidiary corporation in such transaction of not more than $300,000. In lieu of
payment of cash to such Hydro-Spray members for their membership interests in
Hydro-Spray, Miracle Industries may acquire such membership interests in
consideration of the issuance to such members of shares of common stock of
Miracle Industries in which case the exchange ratio set forth in Section
3.1.4(b) shall be reduced so that the aggregate number of Combination Shares to
be issued to shareholders of Miracle Industries remains at $749,250. The
acquisition agreement relating to the acquisition of such minority interests
shall be in a form approved by the Holding Company, and, at a minimum, shall
contain representations and warranties and indemnities from the sellers of such
interests which are customary for transactions of this sort and shall impose
covenants upon the sellers of such interests which will obligate them not to
compete with Miracle Industries or any of its presently existing or hereafter
created Affiliates (including the parties to this Agreement) in the business of
manufacturing and selling car wash equipment.
Section 5.14 Option To Purchase Property by Prema Property Members. At
the Closing Prema Properties shall execute and deliver to a partnership to be
comprised of the members of Prema Properties an Option Agreement pursuant to
which such partnership shall have the option to purchase the properties
described in Schedule 5.14 from Prema Properties on the following terms: (i) the
option shall be exercisable during the one year period commencing on the second
anniversary of the Closing Date; (ii) the option purchase price of each such
property shall be the fair market value of such property on the date of exercise
of the option which price shall be paid to Prema Properties in cash at the
closing of the transfer of such property; (iii) the closing on the sale of each
such property shall occur within 90 days of the later of the exercise of the
option or the determination of the purchase price therefor; (iv) all appraisal,
deed preparation, recording costs and transfer and documentary or similar taxes
shall be equally borne by the parties; (iv) all real estate taxes shall be
apportioned as of the date of the closing on the transfer of such property; and
(vii) all other terms of the transfer of such property shall be the customary
terms of transfer of commercial properties in the locale of such property. In
addition, the Option Agreement shall provide that upon the transfer of any such
property pursuant to the Option Agreement, Prema Properties or any assignee that
is an Affiliate of the Holding Company and shall lease such property pursuant to
a Lease Agreement that contains the following terms: (i) the annual rent
throughout the initial and all renewal terms (including rent escalation factors)
shall be the fair rental value of the property; (ii) annual rent shall
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be paid in monthly installments in advance; (iii) the annual rent shall be
triple net to the landlord; (iv) the Lease Agreement shall be for an initial
term of ten years and the tenant shall have options to renew for two successive
renewal terms of ten years each; and (v) all other terms of the lease of such
property shall be the customary terms of lease of commercial properties in the
locale of such property.
Section 5.15 Option To Purchase Property by Lube Ventures Stockholders.
At the Closing Lube Ventures shall execute and deliver to a partnership to be
comprised of the stockholders of Lube Ventures an Option Agreement pursuant to
which such partnership shall have the option to purchase the properties
described in Schedule 5.15 from Lube Ventures on the following terms: (i) the
option shall be exercisable during the one year period commencing on the second
anniversary of the Closing Date; (ii) the option purchase price of each such
property shall be the fair market value of such property on the date of exercise
of the option which price shall be paid to Lube Ventures in cash at the closing
of the transfer of such property; (iii) the closing on the sale of each such
property shall occur within 90 days of the later of the exercise of the option
or the determination of the purchase price therefor; (iv) all appraisal, deed
preparation, recording costs and transfer and documentary or similar taxes shall
be equally borne by the parties; (iv) all real estate taxes shall be apportioned
as of the date of the closing on the transfer of such property; and (vii) all
other terms of the transfer of such property shall be the customary terms of
transfer of commercial properties in the locale of such property. In addition,
the Option Agreement shall provide that upon the transfer of any such property
pursuant to the Option Agreement, Lube Ventures or any assignee that is an
Affiliate of the Holding Company a shall lease such property pursuant to a Lease
Agreement that contains the following terms: (i) the annual rent throughout the
initial and all renewal terms (including rent escalation factors) shall be the
fair rental value of the property; (ii) annual rent shall be paid in monthly
installments in advance; (iii) the annual rent shall be triple net to the
landlord; (iv) the Lease Agreement shall be for an initial term of ten years and
the tenant shall have options to renew for two successive renewal terms of ten
years each; and (v) all other terms of the lease of such property shall be the
customary terms of lease of commercial properties in the locale of such
property.
Section 5.16 Option To Purchase Property by Miracle Partners
Stockholders. At the Closing Miracle Partners shall execute and deliver to a
partnership to be comprised of the stockholders of Miracle Partners an Option
Agreement pursuant to which such partnership shall have the option to purchase
the properties described in Schedule 5.16 from Miracle Partners on the following
terms: (i) the option shall be exercisable during the one year period commencing
on the second anniversary of the Closing Date; (ii) the option purchase price of
each such property shall be the fair market value of such property on the date
of exercise of the option which price shall be paid to Miracle Partners in cash
at the closing of the transfer of such property; (iii) the closing on the sale
of each such property shall occur within 90 days of the later of the exercise of
the option or the determination of the purchase price therefor; (iv) all
appraisal, deed preparation, recording costs and transfer and documentary or
similar taxes shall be equally borne by the parties; (iv) all real estate taxes
shall be apportioned as of the date of the closing on the transfer of such
property; and (vii) all
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other terms of the transfer of such property shall be the customary terms of
transfer of commercial properties in the locale of such property. In addition,
the Option Agreement shall provide that upon the transfer of any such property
pursuant to the Option Agreement, Miracle Partners or any assignee that is an
Affiliate of the Holding Company a shall lease such property pursuant to a Lease
Agreement that contains the following terms: (i) the annual rent throughout the
initial and all renewal terms (including rent escalation factors) shall be the
fair rental value of the property; (ii) annual rent shall be paid in monthly
installments in advance; (iii) the annual rent shall be triple net to the
landlord; (iv) the Lease Agreement shall be for an initial term of ten years and
the tenant shall have options to renew for two successive renewal terms of ten
years each; and (v) all other terms of the lease of such property shall be the
customary terms of lease of commercial properties in the locale of such
property.
Section 5.17 Distributions of Unrelated Assets.
5.17.1 Distribution by Rocky Mountain I. Each of the
parties hereto acknowledges and agrees that, prior to the Closing, Rocky
Mountain I shall have the right to distribute to the holders of its capital
stock cash received by Rocky Mountain I pursuant to the repayment of the
principal amount (discounted due to early repayment) of the Promissory Note
payable to the order of Rocky Mountain I in the original principal amount of
$195,000 that it received in connection with the sale of its car wash located at
10685 East Mississippi Avenue, Aurora, Colorado in July 1995.
5.17.2 Distribution by Miracle Partners. Each of the
parties hereto acknowledges and agrees that, prior to the Closing, Miracle
Partners shall have the right to distribute to the holders of its capital stock
the real property owned by it and known as Lot 362, Hamilton Road, Columbus,
Ohio.
5.17.3 Distribution by Lube Ventures. Each of the
parties hereto acknowledges and agrees that, prior to the Closing, Lube Ventures
shall have the right to distribute to the holders of its capital stock the
approximately 5 acres of real property owned by it and known as 1237 West Fourth
Street, Mansfield, Ohio that is not used by Lube Ventures.
5.17.4 Distribution by Miracle Industries. Each of
the parties hereto acknowledges and agrees that, prior to the Closing, Miracle
Industries shall have the right to distribute to the holders of its capital
stock the following parcels of real property owned by it: two houses and a
vacant lot in Crestline, Ohio, a vacant lot in Delaware, Ohio and the Cleveland
Avenue, Columbus, Ohio car wash.
5.17.5 Distribution by Prema Properties. Each of the
parties hereto acknowledges and agrees that, prior to the Closing, Prema
Properties shall have the right to distribute to the holders of its Membership
Interests the following parcels of real property owned by it: the car wash
located on Main Street in Finley, Ohio and the shopping center and vacant land
adjacent to the car wash in Bellville, Ohio.
5.17.6 Conditions to Distributions. The parties
agree that each distribution permitted by this Section 5.17 shall be without
cost to the Predecessor Company (or Affiliate of the Predecessor Company) making
such distribution. In addition, with respect to the distributions of real
property contemplated by Section 5.17.2, 5.17.3, 5.17.4 and 5.17.5, each such
distribution shall be made subject to any Debt that is collateralized by such
real property and the distributing Predecessor Company (or Affiliate of a
Predecessor Company) shall be released from any liability (whether absolute or
contingent) with respect to such Debt unless such Debt is included in Schedule
19.1.
Section 5.18 Cash Distributions by Subchapter S Corporations and
Limited Liability Companies. Notwithstanding the provisions of Section 5.5,
Miracle Industries, Lube Ventures, Miracle Partners, Rocky Mountain I, Rocky
Mountain II, Ralston Car Wash and Prema Properties shall each be permitted to
distribute on or before the Closing Date to each of their respective
stockholders and members cash in an amount reasonably estimated to equal to the
highest combined federal, state and local income tax obligations of any their
respective stockholders or members which have or will arise solely by reason of
being a stockholder or member thereof during the tax period which will end on
the Closing Date (it being understood and agreed that calculation of such
distribution shall not take into account the tax effect, if any, of any the
transactions contemplated by Sections 5.14, 5.15, 5.16 or 5.17 of this
Agreement).
Section 5.19 Negotiations with Respect to Ancillary Agreements and
Documents. Promptly following the execution and delivery of this Agreement, the
Ohio Group and Miracle Partners shall cause the representatives of each of the
Real Estate Partnerships to enter into good faith negotiations with the Holding
Company concerning the form of the Option Agreements and the Lease Agreements
and to thereafter negotiate in good faith with respect to the form of the Option
Agreements and the Lease Agreements to be executed at the Closing shall have
been finalized on or before September 30, 1997. Following the execution and
delivery of this Agreement, the Holding Company and each of the Predecessor
Companies shall enter into good faith negotiations with respect to the forms of
opinions of counsel to be executed and delivered at the Closing, the terms of
the various letters of transmittal to be used by the Holding Company to make the
Exchange Offers
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and the terms of the various other documents, agreements and instruments to be
executed and delivered by each of the parties pursuant to the terms of this
Agreement, such that the forms of all such documents shall have been finalized
on or before September 30, 1997. Once the forms of each of the documents
referred to in this Section 5.19 shall have been finalized, each of the parties
shall certify their agreement with respect to the terms and forms thereof by
delivering written notice of their acceptance of the terms and forms thereof to
each of the other parties to this Agreement. Upon receipt by the Holding Company
of written notice from each of the Predecessor Companies that the form a
particular document has been accepted by each of them, the form of such document
shall be appended to this Agreement as an Exhibit hereto and shall become a part
of this Agreement without the need for further act or deed by any of the
parties. The failure of any of the parties to satisfy its obligations under this
Section 5.19 shall be deemed to be a material and willful breach of this
Agreement and shall entitle the other parties to exercise the rights and
remedies provided for in Section 21.1.1, in addition to such other rights and
remedies available to them pursuant to the terms of this Agreement.
Section 5.20 Environmental Due Diligence.
5.20.1 Conduct of Due Diligence. From and after the
date hereof, each of the members of the Ohio Group and the Rocky Mountain Group
shall permit representatives of the Holding Company, and of environmental
consulting firms engaged by the Holding Company, to enter upon their respective
properties from time to time at reasonable hours upon reasonable advance notice
in order to evaluate the environmental condition of each such property and the
operations of the businesses of the members of the Ohio Group and the Rocky
Mountain Group thereon, and shall assist the Holding Company and its
representatives in conducting such evaluations.
5.20.2 Results of Due Diligence. As soon as
reasonably practicable following the receipt of the environmental evaluations
referred to in Section 5.20.2, the Holding Company shall determine, in its sole
but reasonable discretion, the acceptability of the environmental condition of
the properties of each of the Predecessor Companies. Following such
determination, the Holding Company shall provide notice to each of the
Predecessor Companies of its determination with respect to the environmental
condition of the properties of such Predecessor Company (it being understood
that the Holding Company shall be entitled to be unsatisfied with the
environmental condition of the properties of any Predecessor Company in the
event that it shall determine that a reasonable purchaser of the business of
such Predecessor Company would determine not to proceed with the purchase
thereof or to reduce the consideration payable to the Selling Stockholders or
Selling Members thereof materially based on the environmental condition of the
properties of such Predecessor Company). If the Holding Company shall be
unsatisfied with the environmental condition of the properties of such
Predecessor Company, the Holding Company and such Predecessor Company shall
enter into good faith negotiations to agree on (i) a manner in which such
Predecessor Company can proceed to remedy, at its sole cost and expense, any
such environmental condition in a manner reasonably satisfactory to the Holding
Company such that each such environmental condition shall be remedied on or
before the Closing Date or that the financial costs of such remediation shall
otherwise be provided for by the Selling Stockholders or Selling Members of such
Predecessor Company or (ii) an appropriate reduction in the number of
Combination Shares to be issued by the Holding Company to the Selling
Stockholders or Selling Members of such Predecessor Company.
Section 5.21 Actions by Affiliates.
5.21.1 Agreements Not to Compete. Each Predecessor
Company shall cause each natural Person who as of the Closing Date is a holder
of 10% or more of the common stock or membership interests of such Predecessor
Company (other than any such Person who is subject to another agreement not to
compete with the Holding Company) to enter into an Agreement Not to Compete with
the Holding Company as contemplated by Section 4.1.7.
5.21.2 Affiliate Agreements. Each Predecessor
Company shall cause each Person who is an "Affiliate" as defined in the
Securities Act of such Predecessor Company to enter into an affiliates agreement
with the Holding Company acknowledging that such Person is subject to the resale
restrictions of Rule 145 promulgated under the Securities Act.
ARTICLE VI
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REPRESENTATIONS AND WARRANTIES OF WE JAC
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In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, WE JAC hereby makes
the following representations and warranties to the other parties to this
Agreement and to the Holding Company:
Section 6.1 Organization and Good Standing.
6.1.1 WE JAC. WE JAC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
full corporate power and authority to own, operate and lease its properties, and
to conduct its business as it is now being conducted, and is qualified to
transact business as a foreign corporation in each jurisdiction in which the
operation of its business or the ownership of its properties requires such
qualification.
6.1.2 Subsidiaries of WE JAC. Precision Tune is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has full
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corporate power and authority to own, operate and lease its properties, and to
conduct its business as it is now being conducted, and is qualified to transact
business as a foreign corporation in each jurisdiction in which the operation of
its business or the ownership of its properties requires such qualification.
National 60 Minute Tune is a corporation duly organized, validly existing and in
good standing under the laws of the State of Washington, and has full corporate
power and authority to own, operate and lease its properties, and to conduct its
business as it is now being conducted, and is qualified to transact business as
a foreign corporation in each jurisdiction in which the operation of its
business or the ownership of its properties requires such qualification. PTW is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Washington, and has full corporate power and authority to
own, operate and lease its properties, and to conduct its business as it is now
being conducted, and is qualified to transact business as a foreign corporation
in each jurisdiction in which the operation of its business or the ownership of
its properties requires such qualification.
Section 6.2 Capitalization of WE JAC and Subsidiaries.
6.2.1 Authorized Capital; Outstanding Shares.
(a) The authorized capital stock of WE JAC
consists solely of 2,600,000 shares of a single class of common stock, $0.01
par value, of which 1,333,625 shares have been issued and are outstanding as of
the date of this Agreement. Each of the shares of the capital stock of WE JAC
issued and outstanding as of the date hereof has been duly authorized and
validly issued and is fully paid and non-assessable. None of the shares of the
issued and outstanding capital stock of WE JAC has been issued in violation of
shareholder preemptive rights. Except as disclosed in the WE JAC Disclosure
Letter, WE JAC has no issued or outstanding equity securities, debt securities
or other instruments which are convertible into or exchangeable for at any time
equity securities of WE JAC.
(b) The authorized capital stock of Precision
Tune consists solely of 1,000 shares of a single class of common stock, $0.01
par value, of which 1,000 shares have been issued and are outstanding as of the
date of this Agreement. Each of the shares of the capital stock of Precision
Tune issued and outstanding as of the date hereof has been duly authorized and
validly issued and is fully paid and non-assessable. None of the shares of the
issued and outstanding capital stock of Precision Tune has been issued in
violation of shareholder preemptive rights. Precision Tune has no issued or
outstanding equity securities, debt securities or other instruments which are
convertible into or exchangeable for at any time equity securities of Precision
Tune.
(c) The authorized capital stock of National 60
Minute Tune consists solely of 50,000 shares of a single class of common stock,
$1.00 par value, of which 500 shares have been issued and are outstanding as of
the date of this Agreement. Each of the shares of the capital stock of National
60 Minute Tune issued and outstanding as of the date hereof has been duly
authorized and validly issued and is fully paid and non-assessable. None of the
shares of the issued and outstanding capital stock of National 60 Minute Tune
has been issued in violation of
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shareholder preemptive rights. National 60 Minute Tune has no issued or
outstanding equity securities, debt securities or other instruments which are
convertible into or exchangeable for at any time equity securities of National
60 Minute Tune.
(d) The authorized capital stock of PTW consists
solely of 1,000,000 shares of a single class of common stock, $1.00 par value,
of which 1,000 shares have been issued and are outstanding as of the date of
this Agreement. Each of the shares of the capital stock of PTW issued and
outstanding as of the date hereof has been duly authorized and validly issued
and is fully paid and non-assessable. None of the shares of the issued and
outstanding capital stock of PTW has been issued in violation of shareholder
preemptive rights. PTW has no issued or outstanding equity securities, debt
securities or other instruments which are convertible into or exchangeable for
at any time into equity securities of PTW.
6.2.2 No Obligations to Issue or Redeem Shares.
(a) Except as disclosed in the WE JAC Disclosure
Letter, WE JAC is not subject to any commitment or obligation which would
require the issuance or sale of shares of its capital stock at any time under
options, subscriptions, warrants, rights, calls, preemptive rights, convertible
obligations or any other fixed or contingent obligations or which would provide
the holder thereof with the right to acquire any equity securities of WE JAC.
Except as disclosed in the WE JAC Disclosure Letter, WE JAC has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
(b) Precision Tune is not subject to any
commitment or obligation which would require the issuance or sale of shares of
its capital stock at any time under options, subscriptions, warrants, rights,
calls, preemptive rights, convertible obligations or any other fixed or
contingent obligations or which would provide the holder thereof with the right
to acquire any equity securities of Precision Tune. Precision Tune has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
(c) National 60 Minute Tune is not subject to
any commitment or obligation which would require the issuance or sale of shares
of its capital stock at any time under options, subscriptions, warrants, rights,
calls, preemptive rights, convertible obligations or any other fixed or
contingent obligations or which would provide the holder thereof with the right
to acquire any equity securities of National 60 Minute Tune. National 60 Minute
Tune has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof.
(d) PTW is not subject to any commitment or
obligation which would require the issuance or sale of shares of its capital
stock at any time under options, subscriptions, warrants, rights, calls,
preemptive rights, convertible obligations or any other fixed or contingent
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obligations or which would provide the holder thereof with the right to acquire
any equity securities of PTW. PTW has no obligation (contingent or other) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
6.2.3 Ownership of Shares. As of the date hereof the WE JAC
Disclosure Letter contains a true, complete and accurate list of each of the
record and beneficial owners of the shares of the capital stock of WE JAC,
together with the name and address of each such holder. There are no agreements,
pledges, powers of attorney, assignments or similar agreements or arrangements
either (i) restricting the transferability of any of the shares of the capital
stock of WE JAC or (ii) which reasonably could be expected to prohibit or delay
the consummation of the transactions contemplated hereby.
Section 6.3 Subsidiaries; Investments. Except for Precision Tune, WE
JAC does not own any shares of capital stock or equity securities of, or any
interest in any other entity, and WE JAC has good, valid and marketable title,
free and clear of all Encumbrances, to all shares of capital stock or equity
securities of, or interests in, Precision Tune. Precision Tune owns all of the
issued and outstanding capital stock of National 60 Minute Tune and PTW.
Section 6.4 Execution and Effect of Agreement. WE JAC has the corporate
power to enter into this Agreement and to perform its obligations hereunder and,
subject to the due authorization and approval of its shareholders, to enter into
and consummate the WE JAC Merger. This Agreement has been duly executed and
delivered by WE JAC and constitutes a legal, valid and binding obligation of WE
JAC, fully enforceable against WE JAC in accordance with its terms; except as
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
exercise of judicial discretion in accordance with general principles of equity.
Section 6.5 Restrictions. The execution and delivery of this Agreement
by WE JAC, the consummation of the transactions contemplated hereby by WE JAC,
and, subject to the due authorization and approval of its shareholders, the
performance of the obligations of WE JAC hereunder, will not (a) violate any of
the provisions of the charter or by-laws of WE JAC, (b) violate or conflict with
the provisions of any Applicable Laws, (c) result in the creation of any
Encumbrance upon any of the assets, rights or properties of WE JAC, or (d)
except as disclosed in the WE JAC Disclosure Letter, conflict with, violate any
provisions of, result in a breach of or give rise to a right of termination,
modification or cancellation of, constitute a default of, or accelerate the
performance required by, with or without the passage of time or the giving of
notice or both, the terms of any material agreement, indenture, mortgage, deed
of trust, security or pledge agreement, lease, contract, note, bond, license,
permit, authorization or other instrument to which WE JAC or any of its
Subsidiaries is a party or to which any of any of the assets of WE JAC or any of
its Subsidiaries are subject.
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Section 6.6 Consents. Except as disclosed in the WE JAC Disclosure
Letter and as may be required by any Applicable Laws relating to franchising, no
filing with, or consent, waiver, approval or authorization of, or notice to, any
governmental authority or any third party is required to be made or obtained by
WE JAC or any of its Subsidiaries in connection with the execution and delivery
of this Agreement or any document or instrument contemplated hereby, the
consummation of any of the transactions contemplated hereby or the performance
of any of their respective obligations hereunder or thereunder.
Section 6.7 Financial Statements. Attached hereto as Exhibit E are true
and correct copies of the audited consolidated balance sheets and related
statements of income, cash flows and changes in stockholders' equity of WE JAC
as at June 30, 1995, 1996 and 1997 and for the year periods then- ended
(collectively, the " WE JAC Financial Statements"). All of the WE JAC Financial
Statements have been prepared in accordance with GAAP. All of the WE JAC
Financial Statements have been prepared in a manner consistent with each other
and the books and records of WE JAC and its Subsidiaries, and fairly present in
all material respects the financial condition and results of operations of WE
JAC and its Subsidiaries at the dates and for the periods indicated therein. The
regular books of account of WE JAC and its Subsidiaries fairly and accurately
reflect all material transactions involving WE JAC and its Subsidiaries, are
true, correct and complete and have been prepared in accordance with GAAP and on
a basis consistent with the Financial Statements.
Section 6.8 Debt. The WE JAC Disclosure Letter contains a true,
complete and accurate listing as of the date hereof the original principal
amount of all of the Debt of WE JAC, the remaining principal balance thereof,
the interest rate(s) payable by WE JAC in respect thereof, if any, and the
date(s) of maturity thereof. Except as disclosed in the WE JAC Disclosure
Letter, all of the Debt of WE JAC may be prepaid at any time, without premium,
prepayment penalties, termination fees or other fees or charges.
Section 6.9 Guarantees. The WE JAC Disclosure Letter contains a
complete list of all Guarantees provided by WE JAC or any of its Subsidiaries
for the benefit of any other party and of all Guarantees provided by any other
party for the benefit of WE JAC or any of its Subsidiaries or any party doing
business with WE JAC or any of its Subsidiaries.
Section 6.10 No Undisclosed Liabilities. Neither WE JAC nor any of its
Subsidiaries have any material liabilities or obligations of any nature
whatsoever (whether known or unknown, due or to become due, absolute, accrued,
contingent or otherwise, and whether or not determined or determinable), except
for (i) liabilities or obligations set forth in the WE JAC Disclosure Letter,
(ii) liabilities or obligations to the extent expressly reflected on or reserved
against in the June 30, 1997 balance sheet included among the WE JAC Financial
Statements or disclosed in the notes thereto, (iii) liabilities or obligations
of a type reflected on the June 30, 1997 balance sheet and incurred in the
ordinary course of business and consistent with past practices since June 30,
1997, or (iv) liabilities or obligations arising under the terms of the Material
Contracts of WE JAC. Except
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as otherwise contemplated or permitted by this Agreement, no dividends declared
on any capital stock of WE JAC are unpaid.
Section 6.11 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the management of WE JAC, threatened, by or before any court, any
Governmental Authority or arbitrator, against WE JAC or any of its Subsidiaries
that reasonably could be expected to prevent the consummation of any of the
transactions contemplated hereby. Except as disclosed in the WE JAC Disclosure
Letter, there is no material suit, claim, action at law or in equity, proceeding
or governmental investigation or audit pending, or to the knowledge of
management of WE JAC, threatened, by or before any arbitrator, court, or other
Governmental Authority, against WE JAC or any of its Subsidiaries or involving
any of the former or present employees, agents, businesses, properties, rights
or assets of WE JAC or any of its Subsidiaries, nor, to the knowledge of
management of WE JAC, is there any basis for the assertion of any of the
foregoing. Except as disclosed in the WE JAC Disclosure Letter, there are no
judgments, orders, injunctions, decrees, stipulations or awards rendered by any
court, Governmental Authority or arbitrator currently binding or effective
against WE JAC or any of its Subsidiaries or any of their respective former or
present Employees, agents, properties or assets.
Section 6.12 Properties; Absence of Encumbrances. The WE JAC Disclosure
Letter sets forth a complete list of all real property owned by or leased to WE
JAC or any of its Subsidiaries, and, with respect to all properties leased by WE
JAC, a description of the term of such lease and the monthly rental thereunder.
Neither WE JAC nor any of its Subsidiaries is in default (and will not be in
default with the passage of time or the receipt of notice or both) and has not
received notice of default, under any lease of real property. All real property
leased to WE JAC or any of its Subsidiaries is available for immediate use in
the operation of its business and for the purpose for which such property
currently is being utilized. Subject in the case of leased property to the terms
and conditions of the respective leases, WE JAC or one or more of its
Subsidiaries has full legal and practical access to all such real property.
Section 6.13 Intellectual Property. The WE JAC Disclosure Letter sets
forth a complete list of (i) all Intellectual Property owned, used or licensed
by WE JAC or any of its Subsidiaries, together with the identity of the owner
thereof, and (ii) all license agreements pursuant to which any Intellectual
Property is licensed to or by WE JAC or any of its Subsidiaries. WE JAC and its
Subsidiaries own their respective Intellectual Property free and clear of any
and all Encumbrances, or, in the case of licensed Intellectual Property, has
valid, binding and enforceable rights to use such Intellectual Property. WE JAC
and each of its Subsidiaries has duly and timely filed all renewals,
continuations and other filings necessary to maintain its Intellectual Property
or registrations thereof. Except as disclosed in the WE JAC Disclosure Letter,
neither WE JAC nor any of its Subsidiaries (i) has received any notice or claim
to the effect that the use of any Intellectual Property infringes upon,
conflicts with or misappropriates the rights of any other party or that any of
the Intellectual Property is not valid or enforceable, or (ii) has made any
claim that any party has violated or infringed upon its rights with respect to
any Intellectual Property.
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Section 6.14 Material Contracts.
6.14.1 List of Material Contracts. The WE JAC Disclosure
Letter sets forth as of the date hereof a list of all material written, and a
description of all oral, commitments, agreements or contracts to which WE JAC or
any of its Subsidiaries is a party or by which WE JAC or any Subsidiary is
obligated, other than agreements pursuant to which Precision Tune or National 60
Minute Tune has granted any franchise or similar rights with respect to the
Precision Tune System or any license or similar rights with respect to any of
the Precision Tune Marks, including, but not limited to, all commitments,
agreements or contracts embodying or evidencing the following transactions or
arrangements: (i) agreements for the employment of, or independent contractor
arrangements with, any officer or other individual employee of WE JAC or any of
its Subsidiaries; (ii) any consulting agreement, agency agreement and any other
service agreement that will continue in force after the Closing Date with
respect to the employment or retention by WE JAC or any of its Subsidiaries of
consultants, agents, legal counsel, accountants or anyone else who is not an
Employee; (iii) any single contract, purchase order or commitment providing for
expenditures by WE JAC or any of its Subsidiaries after the date hereof of more
than $25,000 or which has been entered into by WE JAC or any of its Subsidiaries
otherwise than in the ordinary course of business; (iv) agreements between WE
JAC or any of its Subsidiaries and suppliers to WE JAC or any of its
Subsidiaries pursuant to which either WE JAC or any of its Subsidiaries is
obligated to purchase or to sell or distribute the products of any other party
other than current purchase orders entered into in the ordinary course of
business consistent with past practices; (v) any contract containing covenants
limiting the freedom of WE JAC or any of its Subsidiaries or any officer,
director, or employee of WE JAC or any of its Subsidiaries to engage in any line
or type of business or with any person in any geographic area; (vi) any
commitment or arrangement by WE JAC or any of its Subsidiaries to participate in
a strategic alliance, partnership, joint venture, limited liability company or
other cooperative undertaking with any other Person; (vii) any commitments by WE
JAC or any of its Subsidiaries for capital expenditures involving more than
$25,000 individually or $50,000 in the aggregate; and (viii) any other contract,
commitment, agreement, understanding or arrangement that the management of WE
JAC deems to be material to the business of WE JAC or any of its Subsidiaries.
6.14.2 No Breaches or Defaults. Except as disclosed in the WE
JAC Disclosure Letter, WE JAC and each of its Subsidiaries is in full compliance
with each, and is not in default under any, Material Contract to which it is a
party, and no event has occurred that, with notice or lapse of time or both,
would constitute such a default thereunder. Neither WE JAC nor any of its
Subsidiaries has waived any rights under or with respect to any of the Material
Contracts to which it is a party. The management of WE JAC has no knowledge, has
not received any notice to the effect, that any party with whom WE JAC or any of
its Subsidiaries has contractual arrangements under the Material Contracts, is
in default under any such contractual arrangements or that any event has
occurred that, with notice or lapse of time or both, would constitute such a
default thereunder. Each of the Material Contracts constitutes a legal, valid
and binding obligation of each of the parties thereto and is enforceable against
each of the parties thereto in accordance with its respective terms; except as
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization,
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fraudulent conveyance, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the exercise of judicial
discretion in accordance with general principles of equity.
6.14.3 Franchise Agreements. The WE JAC Disclosure Letter
contains a complete list as of the date hereof of (i) all of the current
franchisees of Precision Tune to whom Precision Tune has granted any franchise
or similar rights with respect to the Precision Tune System or any license or
similar rights with respect to any of the Precision Tune Marks and (ii) all area
development, area franchise, area subfranchisor, master license or similar
agreements that cover the development or franchising of Precision Tune
franchises within any area or country or the delegation of duties by Precision
Tune with respect to its obligations as a franchisor or otherwise (collectively,
the "Precision Tune Franchise Agreements"). Each of the Precision Tune Franchise
Agreements is a legal, valid and binding obligation of Precision Tune and is
enforceable against Precision Tune in accordance with its respective terms.
Precision Tune is in full compliance with the terms of each of the Precision
Tune Franchise Agreements and no event has occurred that, with or without notice
or lapse of time or both, constitutes or will constitute a default by Precision
Tune thereunder or a breach by Precision Tune thereof. Except as disclosed in
the WE JAC Disclosure Letter, Precision Tune has not waived any rights under or
with respect to any of the Precision Tune Franchise Agreements. Except as
disclosed in the WE JAC Disclosure Letter, to the knowledge of management of WE
JAC, as of the date hereof none of the franchisees or licensees that are parties
to any of the Precision Tune Franchise Agreements is in default thereunder and
no event has occurred that, with or without notice or lapse of time or both,
constitutes or will constitute a default thereunder or a breach thereof by such
franchisees or licensees.
Section 6.15 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The WE JAC
Disclosure Letter sets forth a true, complete and correct list of all Employee
Benefit Plans and all Benefit Arrangements to which WE JAC or any of its
Subsidiaries or ERISA Affiliates is a party or to which WE JAC or any of its
Subsidiaries or ERISA Affiliates is obligated to contribute. None of the
Employee Benefit Plans to which WE JAC or any ERISA Affiliate of WE JAC is a
party, which WE JAC or any ERISA Affiliate of WE JAC sponsors or maintains or to
which WE JAC or any ERISA Affiliate of WE JAC contributes is subject to the
requirements of Section 302 of ERISA or Section 412 of the Code.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the WE JAC Disclosure Letter, each Employee Benefit Plan
and Benefit Arrangement to which WE JAC or any of its Subsidiaries or ERISA
Affiliates is a party or to which WE JAC or any of its Subsidiaries or ERISA
Affiliates is obligated to contribute has been operated or maintained in
compliance in all material respects with all Applicable Laws, including, without
limitation, ERISA and the Code, and has been maintained in material compliance
with its terms and in material compliance with the terms of any applicable
collective bargaining agreement. Except as disclosed in the WE JAC Disclosure
Letter, with respect to any Employee Benefit Plan that is intended to qualify
under Section 401 of the Code, a favorable determination letter as to
qualification under Section 401 of the Code that considered the Tax Reform Act
of 1986 has been issued and any amendments required for continued qualification
under Section 401 of the Code have been timely
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adopted and nothing has occurred subsequent to the date of such determination
letter that could adversely affect the qualified status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which WE JAC or any of its Subsidiaries
or ERISA Affiliates is a party or to which WE JAC or any of its Subsidiaries or
ERISA Affiliates is obligated to contribute, under ERISA or the Code, for all
periods of time prior to the date hereof and that are attributable to Employees
of WE JAC and its Subsidiaries or ERISA Affiliates have been paid or otherwise
adequately accrued for or reserved against in the WE JAC Financial Statements,
as the case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the WE JAC Disclosure Letter, neither WE JAC nor any of its
Subsidiaries is liable for any arrearage of wages, any accrued or vested
vacation pay or any tax or penalty for failure to comply with any Applicable Law
relating to employment or labor above the level accrued for or reserved against
on the June 30, 1997 balance sheet included in the WE JAC Financial Statements,
and there is no controversy pending, threatened or in prospect between WE JAC or
any of its Subsidiaries and any of their respective Employees nor is the
management of WE JAC aware of any basis for any such controversy. There is no
unfair labor practice charge or complaint currently pending against WE JAC or
any of its Subsidiaries with respect to or relating to any of their respective
Employees before the National Labor Relations Board or any other agency having
jurisdiction over such matters and no charges or complaints are currently
pending against WE JAC or any of its Subsidiaries before the Equal Employment
Opportunity Commission or any state or local agency having responsibility for
the prevention of unlawful employment practices. There are no actions, suits or
claims pending, including proceedings before the IRS, the DOL or the PBGC, with
respect to any Employee Benefit Plan, Benefit Arrangement or any administrator
or fiduciary thereof, other than benefit claims arising in the normal course of
operation of such Employee Benefit Plans or Benefit Arrangements, and, to the
knowledge of the management of WE JAC, no Employee Benefit Plan or Benefit
Arrangement is under audit or investigation by any Governmental Authority.
(e) Severance Obligations. Except as disclosed
in the WE JAC Disclosure Letter, all current employees of WE JAC or any of its
Subsidiaries may be terminated at will, without notice and without incurring any
severance or other liability or obligation to the employee in connection with
the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the WE JAC Disclosure
Letter, neither the execution, delivery or performance of this Agreement nor the
consummation of the Closing will (i) increase any benefits otherwise payable
under any Employee Benefit Plan or Benefit Arrangement, (ii) result in the
acceleration of the time of payment or vesting of any such benefits, or (iii)
give rise to an obligation with respect to the payment of any severance pay. No
"parachute payment" (within the meaning of Section 280G of the Code), "change in
control" or severance payment has been made or will be required to be made by WE
JAC or any ERISA Affiliate of WE JAC to any Employee in connection with the
execution, delivery or performance of this Agreement or as a result of the
consummation of the Closing.
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(f) Compliance with Laws on Employment
Practices. WE JAC and each of its Subsidiaries has complied in all material
respects with all Applicable laws relating to employment and employment
practices, terms and conditions of employment, wages and hours, and to the
knowledge of the management of WE JAC, is not engaged in any unfair labor
practice with respect to any of the current employees of WE JAC or any of its
Subsidiaries; and to the knowledge of WE JAC, none of the persons performing
services for WE JAC or any of its Subsidiaries or ERISA Affiliates have been
improperly classified as independent contractors or as being exempt from payment
of wages or overtime.
(g) Collective Bargaining Agreements. Except as
disclosed in the WE JAC Disclosure Letter, none of the employees of WE JAC or
any of its Subsidiaries are subject to any collective bargaining agreement nor
is WE JAC or any of its Subsidiaries required under any agreement to recognize
or bargain with any labor organization or union on behalf of its employees.
(h) No Multi-Employer Plans. Neither WE JAC nor
any of its Subsidiaries or ERISA Affiliates has contributed to, or had the
obligation to contribute to, any Multiemployer Plan within the five-year period
ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
WE JAC or any of its Subsidiaries or ERISA Affiliates relating to, or change in
employee participation or coverage under, any Employee Benefit Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Benefit Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year of WE JAC ended June 30, 1997.
(j) No Unfunded Liabilities. Neither WE JAC nor
any ERISA Affiliate of WE JAC has any current or projected liability for any
unfunded post-retirement medical or life insurance benefits in connection with
any Employee of WE JAC or ERISA Affiliate of WE JAC.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by WE JAC or any ERISA
Affiliate of WE JAC, which could subject any such Employee Benefit Plan, WE JAC,
any ERISA Affiliate of WE JAC, or the Holding Company directly or indirectly
(through an indemnification agreement or otherwise), to any liability for or as
a result of a breach of fiduciary duty, a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code, or a civil penalty
under Section 502 of ERISA or a Tax under Section 4971 of the Code. Neither WE
JAC nor any of its ERISA Affiliates have incurred a "withdrawal" or "partial
withdrawal," as defined in Sections 4203 and 4205 of ERISA, from, or failed to
timely make contributions to any Multiemployer Plan which has resulted in any
unpaid liability of WE JAC or any of its ERISA Affiliates.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the WE JAC Disclosure Letter, none of the Employee Benefit Plans
that are "employee welfare benefit plans" as defined in ERISA Section 3(1)
provides for continuing benefits or coverage for any participant or beneficiary
of a participant after such participant's termination of employment, except to
the extent required by law; provided that any disclosure regarding this clause
(i) shall set forth (A)
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the number of individuals currently receiving such continuing benefits or
coverage, (B) the limit on liability with respect to such coverage, (C) the
terms and conditions of such coverage, and (D) the maximum number of current
employees or independent contractors who could become eligible for such
continuing benefits or coverage; (ii) there has been no violation of Code
Section 4980B or ERISA Sections 601-609 with respect to any such plan that could
result in any material liability; (iii) no such plans are "multiple employer
welfare arrangements" within the meaning of ERISA Section 3(40); (iv) with
respect to any such plans that are self-insured, no claims have been made
pursuant to any such plan that have not yet been paid (other than claims which
have not yet been paid but are in the normal course of processing) and no
individual has incurred injury, sickness or other medical condition with respect
to which claims may be made pursuant to any such plan where the liability to the
employer could in the aggregate with respect to each such individual exceed
$50,000 per year; (v) neither WE JAC nor any of its ERISA Affiliates maintains
or has any obligation to contribute to any "voluntary employees' beneficiary
association" within the meaning of Code Section 501(c)(9) or other welfare
benefit fund as defined at Section 419(e) of the Code (such disclosure to
include the amount of any such funding); (vi) no such plan is intended to
satisfy Code Section 125; (vii) no amounts are required in connection with any
such plan to be included in income under Code Section 105(h) (under official
regulations thereof to date); and (viii) neither WE JAC nor any of its ERISA
Affiliates maintains a nonconforming group health plan as defined at Section
5000(c) of the Code.
Section 6.16 Tax Matters.
(a) Tax Returns and Payment of Taxes. WE JAC
and each of its Subsidiaries has timely filed or will timely file all federal,
state, local, and other Tax Returns required to be filed by it under Applicable
Laws, including estimated Tax returns and reports and consolidated federal
Income Tax Returns and state, local or foreign Income Tax Returns filed on a
consolidated or combined basis, and WE JAC and each of its Subsidiaries has paid
all required Income Taxes and other Taxes (including any additions to taxes,
penalties and interest related thereto) due and payable on or before the date
hereof (and will duly and timely pay all such amounts required to be paid
between the date hereof and the Closing Date). Each of WE JAC and its
Subsidiaries has paid, withheld, or will pay any and all Taxes in respect of the
conduct of its business or the ownership of its property and in respect of any
transaction for all periods (or portions thereof) through the close of business
on the Closing Date. WE JAC and each of its Subsidiaries have collected all
sales, use and value added Taxes required to be collected, and has remitted, or
will remit on a timely basis, such amounts to the appropriate Government
Authorities and have furnished properly completed exemption certificates for all
exempt transactions.
(b) Tax Reserves. The amount of the liability
of WE JAC and of each of its Subsidiaries for unpaid Taxes for all periods
ending on or before the date of this Agreement does not, in the aggregate,
exceed the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) as of the date of this Agreement, and the amount of
the liability of WE JAC and of each of its Subsidiaries for unpaid Taxes for all
periods ending on or before the Closing Date will not, in the aggregate, exceed
the amount of the current liability accruals for Taxes (excluding reserves for
deferred Taxes) as such accruals shall be reflected on the consolidated balance
sheet of WE JAC and its Subsidiaries as of the Closing Date.
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(c) Audits; No Deficiencies Asserted. Except as
set forth in the WE JAC Disclosure Letter, none of the Tax Returns of WE JAC or
of any of its Subsidiaries have ever been audited by any Tax Authority, nor is
any such audit in process, pending or threatened (either in writing or verbally,
formally or informally), and all deficiencies asserted against WE JAC or any of
its Subsidiaries as a result of IRS examinations have been paid or finally
settled and no issue has been raised by any IRS examination that, by application
of the same principles, is likely to result in a proposed deficiency for any
other period not so examined. Except as set forth in the WE JAC Disclosure
Letter, no material deficiencies with respect to Taxes, additions to Tax,
interest, or penalties have been proposed or asserted against and communicated
to WE JAC or any of its Subsidiaries, except those that have been paid in full
and for those matters that would not result in liability being imposed against
WE JAC or any of its Subsidiaries.
(d) No Waivers of Limitations. Except as set
forth in the WE JAC Disclosure Letter, there are no agreements, waivers of
statutes of limitations, or other arrangements providing for extensions of time
in respect of the assessment or collection of any unpaid Tax against WE JAC or
any of its Subsidiaries. WE JAC and each of its Subsidiaries have disclosed on
its federal Income Tax Returns all positions taken therein that could, if not so
disclosed, give rise to a substantial understatement penalty within the meaning
of Section 6662 of the Code.
(e) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of WE JAC or of any of is Subsidiaries
with respect to Taxes, other than liens for Taxes not yet due and payable or for
Taxes that WE JAC or one or more of its Subsidiaries are contesting in good
faith through appropriate proceedings and for which appropriate reserves have
been established on the WE JAC Financial Statements.
(f) Special Tax Elections or Benefits. Neither
WE JAC nor any of is Subsidiaries is a party to any safe harbor lease within the
meaning of Section 168(f)(8) of the Code. No election or consent under Section
341(f) of the Code has been made or shall be made on or prior to the Closing
Date by or on behalf of any of WE JAC or any of its Subsidiaries.
(g) Disqualified Leasebacks. Neither WE JAC nor
any of its Subsidiaries is a party to a "disqualified leaseback or long-term
agreement" described in Section 467(b)(4) of the Code.
(h) Deferrals of Income. No income or gain of
WE JAC or any of its Subsidiaries has been deferred pursuant to Treasury
Regulation ss. 1.1502-13 or 1.1502-14, or Temporary Treasury Regulation ss.
1.1502-13T or 1.1502-14T.
(i) Tax Sharing and Similar Agreements. Except
as disclosed in the WE JAC Disclosure Letter, neither WE JAC nor any of its
Subsidiaries is a party to or bound by any Tax sharing, Tax indemnity or Tax
allocation agreement or other similar arrangement with any Person other than a
Constituent Company of the WE JAC Group.
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(j) No Non-Deductible Compensation Payments.
Neither WE JAC nor any of its Subsidiaries has made any payments, and are not
obligated to make any payments, that would not be deductible under Section 280G
of the Code or is a party to any agreement that under certain circumstances
could obligate it to make any such payments.
Section 6.17 Environmental Matters.
(a) The facilities presently or formerly occupied or used by
WE JAC or any of its Subsidiaries and any other real property presently or
formerly owned by, used by or leased to or by WE JAC or any of its Subsidiaries
(collectively, the "WE JAC Property"), the existing and prior uses of such WE
JAC Property and all operations of the businesses of WE JAC and of each of its
Subsidiaries comply and have at all times complied with all Environmental Laws
and neither WE JAC nor any of its Subsidiaries is in violation or has violated,
in connection with the ownership, use, maintenance or operation of such property
or the conduct of its business, any Environmental Law.
(b) WE JAC and each of its Subsidiaries have all necessary
permits, registrations, approvals and licenses required by any Governmental
Authority or Environmental Law.
(c) There has been no spill, discharge, leak, emission,
injection, disposal, escape, dumping or release of any kind on, beneath or above
such WE JAC Property or into the environment surrounding such WE JAC Property of
any Hazardous Materials.
(d) There has been no past, and there is no current or
anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such WE JAC Property. No asbestos-containing materials, underground
improvements (including, but not limited to the treatment or storage tanks,
sumps, or water, gas or oil wells) or polychlorinated biphenyls (PCBs)
transformers, capacitors, ballasts, or other equipment which contain dielectric
fluid containing PCBs at levels in excess of fifty parts per million (50 PPM)
are or have ever been located on such WE JAC Property.
(e) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of WE JAC (or any predecessor in interest) in
connection with (i) any actual or alleged failure to comply with any requirement
of any Environmental Law; (ii) the ownership, use, maintenance or operation of
the Property by any person; (iii).the alleged violation of any Environmental
Law; or (iv) the suspected presence of any Hazardous Material thereon.
(f) Neither WE JAC nor any of its Subsidiaries has ever had
the capacity to exercise control/manage and has never exercised control or
management over any matter relating to its franchisees' manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of any
Hazardous Material.
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Section 6.18 Compliance With Laws. WE JAC and each of its Subsidiaries
has at all times conducted its business in material compliance with all (and has
not received any notice of any claimed violation of any) Applicable Laws.
Precision Tune has complied in all material respects with all of the rules and
regulations of the Federal Trade Commission of the United States relating to the
offer and sale of franchises.
Section 6.19 Licenses and Permits. WE JAC and each of its Subsidiaries
possess all licenses, permits, and other governmental consents, certificates,
approvals, or other authorizations (the "Permits") necessary for the operation
of their respective businesses. WE JAC and each of its Subsidiaries has complied
with the terms and conditions of all Permits in all material respects and all
such Permits are in full force and effect, and there has occurred no event nor
is any event, action, investigation or proceeding pending or, to the knowledge
of management of WE JAC, threatened, which could cause or permit revocation or
suspension of or otherwise adversely affect the maintenance of any Permits. The
transactions contemplated by this Agreement will not lead to the revocation,
cancellation, termination or suspension of any Permits.
Section 6.20 Insurance. WE JAC and each of its Subsidiaries has
regularly maintained all policies of commercial liability, products liability,
fire, casualty, worker's compensation, life and other forms of insurance on an
"occurrence" rather than a "claims made" basis in amounts and types required by
law and generally carried by reasonably prudent, similarly situated businesses.
Neither WE JAC nor any of its Subsidiaries is in default with respect to any
provision contained in any insurance policy, nor has WE JAC or any of its
Subsidiaries failed to give any notice or present any claim thereunder in due
and timely fashion and no cancellation, non-renewal, reduction of coverage or
arrearage in premiums has been threatened or occurred with respect to any
policy, nor is the management of WE JAC aware of any grounds therefor.
Section 6.21 Extraordinary Transactions. Except as disclosed in the WE
JAC Disclosure Letter or as otherwise permitted by this Agreement, since June
30, 1997, neither WE JAC nor any of its Subsidiaries has (i) mortgaged, pledged
or subjected to any Encumbrance any of its assets; (ii) canceled or compromised
any claim of or debts owed to it; (iii) sold, licensed, leased, exchanged or
transferred any of its assets except in the ordinary course of business; (iv)
entered into any material transaction other than in the ordinary course of
business; (v) experienced any material change in the relationship or course of
dealing with any supplier, franchisee, customer or creditor; (vi) suffered any
material destruction, loss or damage to any of its assets; (vii) made any
management decisions involving any material change in its policies with regard
to pricing, sales, purchasing or other business, financial, accounting
(including reserves and the amounts thereof) or tax policies or practices;
(viii) declared, set aside or paid any dividends on or made any distributions in
respect of any outstanding shares of capital stock or made any other
distributions or payments to any of the shareholders of WE JAC; (ix) submitted
any bid, proposal, quote or commitment to any party in response to a request for
proposal or otherwise; (x) engaged in any merger or consolidation with, or
agreed to merge or consolidate with, or purchased or agreed to purchase, all or
substantially all of the assets of, or otherwise acquire, any other party; (xi)
entered into any strategic alliance, partnership, joint venture or similar
arrangement with any other party; (xii) incurred or agreed to
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incur any Debt or prepaid or made any prepayments in respect of Debt; (xiii)
issued or agreed to issue to any party, any shares of stock or other securities;
(xiv) redeemed, purchased or agreed to redeem or purchase any of its outstanding
shares of capital stock or other securities; (xv) increased the rate of
compensation payable or to become payable to any of its officers, directors,
employees or agents over the rate being paid to them as of June 30, 1997 or
agreed to do so otherwise than in accordance with contractual agreements with
such parties; (xvi) made or agreed to make any charitable contributions or
incurred or agreed to incur any non-business expenses; or (xvii) charged off any
bad debts or increased its bad debt reserve except in the manner consistent with
its past practices.
Section 6.22 Title to Assets. Except as described in the WE JAC
Disclosure Letter, WE JAC and each of its Subsidiaries has good and marketable
title to its assets and properties, free and clear of restrictions on or
conditions to transfer or assignment, and free and clear of all Encumbrances.
Section 6.23 Corporate Records. The minute books of WE JAC and each of
its Subsidiaries accurately reflect all minutes of proceedings of and actions
taken by the directors of WE JAC and its Subsidiaries, respectively, and each
committee of the Board of Directors of WE JAC or any of its Subsidiaries and all
records of meetings of and actions taken by the stockholders of WE JAC, that are
required by applicable laws to be recorded in or reflected in the corporate
records thereof.
Section 6.24 Broker and Finder Fees. WE JAC has not engaged any broker
or finder in connection with the transactions contemplated by this Agreement,
and no action by any of the foregoing will cause or support any claim to be
asserted against the Holding Company, WE JAC or any of its Subsidiaries by any
broker, finder or intermediary in connection with such transaction.
Section 6.25 Adequate Disclosure. No representation or warranty made by
WE JAC pursuant to this Agreement, or any statement contained in any Exhibit or
Schedule to this Agreement, or any certificate or document furnished or to be
furnished by WE JAC or any of its Subsidiaries pursuant to the terms of this
Agreement in connection with the transactions contemplated hereby, contains any
untrue or misleading statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading.
Section 6.26 No Adverse Change or Conditions. Except as set forth in
the WE JAC Disclosure Letter, and except as expressly contemplated or permitted
by this Agreement, since June 30, 1997, WE JAC and each of its Subsidiaries has
conducted its business in the ordinary course and consistent with past practice,
and neither WE JAC nor any of its Subsidiaries has suffered any change that has
had a Material Adverse Effect on WE JAC and its Subsidiaries, taken as a whole.
There are no conditions, facts, developments or circumstances of an unusual or
special nature that reasonably could be expected to have a Material Adverse
Effect upon WE JAC and its Subsidiaries, taken as a whole, that have not been
disclosed in writing by WE JAC pursuant to the WE JAC Disclosure Letter.
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ARTICLE VII
-----------
REPRESENTATIONS AND WARRANTIES OF LUBE VENTURE
----------------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Lube Ventures hereby
makes the following representations and warranties to the other parties to this
Agreement and to the Holding Company:
Section 7.1 Organization and Good Standing. Lube Ventures is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has full corporate power and authority to own,
operate and lease its properties, and to conduct its business as it is now being
conducted, and is qualified to transact business as a foreign corporation in
each jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification.
Section 7.2 Capitalization of Lube Ventures. The authorized capital
stock of Lube Ventures consists solely of 3,000 shares of a single class of
common stock, $-0- par value, of which 100 shares have been issued and are
outstanding as of the date of this Agreement. Each of the shares of the capital
stock of Lube Ventures issued and outstanding as of the date hereof has been
duly authorized and validly issued and is fully paid and non-assessable. None of
the shares of the issued and outstanding capital stock of Lube Ventures has been
issued in violation of shareholder preemptive rights. Lube Ventures has no
issued or outstanding equity securities, debt securities or other instruments
which are convertible into or exchangeable for at any time into equity
securities of Lube Ventures. Lube Ventures is not subject to any commitment or
obligation which would require the issuance or sale of shares of its capital
stock at any time under options, subscriptions, warrants, rights, calls,
preemptive rights, convertible obligations or any other fixed or contingent
obligations or which would provide the holder thereof with the right to acquire
any equity securities of Lube Ventures. Lube Ventures has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
Section 7.3 Ownership of Shares. The Lube Ventures Disclosure Letter
contains a true, complete and accurate list of all of the record and beneficial
owners of the shares of the capital stock of Lube Ventures, together the name
and address of each such holder. Except as disclosed in the Lube Ventures
Disclosure Letter, there are no existing agreements, pledges, powers of
attorney, assignments or similar agreements or arrangements either (i)
restricting the transferability of any of the shares of the capital stock of
Lube Ventures or (ii) which reasonably could be expected to prohibit or delay
the consummation of the transactions contemplated hereby.
Section 7.4 Subsidiaries; Investments. Lube Ventures does not own any
shares of capital stock or equity securities of, or any interest in any other
Person or entity.
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Section 7.5 Execution and Effect of Agreement Lube Ventures has the
corporate power to enter into this Agreement and to perform its obligations
hereunder and, subject to the due authorization and approval of its
shareholders, to enter into and consummate the Lube Ventures Merger. This
Agreement has been duly executed and delivered by Lube Ventures and constitutes
a legal, valid and binding obligation of Lube Ventures, fully enforceable
against Lube Ventures in accordance with its terms; except as enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the exercise of judicial
discretion in accordance with general principles of equity.
Section 7.6 Restrictions. The execution and delivery of this Agreement
by Lube Ventures, the consummation of the transactions contemplated hereby by
Lube Ventures, and, subject to the due authorization and approval of its
shareholders, the performance of the obligations of Lube Ventures hereunder will
not (a) violate any of the provisions of the charter or by-laws of Lube
Ventures, (b) violate or conflict with the provisions of any Applicable Laws,
(c) result in the creation of any Encumbrance upon any of the assets, rights or
properties of Lube Ventures, or (d) except as disclosed in the Lube Ventures
Disclosure Letter, conflict with, violate any provisions of, result in a breach
of or give rise to a right of termination, modification or cancellation of,
constitute a default of, or accelerate the performance required by, with or
without the passage of time or the giving of notice or both, the terms of any
material agreement, indenture, mortgage, deed of trust, security or pledge
agreement, lease, contract, note, bond, license, permit, authorization or other
instrument to which Lube Ventures is a party or to which any of any of the
assets of Lube Venture are subject.
Section 7.7 Consents. Except as disclosed in the Lube Ventures
Disclosure Letter and as may be required by Applicable Laws relating to
franchising, no filing with, or consent, waiver, approval or authorization of,
or notice to, any governmental authority or any third party is required to be
made or obtained by Lube Ventures in connection with the execution and delivery
of this Agreement or any document or instrument contemplated hereby, the
consummation of any of the transactions contemplated hereby or the performance
of any of their respective obligations hereunder or thereunder.
Section 7.8 Financial Statements. Attached hereto as Exhibit E are true
and correct copies of [the audited financial statements of Lube Ventures as at
December 31, 1994, 1995 and 1996, and for the year periods then ended and the
unaudited financial statements of Lube Venturess as at June 30, 1997 and for the
six month period then ended (collectively, the " Lube Ventures Financial
Statements"). All of the Lube Ventures Financial Statements have been prepared
in accordance with GAAP. All of the Lube Ventures Financial Statements have been
prepared in a manner consistent with each other and the books and records of
Lube Ventures, and fairly present in all material respects the financial
condition and results of operations of Lube Ventures at the dates and for the
periods indicated therein. The regular books of account of Lube Ventures fairly
and accurately reflect all material transactions involving Lube Ventures, are
true, correct and complete and have been prepared in accordance with GAAP and on
a basis consistent with the Financial Statements. All of the accounts receivable
of Lube Ventures reflected on the Lube Ventures Financial Statements arose from
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bona fide, arms-length transactions in the ordinary course of business for
services performed or goods sold by Lube Ventures, and are not subject to any
counterclaim, deduction, right of set off, set off or recoupment, and will be
collectible in the ordinary course of business in the aggregate face amounts
thereof, subject to the reserves therefore set forth on the Lube Ventures
Financial Statements. All inventories reflected on the books and records of Lube
Venture and on the Lube Ventures Financial Statements are of a quality and
quantity which are good and marketable, and are saleable in the ordinary course
of business which shall result in Lube Ventures realizing gross profits on such
sales consistent with the gross profits of Lube Ventures reflected in the Lube
Venture Financial Statements. The costs of all inventories reflected thereon
have been valued in accordance with GAAP.
Section 7.9 Debt. The Lube Ventures Disclosure Letter contains a true,
complete and accurate listing of the original principal amount of all of the
Debt of Lube Ventures, the remaining principal balance thereof, the interest
rate(s) payable by Lube Ventures in respect thereof, if any, and the date(s) of
maturity thereof. Except as disclosed in the Lube Ventures Disclosure Letter,
all of the Debt of Lube Ventures may be prepaid at any time, without premium,
prepayment penalties, termination fees or other fees or charges.
Section 7.10 Guarantees. The Lube Ventures Disclosure Letter contains a
complete list of all Guarantees provided by Lube Ventures for the benefit of any
other party and of all Guarantees provided by any other party for the benefit of
Lube Ventures or any party doing business with Lube Ventures.
Section 7.11 No Undisclosed Liabilities. Lube Ventures does not have
any material liabilities or obligations of any nature whatsoever (whether known
or unknown, due or to become due, absolute, accrued, contingent or otherwise,
and whether or not determined or determinable), except for (i) liabilities or
obligations set forth in the Lube Ventures Disclosure Letter, (ii) liabilities
or obligations to the extent expressly reflected on or reserved against in the
June 30, 1997 balance sheet included among the Lube Ventures Financial
Statements or disclosed in the notes thereto, (iii) liabilities or obligations
of a type reflected on the June 30, 1997 balance sheet and incurred in the
ordinary course of business and consistent with past practices since June 30,
1997, or (iv) liabilities or obligations arising under the terms of the Material
Contracts of Lube Ventures. Except as otherwise contemplated or permitted by
this Agreement no dividends have been declared on any capital stock of Lube
Ventures which are unpaid.
Section 7.12 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the management of Lube Ventures, threatened, by or before any
court, any Governmental Authority or arbitrator, against Lube Ventures that
reasonably could be expected to prevent the consummation of any of the
transactions contemplated hereby. Except as disclosed in the Lube Ventures
Disclosure Letter, there is no material suit, claim, action at law or in equity,
proceeding or governmental investigation or audit pending, or to the knowledge
of management of Lube Ventures, threatened, by or before any arbitrator, court,
or other Governmental Authority, against Lube Ventures or involving any of the
former or present employees, agents, businesses, properties, rights or assets of
Lube Venture, nor, to the knowledge
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of management of Lube Ventures, is there any basis for the assertion of any of
the foregoing. Except as disclosed in the Lube Ventures Disclosure Letter, there
are no judgments, orders, injunctions, decrees, stipulations or awards rendered
by any court, Governmental Authority or arbitrator against Lube Ventures or any
of their respective former or present Employees, agents, properties or assets.
Section 7.13 Properties; Absence of Encumbrances. The Lube Ventures
Disclosure Letter sets forth a complete list of all real property owned by or
leased to Lube Ventures, and, with respect to all properties leased by Lube
Venture, a description of the term of such lease and the monthly rental
thereunder. Lube Ventures is not in default (and will not be in default with the
passage of time or the receipt of notice or both) and has not received notice of
default, under any lease of real property. All real property leased to Lube
Venture is available for immediate use in the operation of its business and for
the purpose for which such property currently is being utilized. Subject in the
case of leased property to the terms and conditions of the respective leases,
Lube Ventures has full legal and practical access to all such real property.
Section 7.14 Intellectual Property. The Lube Ventures Disclosure Letter
sets forth a complete list of (i) any and all Intellectual Property owned, used
or licensed by Lube Ventures, together with the identity of the owner thereof,
and (ii) all license agreements pursuant to which any Intellectual Property is
licensed to or by Lube Ventures. Lube Ventures owns its Intellectual Property
free and clear of any and all Encumbrances, or, in the case of licensed
Intellectual Property, has valid, binding and enforceable rights to use such
Intellectual Property. Lube Ventures has duly and timely filed all renewals,
continuations and other filings necessary to maintain its Intellectual Property
or registrations thereof. Except as disclosed in the Lube Ventures Disclosure
Letter, Lube Ventures (i) has not received any notice or claim to the effect
that the use of any Intellectual Property infringes upon, conflicts with or
misappropriates the rights of any other party or that any of the Intellectual
Property is not valid or enforceable, and (ii) has not made any claim that any
party has violated or infringed upon its rights with respect to any Intellectual
Property.
Section 7.15 Material Contracts.
(a) List of Material Contracts. The Lube
Venture Disclosure Letter sets forth a list of all written, and a description of
all oral, commitments, agreements or contracts to which Lube Ventures is a party
or by which Lube Ventures is obligated, including, but not limited to, all
commitments, agreements or contracts embodying or evidencing the following
transactions or arrangements: (i) agreements for the employment of, or
independent contractor arrangements with, any officer or other individual
Employee of Lube Ventures; (ii) any consulting agreement, agency agreement and
any other service agreement that will continue in force after the Closing Date
with respect to the employment or retention by Lube Ventures of consultants,
agents, legal counsel, accountants or anyone else who is not an Employee; (iii)
any single contract, purchase order or commitment providing for expenditures by
Lube Ventures after the date hereof of more than $25,000 or which has been
entered into by Lube Ventures otherwise than in the ordinary course of business;
(iv) agreements between Lube Ventures and suppliers to Lube Ventures pursuant to
which Lube Ventures is obligated to purchase or to sell or distribute the
products of any other party other
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than current purchase orders entered into in the ordinary course of business
consistent with past practices; (v) any contract containing covenants limiting
the freedom of Lube Ventures or any officer, director, or employee of Lube
Venture to engage in any line or type of business or with any person in any
geographic area; (vi) any commitment or arrangement by Lube Ventures to
participate in a strategic alliance, partnership, joint venture, limited
liability company or other cooperative undertaking with any other Person; (vii)
any commitments by Lube Ventures for capital expenditures involving more than
$25,000 individually or $50,000 in the aggregate; and (viii) any other contract,
commitment, agreement, understanding or arrangement that the management of Lube
Venture deems to be material to the business of Lube Ventures.
(b) No Breaches or Defaults. Except as
disclosed in the Lube Ventures Disclosure Letter, Lube Ventures and is in full
compliance with each, and is not in default under any, Material Contract to
which it is a party, and no event has occurred that, with notice or lapse of
time or both, would constitute such a default thereunder. Neither Lube Ventures
nor any of Subsidiaries has waived any rights under or with respect to any of
the Material Contracts to which it is a party. The management of Lube Ventures
has no knowledge, or received any notice to the effect, that any party with whom
Lube Ventures has contractual arrangements under the Material Contracts, is in
default under any such contractual arrangements or that any event has occurred
that, with notice or lapse of time or both, would constitute such a default
thereunder. Each of the Material Contracts constitutes a legal, valid and
binding obligation of each the parties thereto and is enforceable against each
of the parties thereto in accordance with its respective terms; except as
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
exercise of judicial discretion in accordance with general principles of equity.
(c) Franchise Agreements. The Lube Ventures
Disclosure Letter contains a complete list of all of the current franchisees of
Lube Ventures to whom Lube Ventures has granted to any franchise or similar
rights with respect to the Lube Depot System (collectively, the "Lube Depot
Franchise Agreements"). Each of the Lube Depot Franchise Agreements is a legal,
valid and binding obligation of Lube Ventures and is enforceable against Lube
Ventures in accordance with its respective terms. Lube Ventures is in full
compliance with the terms of each of the Lube Depot Franchise Agreements and no
event has occurred that, with or without notice or lapse of time or both,
constitutes or will constitute a default by Lube Ventures thereunder or a breach
by Lube Ventures thereof. Except as disclosed in the Lube Ventures Disclosure
Letter, Lube Ventures has not waived any rights under or with respect to any of
the Lube Depot Franchise Agreements. Except as disclosed in the Lube Ventures
Disclosure Letter, to the knowledge of management of Lube Ventures, none of the
franchisees or licensees that are parties to any of the Lube Depot Franchise
Agreements is in default thereunder and no event has occurred that, with or
without notice or lapse of time or both, constitutes or will constitute a
default thereunder or a breach thereof by such franchisees or licensees.
Section 7.16 Employee Benefits and Employment Matters.
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(a) Plans and Arrangements. The Lube Ventures
Disclosure Letter sets forth a true, complete and correct list of all Employee
Benefit Plans and all Benefit Arrangements to which Lube Ventures or any of its
ERISA Affiliates is a party or to which Lube Ventures or any of its ERISA
Affiliates is obligated to contribute. None of the Employee Benefit Plans to
which Lube Ventures or any ERISA Affiliate of Lube Ventures is a party, which
Lube Venture or any ERISA Affiliate of Lube Ventures sponsors or maintains or to
which Lube Ventures or any ERISA Affiliate of Lube Ventures contributes is
subject to the requirements of Section 302 of ERISA or Section 412 of the Code
and no liability under Title IV of ERISA (whether to the PBGC or otherwise) has
been incurred by Lube Ventures or any of its ERISA Affiliates.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Lube Ventures Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Lube Ventures or any of its ERISA
Affiliates is a party or to which Lube Ventures or any of its ERISA Affiliates
is obligated to contribute has been operated or maintained in compliance in all
material respects with all Applicable Laws, including, without limitation, ERISA
and the Code, and has been maintained in material compliance with its terms and
in material compliance with the terms of any applicable collective bargaining
agreement. Except as disclosed in the Lube Ventures Disclosure Letter, with
respect to any Employee Benefit Plan that is intended to qualify under Section
401 of the Code, a favorable determination letter as to qualification under
Section 401 of the Code that considered the Tax Reform Act of 1986 has been
issued and any amendments required for continued qualification under Section 401
of the Code have been timely adopted and nothing has occurred subsequent to the
date of such determination letter that could adversely affect the qualified
status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Lube Ventures or any of its ERISA
Affiliates is a party or to which Lube Ventures or any of its ERISA Affiliates
is obligated to contribute, under ERISA or the Code, for all periods of time
prior to the date hereof and that are attributable to Employees of Lube Ventures
have been paid or otherwise adequately accrued against in the Lube Ventures
Financial Statements, as the case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the Lube Ventures Disclosure Letter, Lube Ventures is not liable
for any arrearage of wages, any accrued or vested vacation pay or any tax or
penalty for failure to comply with any Applicable Law relating to employment or
labor above the level accrued for or reserved against on the June 30, 1997
balance sheet included in the Lube Ventures Financial Statements, and there is
no controversy pending, threatened or in prospect between Lube Ventures and any
of their respective Employees nor is there any basis for any such controversy.
There is no unfair labor practice charge or complaint currently pending against
Lube Ventures with respect to or relating to any of their respective Employees
before the National Labor Relations Board or any other agency having
jurisdiction over such matters and no charges or complaints are currently
pending against Lube Ventures before the Equal Employment Opportunity Commission
or any state or local agency having responsibility for the prevention of
unlawful employment practices. There are no actions, suits or claims pending,
including proceedings before the IRS, the DOL or the PBGC, with respect to any
Employee Benefit Plan, Benefit Arrangement or any administrator or fiduciary
thereof, other than benefit claims arising in the normal course of operation of
such Employee Benefit Plans or Benefit Arrangements, and, to the knowledge of
the management of Lube Ventures, no Employee Benefit Plan or Benefit Arrangement
is under audit or investigation by any Governmental Authority.
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(e) Severance Obligations. Except as disclosed
in the Lube Ventures Disclosure Letter, all current employees of Lube Ventures
may be terminated at will, without notice and without incurring any severance or
other liability or obligation to the employee in connection with the
termination. Except to the extent provided by the terms of the Employee Benefit
Plans and Benefit Arrangements disclosed in the Lube Ventures Disclosure Letter,
neither the execution, delivery or performance of this Agreement nor the
consummation of the Closing will (i) increase any benefits otherwise payable
under any Employee Benefit Plan or Benefit Arrangement, (ii) result in the
acceleration of the time of payment or vesting of any such benefits, or (iii)
give rise to an obligation with respect to the payment of any severance pay. No
"parachute payment" (within the meaning of Section 280G of the Code), "change in
control" or severance payment has been made or will be required to be made by
Lube Ventures or any ERISA Affiliate of Lube Ventures to any of its Employees in
connection with the execution, delivery or performance of this Agreement or as a
result of the consummation of the Closing.
(f) Compliance with Laws on Employment
Practices. Lube Ventures has complied in all material respects with all
Applicable laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, and to the knowledge of the
management of Lube Ventures, is not engaged in any unfair labor practice with
respect to any of the current employees of Lube Ventures; and to the best
knowledge of Lube Ventures, none of the persons performing services for Lube
Venture or any of its ERISA Affiliates has been improperly classified as
independent contractors or as exempt from payment of wages or overtime .
(g) Collective Bargaining Agreements. Except as
disclosed in the Lube Ventures Disclosure Letter), none of the employees of Lube
Venture are subject to any collective bargaining agreement nor is Lube Ventures
required under any agreement to recognize or bargain with any labor organization
or union on behalf of its employees.
(h) No Multi-Employer Plans. Neither Lube
Venture nor any of its ERISA Affiliates has contributed to, or had the
obligation to contribute to, any Multiemployer Plan within the five-year period
ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Lube Ventures or any of its ERISA Affiliates relating to, or change in employee
participation or coverage under, any Employee Benefit Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Benefit Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year of Lube Ventures ended December
31, 1996.
(j) No Unfunded Liabilities. Neither Lube
Venture nor any ERISA Affiliate of Lube Ventures has any current or projected
liability for any unfunded post-retirement medical or life insurance benefits in
connection with any Employee of Lube Ventures or ERISA Affiliate of Lube
Ventures.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or
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contributed to by Lube Ventures or any ERISA Affiliate of Lube Ventures, which
could subject any such Employee Benefit Plan, Lube Ventures, any ERISA Affiliate
of Lube Ventures, or the Holding Company directly or indirectly (through an
indemnification agreement or otherwise), to any liability for or as a result of
a breach of fiduciary duty, a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, or a civil penalty under
Section 502 of ERISA or a Tax under Section 4971 of the Code. Neither Lube
Venture nor any of its ERISA Affiliates have incurred a "withdrawal" or "partial
withdrawal," as defined in Sections 4203 and 4205 of ERISA, from, or failed to
timely make contributions, to any Multiemployer Plan which has resulted in any
unpaid liability of Lube Ventures or any of its ERISA Affiliates.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the Lube Ventures Disclosure Letter, none of the Employee Benefit
Plans that are "employee welfare benefit plans" as defined in ERISA Section 3(1)
provides for continuing benefits or coverage for any participant or beneficiary
of a participant after such participant's termination of employment, except to
the extent required by law; provided that any disclosure regarding this clause
(i) shall set forth (A) the number of individuals currently receiving such
continuing benefits or coverage, (B) the limit on liability with respect to such
coverage, (C) the terms and conditions of such coverage, and (D) the maximum
number of current employees or independent contractors who could become eligible
for such continuing benefits or coverage; (ii) there has been no violation of
Code Section 4980B or ERISA Sections 601-609 with respect to any such plan that
could result in any material liability; (iii) no such plans are "multiple
employer welfare arrangements" within the meaning of ERISA Section 3(40); (iv)
with respect to any such plans that are self-insured, no claims have been made
pursuant to any such plan that have not yet been paid (other than claims which
have not yet been paid but are in the normal course of processing) and no
individual has incurred injury, sickness or other medical condition with respect
to which claims may be made pursuant to any such plan where the liability to the
employer could in the aggregate with respect to each such individual exceed
$50,000 per year; (v) Neither Lube Ventures nor any of its ERISA Affiliates
maintains or has any obligation to contribute to any "voluntary employees'
beneficiary association" within the meaning of Code Section 501(c)(9) or other
welfare benefit fund as defined at Section 419(e) of the Code (such disclosure
to include the amount of any such funding); (vi) no such plan is intended to
satisfy Code Section 125; (vii) no amounts are required in connection with any
such plan to be included in income under Code Section 105(h) (under official
regulations thereof to date); and (viii) neither Lube Ventures nor any of its
ERISA Affiliates maintains a nonconforming group health plan as defined at
Section 5000(c) of the Code.
Section 7.17 Tax Matters.
(a) Affiliated Groups. Lube Ventures is not a
member of, and has never been a member of, any "affiliated group" as that term
is defined in Section 1054(a) of the Code.
(b) Tax Returns and Payment of Taxes. Lube
Venture has timely filed or will timely file all federal, state, local, and
other Tax Returns required to be filed by it under Applicable Laws with respect
to all periods prior to the date hereof, including estimated Tax Returns and
reports, and has paid all required Income Taxes and other Taxes (including any
additions to taxes, penalties and interest related thereto) due and payable on
or before the date hereof. Lube
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Ventures has paid, withheld, or accrued, or will accrue, on the Lube Ventures
Financial Statements in accordance with GAAP any and all Income Taxes and other
Taxes in respect of the conduct of its business or the ownership of its property
and in respect of any transactions for all periods (or portions thereof) through
the close of business on the Closing Date. Lube Ventures has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding requirements, including the
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any Employee, creditor, independent contractor or other third
party. Lube Ventures has collected all sales, use and value added Taxes required
to be collected, and has remitted, or will remit on a timely basis, such amounts
to the appropriate Government Authorities and have furnished properly completed
exemption certificates for all exempt transactions.
(c) Tax Reserves. The amount of Lube Ventures's
liability for unpaid Taxes for all periods ending on or before the date of this
Agreement does not, in the aggregate, exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) as of the date of
this Agreement, and the amount of Lube Ventures 's liability for unpaid Taxes
for all periods ending on or before the Closing Date shall not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals shall be reflected on
the balance sheet of Lube Ventures as of the Closing Date.
(d) Audits; No Deficiencies Asserted Against
Company. The Tax Returns of Lube Ventures have never been audited by any Tax
Authority, nor is any such audit in process, pending or threatened (either in
writing or verbally, formally or informally). Except as disclosed in the Lube
Venture Disclosure Letter, no deficiencies have been asserted (or are expected
to be asserted) against Lube Ventures as a result of IRS (or state or local Tax
Authority) examinations and no issue has been raised by any IRS (or state or
local Tax Authority) examination that, by application of the same principles,
might result in a proposed deficiency for any other period not so examined.
(e) No Waivers of Limitations. Except as
disclosed in the Lube Ventures Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrangements providing for
extensions of time in respect of the assessment or collection of any unpaid
Taxes against Lube Ventures. Lube Ventures has disclosed on its federal Income
Tax Returns all positions taken therein that could, if not so disclosed, give
rise to a substantial understatement penalty within the meaning of Section 6662
of the Code.
(f) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Lube Ventures with respect to Taxes,
other than liens for Taxes not yet due and payable or for Taxes that Lube
Venture is contesting in good faith through appropriate proceedings and for
which appropriate reserves have been established on the Lube Ventures Financial
Statements.
(g) Tax Elections and Special Tax Status. Lube
Venture is not a party to any safe harbor lease within the meaning of Section
168(f)(8) of the Code. No election or consent under Section 341(f) of the Code
has been made or shall be made on or prior to the Closing Date by
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or on behalf of Lube Ventures. Lube Ventures is a "small business corporation"
which has elected to be subject to federal income taxation under Subchapter S of
the Code and has had such status for purposes of federal income taxation and
state income taxation in all states in which its income is subject to taxation
at all times since its formation.
(h) Disqualified Leasebacks. Lube Ventures is
not a party to a "disqualified leaseback or long-term agreement" described in
Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Lube Ventures has been deferred pursuant to Treasury Regulation ss. 1.1502-13 or
1.1502-14, or Temporary Treasury Regulation ss. 1.1502-13T or 1.1502-14T.
(j) Tax Sharing and Similar Arrangements. Lube
Venture is not a party to or bound by any Tax sharing, Tax indemnity, Tax
allocation or other similar arrangement.
(k) No Non-Deductible Compensation Payments.
Lube Ventures has not made any payments, nor is it obligated to make any
payments, that would not be deductible under Section 280G of the Code nor is it
a party to any agreement that under certain circumstances could obligate it to
make any such payments.
Section 7.18 Environmental Matters.
(a) The facilities presently or formerly occupied or used by
Lube Ventures and any other real property presently or formerly owned by, used
by or leased to or by Lube Ventures (collectively, the "Lube Ventures
Property"), the existing and prior uses of such Lube Ventures Property and all
operations of the businesses of Lube Ventures comply and have at all times
complied with all Environmental Laws and Lube Ventures is not in violation of
nor has it violated, in connection with the ownership, use, maintenance or
operation of such property or the conduct of its business, any Environmental
Law.
(b) Lube Ventures has all necessary permits, registrations,
approvals and licenses required by any Governmental Authority or Environmental
Law.
(c) There has been no spill, discharge, leak, emission,
injection, disposal, escape, dumping or release of any kind on, beneath or above
such Property or into the environment surrounding such Lube Ventures Property of
any Hazardous Materials.
(d) There has been no past, and there is no current or
anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Lube Ventures Property. No asbestos-containing materials, underground
improvements (including, but not limited to the treatment or storage tanks,
sumps, or water, gas or oil wells) or polychlorinated biphenyls (PCBs)
transformers, capacitors, ballasts, or
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other equipment which contain dielectric fluid containing PCBs at levels in
excess of fifty parts per million (50 PPM) are or have ever been located on such
Lube Ventures Property.
(e) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Lube Ventures (or any predecessor in interest) in
connection with (i) any actual or alleged failure to comply with any requirement
of any Environmental Law; (ii) the ownership, use, maintenance or operation of
the Property by any person; (iii).the alleged violation of any Environmental
Law; or (iv) the suspected presence of any Hazardous Material thereon.
(f) Lube Ventures has never had the capacity to exercise
control/manage and has never exercised control or management over any matter
relating to its franchisees' manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of any Hazardous Material.
Section 7.19 Compliance With Laws. Lube Ventures has at all times
conducted its business in material compliance with all (and has not received any
notice of any claimed violation of any) Applicable Laws, and has registered each
of the franchises granted under the Lube Depot Franchise Agreements with each
jurisdiction in which the sale of such franchises requires such registration.
Lube Ventures has complied in all material respects with all of the rules and
regulations of the Federal Trade Commission of the United States relating to the
offer and sale of franchises.
Section 7.20 Licenses and Permits. Lube Ventures possess all licenses,
permits, and other governmental consents, certificates, approvals, or other
authorizations (the "Permits") necessary for the operation of the business of
Lube Ventures. Lube Ventures has complied with the terms and conditions of all
Permits in all material respects and all such Permits are in full force and
effect, and there has occurred no event nor is any event, action, investigation
or proceeding pending or, to the knowledge of management of Lube Ventures,
threatened, which could cause or permit revocation or suspension of or otherwise
adversely affect the maintenance of any Permits. The transactions contemplated
by this Agreement will not lead to the revocation, cancellation, termination or
suspension of any Permits.
Section 7.21 Insurance. Lube Ventures has regularly maintained all
policies of commercial liability, products liability, fire, casualty, worker's
compensation, life and other forms of insurance on an "occurrence" rather than a
"claims made" basis in amounts and types required by law and generally carried
by reasonably prudent, similarly situated businesses. Lube Ventures is not in
default under any provision contained in any insurance policy maintained by Lube
Venture currently, nor has Lube Ventures failed to give any notice or present
any claim thereunder in due and timely fashion and no cancellation, non-renewal,
reduction of coverage or arrearage in premiums has been threatened or occurred
with respect to any policy, nor is the management of Lube Ventures aware of any
grounds therefor.
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Section 7.22 Extraordinary Transactions. Except as disclosed in the
Lube Ventures Disclosure Letter or otherwise permitted by this Agreement, since
June 30, 1997, Lube Ventures has not (i) mortgaged, pledged or subjected to any
Encumbrance any of its assets; (ii) canceled or compromised any claim of or
debts owed to it; (iii) sold, licensed, leased, exchanged or transferred any of
its assets except in the ordinary course of business; (iv) entered into any
material transaction other than in the ordinary course of business; (v)
experienced any material change in the relationship or course of dealing with
any supplier, franchisee, customer or creditor; (vi) suffered any material
destruction, loss or damage to any of its assets; (vii) made any management
decisions involving any material change in its policies with regard to pricing,
sales, purchasing or other business, financial, accounting (including reserves
and the amounts thereof) or tax policies or practices; (viii) declared, set
aside or paid any dividends on or made any distributions in respect of any
outstanding shares of capital stock or made any other distributions or payments
to any of its shareholders; (ix) submitted any bid, proposal, quote or
commitment to any party in response to a request for proposal or otherwise; (x)
engaged in any merger or consolidation with, or agreed to merge or consolidate
with, or purchased or agreed to purchase, all or substantially all of the assets
of, or otherwise acquire, any other party; (xi) entered into any strategic
alliance, partnership, joint venture or similar arrangement with any other
party; (xii) incurred or agreed to incur any Debt or prepaid or made any
prepayments in respect of Debt; (xiii) issued or agreed to issue to any party,
any shares of stock or other securities; (xiv) redeemed, purchased or agreed to
redeem or purchase any of its outstanding shares of capital stock or other
securities; (xv) increased the rate of compensation payable or to become payable
to any of its officers, directors, employees or agents over the rate being paid
to them as of June 30, 1997 or agreed to do so otherwise than in accordance with
contractual agreements with such parties; (xvi) made or agreed to make any
charitable contributions or incurred or agreed to incur any non-business
expenses; or (xvii) charged off any bad debts or increased its bad debt reserve
except in the manner consistent with its past practices.
Section 7.23 Title to Assets. Except as described in the Lube Ventures
Disclosure Letter, Lube Ventures has good and marketable title to its assets and
properties, free and clear of restrictions on or conditions to transfer or
assignment, and free and clear of all Encumbrances.
Section 7.24 Corporate Records. The minute books of Lube Ventures
accurately reflect all minutes of proceedings of and actions taken by the
directors of Lube Ventures, and by each committee of the Board of Directors of
Lube Ventures and all records of meetings of and actions taken by the
stockholders of Lube Ventures, that are required by applicable laws to be
recorded in or reflected in the corporate records thereof.
Section 7.25 Broker and Finder Fees. Lube Ventures has not engaged any
broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company or Lube Ventures by any broker,
finder or intermediary in connection with such transaction.
Section 7.26 Adequate Disclosure. No representation or warranty made by
Lube Ventures pursuant to this Agreement, or any statement contained in any
Exhibit or Schedule to this
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Agreement, or any certificate or document furnished or to be furnished by Lube
Venture pursuant to the terms of this Agreement in connection with the
transactions contemplated hereby, contains any untrue or misleading statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained therein not misleading.
Section 7.27 No Adverse Change or Conditions. Except as set forth in
the Lube Ventures Disclosure Letter, and except as expressly contemplated or
permitted by this Agreement, since June 30, 1997, Lube Ventures has conducted
its business in the ordinary course and consistent with past practice, and
neither Lube Ventures has not suffered any change that has had a Material
Adverse Effect on Lube Ventures. There are no conditions, facts, developments or
circumstances of an unusual or special nature that reasonably could be expected
to have a Material Adverse Effect upon Lube Ventures that have not been
disclosed in writing by Lube Ventures pursuant to the Lube Ventures Disclosure
Letter.
ARTICLE VIII
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REPRESENTATIONS AND WARRANTIES OF MIRACLE INDUSTRIES
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In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Miracle Industries
hereby makes the following representations and warranties to the other parties
to this Agreement:
Section 8.1 Organization and Good Standing.
8.1.1 Miracle Industries. Miracle Industries is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has full corporate power and authority to own, operate
and lease its properties, and to conduct its business as it is now being
conducted, and is qualified to transact business as a foreign corporation in
each jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification.
8.1.2 Hydro-Spray. Hydro-Spray is a limited liability company
duly organized, validly existing and in good standing under the laws of the
[State of Iowa], and has full corporate power and authority to own, operate and
lease its properties, and to conduct its business as it is now being conducted,
and is qualified to transact business as a foreign limited liability company in
each jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification.
8.1.3 Indy Ventures. Indy Ventures is a limited liability
company duly organized, validly existing and in good standing under the laws of
the [State of Indiana], and has full corporate power and authority to own,
operate and lease its properties, and to conduct its business as it is now being
conducted, and is qualified to transact business as a foreign limited liability
company in each
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jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification.
Section 8.2 Capitalization of Miracle Industries.
8.2.1 Authorized Capital Stock; Outstanding Shares. The
authorized capital stock of Miracle Industries consists solely of 100,000 shares
of a single class of common stock, $-0- par value, of which 34,943 shares have
been issued and are outstanding as of the date of this Agreement. Each of the
shares of the capital stock of Miracle Industries issued and outstanding as of
the date hereof has been duly authorized and validly issued and is fully paid
and non-assessable. None of the shares of the issued and outstanding capital
stock of Miracle Industries has been issued in violation of shareholder
preemptive rights. Miracle Industries has no issued or outstanding equity
securities, debt securities or other instruments which are convertible into or
exchangeable for at any time into equity securities of Miracle Industries.
8.2.2 No Obligations to Issue or Redeem Shares.
(a) Miracle Industries is not subject to any
commitment or obligation which would require the issuance or sale by Miracle
Industries of shares of its capital stock at any time under options,
subscriptions, warrants, rights, calls, preemptive rights, convertible
obligations or any other fixed or contingent obligations or which would provide
the holder thereof with the right to acquire any equity securities of Miracle
Industries. Miracle Industries has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
(b) Hydro-Spray is not subject to any commitment
or obligation which would require the issuance or sale by Hydro-Spray of any
equity interest at any time under options, subscriptions, warrants, rights,
calls, preemptive rights, convertible obligations or any other fixed or
contingent obligations or which would provide the holder thereof with the right
to acquire any equity securities of Hydro-Spray. Hydro-Spray has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
(c) Indy Ventures is not subject to any
commitment or obligation which would require the issuance or sale by Indy
Ventures of any equity interest at any time under options, subscriptions,
warrants, rights, calls, preemptive rights, convertible obligations or any other
fixed or contingent obligations or which would provide the holder thereof with
the right to acquire any equity securities of Hydro-Spray. Hydro-Spray has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
Section 8.3 Ownership of Shares. The Miracle Industries Disclosure
Letter contains a true, complete and accurate list of all of the record and
beneficial owners of the shares of the capital
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stock of Miracle Industries, together the name and address of each such holder.
Except as disclosed in the Miracle Industries Disclosure Letter, there are no
existing agreements, pledges, powers of attorney, assignments or similar
agreements or arrangements either (i) restricting the transferability of any of
the shares of the capital stock of Miracle Industries or (ii) which reasonably
could be expected to prohibit or delay the consummation of the transactions
contemplated hereby.
Section 8.4 Subsidiaries; Investments. Miracle Industries owns a 90%
Membership Interest in Hydro-Spray and a 50% Membership Interest in Indy
Ventures. Donald Havens and Dale Hughson each own 5% Membership Interests in
Hydro-Spray. Gerald A. Zamensky and James Pauley each own 25% Membership
Interests in Indy Ventures. Except for the foregoing Persons, no other Person
owns any legal or beneficial Membership Interest in either Hydro-Spray or Indy
Ventures. Miracle Industries has good, valid and marketable title, free and
clear of all Encumbrances, to its Membership Interests in Hydro-Spray and Indy
Ventures. Except for its interests in Hydro-Spray and Indy Ventures, Miracle
Industries does not own any shares of capital stock or equity securities of, or
any interest in any other Person or entity. There are no agreements, pledges,
powers of attorney, assignments or similar agreement or arrangements either (i)
restricting the transferability of the membership interests of Miracle
Industries in Hydro-Spray or Indy Ventures or (ii) relating to the membership
interests of Miracle Industries in Hydro-Spray or Indy Ventures which reasonably
could be expected to prohibit or delay any of the transactions contemplated
hereby.
Section 8.5 Execution and Effect of Agreement Miracle Industries has
the corporate power to enter into this Agreement and to perform its obligations
hereunder and, subject to the due authorization and approval of its
shareholders, to enter into and consummate the Miracle Industries Merger.
Subject only to the approval of its Board of Directors, this Agreement has been
duly executed and delivered by Miracle Industries and constitutes a legal, valid
and binding obligation of Miracle Industries, fully enforceable against Miracle
Industries in accordance with its terms; except as enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the exercise of judicial
discretion in accordance with general principles of equity.
Section 8.6 Restrictions. The execution and delivery of this Agreement
by Miracle Industries, the consummation of the transactions contemplated hereby
by Miracle Industries, and, subject to the due authorization and approval of its
shareholders, the performance of the obligations of Miracle Industries hereunder
will not (a) violate any of the provisions of the charter or by-laws of Miracle
Industries, or the operating agreement of Hydro-Spray or Indy Ventures,
respectively, (b) violate or conflict with the provisions of any Applicable
Laws, (c) result in the creation of any Encumbrance upon any of the assets,
rights or properties of Miracle Industries or Hydro-Spray or Indy Ventures, or
(d) except as disclosed in the Miracle Industries Disclosure Letter, conflict
with, violate any provisions of, result in a breach of or give rise to a right
of termination, modification or cancellation of, constitute a default of, or
accelerate the performance required by, with or without the passage of time or
the giving of notice or both, the terms of any material agreement, indenture,
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mortgage, deed of trust, security or pledge agreement, lease, contract, note,
bond, license, permit, authorization or other instrument to which Miracle
Industries or Hydro-Spray or Indy Ventures is a party or to which any of any of
the assets of Miracle Industries or Hydro-Spray or Indy Ventures are subject.
Section 8.7 Consents. Except as disclosed in the Miracle Industries
Disclosure Letter, no filing with, or consent, waiver, approval or authorization
of, or notice to, any governmental authority or any third party is required to
be made or obtained by Miracle Industries or Hydro-Spray or Indy Venture in
connection with the execution and delivery of this Agreement or any document or
instrument contemplated hereby, the consummation of any of the transactions
contemplated hereby or the performance of any of their respective obligations
hereunder or thereunder.
Section 8.8 Financial Statements. Attached hereto as Exhibit E are true
and correct copies of (i) the audited consolidated balance sheets and related
statements of income, cash flows and changes in stockholders' equity of Miracle
Industries and its Subsidiaries as at December 31, 1994, 1995 and 1996 and for
the year periods then ended and the unaudited financial statements of such
entities as at June 30, 1997 and for the six month period then ended, and (ii)
the unaudited balance sheets and related statements of income, cash flows and
changes in members' equity of each of Hydro-Spray and Indy Ventures as at
December 31, 1994, 1995 and 1996 and for the year periods then-ended to the
extent applicable (collectively, the "Miracle Industries Financial Statements").
All of the Miracle Industries Financial Statements have been prepared in
accordance with GAAP in a manner consistent with each other and the books and
records of Miracle Industries and its Subsidiaries, and fairly present in all
material respects the financial condition and results of operations of Miracle
Industries and its Subsidiaries at the dates and for the periods indicated
therein. The regular books of account of Miracle Industries and its Subsidiaries
fairly and accurately reflect all material transactions involving Miracle
Industries and its Subsidiaries, are true, correct and complete and have been
prepared in accordance with GAAP and on a basis consistent with the Financial
Statements. All of the accounts receivable of Hydro-Spray reflected on the books
and records of Hydro-Spray arose from bona fide, arms-length transactions in the
ordinary course of business, goods sold by Hydro-Spray and are not subject to
any counterclaim, deduction, right of set off, set off or recoupment, and will
be collectible in the ordinary course of business in the aggregate face amounts
thereof subject to the reserves set forth on the Miracle Industries Financial
Statements. All of the inventories reflected on the books and records of
Hydro-Spray are of a quality and quantity which are good and marketable, and are
saleable in the ordinary course of business at prices which will result in
Hydro-Spray realizing gross profits on such sales consistent with the gross
profits of Hydro-Spray reflected in the Miracle Industries Financial Statements.
The cost of all inventories reflected on the books and records of Hydro-Spray
have been valued in accordance with GAAP.
Section 8.9 Debt. The Miracle Industries Disclosure Letter contains a
true, complete and accurate listing of the original principal amount of all of
the Debt of Miracle Industries, Hydro-Spray and Indy Ventures, the remaining
principal balance thereof, the interest rate(s) payable in respect thereof, if
any, and the date(s) of maturity thereof. Except as disclosed in the Miracle
Industries
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Disclosure Letter, all of the Debt of each of Miracle Industries, Hydro-Spray
and Indy Ventures may be prepaid at any time, without premium, prepayment
penalties, termination fees or other fees or charges.
Section 8.10 Guarantees. The Miracle Industries Disclosure Letter
contains a complete list of all Guarantees provided by Miracle Industries or
Hydro-Spray or Indy Ventures for the benefit of any other party and of all
Guarantees provided by any other party for the benefit of Miracle Industries or
Hydro-Spray or Indy Ventures or any party doing business with Miracle Industries
or Hydro-Spray or Indy Ventures.
Section 8.11 No Undisclosed Liabilities. Neither Miracle Industries nor
Hydro-Spray or Indy Ventures has any material liabilities or obligations of any
nature whatsoever (whether known or unknown, due or to become due, absolute,
accrued, contingent or otherwise, and whether or not determined or
determinable), except for (i) liabilities or obligations set forth in the
Miracle Industries Disclosure Letter, (ii) liabilities or obligations to the
extent expressly reflected on or reserved against in the June 30, 1997 balance
sheet included among the Miracle Industries Financial Statements or disclosed in
the notes thereto, (iii) liabilities or obligations of a type reflected on the
June 30, 1997 balance sheet and incurred in the ordinary course of business and
consistent with past practices since June 30, 1997, or (iv) liabilities or
obligations arising under the terms of the Material Contracts of Miracle
Industries. Except as otherwise contemplated or permitted by this Agreement no
dividends have been declared on any capital stock of Miracle Industries which
are unpaid.
Section 8.12 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the management of Miracle Industries, threatened, by or before any
court, any Governmental Authority or arbitrator, against Miracle Industries or
Hydro-Spray or Indy Ventures that reasonably could be expected to prevent the
consummation of any of the transactions contemplated hereby. Except as disclosed
in the Miracle Industries Disclosure Letter, there is no material suit, claim,
action at law or in equity, proceeding or governmental investigation or audit
pending, or to the knowledge of management of Miracle Industries, threatened, by
or before any arbitrator, court, or other Governmental Authority, against
Miracle Industries or Hydro-Spray or Indy Ventures or involving any of the
former or present employees, agents, businesses, properties, rights or assets of
Miracle Industries or Hydro-Spray or Indy Ventures , nor, to the knowledge of
management of Miracle Industries, is there any basis for the assertion of any of
the foregoing. Except as disclosed in the Miracle Industries Disclosure Letter,
there are no judgments, orders, injunctions, decrees, stipulations or awards
rendered by any court, Governmental Authority or arbitrator against Miracle
Industries or Hydro-Spray or Indy Ventures or any of their respective former or
present Employees, agents, properties or assets.
Section 8.13 Properties; Absence of Encumbrances. The Miracle
Industries Disclosure Letter sets forth a complete list of all real property
owned by or leased to Miracle Industries , and, with respect to all properties
leased by Miracle Industries, a description of the term of such lease and the
monthly rental thereunder. Neither Miracle Industries or Hydro-Spray or Indy
Ventures nor (any
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of its other Subsidiaries) is in default (and will not be in default with the
passage of time or the receipt of notice or both) and has not received notice of
default, under any lease of real property. All real property leased to Miracle
Industries or Hydro-Spray or Indy Ventures is available for immediate use in the
operation of its business and for the purpose for which such property currently
is being utilized. Subject in the case of leased property to the terms and
conditions of the respective leases, Miracle Industries or Hydro-Spray or Indy
Ventures has full legal and practical access to all such real property.
Section 8.14 Intellectual Property. The Miracle Industries Disclosure
Letter sets forth a complete list of (i) Intellectual Property owned, used or
licensed by Miracle Industries or Hydro-Spray or Indy Ventures, together with
the identity of the owner thereof, and (ii) all license agreements pursuant to
which any Intellectual Property is licensed to or by Miracle Industries or
Hydro-Spray or Indy Ventures. Miracle Industries and each of Hydro-Spray and
Indy Ventures own their respective Intellectual Property free and clear of any
and all Encumbrances, or, in the case of licensed Intellectual Property, has
valid, binding and enforceable rights to use such Intellectual Property. Miracle
Industries and each of Hydro-Spray and Indy Ventures have each duly and timely
filed all renewals, continuations and other filings necessary to maintain its
Intellectual Property or registrations thereof. Except as disclosed in the
Miracle Industries Disclosure Letter, neither Miracle Industries nor Hydro-Spray
or Indy Ventures (i) has received any notice or claim to the effect that the use
of any Intellectual Property infringes upon, conflicts with or misappropriates
the rights of any other party or that any of the Intellectual Property is not
valid or enforceable, or (ii) has made any claim that any party has violated or
infringed upon its rights with respect to any Intellectual Property.
Section 8.15 Material Contracts.
(a) List of Material Contracts. The Miracle
Industries Disclosure Letter sets forth a list of all written, and a description
of all oral, commitments, agreements or contracts to which Miracle Industries or
Hydro-Spray or Indy Ventures is a party or by which Miracle Industries or
Hydro-Spray or Indy Ventures is obligated, including, but not limited to, all
commitments, agreements or contracts embodying or evidencing the following
transactions or arrangements: (i) agreements for the employment of, or
independent contractor arrangements with, any officer or other individual
employee of Miracle Industries or Hydro-Spray or Indy Ventures; (ii) any
consulting agreement, agency agreement and any other service agreement that will
continue in force after the Closing Date with respect to the employment or
retention by Miracle Industries or Hydro-Spray or Indy Ventures of consultants,
agents, legal counsel, accountants or anyone else who is not an Employee; (iii)
any single contract, purchase order or commitment providing for expenditures by
Miracle Industries or Hydro-Spray or Indy Ventures after the date hereof of more
than $25,000 or which has been entered into by Miracle Industries or Hydro-Spray
or Indy Ventures otherwise than in the ordinary course of business; (iv)
agreements between Miracle Industries or Hydro-Spray or Indy Ventures and
suppliers to Miracle Industries or Hydro-Spray or Indy Ventures pursuant to
which either Miracle Industries or Hydro-Spray or Indy Ventures is obligated to
purchase or to sell or distribute the products of any other party other than
current purchase orders entered into in the
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ordinary course of business consistent with past practices; (v) any contract
containing covenants limiting the freedom of Miracle Industries or Hydro-Spray
or Indy Ventures or any officer, director, or employee of Miracle Industries or
Hydro-Spray or Indy Ventures to engage in any line or type of business or with
any person in any geographic area; (vi) any commitment or arrangement by Miracle
Industries or Hydro-Spray or Indy Ventures to participate in a strategic
alliance, partnership, joint venture, limited liability company or other
cooperative undertaking with any other Person; (vii) any commitments by Miracle
Industries or Hydro-Spray or Indy Ventures for capital expenditures involving
more than $25,000 individually or $50,000 in the aggregate; and (viii) any other
contract, commitment, agreement, understanding or arrangement that the
management of Miracle Industries deems to be material to the business of Miracle
Industries or Hydro-Spray or Indy Ventures.
(b) No Breaches or Defaults. Except as
disclosed in the Miracle Industries Disclosure Letter, Miracle Industries and
each of Hydro-Spray and Indy Ventures is in full compliance with each, and is
not in default under any, Material Contract to which it is a party, and no event
has occurred that, with notice or lapse of time or both, would constitute such a
default thereunder. Neither Miracle Industries nor Hydro-Spray or Indy Ventures
has waived any rights under or with respect to any of the Material Contracts to
which it is a party. The management of Miracle Industries has no knowledge, or
received any notice to the effect, that any party with whom Miracle Industries
or Hydro-Spray or Indy Ventures has contractual arrangements under the Material
Contracts, is in default under any such contractual arrangements or that any
event has occurred that, with notice or lapse of time or both, would constitute
such a default thereunder. Each of the Material Contracts constitutes a legal,
valid and binding obligation of each the parties thereto and is enforceable
against each of the parties thereto in accordance with its respective terms;
except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the exercise of judicial discretion in accordance with general principles of
equity.
Section 8.16 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The Miracle
Industries Disclosure Letter sets forth a true, complete and correct list of all
Employee Benefit Plans and all Benefit Arrangements to which Miracle Industries,
Hydro-Spray, Indy Ventures or any of their ERISA Affiliates is a party or to
which Miracle Industries, Hydro-Spray, Indy Ventures or any of their ERISA
Affiliates is obligated to contribute. None of the Employee Benefit Plans to
which Miracle Industries, Hydro- Spray, Indy Ventures or any of their ERISA
Affiliates is a party, which Miracle Industries, Hydro- Spray, Indy Ventures or
any of their ERISA Affiliates sponsors or maintains or to which Miracle
Industries, Hydro-Spray, Indy Ventures or any of their ERISA Affiliates
contributes is subject to the requirements of Section 302 of ERISA or Section
412 of the Code and no liability under Title IV of ERISA (whether to the PBGC or
otherwise) has been incurred by Miracle Industries, Hydro-Spray, Indy Ventures
or any of their ERISA Affiliates.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Miracle Industries Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Miracle Industries, Hydro-Spray,
Indy Ventures or any of their ERISA Affiliates is a party or to which Miracle
Industries,
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Hydro-Spray, Indy Ventures or any of their ERISA Affiliates is obligated to
contribute has been operated or maintained in compliance in all material
respects with all Applicable Laws, including, without limitation, ERISA and the
Code, and has been maintained in material compliance with its terms and in
material compliance with the terms of any applicable collective bargaining
agreement. Except as disclosed in the Miracle Industries Disclosure Letter, with
respect to any Employee Benefit Plan that is intended to qualify under Section
401 of the Code, a favorable determination letter as to qualification under
Section 401 of the Code that considered the Tax Reform Act of 1986 has been
issued and any amendments required for continued qualification under Section 401
of the Code have been timely adopted and nothing has occurred subsequent to the
date of such determination letter that could adversely affect the qualified
status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Miracle Industries, Hydro-Spray,
Indy Ventures or any of their ERISA Affiliates is a party or to which Miracle
Industries, Hydro-Spray, Indy Ventures or any of their ERISA Affiliates is
obligated to contribute, under ERISA or the Code, for all periods of time prior
to the date hereof and that are attributable to Employees of Miracle Industries,
Hydro-Spray, Indy Ventures or any of their ERISA Affiliates have been paid or
otherwise adequately accrued against in the Miracle Industries Financial
Statements, as the case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the Miracle Industries Disclosure Letter, neither Miracle
Industries nor Hydro-Spray or Indy Ventures is liable for any arrearage of
wages, any accrued or vested vacation pay or any tax or penalty for failure to
comply with any Applicable Law relating to employment or labor above the level
accrued for or reserved against on the June 30, 1997 balance sheet included in
the Miracle Industries Financial Statements, and there is no controversy
pending, threatened or in prospect between Miracle Industries or Hydro-Spray or
Indy Ventures and any of their respective Employees nor is there any basis for
any such controversy. There is no unfair labor practice charge or complaint
currently pending against Miracle Industries or Hydro-Spray or Indy Ventures
with respect to or relating to any of their respective Employees before the
National Labor Relations Board or any other agency having jurisdiction over such
matters and no charges or complaints are currently pending against Miracle
Industries or Hydro-Spray or Indy Ventures before the Equal Employment
Opportunity Commission or any state or local agency having responsibility for
the prevention of unlawful employment practices. There are no actions, suits or
claims pending, including proceedings before the IRS, the DOL or the PBGC, with
respect to any Employee Benefit Plan, Benefit Arrangement or any administrator
or fiduciary thereof, other than benefit claims arising in the normal course of
operation of such Employee Benefit Plans or Benefit Arrangements, and, to the
knowledge of the management of Miracle Industries, no Employee Benefit Plan or
Benefit Arrangement is under audit or investigation by any Governmental
Authority.
(e) Severance Obligations. Except as disclosed
in the Miracle Industries Disclosure Letter, all current employees of Miracle
Industries and of each of Hydro-Spray and Indy Ventures may be terminated at
will, without notice and without incurring any severance or other liability or
obligation to the employee in connection with the termination. Except to the
extent provided by the terms of the Employee Benefit Plans and Benefit
Arrangements disclosed in the Miracle Industries Disclosure Letter, neither the
execution, delivery or performance of this
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Agreement nor the consummation of the Closing will (i) increase any benefits
otherwise payable under any Employee Benefit Plan or Benefit Arrangement, (ii)
result in the acceleration of the time of payment or vesting of any such
benefits, or (iii) give rise to an obligation with respect to the payment of any
severance pay. No "parachute payment" (within the meaning of Section 280G of the
Code), "change in control" or severance payment has been made or will be
required to be made by Miracle Industries or any ERISA Affiliate of Miracle
Industries to any Employee in connection with the execution, delivery or
performance of this Agreement or as a result of the consummation of the Closing.
(f) Compliance with Laws on Employment
Practices. Miracle Industries and each of Hydro-Spray and Indy Ventures has
complied in all material respects with all Applicable laws relating to
employment and employment practices, terms and conditions of employment, wages
and hours, and to the knowledge of the management of Miracle Industries, is not
engaged in any unfair labor practice with respect to any of the current
employees of Miracle Industries or Hydro-Spray or Indy Ventures and to the best
knowledge of Miracle Industries, none of the persons performing services for
Miracle Industries, Hydro-Spray, Indy Ventures or any of their ERISA Affiliates
have been improperly classified as independent contractors or as exempt from
payment of wages or overtime.
(g) Collective Bargaining Agreements. Except as
disclosed in the Miracle Industries Disclosure Letter), none of the employees of
Miracle Industries or Hydro-Spray or Indy Ventures are subject to any collective
bargaining agreement nor is Miracle Industries or Hydro-Spray or Indy Ventures
required under any agreement to recognize or bargain with any labor organization
or union on behalf of its employees.
(h) No Multi-Employer Plans. Nether Miracle
Industries nor Hydro-Spray nor Indy Ventures nor any of their ERISA Affiliates
has contributed to, or had the obligation to contribute to, any Multiemployer
Plan within the five-year period ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Miracle Industries, Hydro-Spray, Indy Ventures or any of their ERISA Affiliates
relating to, or change in employee participation or coverage under, any Employee
Benefit Plan or Benefit Arrangement that would increase materially the expense
of maintaining such Employee Benefit Plan or Benefit Arrangement above the level
of the expense incurred in respect thereof for the fiscal year of Miracle
Industries ended December 31, 1996.
(j) No Unfunded Liabilities. Neither Miracle
Industries nor Hydro-Spray nor Indy Ventures nor any of their ERISA Affiliates
have any current or projected liability for any unfunded post-retirement medical
or life insurance benefits in connection with any Employee of Miracle
Industries, Hydro-Spray, Indy Ventures or any of their ERISA Affiliates.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by Miracle Industries,
Hydro-Spray, Indy Ventures or any of their ERISA Affiliates, which could subject
any such Employee Benefit Plan, Miracle Industries, Hydro-Spray, Indy Ventures
or any of their ERISA Affiliates, or the Holding Company directly or indirectly
(through an indemnification agreement or
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otherwise), to any liability for or as a result of a breach of fiduciary duty, a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax under
Section 4971 of the Code. Neither Miracle Industries nor any of its ERISA
Affiliates have incurred a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from, or failed to timely make contributions to
any Multiemployer Plan which has resulted in any unpaid liability of Miracle
Industries, Hydro-Spray, Indy Ventures or any of their ERISA Affiliates.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the Miracle Industries Disclosure Letter, none of the Employee
Benefit Plans that are "employee welfare benefit plans" as defined in ERISA
Section 3(1) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except to the extent required by law; provided that any disclosure regarding
this clause (i) shall set forth (A) the number of individuals currently
receiving such continuing benefits or coverage, (B) the limit on liability with
respect to such coverage, (C) the terms and conditions of such coverage, and (D)
the maximum number of current employees or independent contractors who could
become eligible for such continuing benefits or coverage; (ii) there has been no
violation of Code Section 4980B or ERISA Sections 601-609 with respect to any
such plan that could result in any material liability; (iii) no such plans are
"multiple employer welfare arrangements" within the meaning of ERISA Section
3(40); (iv) with respect to any such plans that are self-insured, no claims have
been made pursuant to any such plan that have not yet been paid (other than
claims which have not yet been paid but are in the normal course of processing)
and no individual has incurred injury, sickness or other medical condition with
respect to which claims may be made pursuant to any such plan where the
liability to the employer could in the aggregate with respect to each such
individual exceed $50,000 per year; (v) neither Miracle Industries nor
Hydro-Spray nor Indy Ventures nor any of their ERISA Affiliates maintains or has
any obligation to contribute to any "voluntary employees' beneficiary
association" within the meaning of Code Section 501(c)(9) or other welfare
benefit fund as defined at Section 419(e) of the Code (such disclosure to
include the amount of any such funding); (vi) no such plan is intended to
satisfy Code Section 125; (vii) no amounts are required in connection with any
such plan to be included in income under Code Section 105(h) (under official
regulations thereof to date); and (viii) neither Miracle Industries nor
Hydro-Spray nor Indy Ventures nor any of their ERISA Affiliates maintains a
nonconforming group health plan as defined at Section 5000(c) of the Code.
Section 8.17 Tax Matters.
(a) Tax Returns and Payment of Taxes. Miracle
Industries and each of Hydro-Spray and Indy Ventures has timely filed or will
timely file all federal, state, local, and other Tax Returns required to be
filed by it under Applicable Laws, including estimated Tax returns and reports
and consolidated federal Income Tax Returns and state, local or foreign Income
Tax Returns filed on a consolidated or combined basis, and Miracle Industries
and each of Hydro-Spray and Indy Ventures has paid all required Income Taxes and
other Taxes (including any additions to taxes, penalties and interest related
thereto) due and payable on or before the date hereof (and will duly and timely
pay all such amounts required to be paid between the date hereof and the Closing
Date). Each of Miracle Industries and Hydro-Spray and Indy Ventures has paid,
withheld, or will pay any and all Taxes in respect of the conduct of its
business or the ownership of its property and in respect of any transaction for
all periods (or portions thereof) through the close of business on the Closing
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Date. Each of Miracle Industries, Hydro-Spray and Indy Ventures has (i) withheld
and paid over all Taxes required to have been withheld and paid over, and
complied with all information reporting and backup withholding requirements,
including the maintenance of required records with respect thereto, in
connection with amounts paid or owing to any Employee, creditor, independent
contractor or other third party, and (ii) collected all sales, use and value
added Taxes required to be collected, and has remitted, or will remit on a
timely basis, such amounts to the appropriate Government Authorities and have
furnished properly completed exemption certificates for all exempt transactions.
(b) Tax Reserves. The amount of the liability,
if any, of Miracle Industries and of Hydro-Spray and Indy Ventures,
respectively, for unpaid Taxes for all periods ending on or before the date of
this Agreement does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) set forth
on the Miracle Industries Financial Statements as of the date of this Agreement,
and the amount of their respective liabilities Group 's liability for unpaid
Taxes for all periods ending on or before the Closing Date shall not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals shall be reflected on
the consolidated balance sheet of Miracle Industries as of the Closing Date.
(c) Audits; No Deficiencies Asserted. Except as
set forth in the Miracle Industries Disclosure Letter, none of the Tax Returns
of Miracle Industries or of Hydro-Spray or Indy Ventures have ever been audited
by any Tax Authority, nor is any such audit in process, pending or threatened
(either in writing or verbally, formally or informally), and all deficiencies
asserted against Miracle Industries or Hydro-Spray or Indy Ventures or the
Affiliated Groups as a result of IRS examinations have been paid or finally
settled and no issue has been raised by any IRS examination that, by application
of the same principles, is likely to result in a proposed deficiency for any
other period not so examined. Except as set forth in the Miracle Industries
Disclosure, no material deficiencies with respect to Taxes, additions to Tax,
interest, or penalties have been proposed or asserted against and communicated
to the Affiliated Groups, any member of the Affiliated Groups, Miracle
Industries or Hydro-Spray or Indy Ventures, except those that have been paid in
full and for those matters that would not result in liability being imposed
against Miracle Industries or Hydro-Spray or Indy Ventures.
(d) No Waivers of Limitations. Except as set
forth in the Miracle Industries Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrangements providing for
extensions of time in respect of the assessment or collection of any unpaid Tax
against the Affiliated Groups or any member of the Affiliated Groups or Miracle
Industries or Hydro-Spray or Indy Ventures. Miracle Industries has disclosed on
its federal Income Tax Returns all positions taken therein that could, if not so
disclosed, give rise to a substantial understatement penalty within the meaning
of Section 6662 of the Code.
(e) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Miracle Industries or of either
Hydro-Spray or Indy Ventures with respect to Taxes, other than liens for Taxes
not yet due and payable or for Taxes that such party is contesting in good
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faith through appropriate proceedings and for which appropriate reserves have
been established on the Miracle Industries Financial Statements.
(f) Tax Elections and Special Tax Status.
Neither Miracle Industries nor Hydro-Spray nor Indy Ventures is a party to any
safe harbor lease within the meaning of Section 168(f)(8) of the Code. No
election or consent under Section 341(f) of the Code has been made or shall be
made on or prior to the Closing Date by or on behalf of Miracle Industries nor
Hydro-Spray nor Indy Ventures.
(g) Special Tax Elections or Benefits. No
election or consent under Section 341(f) of the Code has been made or shall be
made on or prior to the Closing Date by or on behalf of any of Miracle
Industries or Hydro-Spray or Indy Ventures. No property of Miracle Industries or
Hydro-Spray or Indy Ventures is subject to a tax benefit transfer lease subject
to the provisions of former Section 168(f)(8) of the Internal Revenue Code of
1954. Miracle Industries is a "small business corporation" which has elected to
be subject to federal income taxation under subchapter S of the Code and has
such status for purposes of federal income taxation and state income taxation in
all states in which its respective income is subject to taxation or has been
subject to taxation at all times since its formation. Each of Hydro-Spray and
Indy Ventures is a "partnership" for purposes of federal income taxation and
state income taxation in all states in which its respective income is subject to
taxation and has had the status of a "partnership" for purposes of federal
income taxation and state income taxation in all states in which its respective
income is subject to taxation or has been subject to taxation at all times since
its formation.
(h) Disqualified Leasebacks. Neither Miracle
Industries nor Hydro-Spray or Indy Ventures is a party to a "disqualified
leaseback or long-term agreement" described in Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Miracle Industries or Hydro-Spray or Indy Ventures has been deferred pursuant to
Treasury Regulation ss. 1.1502-13 or 1.1502-14, or Temporary Treasury Regulation
ss. 1.1502-13T or 1.1502-14T.
(j) Tax Sharing and Similar Agreements. Except
as disclosed in the Miracle Industries Disclosure Letter, neither Miracle
Industries nor Hydro-Spray or Indy Ventures is a party to or bound by any Tax
sharing, Tax indemnity or Tax allocation agreement or other similar arrangement.
(k) No Non-Deductible Compensation Payments.
Neither Miracle Industries nor Hydro-Spray or Indy Ventures has made any
payments, nor is obligated to make any payments, that would not be deductible
under Section 280G of the Code, or a party to any agreement that under certain
circumstances could obligate it to make any payments.
Section 8.18 Environmental Matters
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(a) The facilities presently or formerly occupied or used by
each of Miracle Industries, Hydro-Spray or Indy Ventures and any other real
property presently or formerly owned by, used by or leased to or by Miracle
Industries, Hydro-Spray or Indy Ventures (collectively, the "Miracle Industries
Property"), the existing and prior uses of such Property and all operations of
the businesses of Miracle Industries, Hydro-Spray or Indy Ventures comply and
have at all times complied with all Environmental Laws and neither Miracle
Industries, Hydro-Spray nor Indy Ventures is in violation of nor has it
violated, in connection with the ownership, use, maintenance or operation of
such property or the conduct of its business, any Environmental Law.
(b) Each of Miracle Industries, Hydro-Spray and Indy Ventures
has all necessary permits, registrations, approvals and licenses required by any
Governmental Authority or Environmental Law.
(c) There has been no spill, discharge, leak, emission,
injection, disposal, escape, dumping or release of any kind on, beneath or above
such Property or into the environment surrounding such Miracle Industries
Property of any Hazardous Materials.
(d) There has been no past, and there is no current or
anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Miracle Industries Property. No asbestos-containing materials,
underground improvements (including, but not limited to the treatment or storage
tanks, sumps, or water, gas or oil wells) or polychlorinated biphenyls (PCBs)
transformers, capacitors, ballasts, or other equipment which contain dielectric
fluid containing PCBs at levels in excess of fifty parts per million (50 PPM)
are located on such Miracle Industries Property.
(e) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Miracle Industries, Hydro-Spray or Indy Ventures (or
any predecessor in interest) in connection with (i) any actual or alleged
failure to comply with any requirement of any Environmental Law; (ii) the
ownership, use, maintenance or operation of the Property by any person; (iii)
the alleged violation of any Environmental Law; or (iv) the suspected presence
of any Hazardous Material thereon.
Section 8.19 Compliance With Laws. Miracle Industries and each of
Hydro-Spray and Indy Ventures has at all times conducted its business in
material compliance with all (and has not received any notice of any claimed
violation of any) Applicable Laws.
Section 8.20 Licenses and Permits. Miracle Industries and each of
Hydro-Spray and Indy Ventures possess all licenses, permits, and other
governmental consents, certificates, approvals, or other authorizations (the
"Permits") necessary for the operation of their respective businesses. Miracle
Industries and each of Hydro-Spray and Indy Ventures has complied with the terms
and conditions of all Permits in all material respects and all such Permits are
in full force and effect, and there has occurred no event nor is any event,
action, investigation or proceeding pending or, to the
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knowledge of management of Miracle Industries, threatened, which could cause or
permit revocation or suspension of or otherwise adversely affect the maintenance
of any Permits. The transactions contemplated by this Agreement will not lead to
the revocation, cancellation, termination or suspension of any Permits.
Section 8.21 Insurance. Miracle Industries and each of Hydro-Spray and
Indy Ventures has regularly maintained all policies of commercial liability,
products liability, fire, casualty, worker's compensation, life and other forms
of insurance on an "occurrence" rather than a "claims made" basis in amounts and
types required by law and generally carried by reasonably prudent, similarly
situated businesses. Neither Miracle Industries nor Hydro-Spray or Indy Ventures
is in default with respect to any provision contained in any insurance policy,
nor has Miracle Industries or Hydro-Spray or Indy Ventures failed to give any
notice or present any claim thereunder in due and timely fashion and no
cancellation, non-renewal, reduction of coverage or arrearage in premiums has
been threatened or occurred with respect to any policy, nor is the management of
Miracle Industries aware of any grounds therefor.
Section 8.22 Extraordinary Transactions. Except as disclosed in the
Miracle Industries Disclosure Letter or otherwise permitted by this Agreement,
since June 30, 1997, neither Miracle Industries nor Hydro-Spray or Indy Ventures
has (i) mortgaged, pledged or subjected to any Encumbrance any of its assets;
(ii) canceled or compromised any claim of or debts owed to it; (iii) sold,
licensed, leased, exchanged or transferred any of its assets except in the
ordinary course of business; (iv) entered into any material transaction other
than in the ordinary course of business; (v) experienced any material change in
the relationship or course of dealing with any supplier, customer or creditor;
(vi) suffered any material destruction, loss or damage to any of its assets;
(vii) made any management decisions involving any material change in its
policies with regard to pricing, sales, purchasing or other business, financial,
accounting (including reserves and the amounts thereof) or tax policies or
practices; (viii) declared, set aside or paid any dividends on or made any
distributions in respect of any outstanding shares of capital stock or made any
other distributions or payments to any of the Selling Stockholders; (ix)
submitted any bid, proposal, quote or commitment to any party in response to a
request for proposal or otherwise; (x) engaged in any merger or consolidation
with, or agreed to merge or consolidate with, or purchased or agreed to
purchase, all or substantially all of the assets of, or otherwise acquire, any
other party; (xi) entered into any strategic alliance, partnership, joint
venture or similar arrangement with any other party; (xii) incurred or agreed to
incur any Debt or prepaid or made any prepayments in respect of Debt; (xiii)
issued or agreed to issue to any party, any shares of stock or other securities;
(xiv) redeemed, purchased or agreed to redeem or purchase any of its outstanding
shares of capital stock or other securities; (xv) increased the rate of
compensation payable or to become payable to any of its officers, directors,
employees or agents over the rate being paid to them as of June 30, 1996 or
agreed to do so otherwise than in accordance with contractual agreements with
such parties; (xvi) made or agreed to make any charitable contributions or
incurred or agreed to incur any non-business expenses; or (xvii) charged off any
bad debts or increased its bad debt reserve except in the manner consistent with
its past practices.
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Section 8.23 Title to Assets. Except as described in the Miracle
Industries Disclosure Letter, Miracle Industries and each of Hydro-Spray and
Indy Ventures has good and marketable title to its respective assets and
properties, free and clear of restrictions on or conditions to transfer or
assignment, and free and clear of all Encumbrances.
Section 8.24 Corporate Records. The minute books of Miracle Industries
accurately reflect all minutes of proceedings of and actions taken by the
directors of Miracle Industries and each committee of the Board of Directors of
Miracle Industries, and all records of meetings of and actions taken by the
stockholders of Miracle Industries, that are required by applicable laws to be
recorded in or reflected in the corporate records thereof.
Section 8.25 Broker and Finder Fees. Miracle Industries has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by Miracle Industries will cause or support any claim
to be asserted against the Holding Company, Miracle Industries or any of its
Subsidiaries by any broker, finder or intermediary in connection with such
transaction.
Section 8.26 Adequate Disclosure. No representation or warranty made by
Miracle Industries pursuant to this Agreement, or any statement contained in any
Exhibit or Schedule to this Agreement, or any certificate or document furnished
or to be furnished by Miracle Industries or any of its Subsidiaries pursuant to
the terms of this Agreement in connection with the transactions contemplated
hereby, contains any untrue or misleading statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
therein not misleading.
Section 8.27 No Adverse Change or Conditions. Except as set forth in
the Miracle Industries Disclosure Letter, and except as expressly permitted or
contemplated by this Agreement, since June 30, 1997, Miracle Industries and each
of Hydro-Spray and Indy Ventures has conducted its business in the ordinary
course and consistent with past practice, and neither Miracle Industries nor
Hydro-Spray or Indy Ventures has suffered any change that has had a Material
Adverse Effect. There are no conditions, facts, developments or circumstances of
an unusual or special nature that reasonably could be expected to have a
Material Adverse Effect upon Miracle Industries or Hydro-Spray or Indy Ventures
that have not been disclosed in writing by Miracle Industries pursuant to the
Miracle Industries Disclosure Letter.
ARTICLE IX
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REPRESENTATIONS AND WARRANTIES OF ROCKY MOUNTAIN I
--------------------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Rocky Mountain I
hereby makes the following representations and warranties to the other parties
to this Agreement and to the Holding Company:
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Section 9.1 Organization and Good Standing. Rocky Mountain I is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado, and has full corporate power and authority to own,
operate and lease its properties, and to conduct its business as it is now being
conducted, and is qualified to transact business as a foreign corporation in
each jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification.
Section 9.2 Capitalization of Rocky Mountain I. The authorized capital
stock of Rocky Mountain I consists solely of 6,000 shares of a single class of
common stock, $100.00 par value, of which 5,197.5 shares have been issued and
are outstanding as of the date of this Agreement. Each of the shares of the
capital stock of Rocky Mountain I issued and outstanding as of the date hereof
has been duly authorized and validly issued and is fully paid and
non-assessable. None of the shares of the issued and outstanding capital stock
of Rocky Mountain I has been issued in violation of shareholder preemptive
rights. Rocky Mountain I has no issued or outstanding equity securities, debt
securities or other instruments which are convertible into or exchangeable for
at any time into equity securities of Rocky Mountain I. Rocky Mountain I is not
subject to any commitment or obligation which would require the issuance or sale
of shares of its capital stock at any time under options, subscriptions,
warrants, rights, calls, preemptive rights, convertible obligations or any other
fixed or contingent obligations or which would provide the holder thereof with
the right to acquire any equity securities of Rocky Mountain I. Rocky Mountain I
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof.
Section 9.3 Ownership of Shares. The Rocky Mountain I Disclosure Letter
contains a true, complete and accurate list of each of the record and beneficial
owners of the shares of the capital stock of Rocky Mountain I, together with the
name and address of each such holder. There are no agreements, pledges, powers
of attorney, assignments or similar agreements or arrangements either (i)
restricting the transferability of any of the shares of the capital stock of
Rocky Mountain I or (ii) which reasonably could be expected to prohibit or delay
the consummation of the transactions contemplated hereby.
Section 9.4 Subsidiaries; Investments. Rocky Mountain I does not own
any shares of capital stock or equity securities of, or any interest in any
other entity.
Section 9.5 Execution and Effect of Agreement Rocky Mountain I has the
corporate power to enter into this Agreement and to perform its obligations
hereunder and, subject to the due authorization and approval of its
shareholders, to enter into and consummate the Rocky Mountain I Merger. Subject
only to the approval of its Board of Directors, this Agreement has been duly
executed and delivered by Rocky Mountain I and constitutes a legal, valid and
binding obligation of Rocky Mountain I, fully enforceable against Rocky Mountain
I in accordance with its terms; except as enforceability thereof may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other laws of general application relating to or affecting
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enforcement of creditors' rights and the exercise of judicial discretion in
accordance with general principles of equity.
Section 9.6 Restrictions. The execution and delivery of this Agreement
by Rocky Mountain I, the consummation of the transactions contemplated hereby by
Rocky Mountain I, and, subject to the due authorization and approval of its
shareholders, the performance of the obligations of Rocky Mountain I hereunder
will not (a) violate any of the provisions of the charter or by-laws of Rocky
Mountain I, (b) violate or conflict with the provisions of any Applicable Laws,
(c) result in the creation of any Encumbrance upon any of the assets, rights or
properties of Rocky Mountain I, or (d) except as disclosed in the Rocky Mountain
I Disclosure Letter, conflict with, violate any provisions of, result in a
breach of or give rise to a right of termination, modification or cancellation
of, constitute a default of, or accelerate the performance required by, with or
without the passage of time or the giving of notice or both, the terms of any
material agreement, indenture, mortgage, deed of trust, security or pledge
agreement, lease, contract, note, bond, license, permit, authorization or other
instrument to which Rocky Mountain I is a party or to which any of any of the
assets of Rocky Mountain I are subject.
Section 9.7 Consents. Except as disclosed in the Rocky Mountain I
Disclosure Letter, no filing with, or consent, waiver, approval or authorization
of, or notice to, any Governmental Authority or any third party is required to
be made or obtained by Rocky Mountain I in connection with the execution and
delivery of this Agreement or any document or instrument contemplated hereby,
the consummation of any of the transactions contemplated hereby or the
performance of any of their respective obligations hereunder or thereunder.
Section 9.8 Financial Statements. Attached hereto as Exhibit E are true
and correct copies of the audited balance sheets and related statements of
income, cash flows and changes in stockholders' equity of Rocky Mountain I as at
December 31, 1994, 1995 and 1996 and for the year periods then-ended and the
unaudited financial statements of Rocky Mountain I as at June 30, 1997 and for
the six month period then ended (collectively, the " Rocky Mountain I Financial
Statements"). All of the Rocky Mountain I Financial Statements have been
prepared in accordance with an accrual method of accounting consistently
applied, in a manner consistent with each other and the books and records of
Rocky Mountain I, and fairly present in all material respects the financial
condition and results of operations of Rocky Mountain I at the dates and for the
periods indicated therein. The regular books of account of Rocky Mountain I
fairly and accurately reflect all material transactions involving Rocky Mountain
I, are true, correct and complete and have been prepared in accordance with an
actual method of accounting, consistently applied, and on a basis consistent
with the Financial Statements.
Section 9.9 Debt. The Rocky Mountain I Disclosure Letter contains a
true, complete and accurate listing of the original principal amount of all of
the outstanding Debt of Rocky Mountain I, the remaining principal balance
thereof, the interest rate(s) payable by Rocky Mountain I in respect thereof, if
any, and the date(s) of maturity thereof. Except as disclosed in the Rocky
Mountain I
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Disclosure Letter, all of the Debt of Rocky Mountain I may be prepaid at any
time, without premium, prepayment penalties, termination fees or other fees or
charges.
Section 9.10 Guarantees. The Rocky Mountain I Disclosure Letter
contains a complete list of all Guarantees provided by Rocky Mountain I for the
benefit of any other party and of all Guarantees provided by any other party for
the benefit of Rocky Mountain I or any party doing business with Rocky Mountain
I.
Section 9.11 No Undisclosed Liabilities. Rocky Mountain I does not have
any material liabilities or obligations of any nature whatsoever (whether known
or unknown, due or to become due, absolute, accrued, contingent or otherwise,
and whether or not determined or determinable), except for (i) liabilities or
obligations set forth in the Rocky Mountain I Disclosure Letter, (ii)
liabilities or obligations to the extent expressly reflected on or reserved
against in the June 30, 1997 balance sheet included among the Rocky Mountain I
Financial Statements or disclosed in the notes thereto, (iii) liabilities or
obligations of a type reflected on the June 30, 1997 balance sheet and incurred
in the ordinary course of business and consistent with past practices since June
30, 1997, or (iv) liabilities or obligations arising under the terms of the
Material Contracts of Rocky Mountain I. Except as otherwise contemplated or
permitted by this Agreement no dividends have been declared on any capital stock
of Rocky Mountain I which are unpaid.
Section 9.12 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the management of Rocky Mountain I, threatened, by or before any
court, any Governmental Authority or arbitrator, against Rocky Mountain I that
reasonably could be expected to prevent the consummation of any of the
transactions contemplated hereby. Except as disclosed in the Rocky Mountain I
Disclosure Letter, there is no material suit, claim, action at law or in equity,
proceeding or governmental investigation or audit pending, or to the knowledge
of management of Rocky Mountain I, threatened, by or before any arbitrator,
court, or other Governmental Authority, against Rocky Mountain I or involving
any of the former or present employees, agents, businesses, properties, rights
or assets of Rocky Mountain I , nor, to the knowledge of management of Rocky
Mountain I, is there any basis for the assertion of any of the foregoing. Except
as disclosed in the Rocky Mountain I Disclosure Letter, there are no judgments,
orders, injunctions, decrees, stipulations or awards rendered by any court,
Governmental Authority or arbitrator against Rocky Mountain I or any of their
respective former or present Employees, agents, properties or assets.
Section 9.13 Properties; Absence of Encumbrances. The Rocky Mountain I
Disclosure Letter sets forth a complete list of all real property owned by or
leased to Rocky Mountain I , and, with respect to all properties leased by Rocky
Mountain I, a description of the term of such lease and the monthly rental
thereunder. Rocky Mountain I is not in default (and will not be in default with
the passage of time or the receipt of notice or both) and has not received
notice of default, under any lease of real property. All real property leased to
Rocky Mountain I is available for immediate use in the operation of its business
and for the purpose for which such property currently is being
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utilized. Subject in the case of leased property to the terms and conditions of
the respective leases, Rocky Mountain I has full legal and practical access to
all such real property.
Section 9.14 Intellectual Property. The Rocky Mountain I Disclosure
Letter sets forth a complete list of (i) all Intellectual Property owned, used
or licensed by Rocky Mountain I , together with the identity of the owner
thereof, and (ii) all license agreements pursuant to which any Intellectual
Property is licensed to or by Rocky Mountain I. Rocky Mountain I owns its
Intellectual Property free and clear of any and all Encumbrances, or, in the
case of licensed Intellectual Property, has valid, binding and enforceable
rights to use such Intellectual Property. Rocky Mountain I has duly and timely
filed all renewals, continuations and other filings necessary to maintain its
Intellectual Property or registrations thereof. Except as disclosed in the Rocky
Mountain I Disclosure Letter, Rocky Mountain I (i) has not received any notice
or claim to the effect that the use of any Intellectual Property infringes upon,
conflicts with or misappropriates the rights of any other party or that any of
the Intellectual Property is not valid or enforceable, and (ii) has not made any
claim that any party has violated or infringed upon its rights with respect to
any Intellectual Property.
Section 9.15 Material Contracts.
(a) List of Material Contracts. The Rocky
Mountain I Disclosure Letter sets forth a list of all material written, and a
description of all oral, commitments, agreements or contracts to which Rocky
Mountain I is a party or by which Rocky Mountain I is obligated, including, but
not limited to, all commitments, agreements or contracts embodying or evidencing
the following transactions or arrangements: (i) agreements for the employment
of, or independent contractor arrangements with, any officer or other individual
employee of Rocky Mountain I; (ii) any consulting agreement, agency agreement
and any other service agreement that will continue in force after the Closing
Date with respect to the employment or retention by Rocky Mountain I of
consultants, agents, legal counsel, accountants or anyone else who is not an
Employee; (iii) any single contract, purchase order or commitment providing for
expenditures by Rocky Mountain I after the date hereof of more than $25,000 or
which has been entered into by Rocky Mountain I otherwise than in the ordinary
course of business; (iv) agreements between Rocky Mountain I and suppliers to
Rocky Mountain I pursuant to which Rocky Mountain I is obligated to purchase or
to sell or distribute the products of any other party other than current
purchase orders entered into in the ordinary course of business consistent with
past practices; (v) any contract containing covenants limiting the freedom of
Rocky Mountain I or any officer, director, or employee of Rocky Mountain I to
engage in any line or type of business or with any person in any geographic
area; (vi) any commitment or arrangement by Rocky Mountain I to participate in a
strategic alliance, partnership, joint venture, limited liability company or
other cooperative undertaking with any other Person; (vii) any commitments by
Rocky Mountain I for capital expenditures involving more than $25,000
individually or $50,000 in the aggregate; and (viii) any other contract,
commitment, agreement, understanding or arrangement that the management of Rocky
Mountain I deems to be material to the business of Rocky Mountain I.
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(b) No Breaches or Defaults. Except as
disclosed in the Rocky Mountain I Disclosure Letter, Rocky Mountain I is in full
compliance with each, and is not in default under any, Material Contract to
which it is a party, and no event has occurred that, with notice or lapse of
time or both, would constitute such a default thereunder. Rocky Mountain I has
not waived any rights under or with respect to any of the Material Contracts to
which it is a party. The management of Rocky Mountain I has no knowledge, or
received any notice to the effect, that any party with whom Rocky Mountain I has
contractual arrangements under the Material Contracts, is in default under any
such contractual arrangements or that any event has occurred that, with notice
or lapse of time or both, would constitute such a default thereunder. Each of
the Material Contracts to which Rocky Mountain I is a party constitutes a legal,
valid and binding obligation of each the parties thereto and is enforceable
against each of the parties thereto in accordance with its respective terms;
except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the exercise of judicial discretion in accordance with general principles of
equity.
Section 9.16 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The Rocky Mountain
I Disclosure Letter sets forth a true, complete and correct list of all Employee
Benefit Plans and all Benefit Arrangements to which Rocky Mountain I or any of
its ERISA Affiliates is a party or to which Rocky Mountain I or any of its ERISA
Affiliates is obligated to contribute. None of the Employee Benefit Plans to
which Rocky Mountain I or any ERISA Affiliate of Rocky Mountain I is a party,
which Rocky Mountain I or any ERISA Affiliate of Rocky Mountain I sponsors or
maintains or to which Rocky Mountain I or any ERISA Affiliate of Rocky Mountain
I contributes is subject to the requirements of Section 302 of ERISA or Section
412 of the Code and no liability under Title IV of ERISA (whether to the PBGC or
otherwise) has been incurred by Rocky Mountain I or any of its ERISA
Affiliates.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Rocky Mountain I Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Rocky Mountain I or any of its
ERISA Affiliates is a party or to which Rocky Mountain I or any of its ERISA
Affiliates is obligated to contribute has been operated or maintained in
compliance in all material respects with all Applicable Laws, including, without
limitation, ERISA and the Code, and has been maintained in material compliance
with its terms and in material compliance with the terms of any applicable
collective bargaining agreement. Except as disclosed in the Rocky Mountain I
Disclosure Letter, with respect to any Employee Benefit Plan that is intended to
qualify under Section 401 of the Code, a favorable determination letter as to
qualification under Section 401 of the Code that considered the Tax Reform Act
of 1986 has been issued and any amendments required for continued qualification
under Section 401 of the Code have been timely adopted and nothing has occurred
subsequent to the date of such determination letter that could adversely affect
the qualified status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Rocky Mountain I of any of its
ERISA Affiliates is a party or to which Rocky Mountain I or any of its ERISA
Affiliates is obligated to contribute, under ERISA or the Code, for all periods
of time prior to the date hereof and that are attributable to Employees of
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Rocky Mountain I have been paid or otherwise adequately accrued against in the
Rocky Mountain I Financial Statements, as the case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the Rocky Mountain I Disclosure Letter, Rocky Mountain I is not
liable for any arrearage of wages, any accrued or vested vacation pay or any tax
or penalty for failure to comply with any Applicable Law relating to employment
or labor above the level accrued for or reserved against on the June 30, 1997
balance sheet included in the Rocky Mountain I Financial Statements, and there
is no controversy pending, threatened or in prospect between Rocky Mountain I
and any of its Employees nor is there any basis for any such controversy. There
is no unfair labor practice charge or complaint currently pending against Rocky
Mountain I with respect to or relating to any of its Employees before the
National Labor Relations Board or any other agency having jurisdiction over such
matters and no charges or complaints are currently pending against Rocky
Mountain I before the Equal Employment Opportunity Commission or any state or
local agency having responsibility for the prevention of unlawful employment
practices. There are no actions, suits or claims pending, including proceedings
before the IRS, the DOL or the PBGC, with respect to any Employee Benefit Plan,
Benefit Arrangement or any administrator or fiduciary thereof, other than
benefit claims arising in the normal course of operation of such Employee
Benefit Plans or Benefit Arrangements, and, to the knowledge of the management
of Rocky Mountain I, no Employee Benefit Plan or Benefit Arrangement is under
audit or investigation by any Governmental Authority.
(e) Severance Obligations. Except as disclosed
in the Rocky Mountain I Disclosure Letter, all current employees of Rocky
Mountain I may be terminated at will, without notice and without incurring any
severance or other liability or obligation to the employee in connection with
the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the Rocky Mountain I
Disclosure Letter, neither the execution, delivery or performance of this
Agreement nor the consummation of the Closing will (i) increase any benefits
otherwise payable under any Employee Benefit Plan or Benefit Arrangement, (ii)
result in the acceleration of the time of payment or vesting of any such
benefits, or (iii) give rise to an obligation with respect to the payment of any
severance pay. No "parachute payment" (within the meaning of Section 280G of the
Code), "change in control" or severance payment has been made or will be
required to be made by Rocky Mountain I or any ERISA Affiliate of Rocky Mountain
I to any Employee in connection with the execution, delivery or performance of
this Agreement or as a result of the consummation of the Closing.
(f) Compliance with Laws on Employment
Practices. Rocky Mountain I has complied in all material respects with all
Applicable laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, and to the knowledge of the
management of Rocky Mountain I, is not engaged in any unfair labor practice with
respect to any of the current employees of Rocky Mountain I and to the best
knowledge of Rocky Mountain I, none of the persons performing services for Rocky
Mountain I or any of its ERISA Affiliates have been improperly classified as
independent contractors or as being exempt from the payment of wages or
overtime.
(g) Collective Bargaining Agreements. Except as
disclosed in the Rocky Mountain I Disclosure Letter), none of the employees of
Rocky Mountain I are subject to any
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collective bargaining agreement nor is Rocky Mountain I required under any
agreement to recognize or bargain with any labor organization or union on behalf
of its employees.
(h) No Multi-Employer Plans. Neither Rocky
Mountain I nor any of its ERISA Affiliates has contributed to, or had the
obligation to contribute to, any Multiemployer Plan within the five-year period
ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Rocky Mountain I or any of its ERISA Affiliates relating to, or change in
employee participation or coverage under, any Employee Benefit Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Benefit Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year of Rocky Mountain I ended
December 31, 1996.
(j) No Unfunded Liabilities. Neither Rocky
Mountain I nor any ERISA Affiliate of Rocky Mountain I has any current or
projected liability for any unfunded post-retirement medical or life insurance
benefits in connection with any Employee of Rocky Mountain I or ERISA Affiliate
of Rocky Mountain I.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by Rocky Mountain I or any
ERISA Affiliate of Rocky Mountain I, which could subject any such Employee
Benefit Plan, Rocky Mountain I, any ERISA Affiliate of Rocky Mountain I, or the
Holding Company directly or indirectly (through an indemnification agreement or
otherwise), to any liability for or as a result of a breach of fiduciary duty, a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax under
Section 4971 of the Code. Neither Rocky Mountain I nor any of its ERISA
Affiliates have incurred a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from, or failed to timely make contributions to
any Multiemployer Plan which has resulted in any unpaid liability of Rocky
Mountain I or any of its ERISA Affiliates.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the Rocky Mountain I Disclosure Letter, none of the Employee
Benefit Plans that are "employee welfare benefit plans" as defined in ERISA
Section 3(1) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except to the extent required by law; provided that any disclosure regarding
this clause (i) shall set forth (A) the number of individuals currently
receiving such continuing benefits or coverage, (B) the limit on liability with
respect to such coverage, (C) the terms and conditions of such coverage, and (D)
the maximum number of current employees or independent contractors who could
become eligible for such continuing benefits or coverage; (ii) there has been no
violation of Code Section 4980B or ERISA Sections 601-609 with respect to any
such plan that could result in any material liability; (iii) no such plans are
"multiple employer welfare arrangements" within the meaning of ERISA Section
3(40); (iv) with respect to any such plans that are self-insured, no claims have
been made pursuant
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to any such plan that have not yet been paid (other than claims which have not
yet been paid but are in the normal course of processing) and no individual has
incurred injury, sickness or other medical condition with respect to which
claims may be made pursuant to any such plan where the liability to the employer
could in the aggregate with respect to each such individual exceed $50,000 per
year; (v) neither Rocky Mountain I nor any of its ERISA Affiliates maintains or
has any obligation to contribute to any "voluntary employees' beneficiary
association" within the meaning of Code Section 501(c)(9) or other welfare
benefit fund as defined at Section 419(e) of the Code (such disclosure to
include the amount of any such funding); (vi) no such plan is intended to
satisfy Code Section 125; (vii) no amounts are required in connection with any
such plan to be included in income under Code Section 105(h) (under official
regulations thereof to date); and (viii) neither Rocky Mountain I nor any of its
ERISA Affiliates maintains a nonconforming group health plan as defined at
Section 5000(c) of the Code.
Section 9.17 Tax Matters.
(a) Affiliated Groups. Rocky Mountain I is not
a member of, and has never been a member of, any "affiliated group" as that term
is defined in Section 1504(a) of the Code.
(b) Tax Returns and Payment of Taxes. Rocky
Mountain I has timely filed or will timely file all federal, state, local, and
other Tax Returns required to be filed by it under Applicable Laws, including
estimated Tax Returns and reports, and has paid all required Income Taxes and
other Taxes (including any additions to taxes, penalties and interest related
thereto) due and payable on or before the date hereof. Rocky Mountain I has
paid, withheld, or accrued, or will accrue, on the Rocky Mountain I Financial
Statements in accordance with an accrual method of accounting consistently
applied any and all Income Taxes and other Taxes in respect of the conduct of
its business or the ownership of its property and in respect of any transactions
for all periods (or portions thereof) through the close of business on the
Closing Date. Rocky Mountain I has withheld and paid over all Taxes required to
have been withheld and paid over, and complied with all information reporting
and backup withholding requirements, including the maintenance of required
records with respect thereto, in connection with amounts paid or owing to any
Employee, creditor, independent contractor or other third party. Rocky Mountain
I has collected all sales, use and value added Taxes required to be collected,
and has remitted, or will remit on a timely basis, such amounts to the
appropriate Government Authorities and have furnished properly completed
exemption certificates for all exempt transactions.
(c) Tax Reserves. The amount of Rocky Mountain
I's liability for unpaid Taxes for all periods ending on or before the date of
this Agreement does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as of the
date of this Agreement, and the amount of Rocky Mountain I's liability for
unpaid Taxes for all periods ending on or before the Closing Date shall not, in
the aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals shall be reflected on
the balance sheet of Rocky Mountain I as of the Closing Date.
(d) Audits; No Deficiencies Asserted Against
Company. The Tax Returns of Rocky Mountain I have never been audited by any Tax
Authority, nor is any such audit in
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process, pending or threatened (either in writing or verbally, formally or
informally). Except as disclosed in the Rocky Mountain I Disclosure Letter, no
deficiencies have been asserted (or are expected to be asserted) against Rocky
Mountain I as a result of IRS (or state or local Tax Authority) examinations and
no issue has been raised by any IRS (or state or local Tax Authority)
examination that, by application of the same principles, might result in a
proposed deficiency for any other period not so examined.
(e) No Waivers of Limitations. Except as
disclosed in the Rocky Mountain I Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrangements providing for
extensions of time in respect of the assessment or collection of any unpaid
Taxes against Rocky Mountain I . Rocky Mountain I has disclosed on its federal
Income Tax Returns all positions taken therein that could, if not so disclosed,
give rise to a substantial understatement penalty within the meaning of Section
6662 of the Code.
(f) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Rocky Mountain I with respect to
Taxes, other than liens for Taxes not yet due and payable or for Taxes that
Rocky Mountain I is contesting in good faith through appropriate proceedings and
for which appropriate reserves have been established on the Rocky Mountain I
Financial Statements.
(g) Tax Elections and Special Tax Status. Rocky
Mountain I is not a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code. No election or consent under Section 341(f) of
the Code has been made or shall be made on or prior to the Closing Date by or on
behalf of Rocky Mountain I. Rocky Mountain I is a "small business corporation"
which has elected to be subject to federal income taxation under subchapter S of
the Code and has such status for purposes of federal income taxation and state
income taxation in all states in which its respective income is subject to
taxation or has been subject to taxation at all times since its formation.
(h) Disqualified Leasebacks. Rocky Mountain I
is not a party to a "disqualified leaseback or long-term agreement" described in
Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Rocky Mountain I has been deferred pursuant to Treasury Regulation ss. 1.1502-13
or 1.1502-14, or Temporary Treasury Regulation ss. 1.1502-13T or 1.1502-14T.
(j) Tax Sharing and Similar Arrangements. Rocky
Mountain II is not a party to or bound by any Tax sharing, Tax indemnity, Tax
allocation or other similar arrangement.
(k) No Non-Deductible Compensation Payments.
Rocky Mountain I has not made any payments, nor is it obligated to make any
payments, that would not be deductible under Section 280G of the Code, nor is it
a party to any agreement that under certain circumstances could obligate it to
make any such payments.
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Section 9.18 Environmental Matters.
(a) The facilities presently or formerly occupied or used by
Rocky Mountain I and any other real property presently or formerly owned by,
used by or leased to or by Rocky Mountain I (collectively, the "Rocky Mountain I
Property"), the existing and prior uses of such Property and all operations of
the businesses of Rocky Mountain I comply and have at all times complied with
all Environmental Laws and Rocky Mountain I is not in violation of nor has it
violated, in connection with the ownership, use, maintenance or operation of
such property or the conduct of its business, any Environmental Law.
(b) Rocky Mountain I has all necessary permits, registrations,
approvals and licenses required by any Governmental Authority or Environmental
Law.
(c) Except as disclosed in the Rocky Mountain I Disclosure
Letter, there has been no spill, discharge, leak, emission, injection, disposal,
escape, dumping or release of any kind on, beneath or above such Property or
into the environment surrounding such Rocky Mountain I Property of any Hazardous
Materials.
(d) There has been no past, and there is no current or
anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Rocky Mountain I Property. No asbestos-containing materials,
underground improvements (including, but not limited to the treatment or storage
tanks, sumps, or water, gas or oil wells) or polychlorinated biphenyls (PCBs)
transformers, capacitors, ballasts, or other equipment which contain dielectric
fluid containing PCBs at levels in excess of fifty parts per million (50 PPM)
are located on such Rocky Mountain I Property.
(e) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Rocky Mountain I (or any predecessor in interest) in
connection with (i) any actual or alleged failure to comply with any requirement
of any Environmental Law; (ii) the ownership, use, maintenance or operation of
the Property by any person; (iii) the alleged violation of any Environmental
Law; or (iv) the suspected presence of any Hazardous Material thereon.
Section 9.19 Compliance With Laws. Rocky Mountain I has at all times
conducted its business in material compliance with all (and has not received any
notice of any claimed violation of any) Applicable Laws.
Section 9.20 Licenses and Permits. Rocky Mountain I possess all
licenses, permits, and other governmental consents, certificates, approvals, or
other authorizations (the "Permits") necessary for the operation of the business
of Rocky Mountain I. Rocky Mountain I has complied with the terms and conditions
of all Permits in all material respects and all such Permits are in full force
and effect, and there has occurred no event nor is any event, action,
investigation or proceeding
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pending or, to the knowledge of management of Rocky Mountain I, threatened,
which could cause or permit revocation or suspension of or otherwise adversely
affect the maintenance of any Permits. The transactions contemplated by this
Agreement will not lead to the revocation, cancellation, termination or
suspension of any Permits.
Section 9.21 Insurance. Rocky Mountain I has regularly maintained all
policies of commercial liability, products liability, fire, casualty, worker's
compensation, life and other forms of insurance on an "occurrence" rather than a
"claims made" basis in amounts and types required by law and generally carried
by reasonably prudent, similarly situated businesses. Rocky Mountain I is not in
default under any provision contained in any insurance policy maintained by
Rocky Mountain I currently, nor has Rocky Mountain I failed to give any notice
or present any claim thereunder in due and timely fashion and no cancellation,
non-renewal, reduction of coverage or arrearage in premiums has been threatened
or occurred with respect to any policy, nor is the management of Rocky Mountain
I aware of any grounds therefor.
Section 9.22 Extraordinary Transactions. Except as disclosed in the
Rocky Mountain I Disclosure Letter or otherwise permitted by this Agreement,
since June 30, 1997, Rocky Mountain I has not (I) mortgaged, pledged or
subjected to any Encumbrance any of its assets; (ii) canceled or compromised any
claim of or debts owed to it; (iii) sold, licensed, leased, exchanged or
transferred any of its assets except in the ordinary course of business; (iv)
entered into any material transaction other than in the ordinary course of
business; (v) experienced any material change in the relationship or course of
dealing with any supplier, customer or creditor; (vi) suffered any material
destruction, loss or damage to any of its assets; (vii) made any management
decisions involving any material change in its policies with regard to pricing,
sales, purchasing or other business, financial, accounting (including reserves
and the amounts thereof) or tax policies or practices; (viii) declared, set
aside or paid any dividends on or made any distributions in respect of any
outstanding shares of capital stock or made any other distributions or payments
to any of its shareholders; (ix) submitted any bid, proposal, quote or
commitment to any party in response to a request for proposal or otherwise; (x)
engaged in any merger or consolidation with, or agreed to merge or consolidate
with, or purchased or agreed to purchase, all or substantially all of the assets
of, or otherwise acquire, any other party; (xi) entered into any strategic
alliance, partnership, joint venture or similar arrangement with any other
party; (xii) incurred or agreed to incur any Debt or prepaid or made any
prepayments in respect of Debt; (xiii) issued or agreed to issue to any party,
any shares of stock or other securities; (xiv) redeemed, purchased or agreed to
redeem or purchase any of its outstanding shares of capital stock or other
securities; (xv) increased the rate of compensation payable or to become payable
to any of its officers, directors, employees or agents over the rate being paid
to them as of June 30, 1996 or agreed to do so otherwise than in accordance with
contractual agreements with such parties; (xvi) made or agreed to make any
charitable contributions or incurred or agreed to incur any non-business
expenses; or (xvii) charged off any bad debts or increased its bad debt reserve
except in the manner consistent with its past practices.
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Section 9.23 Title to Assets. Except as described in the Rocky Mountain
I Disclosure Letter, Rocky Mountain I has good and marketable title to its
assets and properties, free and clear of restrictions on or conditions to
transfer or assignment, and free and clear of all Encumbrances.
Section 9.24 Corporate Records. The minute books of Rocky Mountain I
accurately reflect all minutes of proceedings of and actions taken by the
directors of Rocky Mountain I, and by each committee of the Board of Directors
of Rocky Mountain I, and all records of meetings of and actions taken by the
stockholders of Rocky Mountain I, that are required by applicable laws to be
recorded in or reflected in the corporate records thereof.
Section 9.25 Broker and Finder Fees. Rocky Mountain I has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company or Rocky Mountain I by any broker,
finder or intermediary in connection with such transaction.
Section 9.26 Adequate Disclosure. No representation or warranty made by
Rocky Mountain I pursuant to this Agreement, or any statement contained in any
Exhibit or Schedule to this Agreement, or any certificate or document furnished
or to be furnished by Rocky Mountain I pursuant to the terms of this Agreement
in connection with the transactions contemplated hereby, contains any untrue or
misleading statement of a material fact or omits to state a material fact
necessary in order to make the statements contained therein not misleading.
Section 9.27 No Adverse Change or Conditions. Except as set forth in
the Rocky Mountain I Disclosure Letter, and except as expressly contemplated or
permitted by this Agreement, since June 30, 1997, Rocky Mountain I and has
conducted its business in the ordinary course and consistent with past practice,
and Rocky Mountain I has not suffered any change that has had a Material Adverse
Effect on Rocky Mountain I. There are no conditions, facts, developments or
circumstances of an unusual or special nature that reasonably could be expected
to have a Material Adverse Effect upon Rocky Mountain I that have not been
disclosed in writing by Rocky Mountain I pursuant to the Rocky Mountain I
Disclosure Letter.
ARTICLE X
---------
REPRESENTATIONS AND WARRANTIES OF ROCKY MOUNTAIN II
---------------------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Rocky Mountain II
hereby makes the following representations and warranties to the other parties
to this Agreement and to the Holding Company.
Section 10.1 Organization and Good Standing. Rocky Mountain II is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado, has full corporate power and authority to own, operate
and lease its properties, and to conduct its business
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as it is now being conducted, and is qualified to transact business as a foreign
corporation in each jurisdiction in which the operation of its business or the
ownership of its properties requires such qualification.
Section 10.2 Capitalization of Rocky Mountain II. The authorized
capital stock of Rocky Mountain II consists solely of 500,000 shares of a single
class of common stock, $1.00 par value, of which 14,538.88 shares have been
issued and are outstanding as of the date of this Agreement. Each of the shares
of the capital stock of Rocky Mountain II issued and outstanding as of the date
hereof has been duly authorized and validly issued and is fully paid and
non-assessable. None of the shares of the issued and outstanding capital stock
of Rocky Mountain II has been issued in violation of shareholder preemptive
rights. Rocky Mountain II has no issued or outstanding equity securities, debt
securities or other instruments which are convertible into or exchangeable for
at any time into equity securities of Rocky Mountain II. Rocky Mountain II is
not subject to any commitment or obligation which would require the issuance or
sale of shares of its capital stock at any time under options, subscriptions,
warrants, rights, calls, preemptive rights, convertible obligations or any other
fixed or contingent obligations or which would provide the holder thereof with
the right to acquire any equity securities of Rocky Mountain II except as
provided in the Disclosure Letter dated of even date with this Agreement
submitted by Rocky Mountain II to each of the parties. Rocky Mountain II has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
Section 10.3 Ownership of Shares. The Rocky Mountain II Disclosure
Letter contains a true, complete and accurate list of each of the record and
beneficial owners of the shares of the capital stock of Rocky Mountain II,
together with the name and address of each such holder. There are no agreements,
pledges, powers of attorney, assignments or similar agreements or arrangements
either (I) restricting the transferability of any of the shares of the capital
stock of Rocky Mountain II or (ii) which reasonably could be expected to
prohibit or delay the consummation of the transactions contemplated hereby.
Section 10.4 Subsidiaries; Investments. Rocky Mountain II does not
own any shares of capital stock or equity securities of, or any interest in any
other entity.
Section 10.5 Execution and Effect of Agreement Rocky Mountain II has
the corporate power to enter into this Agreement and to perform its obligations
hereunder and, subject to the due authorization and approval of its
shareholders, to enter into and consummate the Rocky Mountain II Merger. Subject
only to the approval of its Board of Directors, this Agreement has been duly
executed and delivered by Rocky Mountain II and constitutes a legal, valid and
binding obligation of Rocky Mountain II, fully enforceable against Rocky
Mountain II in accordance with its terms; except as enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the exercise of judicial
discretion in accordance with general principles of equity.
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Section 10.6 Restrictions. The execution and delivery of this Agreement
by Rocky Mountain II, the consummation of the transactions contemplated hereby
by Rocky Mountain II, and, subject to the due authorization and approval of its
shareholders, the performance of the obligations of Rocky Mountain II hereunder
will not (a) violate any of the provisions of the charter or by-laws of Rocky
Mountain II, (b) violate or conflict with the provisions of any Applicable Laws,
(c) result in the creation of any Encumbrance upon any of the assets, rights or
properties of Rocky Mountain II, or (d) except as disclosed in the Rocky
Mountain II Disclosure Letter, conflict with, violate any provisions of, result
in a breach of or give rise to a right of termination, modification or
cancellation of, constitute a default of, or accelerate the performance required
by, with or without the passage of time or the giving of notice or both, the
terms of any material agreement, indenture, mortgage, deed of trust, security or
pledge agreement, lease, contract, note, bond, license, permit, authorization or
other instrument to which Rocky Mountain II is a party or to which any of any of
the assets of Rocky Mountain II are subject.
Section 10.7 Consents. Except as disclosed in the Rocky Mountain II
Disclosure Letter, no filing with, or consent, waiver, approval or authorization
of, or notice to, any governmental authority or any third party is required to
be made or obtained by Rocky Mountain II in connection with the execution and
delivery of this Agreement or any document or instrument contemplated hereby,
the consummation of any of the transactions contemplated hereby or the
performance of any of their respective obligations hereunder or thereunder.
Section 10.8 Financial Statements. Attached hereto as Exhibit E are
true and correct copies of the audited balance sheets and related statements of
income, cash flows and changes in stockholders' equity of Rocky Mountain II as
at December 31, 1994, 1995 and 1996 and for the year periods then ended and the
unaudited financial statements of Rocky Mountain II as at June 30, 1997 and for
the six month period then ended (collectively, the " Rocky Mountain II Financial
Statements"). All of the Rocky Mountain II Financial Statements have been
prepared in accordance with an accrual method of accounting, consistently
applied, in a manner consistent with each other and the books and records of
Rocky Mountain II, and fairly present in all material respects the financial
condition and results of operations of Rocky Mountain II at the dates and for
the periods indicated therein. The regular books of account of Rocky Mountain II
fairly and accurately reflect all material transactions involving Rocky Mountain
II , are true, correct and complete and have been prepared in accordance with an
accrual method of accounting, consistently applied, and on a basis consistent
with the Financial Statements.
Section 10.9 Debt. The Rocky Mountain II Disclosure Letter contains a
true, complete and accurate listing of the original principal amount of all of
the outstanding Debt of Rocky Mountain II, the remaining principal balance
thereof, the interest rate(s) payable by Rocky Mountain II in respect thereof,
if any, and the date(s) of maturity thereof. Except as disclosed in the Rocky
Mountain II Disclosure Letter, all of the Debt of Rocky Mountain II may be
prepaid at any time, without premium, prepayment penalties, termination fees or
other fees or charges.
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Section 10.10 Guarantees. The Rocky Mountain II Disclosure Letter
contains a complete list of all Guarantees provided by Rocky Mountain II for the
benefit of any other party and of all Guarantees provided by any other party for
the benefit of Rocky Mountain II or any party doing business with Rocky Mountain
II.
Section 10.11 No Undisclosed Liabilities. Rocky Mountain II does not
have any material liabilities or obligations of any nature whatsoever (whether
known or unknown, due or to become due, absolute, accrued, contingent or
otherwise, and whether or not determined or determinable), except for (I)
liabilities or obligations set forth in the Rocky Mountain II Disclosure Letter,
(ii) liabilities or obligations to the extent expressly reflected on or reserved
against in the June 30, 1997 balance sheet included among the Rocky Mountain II
Financial Statements or disclosed in the notes thereto, (iii) liabilities or
obligations of a type reflected on the June 30, 1997 balance sheet and incurred
in the ordinary course of business and consistent with past practices since June
30, 1997, or (iv) liabilities or obligations arising under the terms of the
Material Contracts of Rocky Mountain II. Except as otherwise contemplated or
permitted by this Agreement no dividends have been declared on any capital stock
of Rocky Mountain II which are unpaid.
Section 10.12 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the management of Rocky Mountain II, threatened, by or before any
court, any Governmental Authority or arbitrator, against Rocky Mountain II that
reasonably could be expected to prevent the consummation of any of the
transactions contemplated hereby. Except as disclosed in the Rocky Mountain II
Disclosure Letter, there is no material suit, claim, action at law or in equity,
proceeding or governmental investigation or audit pending, or to the knowledge
of management of Rocky Mountain II, threatened, by or before any arbitrator,
court, or other Governmental Authority, against Rocky Mountain II or involving
any of the former or present employees, agents, businesses, properties, rights
or assets of Rocky Mountain II , nor, to the knowledge of management of Rocky
Mountain II, is there any basis for the assertion of any of the foregoing.
Except as disclosed in the Rocky Mountain II Disclosure Letter, there are no
judgments, orders, injunctions, decrees, stipulations or awards rendered by any
court, Governmental Authority or arbitrator against Rocky Mountain II or any of
their respective former or present Employees, agents, properties or assets.
Section 10.13 Properties; Absence of Encumbrances. The Rocky Mountain
II Disclosure Letter sets forth a complete list of all real property owned by or
leased to Rocky Mountain II , and, with respect to all properties leased by
Rocky Mountain II, a description of the term of such lease and the monthly
rental thereunder. Rocky Mountain II is not in default (and will not be in
default with the passage of time or the receipt of notice or both) and has not
received notice of default, under any lease of real property. All real property
leased to Rocky Mountain II is available for immediate use in the operation of
its business and for the purpose for which such property currently is being
utilized. Subject in the case of leased property to the terms and conditions of
the respective leases, Rocky Mountain II has full legal and practical access to
all such real property.
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Section 10.14 Intellectual Property. The Rocky Mountain II
Disclosure Letter sets forth a complete list of (I) all Intellectual Property
owned, used or licensed by Rocky Mountain II , together with the identity of the
owner thereof, and (ii) all license agreements pursuant to which any
Intellectual Property is licensed to or by Rocky Mountain II. Rocky Mountain II
owns its Intellectual Property free and clear of any and all Encumbrances, or,
in the case of licensed Intellectual Property, has valid, binding and
enforceable rights to use such Intellectual Property. Rocky Mountain II has duly
and timely filed all renewals, continuations and other filings necessary to
maintain its Intellectual Property or registrations thereof. Except as disclosed
in the Rocky Mountain II Disclosure Letter, Rocky Mountain II (I) has not
received any notice or claim to the effect that the use of any Intellectual
Property infringes upon, conflicts with or misappropriates the rights of any
other party or that any of the Intellectual Property is not valid or
enforceable, and (ii) has not made any claim that any party has violated or
infringed upon its rights with respect to any Intellectual Property.
Section 10.15 Material Contracts.
(a) List of Material Contracts. The Rocky
Mountain II Disclosure Letter sets forth a list of all material written, and a
description of all oral, commitments, agreements or contracts to which Rocky
Mountain II is a party or by which Rocky Mountain II is obligated, including,
but not limited to, all commitments, agreements or contracts embodying or
evidencing the following transactions or arrangements: (i) agreements for the
employment of, or independent contractor arrangements with, any officer or other
individual employee of Rocky Mountain II; (ii) any consulting agreement, agency
agreement and any other service agreement that will continue in force after the
Closing Date with respect to the employment or retention by Rocky Mountain II of
consultants, agents, legal counsel, accountants or anyone else who is not an
Employee; (iii) any single contract, purchase order or commitment providing for
expenditures by Rocky Mountain II after the date hereof of more than $25,000 or
which has been entered into by Rocky Mountain II otherwise than in the ordinary
course of business; (iv) agreements between Rocky Mountain II and suppliers to
Rocky Mountain II pursuant to which Rocky Mountain II is obligated to purchase
or to sell or distribute the products of any other party other than current
purchase orders entered into in the ordinary course of business consistent with
past practices; (v) any contract containing covenants limiting the freedom of
Rocky Mountain II or any officer, director, or employee of Rocky Mountain II to
engage in any line or type of business or with any person in any geographic
area; (vi) any commitment or arrangement by Rocky Mountain II to participate in
a strategic alliance, partnership, joint venture, limited liability company or
other cooperative undertaking with any other Person; (vii) any commitments by
Rocky Mountain II for capital expenditures involving more than $25,000
individually or $50,000 in the aggregate; and (viii) any other contract,
commitment, agreement, understanding or arrangement that the management of Rocky
Mountain II deems to be material to the business of Rocky Mountain II .
(b) No Breaches or Defaults. Except as
disclosed in the Rocky Mountain II Disclosure Letter, Rocky Mountain II and is
in full compliance with each, and is not in default under any, Material Contract
to which it is a party, and no event has occurred that, with notice or
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lapse of time or both, would constitute such a default thereunder. Rocky
Mountain II has not waived any rights under or with respect to any of the
Material Contracts to which it is a party. The management of Rocky Mountain II
has no knowledge, or received any notice to the effect, that any party with whom
Rocky Mountain II has contractual arrangements under its Material Contracts, is
in default under any such contractual arrangements or that any event has
occurred that, with notice or lapse of time or both, would constitute such a
default thereunder. Each of the Material Contracts to which Rocky Mountain II is
a party constitutes a legal, valid and binding obligation of each the parties
thereto and is enforceable against each of the parties thereto in accordance
with its respective terms; except as enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights and the exercise of judicial discretion in
accordance with general principles of equity.
Section 10.16 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The Rocky Mountain
II Disclosure Letter sets forth a true, complete and correct list of all
Employee Benefit Plans and all Benefit Arrangements to which Rocky Mountain II
or any of its ERISA Affiliates is a party or to which Rocky Mountain II or any
of its ERISA Affiliates is obligated to contribute. None of the Employee Benefit
Plans to which Rocky Mountain II or any ERISA Affiliate of Rocky Mountain II is
a party, which Rocky Mountain II or any ERISA Affiliate of Rocky Mountain II
sponsors or maintains or to which Rocky Mountain II or any ERISA Affiliate of
Rocky Mountain II contributes is subject to the requirements of Section 302 of
ERISA or Section 412 of the Code and no liability under Title IV of ERISA
(whether to the PBGC or otherwise) has been incurred by Rocky Mountain II or any
of its ERISA Affiliates.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Rocky Mountain II Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Rocky Mountain II or any of its
ERISA Affiliates is a party or to which Rocky Mountain II or any of its ERISA
Affiliates is obligated to contribute has been operated or maintained in
compliance in all material respects with all Applicable Laws, including, without
limitation, ERISA and the Code, and has been maintained in material compliance
with its terms and in material compliance with the terms of any applicable
collective bargaining agreement. Except as disclosed in the Rocky Mountain II
Disclosure Letter, with respect to any Employee Benefit Plan that is intended to
qualify under Section 401 of the Code, a favorable determination letter as to
qualification under Section 401 of the Code that considered the Tax Reform Act
of 1986 has been issued and any amendments required for continued qualification
under Section 401 of the Code have been timely adopted and nothing has occurred
subsequent to the date of such determination letter that could adversely affect
the qualified status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Rocky Mountain II or any of its
ERISA Affiliates is a party or to which Rocky Mountain II or any of its ERISA
Affiliates is obligated to contribute, under ERISA or the Code, for all periods
of time prior to the date hereof and that are attributable to Employees of Rocky
Mountain II have been paid or otherwise adequately accrued against in the Rocky
Mountain II Financial Statements, as the case may be.
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(d) Arrearages and Employment Disputes. Except
as disclosed in the Rocky Mountain II Disclosure Letter, Rocky Mountain II is
not liable for any arrearage of wages, any accrued or vested vacation pay or any
tax or penalty for failure to comply with any Applicable Law relating to
employment or labor above the level accrued for or reserved against on the June
30, 1997 balance sheet included in the Rocky Mountain II Financial Statements,
and there is no controversy pending, threatened or in prospect between Rocky
Mountain II and any of its Employees nor is there any basis for any such
controversy. There is no unfair labor practice charge or complaint currently
pending against Rocky Mountain II with respect to or relating to any of its
Employees before the National Labor Relations Board or any other agency having
jurisdiction over such matters and no charges or complaints are currently
pending against Rocky Mountain II before the Equal Employment Opportunity
Commission or any state or local agency having responsibility for the prevention
of unlawful employment practices. There are no actions, suits or claims pending,
including proceedings before the IRS, the DOL or the PBGC, with respect to any
Employee Benefit Plan, Benefit Arrangement or any administrator or fiduciary
thereof, other than benefit claims arising in the normal course of operation of
such Employee Benefit Plans or Benefit Arrangements, and, to the knowledge of
the management of Rocky Mountain II, no Employee Benefit Plan or Benefit
Arrangement is under audit or investigation by any Governmental Authority.
(e) Severance Obligations. Except as disclosed
in the Rocky Mountain II Disclosure Letter, all current employees of Rocky
Mountain II may be terminated at will, without notice and without incurring any
severance or other liability or obligation to the employee in connection with
the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the Rocky Mountain II
Disclosure Letter, neither the execution, delivery or performance of this
Agreement nor the consummation of the Closing will (I) increase any benefits
otherwise payable under any Employee Benefit Plan or Benefit Arrangement, (ii)
result in the acceleration of the time of payment or vesting of any such
benefits, or (iii) give rise to an obligation with respect to the payment of any
severance pay. No "parachute payment" (within the meaning of Section 280G of the
Code), "change in control" or severance payment has been made or will be
required to be made by Rocky Mountain II or any ERISA Affiliate of Rocky
Mountain II to any Employee in connection with the execution, delivery or
performance of this Agreement or as a result of the consummation of the Closing.
(f) Compliance with Laws on Employment
Practices. Rocky Mountain II has complied in all material respects with all
Applicable laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, and to the knowledge of the
management of Rocky Mountain II, is not engaged in any unfair labor practice
with respect to any of the current employees of Rocky Mountain II and to the
best knowledge of Rocky Mountain II, none of the persons performing services for
Rocky Mountain II or any of its ERISA Affiliates have been improperly classified
as independent contractors or as being exempt from the payment of wages or
overtime.
(g) Collective Bargaining Agreements. Except as
disclosed in the Rocky Mountain II Disclosure Letter), none of the employees of
Rocky Mountain II are subject to any collective bargaining agreement nor is
Rocky Mountain II required under any agreement to recognize or bargain with any
labor organization or union on behalf of its employees.
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(h) No Multi-Employer Plans. Neither Rocky
Mountain II nor any of its ERISA Affiliates has contributed to, or had the
obligation to contribute to, any Multiemployer Plan within the five-year period
ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Rocky Mountain II or any of its ERISA Affiliates relating to, or change in
employee participation or coverage under, any Employee Benefit Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Benefit Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year of Rocky Mountain II ended June
30, 1996.
(j) No Unfunded Liabilities. Neither Rocky
Mountain II nor any ERISA Affiliate of Rocky Mountain II has any current or
projected liability for any unfunded post-retirement medical or life insurance
benefits in connection with any Employee of Rocky Mountain II or ERISA Affiliate
of Rocky Mountain II.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by Rocky Mountain II or any
ERISA Affiliate of Rocky Mountain II, which could subject any such Employee
Benefit Plan, Rocky Mountain II, any ERISA Affiliate of Rocky Mountain II, or
the Holding Company directly or indirectly (through an indemnification agreement
or otherwise), to any liability for or as a result of a breach of fiduciary
duty, a "prohibited transaction" within the meaning of Section 406 of ERISA or
Section 4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax
under Section 4971 of the Code. Neither Rocky Mountain II nor any of its ERISA
Affiliates have incurred a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from, or failed to timely make contributions to
any Multiemployer Plan which has resulted in any unpaid liability of Rocky
Mountain II or any of its ERISA Affiliates.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the Rocky Mountain II Disclosure Letter, none of the Employee
Benefit Plans that are "employee welfare benefit plans" as defined in ERISA
Section 3(1) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except to the extent required by law; provided that any disclosure regarding
this clause (I) shall set forth (A) the number of individuals currently
receiving such continuing benefits or coverage, (B) the limit on liability with
respect to such coverage, (C) the terms and conditions of such coverage, and (D)
the maximum number of current employees or independent contractors who could
become eligible for such continuing benefits or coverage; (ii) there has been no
violation of Code Section 4980B or ERISA Sections 601-609 with respect to any
such plan that could result in any material liability; (iii) no such plans are
"multiple employer welfare arrangements" within the meaning of ERISA Section
3(40); (iv) with respect to any such plans that are self-insured, no claims have
been made pursuant to any such plan that have not yet been paid (other than
claims which have not yet been paid but are in the normal course of processing)
and no individual has incurred injury, sickness or other medical condition with
respect to which claims may be made pursuant to any such plan where the
liability
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to the employer could in the aggregate with respect to each such individual
exceed $50,000 per year; (v) neither Rocky Mountain II nor any of its ERISA
Affiliates maintains or has any obligation to contribute to any "voluntary
employees' beneficiary association" within the meaning of Code Section 501(c)(9)
or other welfare benefit fund as defined at Section 419(e) of the Code (such
disclosure to include the amount of any such funding); (vi) no such plan is
intended to satisfy Code Section 125; (vii) no amounts are required in
connection with any such plan to be included in income under Code Section 105(h)
(under official regulations thereof to date); and (viii) neither Rocky Mountain
II nor any of its Affiliates maintains a nonconforming group health plan as
defined at Section 5000(c) of the Code.
Section 10.17 Tax Matters.
(a) Affiliated Groups. Rocky Mountain II is not
a member of, and has never been a member of, any "affiliated group" as that term
is defined in Section 1504(a) of the Code.
(b) Tax Returns and Payment of Taxes. Rocky
Mountain II has timely filed or will timely file all federal, state, local, and
other Tax Returns required to be filed by it under Applicable Laws, including
estimated Tax Returns and reports, and has paid all required Income Taxes and
other Taxes (including any additions to taxes, penalties and interest related
thereto) due and payable on or before the date hereof. Rocky Mountain II has
paid, withheld, or accrued, or will accrue, on the Rocky Mountain II Financial
Statements in accordance with an accrual method of accounting consistently
applied any and all Income Taxes and other Taxes in respect of the conduct of
its business or the ownership of its property and in respect of any transactions
for all periods (or portions thereof) through the close of business on the
Closing Date. Rocky Mountain II has withheld and paid over all Taxes required to
have been withheld and paid over, and complied with all information reporting
and backup withholding requirements, including the maintenance of required
records with respect thereto, in connection with amounts paid or owing to any
Employee, creditor, independent contractor or other third party. Rocky Mountain
II has collected all sales, use and value added Taxes required to be collected,
and has remitted, or will remit on a timely basis, such amounts to the
appropriate Government Authorities and have furnished properly completed
exemption certificates for all exempt transactions.
(c) Tax Reserves. The amount of Rocky Mountain
II's liability for unpaid Taxes for all periods ending on or before the date of
this Agreement does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as of the
date of this Agreement, and the amount of Rocky Mountain II 's liability for
unpaid Taxes for all periods ending on or before the Closing Date shall not, in
the aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals shall be reflected on
the balance sheet of Rocky Mountain II as of the Closing Date.
(d) Audits; No Deficiencies Asserted Against
Company. The Tax Returns of Rocky Mountain II have never been audited by any
Tax Authority, nor is any such audit in process, pending or threatened (either
in writing or verbally, formally or informally). Except as disclosed in the
Rocky Mountain II Disclosure Letter, no deficiencies have been asserted (or are
expected to be asserted) against Rocky Mountain II as a result of IRS (or state
or local Tax
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Authority) examinations and no issue has been raised by any IRS (or state or
local Tax Authority) examination that, by application of the same principles,
might result in a proposed deficiency for any other period not so examined.
(e) No Waivers of Limitations. Except as
disclosed in the Rocky Mountain II Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrangements providing for
extensions of time in respect of the assessment or collection of any unpaid
Taxes against Rocky Mountain II . Rocky Mountain II has disclosed on its federal
Income Tax Returns all positions taken therein that could, if not so disclosed,
give rise to a substantial understatement penalty within the meaning of Section
6662 of the Code.
(f) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Rocky Mountain II with respect to
Taxes, other than liens for Taxes not yet due and payable or for Taxes that
Rocky Mountain II is contesting in good faith through appropriate proceedings
and for which appropriate reserves have been established on the Rocky Mountain
II Financial Statements.
(g) Tax Elections and Special Tax Status. Rocky
Mountain II is not a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code. No election or consent under Section 341(f) of
the Code has been made or shall be made on or prior to the Closing Date by or on
behalf of Rocky Mountain II. Rocky Mountain II is a "small business corporation"
which has elected to be subject to federal income taxation under subchapter S of
the Code and has such status for purposes of federal income taxation and state
income taxation in all states in which its respective income is subject to
taxation or has been subject to taxation at all times since its formation.
(h) Disqualified Leasebacks. Rocky Mountain II
is not a party to a "disqualified leaseback or long-term agreement" described in
Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Rocky Mountain II has been deferred pursuant to Treasury Regulation ss.
1.1502-13 or 1.1502-14, or Temporary Treasury Regulation ss. 1.1502-13T or
1.1502-14T.
(j) Tax Sharing and Similar Arrangements. Rocky
Mountain II is not a party to or bound by any Tax sharing, Tax indemnity, Tax
allocation or other similar arrangement.
(k) No Non-Deductible Compensation Payments.
Rocky Mountain I has not made any payments, nor is it obligated to make any
payments, that would not be deductible under Section 280G of the Code, nor is it
a party to any agreement that under certain circumstances could obligate it to
make any such payments.
Section 10.18 Environmental Matters.
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(a) The facilities presently or formerly occupied or used by
Rocky Mountain II and any other real property presently or formerly owned by,
used by or leased to or by Rocky Mountain II (collectively, the "Rocky Mountain
II Property"), the existing and prior uses of such Property and all operations
of the businesses of Rocky Mountain II comply and have at all times complied
with all Environmental Laws and Rocky Mountain II is not in violation of nor has
it violated, in connection with the ownership, use, maintenance or operation of
such property or the conduct of its business, any Environmental Law.
(b) Rocky Mountain II has all necessary permits,
registrations, approvals and licenses required by any Governmental Authority or
Environmental Law.
(c) Except as disclosed in the Rocky Mountain II Disclosure
Letter, there has been no spill, discharge, leak, emission, injection, disposal,
escape, dumping or release of any kind on, beneath or above such Property or
into the environment surrounding such Rocky Mountain II Property of any
Hazardous Materials.
(d) There has been no past, and there is no current or
anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Rocky Mountain II Ventures Property. No asbestos-containing materials,
underground improvements (including, but not limited to the treatment or storage
tanks, sumps, or water, gas or oil wells) or polychlorinated biphenyls (PCBs)
transformers, capacitors, ballasts, or other equipment which contain dielectric
fluid containing PCBs at levels in excess of fifty parts per million (50 PPM)
are located on such Rocky Mountain II Property.
(e) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Rocky Mountain II (or any predecessor in interest)
in connection with (I) any actual or alleged failure to comply with any
requirement of any Environmental Law; (ii) the ownership, use, maintenance or
operation of the Property by any person; (iii) the alleged violation of any
Environmental Law; or (iv) the suspected presence of any Hazardous Material
thereon.
Section 10.19 Compliance With Laws. Rocky Mountain II has at all times
conducted its business in material compliance with all (and has not received any
notice of any claimed violation of any) Applicable Laws.
Section 10.20 Licenses and Permits. Rocky Mountain II possess all
licenses, permits, and other governmental consents, certificates, approvals, or
other authorizations (the "Permits") necessary for the operation of the business
of Rocky Mountain II. Rocky Mountain II has complied with the terms and
conditions of all Permits in all material respects and all such Permits are in
full force and effect, and there has occurred no event nor is any event, action,
investigation or proceeding pending or, to the knowledge of management of Rocky
Mountain II, threatened, which could cause or permit revocation or suspension of
or otherwise adversely affect the maintenance of any Permits.
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The transactions contemplated by this Agreement will not lead to the revocation,
cancellation, termination or suspension of any Permits.
Section 10.21 Insurance. Rocky Mountain II has regularly maintained all
policies of commercial liability, products liability, fire, casualty, worker's
compensation, life and other forms of insurance on an "occurrence" rather than a
"claims made" basis in amounts and types required by law and generally carried
by reasonably prudent, similarly situated businesses. Rocky Mountain II is not
in default under any provision contained in any insurance policy maintained by
Rocky Mountain II currently, nor has Rocky Mountain II failed to give any notice
or present any claim thereunder in due and timely fashion and no cancellation,
non-renewal, reduction of coverage or arrearage in premiums has been threatened
or occurred with respect to any policy, nor is the management of Rocky Mountain
II aware of any grounds therefor.
Section 10.22 Extraordinary Transactions. Except as disclosed in the
Rocky Mountain II Disclosure Letter or otherwise permitted by this Agreement,
since June 30, 1997, Rocky Mountain II has not (i) mortgaged, pledged or
subjected to any Encumbrance any of its assets; (ii) canceled or compromised any
claim of or debts owed to it; (iii) sold, licensed, leased, exchanged or
transferred any of its assets except in the ordinary course of business; (iv)
entered into any material transaction other than in the ordinary course of
business; (v) experienced any material change in the relationship or course of
dealing with any supplier, customer or creditor; (vi) suffered any material
destruction, loss or damage to any of its assets; (vii) made any management
decisions involving any material change in its policies with regard to pricing,
sales, purchasing or other business, financial, accounting (including reserves
and the amounts thereof) or tax policies or practices; (viii) declared, set
aside or paid any dividends on or made any distributions in respect of any
outstanding shares of capital stock or made any other distributions or payments
to any of its shareholders; (ix) submitted any bid, proposal, quote or
commitment to any party in response to a request for proposal or otherwise; (x)
engaged in any merger or consolidation with, or agreed to merge or consolidate
with, or purchased or agreed to purchase, all or substantially all of the assets
of, or otherwise acquire, any other party; (xi) entered into any strategic
alliance, partnership, joint venture or similar arrangement with any other
party; (xii) incurred or agreed to incur any Debt or prepaid or made any
prepayments in respect of Debt; (xiii) issued or agreed to issue to any party,
any shares of stock or other securities; (xiv) redeemed, purchased or agreed to
redeem or purchase any of its outstanding shares of capital stock or other
securities; (xv) increased the rate of compensation payable or to become payable
to any of its officers, directors, employees or agents over the rate being paid
to them as of June 30, 1996 or agreed to do so otherwise than in accordance with
contractual agreements with such parties; (xvi) made or agreed to make any
charitable contributions or incurred or agreed to incur any non-business
expenses; or (xvii) charged off any bad debts or increased its bad debt reserve
except in the manner consistent with its past practices.
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Section 10.23 Title to Assets. Except as described in the Rocky
Mountain II Disclosure Letter, Rocky Mountain II has good and marketable title
to its assets and properties, free and clear of restrictions on or conditions to
transfer or assignment, and free and clear of all Encumbrances.
Section 10.24 Corporate Records. The minute books of Rocky Mountain II
accurately reflect all minutes of proceedings of and actions taken by the
directors of Rocky Mountain II, and by each committee of the Board of Directors
of Rocky Mountain II, and all records of meetings of and actions taken by the
stockholders of Rocky Mountain II, that are required by applicable laws to be
recorded in or reflected in the corporate records thereof.
Section 10.25 Broker and Finder Fees. Rocky Mountain II has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company or Rocky Mountain II by any broker,
finder or intermediary in connection with such transaction.
Section 10.26 Adequate Disclosure. No representation or warranty made
by Rocky Mountain II pursuant to this Agreement, or any statement contained in
any Exhibit or Schedule to this Agreement, or any certificate or document
furnished or to be furnished by Rocky Mountain II pursuant to the terms of this
Agreement in connection with the transactions contemplated hereby, contains any
untrue or misleading statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading.
Section 10.27 No Adverse Change or Conditions. Except as set forth in
the Rocky Mountain II Disclosure Letter, and except as expressly contemplated or
permitted by this Agreement, since June 30, 1997, Rocky Mountain II has
conducted its business in the ordinary course and consistent with past practice,
and Rocky Mountain II has not suffered any change that has had a Material
Adverse Effect on Rocky Mountain II . There are no conditions, facts,
developments or circumstances of an unusual or special nature that reasonably
could be expected to have a Material Adverse Effect upon Rocky Mountain II that
have not been disclosed in writing by Rocky Mountain II pursuant to the Rocky
Mountain II Disclosure Letter.
ARTICLE XI
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REPRESENTATIONS AND WARRANTIES OF PREMA PROPERTIES
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In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Prema Properties
hereby makes the following representations and warranties to the other parties
to this Agreement and to the Holding Company:
Section 11.1 Organization and Good Standing. Prema Properties is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Ohio, and has full corporate power and authority
to own, operate and lease its properties, and to conduct
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its business as it is now being conducted, and is qualified to transact business
as a foreign limited liability company in each jurisdiction in which the
operation of its business or the ownership of its properties requires such
qualification.
Section 11.2 Capitalization of Prema Properties. The Prema Properties
Members hold, in the aggregate, all of the membership or equity interests in
Prema Properties. Prema Properties has no issued or outstanding equity
securities, debt securities or other instruments which are convertible into or
exchangeable for at any time into equity securities of Prema Properties. Prema
Properties is not subject to any commitment or obligation which would require
the issuance or sale of any equity interest at any time under options,
subscriptions, warrants, rights, calls, preemptive rights, convertible
obligations or any other fixed or contingent obligations or which would provide
the holder thereof with the right to acquire any equity securities of Prema
Properties. Prema Properties has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. There are no agreements, pledges, powers of attorney, consents,
assignments or other similar agreements or arrangements either (I) restricting
the transferability of the Membership Interests of Prema Properties or (ii)
relating to the Membership Interests of Prema Properties which reasonably may be
likely to prevent or delay the consummation of the transactions contemplated
hereby.
Section 11.3 Subsidiaries; Investments. Prema Properties does not own
any shares of capital stock or equity securities of, or any interest in any
other entity.
Section 11.4 Execution and Effect of Agreement Prema Properties has the
power to enter into this Agreement and to perform its obligations hereunder.
This Agreement has been duly executed and delivered by Prema Properties and
constitutes a legal, valid and binding obligation of Prema Properties, fully
enforceable against Prema Properties and each of the Prema Properties Members in
accordance with its terms; except as enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights and the exercise of judicial discretion in
accordance with general principles of equity.
Section 11.5 Restrictions. The execution and delivery of this Agreement
by Prema Properties, the consummation of the transactions contemplated hereby by
Prema Properties and the Prema Properties Members, and the performance of their
respective obligations hereunder will not (a) violate any of the provisions of
the operating agreement or articles of organization of Prema Properties, (b)
violate or conflict with the provisions of any Applicable Laws, (c) result in
the creation of any Encumbrance upon any of the assets, rights or properties of
Prema Properties, or (d) except as disclosed in the Prema Properties Disclosure
Letter, conflict with, violate any provisions of, result in a breach of or give
rise to a right of termination, modification or cancellation of, constitute a
default of, or accelerate the performance required by, with or without the
passage of time or the giving of notice or both, the terms of any material
agreement, indenture, mortgage, deed of trust, security or pledge agreement,
lease, contract, note, bond, license, permit, authorization or other
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instrument to which Prema Properties or any of the Prema Properties Members is a
party or to which Prema Properties or any of the Prema Properties Members or any
of their respective assets or properties are subject.
Section 11.6 Consents. Except as disclosed in the Prema Properties
Disclosure Letter, no filing with, or consent, waiver, approval or authorization
of, or notice to, any governmental authority or any third party is required to
be made or obtained by Prema Properties or the Prema Properties Members in
connection with the execution and delivery of this Agreement or any document or
instrument contemplated hereby, the consummation of any of the transactions
contemplated hereby or the performance of any of their respective obligations
hereunder or thereunder.
Section 11.7 Financial Statements. Attached hereto as Exhibit E are
true and correct copies of the audited balance sheets and related statements of
income, cash flows and changes in Member equity of Prema Properties as at
December 31, 1994, 1995 and 1996 and for the year periods then ended and the
unaudited financial statements of Prema Properties as at June 30, 1997 and for
the six month period then ended (collectively, the " Prema Properties Financial
Statements"). All of the Prema Properties Financial Statements have been
prepared in accordance with GAAP in a manner consistent with each other and the
books and records of Prema Properties, and fairly present in all material
respects the financial condition and results of operations of Prema Properties
at the dates and for the periods indicated therein. The regular books of account
of Prema Properties fairly and accurately reflect all material transactions
involving Prema Properties , are true, correct and complete and have been
prepared in accordance with GAAP and on a basis consistent with the Financial
Statements.
Section 11.8 Debt. The Prema Properties Disclosure Letter contains a
true, complete and accurate listing of the original principal amount of all of
the Debt of Prema Properties, the remaining principal balance thereof, the
interest rate(s) payable by Prema Properties in respect thereof, if any, and the
date(s) of maturity thereof. Except as disclosed in the Prema Properties
Disclosure Letter, all of the Debt of Prema Properties may be prepaid at any
time, without premium, prepayment penalties, termination fees or other fees or
charges.
Section 11.9 Guarantees. The Prema Properties Disclosure Letter
contains a complete list of all Guarantees provided by Prema Properties for the
benefit of any other party and of all Guarantees provided by any other party for
the benefit of Prema Properties or any party doing business with Prema
Properties.
Section 11.10 No Undisclosed Liabilities. Prema Properties does not
have any material liabilities or obligations of any nature whatsoever (whether
known or unknown, due or to become due, absolute, accrued, contingent or
otherwise, and whether or not determined or determinable), except for (I)
liabilities or obligations set forth in the Prema Properties Disclosure Letter,
(ii) liabilities or obligations to the extent expressly reflected on or reserved
against in the June 30, 1997 balance sheet included among the Prema Properties
Financial Statements or disclosed in the notes thereto, (iii) liabilities or
obligations of a type reflected on the June 30, 1997 balance sheet and
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incurred in the ordinary course of business and consistent with past practices
since June 30, 1997, or (iv) liabilities or obligations arising under the terms
of the Material Contracts of Prema Properties. Except as otherwise contemplated
or permitted by this Agreement no dividends or distributions have been declared
on any Membership Interests of Prema Properties which are unpaid.
Section 11.11 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the Prema Properties Members, threatened, by or before any court,
any Governmental Authority or arbitrator, against Prema Properties or any of the
Prema Properties Members that reasonably could be expected to prevent or delay
the consummation of any of the transactions contemplated hereby. Except as
disclosed in the Prema Properties Disclosure Letter, there is no material suit,
claim, action at law or in equity, proceeding or governmental investigation or
audit pending, or to the knowledge of Prema Properties Members, threatened, by
or before any arbitrator, court, or other Governmental Authority, against Prema
Properties or involving any of the former or present employees, agents,
businesses, properties, rights or assets of Prema Properties , nor, to the
knowledge of Prema Properties Members, is there any basis for the assertion of
any of the foregoing. Except as disclosed in the Prema Properties Disclosure
Letter, there are no judgments, orders, injunctions, decrees, stipulations or
awards rendered by any court, Governmental Authority or arbitrator against Prema
Properties or any of their respective former or present Employees, agents,
properties or assets.
Section 11.12 Properties; Absence of Encumbrances. The Prema Properties
Disclosure Letter sets forth a complete list of all real property owned by or
leased to Prema Properties , and, with respect to all properties leased by Prema
Properties, a description of the term of such lease and the monthly rental
thereunder. Prema Properties is not in default (and will not be in default with
the passage of time or the receipt of notice or both) and has not received
notice of default, under any lease of real property. All real property leased to
Prema Properties is available for immediate use in the operation of its business
and for the purpose for which such property currently is being utilized. Subject
in the case of leased property to the terms and conditions of the respective
leases, Prema Properties has full legal and practical access to all such real
property.
Section 11.13 Intellectual Property. The Prema Properties Disclosure
Letter sets forth a complete list of (I) all Intellectual Property owned, used
or licensed by Prema Properties , together with the identity of the owner
thereof, and (ii) all license agreements pursuant to which any Intellectual
Property is licensed to or by Prema Properties. Prema Properties owns its
Intellectual Property free and clear of any and all Encumbrances, or, in the
case of licensed Intellectual Property, has valid, binding and enforceable
rights to use such Intellectual Property. Prema Properties has duly and timely
filed all renewals, continuations and other filings necessary to maintain its
Intellectual Property or registrations thereof. Except as disclosed in the Prema
Properties Disclosure Letter, Prema Properties (I) has not received any notice
or claim to the effect that the use of any Intellectual Property infringes upon,
conflicts with or misappropriates the rights of any other party or that any of
the Intellectual Property is not valid or enforceable, and (ii) has not made any
claim that any party has violated or infringed upon its rights with respect to
any Intellectual Property.
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Section 11.14 Material Contracts.
(a) List of Material Contracts. The Prema
Properties Disclosure Letter sets forth a list of all material written, and a
description of all oral, commitments, agreements or contracts to which Prema
Properties is a party or by which Prema Properties is obligated, including, but
not limited to, all commitments, agreements or contracts embodying or evidencing
the following transactions or arrangements: (I) agreements for the employment
of, or independent contractor arrangements with, any officer or other individual
employee of Prema Properties ; (ii) any consulting agreement, agency agreement
and any other service agreement that will continue in force after the Closing
Date with respect to the employment or retention by Prema Properties of
consultants, agents, legal counsel, accountants or anyone else who is not an
Employee; (iii) any single contract, purchase order or commitment providing for
expenditures by Prema Properties after the date hereof of more than $25,000 or
which has been entered into by Prema Properties otherwise than in the ordinary
course of business; (iv) agreements between Prema Properties and suppliers to
Prema Properties pursuant to which Prema Properties is obligated to purchase or
to sell or distribute the products of any other party other than current
purchase orders entered into in the ordinary course of business consistent with
past practices; (v) any contract containing covenants limiting the freedom of
Prema Properties or any officer, director, or employee of Prema Properties to
engage in any line or type of business or with any person in any geographic
area; (vi) any commitment or arrangement by Prema Properties to participate in a
strategic alliance, partnership, joint venture, limited liability company or
other cooperative undertaking with any other Person; (vii) any commitments by
Prema Properties for capital expenditures involving more than $25,000
individually or $50,000 in the aggregate; and (viii) any other contract,
commitment, agreement, understanding or arrangement that the Prema Properties
Members deems to be material to the business of Prema Properties.
(b) No Breaches or Defaults. Except as
disclosed in the Prema Properties Disclosure Letter, Prema Properties and is in
full compliance with each, and is not in default under any, Material Contract to
which it is a party, and no event has occurred that, with notice or lapse of
time or both, would constitute such a default thereunder. Prema Properties has
not waived any rights under or with respect to any of the Material Contracts to
which it is a party. The Prema Properties Members have no knowledge, and have
not received any notice to the effect, that any party with whom Prema Properties
has contractual arrangements under the Material Contracts to which it is a
party, is in default under any such contractual arrangements or that any event
has occurred that, with notice or lapse of time or both, would constitute such a
default thereunder. Each of the Material Contracts to which it is a party
constitutes a legal, valid and binding obligation of each the parties thereto
and is enforceable against each of the parties thereto in accordance with its
respective terms; except as enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the exercise of judicial discretion in accordance with
general principles of equity.
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Section 11.15 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The Prema
Properties Disclosure Letter sets forth a true, complete and correct list of all
Employee Benefit Plans and all Benefit Arrangements to which Prema Properties is
a party or to which Prema Properties is obligated to contribute. None of the
Employee Benefit Plans to which Prema Properties or any ERISA Affiliate of Prema
Properties is a party, which Prema Properties or any ERISA Affiliate of Prema
Properties sponsors or maintains or to which Prema Properties or any ERISA
Affiliate of Prema Properties contributes is subject to the requirements of
Section 302 of ERISA or Section 412 of the Code.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Prema Properties Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Prema Properties is a party or to
which Prema Properties is obligated to contribute has been operated or
maintained in compliance in all material respects with all Applicable Laws,
including, without limitation, ERISA and the Code, and has been maintained in
material compliance with its terms. Except as disclosed in the Prema Properties
Disclosure Letter, with respect to any Plan that is intended to qualify under
Section 401 of the Code, a favorable determination letter as to qualification
under Section 401 of the Code has been issued and any amendments required for
continued qualification under Section 401 of the Code have been timely adopted
and nothing has occurred subsequent to the date of such determination letter
that could adversely affect the qualified status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Prema Properties is a party or to
which Prema Properties is obligated to contribute, under ERISA or the Code, for
all periods of time prior to the date hereof and that are attributable to
Employees of Prema Properties have been paid or otherwise adequately accrued
against in the Prema Properties Financial Statements, as the case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the Prema Properties Disclosure Letter, Prema Properties is not
liable for any arrearage of wages, any accrued or vested vacation pay or any tax
or penalty for failure to comply with any Applicable Law relating to employment
or labor above the level accrued for or reserved against on the June 30, 1997
balance sheet included in the Prema Properties Financial Statements, and there
is no controversy pending, threatened or in prospect between Prema Properties
and any of its Employees nor is there any basis for any such controversy. There
is no unfair labor practice charge or complaint currently pending against Prema
Properties with respect to or relating to any of its Employees before the
National Labor Relations Board or any other agency having jurisdiction over such
matters and no charges or complaints are currently pending against Prema
Properties before the Equal Employment Opportunity Commission or any state or
local agency having responsibility for the prevention of unlawful employment
practices. There are no actions, suits or claims pending, including proceedings
before the IRS, the DOL or the PBGC, with respect to any Employee Benefit Plan,
Benefit Arrangement or any administrator or fiduciary thereof, other than
benefit claims arising in
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the normal course of operation of such Employee Benefit Plans or Benefit
Arrangements, and, to the knowledge of the management of Prema Properties, no
Employee Benefit Plan or Benefit Arrangement is under audit or investigation by
any Governmental Authority.
(e) Severance Obligations. Except as disclosed
in the Prema Properties Disclosure Letter, all current employees of Prema
Properties may be terminated at will, without notice and without incurring any
severance or other liability or obligation to the employee in connection with
the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the Prema Properties
Disclosure Letter, neither the execution, delivery or performance of this
Agreement nor the consummation of the Closing will (i) increase any benefits
otherwise payable under any Employee Benefit Plan or Benefit Arrangement, (ii)
result in the acceleration of the time of payment or vesting of any such
benefits, or (iii) give rise to an obligation with respect to the payment of any
severance pay. No "parachute payment" (within the meaning of Section 280G of the
Code), "change in control" or severance payment has been made or will be
required to be made by Prema Properties or any ERISA Affiliate of Prema
Properties to any Employee in connection with the execution, delivery or
performance of this Agreement or as a result of the consummation of the Closing.
(f) Compliance with Laws on Employment
Practices. Prema Properties has complied in all material respects with all
Applicable laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, and to the knowledge of the Prema
Properties Members, is not engaged in any unfair labor practice with respect to
any of the current employees of Prema Properties.
(g) Collective Bargaining Agreements. Except as
disclosed in the Prema Properties Disclosure Letter, none of the employees of
Prema Properties are subject to any collective bargaining agreement nor is
Prema Properties required under any agreement to recognize or bargain with any
labor organization or union on behalf of its employees.
(h) No Multi-Employer Plans. Prema Properties
has not contributed to, nor had the obligation to contribute to, any
Multiemployer Plan within the five-year period ending on the date of this
Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Prema Properties relating to, or change in employee participation or coverage
under, any Employee Benefit Plan or Benefit Arrangement that would increase
materially the expense of maintaining such Employee Benefit Plan or Benefit
Arrangement above the level of the expense incurred in respect thereof for the
fiscal year of Prema Properties ended December 31, 1996.
(j) No Unfunded Liabilities. Prema Properties
nor any ERISA Affiliate of Prema Properties has any current or projected
liability for any unfunded post-retirement medical
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or life insurance benefits in connection with any Employee of Prema Properties
or ERISA Affiliate of Prema Properties.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by Prema Properties or any
ERISA Affiliate of Prema Properties, which could subject any such Employee
Benefit Plan, Prema Properties, any ERISA Affiliate of Prema Properties, or the
Holding Company directly or indirectly (through an indemnification agreement or
otherwise), to any liability for or as a result of a breach of fiduciary duty, a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax under
Section 4971 of the Code. Neither Prema Properties nor any of its ERISA
Affiliates have incurred a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from, or failed to timely make contributions to
any Multiemployer Plan which has resulted in any unpaid liability of any of the
Companies.
(l) Welfare Benefit Plans. (I) Except as
disclosed in the Prema Properties Disclosure Letter, none of the Employee
Benefit Plans that are "welfare benefit plans" as defined in ERISA contributions
to Section 3(1) provides for continuing benefits or coverage for any participant
or beneficiary of a participant after such participant's termination of
employment, except to the extent required by law; provided that any disclosure
regarding this clause (i) shall set forth (A) the number of individuals
currently receiving such continuing benefits or coverage, (B) the limit on
liability with respect to such coverage, (C) the terms and conditions of such
coverage, and (D) the maximum number of current employees or independent
contractors who could become eligible for such continuing benefits or coverage;
(ii) there has been no violation of Code Section 4980B or ERISA Sections 601-609
with respect to any such Plan that could result in any material liability; (iii)
no such Plans are "multiple employer welfare arrangements" within the meaning of
ERISA Section 3(40); (iv) with respect to any such Plans that are self-insured,
no claims have been made pursuant to any such Plan that have not yet been paid
(other than claims which have not yet been paid but are in the normal course of
processing) and no individual has incurred injury, sickness or other medical
condition with respect to which claims may be made pursuant to any such plan
where the liability to the employer could in the aggregate with respect to each
such individual exceed $50,000 per year; (v) Prema Properties does not maintain
and does not have any obligation to contribute to any "voluntary employees'
beneficiary association" within the meaning of Code Section 501(c)(9) or other
funding arrangement for the provision of welfare benefits (such disclosure to
include the amount of any such funding); (vi) no such plan is intended to
satisfy Code Section 125; and (vii) no amounts are required in connection with
any such Plan to be included in income under Code Section 105(h) (under official
regulations thereof to date);.
Section 11.17 Tax Matters.
(a) Affiliated Groups. Prema Properties is not
a member of, and has never been a member of, any "affiliated group" as that term
is defined in Section 1054(a) of the Code.
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(b) Tax Returns and Payment of Taxes. Prema
Properties has timely filed or will timely file all federal, state, local, and
other Tax Returns required to be filed by it under Applicable Laws, including
estimated Tax Returns and reports, and has paid all required Income Taxes and
other Taxes (including any additions to taxes, penalties and interest related
thereto) due and payable on or before the date hereof. Prema Properties has
paid, withheld, or accrued, or will accrue, on the Prema Properties Financial
Statements in accordance with GAAP any and all Income Taxes and other Taxes in
respect of the conduct of its business or the ownership of its property and in
respect of any transactions for all periods (or portions thereof) through the
close of business on the Closing Date. Prema Properties has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding requirements, including the
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any Employee, creditor, independent contractor or other third
party. Prema Properties has collected all sales, use and value added Taxes
required to be collected, and has remitted, or will remit on a timely basis,
such amounts to the appropriate Government Authorities and have furnished
properly completed exemption certificates for all exempt transactions
(c) Tax Reserves. The amount of Prema
Properties's liability for unpaid Taxes for all periods ending on or before the
date of this Agreement does not, in the aggregate, exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes) as
of the date of this Agreement, and the amount of Prema Properties 's liability
for unpaid Taxes for all periods ending on or before the Closing Date shall not,
in the aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals shall be reflected on
the balance sheet of Prema Properties as of the Closing Date.
(d) Audits; No Deficiencies Asserted Against
Company. The Tax Returns of Prema Properties have never been audited by any
Tax Authority, nor is any such audit in process, pending or threatened (either
in writing or verbally, formally or informally). Except as disclosed in the
Prema Properties Disclosure Letter, no deficiencies have been asserted (or are
expected to be asserted) against Prema Properties as a result of IRS (or state
or local Tax Authority) examinations and no issue has been raised by any IRS (or
state or local Tax Authority) examination that, by application of the same
principles, might result in a proposed deficiency for any other period not so
examined.
(e) No Waivers of Limitations. Except as
disclosed in the Prema Properties Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrangements providing for
extensions of time in respect of the assessment or collection of any unpaid
Taxes against Prema Properties. Prema Properties has disclosed on its federal
Income Tax Returns all positions taken therein that could, if not so disclosed,
give rise to a substantial understatement penalty within the meaning of Section
6662 of the Code.
(f) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Prema Properties with respect to
Taxes, other than liens for Taxes not yet due and payable or for Taxes that
Prema Properties is contesting in good faith through appropriate
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proceedings and for which appropriate reserves have been established on the
Prema Properties Financial Statements.
(g) Tax Elections and Special Tax Status. Prema
Properties is not a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code. Prema Properties is a "partnership" for purposes
of federal income taxation and state income taxation in all states in which its
income is subject to taxation and has had the status of a "partnership" for
purposes of federal income taxation and state income taxation in all states in
which its income is subject to taxation or has been subject to taxation at all
times since its formation.
(h) Disqualified Leasebacks. Prema Properties
is not a party to a "disqualified leaseback or long-term agreement" described in
Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Prema Properties has been deferred pursuant to Treasury Regulation ss. 1.1502-13
or 1.1502-14, or Temporary Treasury Regulation ss. 1.1502-13T or 1.1502-14T.
(j) Tax Sharing and Similar Arrangements. Prema
Properties is not a party to or bound by any Tax sharing, Tax indemnity, Tax
allocation or other similar arrangement.
(k) No Non-Deductible Compensation Payments.
Prema Properties has not made any payments, nor is it obligated to make any
payments, that would not be deductible under Section 280G of the Code nor is it
a party to any agreement that under certain circumstances could obligate it to
make any such payments.
Section 11.18 Environmental Matters.
(a) The facilities presently or formerly
occupied or used by Prema Properties and any other real property presently or
formerly owned by, used by or leased to or by Prema Properties (collectively,
the "Prema Properties Property"), the existing and prior uses of such Prema
Properties Property and all operations of the businesses of Prema Properties
comply and have at all times complied with all Environmental Laws and Prema
Properties is not in violation of nor has it violated, in connection with the
ownership, use, maintenance or operation of such property or the conduct of its
business, any Environmental Law.
(b) Prema Properties has all necessary permits,
registrations, approvals and licenses required by any Governmental Authority or
Environmental Law.
(c) There has been no spill, discharge, leak,
emission, injection, disposal, escape, dumping or release of any kind on,
beneath or above such Prema Properties Property or into the environment
surrounding such Prema Properties Property of any Hazardous Materials.
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(d) There has been no past, and there is no
current or anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Prema Properties Property. No asbestos-containing materials,
underground improvements (including, but not limited to treatment or storage
tanks, sumps, or hydraulic tanks or water, gas or oil wells) or polychlorinated
biphenyls (PCBs) transformers, capacitors, ballasts, or other equipment which
contain dielectric fluid containing PCBs at levels in excess of fifty parts per
million (50 PPM) are or have ever been located on such Prema Properties
Property.
(e) There are no claims, notices of violations,
notice letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Prema Properties (or any predecessor in interest) in
connection with (i) any actual or alleged failure to comply with any requirement
of any Environmental Law; (ii) the ownership, use, maintenance or operation of
the Property by any person; (iii) the alleged violation of any Environmental
Law; or (iv) the suspected presence of any Hazardous Material thereon.
Section 11.19 Compliance With Laws. Prema Properties has at all times
conducted its business in material compliance with all (and has not received any
notice of any claimed violation of any) Applicable Laws.
Section 11.20 Licenses and Permits. Prema Properties possess all
licenses, permits, and other governmental consents, certificates, approvals, or
other authorizations (the "Permits") necessary for the operation of the business
of Prema Properties. Prema Properties has complied with the terms and conditions
of all Permits in all material respects and all such Permits are in full force
and effect, and there has occurred no event nor is any event, action,
investigation or proceeding pending or, to the knowledge of Prema Properties
Members, threatened, which could cause or permit revocation or suspension of or
otherwise adversely affect the maintenance of any Permits. The transactions
contemplated by this Agreement will not lead to the revocation, cancellation,
termina tion or suspension of any Permits.
Section 11.21 Insurance. Prema Properties has regularly maintained all
policies of commercial liability, products liability, fire, casualty, worker's
compensation, life and other forms of insurance on an "occurrence" rather than a
"claims made" basis in amounts and types required by law and generally carried
by reasonably prudent, similarly situated businesses. Prema Properties is not in
default under any provision contained in any insurance policy maintained by
Prema Properties currently, nor has Prema Properties failed to give any notice
or present any claim thereunder in due and timely fashion and no cancellation,
non-renewal, reduction of coverage or arrearage in premiums has been threatened
or occurred with respect to any policy, nor is the Prema Properties Members
aware of any grounds therefor.
Section 11.22 Extraordinary Transactions. Except as disclosed in the
Prema Properties Disclosure Letter or otherwise permitted by this Agreement,
since June 30, 1997, Prema Properties
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has not (i) mortgaged, pledged or subjected to any Encumbrance any of its
assets; (ii) canceled or compromised any claim of or debts owed to it; (iii)
sold, licensed, leased, exchanged or transferred any of its assets except in the
ordinary course of business; (iv) entered into any material transaction other
than in the ordinary course of business; (v) experienced any material change in
the relationship or course of dealing with any supplier, customer or creditor;
(vi) suffered any material destruction, loss or damage to any of its assets;
(vii) made any management decisions involving any material change in its
policies with regard to pricing, sales, purchasing or other business, financial,
accounting (including reserves and the amounts thereof) or tax policies or
practices; (viii) declared, set aside or paid any dividends on or made any
distributions in respect of any outstanding shares of capital stock or made any
other distributions or payments to any of its shareholders; (ix) submitted any
bid, proposal, quote or commitment to any party in response to a request for
proposal or otherwise; (x) engaged in any merger or consolidation with, or
agreed to merge or consolidate with, or purchased or agreed to purchase, all or
substantially all of the assets of, or otherwise acquire, any other party; (xi)
entered into any strategic alliance, partnership, joint venture or similar
arrangement with any other party; (xii) incurred or agreed to incur any Debt or
prepaid or made any prepayments in respect of Debt; (xiii) issued or agreed to
issue to any party, any shares of stock or other securities; (xiv) redeemed,
purchased or agreed to redeem or purchase any of its outstanding shares of
capital stock or other securities; (xv) increased the rate of compensation
payable or to become payable to any of its officers, directors, employees or
agents over the rate being paid to them as of June 30, 1996 or agreed to do so
otherwise than in accordance with contractual agreements with such parties;
(xvi) made or agreed to make any charitable contributions or incurred or agreed
to incur any non-business expenses; or (xvii) charged off any bad debts or
increased its bad debt reserve except in the manner consistent with its past
practices.
Section 11.23 Title to Assets. Except as described in the Prema
Properties Disclosure Letter, Prema Properties has good and marketable title to
its assets and properties, free and clear of restrictions on or conditions to
transfer or assignment, and free and clear of all Encumbrances.
Section 11.24 Corporate Records. The books and records of Prema
Properties accurately reflect all minutes of proceedings of and actions taken by
the members of Prema Properties.
Section 11.25 Broker and Finder Fees. Prema Properties has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company or Prema Properties by any broker,
finder or intermediary in connection with such transaction.
Section 11.26 Adequate Disclosure. No representation or warranty made
by Prema Properties pursuant to this Agreement, or any statement contained in
any Exhibit or Schedule to this Agreement, or any certificate or document
furnished or to be furnished by Prema Properties pursuant to the terms of this
Agreement in connection with the transactions contemplated hereby, contains any
untrue or misleading statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading.
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Section 11.27 No Adverse Change or Conditions. Except as set forth in
the Prema Properties Disclosure Letter, and except as expressly contemplated or
permitted by this Agreement, since June 30, 1997, Prema Properties has conducted
its business in the ordinary course and consistent with past practice, and Prema
Properties has not suffered any change that has had a Material Adverse Effect on
Prema Properties. There are no conditions, facts, developments or circumstances
of an unusual or special nature that reasonably could be expected to have a
Material Adverse Effect upon the financial condition, business or prospects of
Prema Properties that have not been disclosed in writing by Prema Properties
pursuant to the Prema Properties Disclosure Letter.
ARTICLE XII
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REPRESENTATIONS AND WARRANTIES OF RALSTON CAR WASH
--------------------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Ralston Car Wash
hereby makes the following representations and warranties to the other parties
to this Agreement and the Holding Company:
Section 12.1 Organization and Good Standing. Ralston Car Wash is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Colorado, and has full corporate power and
authority to own, operate and lease its properties, and to conduct its business
as it is now being conducted, and is qualified to transact business as a foreign
limited liability company in each jurisdiction in which the operation of its
business or the ownership of its properties requires such qualification.
Section 12.2 Capitalization of Ralston Car Wash. The Ralston Car Wash
Members hold, in the aggregate, all of the membership or equity interests in
Ralston Car Wash. Ralston Car Wash has no issued or outstanding equity
securities, debt securities or other instruments which are convertible into or
exchangeable for at any time into equity securities of Ralston Car Wash. Ralston
Car Wash is not subject to any commitment or obligation which would require the
issuance or sale of any equity interest at any time under options,
subscriptions, warrants, rights, calls, preemptive rights, convertible
obligations or any other fixed or contingent obligations or which would provide
the holder thereof with the right to acquire any equity securities of Ralston
Car Wash. Ralston Car Wash has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. There are no agreements, pledges, powers of attorney, consents,
assignments or other similar agreements or arrangements either (I) restricting
the transferability of the Membership interests of Ralston Car Wash or (ii)
relating to the Ralston Car Wash Membership Interests which reasonably may be
likely to prevent or delay the consummation of the transactions contemplated
hereby.
Section 12.3 Subsidiaries; Investments. Ralston Car Wash does not own
any shares of capital stock or equity securities of, or any interest in any
other entity.
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Section 12.4 Execution and Effect of Agreement. Ralston Car Wash has
the power to enter into this Agreement and to perform its obligations hereunder.
This Agreement has been duly executed and delivered by Ralston Car Wash and
constitutes a legal, valid and binding obligation of Ralston Car Wash, fully
enforceable against Ralston Car Wash in accordance with its terms; except as
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
exercise of judicial discretion in accordance with general principles of equity.
Section 12.5 Restrictions. The execution and delivery of this Agreement
by Ralston Car Wash, the consummation of the transactions contemplated hereby by
Ralston Car Wash and by each of the Ralston Car Wash Members, and the
performance of their respective obligations hereunder will not (a) violate any
of the provisions of the operating agreement or articles of organization of
Ralston Car Wash, (b) violate or conflict with the provisions of any Applicable
Laws, (c) result in the creation of any Encumbrance upon any of the assets,
rights or properties of Ralston Car Wash, or (d) except as disclosed in the
Ralston Car Wash Disclosure Letter, conflict with, violate any provisions of,
result in a breach of or give rise to a right of termination, modification or
cancellation of, constitute a default of, or accelerate the performance required
by, with or without the passage of time or the giving of notice or both, the
terms of any material agreement, indenture, mortgage, deed of trust, security or
pledge agreement, lease, contract, note, bond, license, permit, authorization or
other instrument to which Ralston Car Wash or any of the Ralston Car Wash
Members is a party or to which Ralston Car Wash or any of the Ralston Car Wash
Members or any of their respective assets or properties are subject.
Section 12.6 Consents. Except as disclosed in the Ralston Car Wash
Disclosure Letter, no filing with, or consent, waiver, approval or authorization
of, or notice to, any governmental authority or any third party is required to
be made or obtained by Ralston Car Wash or any of the Ralston Car Wash Members
in connection with the execution and delivery of this Agreement or any document
or instrument contemplated hereby, the consummation of any of the transactions
contemplated hereby or the performance of any of their respective obligations
hereunder or thereunder.
Section 12.7 Financial Statements. Attached hereto as Exhibit E are
true and correct copies of the audited balance sheets and related statements of
income, cash flows and changes in member equity of Ralston Car Wash as at
December 31, 1994, 1995 and 1996 and for the year periods then ended and the
unaudited financial statements of Ralston Car Wash as at June 30, 1997 and for
the six month period then ended (collectively, the " Ralston Car Wash Financial
Statements"). All of the Ralston Car Wash Financial Statements have been
prepared in accordance with an accrual method of accounting, consistently
applied, in a manner consistent with each other and the books and records of
Ralston Car Wash, and fairly present in all material respects the financial
condition and results of operations of Ralston Car Wash at the dates and for the
periods indicated therein. The regular books of account of Ralston Car Wash
fairly and accurately reflect all material transactions involving Ralston Car
Wash, are true, correct and complete and have been
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prepared in accordance with an accrual method of accounting, consistently
applied, and on a basis consistent with the Financial Statements.
Section 12.8 Debt. The Ralston Car Wash Disclosure Letter contains a
true, complete and accurate listing of the original principal amount of all of
the Debt of Ralston Car Wash, the remaining principal balance thereof, the
interest rate(s) payable by Ralston Car Wash in respect thereof, if any, and the
date(s) of maturity thereof. Except as disclosed in the Ralston Car Wash
Disclosure Letter, all of the Debt of Ralston Car Wash may be prepaid at any
time, without premium, prepayment penalties, termination fees or other fees or
charges.
Section 12.9 Guarantees. The Ralston Car Wash Disclosure Letter
contains a complete list of all Guarantees provided by Ralston Car Wash for the
benefit of any other party and of all Guarantees provided by any other party for
the benefit of Ralston Car Wash or any party doing business with Ralston Car
Wash.
Section 12.10 No Undisclosed Liabilities. Ralston Car Wash does not
have any material liabilities or obligations of any nature whatsoever (whether
known or unknown, due or to become due, absolute, accrued, contingent or
otherwise, and whether or not determined or determinable), except for (i)
liabilities or obligations set forth in the Ralston Car Wash Disclosure Letter,
(ii) liabilities or obligations to the extent expressly reflected on or reserved
against in the June 30, 1997 balance sheet included among the Ralston Car Wash
Financial Statements or disclosed in the notes thereto, (iii) liabilities or
obligations of a type reflected on the June 30, 1997 balance sheet and incurred
in the ordinary course of business and consistent with past practices since June
30, 1997, or (iv) liabilities or obligations arising under the terms of the
Material Contracts of Ralston Car Wash. Except as otherwise contemplated or
permitted by this Agreement, no dividends or distributions have been declared on
any Membership Interests of Ralston Car Wash which are unpaid.
Section 12.11 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the Ralston Car Wash Members, threatened, by or before any court,
any Governmental Authority or arbitrator, against Ralston Car Wash or any of the
Ralston Car Wash Members that reasonably could be expected to prevent or delay
the consummation of any of the transactions contemplated hereby. Except as
disclosed in the Ralston Car Wash Disclosure Letter, there is no material suit,
claim, action at law or in equity, proceeding or governmental investigation or
audit pending, or to the knowledge of Ralston Car Wash Members, threatened, by
or before any arbitrator, court, or other Governmental Authority, against
Ralston Car Wash or involving any of former or present employees, agents,
businesses, properties, rights or assets of Ralston Car Wash , nor, to the
knowledge of Ralston Car Wash Members, is there any basis for the assertion of
any of the foregoing. Except as disclosed in the Ralston Car Wash Disclosure
Letter, there are no judgments, orders, injunctions, decrees, stipulations or
awards rendered by any court, Governmental Authority or arbitrator against
Ralston Car Wash or any of their respective former or present Employees, agents,
properties or assets.
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Section 12.12 Properties; Absence of Encumbrances. The Ralston Car Wash
Disclosure Letter sets forth a complete list of all real property owned by or
leased to Ralston Car Wash , and, with respect to all properties leased by
Ralston Car Wash, a description of the term of such lease and the monthly rental
thereunder. Ralston Car Wash is not in default (and will not be in default with
the passage of time or the receipt of notice or both) and has not received
notice of default, under any lease of real property. All real property leased to
Ralston Car Wash is available for immediate use in the operation of its business
and for the purpose for which such property currently is being utilized. Subject
in the case of leased property to the terms and conditions of the respective
leases, Ralston Car Wash has full legal and practical access to all such real
property.
Section 12.13 Intellectual Property. The Ralston Car Wash Disclosure
Letter sets forth a complete list of all Intellectual Property owned, used or
licensed by Ralston Car Wash , together with the identity of the owner thereof,
and (ii) all license agreements pursuant to which any Intellectual Property is
licensed to or by Ralston Car Wash. Ralston Car Wash owns its Intellectual
Property free and clear of any and all Encumbrances, or, in the case of licensed
Intellectual Property, has valid, binding and enforceable rights to use such
Intellectual Property. Ralston Car Wash has duly and timely filed all renewals,
continuations and other filings necessary to maintain its Intellectual Property
or registrations thereof. Except as disclosed in the Ralston Car Wash Disclosure
Letter, Ralston Car Wash (I) has not received any notice or claim to the effect
that the use of any Intellectual Property infringes upon, conflicts with or
misappropriates the rights of any other party or that any of the Intellectual
Property is not valid or enforceable, and (ii) has not made any claim that any
party has violated or infringed upon its rights with respect to any Intellectual
Property.
Section 12.14 Material Contracts.
(a) List of Material Contracts. The Ralston Car
Wash Disclosure Letter sets forth a list of all material written, and a
description of all oral, commitments, agreements or contracts to which Ralston
Car Wash is a party or by which Ralston Car Wash is obligated, including, but
not limited to, all commitments, agreements or contracts embodying or evidencing
the following transactions or arrangements: (i) agreements for the employment
of, or independent contractor arrangements with, any officer or other individual
employee of Ralston Car Wash; (ii) any consulting agreement, agency agreement
and any other service agreement that will continue in force after the Closing
Date with respect to the employment or retention by Ralston Car Wash of
consultants, agents, legal counsel, accountants or anyone else who is not an
Employee; (iii) any single contract, purchase order or commitment providing for
expenditures by Ralston Car Wash after the date hereof of more than $25,000 or
which has been entered into by Ralston Car Wash otherwise than in the ordinary
course of business; (iv) agreements between Ralston Car Wash and suppliers to
Ralston Car Wash pursuant to which Ralston Car Wash is obligated to purchase or
to sell or distribute the products of any other party other than current
purchase orders entered into in the ordinary course of business consistent with
past practices; (v) any contract containing covenants limiting the freedom of
Ralston Car Wash or any officer, director, or employee of Ralston Car Wash to
engage in any line or type of business or with any person in any geographic
area; (vi) any commitment or arrangement by Ralston Car Wash to participate in a
strategic alliance, partnership,
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joint venture, limited liability company or other cooperative undertaking with
any other Person; (vii) any commitments by Ralston Car Wash for capital
expenditures involving more than $25,000 individually or $50,000 in the
aggregate; and (viii) any other contract, commitment, agreement, understanding
or arrangement that the Ralston Car Wash Members deems to be material to the
business of Ralston Car Wash.
(b) No Breaches or Defaults. Except as
disclosed in the Ralston Car Wash Disclosure Letter, Ralston Car Wash and is in
full compliance with each, and is not in default under any, Material Contract to
which it is a party, and no event has occurred that, with notice or lapse of
time or both, would constitute such a default thereunder. Ralston Car Wash has
not waived any rights under or with respect to any of the Material Contracts to
which it is a party. The Ralston Car Wash Members have no knowledge, and have
not received any notice to the effect, that any party with whom Ralston Car Wash
has contractual arrangements under the Material Contracts to which it is a
party, is in default under any such contractual arrangements or that any event
has occurred that, with notice or lapse of time or both, would constitute such a
default thereunder. Each of the Material Contracts to which it is a party
constitutes a legal, valid and binding obligation of each the parties thereto
and is enforceable against each of the parties thereto in accordance with its
respective terms; except as enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the exercise of judicial discretion in accordance with
general principles of equity.
Section 12.15 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The Ralston Car
Wash Disclosure Letter sets forth a true, complete and correct list of all
Employee Benefit Plans and all Benefit Arrangements to which Ralston Car Wash or
any of its ERISA Affiliates is a party or to which Ralston Car Wash or any of
its ERISA Affiliates is obligated to contribute. None of the Employee Benefit
Plans to which Ralston Car Wash or any ERISA Affiliate of Ralston Car Wash is a
party, which Ralston Car Wash or any ERISA Affiliate of Ralston Car Wash
sponsors or maintains or to which Ralston Car Wash or any ERISA Affiliate of
Ralston Car Wash contributes is subject to the requirements of Section 302 of
ERISA or Section 412 of the Code and no liability under Title IV of ERISA
(whether to the PBGC or otherwise) has been incurred by Ralston Car Wash or any
of its ERISA Affiliates.
(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Ralston Car Wash Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Ralston Car Wash is a party or to
which Ralston Car Wash is obligated to contribute has been operated or
maintained in compliance in all material respects with all Applicable Laws,
including, without limitation, ERISA and the Code, and has been maintained in
material compliance with its terms and in material compliance with the terms of
any applicable collective bargaining agreement. Except as disclosed in the
Ralston Car Wash Disclosure Letter, with respect to any Employee Benefit Plan
that is intended to qualify under Section 401 of the Code, a favorable
determination letter as to qualification under Section 401 of the Code that
considered the Tax Reform Act of 1986 has been issued and any amendments
required for continued qualification under Section 401 of the Code have been
timely adopted and nothing has occurred subsequent to the date of such
determination letter that could adversely affect the qualified status of any
such Plan.
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(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Ralston Car Wash or any of its
ERISA Affiliates is a party or to which Ralston Car Wash or any of its ERISA
Affiliates is obligated to contribute, under ERISA or the Code, for all periods
of time prior to the date hereof and that are attributable to Employees of
Ralston Car Wash have been paid or otherwise adequately accrued against in the
Ralston Car Wash Financial Statements, as the case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the Ralston Car Wash Disclosure Letter, Ralston Car Wash is not
liable for any arrearage of wages, any accrued or vested vacation pay or any tax
or penalty for failure to comply with any Applicable Law relating to employment
or labor above the level accrued for or reserved against on the June 30, 1997
balance sheet included in the Ralston Car Wash Financial Statements, and there
is no controversy pending, threatened or in prospect between Ralston Car Wash
and any of their respective Employees nor is there any basis for any such
controversy. There is no unfair labor practice charge or complaint currently
pending against Ralston Car Wash with respect to or relating to any of their
respective Employees before the National Labor Relations Board or any other
agency having jurisdiction over such matters and no charges or complaints are
currently pending against Ralston Car Wash before the Equal Employment
Opportunity Commission or any state or local agency having responsibility for
the prevention of unlawful employment practices. There are no actions, suits or
claims pending, including proceedings before the IRS, the DOL or the PBGC, with
respect to any Employee Benefit Plan, Benefit Arrangement or any administrator
or fiduciary thereof, other than benefit claims arising in the normal course of
operation of such Employee Benefit Plans or Benefit Arrangements, and, to the
knowledge of the management of Ralston Car Wash, no Employee Benefit Plan or
Benefit Arrangement is under audit or investigation by any Governmental
Authority.
(e) Severance Obligations. Except as disclosed
in the Ralston Car Wash Disclosure Letter, all current employees of Ralston Car
Wash may be terminated at will, without notice and without incurring any
severance or other liability or obligation to the employee in connection with
the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the Ralston Car Wash
Disclosure Letter, neither the execution, delivery or performance of this
Agreement nor the consummation of the Closing will (i) increase any benefits
otherwise payable under any Employee Benefit Plan or Benefit Arrangement, (ii)
result in the acceleration of the time of payment or vesting of any such
benefits, or (iii) give rise to an obligation with respect to the payment of any
severance pay. No "parachute payment" (within the meaning of Section 280G of the
Code), "change in control" or severance payment has been made or will be
required to be made by Ralston Car Wash or any ERISA Affiliate of Ralston Car
Wash to any Employee in connection with the execution, delivery or performance
of this Agreement or as a result of the consummation of the Closing.
(f) Compliance with Laws on Employment
Practices. Ralston Car Wash has complied in all material respects with all
Applicable Laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, and to the knowledge
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of the Ralston Car Wash Members, is not engaged in any unfair labor practice
with respect to any of the current employees of Ralston Car Wash; and to the
best knowledge of Ralston Car Wash, none of the persons performing services for
Ralston Car Wash or any of its ERISA Affiliates have been improperly classified
as independent contractors or as being exempt from payment of wages or overtime.
(g) Collective Bargaining Agreements. Except as
disclosed in the Ralston Car Wash Disclosure Letter), none of the employees of
Ralston Car Wash are subject to any collective bargaining agreement nor is
Ralston Car Wash required under any agreement to recognize or bargain with any
labor organization or union on behalf of its employees.
(h) No Multi-Employer Plans. Neither Ralston
Car Wash nor any of its ERISA Affiliates has contributed to, or had the
obligation to contribute to, any Multiemployer Plan within the five-year period
ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Ralston Car Wash or any of its ERISA Affiliates relating to, or change in
employee participation or coverage under, any Employee Benefit Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Benefit Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year of Ralston Car Wash ended
December 31, 1996.
(j) No Unfunded Liabilities. Neither Ralston
Car Wash nor any ERISA Affiliate of Ralston Car Wash has any current or
projected liability for any unfunded post-retirement medical or life insurance
benefits in connection with any Employee of Ralston Car Wash or ERISA Affiliate
of Ralston Car Wash.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by Ralston Car Wash or any
ERISA Affiliate of Ralston Car Wash, which could subject any such Employee
Benefit Plan, Ralston Car Wash, any ERISA Affiliate of Ralston Car Wash, or the
Holding Company directly or indirectly (through an indemnification agreement or
otherwise), to any liability for or as a result of a breach of fiduciary duty, a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax under
Section 4971 of the Code. Neither Ralston Car Wash nor any of its ERISA
Affiliates have incurred a "withdrawal" or "partial withdrawal," as defined in
Sections 4203 and 4205 of ERISA, from, or failed to timely make contributions to
any Multiemployer Plan which has resulted in any unpaid liability of any of the
Companies.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the Ralston Car Wash Disclosure Letter, none of the Employee
Benefit Plans that are "employee welfare benefit plans" as defined in ERISA
Section 3(1) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except to the extent required by law; provided that any disclosure regarding
this clause (i) shall set forth (A) the number of individuals currently
receiving such continuing benefits or coverage, (B) the limit on liability with
respect to such coverage, (C) the terms and conditions of such coverage, and (D)
the
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maximum number of current employees or independent contractors who could become
eligible for such continuing benefits or coverage; (ii) there has been no
violation of Code Section 4980B or ERISA Sections 601-609 with respect to any
such plan that could result in any material liability; (iii) no such plans are
"multiple employer welfare arrangements" within the meaning of ERISA Section
3(40); (iv) with respect to any such plans that are self-insured, no claims have
been made pursuant to any such plan that have not yet been paid (other than
claims which have not yet been paid but are in the normal course of processing)
and no individual has incurred injury, sickness or other medical condition with
respect to which claims may be made pursuant to any such plan where the
liability to the employer could in the aggregate with respect to each such
individual exceed $50,000 per year; (v) neither Ralston Car Wash nor any of its
ERISA Affiliates maintains or has any obligation to contribute to any "voluntary
employees' beneficiary association" within the meaning of Code Section 501(c)(9)
or other welfare benefit fund as defined at Section 419(e) of the Code (such
disclosure to include the amount of any such funding); (vi) no such plan is
intended to satisfy Code Section 125; (vii) no amounts are required in
connection with any such Plan to be included in income under Code Section 105(h)
(under official regulations thereof to date); and (viii) neither Ralston Car
Wash nor any of its ERISA Affiliates maintains a nonconforming group health plan
as defined at Section 5000(c) of the Code.
Section 12.17 Tax Matters.
(a) Affiliated Groups. Ralston Car Wash is not
a member of, and has never been a member of, any "affiliated group" as that term
is defined in Section 1054(a) of the Code.
(b) Tax Returns and Payment of Taxes. Ralston
Car Wash has timely filed or will timely file all federal, state, local, and
other Tax Returns required to be filed by it under Applicable Laws, including
estimated Tax Returns and reports, and has paid all required Taxes (including
any additions to taxes, penalties and interest related thereto) due and payable
on or before the date hereof. Ralston Car Wash has paid, withheld, or accrued,
or will accrue, on the Ralston Car Wash Financial Statements in accordance with
an accrual method of accounting, consistently applied, any and all Taxes in
respect of the conduct of its business or the ownership of its property and in
respect of any transactions for all periods (or portions thereof) through the
close of business on the Closing Date. Ralston Car Wash has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding requirements, including the
maintenance of required records with respect thereto, in connection with amounts
paid or owing to any Employee, creditor, independent contractor or other third
party. Ralston Car Wash has collected all sales, use and value added Taxes
required to be collected, and has remitted, or will remit on a timely basis,
such amounts to the appropriate Government Authorities and have furnished
properly completed exemption certificates for all exempt transactions
(c) Tax Reserves. The amount of Ralston Car
Wash's liability for unpaid Taxes for all periods ending on or before the date
of this Agreement does not, in the aggregate, exceed the amount of the current
liability accruals for Taxes (excluding reserves for deferred Taxes) as of the
date of this Agreement, and the amount of Ralston Car Wash's liability for
unpaid Taxes for all periods ending on or before the Closing Date shall not, in
the aggregate, exceed the amount
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of the current liability accruals for Taxes (excluding reserves for deferred
Taxes) as such accruals shall be reflected on the balance sheet of Ralston Car
Wash as of the Closing Date.
(d) Audits; No Deficiencies Asserted Against
Company. Except as disclosed in the Ralston Car Wash Disclosure Letter, the Tax
Returns of Ralston Car Wash have never been audited by any Tax Authority, nor is
any such audit in process, pending or threatened (either in writing or verbally,
formally or informally). Except as disclosed in the Ralston Car Wash Disclosure
Letter, no deficiencies have been asserted (or are expected to be asserted)
against Ralston Car Wash as a result of IRS (or state or local Tax Authority)
examinations and no issue has been raised by any IRS (or state or local Tax
Authority) examination that, by application of the same principles, might result
in a proposed deficiency for any other period not so examined.
(e) No Waivers of Limitations. Except as
disclosed in the Ralston Car Wash Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrange ments providing for
extensions of time in respect of the assessment or collection of any unpaid
Taxes against Ralston Car Wash. Ralston Car Wash has disclosed on its federal
Income Tax Returns all positions taken therein that could, if not so disclosed,
give rise to a substantial understatement penalty within the meaning of Section
6662 of the Code.
(f) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Ralston Car Wash with respect to
Taxes, other than liens for Taxes not yet due and payable or for Taxes that
Ralston Car Wash is contesting in good faith through appropriate proceedings and
for which appropriate reserves have been established on the Ralston Car Wash
Financial Statements.
(g) Tax Elections and Special Tax Status.
Ralston Car Wash is not a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code. Ralston Car Wash is a "partnership" for purposes
of federal income taxation and state income taxation in all states in which its
income is subject to taxation and has had the status of a "partnership" for
purposes of federal income taxation and state income taxation in all states in
which its income is subject to taxation or has been subject to taxation at all
times since its formation.
(h) Disqualified Leasebacks. Ralston Car Wash
is not a party to a "disqualified leaseback or long-term agreement" described in
Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Ralston Car Wash has been deferred pursuant to Treasury Regulation ss. 1.1502-13
or 1.1502-14, or Temporary Treasury Regulation ss. 1.1502-13T or 1.1502-14T.
(j) Tax Sharing and Similar Arrangements.
Ralston Car Wash is not a party to or bound by any Tax sharing, Tax indemnity,
Tax allocation or other similar arrangement.
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(k) No Non-Deductible Compensation Payments.
Ralston Car Wash has not made any payments, nor is it obligated to make any
payments, that would not be deductible under Section 280G of the Code, nor is it
a party to any agreement that under certain circumstances could obligate it to
make any such payments.
Section 12.18 Environmental Matters.
(a) The facilities presently or formerly
occupied or used by Ralston Car Wash and any other real property presently or
formerly owned by, used by or leased to or by Ralston Car Wash (collectively,
the "Ralston Car Wash Property"), the existing and prior uses of such Ralston
Car Wash Property and all operations of the businesses of Ralston Car Wash
comply and have at all times complied with all Environmental Laws and Ralston
Car Wash is not in violation of nor has it violated, in connection with the
ownership, use, maintenance or operation of such property or the conduct of its
business, any Environmental Law.
(b) Ralston Car Wash has all necessary permits,
registrations, approvals and licenses required by any Governmental Authority or
Environmental Law.
(c) Except as disclosed in the Ralston Car Wash
Disclosure letter, there has been no spill, discharge, leak, emission,
injection, disposal, escape, dumping or release of any kind on, beneath or above
such Ralston Car Wash Property or into the environment surrounding such Ralston
Car Wash Property of any Hazardous Materials.
(d) There has been no past, and there is no
current or anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Ralston Car Wash Property. No asbestos-containing materials,
underground improvements (including, but not limited to treatment or storage
tanks, sumps, or hydraulic tanks or water, gas or oil wells) or polychlorinated
biphenyls (PCBs) transformers, capacitors, ballasts, or other equipment which
contain dielectric fluid containing PCBs at levels in excess of fifty parts per
million (50 PPM) are or have ever been located on such Ralston Car Wash
Property.
(e) There are no claims, notices of violations,
notice letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Ralston Car Wash (or any predecessor in interest) in
connection with (i) any actual or alleged failure to comply with any requirement
of any Environmental Law; (ii) the ownership, use, maintenance or operation of
the Property by any person; (iii) the alleged violation of any Environmental
Law; or (iv) the suspected presence of any Hazardous Material thereon.
Section 12.19 Compliance With Laws. Ralston Car Wash has at all times
conducted its business in material compliance with all (and has not received any
notice of any claimed violation of any) Applicable Laws.
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Section 12.20 Licenses and Permits. Ralston Car Wash possess all
licenses, permits, and other governmental consents, certificates, approvals, or
other authorizations (the "Permits") necessary for the operation of the business
of Ralston Car Wash. Ralston Car Wash has complied with the terms and conditions
of all Permits in all material respects and all such Permits are in full force
and effect, and there has occurred no event nor is any event, action,
investigation or proceeding pending or, to the knowledge of Ralston Car Wash
Members, threatened, which could cause or permit revocation or suspension of or
otherwise adversely affect the maintenance of any Permits. The transactions
contemplated by this Agreement will not lead to the revocation, cancellation,
termination or suspension of any Permits.
Section 12.21 Insurance. Ralston Car Wash has regularly maintained all
policies of commercial liability, products liability, fire, casualty, worker's
compensation, life and other forms of insurance on an "occurrence" rather than a
"claims made" basis in amounts and types required by law and generally carried
by reasonably prudent, similarly situated businesses. Ralston Car Wash is not in
default under any provision contained in any insurance policy maintained by
Ralston Car Wash currently, nor has Ralston Car Wash failed to give any notice
or present any claim thereunder in due and timely fashion and no cancellation,
non-renewal, reduction of coverage or arrearage in premiums has been threatened
or occurred with respect to any policy, nor is the Ralston Car Wash Members
aware of any grounds therefor.
Section 12.22 Extraordinary Transactions. Except as disclosed in the
Ralston Car Wash Disclosure Letter or otherwise permitted by this Agreement,
since June 30, 1997, Ralston Car Wash has not (i) mortgaged, pledged or
subjected to any Encumbrance any of its assets; (ii) canceled or compromised any
claim of or debts owed to it; (iii) sold, licensed, leased, exchanged or
transferred any of its assets except in the ordinary course of business; (iv)
entered into any material transaction other than in the ordinary course of
business; (v) experienced any material change in the relationship or course of
dealing with any supplier, customer or creditor; (vi) suffered any material
destruction, loss or damage to any of its assets; (vii) made any management
decisions involving any material change in its policies with regard to pricing,
sales, purchasing or other business, financial, accounting (including reserves
and the amounts thereof) or tax policies or practices; (viii) declared, set
aside or paid any dividends on or made any distributions in respect of any
outstanding shares of capital stock or made any other distributions or payments
to any of its shareholders; (ix) submitted any bid, proposal, quote or
commitment to any party in response to a request for proposal or otherwise; (x)
engaged in any merger or consolidation with, or agreed to merge or consolidate
with, or purchased or agreed to purchase, all or substantially all of the assets
of, or otherwise acquire, any other party; (xi) entered into any strategic
alliance, partnership, joint venture or similar arrangement with any other
party; (xii) incurred or agreed to incur any Debt or prepaid or made any
prepayments in respect of Debt; (xiii) issued or agreed to issue to any party,
any shares of stock or other securities; (xiv) redeemed, purchased or agreed to
redeem or purchase any of its outstanding shares of capital stock or other
securities; (xv) increased the rate of compensation payable or to become payable
to any of its officers, directors, employees or agents over the rate being paid
to them as of June 30, 1996 or agreed to do so otherwise than in accordance with
contractual agreements with such parties;
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(xvi) made or agreed to make any charitable contributions or incurred or agreed
to incur any non-business expenses; or (xvii) charged off any bad debts or
increased its bad debt reserve except in the manner consistent with its past
practices.
Section 12.23 Title to Assets. Except as described in the Ralston Car
Wash Disclosure Letter, Ralston Car Wash has good and marketable title to its
assets and properties, free and clear of restrictions on or conditions to
transfer or assignment, and free and clear of all Encumbrances.
Section 12.24 Corporate Records. The books and records of Ralston Car
Wash accurately reflect all minutes of proceedings of and actions taken by the
members of Ralston Car Wash.
Section 12.25 Broker and Finder Fees. Ralston Car Wash has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company or Ralston Car Wash by any broker,
finder or intermediary in connection with such transaction.
Section 12.26 Adequate Disclosure. No representation or warranty made
by Ralston Car Wash pursuant to this Agreement, or any statement contained in
any Exhibit or Schedule to this Agreement, or any certificate or document
furnished or to be furnished by Ralston Car Wash pursuant to the terms of this
Agreement in connection with the transactions contemplated hereby, contains any
untrue or misleading statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading.
Section 12.27 No Adverse Change or Conditions. Except as set forth in
the Ralston Car Wash Disclosure Letter, and except as expressly contemplated or
permitted by this Agreement, since June 30, 1997, Ralston Car Wash has conducted
its business in the ordinary course and consistent with past practice, and
Ralston Car Wash has not suffered any change that has had a Material Adverse
Effect on Ralston Car Wash. There are no conditions, facts, developments or
circumstances of an unusual or special nature that reasonably could be expected
to have a Material Adverse Effect upon Ralston Car Wash that have not been
disclosed in writing by Ralston Car Wash pursuant to the Ralston Car Wash
Disclosure Letter.
ARTICLE XIII
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REPRESENTATIONS AND WARRANTIES OF KBG
-------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, KBG hereby
makes the following representations and warranties to the other parties to this
Agreement:
Section 13.1 Organization and Good Standing. KBG is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado, and has full corporate power and authority to own, operate and lease
its properties, and to conduct its business as it is now
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being conducted, and is qualified to transact business as a foreign corporation
in each jurisdiction in which the operation of its business or the ownership of
its properties requires such qualification.
Section 13.2 Execution and Effect of Agreement. KBG has the corporate
power to enter into this Agreement and to perform its obligations hereunder. The
execution and delivery by KBG of this Agreement, the consummation by KBG of the
transactions contemplated hereby, and the performance by KBG of its obligations
hereunder, have been duly and effectively authorized by all necessary corporate
action on the part of KBG. This Agreement has been duly executed and delivered
by KBG and constitutes a legal, valid and binding obligation of KBG, fully
enforceable against KBG in accordance with its terms; except as enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws of general application relating
to or affecting enforcement of creditors' rights and the exercise of judicial
discretion in accordance with general principles of equity.
Section 13.3 Restrictions. The execution and delivery of this Agreement
by KBG, the consummation of the transactions contemplated hereby by KBG, and,
subject to the due authorization and approval of its shareholders, the
performance of the obligations of KBG hereunder will not (a) violate any of the
provisions of the charter or by-laws of KBG, (b) violate or conflict with the
provisions of any Applicable Laws, (c) result in the creation of any Encumbrance
upon any of the assets, rights or properties of KBG, or (d) except as disclosed
in the KBG Disclosure Letter, conflict with, violate any provisions of, result
in a breach of or give rise to a right of termination, modification or
cancellation of, constitute a default of, or accelerate the performance required
by, with or without the passage of time or the giving of notice or both, the
terms of any material agreement, indenture, mortgage, deed of trust, security or
pledge agreement, lease, contract, note, bond, license, permit, authorization or
other instrument to which KBG is a party or to which any of any of the assets of
KBG are subject.
Section 13.4 Consents. No filing with, or consent, waiver, approval or
authorization of, or notice to, any governmental authority or any third party is
required to be made or obtained by KBG in connection with the execution and
delivery of this Agreement or any document or instrument contemplated hereby,
the consummation of any of the transactions contemplated hereby or the
performance of its obligations hereunder or thereunder which have not been
obtained by KBG.
Section 13.5 Ownership of Proprietary Car Wash Computer System. KBG is
the sole and exclusive owner of all of the copyright interests in, patents of,
and patent rights in, the Propriety Car Wash Computer Software and has the sole
and exclusive right to sell, assign and transfer the Proprietary Computer
Software and the intellectual property rights embodied therein to the Holding
Company. Except as disclosed on Schedule 13.5 to this Agreement, KBG has not
sold, transferred, assigned, conveyed, licensed or otherwise encumbered the
Proprietary Car Wash Computer Software or any of the intellectual property
rights embodied therein and has not granted any right, license or privilege with
respect thereto to any other Person. The Proprietary Car Wash Computer Software
does not infringe upon, conflict with or misappropriate the rights of any other
Person and KBG has not received any claim or notice from any other Person
whether oral or written, which states, in
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essence, that the use thereof infringes upon or misappropriates the rights of
any Person. KBG has not made any claim which states, in essence, that any Person
has violated or infringed upon or misappropriated its rights in the Proprietary
Car Wash Computer Software, and, to the knowledge of the management of KBG, no
person is infringing upon, misappropriating, engaging in any unauthorized use
thereof.
Section 13.6 Broker and Finder Fees. KBG has not engaged any broker or
finder in connection with the transactions contemplated by this Agreement, and
no action by any of the foregoing will cause or support any claim to be asserted
against the Holding Company or KBG by any broker, finder or intermediary in
connection with such transaction.
Section 13.7 Adequate Disclosure. No representation or warranty made by
KBG pursuant to this Agreement, or any statement contained in any Exhibit or
Schedule to this Agreement, or any certificate or document furnished or to be
furnished by KBG pursuant to the terms of this Agreement in connection with the
transactions contemplated hereby, contains any untrue or misleading statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained therein not misleading.
ARTICLE XIV
-----------
REPRESENTATIONS AND WARRANTIES OF MIRACLE PARTNERS
--------------------------------------------------
In order to induce each of the other parties to enter into this
Agreement and to consummate the transactions contemplated hereby, subject to the
delivery and acceptance of a definitive Disclosure Letter, Miracle Partners
hereby makes the following representations and warranties to the other parties
to this Agreement and to the Holding Company
Section 14.1 Organization and Good Standing. Miracle Partners is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has full corporate power and authority to own, operate
and lease its properties, and to conduct its business as it is now being
conducted, and is qualified to transact business as a foreign corporation in
each jurisdiction in which the operation of its business or the ownership of its
properties requires such qualification.
Section 14.2 Capitalization of Miracle Partners. The authorized capital
stock of Miracle Partners consists solely of 500 shares of a single class of
common stock, $-0- par value, of which 500 shares have been issued and are
outstanding as of the date of this Agreement. Each of the shares of the capital
stock of Miracle Partners issued and outstanding as of the date hereof has been
duly authorized and validly issued and is fully paid and non-assessable. None of
the shares of the issued and outstanding capital stock of Miracle Partners has
been issued in violation of shareholder preemptive rights. Miracle Partners has
no issued or outstanding equity securities, debt securities or other instruments
which are convertible into or exchangeable for at any time into equity
securities of Miracle Partners. Miracle Partners is not subject to any
commitment or obligation which would
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require the issuance or sale of shares of its capital stock at any time under
options, subscriptions, warrants, rights, calls, preemptive rights, convertible
obligations or any other fixed or contingent obligations or which would provide
the holder thereof with the right to acquire any equity securities of Miracle
Partners. Miracle Partners has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
Section 14.3 Ownership of Shares. All of the issued and outstanding
shares of the capital stock of Miracle Partners are held of record and
beneficially by C. Eugene Deal. There are no agreements, pledges, powers of
attorney, assignments or similar agreements or arrangements either (i)
restricting the transferability of any of the shares of the capital stock of
Miracle Partners or (ii) which reasonably could be expected to prohibit or delay
the consummation of the transactions contemplated hereby.
Section 14.4 Subsidiaries; Investments. Miracle Partners does not own
any shares of capital stock or equity securities of, or any interest in any
other entity.
Section 14.5 Execution and Effect of Agreement. Miracle Partners has
the corporate power to enter into this Agreement and to perform its obligations
hereunder. This Agreement has been duly executed and delivered by Miracle
Partners and constitutes a legal, valid and binding obligation of Miracle
Partners, fully enforceable against Miracle Partners in accordance with its
terms; except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the exercise of judicial discretion in accordance with general principles of
equity.
Section 14.6 Restrictions. The execution and delivery of this Agreement
by Miracle Partners, the consummation of the transactions contemplated hereby by
Miracle Partners, and, subject to the due authorization and approval of its
shareholders, the performance of the obligations of Miracle Partners hereunder
will not (a) violate any of the provisions of the charter or by-laws of Miracle
Partners, (b) violate or conflict with the provisions of any Applicable Laws,
(c) result in the creation of any Encumbrance upon any of the assets, rights or
properties of Miracle Partners, or (d) except as disclosed in the Miracle
Partners Disclosure Letter, conflict with, violate any provisions of, result in
a breach of or give rise to a right of termination, modification or cancellation
of, constitute a default of, or accelerate the performance required by, with or
without the passage of time or the giving of notice or both, the terms of any
material agreement, indenture, mortgage, deed of trust, security or pledge
agreement, lease, contract, note, bond, license, permit, authorization or other
instrument to which Miracle Partners is a party or to which any of any of the
assets of Miracle Partners are subject.
Section 14.7 Consents. Except as disclosed in the Miracle Partners
Disclosure Letter, no filing with, or consent, waiver, approval or authorization
of, or notice to, any governmental authority or any third party is required to
be made or obtained by Miracle Partners in connection with the
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execution and delivery of this Agreement or any document or instrument
contemplated hereby, the consummation of any of the transactions contemplated
hereby or the performance of any of their respective obligations hereunder or
thereunder.
Section 14.8 Financial Statements. Attached hereto as Exhibit E are
true and correct copies of the audited balance sheets and related statements of
income, cash flows and changes in stockholders' equity of Miracle Partners as at
December 31, 1994, 1995 and 1996 and for the year periods then ended and the
financial statements of Miracle Partners as at June 30, 1997 and for the six
month period then ended (collectively, the " Miracle Partners Financial
Statements"). All of the Miracle Partners Financial Statements have been
prepared in accordance with GAAP in a manner consistent with each other and the
books and records of Miracle Partners, and fairly present in all material
respects the financial condition and results of operations of Miracle Partners
at the dates and for the periods indicated therein. The regular books of account
of Miracle Partners fairly and accurately reflect all material transactions
involving Miracle Partners , are true, correct and complete and have been
prepared in accordance with GAAP and on a basis consistent with the Financial
Statements.
Section 14.9 Debt. The Miracle Partners Disclosure Letter contains a
true, complete and accurate listing of the original principal amount of all of
the Debt of Miracle Partners, the remaining principal balance thereof, the
interest rate(s) payable by Miracle Partners in respect thereof, if any, and the
date(s) of maturity thereof. Except as disclosed in the Miracle Partners
Disclosure Letter, all of the Debt of Miracle Partners may be prepaid at any
time, without premium, prepayment penalties, termination fees or other fees or
charges.
Section 14.10 Guarantees. The Miracle Partners Disclosure Letter
contains a complete list of all Guarantees provided by Miracle Partners for the
benefit of any other party and of all Guarantees provided by any other party for
the benefit of Miracle Partners or any party doing business with Miracle
Partners.
Section 14.11 No Undisclosed Liabilities. Miracle Partners does not
have any material liabilities or obligations of any nature whatsoever (whether
known or unknown, due or to become due, absolute, accrued, contingent or
otherwise, and whether or not determined or determinable), except for (i)
liabilities or obligations set forth in the Miracle Partners Disclosure Letter,
(ii) liabilities or obligations to the extent expressly reflected on or reserved
against in the June 30, 1997 balance sheet included among the Miracle Partners
Financial Statements or disclosed in the notes thereto, (iii) liabilities or
obligations of a type reflected on the June 30, 1997 balance sheet and incurred
in the ordinary course of business and consistent with past practices since June
30, 1997, or (iv) liabilities or obligations arising under the terms of the
Material Contracts of Miracle Partners. Except as otherwise contemplated or
permitted by this Agreement no dividends have been declared on any capital stock
of Miracle Partners which are unpaid.
Section 14.12 Litigation. There is no suit, claim, action at law or in
equity, proceeding or governmental investigation or audit pending, or, to the
knowledge of the management of Miracle
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Partners, threatened, by or before any court, any Governmental Authority or
arbitrator, against Miracle Partners that reasonably could be expected to
prevent the consummation of any of the trans actions contemplated hereby. Except
as disclosed in the Miracle Partners Disclosure Letter, there is no material
suit, claim, action at law or in equity, proceeding or governmental
investigation or audit pending, or to the knowledge of management of Miracle
Partners, threatened, by or before any arbitrator, court, or other Governmental
Authority, against Miracle Partners or involving any of the former or present
employees, agents, businesses, properties, rights or assets of Miracle Partners
, nor, to the knowledge of management of Miracle Partners, is there any basis
for the assertion of any of the foregoing. Except as disclosed in the Miracle
Partners Disclosure Letter, there are no judgments, orders, injunctions,
decrees, stipulations or awards rendered by any court, Governmental Authority or
arbitrator against Miracle Partners or any of their respective former or present
Employees, agents, properties or assets.
Section 14.13 Properties; Absence of Encumbrances. The Miracle Partners
Disclosure Letter sets forth a complete list of all real property owned by or
leased to Miracle Partners , and, with respect to all properties leased by
Miracle Partners, a description of the term of such lease and the monthly rental
thereunder. Miracle Partners is not in default (and will not be in default with
the passage of time or the receipt of notice or both) and has not received
notice of default, under any lease of real property. All real property leased to
Miracle Partners is available for immediate use in the operation of its business
and for the purpose for which such property currently is being utilized. Subject
in the case of leased property to the terms and conditions of the respective
leases, Miracle Partners has full legal and practical access to all such real
property.
Section 14.14 Intellectual Property. The Miracle Partners Disclosure
Letter sets forth a complete list of (I) all Intellectual Property owned, used
or licensed by Miracle Partners , together with the identity of the owner
thereof, and (ii) all license agreements pursuant to which any Intellectual
Property is licensed to or by Miracle Partners. Miracle Partners owns its
Intellectual Property free and clear of any and all Encumbrances, or, in the
case of licensed Intellectual Property, has valid, binding and enforceable
rights to use such Intellectual Property. Miracle Partners has duly and timely
filed all renewals, continuations and other filings necessary to maintain its
Intellectual Property or registrations thereof. Except as disclosed in the
Miracle Partners Disclosure Letter, Miracle Partners (I) has not received any
notice or claim to the effect that the use of any Intellectual Property
infringes upon, conflicts with or misappropriates the rights of any other party
or that any of the Intellectual Property is not valid or enforceable, and (ii)
has not made any claim that any party has violated or infringed upon its rights
with respect to any Intellectual Property.
Section 14.15 Material Contracts.
(a) List of Material Contracts. The Miracle
Partners Disclosure Letter sets forth a list of all material written, and a
description of all oral, commitments, agreements or contracts to which Miracle
Partners is a party or by which Miracle Partners is obligated, including, but
not limited to, all commitments, agreements or contracts embodying or evidencing
the following transactions or arrangements: (i) agreements for the employment
of, or independent contractor
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arrangements with, any officer or other individual employee of Miracle Partners;
(ii) any consulting agreement, agency agreement and any other service agreement
that will continue in force after the Closing Date with respect to the
employment or retention by Miracle Partners of consultants, agents, legal
counsel, accountants or anyone else who is not an Employee; (iii) any single
contract, purchase order or commitment providing for expenditures by Miracle
Partners after the date hereof of more than $25,000 or which has been entered
into by Miracle Partners otherwise than in the ordinary course of business; (iv)
agreements between Miracle Partners and suppliers to Miracle Partners pursuant
to which Miracle Partners is obligated to purchase or to sell or distribute the
products of any other party other than current purchase orders entered into in
the ordinary course of business consistent with past practices; (v) any contract
containing covenants limiting the freedom of Miracle Partners or any officer,
director, or employee of Miracle Partners to engage in any line or type of
business or with any person in any geographic area; (vi) any commitment or
arrangement by Miracle Partners to participate in a strategic alliance,
partnership, joint venture, limited liability company or other cooperative
undertaking with any other Person; (vii) any commitments by Miracle Partners for
capital expenditures involving more than $25,000 individually or $50,000 in the
aggregate; and (viii) any other contract, commitment, agreement, understanding
or arrangement that the management of Miracle Partners deems to be material to
the business of Miracle Partners.
(b) No Breaches or Defaults. Except as
disclosed in the Miracle Partners Disclosure Letter, Miracle Partners and is in
full compliance with each, and is not in default under any, Material Contract to
which it is a party, and no event has occurred that, with notice or lapse of
time or both, would constitute such a default thereunder. Miracle Partners has
not waived any rights under or with respect to any of the Material Contracts to
which it is a party. The management of Miracle Partners has no knowledge, or
received any notice to the effect, that any party with whom Miracle Partners has
contractual arrangements under its Material Contracts, is in default under any
such contractual arrangements or that any event has occurred that, with notice
or lapse of time or both, would constitute such a default thereunder. Each of
the Material Contracts to which Miracle Partners is a party constitutes a legal,
valid and binding obligation of each the parties thereto and is enforceable
against each of the parties thereto in accordance with its respective terms;
except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the exercise of judicial discretion in accordance with general principles of
equity.
Section 14.16 Employee Benefits and Employment Matters.
(a) Plans and Arrangements. The Miracle
Partners Disclosure Letter sets forth a true, complete and correct list of all
Employee Benefit Plans and all Benefit Arrangements to which Miracle Partners or
any of its ERISA Affiliates is a party or to which Miracle Partners or any of
its ERISA Affiliates is obligated to contribute. None of the Employee Benefit
Plans to which Miracle Partners or any ERISA Affiliate of Miracle Partners is a
party, which Miracle Partners or any ERISA Affiliate of Miracle Partners
sponsors or maintains or to which Miracle Partners or any ERISA Affiliate of
Miracle Partners contributes is subject to the requirements of Section 302 of
ERISA or Section 412 of the Code and no liability under Title IV of ERISA
(whether to the PBGC or otherwise) has been incurred by Miracle Partners or any
of its ERISA Affiliates.
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(b) Compliance with Laws and Terms of Plans.
Except as disclosed in the Miracle Partners Disclosure Letter, each Employee
Benefit Plan and Benefit Arrangement to which Miracle Partners or any of its
ERISA Affiliates is a party or to which Miracle Partners or any of its ERISA
Affiliates is obligated to contribute has been operated or maintained in
compliance in all material respects with all Applicable Laws, including, without
limitation, ERISA and the Code, and has been maintained in material compliance
with its terms and in material compliance with the terms of any applicable
collective bargaining agreement. Except as disclosed in the Miracle Partners
Disclosure Letter, with respect to any Employee Benefit Plan that is intended to
qualify under Section 401 of the Code, a favorable determination letter as to
qualification under Section 401 of the Code that considered the Tax Reform Act
of 1986 has been issued and any amendments required for continued qualification
under Section 401 of the Code have been timely adopted and nothing has occurred
subsequent to the date of such determination letter that could adversely affect
the qualified status of any such Plan.
(c) Contributions. All contributions required
to be made to or benefit liabilities arising under the terms of each Employee
Benefit Plan or Benefit Arrangement to which Miracle Partners or any of its
ERISA Affiliates is a party or to which Miracle Partners or any of its ERISA
Affiliates is obligated to contribute, under ERISA or the Code, for all periods
of time prior to the date hereof and that are attributable to Employees of
Miracle Partners or any of its ERISA Affiliates have been paid or otherwise
adequately accrued against in the Miracle Partners Financial Statements, as the
case may be.
(d) Arrearages and Employment Disputes. Except
as disclosed in the Miracle Partners Disclosure Letter, Miracle Partners is not
liable for any arrearage of wages, any accrued or vested vacation pay or any tax
or penalty for failure to comply with any Applicable Law relating to employment
or labor above the level accrued for or reserved against on the June 30, 1997
balance sheet included in the Miracle Partners Financial Statements, and there
is no controversy pending, threatened or in prospect between Miracle Partners
and any of its Employees nor is there any basis for any such controversy. There
is no unfair labor practice charge or complaint currently pending against
Miracle Partners with respect to or relating to any of its Employees before the
National Labor Relations Board or any other agency having jurisdiction over such
matters and no charges or complaints are currently pending against Miracle
Partners before the Equal Employment Opportunity Commission or any state or
local agency having responsibility for the prevention of unlawful employment
practices. There are no actions, suits or claims pending, including proceedings
before the IRS, the DOL or the PBGC, with respect to any Employee Benefit Plan,
Benefit Arrangement or any administrator or fiduciary thereof, other than
benefit claims arising in the normal course of operation of such Employee
Benefit Plans or Benefit Arrangements, and, to the knowledge of the management
of Miracle Partners, no Employee Benefit Plan or Benefit Arrangement is under
audit or investigation by any Governmental Authority.
(e) Severance Obligations. Except as disclosed
in the Miracle Partners Disclosure Letter, all current employees of Miracle
Partners may be terminated at will, without notice and without incurring any
severance or other liability or obligation to the employee in connection with
the termination. Except to the extent provided by the terms of the Employee
Benefit Plans and Benefit Arrangements disclosed in the Miracle Partners
Disclosure Letter, neither the execution, delivery or performance of this
Agreement nor the consummation of the Closing will
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(i) increase any benefits otherwise payable under any Employee Benefit Plan or
Benefit Arrangement, (ii) result in the acceleration of the time of payment or
vesting of any such benefits, or (iii) give rise to an obligation with respect
to the payment of any severance pay. No "parachute payment" (within the meaning
of Section 280G of the Code), "change in control" or severance payment has been
made or will be required to be made by Miracle Partners or any ERISA Affiliate
of Miracle Partners to any Employee in connection with the execution, delivery
or performance of this Agreement or as a result of the consummation of the
Closing.
(f) Compliance with Laws on Employment
Practices. Miracle Partners has complied in all material respects with all
Applicable laws relating to employment and employment practices, terms and
conditions of employment, wages and hours, and to the knowledge of the
management of Miracle Partners, is not engaged in any unfair labor practice with
respect to any of the current employees of Miracle Partners; and to the best
knowledge of Miracle Partners, none of the persons performing services for
Miracle Partners or any of its ERISA Affiliates have been improperly classified
as independent contractors or as being exempt from the payment of wages or
overtime.
(g) Collective Bargaining Agreements. Except as
disclosed in the Miracle Partners Disclosure Letter, none of the employees of
Miracle Partners are subject to any collective bargaining agreement nor is
Miracle Partners required under any agreement to recognize or bargain with any
labor organization or union on behalf of its employees.
(h) No Multi-Employer Plans. Neither Miracle
Partners nor any of its ERISA Affiliates has contributed to, or had the
obligation to contribute to, any Multiemployer Plan within the five-year period
ending on the date of this Agreement.
(i) No Amendments to Plans. There has been no
amendment to, written interpretation or announcement (whether or not written) by
Miracle Partners or any of its ERISA Affiliates relating to, or change in
employee participation or coverage under, any Employee Benefit Plan or Benefit
Arrangement that would increase materially the expense of maintaining such
Employee Benefit Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year of Miracle Partners ended
December 31, 1996.
(j) No Unfunded Liabilities. Neither Miracle
Partners nor any ERISA Affiliate of Miracle Partners has any current or
projected liability for any unfunded post-retirement medical or life insurance
benefits in connection with any Employee of Miracle Partners or ERISA Affiliate
of Miracle Partners.
(k) No Prohibited Transactions. No event has
occurred with respect to any Employee Benefit Plan or any employee benefit plan
previously sponsored, maintained or contributed to by Miracle Partners or any
ERISA Affiliate of Miracle Partners, which could subject any such Employee
Benefit Plan, Miracle Partners, any ERISA Affiliate of Miracle Partners, or the
Holding Company directly or indirectly (through an indemnification agreement or
otherwise), to any liability for or as a result of a breach of fiduciary duty, a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, or a civil penalty under Section 502 of ERISA or a Tax under
Section 4971 of the Code. Neither Miracle Partners nor any of its ERISA
Affiliates
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have incurred a "withdrawal" or "partial withdrawal," as defined in Sections
4203 and 4205 of ERISA, from, or failed to timely make contributions to any
Multiemployer Plan which has resulted in any unpaid liability of Miracle
Partners or any of its ERISA Affiliates.
(l) Welfare Benefit Plans. (i) Except as
disclosed in the Miracle Partners Disclosure Letter, none of the Employee
Benefit Plans that are "employee welfare benefit plans" as defined in ERISA
Section 3(1) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except to the extent required by law; provided that any disclosure regarding
this clause (I) shall set forth (A) the number of individuals currently
receiving such continuing benefits or coverage, (B) the limit on liability with
respect to such coverage, (C) the terms and conditions of such coverage, and (D)
the maximum number of current employees or independent contractors who could
become eligible for such continuing benefits or coverage; (ii) there has been no
violation of Code Section 4980B or ERISA Sections 601-609 with respect to any
such plan that could result in any material liability; (iii) no such plans are
"multiple employer welfare arrangements" within the meaning of ERISA Section
3(40); (iv) with respect to any such plans that are self-insured, no claims have
been made pursuant to any such plan that have not yet been paid (other than
claims which have not yet been paid but are in the normal course of processing)
and no individual has incurred injury, sickness or other medical condition with
respect to which claims may be made pursuant to any such plan where the
liability to the employer could in the aggregate with respect to each such
individual exceed $50,000 per year; (v) neither Miracle Partners nor any of its
ERISA Affiliates maintains or has any obligation to contribute to any "voluntary
employees' beneficiary association" within the meaning of Code Section 501(c)(9)
or other funding arrangement for the provision of welfare benefits (such
disclosure to include the amount of any such funding); (vi) no such plan is
intended to satisfy Code Section 125; (vii) no amounts are required in
connection with any such plan to be included in income under Code Section 105(h)
(under official regulations thereof to date); and (viii) neither Miracle
Partners nor any of its ERISA Affiliates maintains a nonconforming group health
plan as defined at Section 5000(c) of the Code.
Section 14.17 Tax Matters.
(a) Affiliated Groups. Miracle Partners is not
a member of, and has never been a member of, any "affiliated group" as that term
is defined in Section 1454(a) of the Code.
(b) Tax Returns and Payment of Taxes. Miracle
Partners has timely filed or will timely file all federal, state, local, and
other Tax Returns required to be filed by it under Applicable Laws, including
estimated Tax Returns and reports, and has paid all required Income Taxes and
other Taxes (including any additions to taxes, penalties and interest related
thereto) due and payable on or before the date hereof. Miracle Partners has
paid, withheld, or accrued, or will accrue, on the Miracle Partners Financial
Statements in accordance with GAAP any and all Income Taxes and other Taxes in
respect of the conduct of its business or the ownership of its property and in
respect of any transactions for all periods (or portions thereof) through the
close of business on the Closing Date. Miracle Partners has withheld and paid
over all Taxes required to have been withheld and paid over, and complied with
all information reporting and backup withholding requirements, including the
maintenance of required records with respect thereto, in connection with
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amounts paid or owing to any Employee, creditor, independent contractor or other
third party. Miracle Partners has collected all sales, use and value added Taxes
required to be collected, and has remitted, or will remit on a timely basis,
such amounts to the appropriate Government Authorities and have furnished
properly completed exemption certificates for all exempt transactions.
(c) Tax Reserves. The amount of Miracle
Partners's liability for unpaid Taxes for all periods ending on or before the
date of this Agreement does not, in the aggregate, exceed the amount of the
current liability accruals for Taxes (excluding reserves for deferred Taxes) as
of the date of this Agreement, and the amount of Miracle Partners 's liability
for unpaid Taxes for all periods ending on or before the Closing Date shall not,
in the aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals shall be reflected on
the balance sheet of Miracle Partners as of the Closing Date.
(d) Audits; No Deficiencies Asserted Against
Company. The Tax Returns of Miracle Partners have never been audited by any Tax
Authority, nor is any such audit in process, pending or threatened (either in
writing or verbally, formally or informally). Except as disclosed in the Miracle
Partners Disclosure Letter, no deficiencies have been asserted (or are expected
to be asserted) against Miracle Partners as a result of IRS (or state or local
Tax Authority) examinations and no issue has been raised by any IRS (or state or
local Tax Authority) examination that, by application of the same principles,
might result in a proposed deficiency for any other period not so examined.
(e) No Waivers of Limitations. Except as
disclosed in the Miracle Partners Disclosure Letter, there are no agreements,
waivers of statutes of limitations, or other arrangements providing for
extensions of time in respect of the assessment or collection of any unpaid
Taxes against Miracle Partners. Miracle Partners has disclosed on its federal
Income Tax Returns all positions taken therein that could, if not so disclosed,
give rise to a substantial understatement penalty within the meaning of Section
6662 of the Code.
(f) No Tax Liens. There are no Encumbrances on
any of the assets, rights or properties of Miracle Partners with respect to
Taxes, other than liens for Taxes not yet due and payable or for Taxes that
Miracle Partners is contesting in good faith through appropriate proceedings and
for which appropriate reserves have been established on the Miracle Partners
Financial Statements.
(g) Tax Elections and Special Tax Status.
Miracle Partners is not a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code. Miracle Partners is a "small business
corporation" which has elected to be subject to federal income taxation under
subchapter S of the Code and has such status for purposes of federal income
taxation and state income taxation in all states in which its respective income
is subject to taxation or has been subject to taxation at all times since its
formation.
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(h) Disqualified Leasebacks. Miracle Partners
is not a party to a "disqualified leaseback or long-term agreement" described in
Section 467(b)(4) of the Code.
(i) Deferrals of Income. No income or gain of
Miracle Partners has been deferred pursuant to Treasury Regulation ss. 1.1502-13
or 1.1502-14, or Temporary Treasury Regulation ss. 1.1502-13T or 1.1502-14T.
(j) Tax Sharing and Similar Arrangements.
Miracle Partners is not a party to or bound by any Tax sharing, Tax indemnity,
Tax allocation or other similar arrangement.
(k) No Non-Deductible Compensation Payments.
Miracle Partners has not made any payments, nor is it obligated to make any
payments, that would not be deductible under Section 280G of the Code, nor is it
a party to any agreement that under certain circumstances could obligate it to
make any such payments.
Section 14.18 Environmental Matters.
(a) The facilities presently or formerly occupied or used by
Miracle Partners and any other real property presently or formerly owned by,
used by or leased to or by Miracle Partners (collectively, the "Miracle Partners
Property"), the existing and prior uses of such Property and all operations of
the businesses of Miracle Partners comply and have at all times complied with
all Environmental Laws and Miracle Partners is not in violation of nor has it
violated, in connection with the ownership, use, maintenance or operation of
such property or the conduct of its business, any Environmental Law.
(b) Miracle Partners has all necessary permits, registrations,
approvals and licenses required by any Governmental Authority or Environmental
Law.
(c) There has been no spill, discharge, leak, emission,
injection, disposal, escape, dumping or release of any kind on, beneath or above
such Property or into the environment surrounding such Miracle Partners Property
of any Hazardous Materials.
(d) There has been no past, and there is no current or
anticipated storage, disposal, generation, manufacture, refinement,
transportation, production or treatment of any Hazardous Materials at, upon or
from such Miracle Partners Ventures Property. No asbestos-containing materials,
underground improvements (including, but not limited to the treatment or storage
tanks, sumps, or water, gas or oil wells) or polychlorinated biphenyls (PCBs)
transformers, capacitors, ballasts, or other equipment which contain dielectric
fluid containing PCBs at levels in excess of fifty parts per million (50 PPM)
are located on such Miracle Partners Property.
(e) There are no claims, notices of violations, notice
letters, investigations, inquiries or other proceedings now pending or
threatened by any Governmental Authority or third party with respect to the
business or any Property of Miracle Partners (or any predecessor in interest)
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in connection with (i) any actual or alleged failure to comply with any
requirement of any Environmental Law; (ii) the ownership, use, maintenance or
operation of the Property by any person; (iii) the alleged violation of any
Environmental Law; or (iv) the suspected presence of any Hazardous Material
thereon.
Section 14.19 Compliance With Laws. Miracle Partners has at all times
conducted its business in material compliance with all (and has not received any
notice of any claimed violation of any) Applicable Laws.
Section 14.20 Licenses and Permits. Miracle Partners possess all
licenses, permits, and other governmental consents, certificates, approvals, or
other authorizations (the "Permits") necessary for the operation of the business
of Miracle Partners. Miracle Partners has complied with the terms and conditions
of all Permits in all material respects and all such Permits are in full force
and effect, and there has occurred no event nor is any event, action,
investigation or proceeding pending or, to the knowledge of management of
Miracle Partners, threatened, which could cause or permit revocation or
suspension of or otherwise adversely affect the maintenance of any Permits. The
transactions contemplated by this Agreement will not lead to the revocation,
cancellation, termination or suspension of any Permits.
Section 14.21 Insurance. Miracle Partners has regularly maintained all
policies of commercial liability, products liability, fire, casualty, worker's
compensation, life and other forms of insurance on an "occurrence" rather than a
"claims made" basis in amounts and types required by law and generally carried
by reasonably prudent, similarly situated businesses. Miracle Partners is not in
default under any provision contained in any insurance policy maintained by
Miracle Partners currently, nor has Miracle Partners failed to give any notice
or present any claim thereunder in due and timely fashion and no cancellation,
non-renewal, reduction of coverage or arrearage in premiums has been threatened
or occurred with respect to any policy, nor is the management of Miracle
Partners aware of any grounds therefor.
Section 14.22 Extraordinary Transactions. Except as disclosed in the
Miracle Partners Disclosure Letter or otherwise permitted by this Agreement,
since June 30, 1997, Miracle Partners has not (I) mortgaged, pledged or
subjected to any Encumbrance any of its assets; (ii) canceled or compromised any
claim of or debts owed to it; (iii) sold, licensed, leased, exchanged or
transferred any of its assets except in the ordinary course of business; (iv)
entered into any material transaction other than in the ordinary course of
business; (v) experienced any material change in the relationship or course of
dealing with any supplier, customer or creditor; (vi) suffered any material
destruction, loss or damage to any of its assets; (vii) made any management
decisions involving any material change in its policies with regard to pricing,
sales, purchasing or other business, financial, accounting (including reserves
and the amounts thereof) or tax policies or practices; (viii) declared, set
aside or paid any dividends on or made any distributions in respect of any
outstanding shares of capital stock or made any other distributions or payments
to any of its shareholders; (ix) submitted any bid, proposal, quote or
commitment to any party in response to a request for proposal or otherwise; (x)
engaged in any merger or consolidation with, or agreed to merge or consolidate
with,
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or purchased or agreed to purchase, all or substantially all of the assets of,
or otherwise acquire, any other party; (xi) entered into any strategic alliance,
partnership, joint venture or similar arrangement with any other party; (xii)
incurred or agreed to incur any Debt or prepaid or made any prepayments in
respect of Debt; (xiii) issued or agreed to issue to any party, any shares of
stock or other securities; (xiv) redeemed, purchased or agreed to redeem or
purchase any of its outstanding shares of capital stock or other securities;
(xv) increased the rate of compensation payable or to become payable to any of
its officers, directors, employees or agents over the rate being paid to them as
of June 30, 1996 or agreed to do so otherwise than in accordance with
contractual agreements with such parties; (xvi) made or agreed to make any
charitable contributions or incurred or agreed to incur any non-business
expenses; or (xvii) charged off any bad debts or increased its bad debt reserve
except in the manner consistent with its past practices.
Section 14.23 Title to Assets. Except as described in the Miracle
Partners Disclosure Letter, Miracle Partners has good and marketable title to
its assets and properties, free and clear of restrictions on or conditions to
transfer or assignment, and free and clear of all Encumbrances.
Section 14.24 Corporate Records. The minute books of Miracle Partners
accurately reflect all minutes of proceedings of and actions taken by the
directors of Miracle Partners, and by each committee of the Board of Directors
of Miracle Partners, and all records of meetings of and actions taken by the
stockholders of Miracle Partners, that are required by applicable laws to be
recorded in or reflected in the corporate records thereof.
Section 14.25 Broker and Finder Fees. Miracle Partners has not engaged
any broker or finder in connection with the transactions contemplated by this
Agreement, and no action by any of the foregoing will cause or support any claim
to be asserted against the Holding Company or Miracle Partners by any broker,
finder or intermediary in connection with such transaction.
Section 14.26 Adequate Disclosure. No representation or warranty made
by Miracle Partners pursuant to this Agreement, or any statement contained in
any Exhibit or Schedule to this Agreement, or any certificate or document
furnished or to be furnished by Miracle Partners pursuant to the terms of this
Agreement in connection with the transactions contemplated hereby, contains any
untrue or misleading statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading.
Section 14.27 No Adverse Change or Conditions. Except as set forth in
the Miracle Partners Disclosure Letter, and except as expressly contemplated or
permitted by this Agreement, since June 30, 1997, Miracle Partners has conducted
its business in the ordinary course and consistent with past practice, and
Miracle Partners has not suffered any change that has had a Material Adverse
Effect on Miracle Partners . There are no conditions, facts, developments or
circumstances of an unusual or special nature that reasonably could be expected
to have a Material Adverse Effect upon Miracle Partners that have not been
disclosed in writing by Miracle Partners pursuant to the Miracle Partners
Disclosure Letter.
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ARTICLE XV
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REPRESENTATIONS AND WARRANTIES OF THE HOLDING COMPANY
-----------------------------------------------------
To induce each of the Predecessor Companies to enter into this
Agreement and to consummate the transactions contemplated hereby, the Holding
Company represents and warrants to each of the Predecessor Companies as follows:
Section 15.1 Organization and Good Standing. The Holding Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Virginia. The Holding Company has the requisite corporate power
to own and hold its properties, to conduct its business as it is now being
conducted, to enter into, execute and deliver this Agreement, to issue, sell and
deliver the shares of Common Stock of the Holding Company to be issued in the
proposed IPO and pursuant to the transactions contemplated by Article III of
this Agreement.
Section 15.2 Execution and Effect of Agreement. The execution and
delivery by the Holding Company of this Agreement, the performance by the
Holding Company of its obligations hereunder, other than the issuance, sale and
delivery of the shares of Common Stock of the Holding Company to be issued in
the proposed IPO have been duly authorized by all necessary corporate action on
the part of the Holding Company. This Agreement has been duly executed and
delivered by the Holding Company and constitutes the legal, valid and binding
obligation of the Holding Company, enforceable against the Holding Company in
accordance with its terms, except as enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights including fraudulent conveyance laws and the
exercise of judicial discretion in accordance with general principles of equity.
Section 15.3 Authorized Capital Stock. The authorized capital stock of
the Holding Company consists of 20,000,000 shares, of which (i) 19,000,000 are
classified as shares of Common Stock, $.01 par value per share, and (ii)
1,000,000 are classified as shares of Preferred Stock, $1.00 par value per
share. As of the date hereof, none of the shares of the Common Stock of the
Holding Company have been issued by the Holding Company [other than
organizational shares subject to cancellation]. Except as contemplated by this
Agreement and for options which may be issued to officers, directors, employees
and agents of the Holding Company and its subsidiaries pursuant to stock option
plans or arrangements or other equity incentive, bonus or similar plans or
arrangements which are expected to be approved by the Board of Directors of the
Holding Company to purchase or subscribe for not more than 250,000 shares of the
Common Stock of the Holding Company in the aggregate (the "Management Option
Shares"), as of the date hereof, the Holding Company is under no obligation to
issue any of its shares of Common Stock or other equity securities pursuant to
subscriptions, warrants, options, convertible securities or other rights
(contingent or otherwise) to purchase or otherwise acquire equity securities of
the Holding Company. As of the date hereof, except for the Management Option
Shares and shares to be issued
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pursuant to this Agreement, no shares of Common Stock or other capital stock of
the Holding Company are reserved for possible future issuance. The Holding
Company has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof. There are no voting
trusts or agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Holding Company (whether or not the Holding Company is a
party thereto). The shares of Common Stock of the Holding Company to be issued
in the proposed IPO and pursuant to the transactions contemplated by Article III
of this Agreement, when issued in accordance with the terms of this Agreement
and the terms of the Underwriting Agreement, will be validly issued, fully paid
and nonassessable and will be free and clear of all Encumbrances imposed by or
through the Holding Company (other than restrictions imposed by Federal and
state securities laws). Neither the issuance of the shares of Common Stock of
the Holding Company in the IPO nor the issuance of shares of the Holding Company
pursuant to the transactions contemplated by Article III of this Agreement will
be subject to any preemptive or similar right of the stockholders of the Holding
Company. The holders of shares of the Common Stock of the Holding Company
following the issuance thereof in the IPO and pursuant to the transactions
contemplated by Article III of this Agreement will not be subject to personal
liability for the debts and obligations of the Holding Company solely by reason
of being the holders thereof.
Section 15.4 Subsidiaries; Investments. As of the date hereof, the
Holding Company has no Subsidiaries, and does not own of record or beneficially,
directly or indirectly, (I) any shares of capital stock or securities
convertible into capital stock of any other corporation or (ii) any interest in
any partnership, joint venture, limited liability company or other non-corporate
business enterprise, and does not control, directly or indirectly, any other
Person or entity.
Section 15.5 No Restrictions. The execution and delivery of this
Agreement by the Holding Company, the consummation by the Holding Company of the
transactions contemplated hereby and the performance of the obligations of the
Holding Company hereunder do not and will not (a) violate any of the provisions
of the Certificate of Incorporation or By-Laws of the Holding Company, (b)
violate or conflict with the provisions of the Virginia General Corporation Law
or any award, judgment or decree of any court or any agency, authority, bureau,
commission, department or other government instrumentality applicable to the
Holding Company or (c) conflict with, violate the provisions of, result in a
breach of, give rise to a right of termination, modification or cancellation of,
constitute a default under, or accelerate the performance required by, with or
without the passage of time or the giving of notice or both, the terms of any
agreement, indenture, mortgage, deed of trust, lease, agreement, note, bond,
license, permit, authorization or other instrument to which the Holding Company
is a party or to which the Holding Company is bound or subject.
Section 15.6 Litigation. There is no action, suit, claim, proceeding,
investigation or audit pending or, to the best of the Holding Company's
knowledge, threatened against or affecting the Holding Company, at law or in
equity, before or by any Governmental Authority.
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Section 15.7 Loans. The Holding Company has no outstanding loans or
advances to any Person and is not obligated to make any such loans or advances.
Except as set forth in this Agreement, the Holding Company has not incurred any
obligation or liability to any Person for borrowed money.
Section 15.8 Consents. No registration or filing with, notice to,
consent or approval of, or other action by, any Governmental Authority or any
other party is or will be necessary for the valid execution and delivery by the
Holding Company of this Agreement or the performance of its obligations
hereunder, including the issuance, sale and delivery of the Common Stock in the
proposed IPO or pursuant to the transactions contemplated by Article III of this
Agreement, other than (i) filings and registrations required pursuant to Federal
and state securities laws (all of which filings are expected to be made by or on
behalf of the Holding Company prior to the Closing) in connection with the
issuance and sale of the Common Stock of the Holding Company and the
registration of the Common Stock of the Holding Company with the Commission in
connection with the IPO and the transactions contemplated by Article III of this
Agreement, and (ii) as required by Applicable Laws relating to franchising.
Section 15.9 Adequate Disclosure. No representation or warranty made by
the Holding Company in this Agreement contains any untrue or misleading
statement of a material fact or omits to state a material fact necessary to make
the statements contained therein not misleading. There is no fact that the
Holding Company has not disclosed to the Predecessor Companies and the Prema
Properties Members or the Ralston Car Wash Members of which the Holding Company
is aware that materially and adversely affects or could reasonably be expected
to affect materially and adversely the business, financial condition,
operations, property or affairs of the Holding Company.
Section 15.10 Business of the Holding Company. The Holding Company was
incorporated under the laws of the Commonwealth of Virginia on April 17, 1997.
Except for the rights, obligations and liabilities of the Holding Company
arising under this Agreement and its initial capitalization, and except for the
rights and obligations of the Holding Company arising out of the engagements of
legal counsel, underwriters and the certified public accountants referred to in
Article II of this Agreement, as of the date of this Agreement, the Holding
Company has no assets or liabilities or obligations, whether mature or
unmatured, due or to become due, fixed or contingent.
ARTICLE XVI
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CLOSING
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Section 16.1 Closing. The closing of the transactions contemplated by
this Agreement shall take place at the offices of Miles & Stockbridge, a
Professional Corporation, located at 10 Light Street, Baltimore, Maryland,
beginning at 10:00 a.m., Eastern Standard Time, on the date of closing of the
IPO.
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Section 16.2 Documents to be Delivered by the Holding Company. At the
Closing, the Holding Company shall deliver, or shall cause to be delivered, to
each of the parties to this Agreement the following:
(a) A Certificate of the Secretary or an
Assistant Secretary of the Holding Company, dated the Closing Date, certifying
that attached thereto are true and complete copies of (I) the resolutions of the
Board of Directors of the Holding Company and each of the Merger Subsidiaries,
which authorize (I) the consummation of the transactions contemplated hereby by
the Holding Company and each of the Merger Subsidiaries, and certifying that
such resolutions have not been amended or rescinded and are in full force and
effect; and the charter and by-laws of the Holding Company as in effect as of
the date of such certification, and certifying the identity and incumbency of
the officers and directors of the Holding Company;
(b) A good standing certificate and certified
charter documents, dated as of a date reasonably close to the Closing Date, of
the Holding Company and each of the Merger Subsidiaries;
(c) An opinion letter from counsel to the
Holding Company in form and content reasonably satisfactory to each of the
Predecessor Companies and their counsel;
(d) A certificate of a duly authorized officer
of the Holding Company dated as of the Closing Date, certifying that (I) the
Holding Company has performed or complied with in all material respects all the
covenants and agreements made by the Holding Company herein which are to be
performed or complied with prior to the Closing Date or at the Closing pursuant
to the terms of this Agreement, and (ii) each of the representations and
warranties made by the Holding Company pursuant to the terms of this Agreement
are true and correct in all material respects as of the Closing Date (except
with respect to those representations and warranties made with respect to a
certain date other than the date of this Agreement or the Closing Date which
representations and warranties need be true and correct only as of such certain
date);
(e) The tax opinions of Ernst & Young referred
to in Article III of this Agreement; and
(f) Such other documents, instruments or
agreements as may be reasonably necessary to effectuate the transactions
contemplated by this Agreement.
Section 16.3 Documents to be Delivered by the Corporate Predecessor
Companies. At the Closing, each of the Corporate Predecessor Companies shall
execute and deliver, or cause to be delivered to the Holding Company and each of
the other parties to this Agreement the following:
(a) A certificate of the Secretary or an
Assistant Secretary of such Predecessor Company, dated the Closing Date,
certifying that attached thereto are true and complete copies of (I) the
resolutions of the Board of Directors and stockholders of such Corporate
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Predecessor Company which authorize (a) the execution and delivery of this
Agreement and (b) the consummation of the transactions contemplated hereby, and
certifying that such resolutions have not been amended or rescinded and are in
full force and effect; and (ii) the charter and by-laws of such Corporate
Predecessor Company as in effect as of the date of such certification; and
certifying the identity and incumbency of the officers of such Corporate
Predecessor Company;
(b) A good standing certificate and certified
charter documents, dated as of a date reasonably close to the Closing Date, of
such Corporate Predecessor Company;
(c) An opinion letter of legal counsel to such
Corporate Predecessor Company addressed to the Holding Company in form and
content reasonably satisfactory to the Holding Company and its counsel;
(d) A certificate of a duly authorized officer
of such Corporate Predecessor Company, dated as of the Closing Date, certifying
that (i) such Corporate Predecessor Company has performed or complied with in
all material respects all of the covenants and agreements made by such Corporate
Predecessor Company herein which are to be performed or complied with prior to
the Closing Date or at the Closing pursuant to the terms of this Agreement, and
(ii) each of the representations and warranties made by such Corporate
Predecessor Company pursuant to the terms of this Agreement are true and correct
in all material respects as of the Closing Date (except with respect to those
representations and warranties made with respect to a certain date other than
the date of this Agreement or the Closing Date, which representations and
warranties need be true and correct only as of such certain date); and
(e) Such other documents, instruments or
agreements as may be reasonably necessary to effectuate the transactions
contemplated by this Agreement.
Section 16.4 Deliveries by the Prema Properties and Ralston Car Wash.
At the Closing, each of Prema Properties and Ralston Car Wash shall execute and
deliver to the Holding Company and the other parties to this Agreement the
following:
(a) A certificate of its duly authorized
manager, dated as of the Closing Date, certifying that (i) attached thereto as
an exhibit is a true, correct and complete copy of the Articles of Organization
and operating agreement of such limited liability company; (ii) such limited
liability company has performed or complied with in all material respects all of
the covenants and agreements made by such company herein which are to be
performed or complied with prior to the Closing Date or at the Closing pursuant
to the terms of this Agreement, and (iii) each of the representations and
warranties made by such limited liability company pursuant to the terms of this
Agreement are true and correct in all material respects as of the Closing Date
(except with respect to those representations and warranties made with respect
to a certain date other than the date of this Agreement or the Closing Date,
which representations and warranties need be true and correct only as of such
certain date);
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(b) An opinion letter of legal counsel to Prema
Properties and Ralston Car Wash, respectively, addressed to the Holding Company,
in form and content reasonably satisfactory to the Holding Company and its
counsel; and
(c) Such other documents, instruments or
agreements as may be reasonably necessary to effectuate the transactions
contemplated by this Agreement.
Section 16.5 Closing Deliveries of KBG. At the Closing, KBG shall
execute and deliver to the Holding Company the following:
(a) a certified copy of an Assignment of
Intellectual Property Rights with respect to the Proprietary Car Wash Software
System between KBG, as assignor, and KBG, LLC, as assignee, duly executed with
signatures guaranteed, together with a complete copy, in electronic form, of the
Source Code and the object code for the Proprietary Car Wash Software System;
(b) a certificate, dated as of the Closing Date,
certifying that (I) such KBG has performed or complied with in all material
respects all of the covenants and agreements made by such company herein which
are to be performed or complied with prior to the Closing Date or at the Closing
pursuant to the terms of this Agreement, and (ii) each of the representations
and warranties made by KBG pursuant to the terms of this Agreement are true and
correct in all material respects as of the Closing Date (except with respect to
those representations and warranties made with respect to a certain date other
than the date of this Agreement or the Closing Date, which representations and
warranties need be true and correct only as of such certain date);
(c) an opinion letter of legal counsel to KBG,
addressed to the Holding Company, in form and content reasonably satisfactory to
the Holding Company and its counsel; and
(d) such other documents, instruments,
certificates or agreements as may be reasonably necessary to consummate the
transaction contemplated by this Agreement.
ARTICLE XVII
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WITHDRAWAL AND EXCLUSION
------------------------
FROM PARTICIPATION IN THE TRANSACTION
-------------------------------------
Section 17.1 Withdrawal from Transaction. Notwithstanding anything
contained herein which may be inconsistent or to the contrary, each Predecessor
Company shall have the right, upon written notice delivered to the Holding
Company and to each of the other Participant Groups in which such Predecessor
Company is not a Constituent Company, to withdraw from further participation in
the transactions contemplated by this Agreement, without liability to the other
parties to this Agreement (except as hereinafter provided with respect to
Transaction Expenses and in Section 21.1.1), if, and only if:
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(a) a Material Adverse Effect shall have
occurred after the date of this Agreement with respect to any Material
Participant (other than such Predecessor Company); or
(b) each of the conditions precedent to the
obligations of the Predecessor Company shall not have been or fulfilled or
waived in writing by such Predecessor Company on or before November 14, 1997.
(c) the Closing shall not have occurred before
the close of business on November 14, 1997.
Section 17.2 Effect of Withdrawal. Upon the withdrawal of a Predecessor
Company, such Predecessor Company shall no longer be obligated to consummate the
any of the transactions contemplated hereby and this Agreement shall be
terminated, unless the remaining Predecessor Companies elect within 5 business
days of their receipt of notice of withdrawal (or deemed withdrawal in the case
of the failure of a Corporate Predecessor Company to obtain Board approval) from
another Predecessor Company proceed with the transactions contemplated hereby
notwithstanding the withdrawal of a Predecessor Company; provided, however, that
no such withdrawal shall operate to relieve any withdrawing Predecessor Company
from its obligation to contribute its proportionate share of its Participant
Group's Transaction Expense Share to the Transaction Expenses which have been
incurred through the date of the withdrawal of such Predecessor Company. For
purposes hereof, a party shall be considered to have withdrawn from
participation on the date on which notice of such withdrawal shall have been
received by the Holding Company.
Section 17.3 Exclusion from Transaction.
17.3.1 Right to Exclude Parties. Notwithstanding
anything contained herein which may be inconsistent or to the contrary, upon the
affirmative vote of 2/3 or more of the entire Board of Directors of the Holding
Company, the Holding Company shall have the right to exclude Ralston Car Wash
and\or Rocky Mountain I (an "Excluded Participant") from further participation
in the transactions contemplated hereby if, and only if, the Excluded
Participant shall suffer a Material Adverse Effect after the date of this
Agreement and prior to the Closing Date.
17.3.2 Effect of Exclusion. Upon the exclusion of
an Excluded Participant pursuant to the foregoing provisions, the Excluded
Participant shall thereafter be released from further liability to the other
parties to this Agreement, except (i) as provided in Section 21.1 and (ii) that
the Excluded Participant shall, nevertheless, remain liable for its agreed upon
contribution to Rocky Mountain Group's Transaction Expense Share with respect to
Transaction Expenses which have been incurred through the date of the exclusion
of the Excluded Participant from further participation in the transactions
contemplated hereby.
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ARTICLE XVIII
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TERMINATION OF AGREEMENT
------------------------
Section 18.1 Agreement of Termination. This Agreement may be terminated
and the transactions contemplated hereby abandoned at any time prior to the
Closing Date by the written consent and agreement of each of the parties to this
Agreement.
Section 18.2 Events of Automatic Termination. Notwithstanding anything
contained herein to the contrary, this Agreement shall terminate, and the
transactions contemplated hereby shall be deemed to have been abandoned, if the
Closing shall not occur before the close of business on November 17, 1997,
unless the remaining parties to this Agreement shall agree on or before such
date to extend the term of this Agreement.
Section 18.3 Termination by the Holding Company. If the lead
underwriter engaged by the Holding Company to underwrite the IPO shall at any
time prior to the Closing advise the Board of Directors of the Holding Company
that the per share offering price in the IPO for the Holding Company Common
Stock reasonably can be expected to be less than $10.00, the Board of Directors
of the Holding Company shall promptly convene a meeting of the Finance Committee
of the Board of Directors to consider the advisability of consummating the IPO
and the other transactions contemplated by this Agreement. If the Finance
Committee shall determine that it is not advisable to proceed with the IPO and
the other transactions contemplated by this Agreement, then the Finance
Committee shall so notify the full Board of Directors of the Holding Company and
the Holding Company shall then terminate this Agreement by delivering written
notice to that effect to each of the parties to this Agreement. The
determination of the Finance Committee with respect to this matter shall be made
by a majority vote of all of the members of the Finance Committee. If the
Finance Committee shall become deadlocked as to its determination with respect
to the advisability of continuing with the transactions contemplated hereby, the
Finance Committee shall so notify the full Board of Directors of the Holding
Company, which shall then promptly convene a special meeting of the full Board
of Directors for purposes of considering such matter. If the full Board of
Directors determines at such meeting that it is not advisable to proceed with
the IPO and the other transactions contemplated by this Agreement, then the
Holding Company shall then terminate this Agreement, effective immediately upon
delivery of written notice to that effect delivered to each of the parties to
this Agreement.
Section 18.4 Effects of Termination of Agreement. In the event that
this Agreement shall terminate pursuant to the foregoing provisions of this
Article, this Agreement shall become null and void and of no further force and
effect, and thereafter, none of the parties hereto shall have any further
obligation or liability hereunder, except that each of the Contributing
Companies shall, nevertheless, remain liable for their respective agreed upon
contribution to their proportionate share of their Participant Group's
Transaction Expense Share with respect to all Transaction Expenses which have
been incurred through the date of the termination of this Agreement and the
provision of Section 23.3 hereof relating to confidentiality shall remain
binding upon the parties hereto for a period of 5 years following the date of
the termination of this Agreement.
ARTICLE XIX
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DEBT LEVEL GUARANTEES AND RELATED ESCROW ARRANGEMENT
----------------------------------------------------
Section 19.1 Debt Level Guarantees of the Contributing Companies. The
allocation of the
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number and related value of the shares to be issued by the Holding Company to
the Selling Stockholders and the Selling Members of each of the Contributing
Companies pursuant to the transactions contemplated by Article III of this
Agreement were determined by the parties based upon agreed upon projected
"enterprise values" of each of the Contributing Companies as of the projected
Closing Date, assuming that the aggregate Debt level of each of the Contributing
Companies would not exceed a specified level as of such date. Therefore, each of
the Contributing Companies hereby represents and warrants and covenants and
guarantees to the Holding Company, that its aggregate Debt will not exceed the
amount set forth in Schedule 19.1 opposite the name of such Contributing Company
under the heading entitled "Guaranteed Closing Date Debt Level" (the "Guaranteed
Closing Date Debt Level"); provided, however, that, if, and to the extent that
the incurrence by such Contributing Company of any indebtedness or other
obligations is permitted in accordance with the provisions of Section 5.5 (f) of
this Agreement, no portion of the amount of such indebtedness or other
obligation shall be considered to be part of the Debt of Contributing Company,
whether or not required by GAAP to be reflected as such on the balance sheet of
such Contributing Company as of the Closing Date.
Section 19.2 Definition of Debt. For purposes of this Agreement, "Debt"
shall mean without duplication (in each case whether such obligation is with
full or limited recourse), (i) any and all obligations of a Contributing Company
for borrowed money, (ii) any and all obligations of a Contributing Company in
respect of the deferred purchase price for any real or personal property or
services, (iii) any and all obligations a Contributing Company in respect of any
capital lease, (iv) any and all amounts in respect of which a Contributing
Company may be liable, contingently or otherwise, under any guarantees of Debt
of another Person, and (v) any other items required to be reported as short-term
or long-term debt on the balance sheets of a Contributing Company in accordance
with GAAP.
Section 19.3 Escrow of Shares. At the Closing, the Holding Company
shall deposit with the Escrow Agent, on behalf of, and solely as an
accommodation to, the Selling Stockholders and Selling Members of each of the
Contributing Companies, stock certificates evidencing 10% of the aggregate
number of shares of the Common Stock of the Holding Company that each such
Selling Stockholder or Selling Member would otherwise be entitled to receive at
the Closing pursuant to the transactions contemplated by Article III of this
Agreement (the "Debt Level Escrow Shares") in order to secure to the Holding
Company the guarantee of the Debt level made by each Contributing Company
pursuant to Section 19.1 of this Agreement. The Escrow Agent shall hold and
administer such certificates and the Debt Level Escrow Shares in accordance with
the terms of an Escrow Agreement in form and content satisfactory to the parties
(the "Escrow Agreement"). Notwithstanding the deposit by the Holding Company of
the Debt Level Escrow Shares at the Closing, each of the Debt Level Escrow
Shares shall be considered to have been issued by the Holding Company at the
Closing to the Person who otherwise would have been entitled to receive the same
and shall be reported by the parties as having been so issued.
Section 19.4 Determination of Closing Date Debt Level. Promptly
following the Closing Date, the Holding Company shall review the books and
records of each of the Contributing
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Companies, and prepare (i) a balance sheet, in accordance with GAAP,
consistently applied, of each of the Contributing Companies as at the Closing
Date and (ii) a statement of the aggregate Debt of each of the Contributing
Companies as at the Closing Date as shown on each such balance sheet (the
"Closing Date Debt Level"), but with the adjustments thereto contemplated by
Section 19.2 of this Agreement, all of which shall be delivered to each
designated Representative of the Selling Stockholders and the Selling Members of
each Contributing Company not later than 45 days following the Closing Date.
Section 19.5 Dispute Resolution. If the former stockholders or former
members of any Contributing Company shall dispute the amount of the Closing Date
Debt Level of such Contributing Company set forth on the statement of the
Closing Date Debt Level described in Section 19.4, the Representative of any
such group of Selling Stockholders or Selling Members shall so notify the
Holding Company in writing of their objections within 15 days after delivery to
them of such statement and shall describe, in reasonable detail, the reasons for
their objections and their proposed calculation of the Closing Date Debt Level
of such Contributing Company. If the Representative of an applicable group of
Selling Stockholders or Selling Members of a Contributing Company fails to
deliver a notice of objection to the Holding Company within such 15-day period,
the amount of the Closing Date Debt Level of such Contributing Company set forth
in the statement thereof described in Section 19.4 shall be deemed to have been
accepted by such Selling Stockholders or Selling Members. If, however, the
Representative of an applicable group of Selling Stockholders or Selling Members
of a Contributing Company delivers a notice of objection to the Holding Company
within such 15-day period, the Holding Company and such Representative shall
endeavor in good faith to resolve any disputed items within 10 business days
after the date of the Holding Company's receipt of the applicable notice of
objection. In the event that the Holding Company and the Representative shall be
unable to resolve any items in dispute relating to the statement of the Closing
Date Debt Level described in Section 19.4, the Holding Company and such
Representative shall engage Ernst & Young to resolve all items remaining in
dispute, and the determination of Ernst & Young in respect of such items shall
be conclusive and binding on the parties. Ernst & Young shall be instructed by
the Holding Company and such Representative to prepare and deliver to the
Holding Company and to such Representative, after resolving any items in
dispute, a balance sheet of the applicable Contributing Company as of the
Closing Date reflecting its resolution of all issues in dispute and a statement
of the Closing Date Debt Level shown thereon. The Closing Date Debt Level of
each Contributing Company, as finally determined (whether by failure of the
Representative of the former stockholders or members thereof to deliver a notice
of objection to the Holding Company, by the agreement of the parties or by the
final determination of Ernst & Young), shall be deemed to be, and shall be
referred to herein, as the "Final Closing Date Debt Level" of such Contributing
Company.
Section 19.6 Set-Off Against Debt Level Escrow Shares. If the Final
Closing Date Debt Level of any Contributing Company shall be more than the
Guaranteed Closing Date Debt Level of such Contributing Company, the Holding
Company shall have the right to set-off only against the Debt Level Escrow
Shares so deposited with the Escrow Agent on behalf of the Selling Stockholders
or Selling Members of such Contributing Company Debt Level Escrow Shares having
a value equal
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to the full amount of the difference between the Guaranteed Closing Date Debt
Level of such Contributing Company and the Final Closing Date Debt Level of such
Contributing Company, and the Escrow Agent shall be instructed by the Holding
Company to disburse to the Holding Company share certificates evidencing such
number of Debt Level Escrow Shares and to disburse the remaining balance of such
Debt Level Escrow Shares, if any, to the applicable group of Selling
Stockholders or Selling Members. If, on the other hand, the Final Closing Date
Debt Level of the Contributing Company shall be equal to or less than the
Guaranteed Debt Level of such Contributing Company, the Escrow Agent shall be
instructed to disburse to the Selling Stockholders or Selling Members of such
Contributing Company share certificates evidencing the full number of Debt Level
Escrow Shares so deposited on behalf of such former stockholders or members.
Section 19.7 Term of the Escrow. The Escrow Agent shall hold all of the
Debt Level Escrow Shares in escrow in accordance with the terms of this
Agreement and of the Escrow Agreement for a period of 60 days following the
Closing Date, and shall not disburse any of the Debt Level Escrow Shares from
escrow prior to the date which is 60 days after the Closing Date. On the date
which is 60 days after the Closing Date, the Escrow Agent shall deliver to each
of the Selling Stockholders and Selling Members, stock certificates evidencing
his or her prorata portion of the aggregate number of shares of the Debt Level
Escrow Shares then on deposit with the Escrow Agent; provided, however, that if
the Final Net Debt Level of any Contributing Company shall not have been
determined as of such date due to an unresolved dispute as to the Closing Date
Debt Level of such Contributing Company, the Holding Company shall have the
right to set-off on such date against the Debt Level Escrow Shares attributable
to the former stockholders or members of such Contributing Company Debt Level
Escrow Shares having a value equal to the undisputed amount of the difference
between the Guaranteed Closing Date Debt Level and the Closing Date Net Level
shown on the statement thereof described in Section 19.4 or prepared by Ernst &
Young, as the case may be, if any, and Debt Level Escrow Shares having a value
equal to the disputed amount of the difference between the Guaranteed Closing
Date Net Debt Level and the Closing Date Net Debt Level shown on the statement
thereof described in Section 19.4 or prepared by Ernst & Young, as the case may
be shall remain on deposit with the Escrow Agent until the Final Closing Date
Debt Level of such Contributing Company shall have been determined, and then
disbursed either to the Holding Company or to the applicable group of Selling
Stockholders or Selling Members, as appropriate.
Section 19.8 Expenses Relating to Determination of Closing Date Debt
Level. The Holding Company shall bear all of the costs and expenses incurred by
it in reviewing the books and records of the Contributing Companies and
preparing the statements of Closing Date Net Debt Level described in Section
19.4. Each of the Selling Stockholders and Selling Members shall each bear, and
be responsible for, the costs and expenses incurred by each of them (including
the fees and expenses of their respective accounting firms) in connection with
their review of such statements of Closing Date Net Debt Level. If Ernst & Young
is engaged with respect to a dispute between the Holding Company and the
Representative(s) of any Selling Stockholders or Selling Members over the actual
amount of the Closing Date Net Debt Level of a Contributing Company, and the
amount of the Final Closing Date Net Debt Level as determined by Ernst & Young
is greater than or equal
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to the Holding Company's initial statement of the Closing Date Net Debt Level,
the fees and expenses of Ernst & Young shall be paid solely by the former
stockholders or members of the Contributing Company; if Ernst & Young is
engaged, and the amount of the Final Net Debt Level as determined by the
Independent Accountants is less than the Holding Company's initial statement of
the Closing Date Net Debt Level, the fees and expenses of Ernst & Young shall be
paid solely by the Holding Company.
Section 19.9 Value of Escrow Shares. For purposes of determining the
actual amount of Debt Level Escrow Shares against which the Holding Company
shall be entitled to exercise its right of set-off under this Article XIX, each
of the Debt Level Escrow Shares shall be valued at the price per share at which
the shares of the Common Stock of the Holding Company shall be offered to the
public in the IPO. Except with respect to Debt Level Escrow Shares as to which
the Holding Company shall have exercised its right to set off, all of the Debt
Level Escrow Share shall nevertheless be deemed to be owned by the Selling
Shareholders and Selling Members that otherwise would have been entitled to
receive such shares at the closing of the transactions contemplated by Article
III of this Agreement, and, subject to the provisions of Article III of this
Agreement, shall be entitled to vote the same and to receive all dividends
declared thereon; provided, however, that, notwithstanding the foregoing, all
shares issuable pursuant to any stock dividend or stock split declared by the
Holding Company with respect to the shares of the Common Stock of the Holding
Company which are applicable to any of the Debt Level Escrow Shares shall also
be deposited with the Escrow Agent and remain subject to the provisions of this
Article.
ARTICLE XX
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INDEMNIFICATION ESCROW ARRANGEMENTS
-----------------------------------
Section 20.1 Escrow of Indemnity Escrow Shares. At the Closing, the
Holding Company shall deposit with the Escrow Agent, on behalf of, and solely as
an accommodation to, each of the Selling Shareholders and Selling Members and
KBG, stock certificates evidencing 10% of the aggregate number of shares of the
Holding Company Common Stock that each of the Selling Shareholders and Selling
Members and KBG, respectively, would each otherwise be entitled to receive at
the Closing pursuant to the transactions contemplated by Article III of this
Agreement (collectively, the "Indemnity Escrow Shares"). The Escrow Agent shall
hold and administer such certificates and the Indemnity Escrow Shares in
accordance with the terms of the Escrow Agreement. Notwithstanding the deposit
by the Holding Company of the Indemnity Escrow Shares at the Closing, each of
the Indemnity Escrow Shares shall be considered to have been issued by the
Holding Company at the Closing to the Person who otherwise would have been
entitled to receive the same and shall be reported by the parties as having been
so issued.
Section 20.2 Purpose of Escrow; Indemnification. From and after the
Closing, each group of Selling Shareholders and each group of Selling Members
and KBG shall each, severally and not jointly, and not jointly and severally
with each other, indemnify and hold harmless the Holding Company in respect of
all Holding Company Indemnified Claims and Losses arising out or, relating
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to or caused or incurred as a result of acts, omissions, misstatements,
misrepresentations, failures to act or breaches only by the Predecessor Company
of which such group of Selling Shareholders or Selling Members were shareholders
or members prior to the Closing or, in the case of KBG, only by KBG in an amount
equal to the value of Indemnity Escrow Shares deposited with the Escrow Agent at
the Closing on behalf of such Selling Shareholders or Selling Members or KBG, as
the case may be. The Holding Company shall have the right to seek
indemnification from such parties only by exercising its rights of set off in
the manner provided by Section 20.4 of this Agreement and shall not have the
right to seek indemnification from any Selling Shareholder or Selling Member
personally or against KBG, except to the extent of the Indemnity Escrow Shares
deposited with respect to KBG or such group of Selling Shareholders or Selling
Members. Although the liability of each group of Selling Shareholders and
Selling Members and of KBG for indemnification of the Holding Company shall not
be joint or joint and several with each other, as amongst each group of Selling
Shareholders and Selling Members, the liability of each such Selling Shareholder
and Selling Member shall be joint and several with every other member of its
group of Selling Shareholders or Selling Members. For example, the liability of
the Selling Shareholders of WE JAC shall be joint and several with every other
WE JAC Shareholder, but shall not be joint or joint and several with any other
group of Selling Shareholders or Selling Members or with KBG.
Section 20.3 Term of the Escrow. The Escrow Agent shall hold all of the
Indemnity Escrow Shares in escrow in accordance with the terms of the Escrow
Agreement for a period of one year following the Closing Date, and shall not
disburse any of the Indemnity Escrow Shares, unless, and only to the extent
that, the Holding Company shall exercise its rights of setoff pursuant to
Section 20.4 of this Agreement, prior to the date which is one year after the
Closing Date. On the date which is one year after the Closing Date, the Escrow
Agent shall deliver to each of the Selling Shareholders and Selling Members and
KBG, stock certificates evidencing his or her prorata portion of the aggregate
number of Indemnity Escrow Shares then on deposit with the Escrow Agent, except
to the extent that there then remains any unresolved claim for indemnification
by the Holding Company; in which event, the Indemnity Escrow Shares attributable
to the applicable Responsible Group of Selling Shareholders or Selling Members
(or KBG), as the case may be, having a value equal to such unresolved claims
shall remain on deposit with the Escrow Agent until such claim shall have been
resolved, and then disbursed either to the Holding Company or to the applicable
group of Selling Shareholders or Selling Members or KBG, as appropriate.
Section 20.4 Set-Off Rights of the Holding Company.
20.4.1 WE JAC Indemnity Escrow Shares. Subject to the
provisions of Section 20.5 hereof, the Holding Company shall have the right to
set-off from time to time, in accordance with the terms of Section 20.5 hereof
and of the Escrow Agreement, against the escrow deposit of the WE JAC Indemnity
Escrow Shares so made by the Holding Company, WE JAC Indemnity Escrow Shares
having a value equal to the full amount of any and all Holding Company
Indemnified Claims and Losses imposed upon, asserted against, suffered or
incurred by the Holding Company, directly or indirectly, based upon, arising out
of, resulting from (i) the inaccuracy or untruth of any of the representations
made by WE JAC pursuant to any certificate, document or instrument executed and
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delivered by WE JAC or any of its Subsidiaries pursuant to or in connection with
this Agreement, (ii) the breach by WE JAC of any of the warranties or covenants
made by WE JAC pursuant to this Agreement or pursuant to any certificate,
document or instrument executed and delivered by WE JAC pursuant to or in
connection with this Agreement or the failure of WE JAC to perform, observe or
comply with, any of the covenants or agreements made by WE JAC pursuant to this
Agreement or pursuant to any certificate, document or instrument executed and
delivered by WE JAC pursuant to or in connection with this Agreement or (iii)
any untrue alleged untrue statement of any material fact contained in any
registration statement, summary prospectus, final prospectus, or amendment or
supplement thereto, or the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, summary prospectus, final
prospectus, or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished by WE JAC or any of its
Subsidiaries or any WE JAC Shareholder.
20.4.2 Lube Ventures Indemnity Escrow Shares. Subject to the
provisions of Section 20.5 hereof, the Holding Company shall have the right to
set-off from time to time, in accordance with the terms of Section 20.5 hereof
and of the Escrow Agreement, against the escrow deposit of the Lube Ventures
Indemnity Escrow Shares so made by the Holding Company, Lube Ventures Indemnity
Escrow Shares having a value equal to the full amount of any and all Holding
Company Indemnified Claims and Losses imposed upon, asserted against, suffered
or incurred by the Holding Company, directly or indirectly, based upon, arising
out of, resulting from (i) the inaccuracy or untruth of any of the
representations made by Lube Ventures or any of the Lube Ventures Shareholders
pursuant to this Agreement or pursuant to any certificate, document or
instrument executed and delivered by Lube Ventures pursuant to or in connection
with this Agreement, (ii) the breach by Lube Ventures of any of the warranties
or covenant or covenants made by Lube Ventures pursuant to this Agreement or
pursuant to any certificate, document or instrument executed and delivered by
Lube Ventures pursuant to or in connection with this Agreement or the failure of
Lube Ventures to perform, observe or comply with, any of the covenants or
agreements made by Lube Ventures pursuant to this Agreement or pursuant to any
certificate, document or instrument executed and delivered by Lube Ventures or
the Lube Ventures Shareholders pursuant to or in connection with this Agreement
or (iii) any untrue or alleged untrue statement of any material fact contained
in any registration statement, summary prospectus, final prospectus, or
amendment or supplement thereto, or the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in such registration statement, summary prospectus,
final prospectus, or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished by Lube Ventures or any Lube
Venture Shareholder.
20.4.3 Miracle Industries Indemnity Escrow Shares. Subject to
the provisions of Section 20.5 hereof, the Holding Company shall have the right
to set-off from time to time, in accordance with the terms of Section 20.5
hereof and of the Escrow Agreement, against the escrow
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deposit of the Miracle Industries Indemnity Escrow Shares so made by the Holding
Company, Miracle Industries Indemnity Escrow Shares having a value equal to the
full amount of any and all Holding Company Indemnified Claims and Losses imposed
upon, asserted against, suffered or incurred by the Holding Company, directly or
indirectly, based upon, arising out of, resulting from (i) the inaccuracy or
untruth of any of the representations made by Miracle Industries pursuant to
this Agreement or pursuant to any certificate, document or instrument executed
and delivered by Miracle Industries pursuant to or in connection with this
Agreement, (ii) the breach by Miracle Industries of any of the warranties or
covenants made by Miracle Industries pursuant to this Agreement or pursuant to
any certificate, document or instrument executed and delivered by Miracle
Industries pursuant to or in connection with this Agreement or the failure of
Miracle Industries or any of the Miracle Industries Shareholders to perform,
observe or comply with, any of the covenants or agreements made by Miracle
Industries pursuant to this Agreement or pursuant to any certificate, document
or instrument executed and delivered by Miracle Industries pursuant to or in
connection with this Agreement or (iii) any untrue or alleged untrue statement
of any material fact contained in any registration statement, summary
prospectus, final prospectus, or amendment or supplement thereto, or the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, summary prospectus, final prospectus, or amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished by Miracle Industries or any Miracle Industries Shareholder.
20.4.4 Rocky Mountain I Indemnity Escrow Shares. Subject to
the provisions of Section 20.5 hereof, the Holding Company shall have the right
to set-off from time to time, in accordance with the terms of Section 20.5
hereof and of the Escrow Agreement, against the escrow deposit of the Rocky
Mountain I Indemnity Escrow Shares so made by the Holding Company, Rocky
Mountain I Indemnity Escrow Shares having a value equal to the full amount of
any and all Holding Company Indemnified Claims and Losses imposed upon, asserted
against, suffered or incurred by the Holding Company, directly or indirectly,
based upon, arising out of, resulting from (i) the inaccuracy or untruth of any
of the representations made by Rocky Mountain I pursuant to this Agreement or
pursuant to any certificate, document or instrument executed and delivered by
Rocky Mountain I pursuant to or in connection with this Agreement, (ii) the
breach of the Rocky Mountain I of any of the warranties or covenants made by
Rocky Mountain I pursuant to this Agreement or pursuant to any certificate,
document or instrument executed and delivered by Rocky Mountain I pursuant to or
in connection with this Agreement or the failure of Rocky Mountain I to perform,
observe or comply with, any of the covenants or agreements made by Rocky
Mountain I pursuant to this Agreement or pursuant to any certificate, document
or instrument executed and delivered by Rocky Mountain I pursuant to or in
connection with this Agreement or (iii) any untrue or alleged untrue statement
of any material fact contained in any registration statement, summary
prospectus, final prospectus, or amendment or supplement thereto, or the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration
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statement, summary prospectus, final prospectus, or amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
by Rocky Mountain I or any Rocky Mountain I Shareholder.
20.4.5 Rocky Mountain II Indemnity Escrow Shares. Subject to
the provisions of Section 20.5 hereof, the Holding Company shall have the right
to set-off from time to time, in accordance with the terms of Section 20.5
hereof and of the Escrow Agreement, against the escrow deposit of the Rocky
Mountain II Indemnity Escrow Shares so made by the Holding Company, Rocky
Mountain II Indemnity Escrow Shares having a value equal to the full amount of
any and all Holding Company Indemnified Claims and Losses imposed upon, asserted
against, suffered or incurred by the Holding Company, directly or indirectly,
based upon, arising out of, resulting from (i) the inaccuracy or untruth of any
of the representations made by Rocky Mountain II pursuant to this Agreement or
pursuant to any certificate, document or instrument executed and delivered by
Rocky Mountain II pursuant to or in connection with this Agreement, (ii) the
breach by Rocky Mountain II of any of the warranties or covenants made by Rocky
Mountain II pursuant to this Agreement or pursuant to any certificate, document
or instrument executed and delivered by Rocky Mountain II pursuant to or in
connection with this Agreement or the failure of the Rocky Mountain II to
perform, observe or comply with, any of the covenants or agreements made by
Rocky Mountain II pursuant to this Agreement or pursuant to any certificate,
document or instrument executed and delivered by Rocky Mountain II pursuant to
or in connection with this Agreement or (iii) any untrue or alleged untrue
statement of any material fact contained in any registration statement, summary
prospectus, final prospectus, or amendment or supplement thereto, or the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, summary prospectus, final prospectus, or amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished by Rocky Mountain II or any Rocky Mountain II Shareholder.
20.4.6 KBG Indemnity Escrow Shares. Subject to the provisions
of Section 20.5 hereof, the Holding Company shall have the right to set-off from
time to time, in accordance with the terms of Section 20.5 hereof and of the
Escrow Agreement, against the escrow deposit of the KBG Indemnity Escrow Shares
so made by the Holding Company, KBG Indemnity Escrow Shares having a value equal
to the full amount of any and all Holding Company Indemnified Claims and Losses
imposed upon, asserted against, suffered or incurred by the Holding Company,
directly or indirectly, based upon, arising out of, resulting from (i) the
inaccuracy or untruth of any of the representations made by KBG pursuant to this
Agreement or pursuant to any certificate, document or instrument executed and
delivered by KBG pursuant to or in connection with this Agreement, (ii) the
breach by KBG of any of the warranties or covenants made by KBG pursuant to this
Agreement or pursuant to any certificate, document or instrument executed and
delivered by KBG pursuant to or in connection with this Agreement or the failure
of KBG to perform, observe or comply with, any of the covenants or agreements
made by KBG pursuant to this Agreement or pursuant to any certificate, document
or instrument executed and delivered by KBG pursuant to or in connection
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with this Agreement or (iii) any untrue or alleged untrue statement of any
material fact contained in any registration statement, summary prospectus, final
prospectus, or amendment or supplement thereto, or the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such registration
statement, summary prospectus, final prospectus, or amendment or supplement
thereto, in reliance upon and in conformity with written information furnished
by KBG or any KBG Shareholder.
20.4.7 Prema Properties Indemnity Escrow Shares. Subject to
the provisions of Section 20.5 hereof, the Holding Company shall have the right
to set-off from time to time, in accordance with the terms of Section 20.5
hereof and of the Escrow Agreement, against the escrow deposit of the Prema
Properties Indemnity Escrow Shares so made by the Holding Company, Prema
Properties Indemnity Escrow Shares having a value equal to the full amount of
any and all Holding Company Indemnified Claims and Losses imposed upon, asserted
against, suffered or incurred by the Holding Company, directly or indirectly,
based upon, arising out of, resulting from (i) the inaccuracy or untruth of any
of the representations made by Prema Properties or any of the Prema Properties
Members pursuant to this Agreement or pursuant to any certificate, document or
instrument executed and delivered by Prema Properties or the Prema Properties
Members pursuant to or in connection with this Agreement, (ii) the breach by
Prema Properties or any of the Prema Properties Members of any of the warranties
or covenants made by Prema Properties or any of the Prema Properties Members
pursuant to this Agreement or pursuant to any certificate, document or
instrument executed and delivered by Prema Properties or the Prema Properties
Members pursuant to or in connection with this Agreement or the failure of Prema
Properties or any of the Prema Properties Members to perform, observe or comply
with, any of the covenants or agreements made by Prema Properties or any of the
Prema Properties Members pursuant to this Agreement or pursuant to any
certificate, document or instrument executed and delivered by Prema Properties
or the Prema Properties Members pursuant to or in connection with this Agreement
or (iii) any untrue or alleged untrue statement of any material fact contained
in any registration statement, summary prospectus, final prospectus, or
amendment or supplement thereto, or the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in such registration statement, summary prospectus,
final prospectus, or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished by Prema Properties or any Prema
Properties Member.
20.4.8 Ralston Car Wash Indemnity Escrow Shares. Subject to
the provisions of Section 20.5 hereof, the Holding Company shall have the right
to set-off from time to time, in accordance with the terms of Section 20.5
hereof and of the Escrow Agreement, against the escrow deposit of the Ralston
Car Wash Indemnity Escrow Shares so made by the Holding Company, Ralston Car
Wash Indemnity Escrow Shares having a value equal to the full amount of any and
all Holding Company Indemnified Claims and Losses imposed upon, asserted
against, suffered or
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incurred by the Holding Company, directly or indirectly, based upon, arising out
of, resulting from (i) the inaccuracy or untruth of any of the representations
made by Ralston Car Wash or any of the Ralston Car Wash Members pursuant to this
Agreement or pursuant to any certificate, document or instrument executed and
delivered by Ralston Car Wash or the Ralston Car Wash Members pursuant to or in
connection with this Agreement, (ii) the breach by Ralston Car Wash or any of
the Ralston Car Wash Members of any of the warranties or covenants made by
Ralston Car Wash or any of the Ralston Car Wash Members pursuant to this
Agreement or pursuant to any certificate, document or instrument executed and
delivered by Ralston Car Wash or the Ralston Car Wash Members pursuant to or in
connection with this Agreement or the failure of Ralston Car Wash or any of the
Ralston Car Wash Members to perform, observe or comply with, any of the
covenants or agreements made by Ralston Car Wash or any of the Ralston Car Wash
Members pursuant to this Agreement or pursuant to any certificate, document or
instrument executed and delivered by Ralston Car Wash or the Ralston Car Wash
Members pursuant to or in connection with this Agreement or (iii) any untrue or
alleged untrue statement of any material fact contained in any registration
statement, summary prospectus, final prospectus, or amendment or supplement
thereto, or the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such registration statement, summary prospectus, final prospectus, or
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished by Ralston Car Wash or any Ralston Car Wash Member.
20.4.9 Miracle Partners Indemnity Escrow Shares. Subject to
the provisions of Section 20.5 hereof, the Holding Company shall have the right
to set-off from time to time, in accordance with the terms of Section 20.5
hereof and of the Escrow Agreement, against the escrow deposit of the Miracle
Partners Indemnity Escrow Shares so made by the Holding Company, Miracle
Partners Indemnity Escrow Shares having a value equal to the full amount of any
and all Holding Company Indemnified Claims and Losses imposed upon, asserted
against, suffered or incurred by the Holding Company, directly or indirectly,
based upon, arising out of, resulting from (i) the inaccuracy or untruth of any
of the representations made by Miracle Partners pursuant to this Agreement or
pursuant to any certificate, document or instrument executed and delivered by
Miracle Partners pursuant to or in connection with this Agreement, (ii) the
breach by Miracle Partners of any of the warranties or covenants made by Miracle
Partners pursuant to this Agreement or pursuant to any certificate, document or
instrument executed and delivered by Miracle Partners pursuant to or in
connection with this Agreement or the failure of Miracle Partners to perform,
observe or comply with, any of the covenants or agreements made by Miracle
Partners pursuant to this Agreement or pursuant to any certificate, document or
instrument executed and delivered by Miracle Partners pursuant to or in
connection with this Agreement or (iii) any untrue or alleged untrue statement
of any material fact contained in any registration statement, summary
prospectus, final prospectus, or amendment or supplement thereto, or the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, summary prospectus, final
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prospectus, or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished by Miracle Partners.
Section 20.5 Exercise of Set-Off Rights. The rights of the Holding
Company to set-off against the Indemnity Escrow Shares described in Section 20.4
above shall be exercised by the Holding Company only as follows:
20.5.1 Notice to Representative. The Holding Company shall
deliver written notice to the Representative of the applicable group of Selling
Stockholders or Selling Members of each claim for indemnification of Holding
Company Indemnified Losses and Claims for which the Holding Company desires to
exercise its right to set-off against the Indemnity Escrow Shares attributable
to such group of Selling Stockholders or Members or KBG, which notice shall
describe in reasonable detail the basis for such set-off and the dollar amount
of such set-off.
20.5.2 Right to Dispute Claim. The applicable Selling
Stockholders or Members (acting through their designated Representative) shall
then have fifteen days (which period may be extended by mutual consent in
writing) following receipt of such notice in which to accept or dispute each
such claim, in whole or in part. To the extent that any such claim is not
disputed in writing by the applicable group of Selling Stockholders or Members
within such fifteen day period, such claim shall be deemed to have been accepted
by such Selling Stockholders or Members, and the Holding Company shall be
entitled to set-off the entire amount of its claim against the Indemnity Escrow
Shares attributable to such group of Selling Stockholders or Members.
20.5.3 Disputed Claims. In the event that the applicable group
of Selling Stockholders or Members shall dispute any claim of the Holding
Company, in whole or in part (hereafter a "Contested Claim"), the Indemnity
Escrow Shares representing the amount of the Contested Claim shall be retained
by the Escrow Agent until the Contested Claim has been resolved by agreement of
the parties or until otherwise ordered by a court of competent jurisdiction. If,
however, the parties shall be unable to reach an agreement within forty-five
days after the date on which the Holding Company shall have give written notice
of such claim to the applicable group of Selling Stockholders or Members, the
dispute or disagreement between the parties shall be referred to arbitration and
arbitrated by a single arbiter, who shall be selected in accordance with the
then current Commercial Arbitration Rules of the American Arbitration
Association. The arbiter so selected shall be instructed that, in addition to
making a decision on the merits of such dispute or disagreement, that he or she
also shall make a determination that, on balance, one of the parties is the
"prevailing party." The "prevailing party" as part of any such arbitration
proceeding shall be entitled to reimbursement from the other party for all costs
and expenses incurred by it in connection with such arbitration, including
without limitation, reasonable attorneys' fees and disbursements and
consultants' fees and disbursement. Any such arbitration shall take place in
Washington, D.C. Judgment may be entered upon any award granted in any such
arbitration in any court of competent jurisdiction.
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20.5.4 Disbursement of Contested Claim. The Escrow Agent shall
be instructed to promptly disburse the amount of the Contested Claim to the
party entitled thereto (as determined by agreement of the parties or by
arbitration) upon receipt of joint, written instructions from the Holding
Company and the Representative of the applicable group of Selling Stockholders
or Members to that effect or upon presentation of a certified copy of an order
of an arbiter selected in accordance with the foregoing provisions.
Section 20.6 Value of Indemnity Escrow Shares. For purposes of
determining the actual amount of Indemnity Escrow Shares against which the
Holding Company shall be entitled to set-off its claims for indemnification, the
shares of Holding Company Common Stock deposited into escrow by the Holding
Company shall be valued at the price per share at which the shares of the Common
Stock of the Holding Company shall be offered to the public in the IPO. Except
with respect to Indemnity Escrow Shares as to which the Holding Company shall
have exercised its right to setoff, all of the Indemnity Escrow Shares shall
nevertheless be deemed to be owned by the Selling Shareholders and Selling
Members and KBG that otherwise would have been entitled to receive such shares
at the closing of the transactions contemplated by Article III of this
Agreement, and, subject to the provisions of Article III of this Agreement,
shall be entitled to vote the same and to receive all dividends declared
thereon; provided, however, that, notwithstanding the foregoing, all shares
issuable pursuant to any stock dividend or stock split declared by the Holding
Company with respect to the shares of the Common Stock of the Holding Company
which are applicable to any of the Indemnity Escrow Shares shall also be
deposited with the Escrow Agent and remain subject to the provisions of this
Article.
Section 20.7 Third Party Claims Against the Holding Company.
20.7.1 Claims. In the event that subsequent to the Closing
Date, any claim is asserted, any event occurs or any proceeding (including
governmental investigations or audits) is instituted relating to any matter as
to which the Holding Company may be or is entitled to indemnification or
reimbursement by means of set-off against any of the Indemnity Escrow Shares, as
soon as practicable after such the Holding Company receives any notice or
otherwise becomes aware of any such claim, proceeding or event, the Holding
Company shall so notify in writing the Representative of each group of Selling
Stockholders on whose behalf such Indemnity Escrow Shares have been deposited by
the Holding Company into escrow (the "Responsible Group of Selling
Stockholders").
20.7.2 Defense of Claims. If any action is brought against the
Holding Company in respect of any such claim, event or proceeding, the
Responsible Group of Selling Stockholders shall be entitled to participate in
the defense of such action, and, to the extent that the Responsible Group of
Selling Stockholders may wish, to assume sole control over the defense and
settlement of such action by so notifying the Holding Company of its election to
assume control of the defense of any such action within 15 days after receipt of
written notice thereof from the Holding Company; PROVIDED, HOWEVER, that: (i)
the Holding Company shall nevertheless be entitled to participate in the defense
of such action and to employ counsel at its own expense to assist in the
handling of such
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action; and (ii) the Responsible Group of Selling Stockholders shall obtain the
prior written approval of the Holding Company before entering into any
settlement of such action or ceasing to defend against such action.
Notwithstanding the foregoing, however, the Responsible Group of Selling
Stockholders shall not be entitled to assume sole control over the defense and
settlement of any claim, proceeding or action relating to any matter as to which
the Holding Company may be entitled to indemnification or reimbursement pursuant
to this Agreement if: (i) the claim, proceeding or action relates to, could
result in, or arises in connection with any criminal proceeding, action,
indictment, allegation or investigation of any officer or employee of the
Holding Company; (ii) the claim, proceeding or action could result in or cause a
Material Adverse Effect on the Holding Company in the reasonable judgment of the
Holding Company; (iii) the claim, proceeding or action is one which seeks
principally injunctive or equitable relief against the Holding Company or to the
extent that the claim, proceeding or action seeks injunctive or equitable
relief; or (iv) a court, Governmental Authority or other arbiter of the claim,
proceeding or action rules that the Responsible Group of Selling Stockholders
failed or is failing to adequately protect the Holding Company's interests,
rights or remedies. If the Responsible Group of Selling Stockholders does not
elect to assume control over the defense or settlement of an action as provided
in this Section 20.7.2, the Holding Company shall have the right to defend the
action and related claims in any reasonable manner as it may deem appropriate.
20.7.3 Legal Expenses. After written notice by the Responsible
Group of Selling Stockholders to the Holding Company of its election to assume
control of the defense of any such action in accordance with the foregoing, (i)
the Responsible Group of Selling Stockholders shall not be liable to the Holding
Company or any other Selling Stockholders or Selling Members (or KBG), as the
case may be, for any legal or other expenses (other than expenses of
investigation) subsequently incurred by any of such persons in connection
therewith unless the Holding Company shall be advised in writing by reputable
legal counsel that it may have defenses available to it which are inconsistent
with or contrary to the defenses available to the Responsible Group of Selling
Stockholders or Selling Member in connection with such action, claim or
proceeding (in which case, the Responsible Group of Selling Stockholders shall
be liable and responsible for the reasonable fees and disbursements of legal
counsel to the Holding Company), and (ii) as long as the Responsible Group of
Selling Stockholders is reasonably contesting such action in good faith, the
Holding Company shall not admit any liability with respect to, or settle,
compromise or discharge the claim underlying such action, claim or proceeding
without the prior written consent of the Responsible Group of Selling
Stockholders or Selling Members, which consent shall not be unreasonably
withheld or delayed.
Section 20.8. Indemnification by the Holding Company. From and after
the Closing Date, the Holding Company shall indemnify and hold harmless the
Selling Stockholders and Selling Members and KBG for, from and against all
Stockholder Indemnified Claims and Losses.
Section 20.9 General. It is the intent of the parties that the Holding
Company shall treat all Selling Stockholders or Selling Members equally with
respect to the exercise by the Holding Company of its right of setoff against
the Indemnity Escrow Shares attributable to any group of
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Selling Stockholders or Selling Members. To this end, Holding Company agrees
that all decisions to exercise the right of set off against Indemnity Escrow
Shares attributable to any group of Selling Stockholders or Selling Members
shall be made by the Board of Directors of Holding Company. In making any such
decision with respect to the right of set off against Indemnity Escrow Shares
attributable to the Selling Stockholders or Selling Members of a Predecessor
Company (the "Affected Predecessor Company") the directors who were designated
by the Participant Group to which the Affected Predecessor Company belongs shall
not participate in the deliberations or voting on such decision.
ARTICLE XXI
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ADDITIONAL LIMITED REMEDIES
---------------------------
In addition to the other rights and remedies of the parties hereto as
provided herein consequent upon a breach of this Agreement by another party
hereto, the parties shall have the following additional remedies:
Section 21.1 Additional Remedies.
21.1.1 Willful Breach. Notwithstanding anything contained
herein which may be inconsistent or to the contrary, if any of the Predecessor
Companies shall willfully and knowingly fail to disclose to the other parties
hereto and to the Holding Company any material matter required to be disclosed
by such Predecessor Company in connection with the representations and
warranties made by such Predecessor Company herein or willfully and knowingly
misrepresent any matter to the other parties to this Agreement pursuant to the
representations and warranties made by such Predecessor Company herein (it being
understood and agreed that WE JAC shall not be deemed to have willfully or
knowingly failed to disclose any matter or misrepresented any matter unless the
facts and circumstances relating to such matter or actually known by John F.
Ripley, Peter Kendrick or Arnold Janofsky; Lube Ventures shall not be deemed to
have willingly or knowingly failed to disclose any matter or misrepresented any
matter unless the facts and circumstances relating to such matter or actually
known to or by C. Eugene Deal or Ernest S. Malas; Miracle Partners shall not be
deemed to have willingly or knowingly failed to disclose any matter or
misrepresented any matter unless the facts and circumstances relating to such
matter or actually known to or by C. Eugene Deal; Miracle Industries and Prema
Properties shall not be deemed to have willingly or knowingly failed to disclose
any matter or misrepresented any matter unless the facts and circumstances
relating to such matter or actually known to or by Ernest S. Malas; Rocky
Mountain I shall not be deemed to have willingly or knowingly failed to disclose
any matter or misrepresented any matter unless the facts and circumstances
relating to such matter or actually known to or by William R. Klumb; Rocky
Mountain II shall not be deemed to have willingly or knowingly failed to
disclose any matter or misrepresented any matter unless the facts and
circumstances relating to such matter or actually known to or by William R.
Klumb) or if any of the Predecessor Companies shall, prior to the Closing,
willfully fail to perform, comply with or observe any of the covenants or
agreements made by such Predecessor Company herein which are to be performed,
complied with or observed prior to the Closing, or, at the Closing, default in
the performance of its obligations hereunder, without
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prejudice to any other rights or remedies to which any of the other parties to
this Agreement may be entitled, each of the other parties shall be entitled to
recover from such Predecessor Company (i) any and all actual damages that such
Predecessor Company may have incurred in connection with or as a result of any
such failure, misrepresentation, breach, nonperformance or noncompliance by such
Predecessor Company, together with reimbursement of its out-of-pocket costs and
expenses and its reasonable attorneys' fees incurred in connection with seeking
such relief, (ii) Termination Damages, and (iii) its ratable share of the
Transaction Expenses payable by such Predecessor Company based on the maximum
number of shares of Holding Company Common Stock that the shareholders or
members of such other party could have received in the Mergers and Exchange
Offers described in Article III compared to the maximum number of shares of
Holding Company Common Stock that the shareholders and members of all such other
parties could have received in the Mergers and Exchange Offers described in
Article III.
21.1.2 Failure to Obtain Approvals. In the event that (A)(i)
WE JAC fails to obtain the approval of its shareholders described in Section
4.2.3; (ii) Lube Venturess fails to obtain the approval of its shareholders
described in Section 4.3.2; (iii) Miracle Industries fails to obtain the
approval of its shareholders described in Section 4.4.2; (iv) Rocky Mountain I
fails to obtain the approval of its shareholders described in Section 4.5.3; (v)
Rocky Mountain II fails to obtain the approval of its shareholders described in
Section 4.6.3; (vi) stockholders of Miracle Partners shall have tendered to the
Holding Company for exchange in accordance with the terms of the Miracle
Partners Exchange Offer less than all of the issued and outstanding shares of
the capital stock of Miracle Partners; (vii) the members of Prema Properties (or
other holders of interests in Prema Properties) shall have tendered to the
Holding Company for exchange in accordance with the terms of the Prema
Properties Exchange Offer Membership Interests in Prema Properties representing
less than 75% of all of the Membership Interests in Prema Properties; (viii) the
members of Ralston Car Wash (or other holders of interests in Ralston Car Wash)
shall have tendered to the Holding Company for exchange in accordance with the
terms of the Ralston Car Wash Exchange Offer Membership Interests in Ralston Car
Wash representing less than 95% of all of the Membership Interests in Ralston
Car Wash; or (ix) KBG shall have tendered to the Holding Company for exchange in
accordance with the terms of the KBG Exchange Offer less than all of the
Membership Interests in KBG, LLC, and (B) within one year of the date hereof,
such Predecessor Company engages in a sale of substantially all of its assets or
a merger or holders of its common stock or membership interests transfer in the
aggregate shares or membership interests representing a majority of the
outstanding shares or membership interests of such Predecessor Company, such
Predecessor Company shall be liable for Termination Damages to the other
Predecessor Companies which Termination Damages shall be issued ratably to such
other Predecessor Companies based on the maximum number of shares of Holding
Company Stock that the shareholders or members of such other Predecessor
Companies could have received in the Mergers and Exchange Offers described in
Article III compared to the maximum number of shares of Holding Company Common
Stock that the shareholders and members of all such other Predecessor Companies
could have received in the Mergers and Exchange Offers described in Article III.
21.1.3 Termination Damages. "Termination Damages" shall mean
the obligation of a Predecessor Company to issue to the other parties hereto
shares of capital stock or Membership Interests in such Predecessor Company
which, following such issuance, shall represent 20% of the issued and
outstanding shares of capital stock or Membership Interests in such Predecessor
Company calculated on a fully diluted basis.
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Section 21.2 Equitable Remedies. Each of the Predecessor Company hereby
acknowledges and agrees that damages that may result to the other Predecessor
Companies from any breach or threatened breach of any of the covenants or
agreements contained in this Agreement which are to be complied with or
performed by each of the Predecessor Companies may be intangible, in whole or in
part, and incapable of being assessed of monetary value and likely will result
in irreparable harm to, and have a Material Adverse Effect on, each of the other
Predecessor Companies. Therefore, each of the Predecessor Companies hereby
agrees that, in the event of any breach or threatened breach by them of any of
the covenants or agreements contained in this Agreement which are to be complied
with or performed by them, without prejudice to and in addition to any other
remedies available to them at law or in equity, each of the other Predecessor
Companies shall be entitled to a decree of specific performance and/or
injunctive relief to prevent any such breach or a continuation thereof and other
equitable remedies, together with an award of reasonable attorneys fees,
expenses and disbursements incurred in connection with seeking such relief.
ARTICLE XXII
------------
EMPLOYEE BENEFIT ARRANGEMENTS POST-CLOSING
------------------------------------------
Section 22.1 WE JAC Option Plans. The parties agree that, upon
consummation of the WE JAC Merger, the Holding Company shall succeed to, and
assume, all of the obligations and liabilities of WE JAC to issue capital stock
pursuant to outstanding options and warrants to purchase WE JAC common stock,
including, without limitation, options outstanding (i) under the 1996 Precision
Tune Employee Stock Purchase Plan (ii) under the Precision Tune Stock Option
Plan, (iii) under the terms of the Stock Option Agreements dated July 1, 1995
and October 3, 1996 by and between WE JAC and John F. Ripley and (iv) under
warrants granted to Capitol Tune, Inc., Signet Bank and Summit Bank. Schedule
22.1 sets forth a list of all such options and the number of shares of Holding
Company Common Stock and exercise price per share they will be converted into at
Closing.
Section 22.2 Reservation of Management Option Shares. The Holding
Company shall have the right to reserve at the Closing, for issuance following
the Closing to officers, directors, employees and agents of the Holding Company
and its subsidiaries pursuant to stock option plans or arrangements or other
equity incentive, bonus or similar plans or arrangements approved by the Board
of Directors thereunder, such number of shares of the Common Stock of the
Holding Company, which, if and when issued following the consummation of the
IPO, will represent not more than 5% of the issued and outstanding shares of the
Common Stock of the Holding Company.
ARTICLE XXII
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OTHER COVENANTS AND AGREEMENTS OF THE PARTIES
---------------------------------------------
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Section 23.1 Discharge of Indebtedness of Predecessor Companies. At the
Closing, immediately following the consummation of the sale of the Common Stock
of the Holding Company to the underwriters in anticipation of the IPO, the
Holding Company shall discharge from the cash proceeds received in such sale all
of the indebtedness of the Predecessor Companies set forth in Schedule 23.1.
Section 23.2 Release from Guarantees of Corporate Obligations. From and
after the Closing, to the extent that any obligation or indebtedness of any
Predecessor Company shall not be discharged at the Closing as provided above,
the Holding Company shall use its reasonable best efforts to obtain the release
of each Selling Stockholder and Selling Member (and his or her spouse, if
applicable) and of the officers of WE JAC from any and all Guarantees of the
obligations of any of the Predecessor Companies executed or given prior to the
Closing Date by such Selling Stockholder or Selling Member (and his or her
spouse) or by the officers of WE JAC; provided, however, that the Holding
Company shall not be obligated to expend any funds or post any bonds in order to
obtain such release(s). If the Holding Company shall be unable to obtain such
release(s) on behalf of any Selling Stockholder or Selling Member (or his or her
spouse), or any officer of WE JAC, or if the Holding Company shall be unwilling
to agree to any terms or conditions imposed by the party granting such
release(s) in order to obtain any such release(s), the Holding Company shall
indemnify such Selling Stockholder or Selling Member, or officer of WE JAC, not
so released from any such Guarantees from and against any and all liabilities
arising from any such Guarantee.
Section 23.3 Confidentiality. Each of the parties hereto for themselves
and their respective officers, directors, employees, stockholders and
representatives, shall hold in confidence all information, books, records and
documents acquired from any other party hereto prior to, on, or after the date
hereof in the course of negotiation of the transactions contemplated hereby or
pursuant to the provisions hereof and will not disclose the same to any third
party except as required by law, and except to the extent necessary to (a)
respond to a subpoena, court order or other legal process, (b) comply with
Applicable Laws, (c) establish a lawful claim or defense, or (d) obtain
reasonably necessary advice of counsel. Should the transactions contemplated
hereby not be consummated for any reason, each party shall promptly return to
the other all originals and copies of such documents and other written
information obtained from the other in the course of such negotiations or
pursuant hereto and shall promptly destroy all evaluations and studies prepared
by it or by any of its representatives on the basis of such information, books,
records or documents.
Section 23.4 Maintenance of Indemnity Provisions in Charters and
Operating Agreements. From and after the Closing, the Holding Company shall
maintain in effect the indemnification provisions contained in the charters and
operating agreements of each of the Predecessor Companies as of the date hereof
for a period of three (3) years following the Closing, and will not seek to
amend or modify such provisions without first obtaining the written consent of a
majority of the last acting directors or the Selling Members of such Predecessor
Companies, it being understood and agreed, however, that, prior to the
expiration of such three (3) year period, the Holding Company may merge or
dissolve all or any of the Predecessor Companies in any such manner as the Board
of Directors of the Holding Company shall determine to be advisable, but, if it
should do so, the Holding
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Company shall ensure that the charter or other organizational documentation
pertaining to any successor to any Predecessor Company shall contain provisions
providing for the indemnification of the officers and directors of such
Predecessor Company substantially equivalent to the indemnification provisions
contained in the charters and operating agreements of each of the Predecessor
Companies as of the date hereof.
Section 23.5 Officers and Directors Liability Insurance. From and after
the Closing, the Holding Company shall maintain in full force and effect, with a
reputable insurer, officer's and director's liability insurance in such amounts
and on such terms and conditions as the Board of Directors shall determine to be
reasonable or advisable.
Section 23.6 Lock-Ups of Shares. Each of the parties hereto
acknowledges that, in order to accommodate the underwriters for the proposed
IPO, the sale, transfer, assignment, pledge, gift or other disposition by any
direct or indirect holder of 3,000 or more of the Combination Shares to be
received by the Selling Stockholders and the Selling Members pursuant to the
transactions contemplated by this Agreement shall be prohibited for a period of
180 days following the Closing Date, unless the Holding Company shall provide
its written consent thereto in advance thereof, and agrees that the Articles of
Incorporation of the Holding Company may reflect such restriction. In addition,
each certificate evidencing the Combination Shares to be issued by the Holding
Company pursuant to the transactions contemplated by this Agreement shall bear a
conspicuous legend thereon which shall read substantially as follows:
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, GIFT OR
OTHER DISPOSITION BY ANY RECORD OR BENEFICIAL
HOLDER OF 3,000 OR MORE SHARES OF PRECISION AUTO
CARE, INC. WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMPANY IS PROHIBITED UNTIL __________, 1998."
Section 23.7 Registration Rights.
23.7.1 Right to Include Shares in the IPO. Subject to the
further provisions of this Section 23.7, each of the Selling Stockholders or
Selling Members shall have the right to elect, following their receipt of the
notices given by the Predecessor Companies in accordance with applicable
securities laws, (but not later than 10 days thereafter) to include in the Form
S-1 Registration Statement and the IPO all or a portion of the Combination
Shares to be received by them pursuant to the Closing of the transactions
contemplated by this Agreement for offer and sale to the underwriters on the
same terms as may be offered to the Holding Company by the underwriters for the
IPO (except as otherwise provided for herein), which election shall be made by
written notice to the Holding Company within such 10-day period and shall
specify the number of shares of the Common Stock of the Holding Company Common
Stock that the Selling Stockholder or Selling Member desires to so include in
such registration statement, and which shall be accompanied by an executed
Selling Shareholder Questionnaire/Power of Attorney in the form that accompanies
the Notice or the Joint Proxy Statement\Prospectus included in the Form S-4
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Registration Statement of the Holding Company; PROVIDED, HOWEVER, that the
Holding Company shall have no obligation to include in the Form S-1 Registration
Statement or the IPO any Combination Shares on behalf of any Selling Stockholder
or Selling Member who desires to include less than 3,000 Combination Shares in
the IPO; PROVIDED FURTHER, that each of the Selling Stockholders or Selling
Members who shall be required by federal or any applicable state income tax law
to recognize income in the year in which the Closing Date shall occur as a
result of the consummation of any of the transactions contemplated by Article V
of this Agreement otherwise than as a result of the receipt of a cash payment
from the Holding Company in lieu of fractional shares (each such Selling
Stockholder or Selling Member being referred to hereinafter as a "Tax Preference
Selling Shareholder") shall have the right, in preference to all other Selling
Stockholders or Selling Members, to include in the IPO such number of
Combination Shares, which, when sold in the IPO, will yield to the Selling
Stockholder or the Selling Member sufficient net cash proceeds to satisfy his or
her respective combined federal and state income tax liability which will arise
from such transactions; and PROVIDED FURTHER, that the Holding Company shall
have no obligation to include in the Form S-1 Registration Statement or the IPO
more than 19% of the aggregate number of Combination Shares to be issued
pursuant to the transactions contemplated by Article III of this Agreement (the
"Selling Shareholder Share Limitation"). Notwithstanding the foregoing, no
election by a Selling Stockholder or Selling Member to include Combination
Shares in the IPO shall be valid or effective unless and until such notice,
together with the other materials referred to herein, have been submitted to the
Holding Company duly executed. Each election to include Combination Shares in
the IPO made by a Selling Shareholder or Selling Member shall be irrevocable and
may not be withdrawn except to the extent provided in Section 23.7.2.
23.7.2 Reduction of Number of Combination Shares to be
Included in the IPO. If Selling Stockholders or Selling Members shall elect to
include in the IPO an aggregate number of Combination Shares which exceeds the
Selling Shareholder Share Limitation, or if the lead underwriter for the IPO
advises the Holding Company in good faith that inclusion of some or all of the
Combination Shares which the Selling Stockholders or Selling Members shall have
requested be included in such registration statement would adversely affect the
marketing of the entire offering of securities, then the Holding Company shall
be obligated to include in the registration statement and the IPO only such
aggregate number of Combination Shares which is equal to the Selling Shareholder
Share Limitation (or such lesser number of Combination Shares as the managing
underwriter shall in good faith advise the Holding Company may be included
therein without, in the opinion of the managing underwriter, adversely affecting
the marketing of the entire offering of shares of the Holding Company Common
Stock in the IPO) (such number of shares being referred to as the "Permissible
Number of Shares"). If the aggregate number of Combination Shares that the
Selling Stockholders and Selling Members shall have requested be included in
such registration statement exceeds the number of Permissible Number of Shares,
the number of Combination Shares that each Selling Stockholder or Selling Member
shall be entitled to include therein shall be reduced as follows: first, all of
the Combination Shares that Tax
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Preference Selling Shareholders elect to include shall be included unless the
amount of such shares exceeds the Permissible Number of Shares. If the
Permissible Number of Shares is so exceeded, the number of Combination Shares
that the Tax Preference Selling Shareholders may include shall be reduced pro
rata, based on the number of Combination Shares that each Tax Preference Selling
Shareholder initially requested be included in the registration statement;
second if, all of the Combination Shares that the Tax Preference Selling
Shareholders elect to include in the registration statement is less than the
Permissible Number of Shares, the Selling Stockholders and the Selling Members
(other than the Tax Preference Selling Shareholders) shall be entitled to
include their pro rata portion of the difference between the Permissible Number
of Shares and the number of Combination Shares that the Tax Preference Selling
Shareholders have elected to include in the registration statement based upon
the number of Combination Shares initially requested to be included by the
Selling Shareholders and Selling Members (other than the Tax Preference Selling
Shareholders).
Section 23.8 Obligations of Shareholders Selling in the IPO. In
addition to the obligations to be set forth in the Underwriting Agreement, each
Selling Stockholder or Selling Member who desires to include Combination Shares
in the IPO shall be required to (i) cooperate with the Holding Company in
preparing the Form S-1 Registration Statement to reflect the inclusion of their
Combination Shares therein, and execute such ordinary and customary agreements
as may be reasonably necessary in favor of the underwriters for the IPO; (ii)
promptly supply the Holding Company with all information, documents,
representations and agreements as the Holding Company or the underwriter may
reasonably deem necessary in connection with the registration of such
Combination Shares.
Section 23.9 Expenses of Registration. The costs and expenses of all
registrations and qualifications under the Securities Act and applicable state
securities or blue sky laws, and of all other actions, that the Holding Company
is required to take or effect in order to register the IPO Shares and any
Combination Shares for offer and sale to the public (including, without
limitation, all registration and filing fees, printing expenses, costs of
special audits incidental to or required by any such registration, and fees and
disbursements of counsel and independent public accountants for the Holding
Company) shall be borne and paid for by the Holding Company and the Contributing
Companies as provided for in this Agreement. In addition, all Selling
Stockholders and Selling Members (other than Tax Preference Selling
Shareholders) shall bear their prorata portion of underwriting discounts or
commissions. The Holding Company shall pay underwriting discounts or commissions
attributable to Combination Shares that Tax Preference Selling Shareholders
include in the IPO.
Section 23.10 Inclusion of Certain Shares. Notwithstanding the
provisions of Section 23.7.2, the Holding Company shall not permit the lead
underwriter of the IPO to set the Permissible Number of Shares below a number
that permits William R. Klumb to include in the Form S-1 Registration Statement
and the IPO such number of Combination Shares to be received by him pursuant to
the transactions contemplated by Article III, which, when sold in the IPO, will
yield to him sufficient net cash proceeds to satisfy his combined federal and
state income tax liability which will arise as a result of the discharge by the
Holding Company of the indebtedness described at Item __ in Schedule 19.1.
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ARTICLE XXIV
------------
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
---------------------------------------
COVENANTS AND AGREEMENTS
------------------------
Section 24.1 Survival in General. Except as otherwise provided in this
Agreement, all of the representations, warranties, covenants and agreements of
the parties contained in this Agreement shall survive the Closing. The
representations and warranties made by the parties to this Agreement to each of
the other parties to this Agreement shall terminate and expire effective as of
the Closing, except with respect to the representations and warranties made by
each party to the Holding Company pursuant to the terms of this Agreement. From
and after the Closing, the Holding Company shall have the sole and exclusive
right to exercise all remedies against the parties hereto with respect to any
inaccuracy or untruth of any of the representations made by any of the parties
to this Agreement pursuant to the terms of this Agreement or pursuant to any
certificate, document or instrument executed and delivered by any of the parties
pursuant to or in connection with this Agreement or the breach by any party of
any of the warranties or covenants made by any such party pursuant to this
Agreement or the failure of any such party to perform, observe or comply with,
any of the covenants or agreements made by such party pursuant to this Agreement
or in connection with this Agreement. Furthermore, except as provided in the
next sentence, from and after the Closing the Holding Company's sole and
exclusive remedy against parties who proceed to Closing hereunder with respect
to the foregoing shall be limited to its right to exercise its right of setoff
against the Indemnity Escrow Shares as provided in Article XX of this Agreement.
The Holding Company shall not, except in the cases of fraud, have the right to
seek to impose personal liability upon any of the Selling Stockholders or the
Selling Members in the capacity as former stockholders or former members, as the
case may be, of any of the Predecessor Companies.
Section 24.2 Survival of Indemnity Obligations. The obligations of the
Selling Shareholders and the Selling Members and of KBG to indemnify the Holding
Company shall, except with respect to any unresolved claims made by the Holding
Company for indemnification, expire and terminate at 5:00 Eastern Daylight Time
on the date which is one year after the Closing Date.
Section 24.3 Survival of Covenants and Agreements. Each of the
covenants of the parties contained in or made by the parties pursuant to the
terms of this Agreement which are to be performed by the parties at and after
the Closing, other than the indemnity obligations of the parties with respect to
representations and warranties (which shall survive the Closing as provided for
in
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the foregoing provisions of this Section), shall survive the Closing until the
same shall have been performed or discharged in full.
Section 24.4 Effect of Due Diligence. Notwithstanding any investigation
or audit conducted by any of the parties to this Agreement prior to the Closing,
each of the parties to this Agreement shall be entitled to rely upon the
representations and warranties made by the other parties pursuant to this
Agreement, and such representations and warranties shall not be deemed to have
been waived or otherwise affected by any such investigation or audit or any
knowledge attributable to any party.
ARTICLE XXV
-----------
MISCELLANEOUS
-------------
Section 25.1 Entire Agreement. This Agreement, together with the
Collateral Agreements, constitutes the entire agreement and understanding
between the parties hereto in respect of the matters set forth herein, and,
except as otherwise specifically provided for herein with respect to certain
provisions of the Memorandum of Understanding relating to Transaction Expenses,
which provisions are incorporated herein by reference, all prior negotiations,
writings and understandings relating to the subject matter of this Agreement
(including, without limitation, all other provisions of the Memorandum of
Understanding and all supplements thereto or amendments thereof) are merged
herein and are superseded and canceled by this Agreement.
Section 25.2 Amendment and Waiver. This Agreement may be amended,
modified, supplemented or changed in whole or in part only by an agreement in
writing making specific reference to this Agreement and executed by each of the
parties hereto. Any of the terms and conditions of this Agreement may be waived
in whole or in part, but only by an agreement in writing making specific
reference to this Agreement and executed by the party that is entitled to the
benefit thereof. The failure of any party hereto to insist upon strict
performance of or compliance with the provisions of this Agreement shall not
constitute a waiver of any right of any such party hereunder or prohibit or
limit the right of such party to insist upon strict performance or compliance at
any other time.
Section 25.3 Binding Agreement and Successors. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
Section 25.4 Assignment. This Agreement and the rights of the parties
hereunder may not be assigned, and the obligations of the parties hereunder may
not be delegated, in whole or in part, by any party without the prior written
consent of the other parties hereto.
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Section 25.5 No Third Party Beneficiaries. Nothing in this Agreement is
intended to confer any rights or remedies upon any Person other than (i) the
parties hereto, (ii) the indemnified Persons under Article XX and (iii) M&S with
respect to the provisions of Section 1.2.1.
Section 25.6 Notices. Any notice, request, instruction or other
document or communication required or permitted to be given under this Agreement
shall be in writing and shall be deemed given (i) three days after being
deposited in the mail, postage prepaid, certified or registered mail, (ii) on
the next business day after delivery to a reputable overnight delivery service
such as Federal Express, or (iii) upon personal delivery if delivered or
addressed to the addresses set forth below or to such other address as any party
may hereafter specify by written notice to the other parties hereto:
(a) If to WE JAC prior to the Closing, delivered
or mailed to WE JAC Corporation, 748 Miller Drive, SE, Leesburg, Virginia 20175,
Attention: Board of Directors, with a copy delivered or mailed to John B.
Frisch, Esquire, Miles & Stockbridge, a Professional Corporation, 10 Light
Street, Baltimore, Maryland 21202;
(b) If to Miracle Industries prior to the
Closing, delivered or mailed to Miracle Industries, Inc., c/o Miracle Car Wash,
1458 Park Avenue West, Mansfield, Ohio 44906, Attention: President;
(c) If to Lube Venturess prior to the Closing,
delivered or mailed to Lube Venturess, Inc., 1237 West Fourth Street, Mansfield,
Ohio 44906, Attention: President;
(d) If to Miracle Partners prior to the Closing,
delivered or mailed to Miracle Partners, Inc., c/o Lube Venturess, Inc., 1237
West Fourth Street, Mansfield, Ohio 44906, Attention: President;
(e) If to Prema Properties prior to the Closing,
delivered or mailed to Prema Properties, Ltd., 52 East 15th Avenue, Columbus,
Ohio 43201, Attention: Managing Member;
(f) If to Rocky Mountain I, Rocky Mountain II
or Ralston Car Wash prior to the Closing, delivered or mailed c/o Rocky Mountain
Ventures, Inc., 15200 East Girard Avenue, Suite 2700, Aurora, Colorado
80014-5039, Attention: President;
(g) If to KBG prior to the Closing, delivered or
mailed to The Karl Byrer Group, Inc., 2171 S. Trenton Way #215, Denver, Colorado
80231, Attention: President.
Section 25.7 Further Assurances. The parties hereto each agree to
execute, make, acknowledge, and deliver such instruments, agreements and other
documents as may be reasonably required to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
Section 25.8 Article and Section Headings. The Article and Section
headings contained in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning or interpretation of this
Agreement or any of its terms and conditions.
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Section 25.9 Governing Law. This Agreement shall be construed and
enforced in accordance with and shall be governed by the laws of the
Commonwealth of Virginia, without regard to its principles of conflict of laws.
Section 25.10 Certain Definitions. The following terms, whenever used
in capitalized form in this Agreement, shall have the following meanings:
"Affiliate" shall mean any Person that directly or indirectly
controls, is controlled by, or is under common control with the Person in
question. For purposes of determining whether a Person is an Affiliate, the term
"control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of securities, contract or otherwise.
"Agreements Not to Compete" shall mean the Agreements Not to
Compete in the forms attached hereto as Exhibits which will be entered into by
and between the Holding Company and the Person listed on Schedule 4.1.7 at the
Closing.
"Applicable Laws" shall mean any law, statute, ordinance,
code, rule, regulation, standard, ruling, decree, judgment, award, order or
other requirement of any Government Authority that is applicable to a
Predecessor Company.
"Benefit Arrangements" shall mean all life and health
benefits, hospitalization, savings, bonus, deferred compensation, incentive
compensation, severance pay, disability, sick pay, vacation pay, stock option,
award or similar plans, and fringe benefit plans, individual employment and
severance contracts and other policies and practices, whether written or oral,
providing employee or executive compensation or benefits to Employees of a
Predecessor Company or their dependents, other than Employee Benefit Plans.
"Byrer Group" shall mean and refer to KBG and its shareholders
and Subsidiaries.
"Closing" shall mean the consummation of the transactions
contemplated by Article III of this Agreement.
"Closing Date" shall mean the date on which the Closing
actually shall occur pursuant to this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Collateral Agreements" shall mean the Agreements Not to
Compete, the Employment Agreements and the Underwriting Agreement which are
expected to be executed by the Holding Company at the Closing.
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"Combination Shares" shall mean the shares of the Common Stock
of the Holding Company to be issued pursuant to the transactions contemplated by
Article III hereof.
"Commission" shall mean the Securities and Exchange Commission
of the United States of America.
"Constituent Company" of a Participant Group shall mean and
refer to each of the corporations and limited liability companies (and the
shareholders and members thereof) of such Participant Group.
"Contest" shall mean any administrative or judicial Tax audit,
examination, proceeding or litigation involving any Tax Authority.
"Contributing Companies" or "Contributing Company" shall refer
only to the WE JAC Group, Miracle Industries, Prema Properties, Lube Venturess,
Miracle Partners, Rocky Mountain I, Rocky Mountain II and Ralston Car Wash, but
shall not include or refer to KBG.
"Corporate Predecessor Companies" and "Corporate Predecessor
Company" shall mean and refer to WE JAC, Miracle Industries, Lube Venturess,
Miracle Partners, Rocky Mountain I and Rocky Mountain II.
"Debt Level Escrow Shares" shall mean the share of Common
Stock of the Holding Company to be deposited into escrow at the Closing by the
Holding Company pursuant to Section 19.1.
"DOL" shall mean the United States Department of Labor.
"Employee Benefit Plan" shall mean each "employee benefit
plan," as defined in Section 3(3) of ERISA, maintained or contributed to by any
of the Predecessor Companies or any of its Subsidiaries or any of its ERISA
Affiliates, but excluding Multiemployer Plans.
"Employees" or "Employee" shall mean and refer to the current
employees, former employees and retired employees of a Predecessor Company.
"Encumbrance" shall mean any interest of any Person,
including, without limitation, any right to acquire, option, right of
preemption, or any mortgage, lease, charge, pledge, lien, encumbrance,
assignment, hypothecation, security interest, title retention, claim, covenant,
condition, easement or any other security agreement or arrangement or any
restriction of any kind or character.
"Environmental Laws" shall mean any law, statute, regulation,
rule, order, consent, decree, or governmental requirement that relates to or
otherwise imposes liability or standards of conduct concerning Hazardous
Materials or discharges or releases of any Hazardous Materials into
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air, water or land, including (but not limited to) the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended; the
Resource Conservation and Recovery Act of 1978, as amended; the Clean Water Act,
the Clean Air Act, or any other similar federal, state or local statutes.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate" shall mean any Person that is treated as a
single employer with the Person in question under Section 414(b), (c), (m) or
(o) of the Code.
"Exchange Agent" shall mean such bank or trust company as the
exchange agent for the Subsidiary Mergers.
"Exchange Offers" shall mean the Prema Properties Exchange
Offer, the Miracle Partners Exchange Offer, the Ralston Car Wash Exchange Offer
and the KBG Exchange Offer.
"GAAP" shall mean generally accepted accounting principles in
effect in the United States as of the date hereof.
"Governmental Authority" shall mean any government or state
(or any subdivision thereof), whether domestic, foreign or multinational, or any
agency, authority, bureau, commission, department or similar body or
instrumentality thereof, or any governmental court or tribunal.
"Guarantees" shall mean any obligations, contingent or
otherwise, of a Person in respect of any indebtedness, obligation or liability
of another Person, including but not limited to direct or indirect guarantees,
endorsements (except for collection or deposit in the ordinary course of
business), notes co-made or discounted, recourse agreements, take-or-pay
agreements, keep-well agreements, agreements to purchase or repurchase such
indebtedness, obligation or liability or any security therefor or to provide
funds for the payment or discharge thereof, agreements to maintain solvency,
assets, level of income, or other financial condition, and agreements to make
payment other than for value received.
"Hazardous Materials" shall mean (a) any "hazardous waste" as
defined by the Resource Conservation and Recovery Act of 1976, as amended from
time to time, and regulations promulgated thereunder; and (b) any "hazardous
substance" as defined by the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended from time to time, and regulations
promulgated thereunder; and (c) any "hazardous material" as defined by the
Hazardous Materials Transportation Act, as amended from time to time, and
regulations promulgated thereunder; and shall include without limitation,
asbestos, PCBs, petroleum products, and urea-formaldehyde (in situations where
considered hazardous or toxic).
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"Indemnity Escrow Shares" shall mean the shares of the Common
Stock of the Holding Company deposited into escrow by the Holding Company at the
Closing pursuant to Section 20.1 of this Agreement.
"Income Taxes" shall mean any income, gross receipts, gains,
net worth, surplus, franchise or withholding taxes (including interest,
penalties or other additions to Tax) imposed by a Tax Authority.
"Holding Company Indemnified Claims and Losses" shall mean
demands, suits, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs, judgments and expenses, including, without
limitation, interest, penalties, reasonable attorneys' fees, disbursements and
expenses, and reasonable consultants' fees, disbursements and expenses.
"Intellectual Property" shall mean all patents, patent
applications, trademarks, trademark registrations and applications therefor,
service marks, service mark registrations and applications therefor, copyrights,
copyright registrations and applications therefor, trade names, trade secrets,
software and computer programs, know-how, inventions, processes and procedures.
"IPO" shall mean the proposed public offering by the Holding
Company of shares of its Common Stock following the Closing.
"IPO Shares" shall mean and refer to such number of shares of
the authorized shares of the Common Stock of the Holding Company which shall be
issued by the Holding Company in the IPO.
"IRS" shall mean the Internal Revenue Service of the United
States of America.
"Lease Agreements" shall mean the Lease Agreements described
in Sections 5.14, 5.15 and 5.16.
"Lube Ventures Disclosure Letter" shall mean the Disclosure
Letter dated of even date with this Agreement submitted by Lube Ventures to each
of the other parties hereto in connection with the representations and
warranties made by Lube Ventures herein.
"Lube Ventures Dissenting Shares" shall mean each of the
shares of the Common Stock of Lube Ventures with respect which the holder
thereof shall have exercised and perfected Dissenter' Rights under the laws of
the State of Ohio.
"Lube Ventures System" shall mean Lube Ventures's proprietary
system for the operation of retail service centers which are devoted to
providing lubrication services for automobiles and light trucks.
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"Management Option Shares" shall mean the shares of the Common
Stock of the Holding Company to be reserved for issuance by the Holding Company
pursuant to Section 22.2.
"Material Adverse Effect" shall mean a material adverse change
in the business, assets, rights, properties, liabilities, financial condition or
prospects of a Person.
"Material Contracts" shall mean those contracts, agreements,
commitments or understanding required to be disclosed by a Predecessor Company
in its Disclosure Letter pursuant to this Agreement.
"Material Participant" shall mean WE JAC, Miracle Industries,
Miracle Partners, Prema Properties, Lube Venturess and Rocky Mountain II.
"Membership Interest" shall mean, with respect to the Prema
Properties Members, all of the rights of each of the Prema Property Members as a
member of Prema Properties and all of their respective right, title and interest
in, to and under the _________ Agreement dated _____________ by and among the
Prema Properties Members, and, with respect to the Ralston Car Wash Members, all
of the rights of each of the Ralston Car Wash Members as a member of Ralston Car
Wash and all of their respective right, title and interest in, to and under the
Operating Agreement dated September 5, 1991, by and among the Ralston Car Wash
Members.
"Memorandum of Understanding" shall mean and refer to that
certain Memorandum of Understanding dated as of October 18, 1996 by and among WE
JAC, Precision Tune, Ernie Malas, William Klumb, Karl Byrer, Lube Venturess,
Prema Properties, Miracle Industries, Rocky Mountain I, Rocky Mountain II and
Ralston Car Wash, as supplemented by the Supplemental Memorandum of
Understanding dated as of March __, 1997 by and among WE JAC, Precision Tune,
Ernie Malas, William Klumb, Karl Byrer, Lube Ventures, Prema Properties,
Miracle Industries, Rocky Mountain I, Rocky Mountain II and Ralston Car Wash, as
amended by that certain Joinder and Amendment No. 1 to Supplemental Memorandum
of Understanding dated as of March 17, 1997 by and among and among WE JAC,
Precision Tune, Ernie Malas, William Klumb, Karl Byrer, Lube Venturess, Prema
Properties, Miracle Industries, Rocky Mountain I, Rocky Mountain II, Ralston Car
Wash, Miracle Partners and C. Eugene Deal.
"Miracle Industries Disclosure Letter" shall mean the
Disclosure Letter dated of even date with this Agreement submitted by Miracle
Industries to each of the other parties hereto in connection with the
representations and warranties made by Miracle Industries herein.
"Miracle Industries Dissenting Shares" shall mean each of the
shares of the Common Stock of Miracle Industries with respect which the holder
thereof shall have exercised and perfected Dissenter' Rights under the laws of
the State of Ohio.
"Miracle Industries Subsidiaries" shall mean Hydro-Spray and
Indy Ventures.
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"Multiemployer Plan" shall mean a plan described in Sections
3(37) and 4001(a)(3) of ERISA to which any of of the Predecessor Companies or
any of its Subsidiaries has an obligation to contribute.
"National 60 Minute Tune" shall mean and refer to National 60
Minute Tune, Inc., a Washington corporation and a wholly-owned subsidiary
corporation of WE JAC.
"Ohio Group" shall mean and refer to Lube Venturess and
Miracle Industries and their respective shareholders and Subsidiaries and the
Prema Properties Group.
"Operating Committee" shall mean a committee comprised of two
Representatives of the WE JAC Group, one Representative of the Ohio Group and
one Representative of the Rocky Mountain Group which Representatives shall be
the following individuals until changed in accordance with Section 24.14: John
R. Ripley and Peter Kendrick as the Representatives of the WE JAC Group; Ernst
S. Malas as the Representative of the Ohio Group; and William R. Klumb as the
Representative of the Rocky Mountain Group.
"Option Agreements" shall mean the Option Agreements described
in Sections 5.14, 5.15 and 5.16.
"Participant Group" shall mean and refer to the Rocky Mountain
Group, the Ohio Group, the WE JAC Group and the Byrer Group, respectively.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any Employee Benefit Plan that is an
"employee pension benefit plan" as defined in Section 3(2) of ERISA.
"Person" shall mean any individual, corporation,
unincorporated association, business trust, estate, partnership, limited
liability company, limited liability partnership, trust, government or any
agency or political subdivision thereof, or any other entity.
"Precision Tune" shall mean and refer to Precision Tune Auto
Care, Inc., a Virginia corporation and a wholly-owned subsidiary corporation of
WE JAC.
"Precision Tune System" shall mean Precision Tune's
proprietary system for the operation of retail service centers which are devoted
to providing brake repairs, engine tune-ups, lubrication services, oil and
filter changes, engine diagnostics, emissions systems installation and
certification, preventative maintenance services, minor air conditioning and
engine cooling system services and minor repairs to the distributor, carburetor,
fuel and ignition systems for automobiles and light trucks.
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"Predecessor Companies" shall mean and refer to WE JAC,
Precision Tune, Lube Ventures, Miracle Industries, Hydro-Spray, Indy Ventures,
KBG, Rocky Mountain I, Rocky Mountain II, Miracle Partners, Prema Properties and
Ralston Car Wash.
"Prema Properties Disclosure Letter" shall mean the Disclosure
Letter dated of even date with this Agreement submitted by the Prema Properties
Members to each of the other parties hereto in connection with the
representations and warranties made by the Prema Properties Members herein.
"Prema Properties Group" shall mean and refer to Prema
Properties and the Prema Properties Members.
"Proprietary Car Wash Software System" shall mean the
Proprietary Car Wash Computer Software System designed for the operation of car
wash centers which has been developed by The Karl Byrer Group and Karl Byrer.
"PTW" shall mean and refer to PTW, Inc., a Washington
corporation and a wholly-owned subsidiary corporation of Precision Tune.
"Ralston Car Wash Disclosure Letter" shall mean the Disclosure
Letter dated of even date with this Agreement submitted by the Ralston Car Wash
Members to each of the other parties hereto in connection with the
representations and warranties made by the Ralston Car Wash Members herein.
"Real Estate Partnerships" shall mean and refer to each
partnership described in Sections 5.14, 5.15 and 5.16.
"Responsible Group of Selling Stockholders or Members" shall
mean the Selling Stockholders or Members of any Predecessor Company with respect
to whom the Holding Company exercises its rights of reimbursement and
indemnification pursuant to the terms of this Agreement following the Closing
(whether pursuant to the exercise of its rights to set-off against the Indemnity
Escrow Shares or otherwise).
"Rocky Mountain Group" shall mean and refer to Rocky Mountain
I and Rocky Mountain II and their respective shareholders, and Ralston Car Wash
and the Ralston Car Wash Members.
"Rocky Mountain I Disclosure Letter" shall mean the Disclosure
Letter dated of even date with this Agreement submitted by Rocky Mountain I to
each of the other parties hereto in connection with the representations and
warranties made by Rocky Mountain I herein.
"Rocky Mountain II Disclosure Letter" shall mean the
Disclosure Letter dated of even
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date with this Agreement submitted by Rocky Mountain II to each of the other
parties hereto in connection with the representations and warranties made by
Rocky Mountain II herein.
"Rocky Mountain I Dissenting Shares" shall mean each of the
shares of the Common Stock of Rocky Mountain I with respect which the holder
thereof shall have exercised and perfected Dissenter' Rights under the laws of
the State of Colorado.
"Rocky Mountain II Dissenting Shares" shall mean each of the
shares of the Common Stock of Rocky Mountain II with respect which the holder
thereof shall have exercised and perfected Dissenter' Rights under the laws of
the State of Colorado.
"Securities Act" shall mean The Securities Act of 1933, as
amended and in effect from time to time, and the rules and regulations of the
Commission adopted or promulgated thereunder.
"Selling Stockholders or Members" shall mean and refer to only
to those Persons who are shareholders or members of the Predecessor Companies as
of the time of the Closing whose shares therein shall be converted to Holding
Company Common Stock at the Closing pursuant to the Subsidiary Mergers or who
actually exchange shares with or contribute interests to the Holding Company at
the Closing.
"Selling Stockholder Indemnified Claims and Losses" shall mean
demands, suits, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs, judgments and expenses, including, without
limitation, interest, penalties, reasonable attorneys' fees, disbursements and
expenses, and reasonable consultants' fees, disbursements and expenses, based
upon, arising out of, asserted against, resulting to, imposed on, or incurred by
the Selling Stockholders, directly or indirectly, from the breach by the Holding
Company of any covenant or agreement to be performed or complied with by the
Holding Company from and after the Closing.
"Source Code" shall mean all computer codes, programmer
documentation, flow charts and schematics that a computer programmer reasonably
skilled in the programming language in which the Proprietary Car Wash Software
is written would need to support, enhance, modify and make derivatives of such
software.
"Subsidiary" as it relates to any Person, shall mean a
corporation, limited liability company, partnership, joint venture or other
Person 50% or more of whose outstanding securities or equity interests the
Person has the right, other than as affected by events of default, directly or
indirectly, to vote for the election of directors.
"Subsidiary Mergers" shall mean and refer to the WE JAC
Merger, the Lube Ventures Merger, the Miracle Industries Merger, the Rocky
Mountain I Merger and the Rocky Mountain II Merger.
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"Tax Authority" shall mean a foreign or United States federal,
state, or local Governmental Authority having jurisdiction over the assessment,
determination, collection or imposition of any Tax, as the context requires.
"Tax Returns" shall mean all returns (including information
returns and amended returns), declarations, reports, claims for refunds,
estimates and statements regarding Taxes, required to be filed under Applicable
Laws.
"Taxes" shall mean all taxes, charges, fees, levies or other
assessments, including without limitation, all net income, gross income, gross
receipts, sales, use, value added, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, windfall profit, alternative or add
on minimum, excise, estimated, severance, stamp, occupation, property or other
taxes, customs, duties, fees, assessments, or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any Tax Authority.
"Termination Damages" shall have the meaning provided in
Section 21.3.
"WE JAC Disclosure Letter" shall mean the Disclosure Letter
dated of even date with this Agreement submitted by WE JAC to each of the other
parties hereto in connection with the representations and warranties made by WE
JAC herein.
"WE JAC Dissenting Shares" shall mean each of the shares of
the Common Stock of WE JAC with respect which the holder thereof shall have
exercised and perfected Dissenter' Rights under the laws of the State of
Delaware.
"WE JAC Group" shall mean and refer to WE JAC, Precision Tune,
National 60 Minute Tune, PTW and the shareholders of WE JAC.
Section 24.11 Construction. As used in this Agreement, any reference to
the masculine, feminine or neuter gender shall include all genders, the plural
shall include the singular, and the singular shall include the plural. With
regard to each and every term and condition of this Agreement and any and all
agreements and instruments contemplated hereby, the parties hereto understand
and agree that the same have or has been mutually negotiated, prepared and
drafted, and that if at any time the parties hereto desire or are required to
interpret or construe any such term or condition or any agreement or instrument
subject hereto, no consideration shall be given to the issue of which party
hereto actually prepared, drafted or requested any term or condition of this
Agreement or any agreement or instrument subject hereto. The Exhibits and
Schedules to this Agreement constitute a substantive part of this Agreement and
are hereby incorporated into this Agreement by this reference.
Section 24.12 Counterparts. This Agreement may be executed in
counterparts and multiple originals, each of which shall be deemed an original,
but all of which taken together shall constitute one and the same instrument.
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Section 24.13 Time of the Essence. Time is of the essence with respect
to each and every term and provision of this Agreement.
Section 24.14 Representative of Selling Stockholders and Selling
Members. Prior to the Closing, the Selling Stockholders and Selling Members of
each of the Predecessor Companies shall designate in writing a Representative of
the Selling Stockholders and Selling Members of such Predecessor Company as
their exclusive agent and attorney-in-fact to act on their behalf with respect
to any and all matters, claims, controversies or disputes arising out of the
terms of this Agreement (the "Representative"). The Holding Company shall have
the right to rely upon any actions taken or omitted to be taken by the
Representative as being the act or omission of each applicable group of Selling
Stockholders or Selling Members, without the need for any inquiry and any such
actions or omissions of the Representative shall be binding upon the applicable
group of Selling Stockholders or Selling Members. Notwithstanding the foregoing,
the Selling Stockholders and Selling Members of each Predecessor Company shall
have the right to change the identity of their representative from time to time
in such manner as they may agree amongst themselves; provide, however, that no
change in identity shall be effective or binding upon the Holding Company unless
and until written notice of such change shall have been delivered to the Holding
Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year set forth in the preamble to this Agreement
Attest: WE JAC CORPORATION
________________________ By:________________________
LUBE VENTURES, INC.
________________________ By:________________________
ROCKY MOUNTAIN VENTURES, INC.
________________________ By:________________________
PREMA PROPERTIES, LTD.
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________________________ By:________________________
MIRACLE INDUSTRIES, INC.
________________________ By:________________________
MIRACLE PARTNERS, INC.
________________________ By:________________________
ROCKY MOUNTAIN VENTURES II, INC.
________________________ By:________________________
RALSTON CAR WASH, LTD.
________________________ By:________________________
THE KARL BYRER GROUP, INC.
________________________ By:________________________
182
ARTICLES OF INCORPORATION
OF
PRECISION AUTO CARE, INC.
The undersigned, pursuant to Chapter 9, Title 13.1 of the Code of
Virginia, hereby states as follows:
ARTICLE I
NAME
The name of the corporation (hereinafter called the "Corporation") is
PRECISION AUTO CARE, INC.
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office in the Commonwealth
of Virginia is 1751 Pinnacle Drive, Suite 500, McLean, Virginia 22102, which is
located in the County of Fairfax. The name of the Corporation's registered
agent, whose business address is the same as the address of the registered
office of the Corporation, is Randall K. Bowen, and who is a resident of
Virginia and a member of the Virginia State Bar.
ARTICLE III
PURPOSE AND POWERS
The purpose or purposes for which the Corporation is organized are:
To engage in the business of after-market automobile repair and
maintenance and franchising in respect thereto, and of providing related
services; and
To engage in any other lawful act or activity for which a corporation
may be organized under the Virginia Stock Corporation Act.
ARTICLE IV
AUTHORIZED SHARES OF STOCK
SECTION 1. Capitalization. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is Twenty Million
(20,000,000) shares, divided into two
<PAGE>
classes consisting of Nineteen Million (19,000,000) shares of Common Stock, par
value $.01 per share ("Common Stock"), and One Million (1,000,000) shares of
Preferred Stock, par value $.01 per share ("Preferred Stock"). The Board of
Directors shall have authority by resolution to issue the shares of Preferred
Stock from time to time on such terms as it may determine and to divide the
Preferred Stock into one or more series and, in connection with the creation of
any such series, to determine and fix by the resolution or resolutions amending
the Articles of Incorporation of the Corporation providing for the issuance of
shares thereof:
(a) the distinctive designation of such series, the number of
shares which shall constitute such series and the stated value thereof, if
different from the par value thereof;
(b) the dividend rate, the times of payment of dividends on
the shares of such series, whether dividends shall be cumulative, and, if so,
from what date or dates, and the preference or relation which such dividends
will bear to the dividends payable on any shares of stock of any other class or
any other series of that class;
(c) the price or prices at which, and the terms and
conditions on which, the shares of such series may be redeemed;
(d) whether or not the shares of such series shall be entitled
to the benefit of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if so entitled, the amount of such fund and the
terms and provisions relative to the operation thereof;
(e) whether or not the shares of such series shall be
convertible into, or exchangeable for, any other shares of stock of the
Corporation or any other securities and, if so convertible or exchangeable, the
conversion price or prices, or the rates of exchange, and any adjustments
thereof, at which such conversion or exchange may be made, and any other terms
and conditions of such conversion or exchange;
(f) the rights of the shares of such series in the event
of voluntary or involuntary liquidation, dissolution or winding up
or upon any distribution of the assets, of the Corporation;
(g) whether or not the shares of such series shall have
priority over or parity with or be junior to the shares of any other class or
series in any respect, or shall be entitled to the benefit of limitations
restricting (i) the creation of indebtedness of the Corporation, (ii) the
issuance of shares of any other class or series having priority over or being on
a parity with the shares of such series in any respect, or (iii) the payment of
dividends on, the making of other distributions in respect of, or the purchase
or redemption of shares of such series, and the terms of
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any such restrictions, or any other restriction with respect to shares of any
other class or series on parity with or ranking junior to the shares of such
series in any respect;
(h) whether such series shall have voting rights, in addition
to any voting rights provided by law and, if so, the terms of such voting
rights, which may be general or limited; and
(i) any other powers, preferences, privileges, and relative
participating, optional, or other special rights of such series, and the
qualifications, limitations or restrictions thereof, to the full extent now or
hereafter permitted by law.
The powers, preferences and relative participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon, if any, shall be
cumulative.
SECTION 2. Common Stock. Each holder of Common Stock shall be entitled
to one vote for each share of Common Stock held of record on all matters on
which stockholders generally are entitled to vote. Subject to the provisions of
law and the rights of the Preferred Stock and any other class or series of stock
having a preference as to dividends over the Common Stock then outstanding,
dividends may be paid on the Common Stock at such times and in such amounts as
the Board of Directors shall determine. Upon the dissolution, liquidation or
winding up of the Corporation, after any preferential amounts to be distributed
to the holders of the Preferred Stock and any other class or series of stock
having a preference over the Common Stock then outstanding have been paid or
declared and set apart for payment, the holders of the Common Stock shall be
entitled to receive all the remaining assets of the Corporation available for
distribution to its stockholders ratably in proportion to the number of shares
held by them, respectively.
SECTION 3. No Preemptive Rights. No holder of shares of any class or
series of stock of the Corporation shall have any preemptive right to purchase
or subscribe to (a) any shares of any class or series of stock of the
Corporation, whether now or hereafter authorized, (b) any warrants, rights, or
options to purchase any such stock, or (c) any securities or obligations
convertible into any such stock or into warrants, rights, or options to purchase
any such stock.
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ARTICLE V
REDEMPTION OF CONTROL SHARES
The corporation may, in its sole discretion, redeem shares of
Corporation stock to which Sections 13.1-728.1 through 13.1-728.9 of the Code of
Virginia apply in accordance with Section 13.1-728.7 of the Code of Virginia.
ARTICLE VI
BOARD OF DIRECTORS
SECTION 1. Number. The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors which, subject to any
right of the holders of any series of Preferred Stock then outstanding to elect
additional directors under specified circumstances, shall consist of not less
than 10 nor more than 20 persons. Initially, the number of directors shall be
11. The exact number of directors within the minimum and maximum limitations
specified in the preceding sentence shall be fixed from time to time solely by
the Board of Directors pursuant to a resolution adopted by a majority of the
entire Board of Directors.
SECTION 2. Terms. The directors other than those who may be elected by
the holders of any Preferred Stock then outstanding, shall be divided into three
classes, as nearly equal in number as possible, with the term of office of the
first class to expire at the 1998 Annual Meeting of Stockholders, the term of
office of the second class to expire at the 1999 Annual Meeting of Stockholders
and the term of office of the third class to expire at the 2000 Annual Meeting
of Stockholders. At each Annual Meeting of Stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding Annual Meeting of Stockholders after their election.
SECTION 3. Stockholder Nomination of Director Candidates. Advance
notice of stockholder nominations for the election of directors shall be given
in the manner provided in the Bylaws of the Corporation.
SECTION 4. Newly Created Directorships and Vacancies. Subject to the
rights of the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
directors and any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall only be filled by a majority vote of the directors then in office (or by
the sole remaining director), and directors so chosen shall hold office for a
term expiring at the Annual Meeting of Stockholders at which the term of the
class to which they have
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been elected expires. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
SECTION 5. Removal. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 80% of the voting power of
all of the outstanding shares of the Corporation entitled to vote generally in
the election of directors, voting together as a single class.
ARTICLE VII
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Except as otherwise required by law and subject to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation, special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors.
ARTICLE VIII
BYLAW AMENDMENTS
The Board of Directors shall have power to make, alter, amend and
repeal the Bylaws of the Corporation (except so far as the Bylaws of the
Corporation adopted by the stockholders shall otherwise provide). Any Bylaws
made by the Directors under the powers conferred hereby may be altered, amended
or repealed by the Directors or by the stockholders. Notwithstanding the
foregoing, Bylaws adopted by the stockholders shall be made, altered, amended or
repealed and Bylaws adopted by the Board of Directors shall be altered, amended
or repealed and provisions inconsistent therewith shall be adopted only with the
affirmative vote of the holders of at least 80% of the voting power of all the
shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
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ARTICLE IX
AMENDMENTS TO
ARTICLES OF INCORPORATION
Notwithstanding any other provisions of the Articles of Incorporation
or the Bylaws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, these Articles of Incorporation or the
Bylaws of the Corporation), the affirmative vote of the holders of 80% or more
of the voting power of the shares of the then outstanding voting stock of the
Corporation, voting together as a single class, shall be required to amend or
repeal, or adopt any provisions inconsistent with, ARTICLES V, VI, VII, VIII,
this ARTICLE IX or ARTICLE X of these Articles of Incorporation.
ARTICLE X
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
AND INDEMNIFICATION AND INSURANCE
SECTION 1. Elimination of Certain Liability of Directors and Officers.
A director or officer of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director or officer to the full extent permitted by the Virginia Stock
Corporation Act.
SECTION 2. Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is an alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Virginia Stock
Corporation Act, as it now exists or may hereafter be amended (but, in the case
of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such
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person in connection therewith and such indemnification shall continue as to a
person who has ceased to be such a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Paragraph (b) hereof, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right of indemnification conferred in this Section shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that if the Virginia Stock Corporation Act
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under
Paragraph (a) of this Section is not paid in full by the Corporation within
thirty days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall also be entitled to be paid the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Virginia Stock Corporation Act for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including the disinterested members of its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the Virginia Stock Corporation Act, nor an actual
determination by the Corporation (including the disinterested members of its
Board of Directors, independent legal counsel, or its stockholders) that the
claimant
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has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation, Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Virginia Stock Corporation Act.
IN WITNESS WHEREOF, the undersigned has signed these Articles of
Incorporation this ____ day of April, 1997.
By:________________________________
Name: Randall K. Bowen
Title: Incorporator
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BYLAWS
OF
PRECISION AUTO CARE, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF VIRGINIA
ARTICLE I
OFFICES AND RECORDS
Section 1.1. Offices. The Corporation may have such offices, either
within or without the Commonwealth of Virginia, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
Section 1.2. Books and Records. The books and records of the
Corporation may be kept at the Corporation's headquarters or at such other
locations as may from time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held at such date, place and/or time as may be fixed by
resolution of the Board of Directors.
Section 2.2. Special Meeting. Subject to the rights of the holders of
any series of preferred stock, par value $.01 per share, of the Corporation (the
"Preferred Stock"), special meetings of the stockholders may be called only by
the Chairman of the Board or by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of directors which the Corporation
would have if there were no vacancies or unfilled newly-created directorships
(the "Whole Board").
Section 2.3. Place of Meeting. The Board of Directors may designate the
place of meeting for any meeting of the stockholders. If no designation is made
by the Board of Directors, the place of meeting shall be the principal office of
the Corporation.
Section 2.4. Notice of Meeting. Written or printed notice, stating the
place, day and hour of the meeting shall be prepared and delivered by the
Corporation not less than ten days nor more than sixty days before the date of
the meeting, either personally, or by mail, to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with postage thereon prepaid,
addressed to the stockholder at his address as it appears
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on the stock transfer books of the Corporation. Notices of the annual meeting of
the stockholders need not state the purpose or purposes for which the meeting is
called. Notices of a special meeting of the stockholders, or notice of a meeting
to act on an amendment to the Articles of Incorporation of the Corporation, a
plan of merger or share exchange, a proposed sale of all or substantially all of
the assets of the Corporation not in the ordinary course of business, or such
other actions requiring special notice mandated by the Code of Virginia shall be
mailed or delivered not fewer than 25 nor more than 60 days before the meeting
date. Notice of a special meeting shall state the purpose or purposes for which
the meeting is called. Such further notice shall be given as may be required by
law. Meetings may be held without notice if all stockholders entitled to vote
are present (except as otherwise provided by law), or if notice is waived by
those not present. Any annual or special meeting of the stockholders may adjourn
from time to time to reconvene at the same or other place without further notice
to a date not more than 120 days after the original meeting date.
Section 2.5. Quorum and Adjournment. Except as otherwise provided by
law or by the Articles of Incorporation, the holders of a majority of the voting
power of the outstanding shares of the Corporation entitled to vote generally in
the election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series voting separately as a
class or series, the holders of a majority of the voting power of the shares of
such class or series shall constitute a quorum for the transaction of such
business. The chairman of the meeting or a majority of the shares of Voting
Stock so represented may adjourn the meeting from time to time, whether or not
there is such a quorum (or, in the case of specified business to be voted on by
a class or series, the chairman or a majority of the shares of such class or
series so represented may adjourn the meeting with respect to such specified
business). No notice of the time and place of adjourned meetings need be given
except as required by law. The stockholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
Section 2.6. Proxies. At all meetings of stockholders, a stockholder
may vote by proxy executed in writing by the stockholder or as may be permitted
by law, or by his duly authorized attorney-in-fact. Such proxy must be filed
with the Secretary of the Corporation or his representative at or before the
time of the meeting.
Section 2.7. Notice of Stockholder Business and Nominations.
(A) ANNUAL MEETINGS OF STOCKHOLDERS. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to
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the Corporation's notice of meeting delivered pursuant to Section 2.4 of these
Bylaws, (b) by or at the direction of the Chairman of the Board or the Board of
Directors or (c) by any stockholder of the Corporation who is entitled to vote
at the meeting, who complied with the notice procedures set forth in clauses (2)
and (3) of this paragraph (A) of this Bylaw and who was a stockholder of record
at the time such notice is delivered to the Secretary of the Corporation.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Bylaw, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not less than seventy days nor more than
ninety days prior to the first anniversary of the preceding year's annual
meeting; PROVIDED, HOWEVER, that in the event that the date of the annual
meeting is advanced by more than twenty days, or delayed by more than seventy
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder, including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner and (iii) whether the proponent intends or is part of a group
which intends to solicit proxies from other stockholders in support of such
nomination or proposal. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above.
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(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least eighty days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Bylaw shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
(B) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting pursuant to Section
2.4 of these Bylaws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Bylaw and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as are specified in the Corporation's Notice of Meeting, if the
stockholder's notice as required by paragraph (A)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the ninetieth day prior to such special meeting and not later
than the close of business on the later of the seventieth day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.
(C) GENERAL. (1) Only persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Bylaw. Except as otherwise provided by law, the Articles of Incorporation
or these Bylaws, the chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in this Bylaw and,
if any proposed nomination or business is not in compliance with this
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Bylaw, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Bylaw, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Section 2.8. Procedure for Election of Directors; Vote Required.
Election of directors at all meetings of the stockholders at which directors are
to be elected shall be by written ballot, and, except as otherwise set forth in
the Articles of Incorporation with respect to the right of the holders of any
series of Preferred Stock or any other series or class of stock to elect
additional directors under specified circumstances, a plurality of the votes
cast thereat shall elect directors. Except as otherwise provided by law, any
applicable stock exchange rules, the Articles of Incorporation or Bylaws, all
matters other than the election of directors submitted to the stockholders at
any meeting shall be decided by the affirmative vote of a majority of the voting
power of the outstanding Voting Stock present in person or represented by proxy
at the meeting and entitled to vote thereon.
Section 2.9. Inspectors of Elections; Opening and Closing the Polls.
(A) The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are unable to act, at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by the Virginia Stock Corporation Act.
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(B) The chairman of the meeting shall fix and announce at the meeting
the date and time of the opening and closing of the polls for each matter upon
which the stockholders will vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these Bylaws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, by the
Articles of Incorporation or by these Bylaws required to be exercised or done by
the stockholders.
Section 3.2. Number, Tenure and Qualifications. Subject to the rights
of the holders of any series of Preferred Stock, or any other series or class of
stock as set forth in the Articles of Incorporation, to elect directors under
specified circumstances, the number of directors shall be fixed from time to
time exclusively pursuant to a resolution adopted by a majority of the Whole
Board, but shall consist of not more than 20 nor less than 10 directors.
Section 3.3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without notice other than this Bylaw immediately after,
and at the same place as, each annual meeting of stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without notice other than such resolution.
Section 3.4. Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Whole Board. The person or persons authorized to
call special meetings of the Board of Directors may fix the place and time of
the meetings.
Section 3.5. Notice. Notice of any special meeting shall be given to
each director at his business or residence in writing or by telegram or by
telephone communication. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least five days before such meeting. If by telegram, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph company at least twenty-four hours before such meeting. If by
facsimile transmission, such notice shall be transmitted at least twenty-four
hours before such meeting. If by telephone, the notice shall be given at least
twelve hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such
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meeting, except for amendments to these Bylaws as provided under Section 7.1 of
Article VII hereof. A meeting may be held at any time without notice if all the
directors are present (except as otherwise provided by law) or if those not
present waive notice of the meeting in writing, either before or after such
meeting.
Section 3.6. Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 3.7. Quorum. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 3.8. Vacancies. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth in
the Articles of Incorporation, to elect additional directors under specified
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the Board of Directors, and directors so chosen shall hold office for
a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Whole Board shall shorten
the term of any incumbent director.
Section 3.9. Committee.
(A) The Board of Directors may designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of the
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of
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Directors, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it.
(B) Unless the Board of Directors otherwise provides, each committee
designated by the Board of Directors may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board of Directors conducts its
business pursuant to these Bylaws.
Section 3.10. Removal. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth in
the Articles of Incorporation, to elect additional directors under specified
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 80 percent of the voting power of the then outstanding
Voting Stock, voting together as a single class.
ARTICLE IV
OFFICERS
Section 4.1. Elected Officers. The elected officers of the Corporation
shall be a Chairman of the Board, a President, a Secretary, a Treasurer, and
such other officers as the Board of Directors from time to time may deem proper.
The Chairman of the Board shall be chosen from the directors. All officers
chosen by the Board of Directors shall each have such powers and duties as
generally pertain to their respective offices, subject to the specific
provisions of this Article IV. Such officers shall also have powers and duties
as from time to time may be conferred by the Board of Directors or by any
committee thereof.
Section 4.2. Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
4.7 of these Bylaws, each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign.
Section 4.3. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors. The
Chairman of the Board shall be responsible for the general management of the
affairs of the Corporation and shall perform all duties incidental to his office
which may be required by law and all such other duties as are properly required
of him by the Board of Directors. Except where by law the
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signature of the President is required, the Chairman of the Board shall possess
the same power as the President to sign all certificates, contracts, and other
instruments of the Corporation which may be authorized by the Board of
Directors. He shall make reports to the Board of Directors and the stockholders,
and shall perform all such other duties as are properly required of him by the
Board of Directors. He shall see that all orders and resolutions of the Board of
Directors and of any committee thereof are carried into effect.
Section 4.4. President. The President shall act in a general executive
capacity and shall assist the Chairman of the Board in the administration and
operation of the Corporation's business and general supervision of its policies
and affairs. The President shall, in the absence of or because of the inability
to act of the Chairman of the Board, perform all duties of the Chairman of the
Board and preside at all meetings of stockholders and the Board of Directors.
The President may sign, alone or with the Secretary, or an Assistant Secretary,
or any other proper officer of the Corporation authorized by the Board of
Directors, certificates, contracts, and other instruments of the Corporation as
authorized by the Board of Directors.
Section 4.5. Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors and all other notices
required by law or by these Bylaws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the Chairman of the Board or the President, or by the Board of Directors,
upon whose request the meeting is called as provided in these Bylaws. He shall
record all the proceedings of the meetings of the Board of Directors, any
committees thereof and the stockholders of the Corporation in a book to be kept
for that purpose, and shall perform such other duties as may be assigned to him
by the Board of Directors, the Chairman of the Board or the President. He shall
have the custody of the seal of the Corporation and shall affix the same to all
instruments requiring it, when authorized by the Board of Directors, the
Chairman of the Board or the President, and attest to the same.
Section 4.6. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate receipts and
disbursements in books belonging to the Corporation. The Treasurer shall deposit
all moneys and other valuables in the name and to the credit of the Corporation
in such depositaries as may be designated by the Board of Directors. The
Treasurer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, the Chairman of the Board, or the President, taking proper
vouchers for such disbursements. The Treasurer shall render to the Chairman of
the Board, the President and the Board of Directors, whenever requested, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond for the faithful discharge of his
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duties in such amount and with such surety as the Board of Directors shall
prescribe.
Section 4.7. Removal. Any officer elected by the Board of Directors may
be removed by the Board of Directors whenever, in their judgment, the best
interests of the Corporation would be served thereby. No elected officer shall
have any contractual rights against the Corporation for compensation by virtue
of such election beyond the date of the election of his successor, his death,
his resignation or his removal, whichever event shall first occur, except as
otherwise provided in an employment contract or an employee plan.
Section 4.8. Vacancies. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1. Stock Certificates and Transfers.
(A) The interest of each stockholder of the Corporation shall
be evidenced by certificates for shares of stock in such form as the appropriate
officers of the Corporation may from time to time prescribe. The shares of the
stock of the Corporation shall be transferred on the books of the Corporation by
the holder thereof in person or by his attorney, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require.
(B) The certificates of stock shall be signed, countersigned
and registered in such manner as the Board of Directors may by resolution
prescribe, which resolution may permit all or any of the signatures on such
certificates to be in facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
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ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1. Fiscal Year. The fiscal year of the Corporation
shall begin on the first day of January and end on the thirty-first
day of December of each year.
Section 6.2. Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Articles of
Incorporation.
Section 6.3. Seal. The corporate seal shall have inscribed
the name of the Corporation thereon and shall be in such form as
may be approved from time to time by the Board of Directors.
Section 6.4. Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the Virginia Stock Corporation Act, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice. Neither
the business to be transacted at, nor the purpose of, any annual or special
meeting of the stockholders of the Board of Directors need be specified in any
waiver of notice of such meeting.
Section 6.5. Audits. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be made annually.
Section 6.6. Resignations. Any director or any officer, whether elected
or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the President or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman of the Board, the President, or
the Secretary or at such later date as is stated therein. No formal action shall
be required of the Board of Directors or the stockholders to make any such
resignation effective.
Section 6.7. Contracts. Except as otherwise required by law, the
Articles of Incorporation or these Bylaws, any contracts or other instruments
may be executed and delivered in the name and on the behalf of the Corporation
by such officer or officers of the Corporation as the Board of Directors may
from time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. The Chairman of the Board, the President
or any Vice President may execute bonds, contracts, deeds, leases and other
instruments to be made or executed for or on behalf of the Corporation. Subject
to any restrictions imposed by the Board
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of Directors or the Chairman of the Board, the President or any Vice President
of the Corporation may delegate contractual powers to others under his
jurisdiction, it being understood, however, that any such delegation of power
shall not relieve such officer of responsibility with respect to the exercise of
such delegated power.
Section 6.8. Proxies. Unless otherwise provided by resolution adopted
by the Board of Directors, the Chairman of the Board, the President or any Vice
President may from time to time appoint an attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to cast
the votes which the Corporation may be entitled to cast as the holder of stock
or other securities in any other corporation or other entity, any of whose stock
or other securities may be held by the Corporation, at meetings of the holders
of the stock or other securities of such other corporation or other entity, or
to consent in writing, in the name of the Corporation as such holder, to any
action by such other corporation or other entity, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the premises.
ARTICLE VII
AMENDMENTS
Section 7.1. Amendments. These Bylaws may be amended, altered, added
to, rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a notice
given no less than twenty-four hours prior to the meeting; PROVIDED, HOWEVER,
that, notwithstanding any other provisions of these Bylaws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of the
stock required by law, the Articles of Incorporation or these Bylaws, the
affirmative vote of the holders of at least 80 percent of the voting power of
the then outstanding Voting Stock, voting together as a single class, shall be
required in order for stockholders to alter, amend or repeal any provision of
these Bylaws or to adopt any additional bylaw.
These By-Laws were adopted by the initial directors at the
Organizational Meeting of the Board of Directors of the Corporation.
--------------------------------
Name:
Secretary
- 12 -
PRECISION TUNE
STOCK OPTION PLAN
1. PURPOSE
The proper execution of the duties and responsibilities of the key
employees of WE JAC Corporation (the "Corporation") and its subsidiaries is a
vital factor in the continued growth and success of the Corporation. Toward this
end, it is necessary to attract and retain effective and capable individuals to
assume positions that contribute materially to the successful operation of the
business of the Corporation and its subsidiaries. It will benefit the
Corporation, therefore, to bind the interests of these persons more closely to
its own interests by offering them an attractive opportunity to acquire a
proprietary interest in the Corporation and thereby provide them with added
incentive to remain in the service of the Corporation and its subsidiaries and
to increase the prosperity, growth, and earnings of the Corporation. This stock
option plan is intended to serve these purposes.
2. DEFINITIONS
The following terms wherever used herein shall have the meanings set forth
below.
(a) The term "Board of Directors" shall mean the Board of Directors of
the Corporation.
<PAGE>
(b) The term "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder.
(c) The term "Committee" shall mean a committee to be appointed by the
Board of Directors to consist of three or more members.
(d) The term "Common Stock" shall mean the shares of common stock, par
value $0.01 per share, of the Corporation.
(e) The term "Corporation" shall mean WE JAC Corporation.
(f) The term "Fair Market Value" shall mean the current fair market
value of Common Stock, as determined in good faith by the Committee and in a
manner consistent with the rules set forth in Treas. Reg. ss.20.2031-2.
(g) The term "Incentive Stock Option" shall mean any Option granted
pursuant to the Plan that is designated as an Incentive Stock Option and which
satisfies the requirements of Section 422(b) of the Code.
(h) The term "Nonqualified Stock Option" shall mean any Option granted
pursuant to the Plan that is not an Incentive Stock Option.
- 2 -
<PAGE>
(i) The term "Option" or "Stock Option" shall mean a right granted
pursuant to the Plan to purchase shares of Common Stock, and shall include the
terms Incentive Stock Option and Nonqualified Stock Option.
(j) The term "Option Agreement" shall mean the written agreement
representing Options granted pursuant to the Plan as contemplated by Paragraph 7
of the Plan.
(k) The term "Plan" shall mean the Precision Tune Employee Stock Option
Plan as approved by the Board of Directors on September 28, 1995, as the same
may be amended from time to time.
(l) The term "subsidiary" or "subsidiaries" shall mean a corporation of
which capital stock possessing 50% or more of the total combined voting power of
all classes of its capital stock entitled to vote generally in the election of
directors is owned in the aggregate by the Corporation directly or indirectly
through one or more subsidiaries.
3. EFFECTIVE DATE OF THE PLAN
The Plan shall become effective upon stockholder approval, provided
that such approval is received before September 28, 1996, and provided further
that the Board of Directors may grant Options pursuant to the Plan prior to
stockholder approval if such Options by their terms are contingent upon
subsequent stockholder approval of the Plan.
- 3 -
<PAGE>
4. ADMINISTRATION
(a) The Plan shall be administered by the Committee.
(b) The Committee may establish, from time to time and at any time,
subject to the approval of the Board of Directors and subject to the limitations
of the Plan as set forth herein, such rules and regulations and amendments and
supplements thereto, as it deems necessary to comply with applicable law and
regulation and for the proper administration of the Plan. A majority of the
members of the Committee shall constitute a quorum. The vote of a majority of a
quorum shall constitute action by the Committee.
(c) The Committee shall from time to time submit to the Board of
Directors for its approval the names of those key employees who, in its opinion,
should receive Options, and shall recommend the numbers of shares on which
Options should be granted to each such person and the nature of the Options to
be granted. No member of the Committee shall participate in the deliberations
concerning the grant of an Option to himself.
(d) Options shall be granted by the Corporation and shall become
effective only after prior approval of the Board of Directors, and upon the
execution of an Option Agreement between the Corporation and the Option holder.
(e) The Committee's interpretation and construction of the provisions
of the Plan and the
- 4 -
<PAGE>
rules and regulations adopted by the Committee shall be final, unless otherwise
determined by the Board of Directors. No member of the Committee or the Board of
Directors shall be liable for any action taken or determination made, in respect
of the Plan, in good faith.
5. PARTICIPATION IN THE PLAN
Participation in the Plan shall be limited to the members of the Board
of Directors and key employees of the Corporation and its subsidiaries who shall
be designated by the Committee and approved by the Board of Directors.
6. STOCK SUBJECT TO THE PLAN
(a) There shall be reserved for the granting of Options pursuant to the
Plan and for issuance and sale pursuant to such Options One Hundred Seventy-Five
Thousand (175,000) shares of Common Stock. To determine the number of shares of
Common Stock available at any time for the granting of Options, there shall be
deducted from the total number of reserved shares of Common Stock, the number of
shares of Common Stock in respect of which Options have been granted pursuant to
the Plan that are still outstanding or have been exercised. The shares of Common
Stock to be issued upon the exercise of Options granted pursuant to the Plan
shall be made available from the authorized and unissued shares of Common Stock.
If for any reason shares of Common Stock as to which an Option has been granted
cease to be subject to purchase thereunder, then such shares of Common Stock
again shall be available for issuance pursuant to
- 5 -
<PAGE>
the exercise of Options pursuant to the Plan.
(b) Proceeds from the purchase of shares of Common Stock upon the
exercise of Options granted pursuant to the Plan shall be used for the general
business purposes of the Corporation.
(c) In the event of reorganization, recapitalization, stock split,
stock dividend, combination of shares of Common Stock, merger, consolidation,
share exchange, acquisition of property or stock, or any change in the capital
structure of the Corporation, the Committee shall make such adjustments as may
be appropriate in the number and kind of shares reserved for purchase by
executives or other key employees, in the number, kind and price of shares
covered by Options granted pursuant to the Plan but not then exercised.
7. TERMS AND CONDITIONS OF OPTIONS
(a) Each Option granted pursuant to the Plan shall be evidenced by an
Option Agreement in such form as the Committee from time to time may determine.
(b) The exercise price per share for Options shall be established by
the Board of Directors upon the recommendation of the Committee at the time of
the grant of Options pursuant to the Plan and shall not be less than the Fair
Market Value of a share of Common Stock on the date on which the Option is
granted. If the Board of Directors does not establish a specific
- 6 -
<PAGE>
exercise price per share at the time of grant, the exercise price per share
shall be equal to the Fair Market Value of a share of Common Stock on the date
of grant of the Options.
(c) Each Option, subject to the other limitations set forth in the
Plan, may extend for a period of up to 10 years from the date on which it is
granted. The term of each Option shall be determined by the Committee at the
time of grant of the Option, provided that if no term is established by the
Committee, the term of the Option shall be 10 years from the date on which it is
granted.
(d) The Board of Directors, upon recommendation of the Committee, may
provide in the Option Agreement that the right to exercise each Option for the
number of shares subject to each Option shall vest in the Option holder over
such period of time as the Committee, in its discretion, shall determine for
each Option holder. If no vesting schedule is designated by the Committee, the
right to exercise the Option shall vest one-third at the first anniversary of
the grant date of the Option, two-thirds at the second anniversary of the grant
date of the Option, and 100% at the third anniversary of the grant date of the
Option.
(e) Options shall be nontransferable and nonassignable, except that
Options may be transferred by testamentary instrument or by the laws of descent
and distribution.
(f) Upon voluntary or involuntary termination of an Option holder's
employment, his Option and all rights thereunder shall terminate effective at
the close of business on the date the
- 7 -
<PAGE>
Option holder ceases to be a regular, full-time employee of the Corporation or
any of its subsidiaries, except (i) to the extent previously exercised and (ii)
as provided in subparagraphs (g), (h) and (i) of this Paragraph 7.
(g) In the event an Option holder (i) takes a leave of absence from the
Corporation or any of its subsidiaries for personal reasons or as a result of
entry into the armed forces of the United States, or any of the departments or
agencies of the United States government, or (ii) terminates his employment, or
ceases providing services to the Corporation or any of its subsidiaries, by
reason of illness, disability, voluntary termination with the consent of the
Committee, or other special circum stance, the Committee may consider his case
and may take such action in respect of the related Option Agreement as it may
deem appropriate under the circumstances, including accelerating the time
previously granted Options may be exercised and extending the time following the
Option holder's termination of employment during which the Option holder is
entitled to purchase the shares of Common Stock subject to such Options,
provided that in no event may any Option be exercised after the expiration of
the term of the Option.
(h) If an Option holder dies during the term of his Option without
having fully exercised his Option, the executor or administrator of his estate
or the person who inherits the right to exercise the Option by bequest or
inheritance shall have the right within ninety days of the Option holder's death
to purchase the number of shares of Common Stock that the deceased Option holder
was entitled to purchase at the date of his death, after which the Option shall
lapse,
- 8 -
<PAGE>
provided that in no event may any Option be exercised after the expiration of
the term of the Option.
(i) If an Option holder terminates employment without his having fully
exercised his Option due to his retirement with the consent of the Corporation,
then such Option holder shall have the right within ninety days of the Option
holder's termination of employment to purchase the number of shares of Common
Stock that the Option holder was entitled to purchase at the date of his termina
tion, after which the Option shall lapse, provided that in no event may any
Option be exercised after the expiration of the term of the Option. The
Committee may cancel an Option during the ninety day period referred to in this
paragraph, if the Participant engages in employment or activities contrary, in
the opinion of the Committee, to the best interests of the Corporation. The
Committee shall determine in each case whether a termination of employment shall
be considered a retirement with the consent of the Corporation, and, subject to
applicable law, whether a leave of absence shall constitute a termination of
employment. Any such determination of the Committee shall be final and
conclusive, unless overruled by the Board.
(j) Notwithstanding any other provisions of the Plan to the contrary,
in the event an Option holder is demoted or has his or her employment
responsibilities reduced, all as determined by the Committee, the Committee may,
in its sole and absolute discretion, cancel all or any portion of the Option
granted to the Option holder.
(k) The granting of an Option pursuant to the Plan shall not constitute
or be evidence
- 9 -
<PAGE>
of any agreement or understanding, express or implied, on the part of the
Corporation or any of its subsidiaries to retain or employ the Option holder
for any specified period.
(l) Solely for purposes of this paragraph, termination of employment,
when applied to an Option holder who is a member of the Board of Directors,
shall mean the resignation or removal of the Option holder as a member of the
Board of Directors.
(m) In addition to the general terms and conditions set forth in this
Paragraph 7 in respect of Options granted pursuant to the Plan, Incentive Stock
Options granted pursuant to the Plan shall be subject to the following
additional terms and conditions:
(i) "Incentive stock options" shall be granted only to
individuals who, at the date of grant of the Option,
are regular, full-time employees of the Corporation
or any of its subsidiaries;
(ii) No employee who owns beneficially more than 10% of
the total combined voting power of all classes of
stock of the Corporation shall be eligible to be
granted an "incentive stock option;"
(iii) The aggregate fair market value (determined at the
time the Incentive Stock Option is granted) of the
shares of Common Stock in respect of which "incentive
stock options" are exercisable for the first time by
the Option
- 10 -
<PAGE>
holder during any calendar year (under all such plans
of the Corporation and its subsidiaries) shall not
exceed $100,000; and
(iv) Any other terms and conditions specified by the Board
of Directors that are not inconsistent with the Plan,
except that such terms and conditions must be
consistent with the requirements for "incentive stock
options" under Section 422 of the Code.
8. METHODS OF EXERCISE OF OPTIONS
(a) An Option holder (or other person or persons, if any, entitled to
exercise an Option hereunder) desiring to exercise an Option granted pursuant to
the Plan as to all or part of the shares of Common Stock covered by the Option
shall (i) notify the Corporation in writing at its principal office at 748
Miller Drive, S.E., Leesburg, Virginia 22075, to that effect, specifying the
number of shares of Common Stock to be purchased and the method of payment
therefor, and (ii) make payment or provision for payment for the shares of
Common Stock so purchased in accordance with this Paragraph 8. Such written
notice may be given by means of a facsimile transmission. If a facsimile
transmission is used, the Option holder should mail the original executed copy
of the written notice to the Corporation promptly thereafter.
(b) Payment or provision for payment shall be made as follows:
- 11 -
<PAGE>
(i) The Option holder shall deliver to the Corporation at
the address set forth in subparagraph 8(a) United
States currency in an amount equal to the aggregate
purchase price of the shares of Common Stock as to
which such exercise relates; or
(ii) The Option holder shall tender to the Corporation
shares of Common Stock already owned by the Option
holder that, together with any cash tendered
therewith, have an aggregate fair market value
(determined based on the Fair Market Value of a share
of Common Stock on the date the notice set forth in
subparagraph 8(a) is received by the Corporation)
equal to the aggregate purchase price of the shares
of Common Stock as to which such exercise relates; or
(iii) The Option holder shall deliver to the Corporation an
exercise notice together with irrevocable
instructions to a broker to deliver promptly to the
Corporation the amount of sale or loan proceeds
necessary to pay the aggregate purchase price of the
shares of Common Stock as to which such exercise
relates and to sell the shares of Common Stock to be
issued upon exercise of the Option and deliver the
cash proceeds, less commissions and brokerage fees to
the Option holder or to deliver the remaining shares
of Common Stock to the Option holder.
Notwithstanding the foregoing provisions, the Committee and the Board
of Directors, in
- 12 -
<PAGE>
granting Options pursuant to the Plan, may limit the methods in which
an Option may be exercised by any person and, in processing any
purported exercise of an Option granted pursuant to the Plan, may
refuse to recognize the method of exercise selected by the Option
holder (other than the method of exercise set forth in subparagraph
8(b)(i)).
(c) In addition to the alternative methods of exercise set forth in
subparagraph 8(b), holders of Nonqualified Stock Options shall be entitled, at
or prior to the time the written notice provided for in subparagraph 8(a) is
delivered to the Corporation, to elect to have the Corporation withhold from the
shares of Common Stock to be delivered upon exercise of the Nonqualified Stock
Option that number of shares of Common Stock (determined based on the Fair
Market Value of a share of Common Stock on the date the notice set forth in
subparagraph 8(a) is received by the Corporation) necessary to satisfy any
withholding taxes attributable to the exercise of the Nonqualified Stock Option.
Alternatively, such holder of a Nonqualified Stock Option may elect to deliver
previously owned shares of Common Stock upon exercise of the Nonqualified Stock
Option to satisfy any withholding taxes attributable to the exercise of the
Nonqualified Stock Option. If the Board of Directors does not include any
provisions relating to this withholding feature in its resolutions granting the
Nonqualified Stock Option or in the Option Agreement, however, the maximum
amount that an Option holder may elect to have withheld from the shares of
Common Stock otherwise deliverable upon exercise or the maximum number of
previously owned shares an Option holder may deliver shall be equal to the
minimum federal and state withholding. Notwithstanding the foregoing provisions,
the Committee or the Board of Directors may include in the Option Agreement
relating to any such Nonqualified Stock Option provisions
- 13 -
<PAGE>
limiting or eliminating the Option holder's ability to pay his withholding tax
obligation with shares of Common Stock or, if no such provisions are included in
the Option Agreement but in the opinion of the Committee or the Board of
Directors such withholding would have an adverse tax or accounting effect to the
Corporation, at or prior to exercise of the Nonqualified Stock Option the
Committee or the Board of Directors may so limit or eliminate the Option
holder's ability to pay his withholding tax obligation with shares of Common
Stock. Notwithstanding the foregoing provisions, a holder of a Nonqualified
Stock Option may not elect any of the methods of satisfying his withholding tax
obligation in respect of any exercise if, in the opinion of counsel to the
Corporation, such method would not be in full compliance with all applicable
laws and regulations, including, but not limited to, subjecting the holder to
liability under Section 16 of the Securities Exchange Act of 1934, as amended,
if applicable.
(d) An Option holder at any time may elect in writing to abandon an
Option in respect of all or part of the number of shares of Common Stock as to
which the Option shall not have been exercised.
(e) An Option holder shall have none of the rights of a stockholder of
the Corporation until the shares of Common Stock covered by the Option are
issued to him upon exercise of the Option.
- 14 -
<PAGE>
9. AMENDMENTS AND DISCONTINUANCE OF THE PLAN
(a) The Board of Directors shall have the right at any time and from
time to time to amend, modify, or discontinue the Plan provided that, except as
provided in subparagraph 6(c), no such amendment, modification, or
discontinuance of the Plan shall (i) revoke or alter the terms of any
valid Option previously granted pursuant to the Plan, (ii) increase the number
of shares of Common Stock to be reserved for issuance and sale pursuant to
Options granted pursuant to the Plan, (iii) change the maximum aggregate number
of shares of Common Stock that may be issued upon the exercise of Options
granted pursuant to the Plan to any single individual, (iv) decrease the price
determined pursuant to the provisions of subparagraph 7(b), (v) change the class
of persons to whom Options may be granted pursuant to the Plan, or (vi) provide
for Options exercisable more than 10 years after the date granted.
10. PLAN SUBJECT TO GOVERNMENTAL LAWS AND REGULATIONS
The Plan and the grant and exercise of Options pursuant to the Plan
shall be subject to all applicable governmental laws and regulations.
Notwithstanding any other provision of the Plan to the contrary, the Board of
Directors may in its sole and absolute discretion make such changes in the Plan
as may be required to conform the Plan to such laws and regulations.
11. DURATION OF THE PLAN
No Option shall be granted pursuant to the Plan after the close of
business on September 28, 2005.
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<PAGE>
PRECISION TUNE
INCENTIVE STOCK OPTION AGREEMENT
Date: .............................
Option Number: ........................
Number of shares subject to option: ...............
This AGREEMENT, dated _______________________, is made between WE JAC
Corporation (the "Company") and ______________________________, (the
"Optionee").
WHEREAS, the Company's Board of Directors adopted the Precision Tune
Stock Option Plan (the "Plan") on September 28, 1995; and
WHEREAS, the Company's shareholders approved the adoption of the Plan
by the Company on __________________, 1995; and
WHEREAS, the Committee, as described in the Plan (the "Committee"), has
recommended to the Company's Board of Directors that the Optionee be granted an
option under the Plan; and
WHEREAS, the Company now wishes to grant the Optionee an option as
hereinafter set forth.
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
1. GRANT OF OPTION. Pursuant to the provisions of the Plan, the Company
hereby grants to the Optionee, subject to the terms and conditions of that Plan
and subject further to the terms and conditions set forth herein, the right to
purchase from the Company _____ shares of common stock of the Company ("Stock")
at the price of $_____ per share (the "Option Price"). This option shall be
treated as an incentive stock option as defined in Section 422(b) of the
Internal Revenue Code of 1986, as amended.
2. TERMS AND CONDITIONS. It is understood and agreed that the option
for which this Agreement provides is subject to the following terms and
conditions:
(A). EXPIRATION DATE. The option shall expire 10 years after the date
indicated above.
(B). EXERCISE OF OPTION. Subject to the limitations contained in this
Agreement or the Plan, this option may be exercised in whole or in
part, to the extent the option is vested and provided that it may not
be exercised with respect to any fractional share. To the
<PAGE>
extent that any portion of this option is not exercised when it first
becomes exercisable, it may be exercised at a later time, subject to
any limitations contained in this Agreement or the Plan.
Subject to the other terms of this Agreement, the right to
exercise the option for which this Agreement provides shall vest in
accordance with the following schedule:
On or After this Date Percent Vested
First Anniversary of the date hereof 33 1/3%
Second Anniversary of the date hereof 66 2/3%
Third Anniversary of the date hereof 100%
This option shall be exercised by the delivery of a written
notice to the Company specifying the number of shares as to which the
option is being exercised, together with cash, a certified check, bank
draft or money order, payable to the order of the Company for an amount
in U.S. dollars equal to the Option Price times the number of shares as
to which the option is being exercised, or such other method of payment
as specified herein and as authorized by the Plan. Notation of any
partial exercise shall be made by the Company on Schedule I hereto.
(C). PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of any
exercise the purchase price of the shares as to which this option shall
be exercised shall be paid to the Company in cash or with Stock already
owned by the Optionee having a total Fair Market Value, as that term is
defined by the Plan, at the time of exercise equal to the purchase
price, or a combination of cash and Stock having a total Fair Market
Value, as so determined, equal to the purchase price.
(D). CANCELLATION OF OPTION. Notwithstanding any contrary provisions
contained herein, in the event the Optionee is disciplined for cause
(as determined by the Committee), demoted or has his or her employment
responsibilities reduced, the Committee may, in its sole and absolute
discretion, cancel all or any portion of this option.
(E) NONTRANSFERABILITY. This option shall not be transferable other
than by will or by the laws of descent and distribution. During the
lifetime of Optionee, this option shall be exercisable only by him.
(F). NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to any shares of Stock subject to this option
prior to the date of issuance to him of a certificate or certificates
for such shares and no adjustment will be made for dividends or other
rights for which the record date is prior to the date of such exercise.
- 2 -
<PAGE>
(G). NO RIGHT TO CONTINUED EMPLOYMENT. This option shall not confer
upon Optionee any right with respect to continuance of employment by
the Company or any Subsidiary, nor shall it interfere in any way with
the right of his employer to terminate his employment at any time.
(H). COMPLIANCE WITH LAWS AND REGULATIONS. This option and the
obligation of the Company to sell and deliver shares hereunder, shall
be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory
agency as may be required. This option may not be exercised if its
exercise, or the receipt of shares of Stock pursuant thereto, would be
contrary to applicable law.
3. INVESTMENT REPRESENTATION. The Optionee represents and warrants that
he has acquired this Option for investment and not with a view to distribution
and agrees that he will acquire all shares provided hereunder for investment and
not with a view to distribution and upon each exercise of this option will
deliver to the Company a written representation to such effect in form prepared
by counsel to the Company. The certificates for the shares acquired by the
Optionee under this option shall bear a legend substantially in the following
form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or under the
securities act of any state or other jurisdiction. No sale,
offer to sell, or other transfer of the shares of stock
represented by this certificate may be made unless pursuant to
an effective registration statement, or unless, in the opinion
of counsel to WE JAC Corporation, the proposed disposition
falls within a valid exemption from the registration
provisions of those acts. The shares are subject to an
agreement with the Company that they may not be sold or
otherwise transferred except as therein provided, and any sale
or other transfer in violation of that agreement shall be void
and of no effect. A copy of that agreement is on file at the
Company's principal office."
4. DISPOSITION OF SHARES. No shares acquired by exercise of this option
shall be transferable, other than by will or by the laws of descent and
distribution, within 2 years of the date hereof nor within 1 year after the
transfer of such shares pursuant to such exercise, and each certificate
representing shares acquired by the exercise of this option shall bear a legend
to that effect; provided, however, that the committee may, in its discretion,
permit such shares to be transferred prior to the expiration of such periods if
the Optionee has died prior to such expiration.
5. INCORPORATION OF THE PLAN. The Plan, a copy of which is attached to
this Agreement, is hereby incorporated into this Agreement as though fully set
forth herein. The Company and the Optionee agree to be bound by all the terms
and conditions of the Plan. To the extent that any provision of this Agreement
conflicts with the Plan, the terms of the Plan shall control.
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<PAGE>
6. NOTICES. Every notice or other communication relating to this
Agreement shall be in writing and shall be mailed or delivered to the party for
whom it is intended at the address designated by it in a notice mailed or
delivered to the other party. Unless and until some other address is designated,
all notices or communications to the Company shall be mailed or delivered to:
President
WE JAC Corporation
748 Miller Drive, S.E.
Leesburg, Virginia 22075
Unless and until some other address is designated, all notices or communications
to the Optionee shall be mailed or delivered to:
---------------------------------
---------------------------------
---------------------------------
7. DETERMINATIONS BY THE COMMITTEE. Any dispute or disagreement which
may arise under or relate to the Plan or this Agreement shall be resolved by the
Committee in its sole and absolute discretion and judgment. Any such
determination and any interpretation by the Committee of the terms of this
Agreement or the Plan shall be final, binding and conclusive for all purposes.
8. GOVERNING LAW. This Agreement shall be governed by the law of the
Commonwealth of Virginia.
9. COUNTERPARTS. This Agreement has been executed in two counterparts
each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, WE JAC Corporation has caused this Agreement to be
executed by an appropriate officer and Optionee has executed this Agreement,
both as of the day and year first above written.
WE JAC CORPORATION
By: _____________________________________
Title
-------------------------------------
Optionee
- 4 -
<PAGE>
SCHEDULE 1 - NOTATIONS AS TO PARTIAL EXERCISE
- --------------------------------------------------------------------------------
DATE OF NUMBER OF BALANCE OF AUTHORIZED NOTATION
EXERCISE PURCHASED SHARES ON SIGNATURE DATE
SHARES OPTION
- --------------------------------------------------------------------------------
- 5 -
<PAGE>
PRECISION TUNE
NONQUALIFIED STOCK OPTION AGREEMENT
Date: .............................
Option Number: ........................
Number of shares subject to option: ...............
This AGREEMENT, dated _______________________, is made between WE JAC
Corporation (the "Company") and ______________________________, (the
"Optionee").
WHEREAS, the Company's Board of Directors adopted the Precision Tune
Stock Option Plan (the "Plan") on September 28, 1995; and
WHEREAS, the Company's shareholders approved the adoption of the Plan
by the Company on ____________________, 1995; and
WHEREAS, the Committee, as described in the Plan (the "Committee"), has
recommended to the Company's Board of Directors that the Optionee be granted an
option under the Plan; and
WHEREAS, the Company now wishes to grant the Optionee an option as
hereinafter set forth.
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
1. GRANT OF OPTION. Pursuant to the provisions of the Plan, the Company
hereby grants to the Optionee, subject to the terms and conditions of that Plan
and subject further to the terms and conditions set forth herein, the right to
purchase from the Company _____ shares of common stock of the Company ("Stock")
at the price of $_____ per share (the "Option Price"). This option shall NOT be
treated as an incentive stock option as defined in Section 422(b) of the
Internal Revenue Code of 1986, as amended.
2. TERMS AND CONDITIONS. It is understood and agreed that the option
for which this Agreement provides is subject to the following terms and
conditions:
(A). EXPIRATION DATE. The option shall expire 10 years after the date
indicated above.
(B). EXERCISE OF OPTION. Subject to the limitations contained in this
Agreement or the Plan, this option may be exercised in whole or in
part, to the extent the option is vested and provided that it may not
be exercised with respect to any fractional share. To the
<PAGE>
extent that any portion of this option is not exercised when it first
becomes exercisable, it may be exercised at a later time, subject to
any limitations contained in this Agreement or the Plan.
Subject to the other terms of this Agreement, the right to
exercise the option for which this Agreement provides shall vest in
accordance with the following schedule:
On or After this Date Percent Vested
First anniversary of the date hereof 33 1/3%
Second anniversary of the date hereof 66 2/3%
Third anniversary of the date hereof 100%
This option shall be exercised by the delivery of a written
notice to the Company specifying the number of shares as to which the
option is being exercised, together with cash, a certified check, bank
draft or money order, payable to the order of the Company for an amount
in U.S. dollars equal to the Option Price times the number of shares as
to which the option is being exercised, or such other method of payment
as specified herein and as authorized by the Plan. Notation of any
partial exercise shall be made by the Company on Schedule I hereto.
(C). PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of any
exercise the purchase price of the shares as to which this option shall
be exercised shall be paid to the Company in cash or with Stock already
owned by the Optionee having a total Fair Market Value, as that term is
defined by the Plan, at the time of exercise equal to the purchase
price, or a combination of cash and Stock having a total Fair Market
Value, as so determined, equal to the purchase price.
(D). CANCELLATION OF OPTION. Notwithstanding any contrary provisions
contained herein, in the event the Optionee is disciplined for cause
(as determined by the Committee), demoted or has his or her employment
responsibilities reduced, the Committee may, in its sole and absolute
discretion, cancel all or any portion of this option.
(E) NONTRANSFERABILITY. This option shall not be transferable other
than by will or by the laws of descent and distribution. During the
lifetime of Optionee, this option shall be exercisable only by him.
(F). NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to any shares of Stock subject to this option
prior to the date of issuance to him of a certificate or certificates
for such shares and no adjustment will be made for dividends or other
rights for which the record date is prior to the date of such exercise.
- 2 -
<PAGE>
(G). NO RIGHT TO CONTINUED EMPLOYMENT. This option shall not confer
upon Optionee any right to continue employment, by the Company or any
Subsidiary, or in the case of a non-employee director, to continue to
serve as a member of the Board of Directors of the Company or a
Subsidiary, nor shall it interfere in any way with the right of the
Company to terminate the Optionee at any time.
(H). COMPLIANCE WITH LAWS AND REGULATIONS. This option and the
obligation of the Company to sell and deliver shares hereunder, shall
be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory
agency as may be required. This option may not be exercised if its
exercise, or the receipt of shares of Stock pursuant thereto, would be
contrary to applicable law.
3. INVESTMENT REPRESENTATION. The Optionee represents and warrants that
he has acquired this Option for investment and not with a view to distribution
and agrees that he will acquire all shares provided hereunder for investment and
not with a view to distribution and upon each exercise of this option will
deliver to the Company a written representation to such effect in form prepared
by counsel to the Company. The certificates for the shares acquired by the
Optionee under this option shall bear a legend substantially in the following
form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or under the
securities act of any state or other jurisdiction. No sale,
offer to sell, or other transfer of the shares of stock
represented by this certificate may be made unless pursuant to
an effective registration statement, or unless, in the opinion
of counsel to WE JAC Corporation, the proposed disposition
falls within a valid exemption from the registration
provisions of those acts. The shares are subject to an
agreement with the Company that they may not be sold or
otherwise transferred except as therein provided, and any sale
or other transfer in violation of that agreement shall be void
and of no effect. A copy of that agreement is on file at the
Company's principal office."
4. INCORPORATION OF THE PLAN. The Plan, a copy of which is attached to
this Agreement, is hereby incorporated into this Agreement as though fully set
forth herein. The Company and the Optionee agree to be bound by all the terms
and conditions of the Plan. To the extent that any provision of this Agreement
conflicts with the Plan, the terms of the Plan shall control.
5. NOTICES. Every notice or other communication relating to this
Agreement shall be in writing and shall be mailed or delivered to the party for
whom it is intended at the address designated by it in a notice mailed or
delivered to the other party. Unless and until some other
- 3 -
<PAGE>
address is designated, all notices or communications to the Company shall be
mailed or delivered to:
President
WE JAC Corporation
748 Miller Drive, S.E.
Leesburg, Virginia 22075
Unless and until some other address is designated, all notices or communications
to the Optionee shall be mailed or delivered to:
---------------------------------
---------------------------------
---------------------------------
6. DETERMINATIONS BY THE COMMITTEE. Any dispute or disagreement which
may arise under or relate to the Plan or this Agreement shall be resolved by the
Committee in its sole and absolute discretion and judgment. Any such
determination and any interpretation by the Committee of the terms of this
Agreement or the Plan shall be final, binding and conclusive for all purposes.
7. GOVERNING LAW. This Agreement shall be governed by the law of the
Commonwealth of Virginia.
8. COUNTERPARTS. This Agreement has been executed in two counterparts
each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, WE JAC Corporation has caused this Agreement to be
executed by an appropriate officer and Optionee has executed this Agreement,
both as of the day and year first above written.
WE JAC Corporation
By: _____________________________________
Title
-------------------------------------
Optionee
- 4 -
<PAGE>
SCHEDULE 1 - NOTATIONS AS TO PARTIAL EXERCISE
- --------------------------------------------------------------------------------
DATE OF NUMBER OF BALANCE OF AUTHORIZED NOTATION
EXERCISE PURCHASED SHARES ON SIGNATURE DATE
SHARES OPTION
- --------------------------------------------------------------------------------
- 5 -
<PAGE>
PRECISION TUNE
NONQUALIFIED STOCK OPTION AGREEMENT
Date: .............................
Option Number: ........................
Number of shares subject to option: ...............
This AGREEMENT, dated _______________________, is made between WE JAC
Corporation (the "Company") and ______________________________, (the
"Optionee").
WHEREAS, the Company's Board of Directors adopted the Precision Tune
Stock Option Plan (the "Plan") on September 28, 1995; and
WHEREAS, the Company's shareholders approved the adoption of the Plan
by the Company on ____________________, 1995; and
WHEREAS, the Committee, as described in the Plan (the "Committee"), has
recommended to the Company's Board of Directors that the Optionee be granted an
option under the Plan; and
WHEREAS, the Company now wishes to grant the Optionee an option as
hereinafter set forth.
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
1. GRANT OF OPTION. Pursuant to the provisions of the Plan, the Company
hereby grants to the Optionee, subject to the terms and conditions of that Plan
and subject further to the terms and conditions set forth herein, the right to
purchase from the Company _____ shares of common stock of the Company ("Stock")
at the price of $_____ per share (the "Option Price"). This option shall NOT be
treated as an incentive stock option as defined in Section 422(b) of the
Internal Revenue Code of 1986, as amended.
2. TERMS AND CONDITIONS. It is understood and agreed that the option
for which this Agreement provides is subject to the following terms and
conditions:
(A). EXPIRATION DATE. The option shall expire 10 years after the date
indicated above.
(B). EXERCISE OF OPTION. Subject to the limitations contained in this
Agreement or the Plan, this option may be exercised in whole or in
part, to the extent the option is vested and
<PAGE>
provided that it may not be exercised with respect to any fractional
share. To the extent that any portion of this option is not exercised
when it first becomes exercisable, it may be exercised at a later time,
subject to any limitations contained in this Agreement or the Plan.
Subject to the other terms of this Agreement, the right to
exercise the option for which this Agreement provides shall vest in
accordance with the following schedule:
On or After this Date Percent Vested
First anniversary of the date hereof 33 1/3%
Second anniversary of the date hereof 66 2/3%
Third anniversary of the date hereof 100%
This option shall be exercised by the delivery of a written
notice to the Company specifying the number of shares as to which the
option is being exercised, together with cash, a certified check, bank
draft or money order, payable to the order of the Company for an amount
in U.S. dollars equal to the Option Price times the number of shares as
to which the option is being exercised, or such other method of payment
as specified herein and as authorized by the Plan. Notation of any
partial exercise shall be made by the Company on Schedule I hereto.
(C). PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of any
exercise the purchase price of the shares as to which this option shall
be exercised shall be paid to the Company in cash or with Stock already
owned by the Optionee having a total Fair Market Value, as that term is
defined by the Plan, at the time of exercise equal to the purchase
price, or a combination of cash and Stock having a total Fair Market
Value, as so determined, equal to the purchase price.
(D). CANCELLATION OF OPTION. Notwithstanding any contrary provisions
contained herein, in the event the Optionee is disciplined for cause
(as determined by the Committee), demoted or has his or her employment
responsibilities reduced, the Committee may, in its sole and absolute
discretion, cancel all or any portion of this option.
(E) NONTRANSFERABILITY. This option shall not be transferable other
than by will or by the laws of descent and distribution. During the
lifetime of Optionee, this option shall be exercisable only by him.
(F). NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to any shares of Stock subject to this option
prior to the date of issuance to him of a certificate or certificates
for such shares and no adjustment will be made for dividends or other
rights for which the record date is prior to the date of such exercise.
(G). NO RIGHT TO CONTINUED EMPLOYMENT. This option shall not confer
upon Optionee any right to continue employment, by the Company or any
Subsidiary, or in the case of a
-2-
non-employee director, to continue to serve as a member of the Board of
Directors of the Company or a Subsidiary, nor shall it interfere in any
way with the right of the Company to terminate the Optionee at any
time.
(H). COMPLIANCE WITH LAWS AND REGULATIONS. This option and the
obligation of the Company to sell and deliver shares hereunder, shall
be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory
agency as may be required. This option may not be exercised if its
exercise, or the receipt of shares of Stock pursuant thereto, would be
contrary to applicable law.
3. INVESTMENT REPRESENTATION. The Optionee represents and warrants that
he has acquired this Option for investment and not with a view to distribution
and agrees that he will acquire all shares provided hereunder for investment and
not with a view to distribution and upon each exercise of this option will
deliver to the Company a written representation to such effect in form prepared
by counsel to the Company. The certificates for the shares acquired by the
Optionee under this option shall bear a legend substantially in the following
form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or under the
securities act of any state or other jurisdiction. No sale,
offer to sell, or other transfer of the shares of stock
represented by this certificate may be made unless pursuant to
an effective registration statement, or unless, in the opinion
of counsel to WE JAC Corporation, the proposed disposition
falls within a valid exemption from the registration
provisions of those acts. The shares are subject to an
agreement with the Company that they may not be sold or
otherwise transferred except as therein provided, and any sale
or other transfer in violation of that agreement shall be void
and of no effect. A copy of that agreement is on file at the
Company's principal office."
4. INCORPORATION OF THE PLAN. The Plan, a copy of which is attached to
this Agreement, is hereby incorporated into this Agreement as though fully set
forth herein. The Company and the Optionee agree to be bound by all the terms
and conditions of the Plan. To the extent that any provision of this Agreement
conflicts with the Plan, the terms of the Plan shall control.
5. NOTICES. Every notice or other communication relating to this
Agreement shall be in writing and shall be mailed or delivered to the party for
whom it is intended at the address designated by it in a notice mailed or
delivered to the other party. Unless and until some other address is designated,
all notices or communications to the Company shall be mailed or delivered to:
President
WE JAC Corporation
748 Miller Drive, S.E.
Leesburg, Virginia 22075
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<PAGE>
Unless and until some other address is designated, all notices or communications
to the Optionee shall be mailed or delivered to:
---------------------------------
---------------------------------
---------------------------------
6. DETERMINATIONS BY THE COMMITTEE. Any dispute or disagreement which
may arise under or relate to the Plan or this Agreement shall be resolved by the
Committee in its sole and absolute discretion and judgment. Any such
determination and any interpretation by the Committee of the terms of this
Agreement or the Plan shall be final, binding and conclusive for all purposes.
7. GOVERNING LAW. This Agreement shall be governed by the law of the
Commonwealth of Virginia.
8. COUNTERPARTS. This Agreement has been executed in two counterparts
each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, WE JAC Corporation has caused this Agreement to be
executed by an appropriate officer and Optionee has executed this Agreement,
both as of the day and year first above written.
WE JAC Corporation
By: _____________________________________
Title
_____________________________________
Optionee
- 4 -
<PAGE>
SCHEDULE 1 - NOTATIONS AS TO PARTIAL EXERCISE
- --------------------------------------------------------------------------------
DATE OF NUMBER OF BALANCE OF AUTHORIZED NOTATION
EXERCISE PURCHASED SHARES ON SIGNATURE DATE
SHARES OPTION
- --------------------------------------------------------------------------------
- 5 -
PRECISION TUNE
1997 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
This 1997 Employee Stock Purchase Plan (the "Plan") is
intended to encourage and facilitate the purchase of the Common Stock of WE JAC
Corporation (the "Company"), by employees of the Company and its Designated
Subsidiaries, thereby providing employees with a personal stake in the Company
and a long range inducement to remain in the employ of the Company and its
Designated Subsidiaries. It is the intention of the Company to have the Plan
qualify as an "employee stock purchase plan" within the meaning of Section 423
of the Internal Revenue Code of 1986, as amended (the "Code").
2. DEFINITIONS.
2.1 Board. The "Board" is the Board of Directors of the
Company.
2.2 Common Stock. The "Common Stock" is WE JAC Corporation
Common Stock, par value of $0.01 per share.
2.3 Designated Subsidiaries. The "Designated Subsidiaries" are
Precision Tune, Inc. and any other subsidiary of the Company whose Eligible
Employees shall be authorized to participate in the Plan by the Board, so long
as such authorization is continued by the Board.
2.4 Eligible Compensation. The "Eligible Compensation" of each
Participant is his or her regular rate of base compensation for a Grant Period
determined as of the first Grant Date of the Grant Period on which the
Participant is an Eligible Employee. "Eligible Compensation" does not include
management incentives, variable commissions, bonuses, overtime, shift
differential, COLA adjustments, extended work-week premiums, amounts paid or
accrued with respect to any qualified or nonqualified plan of deferred
compensation or other employee welfare plan, payments for group insurance,
hospitalization and similar benefits, perquisites reported as income,
reimbursement for expenses and other forms of extraordinary pay. An employee's
base pay shall be calculated by multiplying the employee's normal rate of pay as
of the first Grant Date on which the employee is an Eligible Employee by the
number of pay periods between said Grant Date and the end of the Grant Period.
2.5 Eligible Employee. An "Eligible Employee" is an employee
of the Company or of a Designated Subsidiary; provided, however, that the term
"Eligible Employee" shall not include:
2.5.1 Employees who are scheduled to work less than
twenty (20) hours per week or less than five (5) months during the Grant Period;
or
<PAGE>
2.5.2 Any employee who, immediately after a Grant
Date, owns five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or its subsidiaries as determined
pursuant to Section 424(e) and (f) of the Code. For purposes of this Subsection
2.5.2, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and stock which the employee may
purchase under outstanding options, whether or not granted under this Plan,
shall be treated as stock owned by the employee.
2.6 Exercise Dates. The "Exercise Dates" are January 31, April
30, July 31, and October 31 of each year.
2.7 Fair Market Value. The "Fair Market Value" per share on
any Grant Date, on any Exercise Date or for purposes of Section 9.6 hereof, as
the case may be, shall be the fair market value of each share of Common Stock as
determined by independent appraisal or in good faith by the Board.
2.8 Grant Dates. The "Grant Dates" are November 1, February 1,
May 1, and August 1 of each year.
2.9 Grant Period. Each "Grant Period" shall commence on
November 1st and shall end on October 31st of the following year.
2.10 Participant. A "Participant" is an Eligible Employee of
the Company or of a Designated Subsidiary who elects to participate in the Plan
by filing an enrollment form with the Company as provided in Section 6.
2.11 Purchase Price. The "Purchase Price" of a share of Common
Stock purchased pursuant to an option granted under the Plan shall be
eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on
the Grant Date.
2.12 Subsidiary. A "Subsidiary" is a corporation, fifty
percent (50%) or more of the outstanding voting power of all classes of stock of
which at the time of granting of an option under the Plan is owned directly, or
indirectly through a subsidiary, by the Company within the meaning of Section
424(f) of the Code.
3. ADMINISTRATION.
3.1 The Plan shall be administered by a committee (the
"Committee") selected by the Board. The Committee shall consist of not less than
three (3) members who are members of the Board of Directors. An individual will
not be eligible to serve on the Committee if the individual is a Participant.
Each member of the Committee shall serve for a term commencing on a date
specified by the Board and continuing until such member dies, resigns, becomes a
Participant or is removed from office by the Board.
3.2 From time to time the Committee may adopt such rules and
regulations for carrying out the Plan as it may deem proper and in the best
interest of the Company. All
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<PAGE>
determinations of the Committee shall be made by a majority of its members. The
interpretation of any provision of the Plan by the Committee shall be final and
the Board shall adopt and place into effect the determinations of the Committee.
4. STOCK SUBJECT TO THE PLAN.
The stock subject to options under the Plan shall be
authorized but unissued shares of the Company's Common Stock. The aggregate
amount of stock for which options may be granted under the Plan shall be
twenty-five thousand (25,000) shares, subject to adjustment in accordance with
Section 12. In the event that an option granted under the Plan to any
Participant is unexercised at the end of a Grant Period as to any shares covered
thereby, such shares thereafter shall be available for the granting of options
under the Plan.
5. GRANT OF OPTION.
Options will be granted on the Grant Dates. All Participants
granted options under the Plan shall have the same rights and privileges. On
each Grant Date of the Grant Period, each Participant who is an Eligible
Employee on the Grant Date may elect to be granted an option by the Board to
purchase whole shares of Common Stock. The maximum number of shares of Common
Stock for which each Participant may elect to be granted options during any
Grant Period shall equal ten percent (10%) of the Participant's Eligible
Compensation divided by eighty-five percent (85%) of the Fair Market Value of a
share of Common Stock on the first Grant Date of the Grant Period on which the
Participant is an Eligible Employee. In the event that the maximum number of
shares to be granted to all Participants on a Grant Date (determined according
to the above formula) exceeds the total number of shares available for sale
under the Plan pursuant to Section 4, the Committee shall make a pro rota
allocation of the available shares among all Participants on such Grant Date
based upon a uniform relationship to the Eligible Compensation of all
Participants in effect on the Grant Date. The Committee may on the first Grant
Date of each Grant Period decrease the percentage of Eligible Compensation set
forth above to calculate the number of shares of Common Stock for which an
Eligible Employee may elect to be granted options to a minimum of five percent
(5%) or increase it to a maximum of twenty percent (20%). Notwithstanding the
foregoing, in the event options are granted prior to the approval of this Plan
by stockholders owning a majority of the common stock of the Company, such grant
is expressly conditioned on subsequent approval of the Plan by the stockholders.
Furthermore, both the grant and the exercise of any options under this Plan are
expressly conditioned on the effective and continuing registration of this Plan
under the Securities Act of 1933 or an available exemption from registration and
effective registration or available exemption from registration under applicable
state securities laws.
6. ENROLLMENT, PAYROLL DEDUCTIONS AND CASH PAYMENTS.
6.1 Within the thirty (30) day period prior to each Grant
Date, the Company shall notify all employees of the Company and its Designated
Subsidiaries of the dates of the Grant Period, the Grant Dates and the Exercise
Dates, and furnish them with enrollment forms and other pertinent information.
- 3 -
<PAGE>
6.2 An employee who is not a Participant and who will be an
Eligible Employee (as defined in Section 2.5) on any Grant Date of a Grant
Period may become a Participant by completing the enrollment form and forwarding
such form to such employee's appropriate payroll office prior to the Grant Date
on which the employee will be an Eligible Employee.
6.3 An enrollment form will allow an Eligible Employee to
become a Participant by authorizing a regular payroll deduction from the
Participant's Eligible Compensation on each pay day during the Grant Period at a
rate which will result in not less than a Five Dollar ($5.00) deduction per pay
day and which will not exceed ten percent (10%) of the Participant's Eligible
Compensation. An enrollment form shall also provide each Eligible Employee with
the option of becoming a Participant by electing to fund his or her stock
purchase account, in whole or in part, by making a lump sum cash payment
pursuant to the provisions of Section 6.8 hereof.
6.4 A participant's payroll deductions and lump sum cash
payments shall be deposited in the Company's general corporate account and shall
be credited to the Participant's stock purchase account under the Plan. No
interest shall accrue on the amount credited to a Participant's stock purchase
account. Except as provided in Sections 6.5 and 6.8, a Participant may not make
any separate cash payment into his or her account. A Participant may change the
amount of the payroll deduction only if the Participant elects to increase or
decrease the number of shares of Common Stock the Participant has an option to
purchase during the Grant Period.
6.5 During leaves of absence approved by the Company and
meeting the requirements of Treasury Regulation Section 1.421-7(h)(2), a
Participant may continue participation in the Plan by making cash payments to
the Company on his or her normal pay days equal to the short fall in his or her
stock purchase account caused by such leave of absence.
6.6 Payroll deductions for a Participant for each Grant Period
shall commence on the first pay day following the first Grant Date on which the
Participant is an Eligible Employee and shall end on the last pay day prior to
the end of the Grant Period, unless sooner terminated by the Participant as
provided in Section 8.
6.7 Individual stock purchase accounts will be maintained for
each Participant in the Plan. A statement will be given to each Participant
promptly following each Exercise Date of a Grant Period which sets forth the
amount of the Participant's payroll deductions and any cash payments, the per
share Purchase Price, the number of shares purchased, and the amount of the
remaining balance, if any, credited to the Participant's stock purchase account.
6.8 A Participant may elect to make a lump sum cash payment to
be credited to his or her stock purchase account on or before the last day of a
Grant Period in an amount which, when added to the amount already credited to
his or her stock purchase account for the Grant Period, does not exceed ten
percent (10%) of his or her Eligible Compensation.
- 4 -
<PAGE>
7. EXERCISE OF OPTION.
7.1 Each Participant who is an Eligible Employee on an
Exercise Date may elect by written notice to the Company to exercise his or her
option to purchase up to the number of whole shares for which the Participant
then has sufficient credit to his stock purchase account, except that on the
last Exercise Date of a Grant Period each Participant shall be deemed to have
exercised an option to purchase such number of whole shares of Common Stock as
the credit to the Participant's stock purchase account on the Exercise Date will
pay for at the applicable Purchase Price. No fractional shares of Common Stock
shall be purchased. During the Participant's lifetime, the option to purchase
shares of Common Stock under the Plan is exercisable only by the Participant.
7.2 Any amount remaining credited to a Participant's stock
purchase account on the last Exercise Date of the Grant Period, after the
purchase of shares as provided above, will be refunded to the Participant
promptly.
7.3 No Participant may be granted an option under the Plan
which would permit such employee's rights to purchase stock under all such
employee stock purchase plans of the Company or its Subsidiaries to accrue at a
rate which exceeds $25,000 in Fair Market Value of such stock (determined at the
time such option is granted) for each calendar year in which such option is
outstanding at any time.
7.4 Shares of Common Stock purchased by a Participant under
the Plan will be issued only in the name of the Participant, or if the
Participant so indicates on his or her enrollment form or in writing, in the
name of the Participant and any other person as joint tenants with rights of
survivorship.
7.5 As promptly as practicable after each Exercise Date of the
Grant Period, the Company shall cause the number of shares purchased by each
Participant to be registered on the stock transfer records of the Company in the
name of the Participant.
8. WITHDRAWAL.
A Participant, at any time and for any reason, may terminate
participation in the Plan by delivering written notice of withdrawal to the
Participant's appropriate payroll office. If a Participant withdraws from the
Plan, the Participant shall not be eligible to again participate in the Plan for
six (6) months thereafter, and the balance in the Participant's stock purchase
account will be promptly refunded after receipt by the Company of the
Participant's notice of withdrawal.
9. TERMINATION OF EMPLOYMENT OR ELIGIBILITY.
9.1 If the employment of a Participant terminates, such
Participant's participation in the Plan automatically and without any act on his
or her part shall terminate as
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<PAGE>
of the date of the termination of his or her employment. The Company promptly
will pay to the Participant the amount credited to his or her stock purchase
account under the Plan (without interest), and thereupon the Participant's
interest in the Plan and any options under the Plan shall terminate.
9.2 In the event a Participant fails to meet the requirements
of an Eligible Employee under the Plan on any Exercise Date of the Grant Period,
as set forth in Section 2.5, the Participant will be deemed to have withdrawn
from the Plan and the payroll deductions credited to such Participant's account
will be promptly refunded to the Participant and no option to purchase shares of
Common Stock shall be granted to such Participant.
9.3 A Participant's withdrawal from participation in the Plan
during a Grant Period shall preclude (i) such Participant's eligibility to
participate in the Plan, and (ii) such Participant's eligibility to participate
in any similar plan which has been or may be adopted by the Company, for a
period of six (6) months thereafter.
9.4 Upon the termination of any Participant's employment with
the Company, the Company shall have an option for a period of ninety (90) days
following the date of such termination to purchase all or any shares of the
authorized, issued and outstanding shares of Common Stock then registered in the
terminated Participant's name and acquired under this Plan at the Fair Market
Value of such Common Stock. Each Stockholder hereby agrees that in the event the
Company exercises its option pursuant to this Section 9.4, he or she shall be
bound to take any and all action necessary to enable the Company to purchase
said shares of Common Stock.
10. TRANSFERABILITY.
Neither payroll deductions or cash payments credited to a
Participant's stock purchase account nor any rights with regard to the exercise
of an option or to receive shares under the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way by the Participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 8.
11. RIGHTS OF A STOCKHOLDER.
Subject to the provisions set forth in Sections 9.6 and 22
hereof, each Participant shall have the rights or privileges of a stockholder of
the Company with respect to shares purchased under the Plan when the shares have
been registered in the name of the Participant on the stock transfer records of
the Company.
12. CAPITAL ADJUSTMENT AFFECTING COMMON STOCK.
In the event of a capital adjustment resulting from a
recapitalization, stock dividend, stock split, reorganization, merger,
consolidation or other change in capitalization affecting the present Common
Stock, the Board may, at its option, terminate the Plan or make
- 6 -
<PAGE>
appropriate adjustments in the number of shares which may be issued and sold
under the Plan and may make such other adjustments as it may deem equitable.
13. TERMINATION AND AMENDMENTS TO PLAN.
The Board, at any time, may terminate the Plan or from time to
time, may amend the Plan without the approval of the stockholders of the
Company; provided, however, that no such amendment shall be made without the
stockholders' approval which would (i) cause the Plan to fail to meet the
requirements of an "employee stock purchase plan" as defined in Section 423 of
the Code, or (ii) permit a Participant to be a member of the Committee.
14. TERMINATION OF THE PLAN.
Upon termination of the Plan, the amount credited to the stock
purchase accounts for all Participants shall be refunded promptly. The Exercise
Dates may be accelerated by the Company in the event of a termination of the
Plan.
15. NON-GUARANTEE OF EMPLOYMENT.
Nothing in the Plan or in any option granted pursuant to the
Plan shall be construed as a contract of employment between the Company or a
Subsidiary and its employees, or as a contractual right to continue in the
employ of the Company or a Subsidiary, or as a limitation of the right of the
Company or a Subsidiary to discharge its employees at any time.
16. EXCLUSION FROM RETIREMENT AND FRINGE BENEFIT COMPUTATION.
No portion of the award of options under this Plan shall be
taken into account as "wages," "salary" or "compensation" for any purpose,
whether in determining eligibility, benefits or otherwise, under (i) any
pension, retirement, profit sharing or other qualified or non-qualified plan of
deferred compensation, (ii) any employee welfare or fringe benefit plan
including, but not limited to, group insurance, hospitalization, medical, and
disability, or (iii) any form of extraordinary pay including but not limited to
bonuses, sick pay and vacation pay.
17. LIABILITY LIMITED; INDEMNIFICATION.
17.1 To the maximum extent permitted by Virginia law, neither
the Company, Board or Committee nor any of its members, shall be liable for any
action or determination made with respect to this Plan.
17.2 In addition to such other rights of indemnification that
they may have, the members of the Board and Committee shall be indemnified by
the Company to the maximum extent permitted by Virginia law against any and all
liabilities and expenses incurred in connection with their service in such
capacity.
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18. GOVERNMENTAL REGULATIONS.
The Company's obligation to sell and deliver the Common Stock
under the plan is subject to the approval of any governmental authority required
in connection with the authorization, issuance or sale of such stock.
19. APPLICATION OF FUNDS.
Any payroll deductions received or held by the Company under
the Plan may be used for any corporate purpose.
20. STOCKHOLDER APPROVAL.
The Plan shall be subject to the approval of the stockholders
owning a majority of the outstanding shares of the Common Stock, which approval
must occur within the period beginning twelve (12) months before and ending
twelve (12) months after the date the Plan is adopted by the Board.
21. OTHER TERMS AND CONDITIONS.
The Committee may impose such other terms and conditions not
inconsistent with the terms of the Plan, as it deems advisable, including,
without limitation, restrictions and requirements relating to (i) the
registration, listing or qualification of the Common Stock, (ii) the grant or
exercise of options, or (iii) the shares of Common Stock acquired under the
Plan. The Committee may require that a Participant notify the Company of any
disposition of shares of Common Stock purchased under the Plan within a period
of two (2) years subsequent to the Grant Date of the options exercised to
purchase those shares.
22. ENDORSEMENT OF CERTIFICATE.
Each certificate of Common Stock of the Company issued to a
Participant pursuant to this Plan shall be endorsed by the Secretary of Company
as follows:
"This certificate is transferable only upon compliance with
the provisions of an employee stock purchase plan, a copy of which is
on file in the office of the Secretary of the Company and is available
upon request of any participant without charge."
23. MISCELLANEOUS.
23.1 The headings in this Plan are for reference purposes only
and shall not affect the meaning or interpretation of the Plan.
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<PAGE>
23.2 Any provision in this Plan which affects the validity or
qualification of this Plan under Section 423 of the Code shall be deemed null
and void without affecting the remaining provisions of this Plan.
23.3 This Plan shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Virginia, without regard to
principles of conflict of laws.
23.4 All notices and other communications made or given
pursuant to this Plan shall be in writing and shall be sufficiently made or
given if delivered or mailed, addressed to the employee at the address contained
in the records of the Company or to the Company at the Company's principal
office.
23.5 This Plan may be executed in any number of counterparts,
each of which shall be considered an original and all of which taken together
shall constitute one and the same instrument.
WE JAC CORPORATION
By: __________________________________
[Corporate Seal] Dated: ____________________________
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PRECISION AUTO CARE, INC.
EMPLOYEE STOCK OPTION PLAN
1. PURPOSE
The proper execution of the duties and responsibilities of the
executives and key employees of Precision Auto Care, Inc. (the "Corporation")
and its subsidiaries is a vital factor in the continued growth and success of
the Corporation. Toward this end, it is necessary to attract and retain
effective and capable individuals to assume positions that contribute materially
to the successful operation of the business of the Corporation and its
subsidiaries. It will benefit the Corporation, therefore, to bind the interests
of these persons more closely to its own interests by offering them an
attractive opportunity to acquire a proprietary interest in the Corporation and
thereby provide them with added incentive to remain in the service of the
Corporation and its subsidiaries and to increase the prosperity, growth, and
earnings of the Corporation. This stock option plan is intended to serve these
purposes.
2. DEFINITIONS
The following terms wherever used herein shall have the meanings set
forth below.
(a) The term "Board of Directors" shall mean the Board of Directors of
the Corporation.
(b) The term "Change in Control of the Corporation" shall mean a change
in control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act,
whether or not the Corporation is in fact required to comply therewith, provided
that, without limitation, such a change in control shall be deemed to have
occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Corporation or any of its subsidiaries or
a corporation owned, directly or indirectly, by the stockholders of the
Corporation in substantially the same proportions as the ownership of Common
Stock of the Corporation, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding securities; (B) during any period of two
consecutive years (not including any period prior to the adoption of the Plan),
individuals who at the beginning of such period constitute the Board and any new
director (other than a director designated by a person who has entered into an
agreement with the Corporation to effect a transaction described in clauses (A)
or (D) of this definition) whose election by the Board or nomination for
election by the Corporation's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of the
Board; (C) the Corporation enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control of the Corporation; or (D)
the
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stockholders of the Corporation approve a merger, share exchange or
consolidation of the Corporation with any other corporation, other than a
merger, share exchange or consolidation that would result in the voting
securities of the Corporation outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the combined voting power of
the voting securities of the Corporation or such surviving entity outstanding
immediately after such merger, share exchange or consolidation, or the
stockholders of the Corporation approve a plan of complete liquidation of the
Corporation or an agreement for the sale or disposition by the Corporation of
all or substantially all the Corporation's assets.
(c) The term "Committee" shall mean a committee to be appointed by the
Board of Directors to consist of three or more members, all of whom are members
of the Board of Directors.
(d) The term "Common Stock" shall mean the shares of common stock, par
value $0.01 per share, of the Corporation.
(e) The term "Corporation" shall mean Precision Auto Care, Inc., a
Virginia corporation.
(f) The term "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(g) The term "Fair Market Value" shall mean the then current fair
market value of Common Stock, as determined in good faith by the Committee and
in a manner consistent with the rules set forth in Treas. Reg. ss.20.2031-2.
(h) The term "Option" or "Stock Option" shall mean a right granted
pursuant to the Plan to purchase shares of Common Stock.
(i) The term "Option Agreement" shall mean the written agreement
representing Options granted pursuant to the Plan as contemplated by Paragraph 7
of the Plan.
(j) The term "Plan" shall mean the Precision Auto Care, Inc. Employee
Stock Option Plan as approved by the Board of Directors on ____________, 1997,
as the same may be amended from time to time.
(k) The term "subsidiary" or "subsidiaries" shall mean a corporation of
which capital stock possessing 50% or more of the total combined voting power of
all classes of its capital stock entitled to vote generally in the election of
directors is owned in the aggregate by the Corporation directly or indirectly
through one or more subsidiaries.
3. EFFECTIVE DATE OF THE PLAN
The Plan shall become effective upon adoption of the Plan by the Board
of Directors.
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<PAGE>
4. ADMINISTRATION
(a) The Plan shall be administered by the Committee.
(b) The Committee may establish, from time to time and at any time,
subject to the approval of the Board of Directors and subject to the limitations
of the Plan as set forth herein, such rules and regulations and amendments and
supplements thereto, as it deems necessary to comply with applicable law and
regulation and for the proper administration of the Plan. A majority of the
members of the Committee shall constitute a quorum. The vote of a majority of a
quorum shall constitute action by the Committee.
(c) The Committee shall from time to time submit to the Board of
Directors for its approval the names of those executives and key employees who,
in its opinion, should receive Options, and shall recommend the numbers of
shares on which Options should be granted to each such person and the nature of
the Options to be granted.
(d) Options shall be granted by the Corporation and shall become
effective only after prior approval of the Board of Directors, and upon the
execution of an Option Agreement between the Corporation and the Option holder.
(e) The Committee's interpretation and construction of the provisions
of the Plan and the rules and regulations adopted by the Committee shall be
final, unless otherwise determined by the Board of Directors. No member of the
Committee or the Board of Directors shall be liable for any action taken or
determination made, in respect of the Plan, in good faith.
5. PARTICIPATION IN THE PLAN
(a) Participation in the Plan shall be limited to the key employees of
the Corporation and its subsidiaries who shall be designated by the Committee
and approved by the Board of Directors.
(b) No member of the Board of Directors who is not also an officer of
the Corporation shall be eligible to participate in the Plan.
6. STOCK SUBJECT TO THE PLAN
(a) There shall be reserved for the granting of Options pursuant to the
Plan and for issuance and sale pursuant to such Options four hundred thousand
(400,000) shares of Common Stock. To determine the number of shares of Common
Stock available at any time for the granting of Options, there shall be deducted
from the total number of reserved shares of Common Stock, the number of shares
of Common Stock in respect of which Options have been granted pursuant to the
Plan that are still outstanding or have been exercised. The shares of Common
Stock to be issued upon the exercise of Options granted pursuant to the Plan
shall be made available from the authorized and unissued shares of Common Stock.
If for any reason shares of Common Stock as to
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<PAGE>
which an Option has been granted cease to be subject to purchase thereunder,
then such shares of Common Stock again shall be available for issuance pursuant
to the exercise of Options pursuant to the Plan.
(b) Proceeds from the purchase of shares of Common Stock upon the
exercise of Options granted pursuant to the Plan shall be used for the general
business purposes of the Corporation.
(c) In the event of reorganization, recapitalization, stock split,
stock dividend, combination of shares of Common Stock, merger, consolidation,
share exchange, acquisition of property or stock, or any change in the capital
structure of the Corporation, the Committee shall make such adjustments as may
be appropriate in the number and kind of shares reserved for purchase by
executives or other key employees, in the number, kind and price of shares
covered by Options granted pursuant to the Plan but not then exercised.
7. TERMS AND CONDITIONS OF OPTIONS
(a) Each Option granted pursuant to the Plan shall be evidenced by an
Option Agreement in such form as the Committee from time to time may determine.
(b) The exercise price per share for Options shall be established by
the Board of Directors upon the recommendation of the Committee at the time of
the grant of Options pursuant to the Plan and shall not be less than the Fair
Market Value of a share of Common Stock on the date on which the Option is
granted. If the Board of Directors does not establish a specific exercise price
per share at the time of grant, the exercise price per share shall be equal to
the Fair Market Value of a share of Common Stock on the date of grant of the
Options.
(c) Each Option, subject to the other limitations set forth in the
Plan, may extend for a period of up to 10 years from the date on which it is
granted. The term of each Option shall be determined by the Board of Directors
at the time of grant of the Option, provided that if no term is established by
the Board of Directors the term of the Option shall be 10 years from the date on
which it is granted.
(d) The Board of Directors, upon recommendation of the Committee, may
provide in the Option Agreement that the right to exercise each Option for the
number of shares subject to each Option shall vest in the Option holder over
such period of time as the Committee, in its discretion, shall determine for
each Option holder. Notwithstanding the foregoing, each Option Agreement shall
provide that, upon the occurrence of a Change in Control of the Corporation, all
Options then outstanding shall become immediately exercisable.
(e) Options shall be nontransferable and nonassignable, except that
Options may be transferred by testamentary instrument or by the laws of descent
and distribution.
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<PAGE>
(f) Upon voluntary or involuntary termination of an Option holder's
employment, his Option and all rights thereunder shall terminate effective at
the close of business on the date the Option holder ceases to be a regular,
full-time employee of the Corporation or any of its subsidiaries, except (i) to
the extent previously exercised and (ii) as provided in subparagraphs (g), (h)
and (i) of this Paragraph 7.
(g) In the event an Option holder (i) takes a leave of absence from the
Corporation or any of its subsidiaries for personal reasons or as a result of
entry into the armed forces of the United States, or any of the departments or
agencies of the United States government, or (ii) terminates his employment, or
ceases providing services to the Corporation or any of its subsidiaries, by
reason of illness, disability, voluntary termination with the consent of the
Committee, or other special circum stance, the Committee may consider his case
and may take such action in respect of the related Option Agreement as it may
deem appropriate under the circumstances, including accelerating the time
previously granted Options may be exercised and extending the time following the
Option holder's termination of active employment during which the Option holder
is entitled to purchase the shares of Common Stock subject to such Options,
provided that in no event may any Option be exercised after the expiration of
the term of the Option.
(h) If an Option holder dies during the term of his Option without
having fully exercised his Option, the executor or administrator of his estate
or the person who inherits the right to exercise the Option by bequest or
inheritance shall have the right within ninety (90) days of the Option holder's
death to purchase the number of shares of Common Stock that the deceased Option
holder was entitled to purchase at the date of his death, after which the Option
shall lapse, provided that in no event may any Option be exercised after the
expiration of the term of the Option.
(i) If an Option holder terminates employment without his having fully
exercised his Option due to his retirement with the consent of the Corporation,
then such Option holder shall have the right within ninety (90) days of the
Option holder's termination of employment to purchase the number of shares of
Common Stock that the Option holder was entitled to purchase at the date of his
termination, after which the Option shall lapse, provided that in no event may
any Option be exercised after the expiration of the term of the Option. The
Committee may cancel an Option during the ninety day period referred to in this
paragraph, if the Participant engages in employment or activities contrary, in
the opinion of the Committee, to the best interests of the Corporation. The
Committee shall determine in each case whether a termination of employment shall
be considered a retirement with the consent of the Corporation, and, subject to
applicable law, whether a leave of absence shall constitute a termination of
employment. Any such determination of the Committee shall be final and
conclusive, unless overruled by the Board.
(j) The granting of an Option pursuant to the Plan shall not constitute
or be evidence of any agreement or understanding, express or implied, on the
part of the Corporation or any of its subsidiaries to retain or employ the
Option holder for any specified period.
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<PAGE>
8. METHODS OF EXERCISE OF OPTIONS
(a) An Option holder (or other person or persons, if any, entitled to
exercise an Option hereunder) desiring to exercise an Option granted pursuant to
the Plan as to all or part of the shares of Common Stock covered by the Option
shall (i) notify the Corporation in writing at its principal office at
__________________________________________________________, to that effect,
specifying the number of shares of Common Stock to be purchased and the method
of payment therefor, and (ii) make payment or provision for payment for the
shares of Common Stock so purchased in accordance with this Paragraph 8. Such
written notice may be given by means of a facsimile transmission. If a facsimile
transmission is used, the Option holder should mail the original executed copy
of the written notice to the Corporation promptly thereafter.
(b) Payment or provision for payment shall be made as follows:
(i) The Option holder shall deliver to the Corporation at
the address set forth in subparagraph 8(a) United
States currency in an amount equal to the aggregate
purchase price of the shares of Common Stock as to
which such exercise relates; or
(ii) The Option holder shall tender to the Corporation
shares of Common Stock already owned by the Option
holder that, together with any cash tendered
therewith, have an aggregate fair market value
(determined based on the Fair Market Value of a share
of Common Stock on the date the notice set forth in
subparagraph 8(a) is received by the Corporation)
equal to the aggregate purchase price of the shares
of Common Stock as to which such exercise relates; or
(iii) The Option holder shall deliver to the Corporation an
exercise notice together with irrevocable
instructions to a broker to deliver promptly to the
Corporation the amount of sale or loan proceeds
necessary to pay the aggregate purchase price of the
shares of Common Stock as to which such exercise
relates and to sell the shares of Common Stock to be
issued upon exercise of the Option and deliver the
cash proceeds, less commissions and brokerage fees to
the Option holder or to deliver the remaining shares
of Common Stock to the Option holder.
Notwithstanding the foregoing provisions, the Committee and the Board
of Directors, in granting Options pursuant to the Plan, may limit the
methods in which an Option may be exercised by any person and, in
processing any purported exercise of an Option granted pursuant to the
Plan, may refuse to recognize the method of exercise selected by the
Option holder (other than the method of exercise set forth in
subparagraph 8(b)(i)).
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<PAGE>
(c) In addition to the alternative methods of exercise set forth in
subparagraph 8(b), holders of Stock Options shall be entitled, at or prior to
the time the written notice provided for in subparagraph 8(a) is delivered to
the Corporation, to elect to have the Corporation withhold from the shares of
Common Stock to be delivered upon exercise of the Stock Option that number of
shares of Common Stock (determined based on the Fair Market Value of a share of
Common Stock on the date the notice set forth in subparagraph 8(a) is received
by the Corporation) necessary to satisfy any withholding taxes attributable to
the exercise of the Stock Option. Alternatively, such holder of a Stock Option
may elect to deliver previously owned shares of Common Stock upon exercise of
the Stock Option to satisfy any withholding taxes attributable to the exercise
of the Stock Option. If the Board of Directors does not include any provisions
relating to this withholding feature in its resolutions granting the Stock
Option or in the Option Agreement, however, the maximum amount that an Option
holder may elect to have withheld from the shares of Common Stock otherwise
deliverable upon exercise or the maximum number of previously owned shares an
Option holder may deliver shall be equal to the minimum federal and state
withholding. Notwithstanding the foregoing provisions, the Committee or the
Board of Directors may include in the Option Agreement relating to any such
Stock Option provisions limiting or eliminating the Option holder's ability to
pay his withholding tax obligation with shares of Common Stock or, if no such
provisions are included in the Option Agreement but in the opinion of the
Committee or the Board of Directors such withholding would have an adverse tax
or accounting effect to the Corporation, at or prior to exercise of the Stock
Option the Committee or the Board of Directors may so limit or eliminate the
Option holder's ability to pay his withholding tax obligation with shares of
Common Stock. Notwithstanding the foregoing provisions, a holder of a Stock
Option may not elect any of the methods of satisfying his withholding tax
obligation in respect of any exercise if, in the opinion of counsel to the
Corporation, there is a substantial likelihood that the election or timing of
the election would subject the holder to a substantial risk of liability under
Section 16 of the Exchange Act.
(d) An Option holder at any time may elect in writing to abandon an
Option in respect of all or part of the number of shares of Common Stock as to
which the Option shall not have been exercised.
(e) An Option holder shall have none of the rights of a stockholder of
the Corporation until the shares of Common Stock covered by the Option are
issued to him upon exercise of the Option.
9. AMENDMENTS AND DISCONTINUANCE OF THE PLAN
(a) The Board of Directors shall have the right at any time and from
time to time to amend, modify, or discontinue the Plan provided that, except as
provided in subparagraph 6(c), no such amendment, modification, or
discontinuance of the Plan shall (i) revoke or alter the terms of any valid
Option previously granted pursuant to the Plan, (ii) increase the number of
shares of Common Stock to be reserved for issuance and sale pursuant to Options
granted pursuant to the Plan, (iii) change the maximum aggregate number of
shares of Common Stock that may be issued upon the exercise of Options granted
pursuant to the Plan to any single individual, (iv) decrease the price
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<PAGE>
determined pursuant to the provisions of subparagraph 7(b), (v) change the class
of persons to whom Options may be granted pursuant to the Plan, or (vi) provide
for Options exercisable more than 10 years after the date granted.
10. PLAN SUBJECT TO GOVERNMENTAL LAWS AND REGULATIONS
The Plan and the grant and exercise of Options pursuant to the Plan
shall be subject to all applicable governmental laws and regulations.
Notwithstanding any other provision of the Plan to the contrary, the Board of
Directors may in its sole and absolute discretion make such changes in the Plan
as may be required to conform the Plan to such laws and regulations.
11. DURATION OF THE PLAN
No Option shall be granted pursuant to the Plan after the close of
business on _________, 2007.
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PRECISION AUTO CARE, INC.
INCENTIVE STOCK OPTION AGREEMENT
Date: .............................
Option Number: ........................
Number of shares subject to option: ...............
This AGREEMENT, dated _____________________, is made between PRECISION
AUTO CARE, INC. (the "Corporation") and ______________________________, (the
"Optionee"),
WHEREAS, the Corporation's Board of Directors adopted the Precision
Auto Care, Inc. Stock Option Plan (the "Plan") on ____________, 1997; and
WHEREAS, the Corporation's shareholders approved the adoption of the
Plan by the Corporation on ___________, 1997; and
WHEREAS, the Committee, as described in the Plan (the "Committee"), has
recommended to the Corporation's Board of Directors that the Optionee be granted
an option under the Plan; and
WHEREAS, the Corporation now wishes to grant the Optionee an option as
hereinafter set forth.
NOW, THEREFORE, the Corporation and the Optionee hereby agree as
follows:
1. GRANT OF OPTION. Pursuant to the provisions of the Plan, the
Corporation hereby grants to the Optionee, subject to the terms and conditions
of that Plan and subject further to the terms and conditions set forth herein,
the right to purchase from the Corporation _____ shares of common stock of the
Corporation ("Stock") at the price of $_____ per share (the "Option Price").
This option shall be treated as an incentive stock option as defined in Section
422(b) of the Internal Revenue Code of 1986, as amended.
2. TERMS AND CONDITIONS. It is understood and agreed that the option
for which this Agreement provides is subject to the following terms and
conditions:
(A). EXPIRATION DATE. The option shall expire 10 years after the date
indicated above.
(B). EXERCISE OF OPTION. This option may be exercised in whole or in
part, to the extent the option is vested and provided that it may not
be exercised with respect to any fractional
<PAGE>
share. To the extent that any portion of this option is not exercised
when it first becomes exercisable, it may be exercised at a later time,
subject to any limitations contained in this Agreement or the Plan.
Subject to the other terms of this Agreement, the right to
exercise the option for which this Agreement provides shall vest in
accordance with the following schedule:
On or After this Date Percent Vested
This option shall be exercised by the delivery of a written
notice to the Corporation specifying the number of shares as to which
the option is being exercised, together with cash, a certified check,
bank draft or money order, payable to the order of the Corporation for
an amount in U.S. dollars equal to the Option Price times the number of
shares as to which the option is being exercised, or such other method
of payment as specified herein and as authorized by the Plan. Notation
of any partial exercise shall be made by the Corporation on Schedule I
hereto.
(C). PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of any
exercise the purchase price of the shares as to which this option shall
be exercised shall be paid to the Corporation in cash or with Stock
already owned by the Optionee having a total Fair Market Value, as that
term is defined by the Plan, at the time of exercise equal to the
purchase price, or a combination of cash and Stock having a total Fair
Market Value, as so determined, equal to the purchase price.
(D). EXERCISE UPON DEATH OR TERMINATION OF EMPLOYMENT. (1) In the event
of the death of the Optionee (i) while an employee of the Corporation
or a subsidiary or (ii) within three months after termination of his or
her employment with the Corporation or a subsidiary because of
disability or retirement with the consent of the Corporation, this
option may be exercised, to the extent that the Optionee was entitled
to do so on the date of his or her termination of employment, by the
person or persons to whom the Optionee's rights under this option pass
by will or applicable law, or if no such person has such right, by his
or her execu tors or administrators, at any time within ninety (90)
days of the Optionee's death, but in no event later than the expiration
date specified in subparagraph (a) of this paragraph 2. (2) If the
Optionee's employment with the Corporation or a subsidiary terminates
because of retirement with the consent of the Corporation, the Optionee
may exercise this option to the extent that he or she was entitled to
do so on the date of the termination of his or her employment, at any
time within ninety (90) days of the date of termination of employment,
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<PAGE>
but not later than the expiration date specified in subparagraph (a) of
this paragraph 2. (3)
If the Optionee's employment terminates for any reason other than death
or retirement with the consent of the Corporation, all rights under
this Agreement shall terminate as of the date of the Optionee's
termination of employment.
(E) NONTRANSFERABILITY. This option shall not be transferable other
than by will or by the laws of descent and distribution. During the
lifetime of Optionee, this option shall be exercisable only by him.
(F). ADJUSTMENTS. In the event of any change in the Stock of the
Corporation by reason of any stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination or
exchange of shares, or any rights offering to purchase Stock at a price
substantially below fair market value, or of any similar change
affecting the Stock, the number and kind of shares subject to this
option and their purchase price per share shall be ap propriately
adjusted consistent with such change in such manner as the Committee
may deem equitable to prevent substantial dilution or enlargement of
the rights granted to optionee hereunder. Any adjustment so made shall
be final and binding upon Optionee.
(G). NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to any shares of Stock subject to this option
prior to the date of issuance to him of a certificate or certificates
for such shares and no adjustment will be made for dividends or other
rights for which the record date is prior to the date of such exercise.
(H). NO RIGHT TO CONTINUED EMPLOYMENT. This option shall not confer
upon Optionee any right with respect to continuance of employment by
the Corporation or any subsidiary, nor shall it interfere in any way
with the right of his employer to terminate his employment at any time.
(I). COMPLIANCE WITH LAWS AND REGULATIONS. This option and the
obligation of the Corporation to sell and deliver shares hereunder,
shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory
agency as may be required. This option may not be exercised if its
exercise, or the receipt of shares of Stock pursuant thereto, would be
contrary to applicable law.
3. INVESTMENT REPRESENTATION. The Optionee represents and warrants that
he has acquired this Option for investment and not with a view to distribution
and agrees that he will acquire all shares provided hereunder for investment and
not with a view to distribution and upon each exercise of this option will
deliver to the Corporation a written representation to such effect in form
prepared by counsel to the Corporation. The certificates for the shares acquired
by the Optionee under this option shall bear a legend substantially in the
following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or under the
securities act of any state or other
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<PAGE>
jurisdiction. No sale, offer to sell, or other transfer of the
shares of stock represented by this certificate may be made
unless pursuant to an effective registration statement, or
unless, in the opinion of counsel to Precision Auto Care,
Inc., the proposed disposition falls within a valid exemption
from the registration provisions of those acts. The shares are
subject to an agreement with the Corporation that they may not
be sold or otherwise transferred except as therein provided,
and any sale or other transfer in violation of that agreement
shall be void and of no effect. A copy of that agreement is on
file at the Corporation's principal office."
4. DISPOSITION OF SHARES. No shares acquired by exercise of this option
shall be transferable, other than by will or by the laws of descent and
distribution, within 2 years of the date hereof nor within 1 year after the
transfer of such shares pursuant to such exercise, and each certificate
representing shares acquired by the exercise of this option shall bear a legend
to that effect; provided, however, that the Committee may, in its discretion,
permit such shares to be transferred prior to the expiration of such periods if
the Optionee has died prior to such expiration.
5. INCORPORATION OF THE PLAN. The Plan, a copy of which is attached to
this Agreement, is hereby incorporated into this Agreement as though fully set
forth herein. The Corporation and the Optionee agree to be bound by all the
terms and conditions of the Plan. To the extent that any provision of this
Agreement conflicts with the Plan, the terms of the Plan shall control.
6. NOTICES. Every notice or other communication relating to this
Agreement shall be in writing and shall be mailed or delivered to the party for
whom it is intended at the address designated by it in a notice mailed or
delivered to the other party. Unless and until some other address is designated,
all notices or communications to the Corporation shall be mailed or delivered
to:
President
Precision Auto Care, Inc.
---------------------------------
---------------------------------
---------------------------------
Unless and until some other address is designated, all notices or communications
to the Optionee shall be mailed or delivered to:
---------------------------------
---------------------------------
---------------------------------
7. DETERMINATIONS BY THE COMMITTEE. Any dispute or disagreement which
may arise under or relate to the Plan or this Agreement shall be resolved by the
Committee in its sole discretion
- 4 -
<PAGE>
and judgment. Any such determination and any interpretation by the Committee of
the terms of this Agreement or the Plan shall be final, binding and conclusive
for all purposes.
8. TAXES. All shares issued at the Optionee's exercise of any portion
of this option are subject to the Corporation's collection of any taxes required
to be withheld by federal, state or local governments and relating to those
shares. To the extent that such taxes have not, by that time, been collected by
the Corporation from the Optionee through other means, the number of shares
issued to Optionee upon his exercise of any portion of the option shall be
reduced to reflect (based on the Fair Market Value of the shares at the exercise
date) the amount of withholding and other taxes required to be collected by the
Corporation with respect to those shares.
9. GOVERNING LAW. This Agreement shall be governed by the law of the
Commonwealth of Virginia.
10. COUNTERPARTS. This Agreement has been executed in two counterparts
each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, Precision Auto Care, Inc. has caused this Agreement
to be executed by an appropriate officer and Optionee has executed this
Agreement, both as of the day and year first above written.
PRECISION AUTO CARE, INC.
By: _____________________________________
Title
_____________________________________
Optionee
- 5 -
<PAGE>
SCHEDULE 1 - NOTATIONS AS TO PARTIAL EXERCISE
DATE OF NUMBER OF BALANCE OF AUTHORIZED NOTATION
EXERCISE PURCHASED SHARES ON SIGNATURE DATE
SHARES OPTION
- 6 -
<PAGE>
PRECISION AUTO CARE, INC.
STOCK OPTION AGREEMENT
Date: .............................
Option Number: ........................
Number of shares subject to option: ...............
This AGREEMENT, dated ___________________, is made between PRECISION
AUTO CARE, INC. (the "Corporation") and ______________________________, (the
"Optionee"),
WHEREAS, the Corporation's Board of Directors adopted the Precision
Auto Care, Inc. Stock Option Plan (the "Plan") on ____________, 1997; and
WHEREAS, the Committee, as described in the Plan (the "Committee"), has
recommended to the Corporation's Board of Directors that the Optionee be granted
an option under the Plan; and
WHEREAS, the Corporation now wishes to grant the Optionee an option as
hereinafter set forth.
NOW, THEREFORE, the Corporation and the Optionee hereby agree as
follows:
1. GRANT OF OPTION. Pursuant to the provisions of the Plan, the
Corporation hereby grants to the Optionee, subject to the terms and conditions
of that Plan and subject further to the terms and conditions set forth herein,
the right to purchase from the Corporation _____ shares of common stock of the
Corporation ("Stock") at the price of $_____ per share (the "Option Price").
2. TERMS AND CONDITIONS. It is understood and agreed that the option
for which this Agreement provides is subject to the following terms and
conditions:
(A). EXPIRATION DATE. The option shall expire 10 years after the date
indicated above.
(B). EXERCISE OF OPTION. This option may be exercised in whole or in
part, to the extent the option is vested and provided that it may not
be exercised with respect to any fractional share. To the extent that
any portion of this option is not exercised when it first becomes
exercisable, it may be exercised at a later time, subject to any
limitations contained in this Agreement or the Plan.
- 1 -
<PAGE>
Subject to the other terms of this Agreement, the right to
exercise the option for which this Agreement provides shall vest in
accordance with the following schedule:
On or After this Date Percent Vested
This option shall be exercised by the delivery of a written
notice to the Corporation specifying the number of shares as to which
the option is being exercised, together with cash, a certified check,
bank draft or money order, payable to the order of the Corporation for
an amount in U.S. dollars equal to the Option Price times the number of
shares as to which the option is being exercised, or such other method
of payment as specified herein and as authorized by the Plan. Notation
of any partial exercise shall be made by the Corporation on Schedule I
hereto.
(C). PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of any
exercise the purchase price of the shares as to which this option shall
be exercised shall be paid to the Corporation in cash or with Stock
already owned by the Optionee having a total Fair Market Value, as that
term is defined by the Plan, at the time of exercise equal to the
purchase price, or a combination of cash and Stock having a total Fair
Market Value, as so determined, equal to the purchase price.
(D). EXERCISE UPON DEATH OR TERMINATION OF EMPLOYMENT. (1) In the event
of the death of the Optionee (i) while an employee of the Corporation
or a subsidiary or (ii) within three months after termination of his or
her employment with the Corporation or a subsidiary because of
disability or retirement with the consent of the Corporation, this
option may be exercised, to the extent that the Optionee was entitled
to do so on the date of his or her termination of employment, by the
person or persons to whom the Optionee's rights under this option pass
by will or applicable law, or if no such person has such right, by his
or her execu tors or administrators, at any time within ninety (90)
days of the Optionee's death, but in no event later than the expiration
date specified in subparagraph (a) of this paragraph 2. (2) If the
Optionee's employment with the Corporation or a subsidiary terminates
because of retirement with the consent of the Corporation, the Optionee
may exercise this option to the extent that he or she was entitled to
do so on the date of the termination of his or her employment, at any
time within ninety (90) days of the date of termination of employment,
but not later than the expiration date specified in subparagraph (a) of
this paragraph 2. (3) If the Optionee's employment terminates for any
reason other than death or retirement with the consent of the
Corporation, all rights under this Agreement shall terminate as of the
date of the Optionee's termination of employment.
- 2 -
<PAGE>
(E) NONTRANSFERABILITY. This option shall not be transferable other
than by will or by the laws of descent and distribution. During the
lifetime of Optionee, this option shall be exercisable only by him.
(F). ADJUSTMENTS. In the event of any change in the Stock of the
Corporation by reason of any stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination or
exchange of shares, or any rights offering to purchase Stock at a price
substantially below fair market value, or of any similar change
affecting the Stock, the number and kind of shares subject to this
option and their purchase price per share shall be ap propriately
adjusted consistent with such change in such manner as the Committee
may deem equitable to prevent substantial dilution or enlargement of
the rights granted to optionee hereunder. Any adjustment so made shall
be final and binding upon Optionee.
(G). NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to any shares of Stock subject to this option
prior to the date of issuance to him of a certificate or certificates
for such shares and no adjustment will be made for dividends or other
rights for which the record date is prior to the date of such exercise.
(H). NO RIGHT TO CONTINUED EMPLOYMENT. This option shall not confer
upon Optionee any right with respect to continuance of employment by
the Corporation or any subsidiary, nor shall it interfere in any way
with the right of his employer to terminate his employment at any time.
(I). COMPLIANCE WITH LAWS AND REGULATIONS. This option and the
obligation of the Corporation to sell and deliver shares hereunder,
shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory
agency as may be required. This option may not be exercised if its
exercise, or the receipt of shares of Stock pursuant thereto, would be
contrary to applicable law.
3. INVESTMENT REPRESENTATION. The Optionee represents and warrants that
he has acquired this Option for investment and not with a view to distribution
and agrees that he will acquire all shares provided hereunder for investment and
not with a view to distribution and upon each exercise of this option will
deliver to the Corporation a written representation to such effect in form
prepared by counsel to the Corporation. The certificates for the shares acquired
by the Optionee under this option shall bear a legend substantially in the
following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or under the
securities act of any state or other jurisdiction. No sale,
offer to sell, or other transfer of the shares of stock
represented by this certificate may be made unless pursuant to
an effective registration statement, or unless, in the opinion
of counsel to Precision Auto Care, Inc., the proposed
disposition falls within a valid exemption from the
registration provisions of those acts. The shares are subject
to an agreement
- 3 -
<PAGE>
with the Corporation that they may not be sold or otherwise
transferred except as therein provided, and any sale or other
transfer in violation of that agreement shall be void and of
no effect. A copy of that agreement is on file at the
Corporation's principal office."
4. INCORPORATION OF THE PLAN. The Plan, a copy of which is attached to
this Agreement, is hereby incorporated into this Agreement as though fully set
forth herein. The Corporation and the Optionee agree to be bound by all the
terms and conditions of the Plan. To the extent that any provision of this
Agreement conflicts with the Plan, the terms of the Plan shall control.
5. NOTICES. Every notice or other communication relating to this
Agreement shall be in writing and shall be mailed or delivered to the party for
whom it is intended at the address designated by it in a notice mailed or
delivered to the other party. Unless and until some other address is designated,
all notices or communications to the Corporation shall be mailed or delivered
to:
President
Precision Auto Care, Inc.
---------------------------------
---------------------------------
---------------------------------
Unless and until some other address is designated, all notices or communications
to the Optionee shall be mailed or delivered to:
---------------------------------
---------------------------------
---------------------------------
6. DETERMINATIONS BY THE COMMITTEE. Any dispute or disagreement which
may arise under or relate to the Plan or this Agreement shall be resolved by the
Committee in its sole discretion and judgment. Any such determination and any
interpretation by the Committee of the terms of this Agreement or the Plan shall
be final, binding and conclusive for all purposes.
7. TAXES. All shares issued at the Optionee's exercise of any portion
of this option are subject to the Corporation's collection of any taxes required
to be withheld by federal, state or local governments and relating to those
shares. To the extent that such taxes have not, by that time, been collected by
the Corporation from the Optionee through other means, the number of shares
issued to Optionee upon his exercise of any portion of the option shall be
reduced to reflect (based on the Fair Market Value of the shares at the exercise
date) the amount of withholding and other taxes required to be collected by the
Corporation with respect to those shares.
8. GOVERNING LAW. This Agreement shall be governed by the law of the
Commonwealth of Virginia.
- 4 -
<PAGE>
9. COUNTERPARTS. This Agreement has been executed in two counterparts
each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, Precision Auto Care, Inc. has caused this Agreement
to be executed by an appropriate officer and Optionee has executed this
Agreement, both as of the day and year first above written.
PRECISION AUTO CARE, INC.
By: _____________________________________
Title
_____________________________________
Optionee
- 5 -
<PAGE>
SCHEDULE 1 - NOTATIONS AS TO PARTIAL EXERCISE
DATE OF NUMBER OF BALANCE OF AUTHORIZED NOTATION
EXERCISE PURCHASED SHARES ON SIGNATURE DATE
SHARES OPTION
- 6 -
<PAGE>
PRECISION TUNE
NONQUALIFIED STOCK OPTION AGREEMENT
Date: .............................
Option Number: ........................
Number of shares subject to option: ...............
This AGREEMENT, dated _______________________, is made between WE JAC
Corporation (the "Company") and ______________________________, (the
"Optionee").
WHEREAS, the Company's Board of Directors adopted the Precision Tune
Stock Option Plan (the "Plan") on September 28, 1995; and
WHEREAS, the Company's shareholders approved the adoption of the Plan
by the Company on ____________________, 1995; and
WHEREAS, the Committee, as described in the Plan (the "Committee"), has
recommended to the Company's Board of Directors that the Optionee be granted an
option under the Plan; and
WHEREAS, the Company now wishes to grant the Optionee an option as
hereinafter set forth.
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
1. GRANT OF OPTION. Pursuant to the provisions of the Plan, the Company
hereby grants to the Optionee, subject to the terms and conditions of that Plan
and subject further to the terms and conditions set forth herein, the right to
purchase from the Company _____ shares of common stock of the Company ("Stock")
at the price of $_____ per share (the "Option Price"). This option shall NOT be
treated as an incentive stock option as defined in Section 422(b) of the
Internal Revenue Code of 1986, as amended.
2. TERMS AND CONDITIONS. It is understood and agreed that the option
for which this Agreement provides is subject to the following terms and
conditions:
(A). EXPIRATION DATE. The option shall expire 10 years after the date
indicated above.
(B). EXERCISE OF OPTION. Subject to the limitations contained in this
Agreement or the Plan, this option may be exercised in whole or in
part, to the extent the option is vested and provided that it may not
be exercised with respect to any fractional share. To the
<PAGE>
extent that any portion of this option is not exercised when it first
becomes exercisable, it may be exercised at a later time, subject to
any limitations contained in this Agreement or the Plan.
Subject to the other terms of this Agreement, the right to
exercise the option for which this Agreement provides shall vest in
accordance with the following schedule:
On or After this Date Percent Vested
First anniversary of the date hereof 33 1/3%
Second anniversary of the date hereof 66 2/3%
Third anniversary of the date hereof 100%
This option shall be exercised by the delivery of a written
notice to the Company specifying the number of shares as to which the
option is being exercised, together with cash, a certified check, bank
draft or money order, payable to the order of the Company for an amount
in U.S. dollars equal to the Option Price times the number of shares as
to which the option is being exercised, or such other method of payment
as specified herein and as authorized by the Plan. Notation of any
partial exercise shall be made by the Company on Schedule I hereto.
(C). PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of any
exercise the purchase price of the shares as to which this option shall
be exercised shall be paid to the Company in cash or with Stock already
owned by the Optionee having a total Fair Market Value, as that term is
defined by the Plan, at the time of exercise equal to the purchase
price, or a combination of cash and Stock having a total Fair Market
Value, as so determined, equal to the purchase price.
(D). CANCELLATION OF OPTION. Notwithstanding any contrary provisions
contained herein, in the event the Optionee is disciplined for cause
(as determined by the Committee), demoted or has his or her employment
responsibilities reduced, the Committee may, in its sole and absolute
discretion, cancel all or any portion of this option.
(E) NONTRANSFERABILITY. This option shall not be transferable other
than by will or by the laws of descent and distribution. During the
lifetime of Optionee, this option shall be exercisable only by him.
(F). NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a
stockholder with respect to any shares of Stock subject to this option
prior to the date of issuance to him of a certificate or certificates
for such shares and no adjustment will be made for dividends or other
rights for which the record date is prior to the date of such exercise.
- 2 -
<PAGE>
(G). NO RIGHT TO CONTINUED EMPLOYMENT. This option shall not confer
upon Optionee any right to continue employment, by the Company or any
Subsidiary, or in the case of a non-employee director, to continue to
serve as a member of the Board of Directors of the Company or a
Subsidiary, nor shall it interfere in any way with the right of the
Company to terminate the Optionee at any time.
(H). COMPLIANCE WITH LAWS AND REGULATIONS. This option and the
obligation of the Company to sell and deliver shares hereunder, shall
be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory
agency as may be required. This option may not be exercised if its
exercise, or the receipt of shares of Stock pursuant thereto, would be
contrary to applicable law.
3. INVESTMENT REPRESENTATION. The Optionee represents and warrants that
he has acquired this Option for investment and not with a view to distribution
and agrees that he will acquire all shares provided hereunder for investment and
not with a view to distribution and upon each exercise of this option will
deliver to the Company a written representation to such effect in form prepared
by counsel to the Company. The certificates for the shares acquired by the
Optionee under this option shall bear a legend substantially in the following
form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 or under the
securities act of any state or other jurisdiction. No sale,
offer to sell, or other transfer of the shares of stock
represented by this certificate may be made unless pursuant to
an effective registration statement, or unless, in the opinion
of counsel to WE JAC Corporation, the proposed disposition
falls within a valid exemption from the registration
provisions of those acts. The shares are subject to an
agreement with the Company that they may not be sold or
otherwise transferred except as therein provided, and any sale
or other transfer in violation of that agreement shall be void
and of no effect. A copy of that agreement is on file at the
Company's principal office."
4. INCORPORATION OF THE PLAN. The Plan, a copy of which is attached to
this Agreement, is hereby incorporated into this Agreement as though fully set
forth herein. The Company and the Optionee agree to be bound by all the terms
and conditions of the Plan. To the extent that any provision of this Agreement
conflicts with the Plan, the terms of the Plan shall control.
5. NOTICES. Every notice or other communication relating to this
Agreement shall be in writing and shall be mailed or delivered to the party for
whom it is intended at the address designated by it in a notice mailed or
delivered to the other party. Unless and until some other
- 3 -
<PAGE>
address is designated, all notices or communications to the Company shall be
mailed or delivered to:
President
WE JAC Corporation
748 Miller Drive, S.E.
Leesburg, Virginia 22075
Unless and until some other address is designated, all notices or communications
to the Optionee shall be mailed or delivered to:
---------------------------------
---------------------------------
---------------------------------
6. DETERMINATIONS BY THE COMMITTEE. Any dispute or disagreement which
may arise under or relate to the Plan or this Agreement shall be resolved by the
Committee in its sole and absolute discretion and judgment. Any such
determination and any interpretation by the Committee of the terms of this
Agreement or the Plan shall be final, binding and conclusive for all purposes.
7. GOVERNING LAW. This Agreement shall be governed by the law of the
Commonwealth of Virginia.
8. COUNTERPARTS. This Agreement has been executed in two counterparts
each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, WE JAC Corporation has caused this Agreement to be
executed by an appropriate officer and Optionee has executed this Agreement,
both as of the day and year first above written.
WE JAC Corporation
By: _____________________________________
Title
_____________________________________
Optionee
- 4 -
<PAGE>
SCHEDULE 1 - NOTATIONS AS TO PARTIAL EXERCISE
DATE OF NUMBER OF BALANCE OF AUTHORIZED NOTATION
EXERCISE PURCHASED SHARES ON SIGNATURE DATE
SHARES OPTION
- 5 -
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this ____ day of ______________, 199__, by and
between James A. Hay, a resident of Annapolis, Maryland (the "Executive"), and
Precision Tune Auto Care, Inc., a Virginia corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Executive desires to provide his services to the Company
and the Company desires to employ the Executive upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
promises, covenants and agreements contained herein, and intending to be legally
bound, the parties hereby agree as follows:
1. Employment and Term.
The Company will employ the Executive, and the Executive hereby accepts
employment with the Company, for an initial term commencing on August 1, 1997
and continuing for a period of three (3) years until and including June 30, 2000
(the "Initial Term"), unless such employment is earlier terminated as provided
herein. After expiration of the Initial Term, Executive's employment under this
Agreement shall continue until terminated, as provided herein.
2. Duties.
The Executive shall serve in the capacity of Senior Vice President,
Retail Operations. During the term of his employment hereunder, the Executive
shall devote his full business time and attention to the performance of his
duties for the Company.
3. Compensation.
(a) Base Salary. The Company shall pay the Executive, and the
Executive shall accept, as full compensation for all services rendered
hereunder, a basic salary (the "Base Salary") and the other compensation and
benefits provided hereunder. The Executive's Base Salary effective the date his
employment commences with the Company shall be at an annual rate of One Hundred
Twenty Thousand Dollars ($120,000), payable in approximately equal installments
at such intervals as are consistent with the Company's pay periods for salaried
executive employees. The Executive's base salary will be reviewed annually on or
about the anniversary date of employment.
1
<PAGE>
(b) Performance Bonus. The Executive is entitled to receive a
Performance Bonus as designed consistent with the Company's performance bonus
plan(s) for all Senior Vice Presidents in the Company, the specifics of which
shall be determined at a later occasion, and which shall be approved by the
Board of Directors.
(c) Benefits.
(i) The Executive shall be eligible to participate
in retirement, group insurance, medical, dental, vacation and any other plans or
programs of substantially similar character as are made generally available to
executive employees of the Company which do not duplicate the benefits otherwise
specifically provided in this Agreement. If these programs are deleted after
implementation, the Executive will be eligible to receive or participate in the
programs offered to all of the Company's employees. All such benefits are to be
provided by the Company, subject to the terms of any welfare or pension plan
sponsored by the Company.
(ii) The Executive shall be eligible to receive an
allotment of up to Fifteen Thousand Dollars ($15,000) toward (a) relocation of
his residence to the Leesburg, Virginia area, or (b) temporary lodging expenses
incurred prior to the relocation, if either occurs on or before December 31,
1998.
(iii) The Executive shall be eligible to participate
in the anticipated Company Stock Option Plan as may approved by the Board of
Directors and the Chief Executive Officer. In the event the Stock Option Plan is
approved, ratified, and implemented by the Board of Directors for Company
executives, Executive shall receive an option to purchase Twenty Five Thousand
(25,000) shares with a three-year vesting period, one third of the total number
of options being eligible for exercise on each of the first, second, and third
anniversaries of the date of execution of Executive's Stock Option Plan. The
exercise price for these stock options will be at the offering price at the
commencement of trade on the date of the IPO and the term will be for ten (10)
years. All other parameters surrounding exercise and purchase of the Stock
Options, including but not limited to provisions for options following death of
Executive, are further outlined in the formal Plan Document governing the Stock
Option Plan.
(iv) The Company shall reimburse the Executive for
all expenses incurred by him in the performance of his duties pursuant to this
Agreement.
(iv) Executive shall receive such other benefits
and/or allowances as are permitted to him from time to time by the Company.
(d) Restructuring of Payments. Notwithstanding anything in
this Agreement to the contrary, in the event that, in the opinion of the
Company's auditors, any payments of compensation to be made hereunder would be
treated as "excess parachute payments" within the meaning of section 280G of the
Internal Revenue Code as amended, the Company and the
2
<PAGE>
Executive shall use their best efforts to restructure any of the payments so as
to avoid the imposition of excise tax upon the Executive and the loss of
deduction for such payments by the Company.
4. Confidentiality.
While employed by the Company under this Agreement and at all times
thereafter, the Executive shall not, without the prior written consent of the
Company, divulge to any third party or use for his own benefit or the benefit of
any third party, or for any purpose other than the exclusive benefit of the
Company, any confidential or proprietary business or technical information
revealed, obtained or developed in the course of his employment with the Company
or his duties performed for the Company or which is otherwise the property of
the Company or any of its subsidiaries or affiliated companies; provided that,
nothing contained herein shall restrict the Executive's use or disclosure of
such information (I) in the proper course of conduct of the Company's business,
(ii) known generally to the public (other than that which he may have disclosed
in breach of this Agreement) or (iii) as required by law or a court having
lawful jurisdiction so long as the Executive gives the Company prior notice of
such required disclosure, unless precluded from doing so by legal authority.
5. Covenant Not to Compete.
(a) The Executive shall not, within any geographical area
while employed by the Company or while performing duties for the Company
hereunder, and within the United States of America for two (2) years thereafter,
directly or indirectly engage or become interested in (as owner, stockholder,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise) any business that engages in the auto care industry, except that the
Executive may hold as a passive investment not more than five percent (5%) of
the outstanding securities of any class of any publicly-held entity that engages
in the auto care industry.
(b) It is the desire and the intent of the parties that the
provisions of this Section 5 shall be enforceable to the fullest extent
permissible under applicable law and public policy. Accordingly, if this Section
5 or any portion thereof shall be adjudicated to be invalid or unenforceable,
the length and scope of this Section 5 shall be reduced to the extent necessary
so that this covenant may be enforced to the fullest extent possible under
applicable law.
(c) The Company recognizes that the Executive brings certain
auto care industry background including but not exclusive to a mechanicss
training, racing experience as well as other auto industry experience.
6. Enforcement.
(a) Injunctive Relief. The parties recognize that, in the
event of any breach by
3
<PAE>
the Executive of any of the provisions of Section 4 or 5 hereof, the Company
will suffer continuing and irreparable harm for which the Company will not have
an adequate remedy at law. The Executive hereby waives any and all right to
assert any claim or defense that the Company has an adequate remedy at law for
any such breach. In recognition thereof, the Company and the Executive hereby
agree that, in the event of any such breach, the Company will be entitled to
seek injunctive relief or any other appropriate remedy to enforce such
provisions. The parties further agree that this Section 6 shall not in any way
limit remedies at law or in equity otherwise available to the Company. In the
event the Company seeks injunctive relief and is unsuccessful on the merits, or
terminates such action prior to entry of a judgment or other ruling on the
merits, other than a termination of such action due to a settlement agreement
between the Company and the Executive, the Company shall reimburse the Executive
for his reasonable attorneys' fees.
(b) Arbitration. In the event of any dispute between the
parties under or relating to this Agreement or relating to the Executive's
employment by the Company, such dispute shall be submitted to and settled by,
first, mediation, then arbitration in the Commonwealth of Virginia in accordance
with the Employment Dispute Resolution Rules of the American Arbitration
Association then in effect, by an arbitrator or arbitrators selected in
accordance with said rules. The arbitrator(s) shall have the right and authority
to determine how their award or decision as to each issue and matter in dispute
may be implemented or enforced. Any decision or award shall be final and
conclusive on the parties; there shall be no appeal therefrom other than for
claimed bias, fraud, misconduct or mistakes in law by the arbitrator(s);
judgment upon any award or decision may be entered in any court of competent
jurisdiction in the Commonwealth of Virginia or elsewhere; and the parties
hereto consent to the application by any party in interest to any court of
competent jurisdiction for confirmation or enforcement of such award. The party
against whom a decision or award is made shall pay the fees of the American
Arbitration Association. Notwithstanding the foregoing, the Company, at its sole
option, shall be entitled to enforce its rights, as contemplated by Section 6(a)
hereof, to injunctive and other equitable relief in the event of breach of
Section 4 or 5 hereof by arbitration, restricting the Arbitrator's authority to
only contract content and enforceability, not compensation amounts previously
outlined in this contract, pursuant to this Section 6(b) or directly in any
court of competent jurisdiction.
7. Termination of Employment.
(a) Death. The Executive's employment hereunder shall
terminate in the event of the Executive's death. Except for any salary and
benefits accrued, vested and unpaid as of the date of any such termination and
except for any benefits to which the Executive or his heirs or personal
representatives may be entitled under and in accordance with the terms of any
employee benefit plan, policy or program maintained by the Company, the Company
shall be under no further obligation hereunder to the Executive or his heirs or
personal representatives, and the Executive or his heirs and personal
representatives no longer shall be entitled to receive any payments or any other
rights or benefits under this Agreement.
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(b) Disability. The Company may terminate the Executive's
employment hereunder for "Disability," if an independent physician mutually
selected by the Executive or his representative and the Board of Directors or
its designee has determined that the Executive has been substantially unable to
render to the Company services of the character contemplated by Section 2 of
this Agreement, by reason of a physical or mental illness or other condition
continuing for more than one hundred and eighty (180) consecutive days or for
shorter periods aggregating more than two hundred and twenty (220) days in any
period of twelve (12) consecutive months (excluding in each case days on which
the Executive was on vacation). In the event of such Disability, the Executive
shall be entitled to receive any salary and benefits accrued, vested and unpaid
as of the date of any such termination and any benefits to which the Executive
may be entitled under and in accordance with the terms of any employee benefit
plan, policy or program maintained by the Company. The Company shall be under no
further obligation hereunder to the Executive, and the Executive no longer shall
be entitled to receive any other payments, rights of benefits under this
Agreement.
(c) Termination by the Company for Cause. The Company may
terminate the Executive's employment hereunder for "Cause." For purposes of this
Agreement, "Cause" shall mean any of the following:
(i) The Executive's repeated willful misconduct or
gross negligence;
(ii) The Executive's repeated conscious disregard of
his obligations hereunder;
(iii) The Executive's repeated conscious violation of
any provision of the Company's by-laws or of its other stated policies,
standards or regulations;
(iv) A determination that the Executive has
demonstrated a dependence upon any addictive substance except for a licensed
physician's legal, written prescription, including alcohol, controlled
substances, narcotics or barbiturates; provided, however, that if the Board of
Directors of the Company desires to terminate the Executive for any of the
reasons set forth in clauses (i), (ii) or (iii) of this Section 7(c), the
Company within the sixty (60) day period immediately following each alleged
commission of a proscribed act or omission, shall have furnished to the
Executive a written description of the allegedly proscribed act or omission and
a statement advising him that the Company views such conduct as being of the
type that could lead to termination of the Executive for Cause and, provided
further, that if the Board of Directors of the Company desires to terminate the
Executive on the basis of clause (iii) of this Section 7(c), it must be able to
demonstrate that the Executive has been furnished with a copy of the by-law
provision, policy, standard or regulation, the violation of which the Executive
is being accused, at a time prior to the alleged commission of the violation.
In the event that the Company terminates the Executive's employment for
Cause, the
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Executive shall be entitled to receive a severance benefit of two (2) months'
Base Salary in effect at the time of termination. The Executive shall not be
entitled to receive any other payment or any other rights or benefits under this
Agreement (except for any salary and benefits accrued, vested and unpaid as of
the date of any such termination); the Company shall be under no further
obligation hereunder to the Executive, and the Company shall have such rights
and remedies as may be available to it for any breach of this Agreement or
otherwise.
(1) In the event the Executive is terminated for
cause, the Company agrees to furnish only the Executive's position title and the
dates of employment with the Company, unless the Executive authorizes otherwise
in writing.
(d) Termination by the Company other than for Cause. The
Company may terminate the Executive's employment hereunder at any time for any
other reason, provided that the Company has given the Executive ninety (90)
days' written notice of termination, termination being effective upon expiration
of the notice period. In the event of such termination, the Executive shall be
entitled to receive a severance benefit equal to Base Salary at the rate in
effect at the time of termination for eighteen (18) months, and shall also be
entitled to receive any salary and benefits accrued, vested and unpaid as of the
date of any such termination and any benefits to which the Executive may be
entitled under and in accordance with the terms of any employee benefit plan,
policy or program maintained by the Company; and upon the Executive's receipt of
such severance benefit, salary and benefits, the Company shall be under no
further obligation hereunder to the Executive and the Executive no longer shall
be entitled to receive any payment or any other rights or benefits under this
Agreement.
(e) Termination by the Executive for Good Reason.
Notwithstanding anything herein to the contrary, the Executive shall be entitled
to terminate his employment hereunder for "Good Reason" without breach of this
Agreement. For purposes of this Agreement, "Good Reason" shall exist in the
event of any of the following:
(i) A material change in title or a substantial
elimination of the duties and responsibilities of the Executive;
(ii) A material breach by the Company of its
obligations hereunder.
(iii) A change in control of the Company; provided
that, for the purposes of this Section 7(e)(iii), a "change in control of the
Company" shall mean (A) the acquisition, directly or indirectly, by any "person"
(as such term is defined in Section 13(d) and 14(d) of the Securities Exchange
Act of 1934 as in effect on the date hereof), of voting power over voting shares
of the Company that would entitle holders thereof to cast at least fifty percent
(50%) of the votes that all shareholders would be entitled to cast in the
election of directors of the Company; or (B) during any period of two
consecutive years during the Initial Term of this Agreement, individuals who at
the beginning of such period constitute the Company Board of Directors cease for
any reason to constitute at least a majority thereof, unless the election of
each
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director who is not a director at the beginning of such period shall have been
approved in advance by directors representing at least three fourths of the
directors then in office who are directors at the beginning of such period.
In the event of such termination by the Executive, the Executive shall
nonetheless be entitled to receive a severance benefit equal to Base Salary at
the rate in effect at the time of termination for eighteen (18) months. Except
for such severance benefit and except for any salary and benefits accrued,
vested and unpaid as of the date of such termination, the Executive no longer
shall be entitled to receive any payments or any other rights of benefits under
this Agreement, and the Company shall have no further obligation hereunder to
the Executive following any such termination.
(f) Termination by the Executive for other than Good Reason.
The Executive may terminate his employment hereunder at any time for any other
reason, provided the Executive has given the Company ninety (90) days' written
notice of termination, termination being effective upon expiration of the notice
period. In the event of such termination, the Executive shall be entitled to
receive any salary benefits accrued, vested and unpaid as of the date of any
such termination and any benefits to which the Executive may be entitled under
and in accordance with the terms of any employee benefit plan, policy or program
maintained by the Company. The Company shall be under no further obligation
hereunder to the Executive and the Executive no longer shall be entitled to
receive any other payments, rights or benefits under this Agreement.
8. Place of Employment.
The Company agrees that the principal location at which the Executive
is to render his services hereunder will be Leesburg, Virginia, unless a
modification is understood and agreed to in writing by Executive and Company. If
the Company, a successor corporation or a company purchasing the Company's
assets requires a relocation, then the Company will reimburse the Executive's
moving costs up to a finite amount to be determined by mutual agreement.
9. Withholding.
Anything to the contrary herein notwithstanding, all payments required
to be made hereunder by the Company to the Executive, or his estate or
beneficiaries, shall be subject to the withholding of such amounts as the
Company may reasonably determine it should withhold pursuant to any applicable
law or regulation.
10. Survival.
The Agreement shall survive any termination of the Executive's
employment hereunder
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unless otherwise provided herein.
11. Miscellaneous.
(a) Successors and Assigns. The Company may assign this
Agreement to, and only to, an entity which is owned more than fifty percent
(50%), directly or indirectly, by the Company, and any person or entity which
acquires all or substantially all of the Company's business, and subject to the
foregoing, upon such assignment this Agreement shall inure to the benefit of and
be binding upon such entity. This Agreement shall not be assignable by the
Executive and shall inure to the benefit of and be binding upon him and his
personal representative and other legal representatives. It is understood that
this Section 11(a) shall not effect the right of the Executive to terminate his
employment for "Good Reason" pursuant to Section 7(e) hereof.
(b) Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing or sent by certified or registered
mail, return receipt requested and postage prepaid, addressed as follows:
If to the Executive:
James A. Hay
1875 Cherry Road
Annapolis, Maryland 21401
If to the Company:
Precision Tune Auto Care, Inc.
748 Miller Drive, SE
P.O. Box 5000
Leesburg, Virginia 20175
Attn: John F. Ripley
or to such other address as either party may from time to time duly specify by
notice given to the other party in the manner specified above. Notice shall be
deemed given when received by the other party, including by his or its agent.
(c) Entire Agreement; Amendments. This Agreement contains the
entire agreement and understanding of the parties relating to the subject matter
hereof and supersedes all prior discussions, agreements and understandings
relating thereto between them. This Agreement may not be changed or modified,
except by an agreement in writing executed by the Company, and by the Executive.
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(d) Waiver. The waiver of a breach of any term or provision of
this Agreement shall not operate as or be construed to be a waiver of any other
subsequent breach of this Agreement.
(e) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement, and the performance
of the obligations imposed by this Agreement, shall be governed by the laws of
the Commonwealth of Virginia applicable to contracts made and wholly to be
performed in such state, without regard to choice of law principles.
(f) Severability. In the event that any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable, in any respect, such invalidity or
unenforceability shall not affect any other provision of this Agreement. Such
invalid, illegal or unenforceable provision(s) shall be deemed modified to the
extent necessary to make it (them) valid, legal and enforceable.
(g) Indemnification. The Executive shall be entitled to the
benefit of the indemnification provided by Article 7 of the Bylaws of the
Company; provided that the Company shall be permitted to amend such provision
from time to time so long as the Executive, to the extent permitted by
applicable law, is afforded indemnification at least as favorable as that
provided by such Article 7 as in effect on the date hereof.
(h) Captions. All captions and section headings used herein
are for convenient reference only and do not form a part of this Agreement.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute one and the same Agreement.
(j) Computation of Time. In computing any period of time
pursuant to this Agreement, the day of the act, event or default from which the
designated period of time begins to run shall be included, unless it is a
Saturday, Sunday, or a legal holiday, in which the period shall begin to run on
the next day which is not a Saturday, Sunday, or legal holiday. Likewise, if the
period of time concludes on a Saturday, Sunday or legal holiday, the period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.
(k) Pronouns and Plurals. All pronouns and variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular, or plural
as the identity of the person or persons may require.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
PRECISION TUNE AUTO CARE, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
------------------------------------
James A. Hay, Individually
10
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 1st day of August, 1997, by and between
Arnold Janofsky, a resident of Hunt Valley, MD (the "Executive), and Precision
Tune Auto Care, Inc., a Virginia corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Executive desires to provide his services to the Company
and the Company desires to employ the Executive upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
promises, covenants and agreements contained herein, and intending to be legally
bound, the parties hereby agree as follows:
1. Employment and Term.
The Company will employ the Executive, and the Executive hereby accepts
employment with the Company, for an initial term commencing on August 1, 1997
and continuing for a period of three (3) years until and including the same
month and day in 2000 (the "Initial Term"), unless such employment is earlier
terminated as provided herein. After expiration of the Initial Term, Executive's
employment under this Agreement shall continue until terminated as provided
herein.
2. Duties.
The Executive shall serve in the capacity of Senior Vice
President/General Counsel. During the term of his employment hereunder, the
Executive shall devote his full business time and attention to the performance
of his duties for the Company.
3. Compensation.
(a) Base Salary. The Company shall pay the Executive, and the
Executive shall accept, as full compensation for all services rendered
hereunder, a basic salary (the "Base Salary") and the other compensation and
benefits provided hereunder. The Executive's Base Salary effective the date his
employment commences with the Company shall be at an annual rate of One Hundred
Twenty Thousand Dollars ($120,000), payable in approximately equal installments
at such intervals as are consistent with the Company's pay periods for salaried
executive employees.
(b) Performance Bonus. The Executive is entitled to receive a
Performance
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Bonus as designed consistent with the Company's performance bonus plan(s) for
all Senior Vice Presidents in the Company, the specifics of which shall be
determined at a later occasion, and which shall be approved by the Board of
Directors.
(c) Benefits.
(i) The executive shall be eligible to participate
in retirement, group insurance, medical, dental, vacation and any other plans or
programs of substantially similar character as are made generally available to
executive employees of the Company which do not duplicate the benefits otherwise
specifically provided in this Agreement. All such benefits are to be provided by
the Company, subject to the terms of any welfare or pension plan sponsored by
the Company.
(ii) The Executive shall be eligible to participate
in the any Stock Option Plan as may approved by the Board of Directors and the
Chief Executive Officer. In the event such Stock Option Plan(s) are approved,
ratified, and implemented by the Board of Directors for Company executives,
Executive shall receive an option to purchase a minimum of Twenty-five Thousand
(25,000) shares with a three-year vesting period, one third of the total number
of options being eligible for exercise on each of the first, second, and third
anniversaries of the date of execution. The exercise price for said stock
options will be at fair market value on the date of grant and the term will be
for ten (10) years.
(iii) The Company shall reimburse the Executive for
all expenses incurred by him in the performance of his duties pursuant to this
Agreement.
(iv) The Company shall reimburse the Executive for
dues of a luncheon or country club of choice up to a maximum of $2,400 per year.
(v) Executive shall receive such other benefits
and/or allowances as are permitted to him from time to time by the Company.
(d) Restructuring of Payments. Notwithstanding anything in
this Agreement to the contrary, in the event that, in the opinion of the
Company's auditors, any payments of compensation to be made hereunder would be
treated as "excess parachute payments" within the meaning of section 280G of the
Internal Revenue Code as amended, the Company and the Executive shall use their
best efforts to restructure any of the payments so as to avoid the imposition of
excise tax upon the Executive and the loss of deduction for such payments by the
Company.
4. Confidentiality.
While employed by the Company under this Agreement and at all times
thereafter, the Executive shall not, without the prior written consent of the
Company, divulge to any third party
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or use for his own benefit or the benefit of any third party, or for any purpose
other than the exclusive benefit of the Company, any confidential or proprietary
business or technical information revealed, obtained or developed in the course
of his employment with the Company or his duties performed for the Company or
which is otherwise the property of the Company or any of its subsidiaries or
affiliated companies; provided that, nothing contained herein shall restrict the
Executive's use or disclosure of such information (i) in the proper course of
conduct of the Company's business, (ii) known generally to the public (other
than that which he may have disclosed in breach of this Agreement) or (iii) as
required by law so long as the Executive gives the Company prior notice of such
required disclosure unless precluded from doing so by legal authority.
5. Covenant Not to Compete.
(a) The Executive shall not, within any geographical area
while employed by the Company or while performing duties for the Company
hereunder, and within the United States of America for two (2) years thereafter,
directly or indirectly engage or become interested in (as owner, stockholder,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise) any business that engages in the auto care, quick lube or car wash
industries, except that the Executive may hold as a passive investment not more
than five percent (5%) of the outstanding securities of any class of any
publicly-held entity that engages in the auto care industry.
(b) It is the desire and the intent of the parties that the
provisions of this Section 6 shall be enforceable to the fullest extent
permissible under applicable law and public policy. Accordingly, if this Section
5 or any portion thereof shall be adjudicated to be invalid or unenforceable,
the length and scope of this Section 5 shall be reduced to the extent necessary
so that this covenant may be enforced to the fullest extent possible under
applicable law.
6. Enforcement.
(a) Injunctive Relief. The parties recognize that, in the
event of any breach by the Executive of any of the provisions of Section 4 or 5
hereof, the Company will suffer continuing and irreparable harm for which the
Company will not have an adequate remedy at law. The Executive hereby waives any
and all right to assert any claim or defense that the Company has an adequate
remedy at law for any such breach. In recognition thereof, the Company and the
Executive hereby agree that, in the event of any such breach, the Company will
be entitled to seek injunctive relief or any other appropriate remedy to enforce
such provisions. The parties further agree that this Section 6 shall not in any
way limit remedies at law or in equity otherwise available to the Company. In
the event the Company seeks injunctive relief and is unsuccessful on the merits,
or terminates such action prior to entry of a judgment or other ruling on the
merits, other than a termination of such action due to a settlement agreement
between the Company and the Executive, the Company shall reimburse the Executive
for his reasonable attorneys' fees.
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(b) Arbitration. In the event of any dispute between the
parties under or relating to this Agreement or relating to the Executive's
employment by the Company, such dispute shall be submitted to and settled by
arbitration in the Commonwealth of Virginia in accordance with the Employment
Dispute Resolution Rules of the American Arbitration Association then in effect,
by an arbitrator or arbitrators selected in accordance with said rules. The
arbitrator(s) shall have the right and authority to determine how their award or
decision as to each issue and matter in dispute may be implemented or enforced.
Any decision or award shall be final and conclusive on the parties; there shall
be no appeal therefrom other than for claimed bias, fraud or misconduct by the
arbitrator(s); judgment upon any award or decision may be entered in any court
of competent jurisdiction in the Commonwealth of Virginia or elsewhere; and the
parties hereto consent to the application by any party in interest to any court
of competent jurisdiction for confirmation or enforcement of such award. The
party against whom a decision or award is made shall pay the fees of the
American Arbitration Association. Notwithstanding the foregoing, the Company, at
its sole option, shall be entitled to enforce its rights, as contemplated by
Section 6(a) hereof, to injunctive and other equitable relief in the event of
breach of Section 4 or 5 hereof by arbitration pursuant to this Section 6(b) or
directly in any court of competent jurisdiction.
7. Termination of Employment.
(a) Death. The Executive's employment hereunder shall
terminate in the event of the Executive's death. Except for any salary and
benefits accrued, vested and unpaid as of the date of any such termination and
except for any benefits to which the Executive or his heirs or personal
representatives may be entitled under and in accordance with the terms of any
employee benefit plan, policy or program maintained by the Company, the Company
shall be under no further obligation hereunder to the Executive or his heirs or
personal representatives, and the Executive or his heirs and personal
representatives no longer shall be entitled to receive any payments or any other
rights or benefits under this Agreement.
(b) Disability. The Company may terminate the Executive's
employment hereunder for "Disability," if an independent physician mutually
selected by the Executive or his representative and the Board of Directors or
its designee has determined that the Executive has been substantially unable to
render to the Company services of the character contemplated by Section 2 of
this Agreement, by reason of a physical or mental illness or other condition
continuing for more than one hundred and eighty (180) consecutive days or for
shorter periods aggregating more than two hundred and twenty (220) days in any
period of twelve (12) consecutive months (excluding in each case days on which
the Executive was on vacation). In the event of such Disability, the Executive
shall be entitled to receive any salary and benefits accrued, vested and unpaid
as of the date of any such termination and any benefits to which the Executive
may be entitled under and in accordance with the terms of any employee benefit
plan, policy or program maintained by the Company. The Company shall be under no
further obligation hereunder to the Executive, and the Executive no longer shall
be entitled to receive
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any other payments, rights of benefits under this Agreement.
(c) Termination by the Company for Cause. The Company may
terminate the Executive's employment hereunder for "Cause." For purposes of this
Agreement, "Cause" shall mean any of the following:
(i) The Executive's repeated willful misconduct or
gross negligence;
(ii) The Executive's repeated conscious disregard of
his obligations hereunder;
(iii) The Executive's repeated conscious violation of
any provision of the Company's by-laws or of its other stated policies,
standards or regulations;
(iv) A determination that the Executive has
demonstrated a dependence upon any addictive substance, including alcohol,
controlled substances, narcotics or barbiturates; provided, however, that if the
Board of Directors of the Company desires to terminate the Executive for any of
the reasons set forth in clauses (i), (ii) or (iii) of this Section 7(c), the
Company within the sixty (60) day period immediately following each alleged
commission of a proscribed act or omission, shall have furnished to the
Executive a written description of the allegedly proscribed act or omission and
a statement advising him that the Company views such conduct as being of the
type that could lead to termination of the Executive for Cause and, provided
further, that if the Board of Directors of the Company desires to terminate the
Executive on the basis of clause (iii) of this Section 7(c), it must be able to
demonstrate that the Executive has been furnished with a copy of the by-law
provision, policy, standard or regulation, the violation of which the Executive
is being accused, at a time prior to the alleged commission of the violation.
In the event that the Company terminates the Executive's employment for
Cause, the Executive shall be entitled to receive a severance benefit of two (2)
months' Base Salary in effect at the time of termination. The Executive shall
not be entitled to receive any other payment or any other rights or benefits
under this Agreement (except for any salary and benefits accrued, vested and
unpaid as of the date of any such termination); the Company shall be under no
further obligation hereunder to the Executive, and the Company shall have such
rights and remedies as may be available to it for any breach of this Agreement
or otherwise.
(d) Termination by the Company other than for Cause. The
Company may terminate the Executive's employment hereunder at any time for any
other reason, provided that the Company has given the Executive ninety (90)
days' written notice of termination, termination being effective upon expiration
of the notice period. In the event of such termination, the Executive shall be
entitled to receive a severance benefit equal to Base Salary at the rate in
effect at the time of termination for eighteen (18) months, and shall also be
entitled to receive any
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salary and benefits accrued, vested and unpaid as of the date of any such
termination and any benefits to which the Executive may be entitled under and in
accordance with the terms of any employee benefit plan, policy or program
maintained by the Company; and upon the Executive's receipt of such severance
benefit, salary and benefits, the Company shall be under no further obligation
hereunder to the Executive and the Executive no longer shall be entitled to
receive any payment or any other rights or benefits under this Agreement.
(e) Termination by the Executive for Good Reason.
Notwithstanding anything herein to the contrary, the Executive shall be entitled
to terminate his employment hereunder for "Good Reason" without breach of this
Agreement. For purposes of this Agreement, "Good Reason" shall exist in the
event of any of the following:
(i) A material change in title or a substantial
elimination of the duties and responsibilities of the Executive;
(ii) A material breach by the Company of its
obligations hereunder.
(iii) A change in control of the Company; provided
that, for the purposes of this Section 7(e)(iii), a "change in control of the
Company" shall mean (A) the acquisition, directly or indirectly, by any "person"
(as such term is defined in Section 13(d) and 14(d) of the Securities Exchange
Act of 1934 as in effect on the date hereof), of voting power over voting shares
of the Company that would entitle holders thereof to cast at least fifty percent
(50%) of the votes that all shareholders would be entitled to cast in the
election of directors of the Company; or (B) during any period of two
consecutive years during the Initial Term of this Agreement, individuals who at
the beginning of such period constitute the Company Board of Directors cease for
any reason to constitute at least a majority thereof, unless the election of
each director who is not a director at the beginning of such period shall have
been approved in advance by directors representing at least three fourths of the
directors then in office who are directors at the beginning of such period.
In the event of such termination by the Executive, the Executive shall
nonetheless be entitled to receive a severance benefit equal to Base Salary at
the rate in effect at the time of termination for eighteen (18) months. Except
for such severance benefit and except for any salary and benefits accrued,
vested and unpaid as of the date of such termination, the Executive no longer
shall be entitled to receive any payments or any other rights of benefits under
this Agreement, and the Company shall have no further obligation hereunder to
the Executive following any such termination.
(f) Termination by the Executive for other than Good Reason.
The Executive may terminate his employment hereunder at any time for any other
reason, provided the Executive has given the Company ninety (90) days' written
notice of termination, termination being effective upon expiration of the notice
period. In the event of such termination, the Executive shall be entitled to
receive any salary benefits accrued, vested and unpaid as of the date
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of any such termination and any benefits to which the Executive may be entitled
under and in accordance with the terms of any employee benefit plan, policy or
program maintained by the Company. The Company shall be under no further
obligation hereunder to the Executive and the Executive no longer shall be
entitled to receive any other payments, rights or benefits under this Agreement.
8. Place of Employment.
The Company agrees that the principal location at which the Executive
is to render his services hereunder will be Leesburg, Virginia, unless a
modification is understood and agreed to in writing by Executive and Company.
9. Withholding.
Anything to the contrary herein notwithstanding, all payments required
to be made hereunder by the Company to the Executive, or his estate or
beneficiaries, shall be subject to the withholding of such amounts as the
Company may reasonably determine it should withhold pursuant to any applicable
law or regulation.
10. Survival.
The Agreement shall survive any termination of the Executive's
employment hereunder unless otherwise provided herein.
11. Miscellaneous.
(a) Successors and Assigns. The Company may assign this
Agreement to, and only to, an entity which is owned more than fifty percent
(50%), directly or indirectly, by the Company, and any person or entity which
acquires all or substantially all of the Company's business, and subject to the
foregoing, upon such assignment this Agreement shall inure to the benefit of and
be binding upon such entity. This Agreement shall not be assignable by the
Executive and shall inure to the benefit of and be binding upon him and his
personal representative and other legal representatives. It is understood that
this Section 11(a) shall not effect the right of the Executive to terminate his
employment for "Good Reason" pursuant to Section 7(e) hereof.
(b) Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing or sent by certified or registered
mail, return receipt requested and postage prepaid, addressed as follows:
If to the Executive:
Arnold Janofsky
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1508 Applecroft Lane
Hunt Valley, MD 21030
If to the Company:
Precision Tune Auto Care, Inc.
748 Miller Drive, SE
P.O. Box 5000
Leesburg, Virginia 20175
Attn: John F. Ripley
or to such other address as either party may from time to time duly specify by
notice given to the other party in the manner specified above. Notice shall be
deemed given when received by the other party, including by his or its agent.
(c) Entire Agreement; Amendments. This Agreement contains the
entire agreement and understanding of the parties relating to the subject matter
hereof and supersedes all prior discussions, agreements and understandings
relating thereto between them. This Agreement may not be changed or modified,
except by an agreement in writing executed by the Company, and by the Executive.
(d) Waiver. The waiver of a breach of any term or provision of
this Agreement shall not operate as or be construed to be a waiver of any other
subsequent breach of this Agreement.
(e) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement, and the performance
of the obligations imposed by this Agreement, shall be governed by the laws of
the Commonwealth of Virginia applicable to contracts made and wholly to be
performed in such state, without regard to choice of law principles.
(f) Severability. In the event that any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable, in any respect, such invalidity or
unenforceability shall not affect any other provision of this Agreement. Such
invalid, illegal or unenforceable provision(s) shall be deemed modified to the
extent necessary to make it (them) valid, legal and enforceable.
(g) Indemnification. The Executive shall be entitled to the
benefit of the indemnification provided by Article 7 of the Bylaws of the
Company; provided that the Company shall be permitted to amend such provision
from time to time so long as the Executive, to the extent permitted by
applicable law, is afforded indemnification at least as favorable as that
provided by such Article 7 as in effect on the date hereof.
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(h) Captions. All captions and section headings used herein
are for convenient reference only and do not form a part of this Agreement.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute one and the same Agreement.
(j) Computation of Time. In computing any period of time
pursuant to this Agreement, the day of the act, event or default from which the
designated period of time begins to run shall be included, unless it is a
Saturday, Sunday, or a legal holiday, in which the period shall begin to run on
the next day which is not a Saturday, Sunday, or legal holiday. Likewise, if the
period of time concludes on a Saturday, Sunday or legal holiday, the period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.
(k) Pronouns and Plurals. All pronouns and variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular, or plural
as the identity of the person or persons may require.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
PRECISION TUNE AUTO CARE, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
------------------------------------
Arnold Janofsky
9
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 1st day of August, 1997, by and between Grant
G. Nicolai, a resident of Annandale, Virginia (the "Executive), and Precision
Tune Auto Care, Inc., a Virginia corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Executive desires to provide his services to the Company
and the Company desires to employ the Executive upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
promises, covenants and agreements contained herein, and intending to be legally
bound, the parties hereby agree as follows:
1. Employment and Term.
The Company will employ the Executive, and the Executive hereby accepts
employment with the Company, for an initial term commencing on August 1, 1997
and continuing for a period of three (3) years until and including the same
month and day in 2000 (the "Initial Term"), unless such employment is earlier
terminated as provided herein. After expiration of the Initial Term, Executive's
employment under this Agreement shall continue until terminated as provided
herein.
2. Duties.
The Executive shall serve in the capacity of Senior Vice President,
Franchise Development. During the term of his employment hereunder, the
Executive shall devote his full business time and attention to the performance
of his duties for the Company.
3. Compensation.
(a) Base Salary. The Company shall pay the Executive, and the
Executive shall accept, as full compensation for all services rendered
hereunder, a basic salary (the "Base Salary") and the other compensation and
benefits provided hereunder. The Executive's Base Salary effective the date his
employment commences with the Company shall be at an annual rate of One Hundred
Twenty Thousand Dollars ($120,000), payable in approximately equal installments
at such intervals as are consistent with the Company's pay periods for salaried
executive employees.
(b) Performance Bonus. The Executive is entitled to receive a
Performance
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Bonus as designed consistent with the Company's performance bonus plan(s) for
all Senior Vice Presidents in the Company, the specifics of which shall be
determined at a later occasion, and which shall be approved by the Board of
Directors.
(c) Benefits.
(i) The executive shall be eligible to participate
in retirement, group insurance, medical, dental, vacation and any other plans or
programs of substantially similar character as are made generally available to
executive employees of the Company which do not duplicate the benefits otherwise
specifically provided in this Agreement. All such benefits are to be provided by
the Company, subject to the terms of any welfare or pension plan sponsored by
the Company.
(ii) The Executive shall be eligible to participate
in the any Stock Option Plan as may approved by the Board of Directors and the
Chief Executive Officer. In the event such Stock Option Plan(s) are approved,
ratified, and implemented by the Board of Directors for Company executives,
Executive shall receive an option to purchase a minimum of Twenty-five Thousand
(25,000) shares with a three-year vesting period, one third of the total number
of options being eligible for exercise on each of the first, second, and third
anniversaries of the date of execution. The exercise price for said stock
options will be at fair market value on the date of grant and the term will be
for ten (10) years.
(iii) The Company shall reimburse the Executive for
all expenses incurred by him in the performance of his duties pursuant to this
Agreement.
(iv) The Company shall reimburse the Executive for
dues of a luncheon or country club of choice up to a maximum of $2,400 per year.
(v) Executive shall receive such other benefits
and/or allowances as are permitted to him from time to time by the Company.
(d) Restructuring of Payments. Notwithstanding anything in
this Agreement to the contrary, in the event that, in the opinion of the
Company's auditors, any payments of compensation to be made hereunder would be
treated as "excess parachute payments" within the meaning of section 280G of the
Internal Revenue Code as amended, the Company and the Executive shall use their
best efforts to restructure any of the payments so as to avoid the imposition of
excise tax upon the Executive and the loss of deduction for such payments by the
Company.
4. Confidentiality.
While employed by the Company under this Agreement and at all times
thereafter, the Executive shall not, without the prior written consent of the
Company, divulge to any third party
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or use for his own benefit or the benefit of any third party, or for any purpose
other than the exclusive benefit of the Company, any confidential or proprietary
business or technical information revealed, obtained or developed in the course
of his employment with the Company or his duties performed for the Company or
which is otherwise the property of the Company or any of its subsidiaries or
affiliated companies; provided that, nothing contained herein shall restrict the
Executive's use or disclosure of such information (i) in the proper course of
conduct of the Company's business, (ii) known generally to the public (other
than that which he may have disclosed in breach of this Agreement) or (iii) as
required by law so long as the Executive gives the Company prior notice of such
required disclosure unless precluded from doing so by legal authority.
5. Covenant Not to Compete.
(a) The Executive shall not, within any geographical area
while employed by the Company or while performing duties for the Company
hereunder, and within the United States of America for two (2) years thereafter,
directly or indirectly engage or become interested in (as owner, stockholder,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise) any business that engages in the auto care, quick lube or car wash
industries, except that the Executive may hold as a passive investment not more
than five percent (5%) of the outstanding securities of any class of any
publicly-held entity that engages in the auto care industry.
(b) It is the desire and the intent of the parties that the
provisions of this Section 6 shall be enforceable to the fullest extent
permissible under applicable law and public policy. Accordingly, if this Section
5 or any portion thereof shall be adjudicated to be invalid or unenforceable,
the length and scope of this Section 5 shall be reduced to the extent necessary
so that this covenant may be enforced to the fullest extent possible under
applicable law.
6. Enforcement.
(a) Injunctive Relief. The parties recognize that, in the
event of any breach by the Executive of any of the provisions of Section 4 or 5
hereof, the Company will suffer continuing and irreparable harm for which the
Company will not have an adequate remedy at law. The Executive hereby waives any
and all right to assert any claim or defense that the Company has an adequate
remedy at law for any such breach. In recognition thereof, the Company and the
Executive hereby agree that, in the event of any such breach, the Company will
be entitled to seek injunctive relief or any other appropriate remedy to enforce
such provisions. The parties further agree that this Section 6 shall not in any
way limit remedies at law or in equity otherwise available to the Company. In
the event the Company seeks injunctive relief and is unsuccessful on the merits,
or terminates such action prior to entry of a judgment or other ruling on the
merits, other than a termination of such action due to a settlement agreement
between the Company and the Executive, the Company shall reimburse the Executive
for his reasonable attorneys' fees.
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(b) Arbitration. In the event of any dispute between the
parties under or relating to this Agreement or relating to the Executive's
employment by the Company, such dispute shall be submitted to and settled by
arbitration in the Commonwealth of Virginia in accordance with the Employment
Dispute Resolution Rules of the American Arbitration Association then in effect,
by an arbitrator or arbitrators selected in accordance with said rules. The
arbitrator(s) shall have the right and authority to determine how their award or
decision as to each issue and matter in dispute may be implemented or enforced.
Any decision or award shall be final and conclusive on the parties; there shall
be no appeal therefrom other than for claimed bias, fraud or misconduct by the
arbitrator(s); judgment upon any award or decision may be entered in any court
of competent jurisdiction in the Commonwealth of Virginia or elsewhere; and the
parties hereto consent to the application by any party in interest to any court
of competent jurisdiction for confirmation or enforcement of such award. The
party against whom a decision or award is made shall pay the fees of the
American Arbitration Association. Notwithstanding the foregoing, the Company, at
its sole option, shall be entitled to enforce its rights, as contemplated by
Section 6(a) hereof, to injunctive and other equitable relief in the event of
breach of Section 4 or 5 hereof by arbitration pursuant to this Section 6(b) or
directly in any court of competent jurisdiction.
7. Termination of Employment.
(a) Death. The Executive's employment hereunder shall
terminate in the event of the Executive's death. Except for any salary and
benefits accrued, vested and unpaid as of the date of any such termination and
except for any benefits to which the Executive or his heirs or personal
representatives may be entitled under and in accordance with the terms of any
employee benefit plan, policy or program maintained by the Company, the Company
shall be under no further obligation hereunder to the Executive or his heirs or
personal representatives, and the Executive or his heirs and personal
representatives no longer shall be entitled to receive any payments or any other
rights or benefits under this Agreement.
(b) Disability. The Company may terminate the Executive's
employment hereunder for "Disability," if an independent physician mutually
selected by the Executive or his representative and the Board of Directors or
its designee has determined that the Executive has been substantially unable to
render to the Company services of the character contemplated by Section 2 of
this Agreement, by reason of a physical or mental illness or other condition
continuing for more than one hundred and eighty (180) consecutive days or for
shorter periods aggregating more than two hundred and twenty (220) days in any
period of twelve (12) consecutive months (excluding in each case days on which
the Executive was on vacation). In the event of such Disability, the Executive
shall be entitled to receive any salary and benefits accrued, vested and unpaid
as of the date of any such termination and any benefits to which the Executive
may be entitled under and in accordance with the terms of any employee benefit
plan, policy or program maintained by the Company. The Company shall be under no
further obligation hereunder to the Executive, and the Executive no longer shall
be entitled to receive
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any other payments, rights of benefits under this Agreement.
(c) Termination by the Company for Cause. The Company may
terminate the Executive's employment hereunder for "Cause." For purposes of this
Agreement, "Cause" shall mean any of the following:
(i) The Executive's repeated willful misconduct or
gross negligence;
(ii) The Executive's repeated conscious disregard of
his obligations hereunder;
(iii) The Executive's repeated conscious violation of
any provision of the Company's by-laws or of its other stated policies,
standards or regulations;
(iv) A determination that the Executive has
demonstrated a dependence upon any addictive substance, including alcohol,
controlled substances, narcotics or barbiturates; provided, however, that if the
Board of Directors of the Company desires to terminate the Executive for any of
the reasons set forth in clauses (i), (ii) or (iii) of this Section 7(c), the
Company within the sixty (60) day period immediately following each alleged
commission of a proscribed act or omission, shall have furnished to the
Executive a written description of the allegedly proscribed act or omission and
a statement advising him that the Company views such conduct as being of the
type that could lead to termination of the Executive for Cause and, provided
further, that if the Board of Directors of the Company desires to terminate the
Executive on the basis of clause (iii) of this Section 7(c), it must be able to
demonstrate that the Executive has been furnished with a copy of the by-law
provision, policy, standard or regulation, the violation of which the Executive
is being accused, at a time prior to the alleged commission of the violation.
In the event that the Company terminates the Executive's employment for
Cause, the Executive shall be entitled to receive a severance benefit of two (2)
months' Base Salary in effect at the time of termination. The Executive shall
not be entitled to receive any other payment or any other rights or benefits
under this Agreement (except for any salary and benefits accrued, vested and
unpaid as of the date of any such termination); the Company shall be under no
further obligation hereunder to the Executive, and the Company shall have such
rights and remedies as may be available to it for any breach of this Agreement
or otherwise.
(d) Termination by the Company other than for Cause. The
Company may terminate the Executive's employment hereunder at any time for any
other reason, provided that the Company has given the Executive ninety (90)
days' written notice of termination, termination being effective upon expiration
of the notice period. In the event of such termination, the Executive shall be
entitled to receive a severance benefit equal to Base Salary at the rate in
effect at the time of termination for eighteen (18) months, and shall also be
entitled to receive any salary and benefits accrued, vested and unpaid as of the
date of any such termination and any
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benefits to which the Executive may be entitled under and in accordance with the
terms of any employee benefit plan, policy or program maintained by the Company;
and upon the Executive's receipt of such severance benefit, salary and benefits,
the Company shall be under no further obligation hereunder to the Executive and
the Executive no longer shall be entitled to receive any payment or any other
rights or benefits under this Agreement.
(e) Termination by the Executive for Good Reason.
Notwithstanding anything herein to the contrary, the Executive shall be entitled
to terminate his employment hereunder for "Good Reason" without breach of this
Agreement. For purposes of this Agreement, "Good Reason" shall exist in the
event of any of the following:
(i) A material change in title or a substantial
elimination of the duties and responsibilities of the Executive;
(ii) A material breach by the Company of its
obligations hereunder.
(iii) A change in control of the Company; provided
that, for the purposes of this Section 7(e)(iii), a "change in control of the
Company" shall mean (A) the acquisition, directly or indirectly, by any "person"
(as such term is defined in Section 13(d) and 14(d) of the Securities Exchange
Act of 1934 as in effect on the date hereof), of voting power over voting shares
of the Company that would entitle holders thereof to cast at least fifty percent
(50%) of the votes that all shareholders would be entitled to cast in the
election of directors of the Company; or (B) during any period of two
consecutive years during the Initial Term of this Agreement, individuals who at
the beginning of such period constitute the Company Board of Directors cease for
any reason to constitute at least a majority thereof, unless the election of
each director who is not a director at the beginning of such period shall have
been approved in advance by directors representing at least three fourths of the
directors then in office who are directors at the beginning of such period.
In the event of such termination by the Executive, the Executive shall
nonetheless be entitled to receive a severance benefit equal to Base Salary at
the rate in effect at the time of termination for eighteen (18) months. Except
for such severance benefit and except for any salary and benefits accrued,
vested and unpaid as of the date of such termination, the Executive no longer
shall be entitled to receive any payments or any other rights of benefits under
this Agreement, and the Company shall have no further obligation hereunder to
the Executive following any such termination.
(f) Termination by the Executive for other than Good Reason.
The Executive may terminate his employment hereunder at any time for any other
reason, provided the Executive has given the Company ninety (90) days' written
notice of termination, termination being effective upon expiration of the notice
period. In the event of such termination, the Executive shall be entitled to
receive any salary benefits accrued, vested and unpaid as of the date of any
such termination and any benefits to which the Executive may be entitled under
and in
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accordance with the terms of any employee benefit plan, policy or program
maintained by the Company. The Company shall be under no further obligation
hereunder to the Executive and the Executive no longer shall be entitled to
receive any other payments, rights or benefits under this Agreement.
8. Place of Employment.
The Company agrees that the principal location at which the Executive
is to render his services hereunder will be Leesburg, Virginia, unless a
modification is understood and agreed to in writing by Executive and Company.
9. Withholding.
Anything to the contrary herein notwithstanding, all payments required
to be made hereunder by the Company to the Executive, or his estate or
beneficiaries, shall be subject to the withholding of such amounts as the
Company may reasonably determine it should withhold pursuant to any applicable
law or regulation.
10. Survival.
The Agreement shall survive any termination of the Executive's
employment hereunder unless otherwise provided herein.
11. Miscellaneous.
(a) Successors and Assigns. The Company may assign this
Agreement to, and only to, an entity which is owned more than fifty percent
(50%), directly or indirectly, by the Company, and any person or entity which
acquires all or substantially all of the Company's business, and subject to the
foregoing, upon such assignment this Agreement shall inure to the benefit of and
be binding upon such entity. This Agreement shall not be assignable by the
Executive and shall inure to the benefit of and be binding upon him and his
personal representative and other legal representatives. It is understood that
this Section 11(a) shall not effect the right of the Executive to terminate his
employment for "Good Reason" pursuant to Section 7(e) hereof.
(b) Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing or sent by certified or registered
mail, return receipt requested and postage prepaid, addressed as follows:
If to the Executive:
Grant G. Nicolai
4145 Elizabeth Lane
Annandale, VA 22003
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If to the Company:
Precision Tune Auto Care, Inc.
748 Miller Drive, SE
P.O. Box 5000
Leesburg, Virginia 20175
Attn: John F. Ripley
or to such other address as either party may from time to time duly specify by
notice given to the other party in the manner specified above. Notice shall be
deemed given when received by the other party, including by his or its agent.
(c) Entire Agreement; Amendments. This Agreement contains the
entire agreement and understanding of the parties relating to the subject matter
hereof and supersedes all prior discussions, agreements and understandings
relating thereto between them. This Agreement may not be changed or modified,
except by an agreement in writing executed by the Company, and by the Executive.
(d) Waiver. The waiver of a breach of any term or provision of
this Agreement shall not operate as or be construed to be a waiver of any other
subsequent breach of this Agreement.
(e) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement, and the performance
of the obligations imposed by this Agreement, shall be governed by the laws of
the Commonwealth of Virginia applicable to contracts made and wholly to be
performed in such state, without regard to choice of law principles.
(f) Severability. In the event that any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable, in any respect, such invalidity or
unenforceability shall not affect any other provision of this Agreement. Such
invalid, illegal or unenforceable provision(s) shall be deemed modified to the
extent necessary to make it (them) valid, legal and enforceable.
(g) Indemnification. The Executive shall be entitled to the
benefit of the indemnification provided by Article 7 of the Bylaws of the
Company; provided that the Company shall be permitted to amend such provision
from time to time so long as the Executive, to the extent permitted by
applicable law, is afforded indemnification at least as favorable as that
provided by such Article 7 as in effect on the date hereof.
(h) Captions. All captions and section headings used herein
are for convenient reference only and do not form a part of this Agreement.
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(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute one and the same Agreement.
(j) Computation of Time. In computing any period of time
pursuant to this Agreement, the day of the act, event or default from which the
designated period of time begins to run shall be included, unless it is a
Saturday, Sunday, or a legal holiday, in which the period shall begin to run on
the next day which is not a Saturday, Sunday, or legal holiday. Likewise, if the
period of time concludes on a Saturday, Sunday or legal holiday, the period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.
(k) Pronouns and Plurals. All pronouns and variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular, or plural
as the identity of the person or persons may require.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
PRECISION TUNE AUTO CARE, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
------------------------------------
Grant G. Nicolai
9
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 1st day of August, 1997, by and between Peter
Kendrick, a resident of Reston, Virginia (the "Executive), and Precision Tune
Auto Care, Inc., a Virginia corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Executive desires to provide his services to the Company
and the Company desires to employ the Executive upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
promises, covenants and agreements contained herein, and intending to be legally
bound, the parties hereby agree as follows:
1. Employment and Term.
The Company will employ the Executive, and the Executive hereby accepts
employment with the Company, for an initial term commencing on August 1, 1997
and continuing for a period of three (3) years until and including the same
month and day in 2000 (the "Initial Term"), unless such employment is earlier
terminated as provided herein. After expiration of the Initial Term, Executive's
employment under this Agreement shall continue until terminated as provided
herein.
2. Duties.
The Executive shall serve in the capacity of Senior Vice President/
Chief Financial Officer. During the term of his employment hereunder, the
Executive shall devote his full business time and attention to the performance
of his duties for the Company.
3. Compensation.
(a) Base Salary. The Company shall pay the Executive, and the
Executive shall accept, as full compensation for all services rendered
hereunder, a basic salary (the "Base Salary") and the other compensation and
benefits provided hereunder. The Executive's Base Salary effective the date his
employment commences with the Company shall be at an annual rate of One Hundred
Twenty Thousand Dollars ($120,000), payable in approximately equal installments
at such intervals as are consistent with the Company's pay periods for salaried
executive employees.
(b) Performance Bonus. The Executive is entitled to receive a
Performance
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Bonus as designed consistent with the Company's performance bonus plan(s) for
all Senior Vice Presidents in the Company, the specifics of which shall be
determined at a later occasion, and which shall be approved by the Board of
Directors.
(c) Benefits.
(i) The executive shall be eligible to participate
in retirement, group insurance, medical, dental, vacation and any other plans or
programs of substantially similar character as are made generally available to
executive employees of the Company which do not duplicate the benefits otherwise
specifically provided in this Agreement. All such benefits are to be provided by
the Company, subject to the terms of any welfare or pension plan sponsored by
the Company.
(ii) The Executive shall be eligible to participate
in the any Stock Option Plan as may approved by the Board of Directors and the
Chief Executive Officer. In the event such Stock Option Plan(s) are approved,
ratified, and implemented by the Board of Directors for Company executives,
Executive shall receive an option to purchase a minimum of Twenty-five Thousand
(25,000) shares with a three-year vesting period, one third of the total number
of options being eligible for exercise on each of the first, second, and third
anniversaries of the date of execution. The exercise price for said stock
options will be at fair market value on the date of grant and the term will be
for ten (10) years.
(iii) The Company shall reimburse the Executive for
all expenses incurred by him in the performance of his duties pursuant to this
Agreement.
(iv) The Company shall reimburse the Executive for
dues of a luncheon or country club of choice up to a maximum of $2,400 per year.
(v) Executive shall receive such other benefits
and/or allowances as are permitted to him from time to time by the Company.
(d) Restructuring of Payments. Notwithstanding anything in
this Agreement to the contrary, in the event that, in the opinion of the
Company's auditors, any payments of compensation to be made hereunder would be
treated as "excess parachute payments" within the meaning of section 280G of the
Internal Revenue Code as amended, the Company and the Executive shall use their
best efforts to restructure any of the payments so as to avoid the imposition of
excise tax upon the Executive and the loss of deduction for such payments by the
Company.
4. Confidentiality.
While employed by the Company under this Agreement and at all times
thereafter, the
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Executive shall not, without the prior written consent of the Company, divulge
to any third party or use for his own benefit or the benefit of any third party,
or for any purpose other than the exclusive benefit of the Company, any
confidential or proprietary business or technical information revealed, obtained
or developed in the course of his employment with the Company or his duties
performed for the Company or which is otherwise the property of the Company or
any of its subsidiaries or affiliated companies; provided that, nothing
contained herein shall restrict the Executive's use or disclosure of such
information (i) in the proper course of conduct of the Company's business, (ii)
known generally to the public (other than that which he may have disclosed in
breach of this Agreement) or (iii) as required by law so long as the Executive
gives the Company prior notice of such required disclosure unless precluded from
doing so by legal authority.
5. Covenant Not to Compete.
(a) The Executive shall not, within any geographical area
while employed by the Company or while performing duties for the Company
hereunder, and within the United States of America for two (2) years thereafter,
directly or indirectly engage or become interested in (as owner, stockholder,
partner, co-venturer, director, officer, employee, agent, consultant or
otherwise) any business that engages in the auto care, quick lube or car wash
industries, except that the Executive may hold as a passive investment not more
than five percent (5%) of the outstanding securities of any class of any
publicly-held entity that engages in the auto care industry.
(b) It is the desire and the intent of the parties that the
provisions of this Section 6 shall be enforceable to the fullest extent
permissible under applicable law and public policy. Accordingly, if this Section
5 or any portion thereof shall be adjudicated to be invalid or unenforceable,
the length and scope of this Section 5 shall be reduced to the extent necessary
so that this covenant may be enforced to the fullest extent possible under
applicable law.
6. Enforcement.
(a) Injunctive Relief. The parties recognize that, in the
event of any breach by the Executive of any of the provisions of Section 4 or 5
hereof, the Company will suffer continuing and irreparable harm for which the
Company will not have an adequate remedy at law. The Executive hereby waives any
and all right to assert any claim or defense that the Company has an adequate
remedy at law for any such breach. In recognition thereof, the Company and the
Executive hereby agree that, in the event of any such breach, the Company will
be entitled to seek injunctive relief or any other appropriate remedy to enforce
such provisions. The parties further agree that this Section 6 shall not in any
way limit remedies at law or in equity otherwise available to the Company. In
the event the Company seeks injunctive relief and is unsuccessful on the merits,
or terminates such action prior to entry of a judgment or other ruling on the
merits, other than a termination of such action due to a settlement agreement
between the Company and the Executive, the Company shall reimburse the Executive
for his reasonable
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attorneys' fees.
(b) Arbitration. In the event of any dispute between the
parties under or relating to this Agreement or relating to the Executive's
employment by the Company, such dispute shall be submitted to and settled by
arbitration in the Commonwealth of Virginia in accordance with the Employment
Dispute Resolution Rules of the American Arbitration Association then in effect,
by an arbitrator or arbitrators selected in accordance with said rules. The
arbitrator(s) shall have the right and authority to determine how their award or
decision as to each issue and matter in dispute may be implemented or enforced.
Any decision or award shall be final and conclusive on the parties; there shall
be no appeal therefrom other than for claimed bias, fraud or misconduct by the
arbitrator(s); judgment upon any award or decision may be entered in any court
of competent jurisdiction in the Commonwealth of Virginia or elsewhere; and the
parties hereto consent to the application by any party in interest to any court
of competent jurisdiction for confirmation or enforcement of such award. The
party against whom a decision or award is made shall pay the fees of the
American Arbitration Association. Notwithstanding the foregoing, the Company, at
its sole option, shall be entitled to enforce its rights, as contemplated by
Section 6(a) hereof, to injunctive and other equitable relief in the event of
breach of Section 4 or 5 hereof by arbitration pursuant to this Section 6(b) or
directly in any court of competent jurisdiction.
7. Termination of Employment.
(a) Death. The Executive's employment hereunder shall
terminate in the event of the Executive's death. Except for any salary and
benefits accrued, vested and unpaid as of the date of any such termination and
except for any benefits to which the Executive or his heirs or personal
representatives may be entitled under and in accordance with the terms of any
employee benefit plan, policy or program maintained by the Company, the Company
shall be under no further obligation hereunder to the Executive or his heirs or
personal representatives, and the Executive or his heirs and personal
representatives no longer shall be entitled to receive any payments or any other
rights or benefits under this Agreement.
(b) Disability. The Company may terminate the Executive's
employment hereunder for "Disability," if an independent physician mutually
selected by the Executive or his representative and the Board of Directors or
its designee has determined that the Executive has been substantially unable to
render to the Company services of the character contemplated by Section 2 of
this Agreement, by reason of a physical or mental illness or other condition
continuing for more than one hundred and eighty (180) consecutive days or for
shorter periods aggregating more than two hundred and twenty (220) days in any
period of twelve (12) consecutive months (excluding in each case days on which
the Executive was on vacation). In the event of such Disability, the Executive
shall be entitled to receive any salary and benefits accrued, vested and unpaid
as of the date of any such termination and any benefits to which the Executive
may be entitled under and in accordance with the terms of any employee benefit
plan, policy or program maintained by the Company. The Company shall be under no
further
4
<PAGE>
obligation hereunder to the Executive, and the Executive no longer shall be
entitled to receive any other payments, rights of benefits under this Agreement.
(c) Termination by the Company for Cause. The Company may
terminate the Executive's employment hereunder for "Cause." For purposes of this
Agreement, "Cause" shall mean any of the following:
(i) The Executive's repeated willful misconduct or
gross negligence;
(ii) The Executive's repeated conscious disregard of
his obligations hereunder;
(iii) The Executive's repeated conscious violation of
any provision of the Company's by-laws or of its other stated policies,
standards or regulations;
(iv) A determination that the Executive has
demonstrated a dependence upon any addictive substance, including alcohol,
controlled substances, narcotics or barbiturates; provided, however, that if the
Board of Directors of the Company desires to terminate the Executive for any of
the reasons set forth in clauses (i), (ii) or (iii) of this Section 7(c), the
Company within the sixty (60) day period immediately following each alleged
commission of a proscribed act or omission, shall have furnished to the
Executive a written description of the allegedly proscribed act or omission and
a statement advising him that the Company views such conduct as being of the
type that could lead to termination of the Executive for Cause and, provided
further, that if the Board of Directors of the Company desires to terminate the
Executive on the basis of clause (iii) of this Section 7(c), it must be able to
demonstrate that the Executive has been furnished with a copy of the by-law
provision, policy, standard or regulation, the violation of which the Executive
is being accused, at a time prior to the alleged commission of the violation.
In the event that the Company terminates the Executive's employment for
Cause, the Executive shall be entitled to receive a severance benefit of two (2)
months' Base Salary in effect at the time of termination. The Executive shall
not be entitled to receive any other payment or any other rights or benefits
under this Agreement (except for any salary and benefits accrued, vested and
unpaid as of the date of any such termination); the Company shall be under no
further obligation hereunder to the Executive, and the Company shall have such
rights and remedies as may be available to it for any breach of this Agreement
or otherwise.
(d) Termination by the Company other than for Cause. The
Company may terminate the Executive's employment hereunder at any time for any
other reason, provided that the Company has given the Executive ninety (90)
days' written notice of termination, termination being effective upon expiration
of the notice period. In the event of such termination, the Executive shall be
entitled to receive a severance benefit equal to Base Salary at the rate in
effect at the time of termination for eighteen (18) months, and shall also be
entitled to receive any
5
<PAGE>
salary and benefits accrued, vested and unpaid as of the date of any such
termination and any benefits to which the Executive may be entitled under and in
accordance with the terms of any employee benefit plan, policy or program
maintained by the Company; and upon the Executive's receipt of such severance
benefit, salary and benefits, the Company shall be under no further obligation
hereunder to the Executive and the Executive no longer shall be entitled to
receive any payment or any other rights or benefits under this Agreement.
(e) Termination by the Executive for Good Reason.
Notwithstanding anything herein to the contrary, the Executive shall be entitled
to terminate his employment hereunder for "Good Reason" without breach of this
Agreement. For purposes of this Agreement, "Good Reason" shall exist in the
event of any of the following:
(i) A material change in title or a substantial
elimination of the duties and responsibilities of the Executive;
(ii) A material breach by the Company of its
obligations hereunder.
(iii) A change in control of the Company; provided
that, for the purposes of this Section 7(e)(iii), a "change in control of the
Company" shall mean (A) the acquisition, directly or indirectly, by any "person"
(as such term is defined in Section 13(d) and 14(d) of the Securities Exchange
Act of 1934 as in effect on the date hereof), of voting power over voting shares
of the Company that would entitle holders thereof to cast at least fifty percent
(50%) of the votes that all shareholders would be entitled to cast in the
election of directors of the Company; or (B) during any period of two
consecutive years during the Initial Term of this Agreement, individuals who at
the beginning of such period constitute the Company Board of Directors cease for
any reason to constitute at least a majority thereof, unless the election of
each director who is not a director at the beginning of such period shall have
been approved in advance by directors representing at least three fourths of the
directors then in office who are directors at the beginning of such period.
In the event of such termination by the Executive, the Executive shall
nonetheless be entitled to receive a severance benefit equal to Base Salary at
the rate in effect at the time of termination for eighteen (18) months. Except
for such severance benefit and except for any salary and benefits accrued,
vested and unpaid as of the date of such termination, the Executive no longer
shall be entitled to receive any payments or any other rights of benefits under
this Agreement, and the Company shall have no further obligation hereunder to
the Executive following any such termination.
(f) Termination by the Executive for other than Good Reason.
The Executive may terminate his employment hereunder at any time for any other
reason, provided the Executive has given the Company ninety (90) days' written
notice of termination, termination being effective upon expiration of the notice
period. In the event of such termination, the Executive shall be entitled to
receive any salary benefits accrued, vested and unpaid as of the date
6
<PAGE>
of any such termination and any benefits to which the Executive may be entitled
under and in accordance with the terms of any employee benefit plan, policy or
program maintained by the Company. The Company shall be under no further
obligation hereunder to the Executive and the Executive no longer shall be
entitled to receive any other payments, rights or benefits under this Agreement.
8. Place of Employment.
The Company agrees that the principal location at which the Executive
is to render his services hereunder will be Leesburg, Virginia, unless a
modification is understood and agreed to in writing by Executive and Company.
9. Withholding.
Anything to the contrary herein notwithstanding, all payments required
to be made hereunder by the Company to the Executive, or his estate or
beneficiaries, shall be subject to the withholding of such amounts as the
Company may reasonably determine it should withhold pursuant to any applicable
law or regulation.
10. Survival.
The Agreement shall survive any termination of the Executive's
employment hereunder unless otherwise provided herein.
11. Miscellaneous.
(a) Successors and Assigns. The Company may assign this
Agreement to, and only to, an entity which is owned more than fifty percent
(50%), directly or indirectly, by the Company, and any person or entity which
acquires all or substantially all of the Company's business, and subject to the
foregoing, upon such assignment this Agreement shall inure to the benefit of and
be binding upon such entity. This Agreement shall not be assignable by the
Executive and shall inure to the benefit of and be binding upon him and his
personal representative and other legal representatives. It is understood that
this Section 11(a) shall not effect the right of the Executive to terminate his
employment for "Good Reason" pursuant to Section 7(e) hereof.
(b) Notice. Any notice or communication required or permitted
under this Agreement shall be made in writing or sent by certified or registered
mail, return receipt requested and postage prepaid, addressed as follows:
If to the Executive:
Peter Kendrick
2656 Black Fir Court
Reston, VA 22091
7
<PAGE>
If to the Company:
Precision Tune Auto Care, Inc.
748 Miller Drive, SE
P.O. Box 5000
Leesburg, Virginia 20175
Attn: John F. Ripley
or to such other address as either party may from time to time duly specify by
notice given to the other party in the manner specified above. Notice shall be
deemed given when received by the other party, including by his or its agent.
(c) Entire Agreement; Amendments. This Agreement contains the
entire agreement and understanding of the parties relating to the subject matter
hereof and supersedes all prior discussions, agreements and understandings
relating thereto between them. This Agreement may not be changed or modified,
except by an agreement in writing executed by the Company, and by the Executive.
(d) Waiver. The waiver of a breach of any term or provision of
this Agreement shall not operate as or be construed to be a waiver of any other
subsequent breach of this Agreement.
(e) Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement, and the performance
of the obligations imposed by this Agreement, shall be governed by the laws of
the Commonwealth of Virginia applicable to contracts made and wholly to be
performed in such state, without regard to choice of law principles.
(f) Severability. In the event that any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable, in any respect, such invalidity or
unenforceability shall not affect any other provision of this Agreement. Such
invalid, illegal or unenforceable provision(s) shall be deemed modified to the
extent necessary to make it (them) valid, legal and enforceable.
(g) Indemnification. The Executive shall be entitled to the
benefit of the indemnification provided by Article 7 of the Bylaws of the
Company; provided that the Company shall be permitted to amend such provision
from time to time so long as the Executive, to the extent permitted by
applicable law, is afforded indemnification at least as favorable as that
provided by such Article 7 as in effect on the date hereof.
(h) Captions. All captions and section headings used herein
are for convenient reference only and do not form a part of this Agreement.
8
<PAGE>
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute one and the same Agreement.
(j) Computation of Time. In computing any period of time
pursuant to this Agreement, the day of the act, event or default from which the
designated period of time begins to run shall be included, unless it is a
Saturday, Sunday, or a legal holiday, in which the period shall begin to run on
the next day which is not a Saturday, Sunday, or legal holiday. Likewise, if the
period of time concludes on a Saturday, Sunday or legal holiday, the period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.
(k) Pronouns and Plurals. All pronouns and variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular, or plural
as the identity of the person or persons may require.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
PRECISION TUNE AUTO CARE, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
------------------------------------
Peter Kendrick
9
S-1 Consents
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 15, 1997, with respect to the financial
statements of Precision Auto Care, Inc., included in the Registration Statement
(Form S-1 dated on or about August 27, 1997) and related Prospectus of Precision
Auto Care, Inc. for the registration of 2,300,000 shares of its common stock.
Vienna, Virginia
August 27, 1997 /s/ Ernst & Young LLP
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 15, 1997, with respect to the financial
statements of WE JAC Corporation, included in the Registration Statement (Form
S-1 dated on or about August 27, 1997) and related Prospectus of Precision Auto
Care, Inc. for the registration of 2,300,000 shares of its common stock.
Vienna, Virginia
August 27, 1997 /s/ Ernst & Young LLP
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 28, 1997, with respect to the financial statements
of Miracle Industries, Inc., included in the Registration Statement (Form S-1
dated on or about August 27, 1997) and related Prospectus of Precision Auto
Care, Inc. for the registration of 2,300,000 shares of its common stock.
Vienna, Virginia
August 27, 1997 /s/ Ernst & Young LLP
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 21, 1997, with respect to the financial statements
of Lube Ventures, Inc., included in the Registration Statement (Form S-1 dated
on or about August 27, 1997) and related Prospectus of Precision Auto Care, Inc.
for the registration of 2,300,000 shares of its common stock.
Vienna, Virginia
August 27, 1997 /s/ Ernst & Young LLP
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 21, 1997, with respect to the financial statements
of Prema Properties, Ltd., included in the Registration Statement (Form S-1
dated on or about August 27, 1997) and related Prospectus of Precision Auto
Care, Inc. for the registration of 2,300,000 shares of its common stock.
Vienna, Virginia
August 27, 1997 /s/ Ernst & Young LLP
Exhibit 24
POWER OF ATTORNEY
We, the undersigned Officers and Directors of Precision Auto Care, Inc.
(the "Corporation") hereby constitute and appoint John F. Ripley, Harry G.
Pappas, Jr. and Arnold Janofsky, and each of them, with power of substitution,
our true and lawful attorneys with full power to sign for us, in our names and
in the capacities indicated below, a registration statement on Form S-1 (or
other applicable form), and all amendments thereto (including post-effective
amendments), for the purpose of registering under the Securities Act of 1933 up
to 4,000,000 shares of the Corporation's Common Stock (including shares which
may be sold by selling stockholders) for sale to the public.
Signature Title Date
--------- ----- ----
/s/ Lynn E. Caruthers
_________________________
Lynn E. Caruthers Director April 16, 1997
/s/ John F. Ripley
_________________________
John F. Ripley President and Chief April 16, 1997
Executive Officer
and Director
/s/ Harry G. Pappas, Jr.
_________________________
Harry G. Pappas, Jr. Executive Vice April 16, 1997
President and Chief
Financial Officer and
Director (Principal
Financial and Principal
Accounting Officer)
/s/ Woodley A. Allen
_________________________
Woodley A. Allen Director April 16, 1997
<PAGE>
Signature Title Date
--------- ----- ----
/s/ George Bavelis
_________________________
George Bavelis Director April 16, 1997
/s/ Bernard H. Clineburg
_________________________
Bernard H. Clineburg Director April 16, 1997
/s/ C. Eugene Deal
_________________________
C. Eugene Deal Director April 16, 1997
/s/ Bassam Ibrahim
_________________________
Bassam Ibrahim Director April 16, 1997
_________________________
Richard O. Johnson Director August __, 1997
/s/ Arthur Kellar
_________________________
Arthur Kellar Director August 20, 1997
/s/ Effie Eliopulos
_________________________
Effie Eliopulos Director August 20, 1997
/s/ Gerald Zamensky
_________________________
Gerald Zamensky Director April 16, 1997
/s/ William R. Klumb
_________________________
William R. Klumb Director April 16, 1997
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