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-4
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 52-1847851
(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 DENNIS M. JACKSON, ESQUIRE
MILES & STOCKBRIDGE, HOLLAND & HART LLP
A PROFESSIONAL CORPORATION 555 17TH STREET, SUITE 3200
10 LIGHT STREET DENVER, COLORADO 80202
BALTIMORE, MARYLAND 21202 (303) 295-8115
(410) 385-3507
</TABLE>
<TABLE>
<S> <C> <C>
MICHAEL N. SCHAEFFER, ESQ. GEORGE M. STRAW, ESQ. BUD VETTER, ESQ.
KEMP, SCHAEFFER, ROSE & HOCHSTADT, STRAW & BROWN, BEMILLER, MURRAY
LARDIERE CO., L.P.A. STRAUSS, P.C. & MCINTYRE
88 WEST MOUND STREET 2043 YORK STREET 70 PARK AVENUE WEST
COLUMBUS, OHIO 43215 DENVER, COLORADO 80205 MANSFIELD, OHIO 44902
(614) 224-2678 (303) 329-9222 (419) 525-1611
</TABLE>
------------------------
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after this Registration Statement becomes effective.
------------------------
If the securities being registered on this form are being offered in
compliance with General Instruction G, check the following box: | |
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING
TO BE REGISTERED REGISTERED (1) PER SHARE (1) PRICE(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, par value $.01
per share...................................... 2,780,695 $9.43 $26,221,953
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES REGISTRATION
TO BE REGISTERED FEE
<S> <C>
Common Stock, par value $.01
per share...................................... $7,947
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 of the rules and regulations under the
Securities Act of 1933. The proposed maximum offering price per share
is based on the book value of securities to be received by the
registrant or cancelled in the transaction as contemplated by Rule
457(f)(2).
------------------------
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>
[WE JAC CORPORATION LETTERHEAD]
, 1997
Dear Stockholder:
You are cordially invited to attend the Special Meeting (the "Special
Meeting") of Stockholders of WE JAC Corporation ("WE JAC") to be held on
, 1997 at commencing at 10:00
a.m. local time. At the Special Meeting, the stockholders will consider and vote
upon a proposal regarding the approval of a Plan of Reorganization and Agreement
for Share Exchange Offers dated August 27, 1997 (the "Combination Agreement"),
among Precision Auto Care, Inc, a Virginia corporation ("Precision Auto Care"),
WE JAC, Miracle Industries, Inc., an Ohio corporation ("Miracle Industries"),
Lube Ventures, Inc., a Delaware corporation ("Lube Ventures"), Rocky Mountain
Ventures, Inc., a Colorado corporation ("Rocky Mountain I"), Rocky Mountain
Ventures II, Inc., a Colorado corporation ("Rocky Mountain II"), Miracle
Partners, Inc., a Delaware corporation ("Miracle Partners"), Prema Properties,
Ltd., an Ohio limited liability company ("Prema Properties"), Ralston Car Wash,
Ltd., a Colorado limited liability company ("Ralston Car Wash"), and KBG, LLC, a
Colorado limited liability company ("KBG").
In connection with the Combination Agreement, Precision Auto Care has
formed five wholly-owned subsidiaries -- WE JAC Acquisition Company ("WE JAC
Acquisition"), a corporation incorporated under the laws of Delaware, Miracle
Industries Acquisition Company, a corporation incorporated under the laws of
Ohio ("Miracle Industries Acquisition"), Lube Ventures Acquisition Company, a
corporation incorporated under the laws of Delaware ("Lube Ventures
Acquisition"), Rocky Mountain I Acquisition Company, a corporation incorporated
under the laws of Colorado ("Rocky Mountain I Acquisition"), and Rocky Mountain
II Acquisition Company, a corporation incorporated under the laws of Colorado
("Rocky Mountain II Acquisition"). The Combination Agreement provides for the
mergers (collectively, the "Mergers") of (i) WE JAC Acquisition into WE JAC,
(ii) Miracle Industries Acquisition into Miracle Industries, (iii) Lube Ventures
Acquisition into Lube Ventures, (iv) Rocky Mountain I Acquisition into Rocky
Mountain I, and (v) Rocky Mountain II Acquisition into Rocky Mountain II. The
Combination Agreement also provides for an offer being made concurrently by
Precision Auto Care to exchange shares of Precision Auto Care Common Stock for
all of the outstanding common stock of Miracle Partners and for all outstanding
membership interests in Prema Properties, Ralston Car Wash and KBG held by the
members of those limited liability companies (collectively, the "Exchange
Offers").
If the Combination Agreement is approved by the respective stockholders of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain
II at their special meetings and if the other conditions specified in the
Combination Agreement are satisfied or waived, each of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain II will become
wholly-owned subsidiaries of Precision Auto Care. In that event and subject to
dissenter's rights, (1) each outstanding share of WE JAC Common Stock will be
converted into a right to receive 1.0 share of Precision Auto Care Common Stock,
(2) each outstanding share of Miracle Industries Common Stock will be converted
into a right to receive 21.442 shares of Precision Auto Care Common Stock, (3)
each outstanding share of Lube Ventures Common Stock will be converted into a
right to receive 1,691.680 shares of Precision Auto Care Common Stock, (4) each
outstanding share of Rocky Mountain I Common Stock will be converted into a
right to receive 12.355 shares of Precision Auto Care Common Stock, (5) each
outstanding share of Rocky Mountain II Common Stock will be converted into a
right to receive 12.356 shares of Precision Auto Care Common Stock, and (6) each
outstanding option, warrant or other right to purchase WE JAC Common Stock will
be converted into the right to acquire shares of Precision Auto Care Common
Stock on the same terms and conditions.
If the Exchange Offers are consummated, (1) holders of outstanding common
stock of Miracle Partners who tender will receive 188.640 shares of Precision
Auto Care Common Stock for each share of Miracle Partners Common Stock they
exchange in connection with the Exchange Offer, (2) holders of outstanding
membership interests in Prema Properties who tender will receive 1,488.890
shares of Precision Auto Care Common Stock for each one percent of a membership
interest they exchange in connection with the Exchange Offer, (3) holders of
outstanding membership interests in Ralston Car Wash who tender will receive
291.610 shares of Precision Auto Care Common Stock for each one percent of a
membership interest they exchange in connection with the Exchange Offer, and (4)
holders of outstanding membership interests in KBG who tender will receive
124.110 shares of Precision Auto Care Common Stock for each one percent of a
membership interest they exchange in connection with the Exchange Offer.
The terms of the Combination Agreement also grant limited partnerships
formed by the owners of Lube Ventures, Miracle Partners and Prema Partners the
right to purchase certain real estate from Precision Auto Care following Closing
and
<PAGE>
to lease such real estate back to Precision Auto Care pursuant to terms and
conditions specified in the Combination Agreement. See "The Combination
Agreement -- Real Estate Options and Related Lease Arrangements."
The Combination Agreement also contains provisions which enable persons who
will hold 3,000 or more shares of Precision Auto Care Common Stock immediately
following the consummation of the Mergers and Exchange Offers (collectively, the
"Combination") to include a small portion of their shares of Precision Auto Care
Common Stock in an Initial Public Offering of Precision Auto Care Common Stock
which is to occur simultaneously with (and is a condition to the consummation
of) the Combination. Holders who wish to include a portion of their shares of
Precision Auto Care Common Stock in the Initial Public Offering must notify
Precision Auto Care of their intention to do so by completing the enclosed
Selling Shareholder Notice/Questionnaire/Power of Attorney and delivering it to
Precision Auto Care no later than 5:00 p.m., Eastern Standard Time, on
, 1997. Holders of fewer than 3,000 shares of Precision Auto
Care Common Stock are not being given the opportunity to include their shares in
the Initial Public Offering because the shares of Precision Auto Care Common
Stock they receive will be freely tradable immediately following the
consummation of the Combination. Precision Auto Care is enabling holders of
3,000 or more shares of Precision Auto Care to include a portion of the shares
in the Initial Public Offering because under the terms of the Combination
Agreement, holders of 3,000 or more shares of Precision Auto Care Common Stock
will not be able to sell or otherwise dispose of their shares of Precision Auto
Care Common Stock for a period of 180 days following the consummation of the
Combination. For a more complete description of the terms of the restrictions on
certain holders' ability to sell the shares of Precision Auto Care Common Stock
they are to receive in the Combination for a period of 180 days following the
Combination and the terms under which holders who are subject to such
restrictions may include a portion of their shares in the Initial Public
Offering, see "The Combination Agreement -- Restrictions on Resales of Precision
Auto Care Common Stock," " -- Right to Include Shares in Initial Public
Offering."
It is a condition to the consummation of the WE JAC Merger that the holders
of a majority of outstanding shares of WE JAC Common Stock vote in person or by
proxy at the Special Meeting to approve the Combination Agreement and the
transactions contemplated thereby. Therefore, stockholders will be asked to vote
upon the Combination Agreement at the Special Meeting. If the transactions
contemplated by the Combination Agreement are consummated, certain current
executive officers and directors of WE JAC will receive certain benefits
associated with the Combination. See "The Combination -- Interests of Certain
Persons in the Combination."
The Combination Agreement also provides that if the holders of a majority
of the outstanding shares of WE JAC Common Stock fail to approve the Combination
Agreement at the Special Meeting and, within one year of the date of the
Combination Agreement, WE JAC engages in a sale of substantially all of its
assets or a merger or holders of shares of its common stock transfer in the
aggregate shares representing a majority of the outstanding shares of WE JAC, WE
JAC shall be obligated to issue ratably to the other parties to the Combination
Agreement (other than Precision Auto Care) shares of its capital stock that will
represent 20% of the issued and outstanding shares of its capital stock
calculated on a fully diluted basis.
The terms and conditions of the Combination Agreement are described in the
accompanying Joint Proxy Statement/Prospectus. The complete text of the
Combination Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus.
Ferris, Baker Watts, Incorporated has delivered an opinion to the WE JAC
Board of Directors to the effect that, as of the date of such opinion, the basis
on which shares of the Common Stock of WE JAC are to be converted into the right
to receive Precision Auto Care Common Stock in the WE JAC Merger is fair, from a
financial point of view, to the holders of shares of WE JAC Common Stock. A copy
of the written opinion of Ferris, Baker Watts, Incorporated is attached as
Appendix B to the accompanying Joint Proxy Statement/Prospectus and should be
read carefully in its entirety.
After careful consideration, the Board of Directors believes that the
Combination is fair and reasonable to, and in the best interests of, WE JAC and
its stockholders. THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED COMBINATION
AND RECOMMENDS THAT YOU VOTE IN FAVOR OF IT AT THE SPECIAL MEETING.
Due to the benefits to be received by certain officers and directors of WE
JAC in connection with the Combination, interests of such officers and directors
may be different from the interests of other WE JAC stockholders. WE JAC
stockholders should consider the interests of such officers and directors in the
Combination in connection with the Board of Directors' recommendation of the
Combination, as more particularly described in the accompanying Joint Proxy
Statement/Prospectus. See "The Combination -- Interests of Certain Persons in
the Combination."
It is important that your shares be voted at the Special Meeting,
regardless of the number of shares held. THEREFORE, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING. THIS WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN
PERSON IF YOU DO ATTEND.
<PAGE>
We look forward to seeing you on , 1997.
Sincerely,
JOHN F. RIPLEY
President and Chief Executive Officer
<PAGE>
[MIRACLE INDUSTRIES, INC. LETTERHEAD]
, 1997
Dear Stockholder:
You are cordially invited to attend the Special Meeting (the "Special
Meeting") of Stockholders of Miracle Industries, Inc. ("Miracle Industries") to
be held on , 1997 at commencing
at 10:00 a.m. local time. At the Special Meeting, the stockholders will consider
and vote upon a proposal regarding the approval of a Plan of Reorganization and
Agreement for Share Exchange Offers dated August 27, 1997 (the "Combination
Agreement"), among Precision Auto Care, Inc, a Virginia corporation ("Precision
Auto Care"), WE JAC Corporation, a Delaware corporation ("WE JAC"), Miracle
Industries, Lube Ventures, Inc., a Delaware corporation ("Lube Ventures"), Rocky
Mountain Ventures, Inc., a Colorado corporation ("Rocky Mountain I"), Rocky
Mountain Ventures II, Inc., a Colorado corporation ("Rocky Mountain II"),
Miracle Partners, Inc., a Delaware corporation ("Miracle Partners"), Prema
Properties, Ltd., an Ohio limited liability company ("Prema Properties"),
Ralston Car Wash, Ltd., a Colorado limited liability company ("Ralston Car
Wash"), and KBG, LLC, a Colorado limited liability company ("KBG").
In connection with the Combination Agreement, Precision Auto Care has
formed five wholly-owned subsidiaries -- WE JAC Acquisition Company ("WE JAC
Acquisition"), a corporation incorporated under the laws of Delaware, Miracle
Industries Acquisition Company, a corporation incorporated under the laws of
Ohio ("Miracle Industries Acquisition"), Lube Ventures Acquisition Company, a
corporation incorporated under the laws of Delaware ("Lube Ventures
Acquisition"), Rocky Mountain I Acquisition Company, a corporation incorporated
under the laws of Colorado ("Rocky Mountain I Acquisition"), and Rocky Mountain
II Acquisition Company, a corporation incorporated under the laws of Colorado
("Rocky Mountain II Acquisition"). The Combination Agreement provides for the
mergers (collectively, the "Mergers") of (i) WE JAC Acquisition into WE JAC,
(ii) Miracle Industries Acquisition into Miracle Industries, (iii) Lube Ventures
Acquisition into Lube Ventures, (iv) Rocky Mountain I Acquisition into Rocky
Mountain I, and (v) Rocky Mountain II Acquisition into Rocky Mountain II. The
Combination Agreement also provides for an offer being made concurrently by
Precision Auto Care to exchange shares of Precision Auto Care Common Stock for
all of the outstanding common stock of Miracle Partners and for all outstanding
membership interests in Prema Properties, Ralston Car Wash and KBG held by the
members of those limited liability companies (collectively, the "Exchange
Offers").
If the Combination Agreement is approved by the respective stockholders of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain
II at their special meetings and if the other conditions specified in the
Combination Agreement are satisfied or waived, each of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain II will become
wholly-owned subsidiaries of Precision Auto Care. In that event and subject to
dissenter's rights, (1) each outstanding share of WE JAC Common Stock will be
converted into a right to receive 1.0 share of Precision Auto Care Common Stock,
(2) each outstanding share of Miracle Industries Common Stock will be converted
into a right to receive 21.442 shares of Precision Auto Care Common Stock, (3)
each outstanding share of Lube Ventures Common Stock will be converted into a
right to receive 1,691.680 shares of Precision Auto Care Common Stock, (4) each
outstanding share of Rocky Mountain I Common Stock will be converted into a
right to receive 12.355 shares of Precision Auto Care Common Stock, (5) each
outstanding share of Rocky Mountain II Common Stock will be converted into a
right to receive 12.356 shares of Precision Auto Care Common Stock, and (6) each
outstanding option, warrant or other right to purchase WE JAC Common Stock will
be converted into the right to acquire shares of Precision Auto Care Common
Stock on the same terms and conditions.
If the Exchange Offers are consummated, (1) holders of outstanding common
stock of Miracle Partners who tender will receive 188.640 shares of Precision
Auto Care Common Stock for each share of Miracle Partners Common Stock they
exchange in connection with the Exchange Offer, (2) holders of outstanding
membership interests in Prema Properties who tender will receive 1,488.890
shares of Precision Auto Care Common Stock for each one percent of a membership
interest they exchange in connection with the Exchange Offer, (3) holders of
outstanding membership interests in Ralston Car Wash who tender will receive
291.610 shares of Precision Auto Care Common Stock for each one percent of a
membership interest they exchange in connection with the Exchange Offer, and (4)
holders of outstanding membership interests in KBG who tender will receive
124.110 shares of Precision Auto Care Common Stock for each one percent of a
membership interest they exchange in connection with the Exchange Offer.
The terms of the Combination Agreement also grant limited partnerships
formed by the owners of Lube Ventures, Miracle Partners and Prema Partners the
right to purchase certain real estate from Precision Auto Care following Closing
and
<PAGE>
to lease such real estate back to Precision Auto Care pursuant to terms and
conditions specified in the Combination Agreement. See "The Combination
Agreement -- Real Estate Options and Related Lease Arrangements."
The Combination Agreement also contains provisions which enable persons who
will hold 3,000 or more shares of Precision Auto Care Common Stock immediately
following the consummation of the Mergers and Exchange Offers (collectively, the
"Combination") to include a small portion of their shares of Precision Auto Care
Common Stock in an Initial Public Offering of Precision Auto Care Common Stock
which is to occur simultaneously with (and is a condition to the consummation
of) the Combination. Holders who wish to include a portion of their shares of
Precision Auto Care Common Stock in the Initial Public Offering must notify
Precision Auto Care of their intention to do so by completing the enclosed
Selling Shareholder Notice/Questionnaire/Power of Attorney and delivering it to
Precision Auto Care no later than 5:00 p.m., Eastern Standard Time, on
, 1997. Holders of fewer than 3,000 shares of Precision Auto
Care Common Stock are not being given the opportunity to include their shares in
the Initial Public Offering because the shares of Precision Auto Care Common
Stock they receive will be freely tradable immediately following the
consummation of the Combination. Precision Auto Care is enabling holders of
3,000 or more shares of Precision Auto Care to include a portion of the shares
in the Initial Public Offering because under the terms of the Combination
Agreement, holders of 3,000 or more shares of Precision Auto Care Common Stock
will not be able to sell or otherwise dispose of their shares of Precision Auto
Care Common Stock for a period of 180 days following the consummation of the
Combination. For a more complete description of the terms of the restrictions on
certain holders' ability to sell the shares of Precision Auto Care Common Stock
they are to receive in the Combination for a period of 180 days following the
Combination and the terms under which holders who are subject to such
restrictions may include a portion of their shares in the Initial Public
Offering, see "The Combination Agreement -- Restrictions on Resales of Precision
Auto Care Common Stock," " -- Right to Include Shares in Initial Public
Offering."
It is a condition to the consummation of the Miracle Industries Merger that
the holders of two-thirds of outstanding shares of Miracle Industries Common
Stock vote in person or by proxy at the Special Meeting to approve the
Combination Agreement and the transactions contemplated thereby. Therefore,
stockholders will be asked to vote upon the Combination Agreement at the Special
Meeting. If the transactions contemplated by the Combination Agreement are
consummated, certain current executive officers and directors of Miracle
Industries will receive certain benefits associated with the Combination. See
"The Combination -- Interests of Certain Persons in the Combination."
The Combination Agreement also provides that if the holders of two-thirds
of the outstanding shares of Miracle Industries Common Stock fail to approve the
Combination Agreement at the Special Meeting and, within one year of the date of
the Combination Agreement, Miracle Industries engages in a sale of substantially
all of its assets or a merger or holders of shares of its common stock transfer
in the aggregate shares representing a majority of the outstanding shares of
Miracle Industries, Miracle Industries shall be obligated to issue ratably to
the other parties to the Combination Agreement (other than Precision Auto Care)
shares of its capital stock that will represent 20% of the issued and
outstanding shares of its capital stock calculated on a fully diluted basis.
The terms and conditions of the Combination Agreement are described in the
accompanying Joint Proxy Statement/Prospectus. The complete text of the
Combination Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus.
After careful consideration, the Board of Directors believes that the
Combination is fair and reasonable to, and in the best interests of Miracle
Industries and its stockholders. THE BOARD OF DIRECTORS HAS APPROVED THE
PROPOSED COMBINATION AND RECOMMENDS THAT YOU VOTE IN FAVOR OF IT AT THE SPECIAL
MEETING.
Due to the benefits to be received by certain officers and directors of
Miracle Industries in connection with the Combination, interests of such
officers and directors may be different from the interests of other Miracle
Industries stockholders. Miracle Industries stockholders should consider the
interests of such officers and directors in the Combination in connection with
the Board of Directors' recommendation of the Combination, as more particularly
described in the accompanying Joint Proxy Statement/Prospectus. See "The
Combination -- Interests of Certain Persons in the Combination."
It is important that your shares be voted at the Special Meeting,
regardless of the number of shares held. THEREFORE, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING. THIS WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN
PERSON IF YOU DO ATTEND.
We look forward to seeing you on , 1997.
Sincerely,
ERNEST S. MALAS
<PAGE>
[LUBE VENTURES, INC. LETTERHEAD]
, 1997
Dear Stockholder:
You are cordially invited to attend the Special Meeting (the "Special
Meeting") of Stockholders of Lube Ventures, Inc. ("Lube Ventures") to be held on
, 1997 at commencing at 10:00
a.m. local time. At the Special Meeting, the stockholders will consider and vote
upon a proposal regarding the approval of a Plan of Reorganization and Agreement
for Share Exchange Offers dated August 27, 1997 (the "Combination Agreement"),
among Precision Auto Care, Inc, a Virginia corporation ("Precision Auto Care"),
WE JAC Corporation, a Delaware corporation ("WE JAC"), Miracle Industries, Inc.,
an Ohio corporation ("Miracle Industries"), Lube Ventures, Rocky Mountain
Ventures, Inc., a Colorado corporation ("Rocky Mountain I"), Rocky Mountain
Ventures II, Inc., a Colorado corporation ("Rocky Mountain II"), Miracle
Partners, Inc., a Delaware corporation ("Miracle Partners"), Prema Properties,
Ltd., an Ohio limited liability company ("Prema Properties"), Ralston Car Wash,
Ltd., a Colorado limited liability company ("Ralston Car Wash"), and KBG, LLC, a
Colorado limited liability company ("KBG").
In connection with the Combination Agreement, Precision Auto Care has
formed five wholly-owned subsidiaries -- WE JAC Acquisition Company ("WE JAC
Acquisition"), a corporation incorporated under the laws of Delaware, Miracle
Industries Acquisition Company, a corporation incorporated under the laws of
Ohio ("Miracle Industries Acquisition"), Lube Ventures Acquisition Company, a
corporation incorporated under the laws of Delaware ("Lube Ventures
Acquisition"), Rocky Mountain I Acquisition Company, a corporation incorporated
under the laws of Colorado ("Rocky Mountain I Acquisition"), and Rocky Mountain
II Acquisition Company, a corporation incorporated under the laws of Colorado
("Rocky Mountain II Acquisition"). The Combination Agreement provides for the
mergers (collectively, the "Mergers") of (i) WE JAC Acquisition into WE JAC,
(ii) Miracle Industries Acquisition into Miracle Industries, (iii) Lube Ventures
Acquisition into Lube Ventures, (iv) Rocky Mountain I Acquisition into Rocky
Mountain I, and (v) Rocky Mountain II Acquisition into Rocky Mountain II. The
Combination Agreement also provides for an offer being made concurrently by
Precision Auto Care to exchange shares of Precision Auto Care Common Stock for
all of the outstanding common stock of Miracle Partners and for all outstanding
membership interests in Prema Properties, Ralston Car Wash and KBG held by the
members of those limited liability companies (collectively, the "Exchange
Offers").
If the Combination Agreement is approved by the respective stockholders of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain
II at their special meetings and if the other conditions specified in the
Combination Agreement are satisfied or waived, each of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain II will become
wholly-owned subsidiaries of Precision Auto Care. In that event and subject to
dissenter's rights, (1) each outstanding share of WE JAC Common Stock will be
converted into a right to receive 1.0 share of Precision Auto Care Common Stock,
(2) each outstanding share of Miracle Industries Common Stock will be converted
into a right to receive 21.442 shares of Precision Auto Care Common Stock, (3)
each outstanding share of Lube Ventures Common Stock will be converted into a
right to receive 1,691.680 shares of Precision Auto Care Common Stock, (4) each
outstanding share of Rocky Mountain I Common Stock will be converted into a
right to receive 12.355 shares of Precision Auto Care Common Stock, (5) each
outstanding share of Rocky Mountain II Common Stock will be converted into a
right to receive 12.356 shares of Precision Auto Care Common Stock, and (6) each
outstanding option, warrant or other right to purchase WE JAC Common Stock will
be converted into the right to acquire shares of Precision Auto Care Common
Stock on the same terms and conditions.
If the Exchange Offers are consummated, (1) holders of outstanding common
stock of Miracle Partners who tender will receive 188.640 shares of Precision
Auto Care Common Stock for each share of Miracle Partners Common Stock they
exchange in connection with the Exchange Offer, (2) holders of outstanding
membership interests in Prema Properties who tender will receive 1,488.890
shares of Precision Auto Care Common Stock for each one percent of a membership
interest they exchange in connection with the Exchange Offer, (3) holders of
outstanding membership interests in Ralston Car Wash who tender will receive
291.610 shares of Precision Auto Care Common Stock for each one percent of a
membership interest they exchange in connection with the Exchange Offer, and (4)
holders of outstanding membership interests in KBG who tender will receive
124.110 shares of Precision Auto Care Common Stock for each one percent of a
membership interest they exchange in connection with the Exchange Offer.
The terms of the Combination Agreement also grant limited partnerships
formed by the owners of Lube Ventures, Miracle Partners and Prema Partners the
right to purchase certain real estate from Precision Auto Care following Closing
and
<PAGE>
to lease such real estate back to Precision Auto Care pursuant to terms and
conditions specified in the Combination Agreement. See "The Combination
Agreement -- Real Estate Options and Related Lease Arrangements."
The Combination Agreement also contains provisions which enable persons who
will hold 3,000 or more shares of Precision Auto Care Common Stock immediately
following the consummation of the Mergers and Exchange Offers (collectively, the
"Combination") to include a small portion of their shares of Precision Auto Care
Common Stock in an Initial Public Offering of Precision Auto Care Common Stock
which is to occur simultaneously with (and is a condition to the consummation
of) the Combination. Holders who wish to include a portion of their shares of
Precision Auto Care Common Stock in the Initial Public Offering must notify
Precision Auto Care of their intention to do so by completing the enclosed
Selling Shareholder Notice/Questionnaire/Power of Attorney and delivering it to
Precision Auto Care no later than 5:00 p.m., Eastern Standard Time, on
, 1997. Holders of fewer than 3,000 shares of Precision Auto
Care Common Stock are not being given the opportunity to include their shares in
the Initial Public Offering because the shares of Precision Auto Care Common
Stock they receive will be freely tradable immediately following the
consummation of the Combination. Precision Auto Care is enabling holders of
3,000 or more shares of Precision Auto Care to include a portion of the shares
in the Initial Public Offering because under the terms of the Combination
Agreement, holders of 3,000 or more shares of Precision Auto Care Common Stock
will not be able to sell or otherwise dispose of their shares of Precision Auto
Care Common Stock for a period of 180 days following the consummation of the
Combination. For a more complete description of the terms of the restrictions on
certain holders' ability to sell the shares of Precision Auto Care Common Stock
they are to receive in the Combination for a period of 180 days following the
Combination and the terms under which holders who are subject to such
restrictions may include a portion of their shares in the Initial Public
Offering, see "The Combination Agreement -- Restrictions on Resales of Precision
Auto Care Common Stock," " -- Right to Include Shares in Initial Public
Offering."
It is a condition to the consummation of the Lube Ventures Merger that the
holders of a majority of outstanding shares of Lube Ventures Common Stock vote
in person or by proxy at the Special Meeting to approve the Combination
Agreement and the transactions contemplated thereby. Therefore, stockholders
will be asked to vote upon the Combination Agreement at the Special Meeting. If
the transactions contemplated by the Combination Agreement are consummated,
certain current executive officers and directors of Lube Ventures will receive
certain benefits associated with the Combination. See "The Combination --
Interests of Certain Persons in the Combination."
The Combination Agreement also provides that if the holders of a majority
of the outstanding shares of Lube Ventures Common Stock fail to approve the
Combination Agreement at the Special Meeting and, within one year of the date of
the Combination Agreement, Lube Ventures engages in a sale of substantially all
of its assets or a merger or holders of shares of its common stock transfer in
the aggregate shares representing a majority of the outstanding shares of Lube
Ventures, Lube Ventures shall be obligated to issue ratably to the other parties
to the Combination Agreement (other than Precision Auto Care) shares of its
capital stock that will represent 20% of the issued and outstanding shares of
its capital stock calculated on a fully diluted basis.
The terms and conditions of the Combination Agreement are described in the
accompanying Joint Proxy Statement/Prospectus. The complete text of the
Combination Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus.
After careful consideration, the Board of Directors believes that the
Combination is fair and reasonable to, and in the best interests of Lube
Ventures and its stockholders. THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED
COMBINATION AND RECOMMENDS THAT YOU VOTE IN FAVOR OF IT AT THE SPECIAL MEETING.
Due to the benefits to be received by certain officers and directors of
Lube Ventures in connection with the Combination, interests of such officers and
directors may be different from the interests of other Lube Ventures
stockholders. Lube Ventures stockholders should consider the interests of such
officers and directors in the Combination in connection with the Board of
Directors' recommendation of the Combination, as more particularly described in
the accompanying Joint Proxy Statement/Prospectus. See "The Combination --
Interests of Certain Persons in the Combination."
It is important that your shares be voted at the Special Meeting,
regardless of the number of shares held. THEREFORE, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING. THIS WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN
PERSON IF YOU DO ATTEND.
We look forward to seeing you on , 1997.
Sincerely,
CLARENCE E. DEAL
<PAGE>
[ROCKY MOUNTAIN VENTURES, INC. LETTERHEAD]
, 1997
Dear Stockholder:
You are cordially invited to attend the Special Meeting (the "Special
Meeting") of Stockholders of Rocky Mountain Ventures, Inc. ("Rocky Mountain I")
to be held on , 1997 at
commencing at 10:00 a.m. local time. At the Special Meeting, the stockholders
will consider and vote upon a proposal regarding the approval of a Plan of
Reorganization and Agreement for Share Exchange Offers dated August 27, 1997
(the "Combination Agreement"), among Precision Auto Care, Inc, a Virginia
corporation ("Precision Auto Care"), WE JAC Corporation, a Delaware corporation
("WE JAC"), Miracle Industries, Inc., an Ohio corporation ("Miracle
Industries"), Lube Ventures, Inc., a Delaware corporation ("Lube Ventures"),
Rocky Mountain I, Rocky Mountain Ventures II, Inc., a Colorado corporation
("Rocky Mountain II"), Miracle Partners, Inc., a Delaware corporation ("Miracle
Partners"), Prema Properties, Ltd., an Ohio limited liability company ("Prema
Properties"), Ralston Car Wash, Ltd., a Colorado limited liability company
("Ralston Car Wash"), and KBG, LLC, a Colorado limited liability company
("KBG").
In connection with the Combination Agreement, Precision Auto Care has
formed five wholly-owned subsidiaries -- WE JAC Acquisition Company ("WE JAC
Acquisition"), a corporation incorporated under the laws of Delaware, Miracle
Industries Acquisition Company, a corporation incorporated under the laws of
Ohio ("Miracle Industries Acquisition"), Lube Ventures Acquisition Company, a
corporation incorporated under the laws of Delaware ("Lube Ventures
Acquisition"), Rocky Mountain I Acquisition Company, a corporation incorporated
under the laws of Colorado ("Rocky Mountain I Acquisition"), and Rocky Mountain
II Acquisition Company, a corporation incorporated under the laws of Colorado
("Rocky Mountain II Acquisition"). The Combination Agreement provides for the
mergers (collectively, the "Mergers") of (i) WE JAC Acquisition into WE JAC,
(ii) Miracle Industries Acquisition into Miracle Industries, (iii) Lube Ventures
Acquisition into Lube Ventures, (iv) Rocky Mountain I Acquisition into Rocky
Mountain I, and (v) Rocky Mountain II Acquisition into Rocky Mountain II. The
Combination Agreement also provides for an offer being made concurrently by
Precision Auto Care to exchange shares of Precision Auto Care Common Stock for
all of the outstanding common stock of Miracle Partners and for all outstanding
membership interests in Prema Properties, Ralston Car Wash and KBG held by the
members of those limited liability companies (collectively, the "Exchange
Offers").
If the Combination Agreement is approved by the respective stockholders of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain
II at their special meetings and if the other conditions specified in the
Combination Agreement are satisfied or waived, each of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain II will become
wholly-owned subsidiaries of Precision Auto Care. In that event and subject to
dissenter's rights, (1) each outstanding share of WE JAC Common Stock will be
converted into a right to receive 1.0 share of Precision Auto Care Common Stock,
(2) each outstanding share of Miracle Industries Common Stock will be converted
into a right to receive 21.442 shares of Precision Auto Care Common Stock, (3)
each outstanding share of Lube Ventures Common Stock will be converted into a
right to receive 1,691.680 shares of Precision Auto Care Common Stock, (4) each
outstanding share of Rocky Mountain I Common Stock will be converted into a
right to receive 12.355 shares of Precision Auto Care Common Stock, (5) each
outstanding share of Rocky Mountain II Common Stock will be converted into a
right to receive 12.356 shares of Precision Auto Care Common Stock, and (6) each
outstanding option, warrant or other right to purchase WE JAC Common Stock will
be converted into the right to acquire shares of Precision Auto Care Common
Stock on the same terms and conditions.
If the Exchange Offers are consummated, (1) holders of outstanding common
stock of Miracle Partners who tender will receive 188.640 shres of Precision
Auto Care Common Stock for each share of Miracle Partners Common Stock they
exchange in connection with the Exchange Offer, (2) holders of outstanding
membership interests in Prema Properties who tender will receive 1,488.890
shares of Precision Auto Care Common Stock for each one percent of a membership
interest they exchange in connection with the Exchange Offer, (3) holders of
outstanding membership interests in Ralston Car Wash who tender will receive
291.610 shares of Precision Auto Care Common Stock for each one percent of a
membership interest they exchange in connection with the Exchange Offer, and (4)
holders of outstanding membership interests in KBG who tender will receive
124.110 shares of Precision Auto Care Common Stock for each one percent
membership interest they exchange in connection with the Exchange Offer.
The terms of the Combination Agreement also grant limited partnerships
formed by the owners of Lube Ventures, Miracle Partners and Prema Partners the
right to purchase certain real estate from Precision Auto Care following Closing
and
<PAGE>
to lease such real estate back to Precision Auto Care pursuant to terms and
conditions specified in the Combination Agreement. See "The Combination
Agreement -- Real Estate Options and Related Lease Arrangements."
The Combination Agreement also contains provisions which enable persons who
will hold 3,000 or more shares of Precision Auto Care Common Stock immediately
following the consummation of the Mergers and Exchange Offers (collectively, the
"Combination") to include a small portion of their shares of Precision Auto Care
Common Stock in an Initial Public Offering of Precision Auto Care Common Stock
which is to occur simultaneously with (and is a condition to the consummation
of) the Combination. Holders who wish to include a portion of their shares of
Precision Auto Care Common Stock in the Initial Public Offering must notify
Precision Auto Care of their intention to do so by completing the enclosed
Selling Shareholder Notice/Questionnaire/Power of Attorney and delivering it to
Precision Auto Care no later than 5:00 p.m., Eastern Standard Time, on
, 1997. Holders of fewer than 3,000 shares of Precision Auto
Care Common Stock are not being given the opportunity to include their shares in
the Initial Public Offering because the shares of Precision Auto Care Common
Stock they receive will be freely tradable immediately following the
consummation of the Combination. Precision Auto Care is enabling holders of
3,000 or more shares of Precision Auto Care to include a portion of the shares
in the Initial Public Offering because under the terms of the Combination
Agreement, holders of 3,000 or more shares of Precision Auto Care Common Stock
will not be able to sell or otherwise dispose of their shares of Precision Auto
Care Common Stock for a period of 180 days following the consummation of the
Combination. For a more complete description of the terms of the restrictions on
certain holders' ability to sell the shares of Precision Auto Care Common Stock
they are to receive in the Combination for a period of 180 days following the
Combination and the terms under which holders who are subject to such
restrictions may include a portion of their shares in the Initial Public
Offering, see "The Combination Agreement -- Restrictions on Resales of Precision
Auto Care Common Stock," " -- Right to Include Shares in Initial Public
Offering."
It is a condition to the consummation of the Rocky Mountain I Merger that
the holders of a majority of outstanding shares of Rocky Mountain I Common Stock
vote in person or by proxy at the Special Meeting to approve the Combination
Agreement and the transactions contemplated thereby. Therefore, stockholders
will be asked to vote upon the Combination Agreement at the Special Meeting. If
the transactions contemplated by the Combination Agreement are consummated,
certain current executive officers and directors of Rocky Mountain I will
receive certain benefits associated with the Combination. See "The
Combination -- Interests of Certain Persons in the Combination."
The Combination Agreement also provides that if the holders of a majority
of the outstanding shares of Rocky Mountain I Common Stock fail to approve the
Combination Agreement at the Special Meeting and, within one year of the date of
the Combination Agreement, Rocky Mountain I engages in a sale of substantially
all of its assets or a merger or holders of shares of its common stock transfer
in the aggregate shares representing a majority of the outstanding shares of
Rocky Mountain I, Rocky Mountain I shall be obligated to issue ratably to the
other parties to the Combination Agreement (other than Precision Auto Care)
shares of its capital stock that will represent 20% of the issued and
outstanding shares of its capital stock calculated on a fully diluted basis.
The terms and conditions of the Combination Agreement are described in the
accompanying Joint Proxy Statement/Prospectus. The complete text of the
Combination Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus.
Quist Financial, Inc. has delivered an opinion to the Rocky Mountain I
Board of Directors to the effect that, as of the date of such opinion, the basis
on which shares of the Common Stock of Rocky Mountain I are to be converted into
the right to receive Precision Auto Care Common Stock in the Rocky Mountain I
Merger is fair, from a financial point of view, to the holders of shares of
Rocky Mountain I Common Stock. A copy of the written opinion of Quist Financial,
Inc. is attached as Appendix C to the accompanying Joint Proxy
Statement/Prospectus and should be read carefully in its entirety.
After careful consideration, the Board of Directors believes that the
Combination is fair and reasonable to, and in the best interests of Rocky
Mountain I and its stockholders. THE BOARD OF DIRECTORS HAS APPROVED THE
PROPOSED COMBINATION AND RECOMMENDS THAT YOU VOTE IN FAVOR OF IT AT THE SPECIAL
MEETING.
Due to the benefits to be received by William F. Klumb in connection with
the Combination, Mr. Klumb's interests may be different from the interests of
other Rocky Mountain I stockholders. Rocky Mountain I stockholders should
consider Mr. Klumb's interests in the Combination in connection with the Board
of Directors' recommendation of the Combination, as more particularly described
in the accompanying Joint Proxy Statement/Prospectus. See "The
Combination -- Interests of Certain Persons in the Combination."
It is important that your shares be voted at the Special Meeting,
regardless of the number of shares held. THEREFORE, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER
<PAGE>
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. THIS WILL NOT PREVENT YOU FROM
VOTING YOUR SHARES IN PERSON IF YOU DO ATTEND.
We look forward to seeing you on , 1997.
Sincerely,
WILLIAM R. KLUMB
<PAGE>
[ROCKY MOUNTAIN VENTURES II, INC. LETTERHEAD]
, 1997
Dear Stockholder:
You are cordially invited to attend the Special Meeting (the "Special
Meeting") of Stockholders of Rocky Mountain Ventures II, Inc. ("Rocky Mountain
II") to be held on , 1997 at
commencing at 10:00 a.m. local time. At the Special Meeting, the stockholders
will consider and vote upon a proposal regarding the approval of a Plan of
Reorganization and Agreement for Share Exchange Offers dated August 27, 1997
(the "Combination Agreement"), among Precision Auto Care, Inc, a Virginia
corporation ("Precision Auto Care"), WE JAC Corporation, a Delaware corporation
("WE JAC"), Miracle Industries, Inc., an Ohio corporation ("Miracle
Industries"), Lube Ventures, Inc., a Delaware corporation ("Lube Ventures"),
Rocky Mountain Ventures, Inc., a Colorado corporation ("Rocky Mountain I"),
Rocky Mountain II, Miracle Partners, Inc., a Delaware corporation ("Miracle
Partners"), Prema Properties, Ltd., an Ohio limited liability company ("Prema
Properties"), Ralston Car Wash, Ltd., a Colorado limited liability company
("Ralston Car Wash"), and KBG, LLC, a Colorado limited liability company
("KBG").
In connection with the Combination Agreement, Precision Auto Care has
formed five wholly-owned subsidiaries -- WE JAC Acquisition Company ("WE JAC
Acquisition"), a corporation incorporated under the laws of Delaware, Miracle
Industries Acquisition Company, a corporation incorporated under the laws of
Ohio ("Miracle Industries Acquisition"), Lube Ventures Acquisition Company, a
corporation incorporated under the laws of Delaware ("Lube Ventures
Acquisition"), Rocky Mountain I Acquisition Company, a corporation incorporated
under the laws of Colorado ("Rocky Mountain I Acquisition"), and Rocky Mountain
II Acquisition Company, a corporation incorporated under the laws of Colorado
("Rocky Mountain II Acquisition"). The Combination Agreement provides for the
mergers (collectively, the "Mergers") of (i) WE JAC Acquisition into WE JAC,
(ii) Miracle Industries Acquisition into Miracle Industries, (iii) Lube Ventures
Acquisition into Lube Ventures, (iv) Rocky Mountain I Acquisition into Rocky
Mountain I, and (v) Rocky Mountain II Acquisition into Rocky Mountain II. The
Combination Agreement also provides for an offer being made concurrently by
Precision Auto Care to exchange shares of Precision Auto Care Common Stock for
all of the outstanding common stock of Miracle Partners and for all outstanding
membership interests in Prema Properties, Ralston Car Wash and KBG held by the
members of those limited liability companies (collectively, the "Exchange
Offers").
If the Combination Agreement is approved by the respective stockholders of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain
II at their special meetings and if the other conditions specified in the
Combination Agreement are satisfied or waived, each of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain II will become
wholly-owned subsidiaries of Precision Auto Care. In that event and subject to
dissenter's rights, (1) each outstanding share of WE JAC Common Stock will be
converted into a right to receive 1.0 share of Precision Auto Care Common Stock,
(2) each outstanding share of Miracle Industries Common Stock will be converted
into a right to receive 21.442 shares of Precision Auto Care Common Stock, (3)
each outstanding share of Lube Ventures Common Stock will be converted into a
right to receive 1,691.680 shares of Precision Auto Care Common Stock, (4) each
outstanding share of Rocky Mountain I Common Stock will be converted into a
right to receive 12.355 shares of Precision Auto Care Common Stock, (5) each
outstanding share of Rocky Mountain II Common Stock will be converted into a
right to receive 12.356 shares of Precision Auto Care Common Stock, and (6) each
outstanding option, warrant or other right to purchase WE JAC Common Stock will
be converted into the right to acquire shares of Precision Auto Care Common
Stock on the same terms and conditions.
If the Exchange Offers are consummated, (1) holders of outstanding common
stock of Miracle Partners who tender will receive 188.640 shares of Precision
Auto Care Common Stock for each share of Miracle Partners Common Stock they
exchange in connection with the Exchange Offer, (2) holders of outstanding
membership interests in Prema Properties who tender will receive 1,488.890
shares of Precision Auto Care Common Stock for each one percent of a membership
interest they exchange in connection with the Exchange Offer, (3) holders of
outstanding membership interests in Ralston Car Wash who tender will receive
291.610 shares of Precision Auto Care Common Stock for each one percent of a
membership interest they exchange in connection with the Exchange Offer, and (4)
holders of outstanding membership interests in KBG who tender will receive
124.110 shares of Precision Auto Care Common Stock for each one percent
membership interest they exchange in connection with the Exchange Offer.
The terms of the Combination Agreement also grant limited partnerships
formed by the owners of Lube Ventures, Miracle Partners and Prema Partners the
right to purchase certain real estate from Precision Auto Care following Closing
and
<PAGE>
to lease such real estate back to Precision Auto Care pursuant to terms and
conditions specified in the Combination Agreement. See "The Combination
Agreement -- Real Estate Options and Related Lease Arrangements."
The Combination Agreement also contains provisions which enable persons who
will hold 3,000 or more shares of Precision Auto Care Common Stock immediately
following the consummation of the Mergers and Exchange Offers (collectively, the
"Combination") to include a small portion of their shares of Precision Auto Care
Common Stock in an Initial Public Offering of Precision Auto Care Common Stock
which is to occur simultaneously with (and is a condition to the consummation
of) the Combination. Holders who wish to include a portion of their shares of
Precision Auto Care Common Stock in the Initial Public Offering must notify
Precision Auto Care of their intention to do so by completing the enclosed
Selling Shareholder Notice/Questionnaire/Power of Attorney and delivering it to
Precision Auto Care no later than 5:00 p.m., Eastern Standard Time, on
, 1997. Holders of fewer than 3,000 shares of Precision Auto
Care Common Stock are not being given the opportunity to include their shares in
the Initial Public Offering because the shares of Precision Auto Care Common
Stock they receive will be freely tradable immediately following the
consummation of the Combination. Precision Auto Care is enabling holders of
3,000 or more shares of Precision Auto Care to include a portion of the shares
in the Initial Public Offering because under the terms of the Combination
Agreement, holders of 3,000 or more shares of Precision Auto Care Common Stock
will not be able to sell or otherwise dispose of their shares of Precision Auto
Care Common Stock for a period of 180 days following the consummation of the
Combination. For a more complete description of the terms of the restrictions on
certain holders' ability to sell the shares of Precision Auto Care Common Stock
they are to receive in the Combination for a period of 180 days following the
Combination and the terms under which holders who are subject to such
restrictions may include a portion of their shares in the Initial Public
Offering, see "The Combination Agreement -- Restrictions on Resales of Precision
Auto Care Common Stock," " -- Right to Include Shares in Initial Public
Offering."
It is a condition to the consummation of the Rocky Mountain II Merger that
the holders of a majority of outstanding shares of Rocky Mountain II Common
Stock vote in person or by proxy at the Special Meeting to approve the
Combination Agreement and the transactions contemplated thereby. Therefore,
stockholders will be asked to vote upon the Combination Agreement at the Special
Meeting. If the transactions contemplated by the Combination Agreement are
consummated, certain current executive officers and directors of Rocky Mountain
II will receive certain benefits associated with the Combination. See "The
Combination -- Interests of Certain Persons in the Combination."
The Combination Agreement also provides that if the holders of a majority
of the outstanding shares of Rocky Mountain II Common Stock fail to approve the
Combination Agreement at the Special Meeting and, within one year of the date of
the Combination Agreement, Rocky Mountain II engages in a sale of substantially
all of its assets or a merger or holders of shares of its common stock transfer
in the aggregate shares representing a majority of the outstanding shares of
Rocky Mountain II, Rocky Mountain II shall be obligated to issue ratably to the
other parties to the Combination Agreement (other than Precision Auto Care)
shares of its capital stock that will represent 20% of the issued and
outstanding shares of its capital stock calculated on a fully diluted basis.
The terms and conditions of the Combination Agreement are described in the
accompanying Joint Proxy Statement/Prospectus. The complete text of the
Combination Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus.
Quist Financial, Inc. has delivered an opinion to the Rocky Mountain II
Board of Directors to the effect that, as of the date of such opinion, the basis
on which shares of the Common Stock of Rocky Mountain II are to be converted
into the right to receive Precision Auto Care Common Stock in the Rocky Mountain
II Merger is fair, from a financial point of view, to the holders of shares of
Rocky Mountain II Common Stock. A copy of the written opinion of Quist
Financial, Inc. is attached as Appendix C to the accompanying Joint Proxy
Statement/Prospectus and should be read carefully in its entirety.
After careful consideration, the Board of Directors believes that the
Combination is fair and reasonable to, and in the best interests of Rocky
Mountain II and its stockholders. THE BOARD OF DIRECTORS HAS APPROVED THE
PROPOSED COMBINATION AND RECOMMENDS THAT YOU VOTE IN FAVOR OF IT AT THE SPECIAL
MEETING.
Due to the benefits to be received by William F. Klumb in connection with
the Combination, Mr. Klumb's interests may be different from the interests of
other Rocky Mountain II stockholders. Rocky Mountain II stockholders should
consider Mr. Klumb's interests in the Combination in connection with the Board
of Directors' recommendation of the Combination, as more particularly described
in the accompanying Joint Proxy Statement/Prospectus. See "The
Combination -- Interests of Certain Persons in the Combination."
It is important that your shares be voted at the Special Meeting,
regardless of the number of shares held. THEREFORE, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER
<PAGE>
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. THIS WILL NOT PREVENT YOU FROM
VOTING YOUR SHARES IN PERSON IF YOU DO ATTEND.
We look forward to seeing you on , 1997.
Sincerely,
WILLIAM R. KLUMB
<PAGE>
[MIRACLE PARTNERS, INC. LETTERHEAD]
, 1997
Dear Member:
This is to advise you that Precision Auto Care, Inc. ("Precision Auto
Care") is making an offer to exchange shares of Precision Auto Care Common Stock
for all of the outstanding shares of common stock of Miracle Partners, Inc.
("Miracle Partners"). The Exchange Offer is being made pursuant to a Plan of
Reorganization and Agreement for Share Exchange Offers dated August 27, 1997
(the "Combination Agreement"), among Precision Auto Care, Inc, a Virginia
corporation ("Precision Auto Care"), WE JAC Corporation, a Delaware corporation
("WE JAC"), Miracle Industries, Inc., an Ohio corporation ("Miracle
Industries"), Lube Ventures, Inc., a Delaware corporation ("Lube Ventures"),
Rocky Mountain Ventures, Inc., a Colorado corporation ("Rocky Mountain I"),
Rocky Mountain Ventures II, Inc., a Colorado corporation ("Rocky Mountain II"),
Miracle Partners, Prema Properties, Ltd., an Ohio limited liability company
("Prema Properties"), Ralston Car Wash, Ltd., a Colorado limited liability
company ("Ralston Car Wash"), and KBG, LLC, a Colorado limited liability company
("KBG").
The Combination Agreement provides for the offer being made by Precision
Auto Care to exchange shares of Precision Auto Care Common Stock for all of the
outstanding shares of common stock of Miracle Partners and for all outstanding
membership interests in Prema Properties, Ralston Car Wash and KBG held by the
members of those limited liability companies (collectively, the "Exchange
Offers"). If the Exchange Offers are consummated, (1) holders of outstanding
common stock of Miracle Partners who tender will receive 188.640 shares of
Precision Auto Care Common Stock for each share of Miracle Partners Common Stock
they exchange in connection with the Exchange Offer, (2) holders of outstanding
membership interests in Prema Properties who tender will receive 1,488.890
shares of Precision Auto Care Common Stock for each one percent of a membership
interest they exchange in connection with the Exchange Offer, (3) holders of
outstanding membership interests in Ralston Car Wash who tender will receive
291.610 shares of Precision Auto Care Common Stock for each one percent of a
membership interest they exchange in connection with the Exchange Offer, and (4)
holders of outstanding membership interests in KBG who tender will receive
124.110 shares of Precision Auto Care Common Stock for each one percent
membership interest they exchange in connection with the Exchange Offer.
In connection with the Combination Agreement, Precision Auto Care has also
formed five wholly-owned subsidiaries -- WE JAC Acquisition Company ("WE JAC
Acquisition"), a corporation incorporated under the laws of Delaware, Miracle
Industries Acquisition Company, a corporation incorporated under the laws of
Ohio ("Miracle Industries Acquisition"), Lube Ventures Acquisition Company, a
corporation incorporated under the laws of Delaware ("Lube Ventures
Acquisition"), Rocky Mountain I Acquisition Company, a corporation incorporated
under the laws of Colorado ("Rocky Mountain I Acquisition"), and Rocky Mountain
II Acquisition Company, a corporation incorporated under the laws of Colorado
("Rocky Mountain II Acquisition"). The Combination Agreement provides for the
mergers (collectively, the "Mergers") of (i) WE JAC Acquisition into WE JAC,
(ii) Miracle Industries Acquisition into Miracle Industries, (iii) Lube Ventures
Acquisition into Lube Ventures, (iv) Rocky Mountain I Acquisition into Rocky
Mountain I, and (v) Rocky Mountain II Acquisition into Rocky Mountain II.
If the Combination Agreement is approved by the respective stockholders of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain
II and if the other conditions specified in the Combination Agreement are
satisfied or waived, each of WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I and Rocky Mountain II will become wholly-owned subsidiaries of
Precision Auto Care. In that event and subject to dissenter's rights, (1) each
outstanding share of WE JAC Common Stock will be converted into a right to
receive 1.0 share of Precision Auto Care Common Stock, (2) each outstanding
share of Miracle Industries Common Stock will be converted into a right to
receive 21.442 shares of Precision Auto Care Common Stock, (3) each outstanding
share of Lube Ventures Common Stock will be converted into a right to receive
1,691.680 shares of Precision Auto Care Common Stock, (4) each outstanding share
of Rocky Mountain I Common Stock will be converted into a right to receive
12.355 shares of Precision Auto Care Common Stock, (5) each outstanding share of
Rocky Mountain II Common Stock will be converted into a right to receive 12.356
shares of Precision Auto Care Common Stock, and (6) each outstanding option,
warrant or other right to purchase WE JAC Common Stock will be converted into
the right to acquire shares of Precision Auto Care Common Stock on the same
terms and conditions with the number of shares and exercise price to be adjusted
to give effect to the exchange ratio for the underlying WE JAC Common Stock.
The terms of the Combination Agreement also grant limited partnerships
formed by the owners of Lube Ventures, Miracle Partners and Prema Partners the
right to purchase certain real estate from Precision Auto Care following Closing
and
<PAGE>
to lease such real estate back to Precision Auto Care pursuant to terms and
conditions specified in the Combination Agreement. See "The Combination
Agreement -- Real Estate Options and Related Lease Arrangements."
The Combination Agreement also contains provisions which enable persons who
will hold 3,000 or more shares of Precision Auto Care Common Stock immediately
following the consummation of the Mergers and Exchange Offers (collectively, the
"Combination") to include a small portion of their shares of Precision Auto Care
Common Stock in an Initial Public Offering of Precision Auto Care Common Stock
which is to occur simultaneously with (and is a condition to the consummation
of) the Combination. Holders who wish to include a portion of their shares of
Precision Auto Care Common Stock in the Initial Public Offering must notify
Precision Auto Care of their intention to do so by completing the enclosed
Selling Shareholder Notice/Questionnaire/Power of Attorney and delivering it to
Precision Auto Care no later than 5:00 p.m., Eastern Standard Time, on
, 1997. Holders of fewer than 3,000 shares of Precision Auto
Care Common Stock are not being given the opportunity to include their shares in
the Initial Public Offering because the shares of Precision Auto Care Common
Stock they receive will be freely tradable immediately following the
consummation of the Combination. Precision Auto Care is enabling holders of
3,000 or more shares of Precision Auto Care to include a portion of the shares
in the Initial Public Offering because under the terms of the Combination
Agreement, holders of 3,000 or more shares of Precision Auto Care Common Stock
will not be able to sell or otherwise dispose of their shares of Precision Auto
Care Common Stock for a period of 180 days following the consummation of the
Combination. For a more complete description of the terms of the restrictions on
certain holders' ability to sell the shares of Precision Auto Care Common Stock
they are to receive in the Combination for a period of 180 days following the
Combination and the terms under which holders who are subject to such
restrictions may include a portion of their shares in the Initial Public
Offering, see "The Combination Agreement -- Restrictions on Resales of Precision
Auto Care Common Stock," " -- Right to Include Shares in Initial Public
Offering."
The Combination Agreement also provides that if the holders of the
outstanding shares of Miracle Partners Common Stock fail to tender for exchange
pursuant to the Exchange Offer all of the outstanding shares of Miracle Partners
Common Stock and, within one year of the date of the Combination Agreement,
Miracle Partners engages in a sale of substantially all of its assets or a
merger or holders of shares of its common stock transfer in the aggregate shares
representing a majority of the outstanding shares of Miracle Partners, Miracle
Partners shall be obligated to issue ratably to the other parties to the
Combination Agreement (other than Precision Auto Care) shares of its capital
stock that will represent 20% of the issued and outstanding shares of its
capital stock calculated on a fully diluted basis.
The terms and conditions of the Combination Agreement are described in the
accompanying Joint Proxy Statement/Prospectus. The complete text of the
Combination Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus.
After careful consideration, the board of directors believes that the
Combination is fair and reasonable to, and in the best interests of Miracle
Partners and its stockholders. THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED
COMBINATION AND RECOMMENDS THAT YOU TENDER YOUR COMMON STOCK FOR EXCHANGE.
Due to the benefits to be received by certain officers and directors of
Miracle Partners in connection with the Combination, interests of such officers
and directors may be different from the interests of other Miracle Partners
stockholders. Miracle Partners stockholders should consider the interests of
such officers and directors in the Combination in connection with the board of
directors' recommendation of the Combination, as more particularly described in
the accompanying Joint Proxy Statement/Prospectus. See "The
Combination -- Interests of Certain Persons in the Combination."
Please note the blue Transmittal Letter that accompanies this letter and
Joint Proxy Statement/Prospectus. If you wish to tender your common stock and
participate in the Exchange Offer on the basis and subject to the terms and
conditions set forth in the Joint Proxy Statement/Prospectus and the Transmittal
Letter, you should review the instructions to the Transmittal Letter carefully,
and return your completed and executed Transmittal Letter to Precision Auto Care
in the enclosed envelope. Please note that Precision Auto Care must receive your
Transmittal Letter no later than 5:00 p.m., Eastern Standard Time on
, 1997.
Sincerely,
CLARENCE E. DEAL
<PAGE>
[PREMA PROPERTIES, LTD. LETTERHEAD]
, 1997
Dear Member:
This is to advise you that Precision Auto Care, Inc. ("Precision Auto
Care") is making an offer to exchange shares of Precision Auto Care Common Stock
for all of the outstanding membership interests in Prema Properties, Ltd.
("Prema Properties"). The Exchange Offer is being made pursuant to a Plan of
Reorganization and Agreement for Share Exchange Offers dated August 27, 1997
(the "Combination Agreement"), among Precision Auto Care, Inc, a Virginia
corporation ("Precision Auto Care"), WE JAC Corporation, a Delaware corporation
("WE JAC"), Miracle Industries, Inc., an Ohio corporation ("Miracle
Industries"), Lube Ventures, Inc., a Delaware corporation ("Lube Ventures"),
Rocky Mountain Ventures, Inc., a Colorado corporation ("Rocky Mountain I"),
Rocky Mountain Ventures II, Inc., a Colorado corporation ("Rocky Mountain II"),
Miracle Partners, Inc., a Delaware corporation ("Miracle Partners"), Prema
Properties, Ralston Car Wash, Ltd., a Colorado limited liability company
("Ralston Car Wash"), and KBG, LLC, a Colorado limited liability company
("KBG").
The Combination Agreement provides for the offer being made by Precision
Auto Care to exchange shares of Precision Auto Care Common Stock for all of the
outstanding shares of common stock of Miracle Partners and for all outstanding
membership interests in Prema Properties, Ralston Car Wash and KBG held by the
members of those limited liability companies (collectively, the "Exchange
Offers"). If the Exchange Offers are consummated, (1) holders of outstanding
common stock of Miracle Partners who tender will receive 188.640 shares of
Precision Auto Care Common Stock for each share of Miracle Partners Common Stock
they exchange in connection with the Exchange Offer, (2) holders of outstanding
membership interests in Prema Properties who tender will receive 1,488.890
shares of Precision Auto Care Common Stock for each one percent of a membership
interest they exchange in connection with the Exchange Offer, (3) holders of
outstanding membership interests in Ralston Car Wash who tender will receive
291.610 shares of Precision Auto Care Common Stock for each one percent of a
membership interest they exchange in connection with the Exchange Offer, and (4)
holders of outstanding membership interests in KBG who tender will receive
124.110 shares of Precision Auto Care Common Stock for each one percent of
membership interest they exchange in connection with the Exchange Offer.
In connection with the Combination Agreement, Precision Auto Care has also
formed five wholly-owned subsidiaries -- WE JAC Acquisition Company ("WE JAC
Acquisition"), a corporation incorporated under the laws of Delaware, Miracle
Industries Acquisition Company, a corporation incorporated under the laws of
Ohio ("Miracle Industries Acquisition"), Lube Ventures Acquisition Company, a
corporation incorporated under the laws of Delaware ("Lube Ventures
Acquisition"), Rocky Mountain I Acquisition Company, a corporation incorporated
under the laws of Colorado ("Rocky Mountain I Acquisition"), and Rocky Mountain
II Acquisition Company, a corporation incorporated under the laws of Colorado
("Rocky Mountain II Acquisition"). The Combination Agreement provides for the
mergers (collectively, the "Mergers") of (i) WE JAC Acquisition into WE JAC,
(ii) Miracle Industries Acquisition into Miracle Industries, (iii) Lube Ventures
Acquisition into Lube Ventures, (iv) Rocky Mountain I Acquisition into Rocky
Mountain I, and (v) Rocky Mountain II Acquisition into Rocky Mountain II.
If the Combination Agreement is approved by the respective stockholders of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain
II and if the other conditions specified in the Combination Agreement are
satisfied or waived, each of WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I and Rocky Mountain II will become wholly-owned subsidiaries of
Precision Auto Care. In that event and subject to dissenter's rights, (1) each
outstanding share of WE JAC Common Stock will be converted into a right to
receive 1.0 share of Precision Auto Care Common Stock, (2) each outstanding
share of Miracle Industries Common Stock will be converted into a right to
receive 21.442 shares of Precision Auto Care Common Stock, (3) each outstanding
share of Lube Ventures Common Stock will be converted into a right to receive
1,691.680 shares of Precision Auto Care Common Stock, (4) each outstanding share
of Rocky Mountain I Common Stock will be converted into a right to receive
12.355 shares of Precision Auto Care Common Stock, (5) each outstanding share of
Rocky Mountain II Common Stock will be converted into a right to receive 12.356
shares of Precision Auto Care Common Stock, and (6) each outstanding option,
warrant or other right to purchase WE JAC Common Stock will be converted into
the right to acquire shares of Precision Auto Care Common Stock on the same
terms and conditions.
The terms of the Combination Agreement also grant limited partnerships
formed by the owners of Lube Ventures, Miracle Partners and Prema Partners the
right to purchase certain real estate from Precision Auto Care following Closing
and to lease such real estate back to Precision Auto Care pursuant to terms and
conditions specified in the Combination Agreement. See "The Combination
Agreement -- Real Estate Options and Related Lease Arrangements."
<PAGE>
The Combination Agreement also contains provisions which enable persons who
will hold 3,000 or more shares of Precision Auto Care Common Stock immediately
following the consummation of the Mergers and Exchange Offers (collectively, the
"Combination") to include a small portion of their shares of Precision Auto Care
Common Stock in an Initial Public Offering of Precision Auto Care Common Stock
which is to occur simultaneously with (and is a condition to the consummation
of) the Combination. Holders who wish to include a portion of their shares of
Precision Auto Care Common Stock in the Initial Public Offering must notify
Precision Auto Care of their intention to do so by completing the enclosed
Selling Shareholder Notice/Questionnaire/Power of Attorney and delivering it to
Precision Auto Care no later than 5:00 p.m., Eastern Standard Time, on
, 1997. Holders of fewer than 3,000 shares of Precision Auto
Care Common Stock are not being given the opportunity to include their shares in
the Initial Public Offering because the shares of Precision Auto Care Common
Stock they receive will be freely tradable immediately following the
consummation of the Combination. Precision Auto Care is enabling holders of
3,000 or more shares of Precision Auto Care to include a portion of the shares
in the Initial Public Offering because under the terms of the Combination
Agreement, holders of 3,000 or more shares of Precision Auto Care Common Stock
will not be able to sell or otherwise dispose of their shares of Precision Auto
Care Common Stock for a period of 180 days following the consummation of the
Combination. For a more complete description of the terms of the restrictions on
certain holders' ability to sell the shares of Precision Auto Care Common Stock
they are to receive in the Combination for a period of 180 days following the
Combination and the terms under which holders who are subject to such
restrictions may include a portion of their shares in the Initial Public
Offering, see "The Combination Agreement -- Restrictions on Resales of Precision
Auto Care Common Stock," " -- Right to Include Shares in Initial Public
Offering." The terms and conditions of the Combination Agreement are described
in the accompanying Joint Proxy Statement/Prospectus. The complete text of the
Combination Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus.
The Combination Agreement also provides that if the holders of Prema
Properties Membership Interests fail to tender for exchange pursuant to the
Exchange Offer at least 75% of the outstanding Prema Properties Membership
Interests and, within one year of the date of the Combination Agreement, Prema
Properties engages in a sale of substantially all of its assets or a merger or
holders of its membership interests transfer in the aggregate a majority of the
membership interests in Prema Properties, Prema Properties shall be obligated to
issue ratably to the other parties to the Combination Agreement (other than
Precision Auto Care) Membership Interests that will represent 20% of its
outstanding Membership Interests calculated on a fully diluted basis.
After careful consideration, the Managing Member believes that the
Combination is fair and reasonable to, and in the best interests of Prema
Properties and its members. THE MANAGING MEMBER HAS APPROVED THE PROPOSED
COMBINATION AND RECOMMENDS THAT YOU TENDER YOUR MEMBERSHIP INTERESTS FOR
EXCHANGE.
Due to the benefits to be received by certain officers and the managing
member of Prema Properties in connection with the Combination, interests of such
officers and the managing member may be different from the interests of other
Prema Properties members. Prema Properties members should consider the interests
of such officers and managing member in the Combination in connection with their
recommendation of the Combination, as more particularly described in the
accompanying Joint Proxy Statement/Prospectus. See "The Combination -- Interests
of Certain Persons in the Combination."
Please note the blue Transmittal Letter that accompanies this letter and
Joint Proxy Statement/Prospectus. If you wish to tender your membership
interests and participate in the Exchange Offer on the basis and subject to the
terms and conditions set forth in the Joint Proxy Statement/Prospectus and the
Transmittal Letter, you should review the instructions to the Transmittal Letter
carefully, and return your completed and executed Transmittal Letter to
Precision Auto Care in the enclosed envelope. Please note that Precision Auto
Care must receive your Transmittal Letter no later than 5:00 p.m., Eastern
Standard Time, on , 1997.
Sincerely,
GEORGE BAVELIS
<PAGE>
[RALSTON CAR WASH, LTD. LETTERHEAD]
, 1997
Dear Member:
This is to advise you that Precision Auto Care, Inc. ("Precision Auto
Care") is making an offer to exchange shares of Precision Auto Care Common Stock
for all of the outstanding membership interests in Ralston Car Wash, Ltd.
("Ralston Car Wash"). The Exchange Offer is being made pursuant to a Plan of
Reorganization and Agreement for Share Exchange Offers dated August 27, 1997
(the "Combination Agreement"), among Precision Auto Care, Inc, a Virginia
corporation ("Precision Auto Care"), WE JAC Corporation, a Delaware corporation
("WE JAC"), Miracle Industries, Inc., an Ohio corporation ("Miracle
Industries"), Lube Ventures, Inc., a Delaware corporation ("Lube Ventures"),
Rocky Mountain Ventures, Inc., a Colorado corporation ("Rocky Mountain I"),
Rocky Mountain Ventures II, Inc., a Colorado corporation ("Rocky Mountain II"),
Miracle Partners, Inc., a Delaware corporation ("Miracle Partners"), Prema
Properties, Ltd., an Ohio limited liability company ("Prema Properties"),
Ralston Car Wash, and KBG, LLC, a Colorado limited liability company ("KBG").
The Combination Agreement provides for the offer being made by Precision
Auto Care to exchange shares of Precision Auto Care Common Stock for all of the
outstanding shares of common stock of Miracle Partners and for all outstanding
membership interests in Prema Properties, Ralston Car Wash and KBG held by the
members of those limited liability companies (collectively, the "Exchange
Offers"). If the Exchange Offers are consummated, (1) holders of outstanding
common stock of Miracle Partners who tender will receive 188.640 shares of
Precision Auto Care Common Stock for each share of Miracle Partners Common Stock
they exchange in connection with the Exchange Offer, (2) holders of outstanding
membership interests in Prema Properties who tender will receive 1,488.890
shares of Precision Auto Care Common Stock for each one percent of a membership
interest they exchange in connection with the Exchange Offer, (3) holders of
outstanding membership interests in Ralston Car Wash who tender will receive
291.610 shares of Precision Auto Care Common Stock for each one percent of a
membership interest they exchange in connection with the Exchange Offer, and (4)
holders of outstanding membership interests in KBG who tender will receive
124.110 shares of Precision Auto Care Common Stock for each one percent
membership interest they exchange in connection with the Exchange Offer.
In connection with the Combination Agreement, Precision Auto Care has also
formed five wholly-owned subsidiaries -- WE JAC Acquisition Company ("WE JAC
Acquisition"), a corporation incorporated under the laws of Delaware, Miracle
Industries Acquisition Company, a corporation incorporated under the laws of
Ohio ("Miracle Industries Acquisition"), Lube Ventures Acquisition Company, a
corporation incorporated under the laws of Delaware ("Lube Ventures
Acquisition"), Rocky Mountain I Acquisition Company, a corporation incorporated
under the laws of Colorado ("Rocky Mountain I Acquisition"), and Rocky Mountain
II Acquisition Company, a corporation incorporated under the laws of Colorado
("Rocky Mountain II Acquisition"). The Combination Agreement provides for the
mergers (collectively, the "Mergers") of (i) WE JAC Acquisition into WE JAC,
(ii) Miracle Industries Acquisition into Miracle Industries, (iii) Lube Ventures
Acquisition into Lube Ventures, (iv) Rocky Mountain I Acquisition into Rocky
Mountain I, and (v) Rocky Mountain II Acquisition into Rocky Mountain II.
If the Combination Agreement is approved by the respective stockholders of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain
II and if the other conditions specified in the Combination Agreement are
satisfied or waived, each of WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I and Rocky Mountain II will become wholly-owned subsidiaries of
Precision Auto Care. In that event and subject to dissenter's rights, (1) each
outstanding share of WE JAC Common Stock will be converted into a right to
receive 1.0 share of Precision Auto Care Common Stock, (2) each outstanding
share of Miracle Industries Common Stock will be converted into a right to
receive 21.442 shares of Precision Auto Care Common Stock, (3) each outstanding
share of Lube Ventures Common Stock will be converted into a right to receive
1,691.680 shares of Precision Auto Care Common Stock, (4) each outstanding share
of Rocky Mountain I Common Stock will be converted into a right to receive
12.355 shares of Precision Auto Care Common Stock, (5) each outstanding share of
Rocky Mountain II Common Stock will be converted into a right to receive 12.356
shares of Precision Auto Care Common Stock, and (6) each outstanding option,
warrant or other right to purchase WE JAC Common Stock will be converted into
the right to acquire shares of Precision Auto Care Common Stock on the same
terms and conditions with the number of shares and exercise price to be adjusted
to give effect to the exchange ratio for the underlying WE JAC Common Stock.
The terms of the Combination Agreement also grant limited partnerships
formed by the owners of Lube Ventures, Miracle Partners and Prema Partners the
right to purchase certain real estate from Precision Auto Care following Closing
and
<PAGE>
to lease such real estate back to Precision Auto Care pursuant to terms and
conditions specified in the Combination Agreement. See "The Combination
Agreement -- Real Estate Options and Related Lease Arrangements."
The Combination Agreement also contains provisions which enable persons who
will hold 3,000 or more shares of Precision Auto Care Common Stock immediately
following the consummation of the Mergers and Exchange Offers (collectively, the
"Combination") to include a small portion of their shares of Precision Auto Care
Common Stock in an Initial Public Offering of Precision Auto Care Common Stock
which is to occur simultaneously with (and is a condition to the consummation
of) the Combination. Holders who wish to include a portion of their shares of
Precision Auto Care Common Stock in the Initial Public Offering must notify
Precision Auto Care of their intention to do so by completing the enclosed
Selling Shareholder Notice/Questionnaire/Power of Attorney and delivering it to
Precision Auto Care no later than 5:00 p.m., Eastern Standard Time, on
, 1997. Holders of fewer than 3,000 shares of Precision Auto
Care Common Stock are not being given the opportunity to include their shares in
the Initial Public Offering because the shares of Precision Auto Care Common
Stock they receive will be freely tradable immediately following the
consummation of the Combination. Precision Auto Care is enabling holders of
3,000 or more shares of Precision Auto Care to include a portion of the shares
in the Initial Public Offering because under the terms of the Combination
Agreement, holders of 3,000 or more shares of Precision Auto Care Common Stock
will not be able to sell or otherwise dispose of their shares of Precision Auto
Care Common Stock for a period of 180 days following the consummation of the
Combination. For a more complete description of the terms of the restrictions on
certain holders' ability to sell the shares of Precision Auto Care Common Stock
they are to receive in the Combination for a period of 180 days following the
Combination and the terms under which holders who are subject to such
restrictions may include a portion of their shares in the Initial Public
Offering, see "The Combination Agreement -- Restrictions on Resales of Precision
Auto Care Common Stock," " -- Right to Include Shares in Initial Public
Offering."
The Combination Agreement also provides that if the holders of Ralston Car
Wash Membership Interests fail to tender for exchange pursuant to the Exchange
Offer at least 95% of the outstanding Ralston Car Wash Membership Interests and,
within one year of the date of the Combination Agreement, Ralston Car Wash
engages in a sale of substantially all of its assets or a merger or holders of
its membership interests transfer in the aggregate a majority of the membership
interests in Ralston Car Wash, Ralston Car Wash shall be obligated to issue
ratably to the other parties to the Combination Agreement (other than Precision
Auto Care) Membership Interests that will represent 20% of its outstanding
Membership Interests calculated on a fully diluted basis.
The terms and conditions of the Combination Agreement are described in the
accompanying Joint Proxy Statement/Prospectus. The complete text of the
Combination Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus.
Quist Financial, Inc. has delivered an opinion to the managing member of
Ralston Car Wash to the effect that, as of the date of such opinion, the basis
on which membership interests in Ralston Car Wash are to be converted into the
right to receive Precision Auto Care Common Stock in the Ralston Car Wash Share
Exchange is fair, from a financial point of view, to the members of Ralston Car
Wash. A copy of the written opinion of Quist Financial, Inc. is attached as
Appendix C to the accompanying Joint Proxy Statement/Prospectus and should be
read carefully in its entirety.
After careful consideration, the Managing Member believes that the
Combination is fair and reasonable to, and in the best interests of Ralston Car
Wash and its members. THE MANAGING MEMBER HAS APPROVED THE PROPOSED COMBINATION
AND RECOMMENDS THAT YOU TENDER YOUR MEMBERSHIP INTERESTS FOR EXCHANGE.
Due to the benefits to be received by the Managing Member of Ralston Car
Wash in connection with the Combination, interests of the Managing Member may be
different from the interests of other Ralston Car Wash members. Ralston Car Wash
members should consider the Managing Member's interests in the Combination in
connection with the Managing Member's recommendation of the Combination, as more
particularly described in the accompanying Joint Proxy Statement/Prospectus. See
"The Combination -- Interests of Certain Persons in the Combination."
Please note the blue Transmittal Letter that accompanies this letter and
Joint Proxy Statement/Prospectus. If you wish to tender your membership
interests and participate in the Exchange Offer on the basis and subject to the
terms and conditions set forth in the Joint Proxy Statement/Prospectus and the
Transmittal Letter, you should review the instructions to the Transmittal Letter
carefully, and return your completed and executed Transmittal Letter to
Precision Auto Care in the enclosed envelope. Please note that Precision Auto
Care must receive your Transmittal Letter no later than 5:00 p.m., Eastern
Standard Time on , 1997.
Sincerely,
WILLIAM R. KLUMB
<PAGE>
[KBG, LLC LETTERHEAD]
, 1997
Dear Member:
This is to advise you that Precision Auto Care, Inc. ("Precision Auto
Care") is making an offer to exchange shares of Precision Auto Care Common Stock
for all of the outstanding membership interests in KBG, LLC ("KBG"). The
Exchange Offer is being made pursuant to a Plan of Reorganization and Agreement
for Share Exchange Offers dated August 27, 1997 (the "Combination Agreement"),
among Precision Auto Care, Inc, a Virginia corporation ("Precision Auto Care"),
WE JAC Corporation, a Delaware corporation ("WE JAC"), Miracle Industries, Inc.,
an Ohio corporation ("Miracle Industries"), Lube Ventures, Inc., a Delaware
corporation ("Lube Ventures"), Rocky Mountain Ventures, Inc., a Colorado
corporation ("Rocky Mountain I"), Rocky Mountain Ventures II, Inc., a Colorado
corporation ("Rocky Mountain II"), Miracle Partners, Inc., a Delaware
corporation ("Miracle Partners"), Prema Properties, Ltd., an Ohio limited
liability company ("Prema Properties"), Ralston Car Wash, Ltd., a Colorado
limited liability company ("Ralston Car Wash"), and KBG.
The Combination Agreement provides for the offer being made by Precision
Auto Care to exchange shares of Precision Auto Care Common Stock for all of the
outstanding shares of common stock of Miracle Partners and for all outstanding
membership interests in Prema Properties, Ralston Car Wash and KBG held by the
members of those limited liability companies (collectively, the "Exchange
Offers"). If the Exchange Offers are consummated, (1) holders of outstanding
common stock of Miracle Partners who tender will receive 188.640 shares of
Precision Auto Care Common Stock for each share of Miracle Partners Common Stock
they exchange in connection with the Exchange Offer, (2) holders of outstanding
membership interests in Prema Properties who tender will receive 1,488.890
shares of Precision Auto Care Common Stock for each one percent of a membership
interest they exchange in connection with the Exchange Offer, (3) holders of
outstanding membership interests in Ralston Car Wash who tender will receive
291.610 shares of Precision Auto Care Common Stock for each one percent of a
membership interest they exchange in connection with the Exchange Offer, and (4)
holders of outstanding membership interests in KBG who tender will receive
124.110 shares of Precision Auto Care Common Stock for each one percent
membership interest they exchange in connection with the Exchange Offer.
In connection with the Combination Agreement, Precision Auto Care has also
formed five wholly-owned subsidiaries -- WE JAC Acquisition Company ("WE JAC
Acquisition"), a corporation incorporated under the laws of Delaware, Miracle
Industries Acquisition Company, a corporation incorporated under the laws of
Ohio ("Miracle Industries Acquisition"), Lube Ventures Acquisition Company, a
corporation incorporated under the laws of Delaware ("Lube Ventures
Acquisition"), Rocky Mountain I Acquisition Company, a corporation incorporated
under the laws of Colorado ("Rocky Mountain I Acquisition"), and Rocky Mountain
II Acquisition Company, a corporation incorporated under the laws of Colorado
("Rocky Mountain II Acquisition"). The Combination Agreement provides for the
mergers (collectively, the "Mergers") of (i) WE JAC Acquisition into WE JAC,
(ii) Miracle Industries Acquisition into Miracle Industries, (iii) Lube Ventures
Acquisition into Lube Ventures, (iv) Rocky Mountain I Acquisition into Rocky
Mountain I, and (v) Rocky Mountain II Acquisition into Rocky Mountain II.
If the Combination Agreement is approved by the respective stockholders of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain
II and if the other conditions specified in the Combination Agreement are
satisfied or waived, each of WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I and Rocky Mountain II will become wholly-owned subsidiaries of
Precision Auto Care. In that event and subject to dissenter's rights, (1) each
outstanding share of WE JAC Common Stock will be converted into a right to
receive 1.0 share of Precision Auto Care Common Stock, (2) each outstanding
share of Miracle Industries Common Stock will be converted into a right to
receive 21.442 shares of Precision Auto Care Common Stock, (3) each outstanding
share of Lube Ventures Common Stock will be converted into a right to receive
1,691.680 shares of Precision Auto Care Common Stock, (4) each outstanding share
of Rocky Mountain I Common Stock will be converted into a right to receive
12.355 shares of Precision Auto Care Common Stock, (5) each outstanding share of
Rocky Mountain II Common Stock will be converted into a right to receive 12.356
shares of Precision Auto Care Common Stock, and (6) each outstanding option,
warrant or other right to purchase WE JAC Common Stock will be converted into
the right to acquire shares of Precision Auto Care Common Stock on the same
terms and conditions.
The terms of the Combination Agreement also grant limited partnerships
formed by the owners of Lube Ventures, Miracle Partners and Prema Partners the
right to purchase certain real estate from Precision Auto Care following Closing
and to lease such real estate back to Precision Auto Care pursuant to terms and
conditions specified in the Combination Agreement. See "The Combination
Agreement -- Real Estate Options and Related Lease Arrangements."
<PAGE>
The Combination Agreement also contains provisions which enable persons who
will hold 3,000 or more shares of Precision Auto Care Common Stock immediately
following the consummation of the Mergers and Exchange Offers (collectively, the
"Combination") to include a small portion of their shares of Precision Auto Care
Common Stock in an Initial Public Offering of Precision Auto Care Common Stock
which is to occur simultaneously with (and is a condition to the consummation
of) the Combination. Holders who wish to include a portion of their shares of
Precision Auto Care Common Stock in the Initial Public Offering must notify
Precision Auto Care of their intention to do so by completing the enclosed
Selling Shareholder Notice/Questionnaire/Power of Attorney and delivering it to
Precision Auto Care no later than 5:00 p.m., Eastern Standard Time, on
, 1997. Holders of fewer than 3,000 shares of Precision Auto
Care Common Stock are not being given the opportunity to include their shares in
the Initial Public Offering because the shares of Precision Auto Care Common
Stock they receive will be freely tradable immediately following the
consummation of the Combination. Precision Auto Care is enabling holders of
3,000 or more shares of Precision Auto Care to include a portion of the shares
in the Initial Public Offering because under the terms of the Combination
Agreement, holders of 3,000 or more shares of Precision Auto Care Common Stock
will not be able to sell or otherwise dispose of their shares of Precision Auto
Care Common Stock for a period of 180 days following the consummation of the
Combination. For a more complete description of the terms of the restrictions on
certain holders' ability to sell the shares of Precision Auto Care Common Stock
they are to receive in the Combination for a period of 180 days following the
Combination and the terms under which holders who are subject to such
restrictions may include a portion of their shares in the Initial Public
Offering, see "The Combination Agreement -- Restrictions on Resales of Precision
Auto Care Common Stock," " -- Right to Include Shares in Initial Public
Offering."
The Combination Agreement also provides that if the holders of KBG
Membership Interests fail to tender for exchange pursuant to the Exchange Offer
all of the outstanding KBG Membership Interests and, within one year of the date
of the Combination Agreement, KBG engages in a sale of substantially all of its
assets or holders of its membership interests transfer in the aggregate a
majority of the membership interests in KBG, KBG shall be obligated to issue
ratably to the other parties to the Combination Agreement (other than Precision
Auto Care) Membership Interests that will represent 20% of its outstanding
Membership Interests calculated on a fully diluted basis.
The terms and conditions of the Combination Agreement are described in the
accompanying Joint Proxy Statement/Prospectus. The complete text of the
Combination Agreement is attached as Appendix A to the Joint Proxy
Statement/Prospectus.
After careful consideration, the Managing Member believes that the
Combination is fair and reasonable to, and in the best interests of KBG and its
members. THE MANAGING MEMBER HAS APPROVED THE PROPOSED COMBINATION AND
RECOMMENDS THAT YOU TENDER YOUR MEMBERSHIP INTERESTS FOR EXCHANGE.
Due to the benefits to be received by certain officers and the managing
member of KBG in connection with the Combination, interests of such officers and
the managing member may be different from the interests of other KBG members.
KBG members should consider the interests of such officers and the managing
member in the Combination in connection with their recommendation of the
Combination, as more particularly described in the accompanying Joint Proxy
Statement/Prospectus. See "The Combination -- Interests of Certain Persons in
the Combination."
Please note the blue Transmittal Letter that accompanies this letter and
Joint Proxy Statement/Prospectus. If you wish to tender your membership
interests and participate in the Exchange Offer on the basis and subject to the
terms and conditions set forth in the Joint Proxy Statement/Prospectus and the
Transmittal Letter, you should review the instructions to the Transmittal Letter
carefully, and return your completed and executed Transmittal Letter to
Precision Auto Care in the enclosed envelope. Please note that Precision Auto
Care must receive your Transmittal Letter no later than 5:00 p.m., Eastern
Standard Time on , 1997.
Sincerely,
KARL BYRER
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
WE JAC CORPORATION
MIRACLE INDUSTRIES, INC.
LUBE VENTURES, INC.
ROCKY MOUNTAIN VENTURES, INC.
ROCKY MOUNTAIN VENTURES II, INC.
MIRACLE PARTNERS, INC.
PREMA PROPERTIES, LTD.
RALSTON CAR WASH, LTD.
KBG, LLC
------------------------
FOR
CERTAIN SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD , 1997
AND
CERTAIN EXCHANGE OFFERS
------------------------
PRECISION AUTO CARE, INC. PROSPECTUS
2,780,695 SHARES OF COMMON STOCK
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation by (1) the Board of Directors of WE JAC Corporation ("WE JAC") of
proxies from holders of shares of WE JAC Common Stock, $1.00 par value ("WE JAC
Common Stock"), for use at the special meeting of WE JAC Stockholders to be held
, 1997 (the "WE JAC Special Meeting"), (2) the Board of Directors
of Miracle Industries, Inc. ("Miracle Industries") of proxies from holders of
shares of Miracle Industries common stock, $1.00 par value ("Miracle Industries
Common Stock"), for use at the special meeting of Miracle Industries
stockholders to be held , 1997 (the "Miracle Industries Special
Meeting"), (3) the Board of Directors of Lube Ventures, Inc. ("Lube Ventures")
of proxies from holders of shares of Lube Ventures common stock, $100.00 par
value ("Lube Ventures Common Stock"), for use at the special meeting of Lube
Ventures stockholders to be held , 1997 (the "Lube Ventures
Special Meeting"), (4) the Board of Directors of Rocky Mountain Ventures, Inc.
("Rocky Mountain I") of proxies from holders of shares of Rocky Mountain I
common stock, $100 par value ("Rocky Mountain I Common Stock"), for use at the
special meeting of Rocky Mountain I stockholders to be held ,
1997 (the "Rocky Mountain I Special Meeting"), and (5) the Board of Directors of
Rocky Mountain Ventures II, Inc. ("Rocky Mountain II") of proxies from holders
of shares of Rocky Mountain II common stock, $1.00 par value ("Rocky Mountain II
Common Stock") for use at the special meeting of Rocky Mountain II stockholders
to be held , 1997 (the "Rocky Mountain II Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to (1) the
holders of shares of Miracle Partners, Inc., ("Miracle Partners") Common Stock,
$.01 par value ("Miracle Partners Common Stock"), (2) the holders of membership
interests in Prema Properties, Ltd. ("Prema Properties"), (3) the holders of
membership interests in Ralston Car Wash, Ltd. ("Ralston Car Wash"), and (4) the
holders of membership interests in KBG, LLC ("KBG") in connection with exchange
offers being made by Precision Auto Care, Inc. ("Precision Auto Care") with
respect to all of the issued and outstanding Miracle Partners Common Stock and
all of the issued and outstanding membership interests in each of Prema
Properties (the "Prema Properties Membership Interests"), Ralston Car Wash (the
"Ralston Car Wash Membership Interests"), and KBG (the "KBG Membership
Interests").
The Joint Proxy Statement/Prospectus relates to the transactions provided
for in that certain Plan of Reorganization and Agreement for Share Exchange
Offers dated August 27, 1997 (the "Combination Agreement"), by and among
Precision Auto Care, WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain
I, and Rocky Mountain II, Miracle Partners, Prema Properties, Ralston Car Wash
and KBG. In connection with the Combination Agreement, Precision Auto Care has
formed five wholly-owned subsidiaries -- WE JAC Acquisition Company ("WE JAC
Acquisition"), a corporation incorporated under the laws of Delaware, Miracle
Industries Acquisition Company ("Miracle Industries Acquisition"), a corporation
incorporated under the laws of Ohio, Lube Ventures Acquisition Company ("Lube
Ventures Acquisition"), a corporation incorporated under the laws of Delaware,
Rocky Mountain I Acquisition Company ("Rocky Mountain I Acquisition"), a
corporation incorporated under the laws of Colorado and Rocky Mountain II
Acquisition Company ("Rocky Mountain II Acquisition"), a corporation
incorporated under the laws of Colorado. The Combination Agreement provides for
the mergers (collectively, the
<PAGE>
"Mergers") of (i) WE JAC Acquisition into WE JAC, (ii) Miracle Industries
Acquisition into Miracle Industries, (iii) Lube Ventures Acquisition into Lube
Ventures, (iv) Rocky Mountain I Acquisition into Rocky Mountain I, and (v) Rocky
Mountain II Acquisition into Rocky Mountain II. The Combination Agreement also
provides for the offers being made by Precision Auto Care pursuant to this Joint
Proxy Statement/Prospectus to exchange shares of Precision Auto Care Common
Stock for all of the outstanding Miracle Partners Common Stock and all of the
outstanding Prema Properties Membership Interests, Ralston Car Wash Membership
Interests and KBG Membership Interests on the basis described herein
(collectively, the "Exchange Offers"). For purposes of this Joint Proxy
Statement/Prospectus, the Mergers, the Exchange Offers and the transactions
contemplated by the Combination Agreement are hereinafter referred to
collectively as the "Combination".
Accordingly, this Joint Proxy Statement/Prospectus also serves as a
prospectus under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the issuance of the shares of Precision Auto Care Common Stock,
$.01 par value ("Precision Auto Care Common Stock") into which shares of WE JAC
Common Stock, Miracle Industries Common Stock, Lube Ventures Common Stock, Rocky
Mountain I Common Stock and Rocky Mountain II Common Stock will be converted
upon consummation of the Mergers and for the shares of Precision Auto Care
Common Stock which are to be issued in exchange for the Miracle Partners Common
Stock and for the Prema Properties Membership Interests, Ralston Car Wash
Membership Interests and KBG Membership Interests in accordance with the
Exchange Offers.
Application has been made to list Precision Auto Care Common Stock on the
NASDAQ National Market System under the symbol "PACI."
If the Combination Agreement is approved by the respective stockholders of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain
II at their special meetings and if the other conditions specified in the
Combination Agreement are satisfied or waived, each of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain II will become
wholly-owned subsidiaries of Precision Auto Care. In that event (1) each
outstanding share of WE JAC Common Stock (other than shares held by WE JAC
stockholders who perfect their rights to dissent under the Delaware General
Corporation Law) will be converted into a right to receive 1.0 share of
Precision Auto Care Common Stock, (2) each outstanding share of Miracle
Industries Common Stock (other than shares held by Miracle Industries
stockholders who perfect their rights to dissent under the Ohio General
Corporation Law) will be converted into a right to receive 21.442 shares of
Precision Auto Care Common Stock, (3) each outstanding share of Lube Ventures
Common Stock (other than shares held by Lube Ventures stockholders who perfect
their rights to dissent under the Delaware General Corporation Law) will be
converted into a right to receive 1,691.680 shares of Precision Auto Care Common
Stock, (4) each outstanding share of Rocky Mountain I Common Stock (other than
shares held by Rocky Mountain I stockholders who perfect their rights to dissent
under the Colorado Business Corporation Act) will be converted into a right to
receive 12.355 shares of Precision Auto Care Common Stock, and (5) each
outstanding share of Rocky Mountain II Common Stock (other than shares held by
Rocky Mountain II stockholders who perfect their rights to dissent under the
Colorado Business Corporation Act) will be converted into a right to receive
12.356 shares of Precision Auto Care Common Stock. Cash will be paid in lieu of
fractional shares based on the price at which shares of Precision Auto Care
Common Stock are sold to the public in the initial public offering described
herein. In addition, each outstanding option, warrant or other right to purchase
WE JAC Common Stock will be converted into the right to acquire shares of
Precision Auto Care Common Stock on the same terms and conditions, Precision
Auto Care will also assume the outstanding obligations of WE JAC under the
various stock option plans under which those options are currently outstanding.
If the Exchange Offers are consummated, (1) holders of Miracle Partners
Common Stock who tender will receive 188.640 shares of Precision Auto Care
Common Stock for each outstanding share of Miracle Partners Common Stock, (2)
holders of outstanding membership interests in Prema Properties who tender will
receive 1,488.890 shares of Precision Auto Care Common Stock for each one
percent of a membership interest they exchange in connection with the Exchange
Offer, (3) holders of outstanding membership interests in Ralston Car Wash who
tender will receive 291.610 shares of Precision Auto Care Common Stock for each
one percent of a membership interest they exchange in connection with the
Exchange Offer, and (4) holders of outstanding membership interests in KBG who
tender will receive 124.110 shares share of Precision Auto Care Common Stock for
each one percent of a membership interest they exchange in connection with the
Exchange Offer.
Ten percent of the Precision Auto Care shares of Common Stock that are to
be issued to each stockholder of WE JAC, Miracle Industries, Lube Ventures,
Rocky Mountain I and Rocky Mountain II pursuant to the Mergers and 10% of the
Precision Auto Care shares of Common Stock that are to be issued to each holder
of Miracle Partners Common Stock and to each holder of Prema Properties
Membership Interests, Ralston Car Wash Membership Interests and KBG Membership
Interests in connection with the Exchange Offers (which shares are collectively
referred to herein as the "Indemnity Escrow Shares") will be placed into escrow
at the closing of the Mergers and the Exchange Offers (collectively, the
"Combination"). Precision
2
<PAGE>
Auto Care will able to reacquire, liquidate or retire the Indemnity Escrow
Shares in order to satisfy claims it may have with respect to the breach of
certain representations, warranties and covenants made with respect to each of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II,
Miracle Partners, Prema Properties, Ralston Car Wash, KBG and their respective
businesses in the Combination Agreement. The Indemnity Escrow Shares will remain
in escrow until the first anniversary of the closing of the Combination or until
any claims which are pending against the Indemnity Escrow Shares on the first
anniversary of closing have been finally resolved. In addition to the Indemnity
Escrow Shares, 10% of the Precision Auto Care shares of Common Stock that are to
be issued to each stockholder of WE JAC, Miracle Industries, Lube Ventures,
Rocky Mountain I and Rocky Mountain II pursuant to the Mergers and 10% of the
Precision Auto Care shares of Common Stock that are to be issued to each holder
of Miracle Partners Common Stock and to each holder of Prema Properties
Membership Interests and Ralston Car Wash Membership Interests in connection
with the Exchange Offers (which shares are collectively referred to herein as
the "Indebtedness Escrow Shares") will be placed into escrow at the closing of
the Combination. The Indebtedness Escrow Shares will remain in escrow for a
period of up to 70 days. Precision Auto Care will be able to reacquire,
liquidate or retire the Indebtedness Escrow Shares in the event that the
indebtedness of WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I,
Rocky Mountain II, Miracle Partners, Prema Properties or Ralston Car Wash is
above certain levels at closing. IN THE EVENT THAT PRECISION AUTO CARE EXERCISES
ITS RIGHTS TO PROCEED AGAINST THE INDEMNITY ESCROW SHARES OR THE INDEBTEDNESS
ESCROW SHARES, STOCKHOLDERS OF THE CORPORATION OR MEMBERS OF THE LIMITED
LIABILITY COMPANY WITH RESPECT TO WHICH PRECISION AUTO CARE LAWFULLY EXERCISES
ITS RIGHTS WILL NOT RECEIVE THE FULL AMOUNT OF THE PRECISION AUTO CARE SHARES
ALLOCATED TO SUCH HOLDER WITH RESPECT TO THE APPLICABLE MERGER OR EXCHANGE
OFFER. SEE "THE COMBINATION AGREEMENT -- ESCROW OF PRECISION AUTO CARE SHARES
ISSUED IN THE COMBINATION."
The terms of the Combination Agreement also grant limited partnerships
formed by the owners of Lube Ventures, Miracle Partners and Prema Partners the
right to purchase certain real estate from Precision Auto Care following Closing
and to lease such real estate back to Precision Auto Care pursuant to terms and
conditions specified in the Combination Agreement. See "The Combination
Agreement -- Real Estate Options and Related Lease Arrangements."
The Combination Agreement contains provisions which enable persons who will
hold 3,000 or more shares of Precision Auto Care Common Stock immediately
following the consummation of the Combination to include a small portion of
their shares of Precision Auto Care Common Stock in an initial public offering
of Precision Auto Care Common Stock which is to occur simultaneously with and is
a condition to the consummation of the Combination. Holders who wish to include
a portion of their shares of Precision Auto Care Common Stock in the initial
public offering must notify Precision Auto Care of their intention to do so by
completing the enclosed Selling Shareholder Notice/Questionnaire/Power of
Attorney and delivering it to Precision Auto Care no later than 5:00 p.m.,
Eastern Standard Time, on , 1997. Holders of fewer than 3,000
shares of Precision Auto Care Common Stock are not being given the opportunity
to include their shares in the Initial Public Offering because the shares of
Precision Auto Care Common Stock they receive will be freely tradable
immediately following the consummation of the Combination. Precision Auto Care
is enabling holders of 3,000 or more shares of Precision Auto Care to include a
portion of their shares in the Initial Public Offering because under the terms
of the Combination Agreement, holders of 3,000 or more shares of Precision Auto
Care Common Stock will not be able to sell or otherwise dispose of their shares
of Precision Auto Care Common Stock for a period of 180 days following the
consummation of the Combination. For a more complete description of the terms of
the restrictions on certain holders' ability to sell their shares of Precision
Auto Care Common Stock they are to receive in the Combination for a period of
180 days following the Combination and the terms under which holders who are
subject to such restrictions may include a portion of their shares in the
Initial Public Offering, see "The Combination Agreement -- Restrictions on
Resales of Precision Auto Care Common Stock," " -- Right to Include Shares in
Initial Public Offering."
The Combination Agreement provides that (i) if the holders of the
outstanding shares of common stock of any of WE JAC, Lube Ventures, Rocky
Mountain I and Rocky Mountain II fail to approve the Combination Agreement, such
company shall be obligated to issue ratably to the other parties to the
Combination Agreement (other than Precision Auto Care) shares of its capital
stock that will represent 20% of the issued and outstanding shares of its
capital stock calculated on a fully diluted basis; (ii) if the holders of
two-thirds of the outstanding shares of common stock of Miracle Industries fail
to approve the Combination Agreement, Miracle Industries shall be obligated to
issue ratably to the other parties to the Combination Agreement (other than
Precision Auto Care) shares of its capital stock that will represent 20% of the
issued and outstanding shares of its capital stock calculated on a fully diluted
basis; (iii) if the holders of the outstanding shares of Miracle Partners Common
Stock fail to tender for exchange pursuant to the Exchange Offer all of the
outstanding shares of Miracle Partners Common Stock, Miracle Partners shall be
obligated to issue ratably to the other parties to the Combination Agreement
(other than Precision Auto Care) shares of its capital stock that will represent
20% of the issued and outstanding shares of its capital stock calculated on a
fully diluted basis; and (iv) if the holders of Membership Interests in any of
Prema Properties, Ralston
3
<PAGE>
Car Wash and KBG fail to tender for exchange pursuant to the Exchange Offer a
specified percentage of the outstanding Membership Interests in such company
and, within one year of the date of the Combination Agreement, such company
engages in a sale of substantially all of its assets or a merger or the holders
of its common stock or membership interests transfer in the aggregate a majority
of the outstanding shares or membership interests of such company, such company
shall be obligated to issue ratably to the other parties to the Combination
Agreement (other than Precision Auto Care) Membership Interests that will
represent 20% of its outstanding Membership Interests calculated on a fully
diluted basis.
All information in this Joint Proxy Statement/Prospectus concerning WE JAC
and its affiliates has been furnished by WE JAC; all information in this Joint
Proxy Statement/Prospectus concerning Miracle Industries and its affiliates has
been furnished by Miracle Industries; all information in this Joint Proxy
Statement/Prospectus concerning Lube Ventures and its affiliates has been
furnished by Lube Ventures; all information in this Joint Proxy
Statement/Prospectus concerning Rocky Mountain I and its affiliates has been
furnished by Rocky Mountain I; all information in this Joint Proxy
Statement/Prospectus concerning Rocky Mountain II and its affiliates has been
furnished by Rocky Mountain II; all information in this Joint Proxy
Statement/Prospectus concerning Miracle Partners and its affiliates has been
furnished by Miracle Partners; all information in this Joint Proxy
Statement/Prospectus concerning Prema Properties and its affiliates has been
furnished by Prema Properties; all information in this Joint Proxy
Statement/Prospectus concerning Ralston Car Wash and its affiliates has been
furnished by Ralston Car Wash; all information in this Joint Proxy
Statement/Prospectus concerning KBG and its affiliates has been furnished by
KBG; and all information in this Joint Proxy Statement/Prospectus concerning
Precision Auto Care, WE JAC Acquisition, Miracle Industries Acquisition, Lube
Ventures Acquisition, Rocky Mountain I Acquisition and Rocky Mountain II
Acquisition has been furnished by Precision Auto Care. The approximate date of
the mailing of this Joint Proxy Statement/Prospectus and the accompanying proxy
is , 1997.
FOR DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED WHEN
EVALUATING THE TRANSACTIONS CONTEMPLATED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, SEE "RISK FACTORS" APPEARING AT PAGES 32 THROUGH 36
HEREIN.
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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is , 1997.
4
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TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................................................... 13
SUMMARY................................................................................................................. 14
General............................................................................................................... 14
Purpose of the Combination and Operation of Precision Auto Care Following the Combination............................. 14
The Companies......................................................................................................... 15
Precision Auto Care................................................................................................ 15
WE JAC Corporation................................................................................................. 15
Miracle Industries, Inc............................................................................................ 15
Lube Ventures, Inc................................................................................................. 15
Rocky Mountain Ventures, Inc....................................................................................... 15
Rocky Mountain Ventures II, Inc.................................................................................... 16
Miracle Partners, Inc.............................................................................................. 16
Prema Properties, Ltd.............................................................................................. 16
Ralston Car Wash, Ltd.............................................................................................. 16
KBG, LLC........................................................................................................... 16
WE JAC Acquisition Company......................................................................................... 16
Miracle Industries Acquisition Company............................................................................. 16
Lube Ventures Acquisition Company.................................................................................. 16
Rocky Mountain I Acquisition....................................................................................... 16
Rocky Mountain II Acquisition...................................................................................... 16
Terms of the Combination.............................................................................................. 16
Escrows of Precision Auto Care Common Stock........................................................................... 18
Certain Distributions and Contingent Cash Dividends................................................................... 18
Real Estate Options and Related Lease Arrangements.................................................................... 18
Agreements Not to Compete............................................................................................. 19
Failure to Obtain Required Stockholder and Member Approval and Tender................................................. 19
Right to Include Shares of Precision Auto Care Common Stock in Initial Public Offering................................ 19
Restrictions on Resales of Precision Auto Care Common Stock........................................................... 19
Interests of Certain Persons in the Combination....................................................................... 19
Closing and Effective Time of the Combination......................................................................... 20
Conditions of the Combination and Termination......................................................................... 20
Management Following the Combination.................................................................................. 21
Recommendation of the Board of Directors/Managing Members............................................................. 21
Mergers............................................................................................................ 21
WE JAC........................................................................................................... 21
Miracle Industries............................................................................................... 22
Lube Ventures.................................................................................................... 22
Rocky Mountain I................................................................................................. 22
Rocky Mountain II................................................................................................ 22
Exchange Offers.................................................................................................... 22
Miracle Partners................................................................................................. 22
Prema Properties................................................................................................. 22
Ralston Car Wash................................................................................................. 23
KBG.............................................................................................................. 23
Opinions of Financial Advisors........................................................................................ 23
Meetings of the Stockholders.......................................................................................... 24
Record Date and Vote Required...................................................................................... 24
Participation in Exchange Offer....................................................................................... 25
Merger Stockholders' Rights to Dissent................................................................................ 25
WE JAC............................................................................................................. 25
Miracle Industries................................................................................................. 26
Lube Ventures...................................................................................................... 26
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Rocky Mountain I................................................................................................... 26
Rocky Mountain II.................................................................................................. 27
No Right to Dissent in Exchange Offers................................................................................ 27
Exchange of Stock Certificates/Assignment of Membership Interests..................................................... 27
Federal Income Tax Considerations..................................................................................... 28
Accounting Treatment.................................................................................................. 28
SUMMARY PRO FORMA COMBINED FINANCIAL DATA............................................................................... 28
Unaudited Summary Pro Forma Combined Financial Data of Precision Auto Care............................................ 28
COMPARATIVE COMMON STOCK AND MEMBERSHIP INTEREST INFORMATION............................................................ 30
Common Stock/Membership Interest Market Prices........................................................................ 30
Comparative Per Share/Membership Interest Data........................................................................ 30
RISK FACTORS............................................................................................................ 32
THE WE JAC SPECIAL MEETING.............................................................................................. 36
Time, Date and Place of WE JAC Special Meeting........................................................................ 36
Business to be Conducted at the WE JAC Special Meeting................................................................ 36
Proxies: Voting and Revocation........................................................................................ 36
Proxy Solicitation.................................................................................................... 36
Vote Required......................................................................................................... 37
Other Matters......................................................................................................... 37
THE MIRACLE INDUSTRIES SPECIAL MEETING.................................................................................. 37
Time, Date and Place of Miracle Industries Special Meeting............................................................ 37
Business to be Conducted at the Miracle Industries Special Meeting.................................................... 37
Proxies: Voting and Revocation........................................................................................ 37
Proxy Solicitation.................................................................................................... 37
Vote Required......................................................................................................... 38
Other Matters......................................................................................................... 38
THE LUBE VENTURES SPECIAL MEETING....................................................................................... 38
Time, Date and Place of Lube Ventures Special Meeting................................................................. 38
Business to be Conducted at the Lube Ventures Special Meeting......................................................... 38
Proxies: Voting and Revocation........................................................................................ 38
Proxy Solicitation.................................................................................................... 38
Vote Required......................................................................................................... 39
Other Matters......................................................................................................... 39
THE ROCKY MOUNTAIN I SPECIAL MEETING.................................................................................... 39
Time, Date and Place of Rocky Mountain I Special Meeting.............................................................. 39
Business to be Conducted at the Rocky Mountain I Special Meeting...................................................... 39
Proxies: Voting and Revocation........................................................................................ 39
Proxy Solicitation.................................................................................................... 39
Vote Required......................................................................................................... 40
Other Matters......................................................................................................... 40
THE ROCKY MOUNTAIN II SPECIAL MEETING................................................................................... 40
Time, Date and Place of Rocky Mountain II Special Meeting............................................................. 40
Business to be Conducted at the Rocky Mountain II Special Meeting..................................................... 40
Proxies: Voting and Revocation........................................................................................ 40
Proxy Solicitation.................................................................................................... 40
Vote Required......................................................................................................... 41
Other Matters......................................................................................................... 41
THE MIRACLE PARTNERS EXCHANGE OFFER..................................................................................... 41
Exchange Offer........................................................................................................ 41
Expiration Date; Extension; Termination............................................................................... 41
Closing Date.......................................................................................................... 41
Withdrawal Rights..................................................................................................... 42
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Conditions to the Consummation of the Exchange Offer.................................................................. 42
Procedures for Tendering.............................................................................................. 42
THE PREMA PROPERTIES EXCHANGE OFFER..................................................................................... 43
Exchange Offer........................................................................................................ 43
Expiration Date; Extension; Termination............................................................................... 43
Closing Date.......................................................................................................... 44
Withdrawal Rights..................................................................................................... 44
Conditions to the Consummation of the Exchange Offer.................................................................. 45
Procedures for Tendering.............................................................................................. 45
THE RALSTON CAR WASH EXCHANGE OFFER..................................................................................... 46
Exchange Offer........................................................................................................ 46
Expiration Date; Extension; Termination............................................................................... 46
Closing Date.......................................................................................................... 46
Withdrawal Rights..................................................................................................... 46
Conditions to the Consummation of the Exchange Offer.................................................................. 47
Procedures for Tendering.............................................................................................. 47
THE KBG EXCHANGE OFFER.................................................................................................. 48
Exchange Offer........................................................................................................ 48
Expiration Date; Extension; Termination............................................................................... 48
Closing Date.......................................................................................................... 48
Withdrawal Rights..................................................................................................... 49
Conditions to the Consummation of the Exchange Offer.................................................................. 49
Procedures for Tendering.............................................................................................. 49
THE COMBINATION......................................................................................................... 50
General............................................................................................................... 50
Background of the Combination......................................................................................... 51
WE JAC's Reasons for the Combination and Board of Directors' Recommendation........................................... 52
Opinion of Ferris, Baker Watts........................................................................................ 53
Miracle Industries' Reasons for the Combination and Board of Directors' Recommendation................................ 55
Lube Ventures' Reasons for the Combination and Board of Directors' Recommendation..................................... 56
Rocky Mountain I, Rocky Mountain II and Ralston Car Wash Reasons for the Combination and Board of Directors' and
Managing Member's Recommendation................................................................................... 56
Opinion of Rocky Mountain I, Rocky Mountain II and Ralston Car Wash's Financial Advisor............................... 57
Miracle Partners' Reasons for the Combination and Board of Directors' Recommendation.................................. 58
Prema Properties' Reasons for the Combination and Managing Members' Recommendation.................................... 58
KBG's Reasons for the Combination and Managing Members' Recommendation................................................ 59
Interests of Certain Persons in the Combination....................................................................... 59
Stock and Option Holdings of WE JAC Directors and Officers......................................................... 59
Stockholder Approvals................................................................................................. 61
WE JAC Stockholder Approval........................................................................................ 61
Miracle Industries Stockholder Approval............................................................................ 61
Lube Ventures Stockholder Approval................................................................................. 61
Rocky Mountain I Stockholder Approval.............................................................................. 61
Rocky Mountain II Stockholder Approval............................................................................. 61
WE JAC Acquisition Approval........................................................................................ 61
Miracle Industries Acquisition Approval............................................................................ 61
Lube Ventures Acquisition Approval................................................................................. 61
Rocky Mountain I Acquisition Approval.............................................................................. 61
Rocky Mountain II Acquisition Approval............................................................................. 62
Rights of Stockholders to Dissent With Respect to Mergers............................................................. 62
WE JAC and Lube Ventures........................................................................................... 62
Miracle Industries................................................................................................. 64
Rocky Mountain I and Rocky Mountain II............................................................................. 66
No Right to Dissent in Exchange Offers................................................................................ 68
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Failure to Obtain Required Stockholder and Member Approval and Tender................................................. 68
Accounting Treatment.................................................................................................. 68
Federal Income Tax Considerations..................................................................................... 68
Transitory mergers and direct contributions as part of an overall Section 351 contribution......................... 68
THE COMBINATION AGREEMENT............................................................................................... 70
Closing and Effective Time of the Combination......................................................................... 71
Effect of the Mergers/Exchange Offers................................................................................. 71
Escrow of Precision Auto Care Shares Issued in the Combination........................................................ 72
Certain Distributions and Contingent Cash Dividends................................................................... 74
Real Estate Options and Related Lease Arrangements.................................................................... 74
Agreements Not to Compete............................................................................................. 74
Failure to Obtain Required Stockholder and Member Approval and Tender................................................. 74
Restrictions on Resales of Precision Auto Care Common Stock........................................................... 75
Initial Public Offering............................................................................................... 75
Right to Include Shares of Precision Auto Care Common Stock in Initial Public Offering................................ 76
Assumption of WE JAC Stock Plans...................................................................................... 77
Precision Tune Stock Option Plan................................................................................... 77
1997 Employee Stock Purchase Plan.................................................................................. 78
Other Stock Option Arrangements.................................................................................... 78
Conditions of the Combination Agreement............................................................................... 78
Termination of the Combination Agreement.............................................................................. 78
Exchange of Stock Certificates/Assignment of Membership Interests..................................................... 80
Payment in Lieu of Fractional Shares/Membership Interests............................................................. 80
INFORMATION CONCERNING PRECISION AUTO CARE.............................................................................. 81
Business of Precision Auto Care....................................................................................... 81
Management of Precision Auto Care..................................................................................... 95
Precision Auto Care Principal Stockholders............................................................................ 102
Description of Precision Auto Care Capital Stock...................................................................... 103
General............................................................................................................ 103
Common Stock....................................................................................................... 103
Preferred Stock.................................................................................................... 103
Limitations on Liability of Officers and Directors................................................................. 103
Anti-Takeover Provisions........................................................................................... 103
Transfer Agent and Registrar....................................................................................... 105
UNAUDITED PRO FORMA CAPITALIZATION OF PRECISION AUTO CARE............................................................... 106
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS....................................................................... 106
INFORMATION CONCERNING WE JAC........................................................................................... 109
Business of WE JAC.................................................................................................... 109
Principal Stockholders of WE JAC...................................................................................... 110
Certain Relationships and Related Party Transactions.................................................................. 111
WE JAC SELECTED CONSOLIDATED FINANCIAL DATA............................................................................. 112
WE JAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.................................................................................................. 113
INFORMATION REGARDING MIRACLE INDUSTRIES................................................................................ 116
Business of Miracle Industries........................................................................................ 116
Principal Stockholders of Miracle Industries.......................................................................... 116
Certain Relationships and Related Party Transactions.................................................................. 116
MIRACLE INDUSTRIES SELECTED CONSOLIDATED FINANCIAL DATA................................................................. 118
MIRACLE INDUSTRIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION................. 119
INFORMATION REGARDING LUBE VENTURES..................................................................................... 121
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Business of Lube Ventures............................................................................................. 121
Principal Stockholders of Lube Ventures............................................................................... 121
Certain Relationships and Related Party Transactions.................................................................. 121
LUBE VENTURES SELECTED FINANCIAL DATA................................................................................... 122
LUBE VENTURES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION...................... 123
INFORMATION REGARDING ROCKY MOUNTAIN I.................................................................................. 125
Business of Rocky Mountain I.......................................................................................... 125
Principal Stockholders of Rocky Mountain I............................................................................ 125
ROCKY MOUNTAIN I SELECTED FINANCIAL DATA................................................................................ 126
ROCKY MOUNTAIN I MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION................... 127
INFORMATION REGARDING ROCKY MOUNTAIN II................................................................................. 129
Business of Rocky Mountain I.......................................................................................... 129
Principal Stockholders of Rocky Mountain II........................................................................... 129
ROCKY MOUNTAIN II SELECTED FINANCIAL DATA............................................................................... 130
ROCKY MOUNTAIN II MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.................. 131
INFORMATION REGARDING MIRACLE PARTNERS.................................................................................. 133
Business of Miracle Partners.......................................................................................... 133
Principal Stockholders of Miracle Partners............................................................................ 133
Certain Relationships and Related Party Transactions.................................................................. 133
MIRACLE PARTNERS SELECTED FINANCIAL DATA................................................................................ 134
MIRACLE PARTNERS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION................... 135
INFORMATION REGARDING PREMA PROPERTIES.................................................................................. 137
Business of Prema Properties.......................................................................................... 137
Principal Members of Prema Properties................................................................................. 137
Certain Relationships and Related Party Transactions.................................................................. 137
PREMA PROPERTIES SELECTED FINANCIAL DATA................................................................................ 138
PREMA PROPERTIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION................... 139
INFORMATION REGARDING RALSTON CAR WASH.................................................................................. 141
Business of Ralston Car Wash.......................................................................................... 141
Principal Members of Ralston Car Wash................................................................................. 141
RALSTON CAR WASH SELECTED FINANCIAL DATA................................................................................ 142
RALSTON CAR WASH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION................... 143
INFORMATION REGARDING KBG............................................................................................... 144
Business of KBG....................................................................................................... 144
Principal Members of KBG.............................................................................................. 144
Certain Relationships................................................................................................. 144
COMPARATIVE RIGHTS OF SECURITY HOLDERS.................................................................................. 144
Liability of Directors/Managing Members............................................................................... 145
Precision Auto Care................................................................................................ 145
WE JAC, Lube Ventures and Miracle Partners......................................................................... 145
Miracle Industries................................................................................................. 146
Rocky Mountain I and Rocky Mountain II............................................................................. 146
Prema Properties................................................................................................... 146
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Ralston Car Wash and KBG........................................................................................... 146
Indemnification....................................................................................................... 147
Precision Auto Care................................................................................................ 147
WE JAC, Lube Ventures and Miracle Partners......................................................................... 147
Miracle Industries................................................................................................. 147
Rocky Mountain I and Rocky Mountain II............................................................................. 148
Prema Properties................................................................................................... 148
Ralston Car Wash and KBG........................................................................................... 148
Distributions and Redemptions......................................................................................... 149
Precision Auto Care................................................................................................ 149
WE JAC, Lube Ventures and Miracle Partners......................................................................... 149
Miracle Industries................................................................................................. 149
Rocky Mountain I and Rocky Mountain II............................................................................. 149
Prema Properties................................................................................................... 149
Ralston Car Wash and KBG........................................................................................... 150
Stockholder/Member Inspection of Books and Records.................................................................... 150
Precision Auto Care................................................................................................ 150
WE JAC, Lube Ventures and Miracle Partners......................................................................... 150
Miracle Industries................................................................................................. 150
Rocky Mountain I and Rocky Mountain II............................................................................. 151
Prema Properties................................................................................................... 151
Ralston Car Wash and KBG........................................................................................... 151
Dissenters' Rights.................................................................................................... 151
Precision Auto Care................................................................................................ 151
WE JAC, Lube Ventures and Miracle Partners......................................................................... 152
Miracle Industries................................................................................................. 152
Rocky Mountain I and Rocky Mountain II............................................................................. 152
Prema Properties................................................................................................... 152
Ralston Car Wash and KBG........................................................................................... 153
Staggered Board of Directors/Managing Members......................................................................... 153
Precision Auto Care................................................................................................ 153
WE JAC, Lube Ventures and Miracle Partners......................................................................... 153
Miracle Industries................................................................................................. 153
Rocky Mountain I and Rocky Mountain II............................................................................. 153
Prema Properties................................................................................................... 153
Ralston Car Wash and KBG........................................................................................... 153
Stockholder/Member Voting Requirements................................................................................ 153
Precision Auto Care................................................................................................ 153
WE JAC, Lube Ventures and Miracle Partners......................................................................... 154
Miracle Industries................................................................................................. 154
Rocky Mountain I and Rocky Mountain II............................................................................. 155
Prema Properties................................................................................................... 155
Ralston Car Wash and KBG........................................................................................... 155
Action by Written Consent of Stockholders/Members..................................................................... 155
Precision Auto Care................................................................................................ 155
WE JAC, Lube Ventures and Miracle Partners......................................................................... 155
Miracle Industries................................................................................................. 156
Rocky Mountain I and Rocky Mountain II............................................................................. 156
Prema Properties................................................................................................... 156
Ralston Car Wash and KBG........................................................................................... 156
Notice Procedures for Stockholder Proposals........................................................................... 156
Precision Auto Care................................................................................................ 156
WE JAC, Lube Ventures and Miracle Partners......................................................................... 156
Miracle Industries................................................................................................. 156
Rocky Mountain I and Rocky Mountain II............................................................................. 156
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Prema Properties................................................................................................... 156
Ralston Car Wash and KBG........................................................................................... 156
Board/Managing Member Vacancies....................................................................................... 157
Precision Auto Care................................................................................................ 157
WE JAC, Lube Ventures and Miracle Partners......................................................................... 157
Miracle Industries................................................................................................. 157
Rocky Mountain I and Rocky Mountain II............................................................................. 157
Prema Properties................................................................................................... 157
Ralston Car Wash and KBG........................................................................................... 157
Removal of Directors/Members.......................................................................................... 157
Precision Auto Care................................................................................................ 157
WE JAC, Lube Ventures and Miracle Partners......................................................................... 157
Miracle Industries................................................................................................. 157
Rocky Mountain I and Rocky Mountain II............................................................................. 157
Prema Properties................................................................................................... 158
Ralston Car Wash and KBG........................................................................................... 158
Amendments of Charters/Membership Agreements.......................................................................... 158
Precision Auto Care................................................................................................ 158
WE JAC, Lube Ventures and Miracle Partners......................................................................... 158
Miracle Industries................................................................................................. 159
Rocky Mountain I and Rocky Mountain II............................................................................. 159
Prema Properties................................................................................................... 159
Ralston Car Wash and KBG........................................................................................... 159
Amendment of Bylaws................................................................................................... 159
Precision Auto Care................................................................................................ 159
WE JAC, Lube Ventures and Miracle Partners......................................................................... 159
Miracle Industries................................................................................................. 159
Rocky Mountain I and Rocky Mountain II............................................................................. 160
Prema Properties................................................................................................... 160
Ralston Car Wash and KBG........................................................................................... 160
Special Meetings of Stockholders/Members.............................................................................. 160
Precision Auto Care................................................................................................ 160
WE JAC, Lube Ventures and Miracle Partners......................................................................... 160
Miracle Industries................................................................................................. 160
Rocky Mountain I and Rocky Mountain II............................................................................. 160
Prema Properties................................................................................................... 160
Ralston Car Wash................................................................................................... 160
Affiliated Transactions............................................................................................... 161
Precision Auto Care................................................................................................ 161
WE JAC, Lube Ventures and Miracle Partners......................................................................... 161
Miracle Industries................................................................................................. 161
Rocky Mountain I and Rocky Mountain II............................................................................. 161
Prema Properties................................................................................................... 161
Ralston Car Wash and KBG........................................................................................... 161
Antitakeover Provisions............................................................................................... 162
Precision Auto Care................................................................................................ 162
WE JAC, Lube Ventures and Miracle Partners......................................................................... 162
Miracle Industries................................................................................................. 162
Rocky Mountain I and Rocky Mountain II............................................................................. 162
Prema Properties................................................................................................... 162
Ralston Car Wash and KBG........................................................................................... 162
Control Share Acquisitions............................................................................................ 162
Precision Auto Care................................................................................................ 162
WE JAC, Lube Ventures and Miracle Partners......................................................................... 163
Miracle Industries................................................................................................. 163
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Rocky Mountain I and Rocky Mountain II............................................................................. 163
Prema Properties................................................................................................... 163
Ralston Car Wash and KBG........................................................................................... 163
Additional Differences Between Corporations and Limited Liability Companies........................................... 163
Form of Organization............................................................................................... 163
Restrictions on Transferability.................................................................................... 163
LEGAL MATTERS........................................................................................................... 164
EXPERTS................................................................................................................. 164
INDEX TO FINANCIAL STATEMENTS........................................................................................... F-1
APPENDICES
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AVAILABLE INFORMATION
Precision Auto Care has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement on Form S-4 under the Securities Act
with respect to the Common Stock to be issued pursuant to the Combination
Agreement. This Joint Proxy Statement/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 Precision Auto Care and the Common Stock to be
issued pursuant to the Combination Agreement, reference is hereby made to the
Registration Statement and the exhibits and schedules filed as a part thereof.
Statements contained in this Joint Proxy Statement/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 Joint Proxy
Statement/Prospectus is a part, Precision Auto Care 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, Precision Auto Care 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. Precision Auto Care
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 stockholders 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.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND IF GIVEN OR MADE SUCH
INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO EXCHANGE OR SELL, OR A
SOLICITATION OF AN OFFER TO EXCHANGE OR PURCHASE, THE SECURITIES OFFERED HEREBY,
OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SHARES OF
PRECISION AUTO CARE COMMON STOCK MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATIONS THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF
PRECISION AUTO CARE, WE JAC, MIRACLE INDUSTRIES, LUBE VENTURES, ROCKY MOUNTAIN
I, ROCKY MOUNTAIN II, MIRACLE PARTNERS, PREMA PROPERTIES, RALSTON CAR WASH OR
KBG SINCE THE DATE HEREOF.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO. FOR PURPOSES OF THIS
JOINT PROXY STATEMENT/PROSPECTUS, WE JAC, MIRACLE INDUSTRIES, LUBE VENTURES,
ROCKY MOUNTAIN I, ROCKY MOUNTAIN II, MIRACLE PARTNERS, PREMA PROPERTIES, RALSTON
CAR WASH AND KBG (AS SUCH TERMS ARE DEFINED BELOW) ARE SOMETIMES REFERRED TO
COLLECTIVELY AS THE "CONSTITUENT COMPANIES."
GENERAL
MERGERS/SPECIAL MEETINGS. This Joint Proxy Statement/Prospectus is
furnished to stockholders of WE JAC Corporation, a Delaware corporation ("WE
JAC"), Miracle Industries, Inc., an Ohio corporation ("Miracle Industries"),
Lube Ventures, Inc., a Delaware corporation ("Lube Ventures"), Rocky Mountain
Ventures, Inc., a Colorado corporation ("Rocky Mountain I"), Rocky Mountain
Ventures II, Inc., a Colorado corporation ("Rocky Mountain II"), in connection
with the solicitation of proxies by the Board of Directors of each of WE JAC,
Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain II for
use at, respectively, the special meeting of stockholders of WE JAC ("WE JAC
Special Meeting"), the special meeting of stockholders of Miracle Industries
(the "Miracle Industries Special Meeting"), the special meeting of stockholders
of Lube Ventures (the "Lube Ventures Special Meeting"), the special meeting of
stockholders of Rocky Mountain I (the "Rocky Mountain I Special Meeting"), and
the special meeting of stockholders of Rocky Mountain II (the "Rocky Mountain II
Special Meeting"), each of which will be held on , 1997
(collectively, the "Special Meetings").
At the Special Meetings, the stockholders of each of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain II will consider
and vote on that certain Plan of Reorganization and Agreement for Share Exchange
Offers, dated August 27, 1997, (the "Combination Agreement"), by and among
Precision Auto Care, Inc., a Virginia corporation ("Precision Auto Care"), WE
JAC, Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II,
Miracle Partners, Inc., a Delaware corporation ("Miracle Partners"), Prema
Properties, Ltd., an Ohio limited liability company ("Prema Properties"),
Ralston Car Wash Ltd., a Colorado limited liability company ("Ralston Car Wash")
and KBG, LLC, a Colorado limited liability company ("KBG"), and the transactions
contemplated by the Combination Agreement.
EXCHANGE OFFERS. This Joint Proxy Statement/Prospectus is also being
furnished to holders of outstanding shares of Miracle Partners common stock
("Miracle Partners Common Stock") and to holders of membership interests in
Prema Properties, Ralston Car Wash and KBG in connection with the offer being
made by Precision Auto Care to exchange shares of its common stock for
outstanding shares of Miracle Partners Common Stock and for outstanding
membership interests in each of Prema Properties, Ralston Car Wash and KBG as
more fully described herein.
PURPOSE OF THE COMBINATION AND OPERATION OF PRECISION AUTO CARE FOLLOWING THE
COMBINATION
As a result of the Combination, Precision Auto Care will acquire, pursuant
to the Mergers and the Exchange Offers (i) Precision Tune Auto Care, a business
engaged in franchising and operating automobile repair and maintenance service
centers, (ii) businesses engaged in operating self-service and automatic car
wash centers, and (iii) a business engaged in franchising and operating fast oil
change and lubrication service centers. Following the Combination, Precision
Auto Care will continue to franchise and operate the "Precision Tune Auto Care"
automobile repair and maintenance service centers currently operated by WE JAC.
Precision Auto Care intends to consolidate and engage in operating and
franchising the self-service and automatic car wash businesses and the fast oil
change and lubrication franchise operations conducted by the other Constituent
Companies under the "Precision Auto Wash" name, in the case of the car wash
operations, and the "Precision Lube Express" name, in the case of the fast oil
change and lubrication business.
Precision Auto Care intends to leverage Precision Tune Auto Care's broad
name recognition and current market position to establish the "Precision brand"
of services as a high-quality, convenient and high value provider in the market
sectors in which it will compete. Precision Auto Care further intends to
cross-sell each type of service offered to existing and potential franchisees to
provide consumers with multiple services and one-stop shopping convenience in
the markets it will serve. In support of the Precision Auto Wash, Precision Lube
Express and Precision Tune Auto Care franchisees and retail services, Precision
Auto Care will also manufacture and sell car wash equipment, modular fast oil
change and lube buildings, car wash chemicals and automotive parts, equipment
and supplies through its acquisition of the Constituent Companies currently
engaged in these activities.
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From and after the Effective Time, each of WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I, Rocky Mountain II, Miracle Partners, Prema
Properties, Ralston Car Wash and KBG will operate as subsidiaries of Precision
Auto Care. See "Information Concerning Precision Auto Care."
THE COMPANIES
PRECISION AUTO CARE. Precision Auto Care is a Virginia corporation newly
formed for the purposes of effecting the above-described Mergers and Exchange
Offers (the "Combination"). Currently, Precision Auto Care has no material
assets or liabilities, and it is the holder of all of the capital stock of each
of WE JAC Acquisition Company, a Delaware corporation ("WE JAC Acquisition"),
Miracle Industries Acquisition Company, an Ohio corporation ("Miracle Industries
Acquisition"), Lube Ventures Acquisition Company, a Delaware corporation ("Lube
Ventures Acquisition"), Rocky Mountain I Acquisition Company, a Colorado
corporation ("Rocky Mountain I Acquisition") and Rocky Mountain II Acquisition
Company, a Colorado corporation ("Rocky Mountain II Acquisition"). At the
consummation of the proposed Mergers, each of WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I and Rocky Mountain II will become wholly owned
subsidiaries of Precision Auto Care, and Precision Auto Care will issue shares
of its common stock, $.01 par value ("Precision Auto Care Common Stock"), to
former stockholders of WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain
I and Rocky Mountain II. At the consummation of the proposed Exchange Offers,
Precision Auto Care will acquire the Miracle Partners Common Stock exchanged by
the holders thereof pursuant to the Exchange Offer and the membership interests
in Prema Properties, Ralston Car Wash and KBG exchanged by the members thereof
pursuant to the Exchange Offer, and Precision Auto Care will issue shares of
Precision Auto Care Common Stock to holders of Miracle Partners Common Stock and
the members of Prema Properties, Ralston Car Wash and KBG who elect to exchange
their shares or membership interests for Precision Auto Care Common Stock.
WE JAC CORPORATION. WE JAC is the parent corporation of Precision Tune Auto
Care, Inc., a Virginia corporation ("Precision Tune"). Precision Tune is an
automotive service specialist engaged in the business of providing quality
comprehensive automobile maintenance services. These services are provided at
556 Precision Tune Auto Care centers owned and operated by Precision Tune Auto
Care franchisees as of June 30, 1997. 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. Precision Tune derives a substantial
portion of its revenues from the distribution of automotive parts and equipment
to Precision Tune Auto Care centers and others. Another subsidiary of WE JAC
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, INC. With offices in Mansfield, Ohio and Cambridge,
Ohio, Miracle is involved in the manufacture, sale and distribution of car wash
chemicals which it sells through both direct distribution and a limited network
of distributors. Miracle also owns and operates ten self-serve 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
complementary car wash accessories. In addition to operating its own car wash
facilities, Miracle is actively engaged in the sale, service, and installation
of car wash facilities for third parties throughout Ohio. Miracle owns (directly
and through a wholly owned subsidiary) HydroSpray Car Wash Equipment, Ltd.
("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 throughout 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, INC. Lube Ventures 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 one Company-operated center. 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.
ROCKY MOUNTAIN VENTURES, INC. Rocky Mountain I owns and operates one
self-service car wash center in the Denver metropolitan area. The car wash is
operated through a centralized control system located on-site. Such controls
include the
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ability to check the functions, number and type of transactions, and receipts at
the car wash. Rocky Mountain I's computer system contains software which may be
used to change the operational system at the site at any time. The site is
usually staffed by one attendant during specified business hours seven days a
week.
ROCKY MOUNTAIN VENTURES II, INC. Rocky Mountain II owns and operates seven
self-service car wash centers in the Denver metropolitan area. Four of the car
washes are operated through a centralized control system located at Rocky
Mountain II's principal office and the remainder are operated through control
systems located at each car wash site. Such controls include the ability to
check the functions, number and type of transactions, and receipts at each of
the car wash sites. At one site, the centralized system allows for the issuance
to customers of "frequent wash" cards and debit cards, which allow customers to
use a machine at the site to keep track of all uses, and to obtain a free wash
after a certain number of washes. This system is being phased in at Rocky
Mountain II's other car wash sites. Rocky Mountain II's computer system contains
software which may be used to change the operational system at each site at any
time. Each site is usually staffed by one attendant during specified business
hours seven days a week.
MIRACLE PARTNERS, INC. Miracle Partners 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 and 40 of
which are self-service car wash bays. Miracle Partners owns and operates a three
bay Lube Depot center. Miracle Partners also leases ground to a sign company and
a Lube Depot fast oil change and lube center franchisee.
PREMA PROPERTIES, LTD. Prema Properties owns and operates seven car wash
centers and owns a 50% equity interest in an eighth center located primarily in
central Ohio and the Cleveland, Ohio area. The nine car wash centers contain in
the aggregate 58 self-service units and seven automatic units. Of the seven
automatic units, six of them have been installed within the last two years and
all of the 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 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. This unit is operated by two
full-time employees and one part-time employee. The Lube Depot employees also
service the car wash facility at that location. Major maintenance requirements
for the car wash systems are provided by Miracle Industries, Inc.
RALSTON CAR WASH, LTD. Ralston Car Wash owns and operates one self-service
car wash center in the Denver metropolitan area. The car wash is operated
through a centralized control system located on-site. Such controls include the
ability to check the functions, number and type of transactions, and receipts at
the car wash. Ralston Car Wash's computer system contains software which may be
used to change the operational system at the site at any point in time. The car
wash is usually staffed by an attendant during specified business hours seven
days a week.
KBG, LLC. KBG, LLC does not conduct any operations and has been formed
solely for the purpose of owning proprietary Programmable Logic Controller
software ("PLC") designed by Karl Byrer. This software is an integral part of
the "HydroSpray" proprietary car wash system Mr. Byrer has designed in
conjunction with certain other Constituent Companies and his software is used to
integrate all aspects of a self-service car wash operation into one centralized
control point.
WE JAC ACQUISITION COMPANY. WE JAC Acquisition is a wholly owned subsidiary
of Precision Auto Care, newly formed for the purpose of merging with WE JAC in
the Merger.
MIRACLE INDUSTRIES ACQUISITION COMPANY. Miracle Industries Acquisition is a
wholly owned subsidiary of Miracle Industries, newly formed for the purpose of
merging with Miracle Industries in the Merger.
LUBE VENTURES ACQUISITION COMPANY. Lube Ventures Acquisition Company is a
wholly owned subsidiary of Lube Ventures, newly formed for the purpose of
merging with Lube Ventures in the Merger.
ROCKY MOUNTAIN I ACQUISITION. Rocky Mountain I Acquisition is a wholly
owned subsidiary of Rocky Mountain I, newly formed for the purpose of merging
with Rocky Mountain I in the Merger.
ROCKY MOUNTAIN II ACQUISITION. Rocky Mountain II Acquisition is a wholly
owned subsidiary of Rocky Mountain II, newly formed for the purpose of merging
with Rocky Mountain II in the Merger.
TERMS OF THE COMBINATION
Under the terms of the Combination Agreement, (1) WE JAC Acquisition will
merge into WE JAC, Miracle Industries Acquisition will merge into Miracle
Industries, Lube Ventures Acquisition will merge into Lube Ventures, Rocky
Mountain I
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Acquisition will merge into Rocky Mountain I, and Rocky Mountain II Acquisition
will merge into Rocky Mountain II (collectively, the "Mergers"); (2) each
outstanding share of WE JAC Common Stock will be converted into the right to
receive 1.0 share of Precision Auto Care Common Stock (the "WE JAC Exchange
Ratio"); (3) each outstanding share of Miracle Industries Common Stock will be
converted into the right to receive 21.442 shares of Precision Auto Care Common
Stock (the "Miracle Industries Exchange Ratio"); (4) each outstanding share of
Lube Ventures Common Stock will be converted into the right to receive 1,691.680
shares of Precision Auto Care Common Stock (the "Lube Ventures Exchange Ratio");
(5) each outstanding share of Rocky Mountain I Common Stock will be converted
into the right to receive 12.355 shares of Precision Auto Care Common Stock (the
"Rocky Mountain I Exchange Ratio"); and (6) each outstanding share of Rocky
Mountain II Common Stock will be converted into the right to receive 12.356
shares of Precision Auto Care Common Stock (the "Rocky Mountain II Exchange
Ratio"). Under the terms of the Combination Agreement, (1) each holder of a
share of Miracle Partners Common Stock who elects to participate in the Exchange
Offer will receive 188.640 shares of Precision Auto Care Common Stock with
respect to each share of Miracle Partners Common Stock exchanged by such holder
(the "Miracle Partners Exchange Ratio"); (2) each holder of Prema Properties
Membership Interests who elects to participate in the Exchange Offer will
receive 1,488.890 shares of Precision Auto Care Common Stock with respect to
each one percentage of a Prema Properties Membership Interest exchanged by such
holder (the "Prema Properties Exchange Ratio"), (3) each holder of Ralston Car
Wash Membership Interests who elects to participate in the Exchange Offer will
receive 291.610 shares of Precision Auto Care Common Stock with respect to each
one percentage of a Ralston Car Wash Membership Interest exchanged by such
holder (the "Ralston Car Wash Exchange Ratio"), and (4) each holder of KBG
Membership Interests who elects to participate in the Exchange Offer will
receive 124.110 shares of Precision Auto Care Common Stock with respect to each
one percentage of a KBG Membership Interest exchanged by such holder (the "KBG
Exchange Ratio").
The Exchange Ratios with respect to each of the Constituent Companies,
except WE JAC, were determined by arms' length negotiations between Precision
Auto Care and the representatives of the Constituent Companies, each of which
was represented by independent counsel in the negotiation of the terms and
conditions of the Combination Agreements. The factors considered by Precision
Auto Care in determining the Exchange Ratios 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 Precision Auto Care were not arm's length due to
substantial overlaps in management of Precision Auto Care and WE JAC at the time
of the negotiation. However, because the various parties participated
collectively in the negotiation of the Exchange Ratios, the Exchange Ratio
applicable to WE JAC was subject to scrutiny by, and negotiation with,
representatives of the other Constituent Companies.
There are no warrants, options or other rights outstanding to purchase any
equity securities of Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky
Mountain II, Miracle Partners, Prema Properties, Ralston Car Wash or KBG.
Pursuant to the Combination Agreement, each outstanding option, warrant or other
right to purchase WE JAC Common Stock will be converted into the right to
acquire shares of Precision Auto Care Common Stock on the same terms and
conditions. Because each outstanding share of WE JAC Common Stock will be
converted into the right to receive 1.0 share of Precision Auto Care Common
Stock, no adjustment will be made to the number of shares or the exercise price
per share underlying each option. A vote in favor of the Combination Agreement
will also be a vote in favor of Precision Auto Care's assumption of various
stock option plans under which options to acquire WE JAC Common Stock are
currently outstanding. See "The Combination Agreement -- Effects of the
Mergers/Exchange Offers."
Based upon the number of shares of WE JAC Common Stock, Miracle Industries
Common Stock, Lube Ventures Common Stock, Rocky Mountain I Common Stock, Rocky
Mountain II Common Stock and Miracle Partners Common Stock currently outstanding
and the Prema Properties Membership Interests, Ralston Car Wash Membership
Interests and KBG Membership Interests currently outstanding, and assuming that
(1) no shareholder exercises his right to dissent, (2) holders of Miracle
Partners Common Stock and Prema Properties, Ralston Car Wash and KBG membership
interests elect to exchange all of their outstanding Miracle Partners Common
Stock and membership interests in Prema Properties, Ralston Car Wash and KBG
pursuant to the Exchange Offers, (3) no cash is paid in lieu of fractional
shares, (4) no rights are exercised by Precision Auto Care to proceed against
the Indemnity Escrow Shares or the Indebtedness Escrow Shares, (5) all
outstanding options, warrants and other rights to purchase WE JAC Common Stock
are exercised, and (6) Precision Auto Care completes the Initial Public Offering
of 2,300,000 shares of its Common Stock simultaneously with the consummation of
the Combination,approximately 5,838,795 shares of Precision Auto Care Common
Stock would be outstanding immediately upon the consummation of the Combination
of which (A) approximately 1,841,725 shares, representing approximately 32.95%
of the total, will be held by former WE JAC stockholders, (B) approximately
749,250 shares, representing approximately 13.41% of the total, will be held by
former Miracle Industries stockholders, (C) approximately 169,168 shares,
representing approximately 3.03% of the total, will be held by former Lube
Ventures stockholders, (D) approximately 64,223 shares, representing
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approximately 1.15% of the total, will be held by former Rocky Mountain I
stockholders, (E) approximately 179,648 shares, representing approximately 3.21%
of the total, will be held by former Rocky Mountain II stockholders, (F)
approximately 94,320 shares, representing 1.69% of the total, will be held by
former Miracle Partners stockholders, (G) approximately 148,889 shares,
representing 2.66% of the total, will be held by former Prema Properties
members; (H) approximately 29,161 shares, representing 0.52% of the total, will
be held by former Ralston Car Wash members; and (I) approximately 12,411 shares,
representing 0.22% of the total, will be held by former KBG members.
ESCROWS OF PRECISION AUTO CARE COMMON STOCK
Ten percent of the shares of Precision Auto Care Common Stock that are to
be issued to each stockholder of WE JAC, Miracle Industries, Lube Ventures,
Rocky Mountain I and Rocky Mountain II pursuant to the Mergers and 10% of the
shares of Precision Auto Care Common Stock that are to be issued to each
stockholder of Miracle Partners and each holder of membership interests in Prema
Properties, Ralston Car Wash and KBG in connection with the Exchange Offers
(which shares are collectively referred to herein as the "Indemnity Escrow
Shares") will be placed into escrow at the closing of the Mergers and the
Exchange Offers (collectively, the "Combination"). Precision Auto Care will be
able to reacquire, liquidate and retire the Indemnity Escrow Shares in order to
satisfy claims it may have with respect to the breach of certain
representations, warranties and covenants made with respect to each of WE JAC,
Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II, Miracle
Partners, Prema Properties, Ralston Car Wash, KBG and their respective
businesses in the Combination Agreement. The Indemnity Escrow Shares will remain
in escrow until the first anniversary of the closing of the Combination or until
any claims which are pending against the Indemnity Escrow Shares on the first
anniversary of closing have been finally resolved. In addition to the Indemnity
Escrow Shares, ten percent of the Precision Auto Care shares of Common Stock
that are to be issued to each stockholder of WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I and Rocky Mountain II pursuant to the Mergers and 10%
of the Precision Auto Care shares of Common Stock that are to be issued to each
holder of Miracle Partners Common Stock and to each holder of Prema Properties
Membership Interests and Ralston Car Wash Membership Interests in connection
with the Exchange Offers (which shares are collectively referred to herein as
the "Indebtedness Escrow Shares") will be placed into escrow at the closing of
the Combination. The Indebtedness Escrow Shares will remain in escrow for a
period of up to 70 days. Precision Auto Care will be able to reacquire,
liquidate or retire the Indebtedness Escrow Shares in the event that the
indebtedness of WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I,
Rocky Mountain II, Miracle Partners, Prema Properties or Ralston Car Wash is
above certain levels at closing. IN THE EVENT THAT PRECISION AUTO CARE EXERCISES
ITS RIGHTS TO PROCEED AGAINST THE INDEMNITY ESCROW SHARES OR THE INDEBTEDNESS
ESCROW SHARES, STOCKHOLDERS OF THE CORPORATION OR MEMBERS OF THE LIMITED
LIABILITY COMPANY WITH RESPECT TO WHICH PRECISION AUTO CARE LAWFULLY EXERCISES
ITS RIGHTS WILL NOT RECEIVE THE FULL AMOUNT OF THE PRECISION AUTO CARE SHARES
ALLOCATED TO SUCH HOLDER WITH RESPECT TO THE APPLICABLE MERGER OR EXCHANGE
OFFER. SEE "THE COMBINATION AGREEMENT -- ESCROW OF PRECISION AUTO CARE SHARES
ISSUED IN THE COMBINATION."
CERTAIN DISTRIBUTIONS AND CONTINGENT CASH DIVIDENDS
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
Companies from January 1, 1997 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.
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 the cash
proceeds of a certain $190,000 promissory note held by Rocky Mountain I; 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).
REAL ESTATE OPTIONS AND RELATED LEASE ARRANGEMENTS
The Combination Agreement also grants to limited partnerships formed by the
owners of Lube Ventures, Miracle Partners and Prema Partners, the option to
purchase certain real estate from Precision Auto Care following Closing. Under
the
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terms of the Combination Agreement, these limited partnerships may purchase
these parcels of real estate from Precision Auto Care at their fair market value
on the date the partnerships exercise their options. If the partnerships
purchase one or more of these parcels of real estate the Combination Agreement
also calls for Precision Auto Care to lease the real estate back from the
partnerships at a base rent equal to the fair rental value of the real property.
The partnerships are entitled to exercise this option for a one-year period
commencing on the second anniversary of the date of the closing of the
Combination. For additional information concerning the terms of these real
estate arrangements, see "The Combination Agreement -- Real Estate Options and
Related Lease Arrangements."
AGREEMENTS NOT TO COMPETE
Pursuant to the terms of the Combination Agreement, each owner of 10% or
more of the common stock or 10% or more of the membership interests of a
Constituent Company must execute and deliver an agreement not to compete at the
closing. The terms of these agreements generally provide that, for a period of
four years following the closing of the Combination, the person executing such
agreement will not compete with Precision Auto Care in the line of business
conducted by the Constituent Company or Companies as to which such person is a
stockholder or member as of closing or to engage in the franchising of such
business within specified geographic areas. The discussion of the terms and
conditions of the agreement not to compete is qualified in its entirety by
reference to the terms of the form of the agreement not to compete attached to
this Joint Proxy Statement/Prospectus as Appendix D. Holders who are required to
execute and deliver this agreement at closing are urged to consult with their
own legal counsel with respect to the effect of executing and delivering the
agreement not to compete at closing.
FAILURE TO OBTAIN REQUIRED STOCKHOLDER AND MEMBER APPROVAL AND TENDER
The Combination Agreement provides that (i) if the holders of a majority of
the outstanding shares of common stock of any of WE JAC, Lube Ventures, Rocky
Mountain I and Rocky Mountain II fail to approve the Combination Agreement, such
company shall be obligated to issue ratably to the other parties to the
Combination Agreement (other than Precision Auto Care) shares of its capital
stock that will represent 20% of the issued and outstanding shares of its
capital stock calculated on a fully diluted basis; (ii) if the holders of
two-thirds of the outstanding shares of common stock of Miracle Industries fail
to approve the Combination Agreement, Miracle Industries shall be obligated to
issue ratably to the other parties to the Combination Agreement (other than
Precision Auto Care) shares of its capital stock that will represent 20% of the
issued and outstanding shares of its capital stock calculated on a fully diluted
basis; (iii) if the holders of the outstanding shares of Miracle Partners Common
Stock fail to tender for exchange pursuant to the Exchange Offer all of the
outstanding shares of Miracle Partners Common Stock, Miracle Partners shall be
obligated to issue ratably to the other parties to the Combination Agreement
(other than Precision Auto Care) shares of its capital stock that will represent
20% of the issued and outstanding shares of its capital stock calculated on a
fully diluted basis; and (iv) if the holders of Membership Interests in any of
Prema Properties, Ralston Car Wash and KBG fail to tender for exchange pursuant
to the Exchange Offer a specified percentage of the outstanding Membership
Interests in such company and, within one year of the date of the Combination
Agreement, such company engages in a sale of substantially all of its assets or
a merger or the holders of its common stock or membership interests transfer in
the aggregate a majority of the outstanding shares or membership interests of
such company, such company shall be obligated to issue ratably to the other
parties to the Combination Agreement (other than Precision Auto Care) Membership
Interests that will represent 20% of its outstanding Membership Interests
calculated on a fully diluted basis.
RIGHT TO INCLUDE SHARES OF PRECISION AUTO CARE COMMON STOCK IN INITIAL PUBLIC
OFFERING
It is a condition to the consummation of the Combination that Precision
Auto Care complete an initial public offering of 2,300,000 shares of its Common
Stock. The Combination Agreement contains provisions which enable persons who
will hold 3,000 or more shares of Precision Auto Care Common Stock immediately
following the consummation of the Combination (which number includes and assumes
that the holder will ultimately receive all of the Indemnity Escrow Shares and
Indebtedness Escrow Shares attributable to such holder) to include a small
portion of their shares of Precision Auto Care Common Stock in the Initial
Public Offering of Precision Auto Care Common Stock which is to occur
simultaneously with the Combination. Holders who wish to include a portion of
their shares of Precision Auto Care Common Stock in the Initial Public Offering
must notify Precision Auto Care of their intention to do so by completing a
Selling Shareholder Notice/Questionnaire/Power of Attorney and delivering it to
Precision Auto Care no later than 5:00 p.m., Eastern Standard Time, on
, 1997. Holders of fewer than 3,000 shares of Precision Auto
Care Common Stock are not being given the opportunity to include their shares in
the Initial Public Offering because the shares of Precision Auto Care Common
Stock they receive will be freely tradable immediately following the
consummation of the Combination. Precision Auto Care is enabling holders of
3,000 or more shares of Precision Auto Care to include a portion of the shares
in the Initial Public
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Offering because under the terms of the Combination Agreement, holders of 3,000
or more shares of Precision Auto Care Common Stock will not be able to sell or
otherwise dispose of their shares of Precision Auto Care Common Stock for a
period of 180 days following the consummation of the Combination. For a more
complete description of the terms of the restrictions on certain holders'
ability to sell their shares of Precision Auto Care Common Stock they are to
receive in the Combination for a period of 180 days following the Combination
and the terms under which holders who are subject to such restrictions may
include a portion of their shares in the Initial Public Offering, see "The
Combination Agreement -- Restrictions on Resales of Precision Auto Care Common
Stock," " -- Right to Include Shares in Initial Public Offering."
RESTRICTIONS ON RESALES OF PRECISION AUTO CARE COMMON STOCK
The shares of Precision Auto Care Common Stock to be issued in the
Combination will be freely tradeable without restriction under the Securities
Act after consummation of the Combination, except that shares of Precision Auto
Care 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 the affiliate only in transactions permitted by the resale
provisions of Rule 145 or as otherwise permitted under the Act. In addition, the
terms of the Combination Agreement will restrict the ability of holders who
receive 3,000 or more shares of Precision Auto Care Common Stock in the offering
from selling or otherwise disposing of their shares for value, in the open
market, or otherwise, for a period of 180 days following the consummation of the
Combination. The certificates representing the shares of Precision Auto Care
Common Stock that are subject to this 180-day restriction will bear a
restrictive legend to such effect. See "The Combination
Agreement -- Restrictions on Resales of Precision Auto Care Common Stock."
INTERESTS OF CERTAIN PERSONS IN THE COMBINATION
Certain affiliates, directors and executive officers of the Constituent
Company will receive employment agreements, a consulting agreement, increased
compensation, and stock options in connection with the Combination. Such
individuals are also being released from obligations under guarantees they have
made with respect to indebtedness of the Constituent Companies which is being
discharged at the closing. Increased compensation will reduce the working
capital of Precision Auto Care, while directly benefitting those affiliates,
directors and officers receiving such increased compensation. In addition,
certain affiliates, directors and officers of Constituent Companies are also
entitled to purchase certain Precision Lube Express modular buildings and
equipment and Precision Auto Wash equipment following the Combination on terms
more favorable than terms Precision Auto Care extends to third parties.
Given the benefits received by certain affiliates of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II, Miracle
Partners, Prema Properties, Ralston Car Wash and KBG in connection with the
Combination, as described below, the interest of these affiliates may be
different from the interest of other stockholders and members. Stockholders and
members should consider such affiliates' interest in the Combination in
connection with their recommendation of the Mergers and their recommendation of
the Exchange Offers. For details relating to such benefits, see "The
Combination -- Interest of Certain Persons in the Combination."
CLOSING AND EFFECTIVE TIME OF THE COMBINATION
The Combination will become effective (the "Effective Time") upon the
completion of (1) the filing of properly executed Articles of Merger with the
Departments of State of Colorado, Delaware and Ohio to reflect, as applicable,
the mergers of WE JAC Acquisition into WE JAC, Miracle Industries Acquisition
into Miracle Industries, Lube Ventures Acquisition into Lube Ventures, Rocky
Mountain I Acquisition into Rocky Mountain I, and Rocky Mountain II Acquisition
into Rocky Mountain II, and (2) the exchange of shares of Precision Auto Care
for the shares of Miracle Partners Common Stock tendered by Miracle Partners
stockholders for exchange and for the Prema Properties Membership Interests,
Ralston Car Wash Membership Interests and KBG Membership Interests tendered by
Prema Properties, Ralston Car Wash and KBG members for exchange, which filings
and exchanges will be made after satisfaction of certain conditions set forth in
the Combination Agreement. For more information, see "The Combination -- Closing
and Effective Time of the Combination" below.
CONDITIONS OF THE COMBINATION AND TERMINATION
The consummation of the Mergers and the Exchange Offers are subject to a
number of conditions which, if not fulfilled or waived, permit the termination
of the Combination Agreement. These conditions include the consummation by
Precision Auto Care of an initial public offering of at least 2,300,000 shares
of its Common Stock (the "Initial Public Offering"). Also, if (1) stockholders
of WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I or Rocky Mountain
II dissent to the Mergers and the aggregate number of shares that would
otherwise be issued to such holders has a value greater than 10% of
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the estimated net cash proceeds Precision Auto Care expects to realize in the
Initial Public Offering, or (2) 80% or more of the stockholders of Miracle
Partners, 75% or more of the holders of membership interests in Prema
Properties, or 80% or more of the holders of membership interests in Ralston Car
Wash or KBG do not elect to participate in the Exchange Offers, the Combination
may not be consummated. The Combination Agreement may also be terminated at any
time prior to the consummation of the Mergers and the Exchange Offers by mutual
consent and will automatically be terminated if the Mergers and Exchange Offers
have not been consummated on or before November 14, 1997, unless such deadline
is extended by agreement of the Constituent Companies. Further, the per share
price for common stock of Precision Auto Care to be sold in the Initial Public
Offering is to be determined by a majority of the Finance Committee of the Board
of Directors of Precision Auto Care (or a majority of the entire Board of
Directors if the Finance Committee cannot reach a majority decision). If the
Finance Committee or Board of Directors does not believe the initial offering
price is acceptable, the Combination Agreement will be terminated. In addition,
any of the Constituent Companies may withdraw from the transaction if (1) a
material adverse effect occurs with respect to those Constituent Companies which
are deemed to be material to the Combination, (2) the stockholders of the
Constituent Company fail to approve the Combination or (3) the Constituent
Company does not receive a favorable opinion as to the tax treatment of the
Combination, in any of which events the Combination Agreement shall terminate
unless the remaining Constituent Companies elect to proceed. Finally, two-thirds
of the Board of Directors of Precision Auto Care may vote to exclude Rocky
Mountain I or Ralston Car Wash from the Combination if the relevant Constituent
Company suffers a material adverse effect. If the Combination Agreement is
terminated or any Constituent Company withdraws or is excluded from the
Combination, the Constituent Companies shall continue to be liable for their
agreed portion of the transaction expenses and for any breach of their
respective representations, warranties and covenants contained in the
Combination Agreement. See "The Combination Agreement -- Conditions of the
Combination Agreement," " -- Termination of the Combination Agreement."
MANAGEMENT FOLLOWING THE COMBINATION
Upon consummation of the Combination, the Board of Directors of Precision
Auto Care will consist of thirteen members, seven of whom have been designated
by WE JAC's Board of Directors, five of whom have been designated collectively
by Boards of Directors of Miracle Industries and Lube Ventures and the managing
members of Prema Properties, and one of whom has been designated collectively by
the Boards of Directors of Rocky Mountain I and Rocky Mountain II, and the
Managing Members of Ralston Car Wash. See "Information Concerning Precision Auto
Care -- Operation, Management and Business of Precision Auto Care After the
Merger -- Management of Precision Auto Care."
WE JAC has designated Woodley A. Allen, Lynn E. Caruthers, Bernard H.
Clineburg, Bassam N. Ibrahim, Arthur Kellar, Harry G. Pappas, Jr., and John F.
Ripley as directors of Precision Auto Care. Miracle Industries, Lube Ventures
and Prema Properties have designated Effie Eliopulos, Richard O. Johnson, Gerald
Zamensky, George Bavelis and Clarence E. Deal as directors of Precision Auto
Care. Rocky Mountain I, Rocky Mountain II and Ralston Car Wash have designated
William R. Klumb as a director of Precision Auto Care. Also John F. Ripley,
Peter Kendrick, Arnold Janofsky, Grant G. Nicolai, James Hay and William R.
Klumb will each enter into an employment agreement with Precision Auto Care and
Ernest S. Malas will enter into a consulting agreement with Precision Auto Care.
All other officers of Precision Auto Care will hold offices at the pleasure of
the Board of Directors and until their successors have been duly elected and
qualified, unless sooner removed. Any officer may be removed at any time by the
Board subject to any severance or other rights to which the individual may be
entitled under employment or severance/non-compete agreements with Precision
Auto Care. See "Information Concerning Precision Auto Care -- Operation,
Management and Business of Precision Auto Care After the
Combination -- Management of Precision Auto Care."
RECOMMENDATION OF THE BOARD OF DIRECTORS/MANAGING MEMBERS
MERGERS
The Boards of Directors of WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I and Rocky Mountain II have each approved the Combination Agreement
and the transactions contemplated thereby and have separately determined that
the Merger is fair to, and in the best interests of, their respective
stockholders.
WE JAC. The factors considered by the WE JAC Board of Directors in making
this determination included, among others, (1) that the Combination should
enable WE JAC stockholders to benefit from the significant brand name awareness
that WE JAC has created with respect to its Precision Tune Auto Care brand
through the marketing of the car wash and fast oil change and lube businesses
conducted by the other Constituent Companies under the Precision Auto Care
brand, (2) that holders of WE JAC Common Stock would likely have significantly
more liquidity with respect to their investment by reason
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of the numbers of shares of Precision Auto Care Common Stock that would be
issued and outstanding following consummation of the Combination and the Initial
Public Offering, (3) that the terms of the Merger should permit the holders of
WE JAC Common Stock to exchange their shares for Precision Auto Care Common
Stock on a tax-free basis, and (4) the presentation made by Ferris, Baker Watts,
Incorporated to the Board of Directors.
MIRACLE INDUSTRIES. The factors considered by the Miracle Industries Board
of Directors in making this determination included, among others, (1) that the
expected synergistic effect associated with the combination of companies
providing various specialized services in the automotive maintenance industry,
(2) that the ability to market automotive maintenance, fast oil change and lube,
and car wash facilities under the Precision Auto Care brand should offer Miracle
Industries the ability to expand available outlets for its car wash equipment,
(3) that operating all of the Miracle Industries car washes in conjunction with
the operation of franchised facilities should increase earnings as a result of
brand name recognition and increased market penetration, (4) that Miracle
Industries operations should benefit from the professional management and
infrastructure that WE JAC has in place, and (5) that WE JAC's widespread
Precision Tune franchise base should provide beneficial marketing opportunities
for Miracle Industries products if Precision Tune franchisees add car washes at
or in close proximity to Precision Tune franchises.
LUBE VENTURES. The factors considered by the Lube Ventures Board of
Directors in making this determination included, among others, (1) the fact that
the Combination should allow for the marketing of the fast oil change and lube
centers franchised by Lube Ventures to Precision Tune franchisees and operators
of car wash centers; (2) WE JAC has substantial experience in franchising its
Precision Tune franchises which should greatly benefit Lube Ventures in its
developing franchising activities (particularly in the areas of marketing,
training, franchise support and royalty collection); and (3) the Precision Auto
Care brand and franchise recognition should assist in the marketing of the fast
oil change and lube centers franchising and should enable franchisees to enjoy
the benefits associated with the post-Combination marketing of the operations
under the Precision Auto Care brand.
ROCKY MOUNTAIN I. The factors considered by the Rocky Mountain I Board of
Directors in making this determination included, among others, (1) the
possibility of an active trading market for the shares of Precision Auto Care
Common Stock to be received in the Combination, the potential for appreciation
in such shares, (2) the future growth prospects for Precision Auto Care, (3)
other expected benefits of the Combination, and (4) the opinion of its financial
advisor that the consideration to be received by its shareholders in the
Combination was fair from a financial point of view. See "Rocky Mountain I's
Reasons for the Combination and Board of Directors' Recommendation."
ROCKY MOUNTAIN II. The factors considered by the Rocky Mountain II Board of
Directors in making this determination included, among others, (1) the
possibility of an active trading market for the shares of Precision Auto Care
Common Stock to be received in the Combination, (2) the potential for
appreciation in such shares, (3) the future growth prospects for Precision Auto
Care, (4) other expected benefits of the Combination, and (5) the opinion of its
financial advisor that the consideration to be received by its shareholders in
the Combination was fair from a financial point of view and other factors. See
"Rocky Mountain II's Reasons for the Combination and Board of Directors'
Recommendation."
See "The Combination -- Interests of Certain Persons in the Combination."
EXCHANGE OFFERS
The Board of Directors of Miracle Partners and the managing members of
Prema Properties, Ralston Car Wash and KBG have approved the Combination
Agreement and the transactions contemplated thereby and have separately
determined that the Exchange Offer is fair to and in the best interests of their
respective stockholders and members.
MIRACLE PARTNERS. The factors considered by the Miracle Partners Board of
Directors in making this determination included, among others, (1) the expertise
of the new management after the Combination with regard to the computerization
and equipment upgrades to existing facilities which should enhance efficiencies
and revenues, (2) the growth prospects for the Constituent Companies following
the Combination by reason of the combination of the products and services
offered by various of the Constituent Companies at or in close proximity to
existing and future sites and (3) the possible liquidity that may be realized if
an active trading market in Precision Auto Care Common Stock develops following
the Combination and the Initial Public Offering.
PREMA PROPERTIES. The factors considered by the Prema Properties managing
member in making this determination included, among others, the growth potential
of the new entity following the combination of the Constituent Companies. The
managing members of Prema Properties foresee growth in the new entity as a
result of the efficiencies that can be obtained in the car wash units by the
installation of the computerized operating system being contributed by KBG.
Growth should also follow from increased exposure as a result of the anticipated
advertising and promotion of the "Precision Tune Auto Care,"
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"Precision Auto Wash," and "Precision Lube Express" brands. In addition, by
marketing the quick oil change and lube franchises, car wash franchises and
automobile maintenance franchises to the various franchisees nationwide, each of
the companies should benefit from increased revenues to the combined entity.
Finally, the managing members believe that Precision Auto Care will be able to
provide increased management resources to the parties' existing facilities.
RALSTON CAR WASH. The factors considered by the Ralston Car Wash managing
members in making this determination included, among others, the possibility of
an active trading market for the shares of Precision Auto Care Common Stock to
be received in the Combination, the potential for appreciation in such shares,
the future growth prospects for Precision Auto Care, other expected benefits of
the Combination, the opinion of its financial advisor that the consideration to
be received by its members in the Combination was fair from a financial point of
view and other factors. See "Ralston Car Wash's Reasons for the Combination and
Managing Members' Recommendation."
KBG. The factors considered by the KBG managing member in making this
determination included, among others, that the Combination would facilitate a
broader distribution in the car wash industry of the software owned by KBG and
that the consideration to be received by KBG was fair in light of the managing
member's views with respect to the value of the PLC software.
ACCORDINGLY, THE BOARDS OF DIRECTORS OF WE JAC, MIRACLE INDUSTRIES, LUBE
VENTURES, ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II RECOMMEND APPROVAL OF THE
MERGERS AND THE ADOPTION OF THE COMBINATION AGREEMENT BY THEIR RESPECTIVE
STOCKHOLDERS. THE BOARD OF DIRECTORS OF MIRACLE PARTNERS RECOMMENDS THAT ITS
STOCKHOLDERS TENDER ALL OF THEIR COMMON STOCK TO PRECISION AUTO CARE PURSUANT TO
THE EXCHANGE OFFER. THE MANAGING MEMBERS OF EACH OF PREMA PROPERTIES, RALSTON
CAR WASH AND KBG RECOMMEND THAT THEIR MEMBERS TENDER ALL OF THEIR MEMBERSHIP
INTERESTS TO PRECISION AUTO CARE PURSUANT TO THE EXCHANGE OFFER. For a more
detailed discussion of the reasons considered by the Board of Directors of each
of WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain
II and Miracle Partners and the managing members of each of Prema Properties,
Ralston Car Wash and KBG in approving the Combination Agreement, see "The
Combination -- WE JAC's Reasons for the Merger and Board of Directors'
Recommendation," " -- Miracle Industries' Reasons for the Merger and Board of
Directors' Recommendation," " -- Lube Ventures' Reasons for the Merger and Board
of Directors' Recommendation," " -- Rocky Mountain I's Reasons for the Merger
and Board of Directors' Recommendation," " -- Rocky Mountain II's Reasons for
the Merger and Board of Directors' Recommendation," " -- Miracle Partners
Reasons for the Exchange Offer and Board of Directors' Recommendation,"
" -- Prema Properties Reasons for the Exchange Offer and Managing Member's
Recommendation," " -- Ralston Car Wash Reasons for the Exchange Offer and
Managing Member's Recommendation," and " -- KBG Reasons for the Exchange Offer
and Managing Member's Recommendation."
OPINIONS OF FINANCIAL ADVISORS
Ferris, Baker Watts, Incorporated ("Ferris, Baker Watts") has delivered to
the Board of Directors of WE JAC its written opinion, to the effect that, as of
the date of such opinion and based upon and subject to certain matters as stated
therein, the consideration to be received by WE JAC stockholders pursuant to the
Merger is fair to such stockholders from a financial point of view. A copy of
Ferris, Baker Watts' opinion, which sets forth the assumptions made, matters
considered and limits on the review undertaken, is attached to this Joint Proxy
Statement/Prospectus as Appendix B and should be read carefully by WE JAC
stockholders in its entirety. In arriving at its opinion, Ferris, Bakers Watts
(1) reviewed certain financial data of WE JAC, (2) held discussions with certain
members of management of WE JAC, (3) reviewed certain financial information made
available to Ferris, Baker Watts of Miracle Industries, Lube Ventures, Rocky
Mountain I, Rocky Mountain II, Miracle Partners, Prema Properties and Ralston
Car Wash, (4) reviewed the Combination Agreement, (5) considered, to the extent
publicly available, the financial terms of certain other similar transactions
recently effected which Ferris, Baker Watts considered comparable to the
Combination, (6) evaluated the pro forma financial impact of the Combination,
and (7) performed such other financial analysis and examinations and considered
such other financial, economic and market criteria as Ferris, Baker Watts deemed
necessary. See "The Combination -- Opinion of Ferris, Baker Watts."
Quist Financial, Inc. ("Quist") has delivered to the Boards of Directors of
Rocky Mountain I and Rocky Mountain II and to the managing member of Ralston Car
Wash, its written opinion, to the effect that the consideration to be received
by the shareholders of Rocky Mountain I and Rocky Mountain II and by the members
of Ralston Car Wash is fair to such shareholders and members from a financial
point of view. The opinion of Quist is attached as Appendix C to this Joint
Proxy Statement/Prospectus. Shareholders of Rocky Mountain I and Rocky Mountain
II and members of Ralston Car Wash are urged to read such opinion in its
entirety for a description of the procedures followed, matters considered, and
limitations on the
23
<PAGE>
reviews undertaken in connection therewith. For additional information, see "The
Combination -- Opinion of Financial Advisor to Rocky Mountain I, Rocky Mountain
II and Ralston Car Wash."
MEETINGS OF THE STOCKHOLDERS
A Special Meeting of the Stockholders of WE JAC will be held at 10:00 a.m.,
local time, on , 1997, at .
A Special Meeting of the Stockholders of Miracle Industries will be held at
10:00 a.m., local time, on , 1997, at
.
A Special Meeting of the Stockholders of Lube Ventures will be held at
10:00 a.m., local time, on , 1997, at
.
A Special Meeting of the Stockholders of Rocky Mountain I will be held at
10:00 a.m., local time, on , 1997, at
.
A Special Meeting of the Stockholders of Rocky Mountain II will be held at
10:00 a.m., local time, on , 1997, at
.
At the Special Meetings, stockholders of the respective corporations will
be asked to consider and vote upon a proposal to approve and adopt the
Combination Agreement and the transactions contemplated thereby. A copy of the
Combination Agreement is attached to this Joint Proxy Statement/Prospectus as
Appendix A.
All shares of common stock, par value $.01 per share, of WE JAC ("WE JAC
Common Stock"), common stock, no par value, of Miracle Industries ("Miracle
Industries Common Stock"), common stock, par value $1.00 per share, of Lube
Ventures ("Lube Ventures Common Stock"), common stock, par value $100.00 per
share, of Rocky Mountain I ("Rocky Mountain I Common Stock"), and common stock,
par value $1.00 per share, of Rocky Mountain II ("Rocky Mountain II Common
Stock") represented by properly executed proxies will be voted at the
appropriate Special Meeting in accordance with the directions on the proxies,
unless such proxies have been previously revoked. If no direction is indicated,
the shares will be voted FOR approval and adoption of the Combination Agreement
and the transactions contemplated thereby. Any WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I or Rocky Mountain II stockholder giving a proxy may
revoke his or her proxy at any time before its exercise at the appropriate
Special Meeting by (1) giving written notice of such revocation to the Secretary
of WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky
Mountain II, as the case may be, or (2) signing and delivering to such Secretary
a proxy bearing a later date. However, the mere presence at a given Special
Meeting of a WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I or
Rocky Mountain II stockholder who has delivered a valid proxy will not of itself
revoke that proxy. See "The WE JAC Special Meeting -- Proxies: Voting and
Revocation," "The Miracle Industries Special Meeting -- Proxies: Voting and
Revocation," "The Lube Ventures Special Meeting -- Proxies: Voting and
Revocation," "The Rocky Mountain I Special Meeting -- Proxies: Voting and
Revocation," and "The Rocky Mountain II Special Meeting -- Proxies: Voting and
Revocation."
RECORD DATE AND VOTE REQUIRED. The record date for stockholders of each of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain
II entitled to vote at the appropriate Special Meeting is ,
1997.
The Delaware General Corporation Law (the "DGCL") and WE JAC's and Lube
Ventures' Certificates of Incorporation require approval and adoption of the
Combination Agreement by holders of a majority of the outstanding shares WE JAC
Common Stock and Lube Ventures Common Stock. The Ohio General Corporation Law
(the "OGCL") and Miracle Industries' Certificate of Incorporation requires
approval of the Combination Agreement by holders of two-thirds of Miracle
Industries Common Stock. The Colorado Business Corporation Act (the "CBCA") and
Rocky Mountain I's and Rocky Mountain II's Certificates of Incorporation
requires approval of the Combination Agreement by holders of a majority of Rocky
Mountain I Common Stock and Rocky Mountain II Common Stock. In each case,
abstentions and broker non-votes will have the same effect as a vote AGAINST the
Combination Agreement. If the stockholders of certain of the constituent
companies fail to approve the Combination Agreement and the transactions
contemplated thereby, as required, the Combination will not be consummated. See
"The Combination Agreement -- Conditions of the Combination Agreement."
The DGCL also requires the affirmative vote of a majority of the issued and
outstanding shares of common stock of each of WE JAC Acquisition, Miracle
Industries Acquisition, Lube Ventures Acquisition, Rocky Mountain I Acquisition
and Rocky Mountain II Acquisition for approval and adoption of the Combination
Agreement. Precision Auto Care, as owner of all such outstanding shares, has
voted such shares to approve and adopt the Combination Agreement.
24
<PAGE>
As of , 1997, (1) the current directors and officers of WE JAC and
their respective affiliates held 358,987 shares of WE JAC Common Stock,
exclusive of options and warrants to purchase WE JAC Common Stock, representing
approximately 26.9% of the outstanding shares of WE JAC Common Stock, (2) the
directors and officers of Miracle Industries and their respective affiliates
held 31,659 shares of Miracle Industries Common Stock, representing
approximately 91% of the outstanding shares of Miracle Industries Common Stock,
(3) the directors and officers of Lube Ventures and their respective affiliates
held 100 shares of Lube Ventures Common Stock, representing approximately 100%
of the outstanding shares of Lube Ventures Common Stock, (4) the directors and
officers of Rocky Mountain I and their respective affiliates held 866.25 shares
of Rocky Mountain I Common Stock, representing approximately 16.7% of the
outstanding shares of Rocky Mountain I Common Stock, and (5) the directors and
officers of Rocky Mountain II and their respective affiliates held 2,299.16
shares of Rocky Mountain II Common Stock, representing approximately 15.9% of
the outstanding shares of Rocky Mountain I Common Stock. All such directors and
officers have indicated their current intention to vote in favor of the
Combination.
PARTICIPATION IN EXCHANGE OFFER
Precision Auto Care is offering to exchange shares of its Common Stock for
all of the outstanding shares of Miracle Partners Common Stock and for all of
the outstanding Prema Properties Membership Interests, Ralston Car Wash
Membership Interests and KBG Membership Interests in the manner described in
this Joint Proxy Statement/Prospectus. Because Precision Auto Care will effect
the exchange of its shares of Common Stock with holders of Miracle Partners
Common Stock and Prema Properties, Ralston Car Wash and KBG Membership Interests
directly, no special or other meeting of Miracle Partners stockholders or
holders of the Prema Properties, Ralston Car Wash and KBG Membership Interests
will be held or is necessary because their vote is not required in order to
effect the Exchange Offer. Holders of Miracle Partners Common Stock and holders
of Prema Properties Membership Interests, Ralston Car Wash Membership Interests
and KBG Membership Interests who wish to exchange their common stock or
membership interests, as the case may be, for Precision Auto Care Common Stock
in the manner contemplated by this Joint Proxy Statement/Prospectus should do so
by completing the Letter of Transmittal which accompanies this Joint Proxy
Statement/Prospectus in the manner described herein. See "The Miracle Partners
Exchange Offer," "The Prema Properties Exchange Offer," "The Ralston Car Wash
Exchange Offer" and "The KBG Exchange Offer."
MERGER STOCKHOLDERS' RIGHTS TO DISSENT
As more fully described below, stockholders of WE JAC, Miracle Industries,
Lube Ventures, Rocky Mountain I and Rocky Mountain II who do not desire to
participate in the Merger may dissent from the Merger and elect to have the fair
value of such stockholders' shares judicially determined and paid to the
stockholder in cash. Holders of Miracle Partners Common Stock and Prema
Properties, Ralston Car Wash and KBG Membership Interests are not entitled to
exercise such dissenters' rights because Precision Auto Care is making an
Exchange Offer directly to each holder and holders who do not tender their
Miracle Partners Common Stock or Prema Properties, Ralston Car Wash or KBG
Membership Interests will not be bound by the terms of the transaction if, for
example, holders of all of the other shares of common stock or membership
interests elect to participate in the Exchange Offer. In the event that WE JAC,
Miracle Industries, Lube Ventures, Rocky Mountain I or Rocky Mountain II
stockholders dissent to the Mergers and the aggregate number of shares that
would otherwise be issued to such holders has a value greater than 10% of the
estimated net cash proceeds Precision Auto Care expects to realize in the
Initial Public offering, the Combination will not be consummated. See "The
Combination Agreement -- Conditions of the Combination."
WE JAC. Pursuant to the Delaware General Corporation Law, any stockholder
of record of shares of WE JAC Common Stock who does not desire to have such
shares converted into shares of Precision Auto Care Common Stock pursuant to the
Combination Agreement and who has made proper written demand prior to the vote
of WE JAC stockholders on the Combination Agreement at the WE JAC Special
Meeting may dissent from the Merger and elect to have the fair value of such
shareholder's shares of WE JAC Common Stock (excluding any appreciation or
depreciation in anticipation of the Combination) judicially determined and paid
to the stockholder in cash, provided that the stockholder complies with the
provisions of Section 262 of the Delaware General Corporation Law. If any
stockholder of record of shares of WE JAC Common Stock elects to exercise the
right to dissent from the Combination and demand appraisal, such stockholder of
record must deliver a written demand for appraisal of the stockholder's shares
to WE JAC prior to the taking of the vote on the Merger at the WE JAC Special
Meeting. This written demand must reasonably inform WE JAC of the identity of
the shareholder of record and that the shareholder thereby demands the appraisal
of the shareholder's shares. Any shareholder choosing to exercise his or her
right to dissent may not vote such shares in favor of the Merger. The failure of
any dissenting shareholder to follow the appropriate procedure will result in a
termination or waiver of that shareholder's right to dissent. See "The
Combination -- Rights of Stockholders to Dissent With Respect to Mergers."
25
<PAGE>
MIRACLE INDUSTRIES. Pursuant to the Ohio General Corporation Law, any
shareholder of record of shares of Miracle Industries Common Stock who does not
desire to have such shares converted into shares of Precision Auto Care Common
Stock pursuant to the Combination Agreement may dissent from the Merger and have
the right to receive payment of the fair cash value of such shares in accordance
with the provisions of Section 1701.85 of the Ohio General Corporation Law. If a
shareholder of record on the record date of the Miracle Industries Special
Meeting elects to exercise dissenters' rights under Section 1701.85, such
shareholder must satisfy the following conditions: (i) the shareholder must not
vote in favor of the adoption of the Combination Agreement and authorization of
the Combination Agreement and (ii) not later than ten days after the date on
which such vote is taken, such shareholder must deliver to Miracle Industries or
Precision Auto Care a written demand for payment of the fair cash value of the
Miracle Industries Common Stock as to which the shareholder seeks relief. Such
written notice shall state the shareholder's address, the number of shares of
Miracle Industries Common Stock for which relief is sought and the amount
claimed by the shareholder as the fair cash value of such shares. If a
shareholder provides the written notice described above, pursuant to Section
1701.85, Miracle Industries may request in writing that the dissenting
shareholder deliver to Miracle Industries or Precision Auto Care such
shareholder's stock certificates representing the dissenting shares of Miracle
Industries Common Stock in order that such certificates may be endorsed with a
legend that demand for the fair cash value of such shares has been made. Failure
by the shareholder to deliver such certificates within 15 days from the date of
the sending of the request may, at the option of Miracle Industries, terminate
such shareholder's rights as a dissenting shareholder. Assuming compliance with
the procedures established by Section 1701.85, if the dissenting shareholder and
Miracle Industries cannot agree on the fair cash value per share of the shares
of Miracle Industries Common Stock as to which relief is sought, Section 1701.85
provides a mechanism for judicial determination of such fair cash value. Fair
cash value is defined under Section 1701.85 as the amount that a willing seller,
under no compulsion to sell, would be willing to accept, and that a willing
buyer, under no compulsion to purchase, would be willing to pay, provided that
such amount shall not exceed the amount specified in the demand notice and that
any appreciation or depreciation in market value resulting from the proposed
Combination is to be excluded. The failure of any dissenting shareholder to
follow the appropriate procedures established by Section 1701.85 will result in
a termination of that shareholder's right to dissent. See "The
Combination -- Rights of Stockholders to Dissent With Respect to Mergers."
LUBE VENTURES. Pursuant to the Delaware General Corporation Law, any
shareholder of record of shares of Lube Ventures Common Stock who does not
desire to have such shares converted into shares of Precision Auto Care Common
Stock pursuant to the Combination Agreement and who has made proper written
demand prior to the vote of Lube Ventures stockholders may dissent from the
Merger and elect have the fair value of such shareholder's shares of Lube
Ventures Common Stock (excluding any appreciation or depreciation in
anticipation of the Combination) judicially determined and paid to the
stockholder in cash, provided that the stockholder complies with the provisions
of Section 262 of the Delaware General Corporation Law. If any stockholder of
record of shares of Lube Ventures Common Stock elects to exercise the right to
dissent from the Combination and demand appraisal, such stockholder of record
must deliver a written demand for appraisal of the stockholder's shares to Lube
Ventures prior to the taking of the vote on the Merger at the Lube Ventures
Special Meeting. This written demand must reasonably inform Lube Ventures of the
identity of the shareholder of record and that the shareholder thereby demands
the appraisal of the shareholder's shares. Any shareholder choosing to exercise
his or her right to dissent may not vote such shares in favor of the Merger. The
failure of any dissenting shareholder to follow the appropriate procedure will
result in a termination or waiver of that shareholder's right to dissent. See
"The Combination -- Rights of Stockholders to Dissent With Respect to Mergers."
ROCKY MOUNTAIN I. Pursuant to the Colorado Business Corporation Act, any
stockholder of record of shares of Rocky Mountain I Common Stock who does not
desire to have such shares converted into shares of Precision Auto Care Common
Stock pursuant to the Combination Agreement and who has made written demand
prior to the vote of Rocky Mountain I stockholders on the Combination Agreement
at the Rocky Mountain I Special Meeting may dissent from the Merger and elect to
have the fair value of such shareholder's shares of Rocky Mountain I Common
Stock (excluding any appreciation or depreciation in anticipation of the
Combination) paid to the stockholder in cash, provided that the stockholder
complies with the provisions of Sections 7-113-101 et. seq. of the Colorado
Business Corporation Act. If any stockholder of record of shares of Rocky
Mountain I Common Stock elects to exercise the right to dissent from the
Combination and demand payment, such stockholder of record must deliver written
notice of such stockholder's intention to demand payment of the fair value of
the stockholder's shares to Rocky Mountain I prior to the taking of the vote on
the Merger at the Rocky Mountain I Special Meeting and must deposit the
stockholder's certificates with Rocky Mountain I. Any shareholder choosing to
exercise his or her right to dissent may not vote such shares in favor of the
Merger. The failure of any dissenting shareholder to follow the appropriate
procedure will result in a termination or waiver of that shareholder's right to
dissent. See "The Combination -- Rights of Stockholders to Dissent With Respect
to Mergers."
26
<PAGE>
ROCKY MOUNTAIN II. Pursuant to the Colorado Business Corporation Act, any
stockholder of record of shares of Rocky Mountain II Common Stock who does not
desire to have such shares converted into shares of Precision Auto Care Common
Stock pursuant to the Combination Agreement and who has made written demand
prior to the vote of Rocky Mountain II stockholders on the Combination Agreement
at the Rocky Mountain II Special Meeting may dissent from the Merger and elect
to have the fair value of such shareholder's shares of Rocky Mountain II Common
Stock (excluding any appreciation or depreciation in anticipation of the
Combination) paid to the stockholder in cash, provided that the stockholder
complies with the provisions of Sections 7-113-101 et. seq. of the Colorado
Business Corporation Act. If any stockholder of record of shares of Rocky
Mountain II Common Stock elects to exercise the right to dissent from the
Combination and demand payment, such stockholder of record must deliver written
notice of such stockholder's intention to demand payment of the fair value of
the stockholder's shares to Rocky Mountain II prior to the taking of the vote on
the Merger at the Rocky Mountain II Special Meeting and must deposit the
stockholder's certificates with Rocky Mountain II. Any shareholder choosing to
exercise his or her right to dissent may not vote such shares in favor of the
Merger. The failure of any dissenting shareholder to follow the appropriate
procedure will result in a termination or waiver of that shareholder's right to
dissent. See "The Combination -- Rights of Stockholders to Dissent With Respect
to Mergers."
NO RIGHT TO DISSENT IN EXCHANGE OFFERS
Because Precision Auto Care is making the Exchange Offers for all of the
outstanding shares of Miracle Partners Common Stock and all of the outstanding
Prema Properties, Ralston Car Wash and KBG Membership Interests, no special
meeting of Miracle Partners stockholders or Prema Properties, Ralston Car Wash
or KBG members will be convened in connection with the Exchange Offer.
Accordingly, stockholders of Miracle Partners and holders of membership
interests in Prema Properties, Ralston Car Wash and KBG will not have any
dissenters' rights or rights to seek the appraisal of their shares of Miracle
Partners Common Stock or Prema Properties, Ralston Car Wash or KBG Membership
Interests in connection with the Exchange Offer. In the event that the ownership
interests of the stockholders of Miracle Partners and the members of each of
Prema Properties, Ralston Car Wash and KBG who do not elect to participate in
the Exchange Offers exceeds 20% of the equity ownership interests of each of
Miracle Partners, Prema Properties, Ralston Car Wash and KBG, respectively, the
Combination will not be consummated. See "The Combination
Agreement -- Conditions of the Combination."
EXCHANGE OF STOCK CERTIFICATES/ASSIGNMENT OF MEMBERSHIP INTERESTS
Promptly after consummation of the Mergers and the Exchange Offers, First
Union Bank, or such other bank or trust company designated by Precision Auto
Care (the "Exchange Agent"), will mail written transmittal materials concerning
the exchange of stock certificates to each record holder of outstanding shares
of WE JAC Common Stock, Miracle Industries Common Stock, Lube Ventures Common
Stock, Rocky Mountain I Common Stock, Rocky Mountain II Common Stock and Miracle
Partners Common Stock. Transmittal material has been sent to each record holder
of Prema Properties, Ralston Car Wash and KBG membership interests with this
Joint Proxy Statement/Prospectus. The transmittal materials contain or will
contain instructions with respect to the proper method of (1) the surrender of
WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II
and Miracle Partners Common Stock certificates in exchange for certificates
representing shares of Precision Auto Care Common Stock or (2) duly and validly
assigning the membership interests in Prema Properties, Ralston Car Wash and KBG
Membership Interests to Precision Auto Care in exchange for certificates
representing Precision Auto Care Common Stock. Upon surrender to the Exchange
Agent by a WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky
Mountain II or Miracle Partners stockholder of WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I, Rocky Mountain II or Miracle Partners Common Stock
certificates for cancellation, together with properly completed transmittal
materials, such stockholder will be entitled to receive a certificate
representing the number of whole shares of Precision Auto Care Common Stock into
which the stockholder's shares of WE JAC, Miracle Industries, Lube Ventures,
Rocky Mountain I, Rocky Mountain II or Miracle Partners Common Stock have been
converted or exchanged (as the case may be), less the amount of shares which are
being placed into escrow pursuant to the Combination Agreement, and a check for
cash in lieu of the issuance of any fractional share of Precision Auto Care
Common Stock. Upon consummation of the Mergers and the Exchange Offers, each
Prema Properties, Ralston Car Wash or KBG member who duly and validly assigned
his membership interests in Prema Properties, Ralston Car Wash or KBG, will be
entitled to receive a certificate representing the number of whole shares of
Precision Auto Care Common Stock into which the member's membership interests in
Prema Properties, Ralston Car Wash or KBG have been exchanged, less the amount
of shares which are being placed into escrow pursuant to the Combination
Agreement, and a check for cash in lieu of the issuance of any fractional share
of Precision Auto Care Common Stock. Former WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I, Rocky Mountain II or Miracle Partners stockholders
and Prema Properties, Ralston Car Wash or KBG members will not be
27
<PAGE>
entitled to receive interest on any such cash to be received in the Combination.
See "The Combination Agreement -- Exchange of Stock Certificates/Assignment of
Membership Interests" and " -- Payment in Lieu of Fractional Shares."
FEDERAL INCOME TAX CONSIDERATIONS
The Plan of Reorganization and Share Exchange Offers (the "Exchange")
contemplates a series of transactions, which taken as a whole, are intended to
qualify as tax-free exchanges under either Sections 368(a)(2)(E) or 351 of the
Internal Revenue Code. Consummation of the Exchange is conditioned upon the
receipt of an opinion to that effect from Ernst & Young LLP, independent
auditors and outside tax advisors to Precision Auto Care, Inc., as described in
"The Combination -- Federal Income Tax Considerations." Subject to the
limitations set forth therein, shareholders of WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I, Rocky Mountain II and Miracle Partners should
recognize no gain or loss for federal income tax purposes as a result of their
exchange of common stock for stock of Precision Auto Care in the mergers, except
to the extent that such shareholders either receive consideration other than
stock of Precision Auto Care or receive cash in lieu of fractional shares or
exercises dissenters' rights under applicable state law. Subject to the
limitations set forth therein, members of Prema Properties, Ralston Car Wash and
KBG should recognize no gain or loss for federal income tax purposes as a result
of their exchange of membership interest for stock of Precision Auto Care,
except for gain triggered under Section 357(c) of the Internal Revenue Code and
except for the receipt of cash in lieu of shares of Precision Auto Care or for
the receipt of other considerations.
Upon transfer of the members membership interest to Precision Auto Care, as
part of the overall Section 351 transaction, any member who transfers a
membership interest subject to liabilities in excess of their tax basis in their
limited liability company interest will have to recognize gain under Section
357(c). Each member's interest will be treated as subject to that member's share
of the entities liabilities, both recourse and non-recourse. The character of
this gain will depend upon the characterization of the property transferred.
ACCOUNTING TREATMENT
The Combination will be accounted for as a "purchase" for accounting and
financial reporting purposes. We JAC, as the assumed acquiror will continue to
be accounted for using the historical cost basis while other Constituent
Companies will be accounted for at fair value as determined by Accounting
Principles Board Opinion No. 16.
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
UNAUDITED SUMMARY PRO FORMA COMBINED FINANCIAL DATA OF PRECISION AUTO CARE
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>
28
<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 (deficit).......................................................... $(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
pursuant to the Initial Public Offering at an assumed public offering price
of $11.00 per share after deducting underwriting discounts and estimated
offering expenses payable by Precision Auto Care, the repayment of $18.5
million of outstanding debt with the proceeds from the Initial Public
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 Initial
Public Offer 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 Initial
Public Offering, and $1.2 million in seller financing ($261,000 of which
will be classified as current), as described in "The Combination
Agreement -- Initial Public Offering."
(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 Precision Auto Care 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 Initial Public 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 Precision Auto Care operating performance or to cash flows as a
measure of liquidity.
(6) WE JAC, 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 the
Initial Public Offering.
29
<PAGE>
COMPARATIVE COMMON STOCK AND MEMBERSHIP INTEREST INFORMATION
COMMON STOCK/MEMBERSHIP INTEREST MARKET PRICES
No public trading market presently exists for any of the outstanding shares
of WE JAC Common Stock, Miracle Industries Common Stock, Lube Ventures Common
Stock, Rocky Mountain I Common Stock, Rocky Mountain II Common Stock, Miracle
Partners Common Stock, Prema Properties Membership Interests, Ralston Car Wash
Membership Interests and KBG Membership Interests, and no public trading market
is expected to develop in the future. Accordingly, no reliable data exists with
respect to the historical or current value or price of WE JAC Common Stock,
Miracle Industries Common Stock, Lube Ventures Common Stock, Rocky Mountain I
Common Stock, Rocky Mountain II Common Stock, Miracle Partners Common Stock,
Prema Properties Membership Interests, Ralston Car Wash Membership Interests or
KBG Membership Interests based on a trading market. It is a condition to the
consummation of the Combination that Precision Auto Care has simultaneously
consummated an Initial Public Offering of at least 2,300,000 shares of its
common stock. While application has been made to list Precision Auto Care Common
Stock on the NASDAQ National Market System under the symbol "PACI," there can be
no assurance that an active market will develop in Precision Auto Care Common
Stock following the consummation of the Combination.
COMPARATIVE PER SHARE/MEMBERSHIP INTEREST DATA
The following table presents (i) selected historical per share data of WE
JAC, Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II and
Miracle Partners, (ii) selected unaudited pro forma per share data of WE JAC,
Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II, Miracle
Partners, Prema Properties and Ralston Car Wash, adjusted to reflect the Mergers
and Exchange Offers as if they had occurred on July 1, 1996, and (iii)
equivalent pro forma per share data, adjusted to reflect the exchange ratio of
each Constituent Company's shares at an assumed Precision Auto Care price of
$11.00 per share. The information presented in the table should be read in
conjunction with the separate historical financial statements of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II and Miracle
Partners and the notes thereto appearing elsewhere in this Joint Proxy
Statement/Prospectus. No information is set forth with respect to KBG because
KBG has been formed solely for the purpose of conveying certain intellectual
property to Precision Auto Care and has not conducted any operations.
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<TABLE>
<CAPTION>
PRO FORMA PER SHARE DATA
HISTORICAL PER SHARE DATA AS ADJUSTED FOR EXCHANGE RATIOS(1)
------------------------- ----------------------------------
AS OF OR FOR THE AS OF OR FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1997
------------------------- ----------------------------------
<S> <C> <C>
COMBINED COMPANY(3)
Book value...................................................... n/a $ 7.97
Earnings (loss)................................................. n/a 0.23
Cash dividends.................................................. n/a 0
WE JAC(3)
Book value...................................................... $ 7.72 7.72
Earnings (loss)................................................. 0.94 0.94
Cash dividends.................................................. -- --
MIRACLE INDUSTRIES
Book value...................................................... 56.34 2.63
Earnings (loss)................................................. (4.03) (0.19)
Cash dividends.................................................. 0.95 0.04
LUBE VENTURES
Book value...................................................... 3,187.86 1.88
Earnings (loss)................................................. 1,350.30 0.80
Cash dividends.................................................. -- --
ROCKY MOUNTAIN I
Book value...................................................... 39.92 3.23
Earnings (loss)................................................. 4.74 0.38
Cash dividends.................................................. 3.91 1,644.96
ROCKY MOUNTAIN II
Book value...................................................... 41.87 3.39
Earnings (loss)................................................. 4.86 0.39
Cash dividends.................................................. 5.68 0.46
MIRACLE PARTNERS
Book value...................................................... 774.84 4.11
Earnings (loss)................................................. (5.88) (0.03)
Cash dividends.................................................. -- --
PREMA PROPERTIES(2)
Book value...................................................... 876.60 0.59
Earnings (loss)................................................. (770.40) (0.52)
Cash dividends.................................................. -- --
RALSTON CAR WASH(2)
Book value...................................................... (889.68) (3.05)
Earnings (loss)................................................. 10.04 0.03
Cash dividends.................................................. -- --
</TABLE>
(1) The unaudited Pro Forma per share data for the Combined Company has
been prepared assuming (i) the Mergers and Exchange Offers occurred on
July 1, 1996, (ii) the purchase method of accounting was used, except
for WE JAC, and (iii) goodwill arising in the transaction is amortized
over 30 years. Per share data for the remaining companies is based on
the number of Precision Auto Care, Inc. shares to be received in the
Combination.
(2) Data per membership interest percentage.
(3) The unaudited pro forma per share data for the Combined Company and WE
JAC includes 508,100 shares issuable upon the exercise of outstanding
options and warrants.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY
IN EVALUATING THE TRANSACTIONS WHICH ARE THE SUBJECT OF THE COMBINATION. THIS
DISCUSSION ALSO IDENTIFIES IMPORTANT CAUTIONARY FACTORS THAT COULD CAUSE
PRECISION AUTO CARE'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED
IN FORWARD LOOKING STATEMENTS OF PRECISION AUTO CARE MADE BY, OR ON BEHALF OF,
PRECISION AUTO CARE. IN PARTICULAR, PRECISION AUTO CARE'S FORWARD LOOKING
STATEMENTS, INCLUDING THOSE REGARDING THE SUCCESSFUL INTEGRATION OF THE
BUSINESSES OF THE CONSTITUENT COMPANIES, THE EFFECTIVE IMPLEMENTATION OF
PRECISION AUTO CARE'S OPERATING STRATEGY, INCLUDING THE CONSOLIDATION OF
PRECISION AUTO CARE'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 PRECISION AUTO CARE'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.
Unless the content otherwise requires, all references in this section of
the Joint Proxy Statement/Prospectus to "Precision Auto Care" shall mean
Precision Auto Care, Inc., a Virginia corporation, and the Constituent Companies
taken as a whole and assume that the Combination has been consummated in
accordance with its terms.
ABSENCE OF COMBINED OPERATING HISTORY; OPERATIONS UNDER NEW NAMES
Precision Auto Care 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
Precision Auto Care 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. Precision Auto Care may experience delays,
complications and expenses in implementing and integrating such operations,
which delays could have a material adverse effect on the Precision Auto Care's
operations, net revenue and earnings. There can be no assurance that the
Precision Auto Care's management group will be able to manage effectively the
combined entity and to implement effectively the Precision Auto Care'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 Precision Auto Care's financial condition and
results of operations. See "Information Concerning Precision Auto Care." 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 Precision Auto Care's expansion strategy will depend on a
number of factors, including (i) Precision Auto Care'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) Precision Auto Care's ability to integrate successfully the operations of
businesses or centers acquired in the future into Precision Auto Care'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 Precision Auto Care's
expansion strategy will be successful, that modifications to Precision Auto
Care's strategy will not be required, or that Precision Auto Care 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 Precision Auto Care'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 Precision Auto Care's
operations. Once integrated, acquired operations may not achieve levels of
revenues, profitability or productivity comparable with those achieved by
Precision Auto Care's existing operations, or achieve standards otherwise
expected in Precision Auto Care's operations. In addition, Precision Auto Care
will be competing for acquisition and expansion opportunities with companies
that have substantially greater resources. Precision Auto Care 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
Precision Auto Care 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 Precision Auto Care's
concepts and operating standards. Precision Auto Care'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 "Information Concerning Precision Auto
Care -- Strategy."
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COMPETITION
Precision Auto Care 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. Precision Auto Care believes that automobile
dealerships, including recently emerging national and regional new and used auto
dealerships, represent Precision Tune Auto Care's principal competitors;
however, Precision Auto Care also competes with national and regional tire
companies, major oil manufacturers, local service stations, and local and
regional automobile repair specialists. Precision Auto Care believes the
principal competitive factors in its market are location, name recognition and
reputation, quality of service and price.
Precision Auto Care 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 Precision Auto Care 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 Precision Auto Care's financial condition and results of
operations.
Precision Auto Care'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 Precision Auto Care.
Certain competitors in each of the areas discussed above may have greater
financial resources than Precision Auto Care, and there is no assurance that
Precision Auto Care or individual Precision Auto Care centers will be able to
compete effectively. See "Information Concerning Precision Auto
Care -- Competition."
RELIANCE ON FRANCHISEES; FRANCHISING
Franchise royalties are a significant component of Precision Auto Care's
revenue base. Therefore, Precision Auto Care 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 Precision Auto
Care's reputation for quality and value. There can be no assurance that
Precision Auto Care 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 Precision Auto Care's concepts and standards. In addition, Precision Auto
Care'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 "Information Concerning
Precision Auto Care."
Precision Auto Care is subject to various state, federal and international
laws relating to the franchisor-franchisee relationship. The failure by
Precision Auto Care to comply with these laws could subject Precision Auto Care
to liability to franchisees and to fines or other penalties imposed by
governmental authorities. In addition, Precision Auto Care 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. Precision Auto Care 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 "Information Concerning Precision Auto
Care -- 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. Precision Auto Care
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, Precision Auto Care 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
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meet their contractual development schedules. Although Precision Auto Care also
expects to emphasize direct franchising in open areas in its future growth, the
development schedules of Precision Auto Care's area developers will remain a
substantial part of the basis of Precision Auto Care's expectations regarding
the number and timing of new center openings.
Specifically, Precision Auto Care 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. Precision Auto Care 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 Precision Tune Auto area subfranchisor agreements. While Precision
Auto Care 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 Precision Auto Care will not become
subject to legal proceedings or otherwise expend resources in connection with
disputes concerning its ability to offer and sell Precision Lube Express
franchises or open company-owned centers in such areas. It also may be difficult
for Precision Auto Care 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 "Information
Concerning Precision Auto Care -- Business of Precision Auto
Care -- Operations."
AUTOMOTIVE TECHNOLOGY ADVANCES
The demand for the services offered by Precision Auto Care'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 Precision Auto Care'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
Precision Auto Care'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. Precision Auto Care has employment
agreements with John F. Ripley, President and Chief Executive Officer, 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. Precision
Auto Care 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 "Information Concerning Precision Auto Care -- Managers
of Precision Auto Care."
SEASONAL NATURE OF PORTIONS OF THE BUSINESS
Seasonal changes may impact various sectors of the Precision Auto Care'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 Precision Auto Care 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.
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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 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 Combination and the Initial Public Offering,
directors and executive officers of Precision Auto Care will beneficially own
approximately 26.3% of the outstanding Common Stock. Accordingly, these persons
will have substantial influence over the affairs 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.
BENEFITS TO MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Former owners of the Constituent Companies who are executive officers or
directors of Precision Auto Care 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 Initial Public
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 Precision Auto Care, are also
entitled to purchase certain Precision Lube Express buildings and Precision Auto
Wash equipment on terms more favorable than terms Precision Auto Care extends to
third parties. See "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
"Information Concerning Precision Auto Care -- Management of Precision Auto
Care."
GOVERNMENT REGULATION
Precision Auto Care 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 Precision Auto Care'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. Precision Auto Care 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 Precision Auto Care's property or the property of any franchisee,
including leased properties, or if Precision Auto Care were found to be in
violation of applicable laws and regulations, Precision Auto Care 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 Precision Auto Care's
financial condition and results of operations. See "Information Concerning
Precision Auto Care -- Business of Precision Auto Care -- Government
Regulation."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Precision Auto Care'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 Precision Auto
Care's outstanding voting stock) from engaging in an "affiliated transaction"
with Precision Auto Care for three years following the date such person became
an interested shareholder unless certain conditions, including approval by
Precision Auto Care's Board of Directors, are met. Precision Auto Care's
Articles of Incorporation allow the Board to determine the terms of the
preferred stock which may be issued by Precision Auto Care 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 Precision Auto Care is divided into three
classes of
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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 Precision Auto Care. See "Information Concerning Precision
Auto Care -- Description of Capital Stock -- Anti-Takeover Provisions."
ABSENCE OF PRIOR PUBLIC MARKET; RELATIONSHIP OF OFFERING PRICE TO MARKET PRICE
Prior to the Initial Public Offering, there has been no public market for
the Common Stock. Although Precision Auto Care 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 Initial Public 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 Precision Auto Care and representatives
of the Underwriters, and may not be indicative of the market price for shares of
Common Stock after the Initial Public Offering. Prices for the shares of Common
Stock after the Initial Public 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 Precision Auto Care, the automotive
aftercare industry as a whole and general economic and market conditions.
VOLATILITY OF MARKET PRICE FOR COMMON STOCK
From time to time after the Initial Public Offering, there may be
significant volatility in the market price of the Common Stock. Quarterly
operating results of Precision Auto Care 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 Precision Auto Care 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.
THE WE JAC SPECIAL MEETING
TIME, DATE AND PLACE OF WE JAC SPECIAL MEETING
The WE JAC Special Meeting will be held at 10:00 a.m., local time on
, 1997, at .
BUSINESS TO BE CONDUCTED AT THE WE JAC SPECIAL MEETING
Each copy of this Joint Proxy Statement/Prospectus mailed to WE JAC
Stockholders is accompanied by a form of proxy solicited by the Board of
Directors of WE JAC for use at the WE JAC Special Meeting and at any adjournment
thereof and the transactions contemplated thereby. At the WE JAC Special
Meeting, the WE JAC stockholders will vote upon a proposal to approve the
Combination Agreement. See "The Combination."
PROXIES: VOTING AND REVOCATION
When a WE JAC proxy is properly executed and returned, the shares of WE JAC
Common Stock it represents will be voted in accordance with the directions
indicated on the proxy, or if no directions are indicated the shares will be
voted FOR the approval and adoption of the Combination Agreement. Any WE JAC
stockholder giving a proxy may revoke his or her proxy at any time before its
exercise at the WE JAC Special Meeting by (1) giving written notice of such
revocation to Arnold Janofsky, Secretary, WE JAC Corporation, 748 Miller Drive,
S.E., Leesburg, Virginia 20175, or (2) signing and delivering to Arnold Janofsky
a proxy bearing a later date. However, the mere presence at the WE JAC Special
Meeting of a WE JAC stockholder who has delivered a valid proxy will not of
itself revoke that proxy.
WE JAC STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO WE JAC IN THE ENCLOSED POSTAGE-PAID
ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE WE JAC SPECIAL MEETING.
PROXY SOLICITATION
WE JAC will bear the cost of soliciting proxies from its stockholders.
Proxies will be solicited by personnel of WE JAC in person, by telephone or
through other forms of communication without payment of additional compensation
to such personnel.
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VOTE REQUIRED
Under the Delaware General Corporation Law and the Certificate of
Incorporation of WE JAC, the holders of a majority of the outstanding shares of
WE JAC Common Stock must approve and adopt the Combination Agreement.
Abstentions and broker non-votes will have the same effect as a vote AGAINST the
Combination Agreement.
Only holders of record of WE JAC at the close of business on
, 1997, are entitled to receive notice of, and to vote at, the
WE JAC Special Meeting. At that date, there were 1,333,625 shares of WE JAC
Common Stock outstanding and entitled to vote, with each such share entitled to
one vote, and 119 holders of record thereof. As of that date, the current
directors and executive officers of WE JAC, together with their affiliates,
beneficially held an aggregate of 358,987 shares of WE JAC Common Stock,
(exclusive of options, warrants or other rights to purchase WE JAC Common Stock)
representing approximately 26.9% of the outstanding shares of WE JAC Common
Stock. The current directors and executive officers of WE JAC have indicated
that they will vote all of the shares held by them FOR the approval and adoption
of the Combination Agreement. The transaction is not structured to require the
approval of a majority of the unaffiliated stockholders of WE JAC.
OTHER MATTERS
WE JAC is not presently aware of any other business to be brought before
the WE JAC Special Meeting. If any matters come before the WE JAC Special
Meeting that are not directly referred to in this Joint Proxy
Statement/Prospectus or the enclosed proxy, including matters incident to the
conduct of the WE JAC Special Meeting, the proxy holders will vote the shares
represented by the proxies in accordance with the recommendations of the WE JAC
management.
THE MIRACLE INDUSTRIES SPECIAL MEETING
TIME, DATE AND PLACE OF MIRACLE INDUSTRIES SPECIAL MEETING
The Miracle Industries Special Meeting will be held at 10:00 a.m., local
time on , 1997, at .
BUSINESS TO BE CONDUCTED AT THE MIRACLE INDUSTRIES SPECIAL MEETING
Each copy of this Joint Proxy Statement/Prospectus mailed to Miracle
Industries Stockholders is accompanied by a form of proxy solicited by the Board
of Directors of Miracle Industries for use at the Miracle Industries Special
Meeting and at any adjournment thereof and the transactions contemplated
thereby. At the Miracle Industries Special Meeting, the Miracle Industries
stockholders will vote upon a proposal to approve the Combination Agreement. See
"The Combination."
PROXIES: VOTING AND REVOCATION
When a Miracle Industries proxy is properly executed and returned, the
shares of Miracle Industries Common Stock it represents will be voted in
accordance with the directions indicated on the proxy, or if no directions are
indicated the shares will be voted FOR the approval and adoption of the
Combination Agreement. Any Miracle Industries stockholder giving a proxy may
revoke his or her proxy at any time before its exercise at the Miracle
Industries Special Meeting by (1) giving written notice of such revocation to
, Secretary, Miracle Industries, Inc.,
, or (2) signing and delivering to
a proxy bearing a later date. However, the mere presence
at the Miracle Industries Special Meeting of a Miracle Industries stockholder
who has delivered a valid proxy will not of itself revoke that proxy.
MIRACLE INDUSTRIES STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO MIRACLE INDUSTRIES IN THE
ENCLOSED POSTAGE-PAID ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE MIRACLE
INDUSTRIES SPECIAL MEETING.
PROXY SOLICITATION
Miracle Industries will bear the cost of soliciting proxies from its
stockholders. Proxies will be solicited by personnel of Miracle Industries in
person, by telephone or through other forms of communication without payment of
additional compensation to such personnel.
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VOTE REQUIRED
Under the Ohio General Corporation Law and the Miracle Industries
Certificate of Incorporation, the holders of two-thirds of the outstanding
shares of Miracle Industries Common Stock must approve and adopt the Combination
Agreement.
Abstentions and broker non-votes will have the same effect as a vote
AGAINST the Combination Agreement. Only holders of record of Miracle Industries
at the close of business on , 1997, are entitled to receive
notice of, and to vote at, the Miracle Industries Special Meeting. At that date,
there were 34,958 shares of Miracle Industries Common Stock outstanding and
entitled to vote, with each such share entitled to one vote, and 19 holders of
record thereof. As of that date, the current directors and executive officers of
Miracle Industries, together with their affiliates, beneficially held an
aggregate of 31,659 shares of Miracle Industries Common Stock (representing
approximately 91% of the outstanding shares of Miracle Industries Common Stock).
The current directors and executive officers of Miracle Industries have
indicated that they will vote all of the shares held by them FOR the approval
and adoption of the Combination Agreement. The transaction is not structured to
require the approval of a majority of the unaffiliated stockholders of Miracle
Industries.
OTHER MATTERS
Miracle Industries is not presently aware of any other business to be
brought before the Miracle Industries Special Meeting. If any matters come
before the Miracle Industries Special Meeting that are not directly referred to
in this Joint Proxy Statement/Prospectus or the enclosed proxy, including
matters incident to the conduct of the Miracle Industries Special Meeting, the
proxy holders will vote the shares represented by the proxies in accordance with
the recommendations of the Miracle Industries management.
THE LUBE VENTURES SPECIAL MEETING
TIME, DATE AND PLACE OF LUBE VENTURES SPECIAL MEETING
The Lube Ventures Special Meeting will be held at 10:00 a.m., local time on
, 1997, at .
BUSINESS TO BE CONDUCTED AT THE LUBE VENTURES SPECIAL MEETING
Each copy of this Joint Proxy Statement/Prospectus mailed to Lube Ventures
Stockholders is accompanied by a form of proxy solicited by the Board of
Directors of Lube Ventures for use at the Lube Ventures Special Meeting and at
any adjournment thereof and the transactions contemplated thereby. At the Lube
Ventures Special Meeting, the Lube Ventures stockholders will vote upon a
proposal to approve and adopt the Combination Agreement. See "The Combination."
PROXIES: VOTING AND REVOCATION
When a Lube Ventures proxy is properly executed and returned, the shares of
Lube Ventures Common Stock it represents will be voted in accordance with the
directions indicated on the proxy, or if no directions are indicated the shares
will be voted FOR the approval and adoption of the Combination Agreement. Any
Lube Ventures stockholder giving a proxy may revoke his or her proxy at any time
before its exercise at the Lube Ventures Special Meeting by (1) giving written
notice of such revocation to , Secretary, Lube Ventures,
Inc., , or (2) signing and delivering to
a proxy bearing a later date. However, the mere presence
at the Lube Ventures Special Meeting of a Lube Ventures stockholder who has
delivered a valid proxy will not of itself revoke that proxy.
LUBE VENTURES STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO LUBE VENTURES IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE LUBE VENTURES
SPECIAL MEETING.
PROXY SOLICITATION
Lube Ventures will bear the cost of soliciting proxies from its
stockholders. Proxies will be solicited by personnel of Lube Ventures in person,
by telephone or through other forms of communication without payment of
additional compensation to such personnel.
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VOTE REQUIRED
Under the Delaware General Corporation Law and the Lube Ventures
Certificate of Incorporation, the holders of a majority of the outstanding
shares of Lube Ventures Common Stock must approve and adopt the Combination
Agreement. Abstentions and broker non-votes will have the same effect as a vote
AGAINST the Combination Agreement.
Only holders of record of Lube Ventures at the close of business on
, 1997, are entitled to receive notice of, and to vote at, the
Lube Ventures Special Meeting. At that date, there were 100 shares of Lube
Ventures Common Stock outstanding and entitled to vote, with each such share
entitled to one vote, and 3 holders of record thereof. As of that date, the
current directors and executive officers of Lube Ventures, together with their
affiliates, beneficially held an aggregate of 100 shares of Lube Ventures Common
Stock (representing approximately 100% of the outstanding shares of Lube
Ventures Common Stock). The current directors and executive officers of Lube
Ventures have indicated that they will vote all of the shares held by them FOR
the approval and adoption of the Combination Agreement. The transaction is not
structured to require the approval of a majority of the unaffiliated
stockholders of Lube Ventures.
OTHER MATTERS
Lube Ventures is not presently aware of any other business to be brought
before the Lube Ventures Special Meeting. If any matters come before the Lube
Ventures Special Meeting that are not directly referred to in this Joint Proxy
Statement/Prospectus or the enclosed proxy, including matters incident to the
conduct of the Lube Ventures Special Meeting, the proxy holders will vote the
shares represented by the proxies in accordance with the recommendations of the
Lube Ventures management.
THE ROCKY MOUNTAIN I SPECIAL MEETING
TIME, DATE AND PLACE OF ROCKY MOUNTAIN I SPECIAL MEETING
The Rocky Mountain I Special Meeting will be held at 10:00 a.m., local time
on , 1997, at .
BUSINESS TO BE CONDUCTED AT THE ROCKY MOUNTAIN I SPECIAL MEETING
Each copy of this Joint Proxy Statement/Prospectus mailed to Rocky Mountain
I Stockholders is accompanied by a form of proxy solicited by the Board of
Directors of Rocky Mountain I for use at the Rocky Mountain I Special Meeting
and at any adjournment thereof and the transactions contemplated thereby. At the
Rocky Mountain I Special Meeting, the Rocky Mountain I stockholders will vote
upon a proposal to approve and adopt the Combination Agreement. See "The
Combination."
PROXIES: VOTING AND REVOCATION
When a Rocky Mountain I proxy is properly executed and returned, the shares
of Rocky Mountain I Common Stock it represents will be voted in accordance with
the directions indicated on the proxy, or if no directions are indicated the
shares will be voted FOR the approval and adoption of the Combination Agreement.
Any Rocky Mountain I stockholder giving a proxy may revoke his or her proxy at
any time before its exercise at the Rocky Mountain I Special Meeting by (1)
giving written notice of such revocation to Lorie Klumb, Secretary, Rocky
Mountain Ventures, Inc., 15200 East Girard Avenue, Suite 2700, Aurora, Colorado
80014-5039, or (2) signing and delivering to Lorie Klumb a proxy bearing a later
date. However, the mere presence at the Rocky Mountain I Special Meeting of a
Rocky Mountain I stockholder who has delivered a valid proxy will not of itself
revoke that proxy.
ROCKY MOUNTAIN I STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO ROCKY MOUNTAIN I IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE ROCKY MOUNTAIN I
SPECIAL MEETING.
PROXY SOLICITATION
Rocky Mountain I will bear the cost of soliciting proxies from its
stockholders. Proxies will be solicited by personnel of Rocky Mountain I in
person, by telephone or through other forms of communication without payment of
additional compensation to such personnel.
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VOTE REQUIRED
Under the Colorado Business Corporation Act and the Rocky Mountain I
Articles of Incorporation, the holders of a majority of the outstanding shares
of Rocky Mountain I Common Stock must approve and adopt the Combination
Agreement. Abstentions and broker non-votes will have the same effect as a vote
AGAINST the Combination Agreement.
Only holders of record of Rocky Mountain I at the close of business on
, 1997, are entitled to receive notice of, and to vote at, the
Rocky Mountain I Special Meeting. At that date, there were 5,197.5 shares of
Rocky Mountain I Common Stock outstanding and entitled to vote, with each such
share entitled to one vote, and eight holders of record thereof. As of that
date, the current directors and executive officers of Rocky Mountain I, together
with their affiliates, beneficially held an aggregate of 866.25 shares of Rocky
Mountain I Common Stock (representing approximately 16.7% of the outstanding
shares of Rocky Mountain I Common Stock). The current directors and executive
officers of Rocky Mountain I have indicated that they will vote all of the
shares held by them FOR the approval and adoption of the Combination Agreement.
The transaction is not structured to require the approval of a majority of the
unaffiliated stockholders of Rocky Mountain I.
OTHER MATTERS
Rocky Mountain I is not presently aware of any other business to be brought
before the Rocky Mountain I Special Meeting. If any matters come before the
Rocky Mountain I Special Meeting that are not directly referred to in this Joint
Proxy Statement/Prospectus or the enclosed proxy, including matters incident to
the conduct of the Rocky Mountain I, the proxy holders will vote the shares
represented by the proxies in accordance with the recommendations of the Rocky
Mountain I management.
THE ROCKY MOUNTAIN II SPECIAL MEETING
TIME, DATE AND PLACE OF ROCKY MOUNTAIN II SPECIAL MEETING
The Rocky Mountain II Special Meeting will be held at 10:00 a.m., local
time on , 1997, at .
BUSINESS TO BE CONDUCTED AT THE ROCKY MOUNTAIN II SPECIAL MEETING
Each copy of this Joint Proxy Statement/Prospectus mailed to Rocky Mountain
II Stockholders is accompanied by a form of proxy solicited by the Board of
Directors of Rocky Mountain II for use at the Rocky Mountain II Special Meeting
and at any adjournment thereof and the transactions contemplated thereby. At the
Rocky Mountain II Special Meeting, the Rocky Mountain II stockholders will vote
upon a proposal to approve the Combination Agreement. See "The Combination."
PROXIES: VOTING AND REVOCATION
When a Rocky Mountain II proxy is properly executed and returned, the
shares of Rocky Mountain II Common Stock it represents will be voted in
accordance with the directions indicated on the proxy, or if no directions are
indicated the shares will be voted FOR the approval of the Combination
Agreement. Any Rocky Mountain II stockholder giving a proxy may revoke his or
her proxy at any time before its exercise at the Rocky Mountain II Special
Meeting by (1) giving written notice of such revocation to Lorie Klumb,
Secretary, Rocky Mountain Ventures II, Inc., 15200 East Girard Avenue, Suite
2700, Aurora, Colorado 80014-5039, or (2) signing and delivering to Lorie Klumb
a proxy bearing a later date. However, the mere presence at the Rocky Mountain
II Special Meeting of a Rocky Mountain II stockholder who has delivered a valid
proxy will not of itself revoke that proxy.
ROCKY MOUNTAIN II STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO ROCKY MOUNTAIN II IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE ROCKY MOUNTAIN II
SPECIAL MEETING.
PROXY SOLICITATION
Rocky Mountain II will bear the cost of soliciting proxies from its
stockholders. Proxies will be solicited by personnel of Rocky Mountain II in
person, by telephone or through other forms of communication without payment of
additional compensation to such personnel.
40
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VOTE REQUIRED
Under the Colorado Business Corporation Act and the Articles of
Incorporation of Rocky Mountain II, the holders of a majority of the outstanding
shares of Rocky Mountain II Common Stock must approve and adopt the Combination
Agreement. Abstentions and broker non-votes will have the same effect as a vote
AGAINST the Combination Agreement.
Only holders of record of Rocky Mountain II at the close of business on
, 1997, are entitled to receive notice of, and to vote at, the
Rocky Mountain II Special Meeting. At that date, there were 14,538.89 shares of
Rocky Mountain II Common Stock outstanding and entitled to vote, with each such
share entitled to one vote, and 12 holders of record thereof. As of that date,
the current directors and executive officers of Rocky Mountain II, together with
their affiliates, beneficially held an aggregate of 2,299.16 shares of Rocky
Mountain II Common Stock (representing approximately 15.9% of the outstanding
shares of Rocky Mountain II Common Stock). The current directors and executive
officers of Rocky Mountain II have indicated that they will vote all of the
shares held by them FOR the approval and adoption of the Combination Agreement.
The transaction is not structured to require the approval of a majority of the
unaffiliated stockholders of Rocky Mountain II.
OTHER MATTERS
Rocky Mountain II is not presently aware of any other business to be
brought before the Rocky Mountain II Special Meeting. If any matters come before
the Rocky Mountain II Special Meeting that are not directly referred to in this
Joint Proxy Statement/Prospectus or the enclosed proxy, including matters
incident to the conduct of the Rocky Mountain II, the proxy holders will vote
the shares represented by the proxies in accordance with the recommendations of
the Rocky Mountain II management.
THE MIRACLE PARTNERS EXCHANGE OFFER
EXCHANGE OFFER
Precision Auto Care hereby offers, upon the terms and subject to the
conditions set forth in this Joint Proxy Statement/Prospectus and in the
accompanying Letter of Transmittal, to exchange shares of Precision Auto Care
Common Stock for up to 100% of the outstanding shares of Miracle Partners Common
Stock. The number of shares of Precision Auto Care Common Stock to be issued in
exchange for each share of Miracle Partners Common Stock will be equal to
188,640 shares of Precision Auto Care Common Stock.
EXPIRATION DATE; EXTENSION; TERMINATION
The Exchange Offer will expire at 12:00 midnight, Eastern Standard Time, on
, 1997, unless extended. In the event of any extension of the
Exchange Offer, the term "Expiration Date" shall mean the date on which the
Exchange Offer, as so extended, shall expire. Precision Auto Care will make a
public announcement of extension prior to 9:00 a.m., Eastern Standard Time, on
the next business day after the previously scheduled Expiration Date. Without
limiting the manner in which Precision Auto Care may choose to make a public
announcement of any extension, amendment or termination of the Exchange Offer,
Precision Auto Care shall have no obligation to advertise publicly, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
Subject to the terms and provisions of the Combination Agreement, Precision
Auto Care reserves the right to extend the Exchange Offer or to terminate the
Exchange Offer and not accept for exchange any shares of Miracle Partners Common
Stock not previously accepted for exchange. Any such delay in acceptance or
exchange, extension or termination will be followed as promptly as practicable
by public announcement thereof. The rights reserved by Precision Auto Care in
this paragraph are in addition to Precision Auto Care's rights set forth under
the caption "The Combination Agreement" set forth below.
CLOSING DATE
Promptly following the Expiration Date, but subject to certain conditions,
Precision Auto Care will effect the exchange of shares of Precision Auto Care
Common Stock for shares of Miracle Partners Common Stock properly tendered and
not withdrawn pursuant to the Exchange Offer. Precision Auto Care currently
anticipates that the closing will occur on the first business day following the
Expiration Date. If any tendered shares of Miracle Partners Common Stock are not
accepted for exchange because such shares were not tendered properly, the
occurrence of certain other events set forth herein or otherwise,
41
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the Letter of Transmittal and related materials will be returned, without
expense, to the tendering holder thereof promptly after the expiration or
termination of the Exchange Offer.
Precision Auto Care expressly reserves the right to seek to acquire shares
of Miracle Partners Common Stock in the future by means of privately negotiated
acquisitions, subsequent exchange or tender offers or otherwise, at prices and
terms to be determined by Precision Auto Care, which prices or terms, depending
on a variety of circumstances that may exist at the time, may be higher or lower
or more or less favorable, as the case may be, than it is in the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of shares of Miracle Partners Common Stock made pursuant to the
Exchange Offer are irrevocable, except that shares tendered pursuant to the
Exchange Offer may be withdrawn at any time prior to the Expiration Date, and,
unless theretofore accepted for exchange by Precision Auto Care pursuant to the
Exchange Offer, may also be withdrawn at any time after the expiration of
days from the commencement of the Exchange Offer ( ,
1997). If Precision Auto Care extends the period of time during which the
Exchange Offer is open, is delayed in its acceptance of shares for exchange or
is unable to accept shares of Miracle Partners Common Stock for exchange
pursuant to the Exchange Offer for any reason, then, without prejudice to
Precision Auto Care's rights under the Exchange Offer, Precision Auto Care may
retain all shares of Miracle Partners Common Stock tendered, and such shares may
not be withdrawn except as otherwise provided herein.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by Precision Auto Care at its address set
forth below and must specify the name of the person who tendered the shares of
Miracle Partners Common Stock to be withdrawn and the amount of shares to be
withdrawn precisely as it appears in the Letter of Transmittal.
Precision Auto Care, Inc.
748 Miller Drive, S.E.
Leesburg, Virginia 20175
Attention: Arnold Janofsky, Secretary
Telephone No.: (703) 777-9095
Facsimile No.: (703) 779-0136
If the Letter of Transmittal tendering the shares of Miracle Partners
Common Stock to be withdrawn has been delivered to Precision Auto Care, a signed
notice of withdrawal must be submitted prior to the release of such Letter of
Transmittal. Withdrawals may not be rescinded, and shares withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange Offer.
However, at any time prior to the Expiration Date, withdrawn shares may be
retendered by following one of the procedures described in "The Miracle Partners
Exchange Offer -- Procedures for Tendering."
All questions as to form and validity (including time of receipt) for any
notice of withdrawal will be determined by Precision Auto Care, in its sole
discretion, which determination shall be final and binding. Neither Precision
Auto Care nor any other person will be under any duty to give notification of
any defect or irregularity in any notice of withdrawal and neither Precision
Auto Care nor any other person shall incur any liability for failure to give any
such notice.
CONDITIONS TO THE CONSUMMATION OF THE EXCHANGE OFFER
The obligation of Precision Auto Care to consummate the Exchange Offer will
be subject to the satisfaction or waiver, at or prior to the Closing Date, of
the condition that holders holding at least 80% of the outstanding shares of
Miracle Partners Common Stock shall have duly and validly tendered their shares
for exchange. The obligations of Precision Auto Care to consummate the Exchange
Offer will also be subject to the satisfaction or waiver, at or prior to the
Closing Date of a number of other important conditions. For a discussion of
these conditions see the "Combination -- Conditions to the Combination."
PROCEDURES FOR TENDERING
The participation by a holder of shares of Miracle Partners Common Stock in
the Exchange Offer pursuant to the procedures set forth below will constitute an
agreement between such holder and Precision Auto Care in accordance with the
terms and subject to the conditions set forth herein and in the accompanying
Letter of Transmittal. To be tendered properly a holder must deliver his or her
certificates representing their shares of Miracle Partners Common Stock,
together with a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by the
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<PAGE>
Letter of Transmittal, to Precision Auto Care at the address set forth above
prior to 12:00 midnight, Eastern Standard Time, on the Expiration Date.
Signatures on a letter of transmittal must be guaranteed by an eligible
institution. An "eligible institution" is a firm or other entity identified in
Rule 17Ad-15 under the Exchange Act including (as such terms are defined
therein): (1) a bank; (2) a broker-dealer, municipal securities dealer,
municipal securities broker, government securities dealer or a government
securities broker; (iii) a credit union; (iv) a national securities exchange or
registered securities association or clearing agency; or (v) a savings
institution that is a participant in a securities transfer association. A
verification by a notary public alone is not acceptable.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND OTHER DOCUMENTS TO
PRECISION AUTO CARE IS AT THE ELECTION AND RISK OF THE HOLDER. Mailings should
be made sufficiently in advance of the Expiration Date to permit delivery to
Precision Auto Care prior to 12:00 midnight, Eastern Standard Time, on the
Expiration Date.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing and, unless waived by Precision Auto Care, proper evidence
satisfactory to Precision Auto Care of their authority so to act must be
submitted.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered shares of Miracle Partners Common Stock will
be resolved by Precision Auto Care, whose determination will be final and
binding.
Precision Auto Care reserves the absolute right to reject any or all
tenders that are not in proper form or the acceptance of which would, in the
opinion of counsel for Precision Auto Care, be unlawful. Precision Auto Care
also reserves the right to waive any irregularities or conditions of tender as
to particular shares. Precision Auto Care's interpretation of the terms and
conditions of the Exchange Offer (including any instructions in the Letter of
Transmittal) will be final and binding. Unless waived, any irregularities in
connection with tenders must be cured within such time as Precision Auto Care
shall determine. Precision Auto Care shall not be under any duty to give
notification of defects in such tenders and shall not incur any liability for
failure to give such notification. Tenders of shares will not be deemed to have
been made until such irregularities have been cured or waived. Any shares of
Miracle Partners Common Stock received by Precision Auto Care that have not been
properly tendered as to which the irregularities have not been cured or waived
will be returned by Precision Auto Care to the tendering holder unless otherwise
provided in the Letter of Transmittal, promptly following the Expiration Date.
All correspondence in connection with the Exchange Offers and the Letter of
Transmittal should be addressed to Precision Auto Care at the address and
telephone number set forth above. Requests for information or additional copies
of this Joint Proxy Statement/Prospectus, the Letter of Transmittal and all
other documents required by the Letter of Transmittal should be directed to
Precision Auto Care.
THE PREMA PROPERTIES EXCHANGE OFFER
EXCHANGE OFFER
Precision Auto Care hereby offers, upon the terms and subject to the
conditions set forth in this Joint Proxy Statement/Prospectus and in the
accompanying Letter of Transmittal, to exchange shares of Precision Auto Care
Common Stock for up to 100% of the outstanding membership interests in Prema
Properties. The number of shares of Precision Auto Care Common Stock to be
issued in exchange for each one percentage membership interest in Prema
Properties will be equal to 1,488,890 shares of Precision Auto Care Common
Stock.
EXPIRATION DATE; EXTENSION; TERMINATION
The Exchange Offer will expire at 12:00 midnight, Eastern Standard Time, on
, 1997, unless extended. In the event of any extension of the
Exchange Offer, the term "Expiration Date" shall mean the date on which the
Exchange Offer, as so extended, shall expire. Precision Auto Care will make a
public announcement of extension prior to 9:00 a.m., Eastern Standard Time, on
the next business day after the previously scheduled Expiration Date. Without
limiting the manner in which Precision Auto Care may choose to make a public
announcement of any extension, amendment or termination of the Exchange Offer,
Precision Auto Care shall have no obligation to advertise publicly, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
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<PAGE>
Subject to the terms and provisions of the Combination Agreement, Precision
Auto Care reserves the right to extend the Exchange Offer or to terminate the
Exchange Offer and not accept for exchange any membership interests in Prema
Properties not previously accepted for exchange. Any such delay in acceptance or
exchange, extension or termination will be followed as promptly as practicable
by public announcement thereof. The rights reserved by Precision Auto Care in
this paragraph are in addition to Precision Auto Care's rights set forth under
the caption "The Combination Agreement" set forth below.
CLOSING DATE
Promptly following the Expiration Date, but subject to certain conditions,
Precision Auto Care will effect the exchange of shares of Precision Auto Care
Common Stock for membership interests in Prema Properties properly tendered and
not withdrawn pursuant to the Exchange Offer. Precision Auto Care currently
anticipates that the closing will occur on the first business day following the
Expiration Date. If any tendered membership interests in Prema Properties are
not accepted for exchange because such membership interests were not tendered
properly, the occurrence of certain other events set forth herein or otherwise,
the Letter of Transmittal and related materials will be returned, without
expense, to the tendering holder thereof promptly after the expiration or
termination of the Exchange Offer.
Precision Auto Care expressly reserves the right to seek to acquire Prema
Properties membership interests in the future by means of privately negotiated
acquisitions, subsequent exchange or tender offers or otherwise, at prices and
terms to be determined by Precision Auto Care, which prices or terms, depending
on a variety of circumstances that may exist at the time, may be higher or lower
or more or less favorable, as the case may be, than it is in the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of membership interests in Prema Properties made pursuant to the
Exchange Offer are irrevocable, except that membership interests tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date, and, unless theretofore accepted for exchange by Precision Auto
Care pursuant to the Exchange Offer, may also be withdrawn at any time after the
expiration of days from the commencement of the Exchange Offer
( , 1997). If Precision Auto Care extends the period of time
during which the Exchange Offer is open, is delayed in its acceptance of
membership interests for exchange or is unable to accept membership interests
for exchange pursuant to the Exchange Offer for any reason, then, without
prejudice to Precision Auto Care's rights under the Exchange Offer, Precision
Auto Care may retain all Prema Properties membership interests tendered, and
such membership interests in Prema Properties may not be withdrawn except as
otherwise provided herein.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by Precision Auto Care at its address set
forth below and must specify the name of the person who tendered the membership
interests of Prema Properties to be withdrawn and the amount of membership
interests to be withdrawn precisely as it appears in the Letter of Transmittal.
Precision Auto Care, Inc.
748 Miller Drive, S.E.
Leesburg, Virginia 20175
Attention: Arnold Janofsky, Secretary
Telephone No.: (703) 777-9095
Facsimile No.: (703) 779-0136
If the Letter of Transmittal tendering the membership interests in Prema
Properties to be withdrawn has been delivered to Precision Auto Care, a signed
notice of withdrawal must be submitted prior to the release of such Letter of
Transmittal. Withdrawals may not be rescinded, and membership interests
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer. However, at any time prior to the Expiration Date, withdrawn
membership interests may be retendered by following one of the procedures
described in "The Prema Properties Exchange Offer -- Procedures for Tendering."
All questions as to form and validity (including time of receipt) for any
notice of withdrawal will be determined by Precision Auto Care, in its sole
discretion, which determination shall be final and binding. Neither Precision
Auto Care nor any other person will be under any duty to give notification of
any defect or irregularity in any notice of withdrawal and neither Precision
Auto Care nor any other person shall incur any liability for failure to give any
such notice.
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<PAGE>
CONDITIONS TO THE CONSUMMATION OF THE EXCHANGE OFFER
The obligation of Precision Auto Care to consummate the Exchange Offer will
be subject to the satisfaction or waiver, at or prior to the Closing Date, of
the condition that holders holding at least 80% of the outstanding membership
interests in Prema Properties shall have duly and validly tendered their
membership interests for exchange. The obligations of Precision Auto Care to
consummate the Exchange Offer will also be subject to the satisfaction or
waiver, at or prior to the Closing Date of a number of other important
conditions. For a discussion of these conditions see the
"Combination -- Conditions to the Combination."
PROCEDURES FOR TENDERING
The participation by a holder of membership interests in Prema Properties
in the Exchange Offer pursuant to the procedures set forth below will constitute
an agreement between such holder and Precision Auto Care in accordance with the
terms and subject to the conditions set forth herein and in the accompanying
Letter of Transmittal. To be tendered properly a holder of membership interests
must properly complete, duly execute and deliver the Letter of Transmittal (or
facsimile thereof) and any other documents required by the Letter of Transmittal
to Precision Auto Care at the address set forth above prior to 12:00 midnight,
Eastern Standard Time, on the Expiration Date.
Signatures on a letter of transmittal must be guaranteed by an eligible
institution. An "eligible institution" is a firm or other entity identified in
Rule 17Ad-15 under the Exchange Act including (as such terms are defined
therein): (1) a bank; (2) a broker-dealer, municipal securities dealer,
municipal securities broker, government securities dealer or a government
securities broker; (iii) a credit union; (iv) a national securities exchange or
registered securities association or clearing agency; or (v) a savings
institution that is a participant in a securities transfer association. A
verification by a notary public alone is not acceptable.
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND OTHER DOCUMENTS TO
PRECISION AUTO CARE IS AT THE ELECTION AND RISK OF THE HOLDER. Mailings should
be made sufficiently in advance of the Expiration Date to permit delivery to
Precision Auto Care prior to 12:00 midnight, Eastern Standard Time, on the
Expiration Date.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing and, unless waived by Precision Auto Care, proper evidence
satisfactory to Precision Auto Care of their authority so to act must be
submitted.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered membership interests in Prema Properties
will be resolved by Precision Auto Care, whose determination will be final and
binding.
Precision Auto Care reserves the absolute right to reject any or all
tenders that are not in proper form or the acceptance of which would, in the
opinion of counsel for Precision Auto Care, be unlawful. Precision Auto Care
also reserves the right to waive any irregularities or conditions of tender as
to particular membership interests. Precision Auto Care's interpretation of the
terms and conditions of the Exchange Offer (including any instructions in the
Letter of Transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders must be cured within such time as
Precision Auto Care shall determine. Precision Auto Care shall not be under any
duty to give notification of defects in such tenders and shall not incur any
liability for failure to give such notification. Tenders of membership interests
will not be deemed to have been made until such irregularities have been cured
or waived. Any Letters of Transmittal received by Precision Auto Care that have
not been properly tendered as to which the irregularities have not been cured or
waived will be returned by Precision Auto Care to the tendering holder unless
otherwise provided in the Letter of Transmittal, promptly following the
Expiration Date.
All correspondence in connection with the Exchange Offers and the Letter of
Transmittal should be addressed to Precision Auto Care at the address and
telephone number set forth above. Requests for information or additional copies
of this Joint Proxy Statement/Prospectus, the Letter of Transmittal and all
other documents required by the Letter of Transmittal should be directed to
Precision Auto Care.
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THE RALSTON CAR WASH EXCHANGE OFFER
EXCHANGE OFFER
Precision Auto Care hereby offers, upon the terms and subject to the
conditions set forth in this Joint Proxy Statement/Prospectus and in the
accompanying Letter of Transmittal, to exchange shares of Precision Auto Care
Common Stock for up to 100% of the outstanding membership interests in Ralston
Car Wash. The number of shares of Precision Auto Care Common Stock to be issued
in exchange for each one percentage membership interest in Ralston Car Wash will
be equal to 291.610 shares of Precision Auto Care Common Stock.
EXPIRATION DATE; EXTENSION; TERMINATION
The Exchange Offer will expire at 12:00 midnight, Eastern Standard Time, on
, 1997, unless extended. In the event of any extension of the Exchange
Offer, the term "Expiration Date" shall mean the date on which the Exchange
Offer, as so extended, shall expire. Precision Auto Care will make a public
announcement of extension prior to 9:00 a.m., Eastern Standard Time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which Precision Auto Care may choose to make a public announcement
of any extension, amendment or termination of the Exchange Offer, Precision Auto
Care shall have no obligation to advertise publicly, or otherwise communicate
any such public announcement, other than by making a timely release to the Dow
Jones News Service.
Subject to the terms and provisions of the Combination Agreement, Precision
Auto Care reserves the right to extend the Exchange Offer or to terminate the
Exchange Offer and not accept for exchange any membership interests in Ralston
Car Wash not previously accepted for exchange. Any such delay in acceptance or
exchange, extension or termination will be followed as promptly as practicable
by public announcement thereof. The rights reserved by Precision Auto Care in
this paragraph are in addition to Precision Auto Care's rights set forth under
the caption "The Combination Agreement" set forth below.
CLOSING DATE
Promptly following the Expiration Date, but subject to certain conditions,
Precision Auto Care will effect the exchange of shares of Precision Auto Care
Common Stock for membership interests in Ralston Car Wash properly tendered and
not withdrawn pursuant to the Exchange Offer. Precision Auto Care currently
anticipates that the closing will occur on the first business day following the
Expiration Date. If any tendered membership interests in Ralston Car Wash are
not accepted for exchange because such membership interests were not tendered
properly, the occurrence of certain other events set forth herein or otherwise,
the Letter of Transmittal and related materials will be returned, without
expense, to the tendering holder thereof promptly after the expiration or
termination of the Exchange Offer.
Precision Auto Care expressly reserves the right to seek to acquire Ralston
Car Wash membership interests in the future by means of privately negotiated
acquisitions, subsequent exchange or tender offers or otherwise, at prices and
terms to be determined by Precision Auto Care, which prices or terms, depending
on a variety of circumstances that may exist at the time, may be higher or lower
or more or less favorable, as the case may be than in the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of membership interests in Ralston Car Wash made pursuant to the
Exchange Offer are irrevocable, except that membership interests tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date, and, unless theretofore accepted for exchange by Precision Auto
Care pursuant to the Exchange Offer, may also be withdrawn at any time after the
expiration of days from the commencement of the Exchange Offer
( , 1997). If Precision Auto Care extends the period of time during which
the Exchange Offer is open, is delayed in its acceptance of membership interests
for exchange or is unable to accept membership interests for exchange pursuant
to the Exchange Offer for any reason, then, without prejudice to Precision Auto
Care's rights under the Exchange Offer, Precision Auto Care may retain all
Ralston Car Wash membership interests tendered, and such membership interests in
Ralston Car Wash may not be withdrawn except as otherwise provided herein.
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To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by Precision Auto Care at its address set
forth below and must specify the name of the person who tendered the membership
interests of Ralston Car Wash to be withdrawn and the amount of membership
interests to be withdrawn precisely as it appears in the Letter of Transmittal.
Precision Auto Care, Inc.
748 Miller Drive, S.E.
Leesburg, Virginia 20175
Attention: Arnold Janofsky, Secretary
Telephone No.: (703) 777-9095
Facsimile No.: (703) 779-0136
If the Letter of Transmittal tendering the membership interests in Ralston
Car Wash to be withdrawn has been delivered to Precision Auto Care, a signed
notice of withdrawal must be submitted prior to the release of such Letter of
Transmittal. Withdrawals may not be rescinded, and membership interests
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer. However, at any time prior to the Expiration Date, withdrawn
membership interests may be retendered by following one of the procedures
described in "The Ralston Car Wash Exchange Offer -- Procedures for Tendering."
All questions as to form and validity (including time of receipt) for any
notice of withdrawal will be determined by Precision Auto Care, in its sole
discretion, which determination shall be final and binding. Neither Precision
Auto Care nor any other person will be under any duty to give notification of
any defect or irregularity in any notice of withdrawal and neither Precision
Auto Care nor any other person shall incur any liability for failure to give any
such notice.
CONDITIONS TO THE CONSUMMATION OF THE EXCHANGE OFFER
The obligation of Precision Auto Care to consummate the Exchange Offer will
be subject to the satisfaction or waiver, at or prior to the Closing Date, of
the condition that holders holding at least 80% of the outstanding membership
interests in Ralston Car Wash shall have duly and validly tendered their
membership interests for exchange. The obligations of Precision Auto Care to
consummate the Exchange Offer will also be subject to the satisfaction or
waiver, at or prior to the Closing Date of a number of other important
conditions. For a discussion of these conditions see the
"Combination -- Conditions to the Combination."
PROCEDURES FOR TENDERING
The participation by a holder of membership interests in Ralston Car Wash
in the Exchange Offer pursuant to the procedures set forth below will constitute
an agreement between such holder and Precision Auto Care in accordance with the
terms and subject to the conditions set forth herein and in the accompanying
Letter of Transmittal. To be tendered properly a holder of membership interests
must properly complete, duly execute and deliver the Letter of Transmittal (or
facsimile thereof) and any other documents required by the Letter of Transmittal
to Precision Auto Care at the address set forth above prior to 12:00 midnight,
Eastern Standard Time, on the Expiration Date.
Signatures on a letter of transmittal must be guaranteed by an eligible
institution. An "eligible institution" is a firm or other entity identified in
Rule 17Ad-15 under the Exchange Act including (as such terms are defined
therein): (1) a bank; (2) a broker-dealer, municipal securities dealer,
municipal securities broker, government securities dealer or a government
securities broker; (iii) a credit union; (iv) a national securities exchange or
registered securities association or clearing agency; or (v) a savings
institution that is a participant in a securities transfer association. A
verification by a notary public alone is not acceptable.
THE METHOD OF DELIVERY OF LETTER OF TRANSMITTAL AND OTHER DOCUMENTS TO
PRECISION AUTO CARE IS AT THE ELECTION AND RISK OF THE HOLDER. Mailings should
be made sufficiently in advance of the Expiration Date to permit delivery to
Precision Auto Care prior to 12:00 midnight, Eastern Standard Time, on the
Expiration Date.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing and, unless waived by Precision Auto Care, proper evidence
satisfactory to Precision Auto Care of their authority so to act must be
submitted.
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All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered membership interests in Ralston Car Wash
will be resolved by Precision Auto Care, whose determination will be final and
binding.
Precision Auto Care reserves the absolute right to reject any or all
tenders that are not in proper form or the acceptance of which would, in the
opinion of counsel for Precision Auto Care, be unlawful. Precision Auto Care
also reserves the right to waive any irregularities or conditions of tender as
to particular membership interests. Precision Auto Care's interpretation of the
terms and conditions of the Exchange Offer (including any instructions in the
Letter of Transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders must be cured within such time as
Precision Auto Care shall determine. Precision Auto Care shall not be under any
duty to give notification of defects in such tenders and shall not incur any
liability for failure to give such notification. Tenders of membership interests
will not be deemed to have been made until such irregularities have been cured
or waived. Any Letters of Transmittal received by Precision Auto Care that have
not been properly tendered as to which the irregularities have not been cured or
waived will be returned by Precision Auto Care to the tendering holder unless
otherwise provided in the Letter of Transmittal, promptly following the
Expiration Date.
All correspondence in connection with the Exchange Offers and the Letter of
Transmittal should be addressed to Precision Auto Care at the address and
telephone number set forth above. Requests for information or additional copies
of this Joint Proxy Statement/Prospectus, the Letter of Transmittal and all
other documents required by the Letter of Transmittal should be directed to
Precision Auto Care.
THE KBG EXCHANGE OFFER
EXCHANGE OFFER
Precision Auto Care hereby offers, upon the terms and subject to the
conditions set forth in this Joint Proxy Statement/Prospectus and in the
accompanying Letter of Transmittal, to exchange shares of Precision Auto Care
Common Stock for up to 100% of the outstanding membership interests in KBG. The
number of shares of Precision Auto Care Common Stock to be issued in exchange
for each one percentage membership interest in KBG will be equal to 124.110
shares of Precision Auto Care Common Stock.
EXPIRATION DATE; EXTENSION; TERMINATION
The Exchange Offer will expire at 12:00 midnight, Eastern Standard Time, on
, 1997, unless extended. In the event of any extension of the Exchange
Offer, the term "Expiration Date" shall mean the date on which the Exchange
Offer, as so extended, shall expire. Precision Auto Care will make a public
announcement of extension prior to 9:00 a.m., Eastern Standard Time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which Precision Auto Care may choose to make a public announcement
of any extension, amendment or termination of the Exchange Offer, Precision Auto
Care shall have no obligation to advertise publicly, or otherwise communicate
any such public announcement, other than by making a timely release to the Dow
Jones News Service.
Subject to the terms and provisions of the Combination Agreement, Precision
Auto Care reserves the right to extend the Exchange Offer or to terminate the
Exchange Offer and not accept for exchange any membership interests in KBG not
previously accepted for exchange. Any such delay in acceptance or exchange,
extension or termination will be followed as promptly as practicable by public
announcement thereof. The rights reserved by Precision Auto Care in this
paragraph are in addition to Precision Auto Care's rights set forth under the
caption "The Combination Agreement" set forth below.
CLOSING DATE
Promptly following the Expiration Date, but subject to certain conditions,
Precision Auto Care will effect the exchange of shares of Precision Auto Care
Common Stock for membership interests in KBG properly tendered and not withdrawn
pursuant to the Exchange Offer. Precision Auto Care currently anticipates that
the closing will occur on the first business day following the Expiration Date.
If any tendered membership interests in KBG are not accepted for exchange
because such membership interests were not tendered properly, the occurrence of
certain other events set forth herein or otherwise, the Letter of Transmittal
and related materials will be returned, without expense, to the tendering holder
thereof promptly after the expiration or termination of the Exchange Offer.
Precision Auto Care expressly reserves the right to seek to acquire KBG
membership interests in the future by means of privately negotiated
acquisitions, subsequent exchange or tender offers or otherwise, at prices and
terms to be determined by
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Precision Auto Care, which prices or terms, depending on a variety of
circumstances that may exist at the time, may be higher or lower or more or less
favorable, as the case may be, than in the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of membership interests in KBG made pursuant to the Exchange Offer
are irrevocable, except that membership interests tendered pursuant to the
Exchange Offer may be withdrawn at any time prior to the Expiration Date, and,
unless theretofore accepted for exchange by Precision Auto Care pursuant to the
Exchange Offer, may also be withdrawn at any time after the expiration of
days from the commencement of the Exchange Offer ( , 1997). If
Precision Auto Care extends the period of time during which the Exchange Offer
is open, is delayed in its acceptance of membership interests for exchange or is
unable to accept membership interests for exchange pursuant to the Exchange
Offer for any reason, then, without prejudice to Precision Auto Care's rights
under the Exchange Offer, Precision Auto Care may retain all KBG membership
interests tendered, and such membership interests in KBG may not be withdrawn
except as otherwise provided herein.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by Precision Auto Care at its address set
forth below and must specify the name of the person who tendered the membership
interests of KBG to be withdrawn and the amount of membership interests to be
withdrawn precisely as it appears in the Letter of Transmittal.
Precision Auto Care, Inc.
748 Miller Drive, S.E.
Leesburg, Virginia 20175
Attention: Arnold Janofsky, Secretary
Telephone No.: (703) 777-9095
Facsimile No.: (703) 779-0136
If the Letter of Transmittal tendering the membership interests in KBG to
be withdrawn has been delivered to Precision Auto Care, a signed notice of
withdrawal must be submitted prior to the release of such Letter of Transmittal.
Withdrawals may not be rescinded, and membership interests withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange Offer.
However, at any time prior to the Expiration Date, withdrawn membership
interests may be retendered by following one of the procedures described in "The
KBG Exchange Offer -- Procedures for Tendering."
All questions as to form and validity (including time of receipt) for any
notice of withdrawal will be determined by Precision Auto Care, in its sole
discretion, which determination shall be final and binding. Neither Precision
Auto Care nor any other person will be under any duty to give notification of
any defect or irregularity in any notice of withdrawal and neither Precision
Auto Care nor any other person shall incur any liability for failure to give any
such notice.
CONDITIONS TO THE CONSUMMATION OF THE EXCHANGE OFFER
The obligation of Precision Auto Care to consummate the Exchange Offer will
be subject to the satisfaction or waiver, at or prior to the Closing Date, of
the condition that holders holding at least 80% of the outstanding membership
interests in KBG shall have duly and validly tendered their membership interests
for exchange. The obligations of Precision Auto Care to consummate the Exchange
Offer will also be subject to the satisfaction or waiver, at or prior to the
Closing Date of a number of other important conditions. For a discussion of
these conditions see the "Combination -- Conditions to the Combination."
PROCEDURES FOR TENDERING
The participation by a holder of membership interests in KBG in the
Exchange Offer pursuant to the procedures set forth below will constitute an
agreement between such holder and Precision Auto Care in accordance with the
terms and subject to the conditions set forth herein and in the accompanying
Letter of Transmittal. To be tendered properly the holder must properly
complete, duly execute and deliver the Letter of Transmittal (or facsimile
thereof) and any other documents required by the Letter of Transmittal to
Precision Auto Care at the address set forth above prior to 12:00 midnight,
Eastern Standard Time, on the Expiration Date.
Signatures on a letter of transmittal must be guaranteed by an eligible
institution. An "eligible institution" is a firm or other entity identified in
Rule 17Ad-15 under the Exchange Act including (as such terms are defined
therein): (1) a bank; (2) a broker-dealer, municipal securities dealer,
municipal securities broker, government securities dealer or a government
securities broker; (iii) a credit union; (iv) a national securities exchange or
registered securities association or clearing
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<PAGE>
agency; or (v) a savings institution that is a participant in a securities
transfer association. A verification by a notary public alone is not acceptable.
THE METHOD OF DELIVERY OF LETTER OF TRANSMITTAL AND OTHER DOCUMENTS TO
PRECISION AUTO CARE IS AT THE ELECTION AND RISK OF THE HOLDER. Mailings should
be made sufficiently in advance of the Expiration Date to permit delivery to
Precision Auto Care prior to 12:00 midnight, Eastern Standard Time, on the
Expiration Date.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing and, unless waived by Precision Auto Care, proper evidence
satisfactory to Precision Auto Care of their authority so to act must be
submitted.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered membership interests in KBG will be resolved
by Precision Auto Care, whose determination will be final and binding.
Precision Auto Care reserves the absolute right to reject any or all
tenders that are not in proper form or the acceptance of which would, in the
opinion of counsel for Precision Auto Care, be unlawful. Precision Auto Care
also reserves the right to waive any irregularities or conditions of tender as
to particular membership interests. Precision Auto Care's interpretation of the
terms and conditions of the Exchange Offer (including any instructions in the
Letter of Transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders must be cured within such time as
Precision Auto Care shall determine. Precision Auto Care shall not be under any
duty to give notification of defects in such tenders and shall not incur any
liability for failure to give such notification. Tenders of membership interests
will not be deemed to have been made until such irregularities have been cured
or waived. Any Letters of Transmittal received by Precision Auto Care that have
not been properly tendered as to which the irregularities have not been cured or
waived will be returned by Precision Auto Care to the tendering holder unless
otherwise provided in the Letter of Transmittal, promptly following the
Expiration Date.
All correspondence in connection with the Exchange Offers and the Letter of
Transmittal should be addressed to Precision Auto Care at the address and
telephone number set forth above. Requests for information or additional copies
of this Joint Proxy Statement/Prospectus, the Letter of Transmittal and all
other documents required by the Letter of Transmittal should be directed to
Precision Auto Care.
THE COMBINATION
GENERAL
THE DESCRIPTIONS IN THIS PROXY STATEMENT/PROSPECTUS OF THE TERMS AND
CONDITIONS OF THE COMBINATION AND THE COMBINATION AGREEMENT ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO THE COPY OF THE COMBINATION AGREEMENT ATTACHED AS
APPENDIX A TO THIS JOINT PROXY STATEMENT/PROSPECTUS, AND TO EACH OF THE OTHER
APPENDICES TO THIS JOINT PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS ARE ENCOURAGED
TO READ THE COMBINATION AGREEMENT AND THE OTHER APPENDICES IN THEIR ENTIRETY.
The Combination Agreement provides for WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I and Rocky Mountain II each to become wholly owned
subsidiaries of Precision Auto Care through the mergers of WE JAC Acquisition
into WE JAC, Miracle Industries Acquisition into Miracle Industries, Lube
Ventures Acquisition into Lube Ventures, Rocky Mountain I Acquisition into Rocky
Mountain I, and Rocky Mountain II Acquisition into Rocky Mountain II, provided
that all conditions to consummation of the Combination are satisfied or waived.
Each stockholder of WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain II
and Rocky Mountain II (other than those WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I and Rocky Mountain II stockholders who exercise their
right to dissent under the general corporation law applicable to the respective
Constituent Company) will receive shares of Precision Auto Care Common Stock in
exchange for his or her shares of WE JAC, Miracle Industries, Lube Ventures,
Rocky Mountain I and Rocky Mountain II Common Stock (with the number of shares
received based on a separate exchange ratio for each company). The Combination
Agreement also provides for Miracle Partners, Prema Properties, Ralston Car Wash
and KBG to become subsidiaries of Precision Auto Care through the exchange by
holders of Miracle Partners, Prema Properties, Ralston Car Wash and KBG common
stock and membership interests, as the case may be, for Precision Auto Care
Common Stock (with the number of shares received based on a separate exchange
ratio for each company). It is contemplated that the Effective Time for the
Combination will occur as soon as practicable after the WE JAC Special Meeting,
the Miracle Industries Special Meeting, the Lube Ventures Special Meeting, the
Rocky Mountain I Special Meeting and the Rocky Mountain II Special Meeting, and
upon satisfaction or waiver of all of the other conditions set forth in the
Combination Agreement. The Effective Time is presently anticipated to occur on
or before , 1997. See "The Combination."
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BACKGROUND OF THE COMBINATION
In February of 1996, Ernest S. Malas, the President and Chief Executive
Officer of Lube Ventures and Miracle Industries, and John Ripley, the President
and Chief Executive Officer of WE JAC, met at an international franchise
convention held in Washington, D.C. At this time, they held preliminary
discussions concerning each of the parties' respective business and operation.
Materials describing the businesses engaged in by each of the parties were also
exchanged as a follow-up to the meeting. On July 8, 1996, following the exchange
of additional information and several telephone calls, Mr. Malas, William Klumb,
the chief executive officer of Rocky Mountain I and Rocky Mountain II and
Ralston Car Wash, and Mr. Ripley met in Denver, Colorado. They toured and
reviewed the car wash sites operated by Karl Byrer and William Klumb in Colorado
and discussed preliminarily the possibilities of combining the businesses.
Following these discussions, the parties exchanged formal information
requests and signed confidentiality agreements. Discussions were held during the
summer and early fall concerning the possible combination of the self-service
and automatic car wash, fast oil change and lube and Precision Tune automotive
maintenance businesses. The parties also discussed the possibility of and the
strategic advantages associated with marketing the three types of businesses
under the "Precision Auto Care" brand name.
In September and October 1996, the boards of each of the Constituent
Companies held meetings to consider the advisability of proceeding with the
transactions. Mr. Ripley also visited the manufacturing and distribution
operations conducted by Miracle Industries in Ohio. Based on information and
presentations made to their respective Boards of Directors, the parties entered
into and executed a non-binding memorandum of understanding on October 18, 1996
that called for the parties to negotiate in good faith towards a possible
combination.
Following the execution of the memorandum of understanding, the parties
held frequent meetings to develop a joint business plan for the Combination. WE
JAC also engaged Ferris, Baker Watts in November, 1996 for purposes of providing
WE JAC with a fairness opinion. The Board of Directors of each of the other
Constituent Companies convened on December 9, 1996, and the WE JAC Board of
Directors convened on December 18, 1996 at which time Ferris, Baker Watts
provided WE JAC with its preliminary report. Based on presentations made to the
Boards of Directors of the Constituent Companies by members of management and
outside advisors (including Ferris, Baker Watts, in the case of WE JAC), the
Boards of Directors of the Constituent Companies authorized the parties to
engage an investment banking firm to underwrite an initial public offering for
the combined entity and to proceed with formal due diligence and the negotiation
of definitive agreements with respect to the Combination.
The parties subsequently engaged A.G. Edwards & Sons, Inc. and Ferris,
Baker Watts, Incorporated as the managing underwriters for the initial public
offering and immediately commenced their due diligence investigation and
prepared registration statements for filing with the Securities and Exchange
Commission. Quist Financial, Inc. was engaged to render a fairness opinion to
the Boards of Directors of Rocky Mountain I and Rocky Mountain II and the
Managing Member of Ralston Car Wash.
The Exchange Ratios and other terms of the Combination Agreement with
respect to each of the Constituent Companies, except WE JAC, were determined by
arms' length negotiations between Precision Auto Care and the representatives of
the Constituent Companies, each of which was represented by independent counsel
in the negotiation of the terms and conditions of the Combination Agreement. The
factors considered by Precision Auto Care in determining the Exchange Ratios
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 Precision Auto Care
were not arm's length due to substantial overlaps in management of Precision
Auto Care and WE JAC at the time of the negotiation. However, because the
various parties participated collectively in the negotiation of the Exchange
Ratios, the Exchange Ratios and other terms of the Combination Agreement
applicable to WE JAC were subject to scrutiny by and negotiation with
representatives of the other Constituent Companies.
The Boards of Directors of Precision Auto Care and WE JAC convened meetings
on April 16, 1997. Following presentations made to each board by management,
outside advisors (including Ferris, Baker Watts, in the case of WE JAC), each of
the Boards of Directors authorized the parties to continue to proceed with
respect to finalizing registration statements for filing with the Securities and
Exchange Commission, completing due diligence investigations and negotiating the
definitive agreements with respect to the Combination.
The Boards of Directors of Precision Auto Care and each of the Constituent
Companies convened meetings on August 27, 1997. Following presentations made to
each board by management, outside advisors (including Ferris, Baker Watts, in
the case of WE JAC and Quist Financial, Inc., in the case of Rocky Mountain I,
Rocky Mountain II and Ralston Car
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<PAGE>
Wash), each of the Boards of Directors and Managing Members approved the
Combination Agreement. The boards directed that the terms of the Combination be
submitted to their shareholders for consideration (in the case of WE JAC,
Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain II) and
that the Exchange Offers commence (in the case of Miracle Partners, Prema
Properties, Ralston Car Wash and KBG) as soon as practicable following the
effective date of this Joint Proxy Statement/Prospectus. Ferris, Baker Watts
rendered its written fairness opinion to the WE JAC Board on that date. Quist
Financial, Inc. rendered its fairness opinion to the boards of Rocky Mountain I,
Rocky Mountain II and Ralston Car Wash on that date.
WE JAC'S REASONS FOR THE COMBINATION AND BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors of WE JAC believes that the Combination is fair to
and in the best interests of WE JAC and its stockholders and unanimously
recommends that the WE JAC stockholders vote for the approval of the Combination
Agreement and the transactions contemplated thereby. In evaluating the proposed
Combination, the Board of Directors of WE JAC considered a variety of factors,
including financial and operating information relating to WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II, Miracle
Partners, Prema Properties, Ralston Car Wash and KBG, and reports from, and
presentations by, its officers, Ferris, Baker Watts and legal counsel. The
factors considered by the WE JAC Board of Directors, all of which were deemed
material but were given varying priorities by individual directors, included the
following:
1. The Board of Directors observed the need for WE JAC to achieve
greater critical mass, economies of scale and geographic coverage in order
to effectively compete in WE JAC's rapidly changing industry. The Board of
Directors believes that the Combination will enable WE JAC stockholders to
benefit from the significant "brand name awareness" that WE JAC has created
with respect to its Precision Tune Auto Care brand through the marketing of
the car wash and fast oil change and lube businesses conducted by the other
Constituent Companies under the Precision Auto Care brand. The Board of
Directors also believes that WE JAC stockholders will benefit from the
ability of existing and prospective Precision Tune Auto Care franchisees to
exploit the marketing and other advantages that may accrue once the
franchisee, as a result of the Combination, has the opportunity to offer
car wash and fast oil change and lube services at or in close proximity to
Precision Tune Auto Care centers.
2. The Board of Directors believes that the core business of WE JAC,
Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II,
Miracle Partners, Prema Properties, Ralston Car Wash and KBG are highly
compatible. Consequently, upon consummation of the Combination, the Board
of Directors concluded that WE JAC, as part of Precision Auto Care, should
be positioned to realize increased purchasing power for goods and services
necessary for the business, cost savings through elimination of redundant
administrative segments enhanced marketing capabilities provided by a
combined sales staff marketing the combined companies, and greater
potential penetration of the market for the reasons described above.
3. The WE JAC Board of Directors concluded that WE JAC, as part of the
combined companies, should be positioned to enhance its presence in certain
geographic markets and enter other markets through the existing operations
of Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II,
Miracle Partners, Prema Properties, Ralston Car Wash and KBG, thus
providing opportunities for increased sales of WE JAC's business.
4. The WE JAC Board of Directors concluded that the Combination would
enhance WE JAC's ability to compete more effectively against other
companies in the industry, several of which have significantly greater
resources than WE JAC, and that the Combination presented the most likely
available alternative for achieving the greater scale necessary for success
in a consolidating industry.
5. The WE JAC Board of Directors noted WE JAC's future liquidity needs
and noted that the combined companies' liquidity would allow them to expand
their operations further and to manage cash flow with reduced debt as a
result of the Initial Public Offering.
6. The WE JAC Board of Directors and Ferris, Baker Watts, WE JAC's
financial advisor, analyzed the financial condition, results of operations
and prospects of each of WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I, Rocky Mountain II, Miracle Partners, Prema Properties, Ralston
Car Wash and KBG, both separately and in relation to the value of the
consideration to be received by the stockholders of each constituent
company in the Combination. Ferris, Baker Watts did not present the Board
of Directors of WE JAC with specific valuation ranges for the Constituent
Companies and therefore the Board of Directors was unable to consider such
information in making its determinations. The WE JAC Board of Directors
placed special emphasis and relied on the opinion of Ferris, Baker Watts,
to the effect
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that, as of the date of such opinion and based upon and subject to certain
matters stated therein, the WE JAC Exchange Ratio was fair, from a
financial point of view, to the holders of WE JAC Common Stock. The WE JAC
Board of Directors considered as a whole the various financial and
comparative analyses relating to each of WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I, Rocky Mountain II, Miracle Partners, Prema
Properties, Ralston Car Wash and KBG both on a historical and prospective
basis and as separate and combined entities (as set forth in Ferris, Baker
Watt's presentation to the WE JAC Board of Directors) and believed that
such analyses, taken as a whole, supported a conclusion that the WE JAC
Exchange Ratio was fair, from a financial point of view, to the WE JAC
stockholders. See " -- Opinion of Ferris, Baker Watts." Such conclusion was
a key factor in the WE JAC Board's decision to recommend approval of the
Combination.
7. The WE JAC Board of Directors noted that no current public or other
liquid market for WE JAC Common Stock currently exists. While there can be
no assurance that a public trading market will exist or develop with
respect to the Precision Auto Care Common Stock into which WE JAC Common
Stock will be converted pursuant to the Merger, the Board of Directors
concluded that it was highly likely that holders of WE JAC Common Stock
would have significantly more liquidity with respect to their investment by
reason of the number of shares of Precision Auto Care Common Stock that
would be issued and outstanding following the consummation of the
Combination and the Initial Public Offering and the fact that application
had been made to list the shares of Precision Auto Care Common Stock on the
NASDAQ National Market. Accordingly, the Board believes that the resulting
conversion of shares of WE JAC Common Stock that are currently restricted
by operation of the securities laws into freely tradable shares of
Precision Auto Care Common Stock (subject to the lock-up agreements in the
case of certain Precision Auto Care stockholders and Rule 145 in the case
of WE JAC "affiliates") should result in a greater base of stockholders who
can potentially trade on the open market, providing for a more active,
liquid trading market.
8. The WE JAC Board of Directors noted that the terms of the Merger
should permit the holders of WE JAC Common Stock to exchange their shares
for Precision Auto Care Common Stock on a tax-free basis. See "The
Combination Agreement -- Federal Income Tax Consequences." Business
combination transactions in which there is a material cash component as
part of the consideration to be received by stockholders, as opposed to an
exchange of shares as in the Merger transaction, typically result in a
taxable event to such stockholders upon consummation of the transaction.
In light of the variety of factors considered by WE JAC's Board of
Directors, the Board did not find it practical to, and did not, assign any
particular weight to any of the foregoing factors, but considered all of these
factors as a whole in reaching its determination.
The WE JAC Board concluded, in light of these factors, that the Combination
is in the best interests of WE JAC and its stockholders and is fair to its
stockholders. THE BOARD OF DIRECTORS OF WE JAC RECOMMENDS THAT THE STOCKHOLDERS
OF WE JAC APPROVE AND ADOPT THE COMBINATION AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
OPINION OF FERRIS, BAKER WATTS
Ferris, Baker Watts was retained by WE JAC to act as its financial advisor
in connection with the Combination. In connection with such engagement, WE JAC
requested that Ferris, Baker Watts evaluate the fairness, from a financial point
of view, to the stockholders of WE JAC of the consideration to be received by
such stockholders in the Combination. On August 27, 1997, Ferris, Baker Watts
delivered to the Board of Directors of WE JAC its opinion, to the effect that,
as of the date of such opinion and based upon and subject to certain matters
stated therein, the WE JAC Exchange Ratio was fair, from a financial point of
view, to the holders of WE JAC Common Stock.
In arriving at its opinion, Ferris, Baker Watts reviewed the Combination
Agreement and held discussions with certain senior officers, directors and other
representatives and advisors of WE JAC, and certain senior officers and other
representatives and advisors of the other Constituent Companies concerning the
business, operations and prospects of the Constituent Companies. Ferris, Baker
Watts examined certain business and financial information relating to the
Constituent Companies as well as certain financial forecasts and other data for
the Constituent Companies that were provided to Ferris, Baker Watts by the
respective managements of the Constituent Companies, including information
relating to certain strategic implications and operational benefits anticipated
from the Combination. Ferris, Baker Watts reviewed the financial terms of the
Combination as set forth in the Combination Agreement in relation to, among
other things, the respective companies' historical and projected earnings; and
the capitalization and financial condition of the Constituent Companies. Ferris,
Baker Watts also evaluated the pro forma financial impact of the Combination. In
addition to the foregoing, Ferris, Baker Watts conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as Ferris, Baker
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Watts deemed necessary to arrive at its opinion. Ferris, Baker Watts noted that
its opinion was necessarily based upon financial, stock market and other
conditions and circumstances existing and disclosed to Ferris, Baker Watts as of
the date of its opinion.
In rendering its opinion, Ferris, Baker Watts assumed and relied, without
independent verification, upon the accuracy and completeness of the financial
and other information publicly available or furnished to or otherwise discussed
with Ferris, Baker Watts. With respect to the financial forecasts and other
information provided to or otherwise discussed with Ferris, Baker Watts, Ferris,
Baker Watts assumed that such forecasts and other information were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the respective managements of the Constituent Companies as to the
expected future financial performance of the Constituent Companies. Ferris,
Baker Watts also assumed that the Combination will be a tax-free reorganization
for federal income tax purposes. Ferris, Baker Watts' opinion does not relate to
the relative values of the Constituent Companies. Ferris, Baker Watts did not
express any opinion as to what the value of the Precision Auto Care Common Stock
actually will be when issued to WE JAC Stockholders pursuant to the Combination
or the price at which the Precision Auto Care Common Stock will trade subsequent
to the Combination. In addition, Ferris, Baker Watts did not make or obtain an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Constituent Companies nor did Ferris, Baker Watts make any
physical inspection of the properties or assets of the Constituent Companies. In
addition, although Ferris, Baker Watts evaluated the financial terms of the
Combination, Ferris, Baker Watts was not asked to and did not recommend the
specific consideration to be paid by Precision Auto Care in the Combination,
which consideration was determined by the Constituent Companies. No other
limitations were imposed by WE JAC on Ferris, Baker Watts with respect to the
investigations made or procedures followed by Ferris, Baker Watts in rendering
its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF FERRIS, BAKER WATTS, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS
AND IS INCORPORATED HEREIN BY REFERENCE. WE JAC STOCKHOLDERS ARE URGED TO READ
THIS OPINION CAREFULLY IN ITS ENTIRETY. FERRIS, BAKER WATTS' OPINION IS DIRECTED
ONLY TO THE FAIRNESS OF THE WE JAC EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW
AND IS PROVIDED SOLELY FOR THE USE OF THE WE JAC BOARD OF DIRECTORS IN ITS
EVALUATION OF THE COMBINATION, DOES NOT ADDRESS ANY OTHER ASPECT OF THE
COMBINATION OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY WE JAC STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE WE JAC
SPECIAL MEETING. THE SUMMARY OF THE OPINION OF FERRIS, BAKER WATTS SET FORTH IN
THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion to the Board of Directors of WE JAC, Ferris, Baker
Watts performed a variety of financial and comparative analyses, including those
described below. The summary of such analyses does not purport to be a complete
description of the analyses underlying Ferris, Baker Watts' opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In arriving at its opinion, Ferris, Baker Watts did not
present the Board of Directors of WE JAC with specific valuation ranges for the
Constituent Companies. Ferris, Baker Watts believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors,
without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying such analyses and its opinion. In
its analyses, Ferris, Baker Watts made numerous assumptions with respect to the
Constituent Companies, industry performance, general business, economic, market
and financial conditions and other matters, many of which are beyond the control
of the Constituent Companies. The estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results of
values, which may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty.
Ferris, Baker Watts considered several valuation methods to evaluate the
effect of the transaction on stockholders of WE JAC, including: (1) the
discounted future free cash flow of WE JAC and Precision Auto Care; and (2) the
earnings and book multiple comparisons to publicly-traded companies engaged in
similar businesses. Ferris, Baker Watts relied most heavily upon its analysis of
the discounted future free cash flow of WE JAC.
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The free cash flow analysis ascribes value only to the cash flows that can
ultimately be taken out of the business. These free cash flows are then
discounted to the present at the firm's weighted average cost of capital. The
weighted average cost of capital can be described as the average price a company
must pay to attract both debt and equity to properly capitalize the firm's
growth. It is these series of free cash flows that, when discounted to the
present and after subtracting claims by debtholders and others, represents the
economic value of a firm to its shareholders. This method of valuation depends
upon the accuracy of the financial projections. Ferris, Baker Watts assumed that
such projections were reasonably prepared by the management of WE JAC on bases
reflecting the best currently available estimates and judgments of WE JAC and
Lube Ventures, Miracle Industries, Rocky Mountain I, Rocky Mountain II, Miracle
Partners, Prema Properties, Ralston Car Wash and KBG as to their respective
future financial performance.
Ferris, Baker Watts concluded:
1. The analysis of the WE JAC and Precision Auto Care's discounted
cash flow, based upon projections for income and cash flow provided by
management, indicate that the consideration to be received by the
shareholders of WE JAC is at a premium to the value of WE JAC as a stand
alone entity.
2. The creation of Precision Auto Care will provide increased
opportunities for growth through acquisition of other related automotive
businesses as well as provide greater access to capital (and lead to lower
cost of capital). These opportunities would not necessarily be available to
WE JAC if it remained an independent entity.
Pursuant to the terms of Ferris, Baker Watt's engagement, WE JAC has agreed
to pay Ferris, Baker Watts for its services in connection with the Combination
an aggregate financial advisory fee of $200,000, payable upon the consummation
of the Combination. WE JAC has agreed to reimburse Ferris, Baker Watts for
travel and other out-of-pocket expenses incurred by Ferris, Baker Watts in
performing its services, including the fees and expenses of its legal counsel,
and to indemnify Ferris, Baker Watts and related persons against certain
liabilities, including liabilities under federal securities laws, arising out of
Ferris, Baker Watts' engagement. Ferris, Baker Watts has also been retained to
act as a co-manager in the underwritten Initial Public Offering. Ferris, Baker
Watts will receive customary compensation in its capacity as a co-manager of the
Initial Public Offering.
WE JAC engaged Ferris, Baker Watts to render its opinion to WE JAC's Board
of Directors, and not to represent specifically the interests of affiliated or
non-affiliated stockholders of WE JAC. Ferris, Baker Watts is a nationally
recognized investment banking firm and was selected by WE JAC based on Ferris,
Baker Watt's experience and expertise. Ferris, Baker Watts regularly engages in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
MIRACLE INDUSTRIES' REASONS FOR THE COMBINATION AND BOARD OF DIRECTORS'
RECOMMENDATION
The Board of Directors of Miracle Industries believes that the Combination
is fair to and in the best interests of Miracle Industries and its stockholders
and unanimously recommends that the Miracle Industries stockholders vote for the
approval of the Combination Agreement and the transactions contemplated thereby.
In evaluating the proposed Combination, the Board of Directors of Miracle
Industries considered a variety of factors, including financial and operating
information relating to WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I, Rocky Mountain II, Miracle Partners, Prema Properties, Ralston Car
Wash and KBG and reports from, and presentations by, its officers and legal
counsel. The Miracle Industries Board concluded, in light of these factors, that
the Combination is in the best interest of Miracle Industries and its
stockholders.
In evaluating the proposed Combination, the Board of Directors of Miracle
Industries also considered a variety of factors including both operational
factors and financial factors which relate to the individual companies and more
importantly, relate to the combined entity. The Board believes that from an
operational standpoint, the combined entity will be able to provide skilled
management with experience in a broad range of franchising issues. The Board
believes this should increase sales of Precision Auto Wash franchises and will
increase the prospective volume of purchasers of the Miracle Industries products
with respect to both the HydroSpray car wash equipment and car wash chemicals.
This potential increased body of customers should enable Miracle Industries to
more fully utilize its chemical production capacity as well as enabling its
manufacturing company, HydroSpray Car Wash Equipment, to utilize its capacity
more fully. The Combination will result in a substantial immediate elimination
of debt service and eliminate duplication of management functions which should
enable the operating officers to pursue sales, product development, and growth
while the management of the combined companies
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can deal with financial and operational issues. Accordingly, the Directors
believe that the value of the combined entity will likely exceed the sum of the
value of the individual companies.
In light of the variety of factors considered by Miracle Industries' Board
of Directors, the Board did not find it practical to and did not assign any
particular weight to any of the factors discussed above, but considered all of
these factors as a whole in reaching its determination.
The Miracle Industries Board concluded, in light of these factors, that the
Combination is in the best interests of Miracle Industries and its stockholders
and is fair to its stockholders. THE BOARD OF DIRECTORS OF MIRACLE INDUSTRIES
RECOMMENDS THAT THE STOCKHOLDERS OF MIRACLE INDUSTRIES APPROVE THE COMBINATION
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
LUBE VENTURES' REASONS FOR THE COMBINATION AND BOARD OF DIRECTORS'
RECOMMENDATION
The Board of Directors of Lube Ventures believes that the Combination is
fair to and in the best interests of Lube Ventures and its stockholders and
unanimously recommends that the Lube Ventures stockholders vote for the approval
and adoption of the Combination Agreement and the transactions contemplated
thereby. In evaluating the proposed Combination, the Board of Directors of Lube
Ventures considered a variety of factors, including financial and operating
information relating to WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I, Rocky Mountain II, Miracle Partners, Prema Properties, Ralston Car
Wash and KBG and reports from, and presentations by, its officers and legal
counsel. The factors considered by the Lube Ventures Board of Directors, all of
which were deemed material but were given varying priorities by individual
directors, included the following:
A significant factor was WE JAC's experience in the franchise industry and
the infrastructure that WE JAC has established to maintain the necessary record
keeping and operational controls of franchise units. Lube Ventures recently
began marketing and supporting the franchise businesses and anticipates that its
product could be significantly enhanced by the expertise brought to the
Combination by the WE JAC management.
The Board of Directors of Lube Ventures believes that combining the
automotive maintenance business with the fast oil change and lube business
should increase customer traffic at its sites closer to capacity. In addition,
management of Lube Ventures believes the Combination will enable Lube Ventures
to concentrate on marketing and production functions while management of the
combined companies can address franchises, training, and financial issues.
Accordingly, the Directors believe that the value of the combined entity will
likely exceed the sum of the value of the individual Constituent Companies.
In light of the variety of factors considered by Lube Ventures' Board of
Directors, the Board did not find it practical to and did not assign any
particular weight to any of the foregoing factors, but considered all of these
factors as a whole in reaching its determination.
The Lube Ventures Board concluded, in light of these factors, that the
Combination is in the best interests of Lube Ventures and its stockholders and
is fair to its stockholders. THE BOARD OF DIRECTORS OF LUBE VENTURES RECOMMENDS
THAT THE STOCKHOLDERS OF LUBE VENTURES APPROVE AND ADOPT THE COMBINATION
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
ROCKY MOUNTAIN I, ROCKY MOUNTAIN II AND RALSTON CAR WASH REASONS FOR THE
COMBINATION AND
BOARD OF DIRECTORS' AND MANAGING MEMBER'S RECOMMENDATION
Because the Boards of Directors of Rocky Mountain I and Rocky Mountain II
are comprised of the same three individuals, and because William Klumb, a member
of the Rocky Mountain I and Rocky Mountain II Board of Directors, is also the
Managing Member of Ralston Car Wash, the following discussion sets forth the
factors considered by the Rocky Mountain I and Rocky Mountain II Boards of
Directors and William Klumb, as a Rocky Mountain I and Rocky Mountain II Board
member and the Managing Member of Ralston Car Wash, and the reasons that the
Boards of Directors and the Managing Member of Rocky Mountain I, Rocky Mountain
II and Ralston Car Wash recommend the Combination.
The Boards of Directors of Rocky Mountain I and Rocky Mountain II believe
that the Combination is fair to and in the best interests of Rocky Mountain I
and Rocky Mountain II and their respective stockholders and unanimously
recommend that the Rocky Mountain I and Rocky Mountain II stockholders vote for
the approval of the Combination Agreement and the transactions contemplated
thereby. The Managing Member of Ralston Car Wash believes that the Consummation
is fair to and in the best interest of Ralston Car Wash and its members and
recommends that the Ralston Car Wash members tender their Membership Interests
to Precision Auto Care pursuant to the Exchange Offer. In evaluating the
proposed Combination,
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the Boards of Directors of Rocky Mountain I and Rocky Mountain II, and the
Managing Member of Ralston Car Wash considered a variety of factors, including
financial and operating information relating to the Constituent Companies and
reports from, and presentations by, its officers, Quist Financial, Inc. and
legal counsel. The factors considered by the Boards of Directors and the
Managing Member included, without limitation, the following:
1. No current public market exists for the Common Stock of Rocky Mountain
I, Rocky Mountain II or the Ralston Car Wash Membership Interests and the
Combination and the Initial Public Offering may result in an active trading
market for the Precision Auto Care Common Stock;
2. The Boards of Directors and the Managing Member believe that the shares
of Precision Auto Care Common Stock to be issued in the Combination to the
shareholders of Rocky Mountain I, Rocky Mountain II and the Ralston Car Wash
members may, although this cannot be assured, attain a greater aggregate value
in a public market than the shares of Rocky Mountain I Common Stock, Rocky
Mountain II Common Stock and Ralston Car Wash Membership Interests if Rocky
Mountain I, Rocky Mountain II and Ralston Car Wash remain privately held
companies;
3. The future growth prospects of Precision Auto Care after the Combination
that may result from the franchising of a variety of automotive maintenance
services;
4. The expectation that Precision Auto Care, because of its greater size
and access to public markets, will be in a better position to obtain additional
capital to expand its business than Rocky Mountain I, Rocky Mountain II or
Ralston Car Wash;
5. Other expected benefits of the Combination, including anticipated
economies of scale and expansion into other geographic markets;
6. The opinion of Quist Financial, Inc. that the consideration to be
received in the Combination by the shareholders of Rocky Mountain I and Rocky
Mountain II and the holders of Ralston Car Wash membership interests is fair to
such holders from a financial point of view;
7. The perceived trend in the self-service car wash industry toward
ownership of multiple car wash facilities by the same business; and
8. The expectation that the Combination will, with certain exceptions,
allow the shareholders of Rocky Mountain I and Rocky Mountain II and holders of
Ralston Car Wash membership interests to receive Precision Auto Care Common
Stock on a tax-free basis.
In light of the variety of factors, the Boards of Directors and the
Managing Member did not find it practical to, and did not, assign any particular
weight to any of the foregoing factors but considered all of these factors as a
whole in reaching their respective determinations.
The Rocky Mountain I Board concluded, in light of these factors, that the
Combination is in the best interests of Rocky Mountain I and its stockholders
and is fair to its stockholders. THE BOARD OF DIRECTORS OF ROCKY MOUNTAIN I
RECOMMENDS THAT THE STOCKHOLDERS OF ROCKY MOUNTAIN I APPROVE THE COMBINATION
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The Rocky Mountain II Board concluded, in light of these factors, that the
Combination is in the best interests of Rocky Mountain II and its stockholders
and is fair to its stockholders. THE BOARD OF DIRECTORS OF ROCKY MOUNTAIN II
RECOMMENDS THAT THE STOCKHOLDERS OF ROCKY MOUNTAIN II APPROVE THE COMBINATION
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The Ralston Car Wash Managing Member concluded, in light of these factors,
that the Combination is in the best interests of Ralston Car Wash and its
members and is fair to its members. THE MANAGING MEMBER OF RALSTON CAR WASH
RECOMMENDS THAT THE MEMBERS OF RALSTON CAR WASH TENDER THEIR MEMBERSHIP
INTERESTS TO PRECISION AUTO CARE IN THE EXCHANGE OFFER.
OPINION OF ROCKY MOUNTAIN I, ROCKY MOUNTAIN II AND RALSTON CAR WASH'S FINANCIAL
ADVISOR
Quist Financial, Inc. has rendered its opinion to Rocky Mountain I, Rocky
Mountain II and Ralston Car Wash that, as of , 1997, the consideration
to be received in the Combination by the shareholders of each of Rocky Mountain
I and Rocky Mountain II and the members of Ralston Car Wash is fair to such
shareholders and members from a financial point of view. The opinion of Quist,
which sets forth matters considered in connection with such opinion, is attached
as Appendix C
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and should be read in its entirety by shareholders of Rocky Mountain I and Rocky
Mountain II and the members of Ralston Car Wash. The summary of this opinion is
qualified in its entirety by reference to the full text of the opinion.
In connection with delivering its fairness opinion, Quist, among other
things, reviewed and considered certain historical financial information and
financial forecasts and other data for WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I, Rocky Mountain II, Miracle Partners, Prema
Properties, Ralston Car Wash and KBG.
Quist relied without independent verification upon the accuracy and
completeness of all of the financial information and other information reviewed
by it for purposes of the fairness opinion. The fairness opinion is necessarily
based on information as of the date thereof. The fairness opinion is directed
only to the consideration to be received by shareholders of Rocky Mountain I and
Rocky Mountain II and by members of Ralston Car Wash for their shares or
membership interests if the Combination is consummated. The fairness opinion
does not constitute a recommendation to any shareholder of Rocky Mountain I or
Rocky Mountain II as to how such shareholder should vote at the Rocky Mountain I
or Rocky Mountain II Special Meeting or to any member of Ralston Car Wash as to
whether such member should exchange his membership interest for shares of
Precision Auto Care Common Stock.
MIRACLE PARTNERS' REASONS FOR THE COMBINATION AND BOARD OF DIRECTORS'
RECOMMENDATION
The Board of Directors of Miracle Partners believes that the Combination is
fair to and in the best interests of Miracle Partners and its stockholders and
unanimously recommends that the Miracle Partners stockholders tender their
shares of Miracle Partners Common Stock for exchange pursuant to the Exchange
Offer. In evaluating the proposed Combination, the Board of Directors of Miracle
Partners considered a variety of factors, including financial and operating
information relating to WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I, Rocky Mountain II, Miracle Partners, Prema Properties, Ralston Car
Wash and KBG and reports from, and presentations by, its officers and legal
counsel. The factors considered by the Miracle Partners Board of Directors, all
of which were deemed material but were given varying priorities by individual
directors, included the following:
1. Miracle Partners is a closely held company and the Board of Directors
and sole shareholder expect that through the Combination and issuance of shares
in Precision Auto Care the value of the interest held by the shareholder may
increase significantly reflecting the values being contributed by the
Constituent Companies and the future growth potential of Precision Auto Care;
2. The shareholder of Miracle Partners expects to have access to liquid
public markets in the event he determines it is advisable from time to time to
liquidate shares of Precision Auto Care Common Stock;
3. Through the combined resources of Precision Auto Care, the facilities
owned by Miracle Partners will be upgraded which should result in greater
operating efficiencies;
4. Expected benefits from the Combination include the possible expansion of
the various businesses into various additional markets;
5. The Combination is expected to generate additional revenues through the
integration of the various lines of business into the sites owned by Miracle
Partners where this is feasible; and
6. The tax free nature of the Combination.
In light of the variety of factors considered by Miracle Partners' Board of
Directors, the Board did not find it practical to and did not assign any
particular weight to any of the foregoing factors, but considered all of these
factors as a whole in reaching its determination.
The Miracle Partners Board concluded, in light of these factors, that the
Combination is in the best interests of Miracle Partners and its stockholders
and is fair to its stockholders. THE BOARD OF DIRECTORS OF MIRACLE PARTNERS
RECOMMENDS THAT THE STOCKHOLDERS OF MIRACLE PARTNERS TENDER THEIR SHARES OF
MIRACLE PARTNERS COMMON STOCK TO PRECISION AUTO CARE IN THE EXCHANGE OFFER.
PREMA PROPERTIES' REASONS FOR THE COMBINATION AND MANAGING MEMBER RECOMMENDATION
The Managing Member of Prema Properties believes that the Combination is
fair to and in the best interests of Prema Properties and its members and
unanimously recommends that the Prema Properties members tender their Membership
Interests for exchange pursuant to the Exchange Offer. In evaluating the
proposed Combination, the Managing Member of Prema
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Properties considered a variety of factors, including financial and operating
information relating to WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I, Rocky Mountain II, Miracle Partners, Prema Properties, Ralston Car
Wash and KBG and reports from, and presentations by, its members and legal
counsel. The factors considered by the Prema Properties Managing Member, all of
which were deemed material but were given varying priorities by individual
members, included the following:
1. Prema Properties is limited in its ability to grow by the availability
of capital. After applying the proceeds of the Initial Public Offering, the
combined entities will initially have a lower level of indebtedness and have
capital to continue to expand operations.
2. The managing member of Prema Properties sees significant growth
potential in the fast oil change and lube industry. At the current time, Prema
Properties only benefits from the operation of one quick lube facility which is
located at its Brookpark location.
3. As a result of the Combination, Prema Properties should be in a position
to benefit from both existing lube sites as well as fast oil change and lube
sites that may be developed by the combined companies following the Combination.
The managing member of Prema Properties also believes that management
efficiencies and increased growth in the existing Prema Properties car washes
will result from cross-advertising and other marketing efforts conducted by the
combined entities.
4. Finally, the Managing Member of Prema Properties believes that Precision
Auto Care has the potential to grow at a much greater rate than Prema Properties
could grow as a stand-alone operation.
In light of the variety of factors considered by Prema Properties' Managing
Member, the Managing Member did not find it practical to and did not assign any
particular weight to any of the foregoing factors, but considered all of these
factors as a whole in reaching its determination.
The Prema Properties Managing Member concluded, in light of these factors,
that the Combination is in the best interests of Prema Properties and its
members and is fair to its members. THE MANAGING MEMBER OF PREMA PROPERTIES
RECOMMENDS THAT THE MEMBERS OF PREMA PROPERTIES TENDER THEIR MEMBERSHIP
INTERESTS TO PRECISION AUTO CARE IN THE EXCHANGE OFFER.
KBG'S REASONS FOR THE COMBINATION AND MANAGING MEMBER RECOMMENDATION
The Managing Member of KBG believes that the Combination is fair to and in
the best interests of KBG and its members and unanimously recommends that the
KBG members tender their Membership Interests for exchange pursuant to the
Exchange Offer. In evaluating the proposed Combination, the Managing Member of
KBG considered a variety of factors, including financial and operating
information relating to WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I, Rocky Mountain II, Miracle Partners, Prema Properties and Ralston
Car Wash. The primary factors considered by the KBG Managing Member were the
fact that the transaction should enable the Combined Constituent Companies to
distribute and franchise the proprietary HydroSpray car wash operating system
more rapidly than would otherwise be the case and the value of the consideration
to be realized in the Combination relative to the member's assessment of the
value of the PLC software owned by KBG.
The KBG Managing Member concluded, in light of these factors, that the
Combination is in the best interests of KBG and its members and is fair to its
members. THE MANAGING MEMBER OF KBG RECOMMENDS THAT THE MEMBERS OF KBG TENDER
THEIR MEMBERSHIP INTERESTS TO PRECISION AUTO CARE IN THE EXCHANGE OFFER.
INTERESTS OF CERTAIN PERSONS IN THE COMBINATION
STOCK AND OPTION HOLDINGS OF WE JAC DIRECTORS AND OFFICERS. Under the
Combination Agreement, from and after the Effective Time, each warrant, option
or other right to purchase or receive WE JAC Common Stock will be converted into
a right to purchase or receive the same number of shares of Precision Auto Care
Common Stock as the holder of such option, warrant or right would have received
had he or she exercised his or her option, warrant or right in full immediately
prior to the Effective Time. Because each outstanding share of WE JAC Common
Stock will be converted into the right to receive 1.0 share of Precision Auto
Care Common Stock, no adjustment will be made to the number of shares or the
exercise price per share underlying each option.
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The chart below indicates as to the directors and executive officers of WE
JAC the number of options, warrants or rights outstanding under applicable WE
JAC stock options plans or other arrangements.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
OPTION HOLDER OPTION SHARES PER SHARE
- ------------- ------------- ------------------
<S> <C> <C>
John F. Ripley 193,100 $ 8.66
James A. Hay 5,000 10.00
Arnold Janofsky 21,500 8.58
Grant Nicolai 12,500 8.25
Woodley A. Allen 10,000 10.00
Edward Bannourah 7,000 10.00
Bernard Clineburg 10,000 10.00
Lynn E. Caruthers 10,000 10.00
Robert A. Corish 10,000 10.00
Bassam N. Ibrahim 10,000 10.00
Arthur Kellar 10,000 10.00
Robert Kelly 10,000 10.00
Harry Pappas 12,500 10.00
</TABLE>
The vesting of certain options held by the executives and directors of WE
JAC named in the table above (other than Messrs. Hay, Janofsky and Nicolai) will
accelerate and vest immediately upon consummation of the Merger. Accordingly, in
the aggregate, 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) held by
certain executive officers of WE JAC will vest following consummation of the
Combination.
EMPLOYMENT AGREEMENTS. In connection with the Combination, John F. Ripley,
William R. Klumb, Peter Kendrick, Arnold Janofsky, Grant G. Nicolai and James A.
Hay will enter into employment agreements with Precision Auto Care and Ernest S.
Malas will enter into a consulting agreement. For a description of the terms and
conditions of such employment and consulting agreements see "Information
Concerning Precision Auto Care -- Management of Precision Auto Care --
Employment Agreements and Other Arrangements."
GRANTS OF ADDITIONAL OPTIONS. Precision Auto Care intends to grant options
to purchase 25,000 shares of Common Stock, 12,500 shares of Common Stock, 12,500
shares of Common Stock and 12,500 shares of Common Stock to Ernest Malas, Karl
Byrer, Effie Eliopulos and William Klumb, respectively, effective at the closing
of the Combination. Such options will have an exercise price per share equal to
the Initial Public Offering price and 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 Precision Auto Care 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 (a
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. Precision Auto Care 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 Precision Auto Care would have the right to renew the leases
for two successive ten year terms.
FRANCHISE TRANSACTIONS. Under the terms of the Combination Agreement,
Precision Auto Care 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
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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.
Precision Auto Care 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 Precision Auto Care's normal selling price to high
volume distributors. This will result in a discount of approximately $250,000 in
the aggregate from such selling prices. Eugene Deal 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 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. William Klumb owns a 25%
interest in a company that will operate one of the Precision Lube Express
franchises. George Bavelis, a director of the Company, owns a 25% interest in a
company that will operate one of the Precision Auto Wash franchises. Ernest
Malas has interests ranging from 16.5% to 50% in five companies which will own
in the aggregate eight Precision Lube Express franchises and six Precision Car
Wash franchises.
DISCHARGE OF GUARANTEED INDEBTEDNESS. 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.
STOCKHOLDER APPROVALS
WE JAC STOCKHOLDER APPROVAL. The Delaware General Corporation Law and WE
JAC's Certificate of Incorporation require the affirmative vote of a majority of
the issued and outstanding shares of WE JAC Common Stock for approval and
adoption of the Combination Agreement.
MIRACLE INDUSTRIES STOCKHOLDER APPROVAL. The Ohio General Corporation Law
and Miracle Industries' Certificate of Incorporation require the affirmative
vote of two-thirds of the issued and outstanding shares of Miracle Industries
Common Stock for approval and adoption of the Combination Agreement.
LUBE VENTURES STOCKHOLDER APPROVAL. The Delaware General Corporation Law
and Lube Ventures' Certificate of Incorporation require the affirmative vote of
a majority of the issued and outstanding shares of Lube Ventures Common Stock
for approval and adoption of the Combination Agreement.
ROCKY MOUNTAIN I STOCKHOLDER APPROVAL. The Colorado Business Corporation
Act and the Rocky Mountain I Certificate of Incorporation require the
affirmative vote of a majority of the issued and outstanding of Rocky Mountain I
Common Stock for approval and adoption of the Combination Agreement.
ROCKY MOUNTAIN II STOCKHOLDER APPROVAL. The Colorado Business Corporation
Act and the Rocky Mountain II Certificate of Incorporation require the
affirmative vote of a majority of the issued and outstanding of Rocky Mountain
II Common Stock for approval and adoption of the Combination Agreement.
WE JAC ACQUISITION APPROVAL. The Delaware General Corporation Law requires
the affirmative vote of a majority of the issued and outstanding shares of
Common Stock of WE JAC Acquisition for approval and adoption of the Combination
Agreement. Precision Auto Care owns all such shares and has voted such shares to
approve the Combination Agreement.
MIRACLE INDUSTRIES ACQUISITION APPROVAL. The Ohio General Corporation Law
requires the affirmative vote of a majority of the issued and outstanding shares
of Common Stock of Miracle Industries Acquisition for approval and adoption of
the Combination Agreement. Precision Auto Care owns all such shares and has
voted such shares to approve the Combination Agreement.
LUBE VENTURES ACQUISITION APPROVAL. The Delaware General Corporation Law
requires the affirmative vote of a majority of the issued and outstanding shares
of Common Stock of Lube Ventures Acquisition for approval and adoption of the
Combination Agreement. Precision Auto Care owns all such shares and has voted
such shares to approve the Combination Agreement.
ROCKY MOUNTAIN I ACQUISITION APPROVAL. The Colorado Business Corporation
Act requires the affirmative vote of a majority of the issued and outstanding
shares of Common Stock of Rocky Mountain I Acquisition for approval and adoption
of the Combination Agreement. Precision Auto Care owns all such shares and has
voted such shares to approve the Combination Agreement.
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ROCKY MOUNTAIN II ACQUISITION APPROVAL. The Colorado Business Corporation
Act requires the affirmative vote of a majority of the issued and outstanding
shares of Common Stock of Rocky Mountain II Acquisition for approval and
adoption of the Combination Agreement. Precision Auto Care owns all such shares
and has voted such shares to approve the Combination Agreement.
RIGHTS OF STOCKHOLDERS TO DISSENT WITH RESPECT TO MERGERS
The following describes certain rights each of the holders of WE JAC Common
Stock, Miracle Industries Common Stock, Lube Ventures Common Stock, Rocky
Mountain I Common Stock and Rocky Mountain II Common Stock has to dissent to the
Merger and demand the appraisal of his or her common stock. Because the
dissenters' rights that are available to holders of WE JAC and Lube Ventures
Common Stock and to holders of Rocky Mountain I and Rocky Mountain II are
identical in all material respects, the description of the rights available to
each of the two groups of holders has been combined below for the convenience of
the reader.
WE JAC AND LUBE VENTURES
Holders of shares of WE JAC Common Stock and holders of share of Lube
Ventures Common Stock who do not vote in favor of the Merger or waive appraisal
rights and who properly demand appraisal of their WE JAC Common Stock or Lube
Ventures Common Stock will be entitled to appraisal rights in connection with
the Merger under Section 262 of the DGCL.
The holders of more than 26.9% of the WE JAC Common Stock and 100% of Lube
Ventures Common Stock have indicated their current intention to vote such shares
in favor of the Combination (which includes the Merger) at the WE JAC Special
Meeting and the Lube Ventures Special Meeting, respectively and not demand or to
assert any rights of appraisal under the DGCL in connection with the Merger.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTION 262 WHICH IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS
AS APPENDIX E. ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO A
"STOCKHOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF WE JAC COMMON STOCK OR
LUBE VENTURES COMMON STOCK AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED. A PERSON
HAVING A BENEFICIAL INTEREST IN SHARES OF WE JAC COMMON STOCK OR LUBE VENTURES
COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER OR
NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE STEPS
SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT APPRAISAL RIGHTS.
Under the DGCL, holders of shares of WE JAC Common Stock or Lube Ventures
Common Stock who follow the procedures set forth in Section 262 will be entitled
to have their shares of WE JAC Common Stock or Lube Ventures Common Stock, as
the case may be, appraised by the Delaware Court of Chancery and to receive
payment of the "fair value" of such shares, exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, as determined by such court.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the case of the WE JAC Special Meeting or the
Lube Ventures Special Meeting, the corporation, not less than 20 days prior to
the meeting, must notify each of its stockholders entitled to appraisal rights
that such appraisal rights are available and include in such notice a copy of
Section 262. This Joint Proxy Statement/Prospectus shall constitute such notice,
and the applicable statutory provisions are attached to this Joint Proxy
Statement/Prospectus as Appendix E. Any holder of WE JAC Common Stock or Lube
Ventures Common Stock who wishes to exercise such appraisal rights or who wishes
to preserve his, her or its right to do so, should review the following
discussion and Appendix E carefully because failure to comply properly and on a
timely basis with the specified procedures will result in the loss of appraisal
rights under the DGCL.
A holder of shares of WE JAC Common Stock or Lube Ventures Common Stock
wishing to exercise his, her or its appraisal rights must deliver to WE JAC or
Lube Ventures, as the case may be, before the vote on the Combination (which
includes the Merger) at the WE JAC Special Meeting or the Lube Ventures Special
Meeting, a written demand for appraisal of his, her or its shares of WE JAC
Common Stock or Lube Ventures Common Stock and must not vote in favor of the
Merger (which is being submitted as a part of the Combination). Because a duly
executed proxy that does not contain voting instructions will, unless revoked,
be voted FOR the Combination, a holder of shares of WE JAC Common Stock or Lube
Ventures Common Stock who votes by proxy and who wishes to exercise his, her or
its appraisal rights must (i) vote AGAINST the Combination, or (ii) abstain from
voting on the Combination. A vote against the Combination, in person or by
proxy, will not in and of itself constitute a written demand for appraisal
satisfying the requirements of Section 262. In addition, a holder of shares of
WE JAC Common Stock or Lube Ventures Common Stock wishing to exercise his, her
or its appraisal rights must hold of record such shares on the date the written
demand for appraisal is made and must continue to
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hold such shares of record until the Merger Effective Time. If any holder of
shares of WE JAC Common Stock or Lube Ventures Common Stock fails to comply with
any of these conditions and the Merger becomes effective, the holder of shares
of WE JAC Common Stock or Lube Ventures Common Stock will be entitled to receive
the whole number of Precision Auto Care shares of Common Stock (and cash in lieu
of fractional shares) receivable with respect to such shares pursuant to the
terms of the Combination Agreement.
Only a holder of record of shares of WE JAC Common Stock or Lube Ventures
Common Stock is entitled to assert appraisal rights for the shares of WE JAC
Common Stock or Lube Ventures Common Stock registered in that holder's name. A
demand for appraisal should be executed by or on behalf of the holder of record,
fully and correctly, as his, her or its name appears on his, her or its stock
certificate, and must state that the stockholder intends thereby to demand
appraisal of his, her or its shares in connection with the Merger. If the shares
of WE JAC Common Stock or Lube Ventures Common Stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the shares of WE JAC Common
Stock or Lube Ventures Common Stock are owned of record by more than one person,
as in a joint tenancy and tenancy in common, the demand should be executed by or
on behalf of all joint owners. An authorized agent, including two or more joint
owners, may execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for such
owner or owners. A record holder such as a broker who holds shares of WE JAC
Common Stock or Lube Ventures Common Stock as nominee for several beneficial
owners may exercise appraisal rights with respect to the shares of WE JAC Common
Stock or Lube Ventures Common Stock held for one or more beneficial owners while
not exercising such rights with respect to the shares of WE JAC Common Stock or
Lube Ventures Common Stock held for other beneficial owners; in such case,
however, the written demand should set forth the number of shares of WE JAC
Common Stock or Lube Ventures Common Stock as to which appraisal is sought and
where no number of shares of WE JAC Common Stock or Lube Ventures Common Stock
is expressly mentioned the demand will be presumed to cover all shares of WE JAC
Common Stock or Lube Ventures Common Stock held in the name of the record owner.
Stockholders who hold their shares of WE JAC Common Stock or Lube Ventures
Common Stock in brokerage accounts or other nominee forms and who wish to
exercise appraisal rights are urged to consult with their brokers to determine
the appropriate procedures for the making of a demand for appraisal by such a
nominee.
All written demands for appraisal relating to WE JAC pursuant to Section
262 should be sent or delivered to WE JAC at 748 Miller Drive, S.E., Leesburg,
Virginia 20175, Attention: Corporate Secretary. All written demands for
appraisal relating to Lube Ventures pursuant to Section 262 should be sent or
delivered to Lube Ventures at , Attention: Corporate Secretary.
Within ten days after the Merger Effective Time, Precision Auto Care, as
the surviving corporation of the Merger, must notify each holder of WE JAC
Common Stock and each holder of Lube Ventures Common Stock and each holder of
Lube Ventures Common Stock who has complied with Section 262 and has not voted
in favor of or consented to the Merger of the date that the Merger has become
effective. Within 120 days after the Merger Effective Time, but not thereafter,
Precision Auto Care or any holder of WE JAC Common Stock and any holder of Lube
Ventures Common Stock who has so complied with Section 262 and is entitled to
appraisal rights under Section 262 may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of his, her or its shares
of WE JAC Common Stock or Lube Ventures Common Stock. Precision Auto Care is
under no obligation to and has no present intention to file such a petition.
Accordingly, it is the obligation of the holders of WE JAC Common Stock or Lube
Ventures Common Stock to initiate all necessary action to perfect their
appraisal rights within the time prescribed in Section 262.
Within 120 days after the Merger Effective Time, any holder of WE JAC
Common Stock and any holder of Lube Ventures Common Stock who has complied with
the requirements for exercise of appraisal rights will be entitled, upon written
request, to receive from Precision Auto Care a statement setting forth the
aggregate number of shares of WE JAC Common Stock or Lube Ventures Common Stock
entitled to demand appraisal rights not voted in favor of the Merger and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such statement must be mailed within ten days
after a written request therefor has been received by Precision Auto Care or
within ten days after the expiration of the period for delivery of demands for
appraisal, whichever is later.
If a petition for an appraisal is timely filed by a holder of shares of WE
JAC Common Stock or Lube Ventures Common Stock entitled to demand appraisal
rights and a copy thereof is served upon Precision Auto Care, Precision Auto
Care will then be obligated within 20 days to file with the Delaware Register in
Chancery a duly verified list containing the names and addresses of all holders
of WE JAC Common Stock and any holder of Lube Ventures Common Stock who have
demanded an appraisal of their shares and with whom agreements as to the value
of their shares have not been reached. After notice to such
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stockholders as required by the Court, the Delaware Court of Chancery is
empowered to conduct a hearing on such petition to determine those holders of WE
JAC Common Stock or Lube Ventures Common Stock who have complied with Section
262 and who have become entitled to appraisal rights thereunder. The Delaware
Court of Chancery may require the holders of shares of WE JAC Common Stock or
Lube Ventures Common Stock who demanded payment for their shares to submit their
stock certificates to the Register in Chancery for notation thereon of the
pendency of the appraisal proceeding; and if any stockholder fails to comply
with such direction, the Court of Chancery may dismiss the proceedings as to
such stockholder.
After determining the holders of WE JAC Common Stock or of Lube Ventures
Common Stock entitled to appraisal, the Delaware Court of Chancery will appraise
the "fair value" of their shares of WE JAC Common Stock or of Lube Ventures
Common Stock exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Holders of WE JAC
Common Stock or of Lube Ventures Common Stock considering seeking appraisal
should be aware that the fair value of their shares of WE JAC Common Stock or of
Lube Ventures Common Stock as determined in an appraisal proceeding under
Section 262 could be more than, the same as or less than the value of the shares
(and cash in lieu of fractional shares) they would receive pursuant to the
Merger if they did not seek appraisal of their shares of WE JAC Common Stock or
Lube Ventures Common Stock, and that investment banking opinions as to fairness
from a financial point of view are not necessarily opinions as to fair value
under Section 262. The Delaware Supreme Court has stated that "proof of value by
any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered in
the appraisal proceeding. In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy. The Court of Chancery will also determine the
amount of interest, if any, to be paid upon the amounts to be received by
persons whose shares of WE JAC Common Stock or Lube Ventures Common Stock have
been appraised. The costs of the action may be determined by the Court and taxed
upon the parties as the Court deems equitable. The Court may also order that all
or a portion of the expenses incurred by any stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
against the value of all the shares of WE JAC Common Stock or Lube Ventures
Common Stock entitled to be appraised.
Any holder of shares of WE JAC Common Stock or Lube Ventures Common Stock
who has duly demanded an appraisal in compliance with Section 262 will not,
after the Merger Effective Time, be entitled to vote the shares of WE JAC Common
Stock or Lube Ventures Common Stock subject to such demand for any purpose or be
entitled to the payment of dividends or other distributions on those shares of
WE JAC Common Stock or Lube Ventures Common Stock (except dividends or other
distributions payable to holders of record of WE JAC Common Stock or Lube
Ventures Common Stock as of a record date prior to the Merger Effective Time).
If any stockholder who demands appraisal of his, her or its shares of WE
JAC Common Stock or Lube Ventures Common Stock under Section 262 fails to
perfect, or effectively withdraws or loses, his, her or its right to appraisal,
as provided in the DGCL, the shares of WE JAC Common Stock or Lube Ventures
Common Stock held by such stockholder will be converted into the right to
receive shares of Precision Auto Care Common Stock (and cash in lieu of
fractional shares) pursuant to the Combination Agreement as described herein
(without interest). A stockholder will fail to perfect, or effectively lose or
withdraw, his, her or its right to appraisal if no petition for appraisal is
filed within 120 days after the Merger Effective Time, or if the stockholder
delivers to Precision Auto Care a written withdrawal of his, her or its demand
for appraisal and an acceptance of the Merger, except that any such attempt to
withdraw made more than 60 days after the Merger Effective Time will require the
written approval of Precision Auto Care and, once a petition for appraisal is
filed, the appraisal proceeding may not be dismissed as to any holder absent
court approval.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
Pursuant to the Combination Agreement, from and after the Merger Effective
Time, Precision Auto Care will be solely responsible for the payment of any and
all consideration that may be determined pursuant to Section 262 to be due to
the holders of WE JAC Common Stock and holders of Lube Ventures Common Stock who
have perfected their rights to appraisal as described herein.
MIRACLE INDUSTRIES
Under Section 1701.84(A) of the Ohio General Corporation Law (the "OGCL"),
shareholders of an Ohio corporation which is being merged into a corporation
incorporated in Ohio are entitled to relief as dissenting shareholders under
Section 1701.85 of the OGCL. In addition under Section 1701.84(D) of the OGCL in
the case of a combination or majority share
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acquisition, shareholders of an acquiring corporation who under Section 1701.83
of the OGCL are entitled to vote on such transaction are entitled to relief
under Section 1701.85 as to shares entitling them to vote. Under Section
1701.85, the dissenting shareholder must be a holder of record of Miracle
Industries on the record date for the special meeting held to consider the
Combination. The following discussion is not a complete statement of law
pertaining to dissenters' rights under the OGCL and is qualified in its entirety
by the full text of Section 1701.85 which is reprinted in its entirety as
Appendix F to this Joint Proxy Statement/Prospectus and is incorporated herein
by reference. Any shareholder contemplating the exercise of dissenter's rights
is urged to review carefully the provisions of Section 1701.85.
Pursuant to the Combination Agreement and notwithstanding anything therein
to the contrary, dissenting holders of Miracle Industries Common Stock will not
be converted into the right to receive shares of Precision Auto Care Common
Stock in accordance with the Miracle Industries Exchange Ratio but shall become
the right to receive payment of the fair cash value of such shares in accordance
with the provisions of Section 1701.85; provided, however, that (i) if any
holder of dissenting shares shall subsequently withdraw such holder's demand for
payment of the fair cash value of such shares (with the consent of Precision
Auto Care by action of its directors), (ii) if any holder of dissenting shares
fails to comply with such Section 1701.85 (unless Precision Auto Care by action
of its directors waives such failure), (iii) if Miracle Industries abandons or
is finally enjoined or prevented from carrying out the Combination, or the
holders of shares rescind their adoption of the Combination Agreement and
authorization of the Combination or (iv) if Precision Auto Care and any holder
of dissenting shares will not have come to an agreement as to the fair cash
value of such holder's dissenting shares, and neither such holder of dissenting
shares nor Precision Auto Care has filed a complaint or joined in a proceeding
demanding a determination of the value of all dissenting shares within the
period provided in Section 1701.85, the right and obligation of such holder or
holders (as the case may be) to receive such fair cash value will terminate,
and, subject to applicable law, each such dissenting share shall thereupon be
deemed to have been converted into and to have become, as of the Effective Time
of the Combination, the right to receive, without any interest thereon, the
shares of Precision Auto Care Common Stock in accordance with the Miracle
Industries Exchange Ratio.
CONDITIONS. If a holder of record on the record date of the appropriate
Special Meeting elects to exercise dissenters' rights under Section 1701.85,
such holder must satisfy both of the following conditions: (i) the shareholder
must not vote in favor of the adoption of the Combination Agreement and
authorization of the Combination (voting in favor of or delivering a proxy in
favor of the adoption of the Combination Agreement and authorization of the
Combination or any unmarked proxy will constitute a waiver of such holder's
dissenters' rights); and (ii) not later than ten days after the date on which
such vote is taken, the shareholder must deliver to Miracle Industries, the
Common Stock as to which the shareholder seeks relief, stating the shareholder's
address, the number of shares of Miracle Industries Common Stock and the amount
claimed by the shareholder as the fair cash value of such shares of Miracle
Industries Common Stock. A proxy or vote against the adoption of the Combination
Agreement and authorization of the Combination or an abstention will not alone
satisfy this demand requirement.
DEPOSIT OF CERTIFICATES. If Miracle Industries sends to the shareholder, at
the address specified in the written demand for payment, a request for the
certificates representing the shares of Miracle Industries Common Stock as to
which relief is sought, the shareholder, within 15 days from the date of the
sending of such request, shall deliver to Miracle Industries or Precision Auto
Care the certificates requested in order that Miracle Industries or Precision
Auto Care may endorse on them a legend to the effect that demand for the fair
cash value of such shares has been made. Miracle Industries, Lube Ventures or
Precision Auto Care shall return promptly such endorsed certificates to the
shareholder. Failure on the part of the shareholder to deliver such certificates
terminates the shareholder's rights as a dissenting shareholder, at the option
of Miracle Industries, exercised by written notice sent to the shareholder
within 20 days after the lapse of the 15-day period, unless a court for good
cause shown otherwise directs. Such request by Miracle Industries is not an
admission by Miracle Industries that the shareholder is entitled to relief under
Section 1701.85.
COURT APPRAISAL. Unless Miracle Industries and the dissenting shareholder
have come to an agreement on the fair cash value per share of the shares of
Miracle Industries Common Stock as to which relief is sought, either Miracle
Industries or Precision Auto Care or the dissenting shareholder may file a
complaint in the court of common pleas in the Ohio county in which the principal
offices of Miracle Industries is located within three months after the service
of the written demand for payment by the shareholder. Within the period of three
months, other dissenting shareholders may join as plaintiffs, or may be joined
as defendants, in any such proceeding, and any two or more such proceedings may
be consolidated.
If a complaint is timely filed, at the hearing on such complaint, the
common pleas court shall determine, from the complaint and from such evidence as
is submitted by either party, whether the shareholder is entitled to be paid the
fair cash value of any dissenting shares and, if so, the number of such
dissenting shares on which such shareholder is entitled to
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payment. If the court finds that the shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as are specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share of Miracle
Industries Common Stock as of the date prior to the date of the applicable
Special Meeting, and shall render judgment against Precision Auto Care for the
payment of it, with interest at such rate and from such date the court considers
equitable. The costs of the proceeding, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable unless the shareholder's right to receive fair cash
value has terminated. The fair cash value shall be paid within 30 days after the
date of final determination of such value or the consummation of the
Combination, whichever occurs later.
The fair cash value of a share of Miracle Industries Common Stock is
defined under Section 1701.85 as the amount that a willing seller, under no
compulsion to sell, would be willing to accept, and that a willing buyer, under
no compulsion to purchase, would be willing to pay, but in no event will the
fair cash value exceed the amount specified in the demand of the particular
shareholder. In computing such fair cash value, any appreciation or depreciation
in market value resulting from the proposed Combination is to be excluded.
TERMINATION OF DISSENTERS' RIGHTS. The shareholder's right to receive the
fair cash value terminates if: (i) the shareholder has not complied with Section
1701.85, unless Miracle Industries or Precision Auto Care by its directors
waives such failure; (ii) Miracle Industries abandons or is finally enjoined or
prevented from carrying out, or the shareholders rescind their adoption of, the
Combination Agreement; (iii) the shareholder withdraws the demand of payment of
the fair cash value, with the consent of Miracle Industries or Precision Auto
Care by its directors; or (iv) Miracle Industries and the shareholder have not
come to an agreement as to the fair cash value per share of Miracle Industries
Common Stock, and neither the shareholder nor Miracle Industries nor Precision
Auto Care has filed or joined in a complaint described above within the
three-month period provided.
SUSPENSION OF SHAREHOLDERS' RIGHTS. From the time of giving the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares of Miracle Industries Common Stock by Precision Auto
Care, all other rights accruing from such shares of Miracle Industries Common
Stock, including voting and dividend or distribution rights, are suspended. If,
during the suspension, any dividend or distribution is paid in money upon shares
of Miracle Industries Common Stock or any dividend or distribution is paid in
money upon Precision Auto Care Common Stock issued in extinguishment of or in
substitution for such shares of Miracle Industries Common Stock, an amount equal
to the dividend or distribution that, except for the suspension, would have been
payable upon such shares shall be paid to the shareholder of record as a credit
upon the fair cash value of the shares of Miracle Industries Common Stock;
provided, that, if the right to receive fair cash value is terminated otherwise
than by the purchase of the shares of Miracle Industries Common Stock by
Precision Auto Care, all rights of the shareholder shall be restored and all
distributions that, except for the suspension, would have been made shall be
made to the shareholder of record of the shares of Miracle Industries Common
Stock at the time of termination.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II
The following summary does not purport to be a complete statement of the
procedures to be followed by Rocky Mountain I and Rocky Mountain II shareholders
desiring to exercise dissenters' rights and is qualified in its entirety by
reference to the provisions of Article 113 of the Colorado Business Corporation
Act, the full text of which is attached hereto as Appendix G to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. As the
preservation and the exercise of dissenters' rights require strict adherence to
the provisions of these laws, each Rocky Mountain I and Rocky Mountain II
shareholder who might desire to exercise such rights should review such laws
carefully, timely consult his or her own legal advisor and strictly adhere to
the provisions thereof.
Any holder of shares of Rocky Mountain I or Rocky Mountain II Common Stock
may, as an alternative to receiving Precision Auto Care Common Stock, dissent
from the Merger and obtain payment of the fair value of such holder's shares of
Rocky Mountain I or Rocky Mountain II pursuant to Article 113 of the CBCA. "Fair
value" means the value of the shares immediately before the Effective Time,
excluding any appreciation or depreciation in anticipation of the Merger except
to the extent that exclusion would be inequitable.
A holder of record may assert dissenters' rights as to fewer than all of
the Rocky Mountain I or Rocky Mountain II shares registered in the holder's name
only if the holder dissents with respect to all the shares beneficially owned by
any one person and discloses to Rocky Mountain I or Rocky Mountain II, as the
case may be, the name, address and federal taxpayer identification number (if
any) of the person or persons on whose behalf the holder dissents. In that
event, the holder's rights
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shall be determined as if the shares as to which the holder has dissented and
the holder's other shares were registered in the names of different
shareholders. A beneficial owner of Rocky Mountain I or Rocky Mountain II shares
who is not the record holder may assert dissenters' rights with respect to
shares held on such owner's behalf and shall be treated as a dissenting
shareholder under the terms of the CBCA if (i) the beneficial owner causes Rocky
Mountain I or Rocky Mountain II, as the case may be, to receive the record
shareholder's written consent to the dissent at the time of or before
dissenters' rights are asserted and (ii) such beneficial owner dissents with
respect to all shares beneficially owned by such owner.
Any shareholder contemplating making a demand for payment is urged to
review carefully the provisions of Sections 7-113-202 and 7-113-204,
particularly the procedural steps required by Section 7-113-204 to perfect
dissenters' rights thereunder. Dissenters' rights will be lost if the procedural
requirements of Section 7-113-204 are not fully and precisely satisfied.
1. FILING NOTICE OF INTENTION TO DEMAND PAYMENT. Before a shareholders'
vote is taken on the Merger, a holder who wishes to dissent must file with Rocky
Mountain I or Rocky Mountain II, as the case may be, a written notice of the
holder's intention to demand payment of the fair value for the holder's shares
if the Merger is consummated. A vote against approval and authorization of the
Merger or failure to vote on the Merger does not satisfy this statutory
requirement.
2. NO VOTE IN FAVOR OF THE MERGER. The holder seeking compensation for
shares must refrain from voting the holder's shares to approve and authorize the
Merger. If a holder returns a signed proxy but does not specify a vote AGAINST
approval of the Merger or a directive to abstain, the proxy will be voted FOR
approval of the Merger, which will have the effect of waiving that holder's
dissenters' rights.
3. DEMAND FOR PAYMENT. If the Merger is approved and authorized by the
required vote of Rocky Mountain I or Rocky Mountain II shareholders, as the case
may be, Rocky Mountain I or Rocky Mountain II shall mail a notice to all holders
who gave timely notice of their intention to demand payment and who refrained
from voting in favor of the Merger, no later than 10 days after the Effective
Time of the Merger. The notice shall state that the Merger was authorized and
the Effective Time or proposed effective date of the Merger. The notice shall
also state where and when a demand for payment shall be sent and where and when
certificates shall be deposited in order to seek payment, shall supply a form
for demanding payment which includes a request for certification of the date on
which the holder acquired beneficial ownership of the shares, and shall be
accompanied by a copy of Article 113 of the CBCA. The time set for the demand
and deposit shall not be less than 30 days from the mailing of the notice. A
holder who fails to demand payment and deposit stock certificates as required in
the notice will lose dissenter's rights.
4. PAYMENT BY THE COMPANY. Immediately upon consummation of the Merger, or
upon receipt of a demand for payment if the Merger has already been consummated,
Rocky Mountain I or Rocky Mountain II, as the case may be, shall remit to a
dissenting shareholder who has made demand and deposited such holder's
certificates a check in the amount which Rocky Mountain I or Rocky Mountain II
estimates to be the fair value of the shares, with interest if any has accrued.
(This procedure may vary at Rocky Mountain I or Rocky Mountain II's election for
any shares as to which the dissenter was not a beneficial owner prior to the
record date.) Rocky Mountain I or Rocky Mountain II, as the case may be, must
also send certain financial statements, including the corporation's balance
sheet as of the end of its most recent fiscal year or, if that is not available,
the corporation's balance sheet as of the end of a fiscal year ending not more
than sixteen months before the date of payment, and an income statement for that
year. The payment shall also be accompanied by a statement of the corporation's
estimate of the fair value of the shares, an explanation of how interest was
calculated, a statement of the dissenter's right to demand payment under Section
7-113-209, and a copy of Article 113 of the CBCA. Any estimate by Rocky Mountain
I or Rocky Mountain II of the fair value of shares will not necessarily be the
market price.
5. SUPPLEMENTAL DEMAND FOR PAYMENT. If the dissenting shareholder believes
that the amount remitted is less than the fair value of the holder's shares or
that the interest is not correctly determined, or if Rocky Mountain I or Rocky
Mountain II fails to make payment as required within 60 days after the date set
by Rocky Mountain I Rocky Mountain II by which it was to receive the payment
demand, or if Rocky Mountain I or Rocky Mountain II does not return the
deposited certificates, the dissenting shareholder may mail to Rocky Mountain I
or Rocky Mountain II the holder's own written estimate of the fair value of the
holder's shares and of the amount of accrued interest due and demand payment of
such estimate, less any payment previously made. Although the Colorado statute
is not clear on this point, the estimate and supplemental demand for payment
should be received by Rocky Mountain I or Rocky Mountain II 30 days after
effectuation of the Merger or, if the Merger has already occurred by the time
Rocky Mountain I or Rocky Mountain II receives the original demand for payment,
within 30 days of such original demand.
6. COURT PROCEEDINGS. If any demand for payment remains unsettled within 60
days after receipt of such demand, Rocky Mountain I or Rocky Mountain II, as the
case may be, may file in an appropriate court a petition requesting that the
fair value
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of the shares and interest thereon be determined by the court. If Rocky Mountain
I or Rocky Mountain II fails to file such a petition, each dissenting
shareholder who has made a demand and has not already settled the dissenter's
claim is entitled to be paid by Rocky Mountain I or Rocky Mountain II, as the
case may be, the amount demanded by such dissenting shareholder with interest.
The dissenter may sue for this amount in an appropriate court.
7. COSTS AND EXPENSES. The costs and expenses of any court proceeding,
including the reasonable compensation and expense of appraisers appointed by the
court, shall be determined by the court and assessed against Rocky Mountain I or
Rocky Mountain II, as the case may be, except that any part of the costs and
expenses may be apportioned and assessed as the court may deem equitable against
all or some of the dissenting shareholders who are parties to the court
proceeding and whose action in demanding payment the court finds to be
arbitrary, vexatious or not in good faith.
NO RIGHT TO DISSENT IN EXCHANGE OFFERS
Because Precision Auto Care is making the Exchange Offers for all of the
outstanding shares of Miracle Partners Common Stock and all of the outstanding
Prema Properties, Ralston Car Wash and KBG Membership Interests, no special
meeting of Miracle Partners stockholders or Prema Properties, Ralston Car Wash
or KBG members will be convened in connection with the Exchange Offer.
Stockholders of Miracle Partners and holders of membership interests in Prema
Properties, Ralston Car Wash and KBG will not have any dissenters' rights or
rights to seek the appraisal of their shares of Miracle Partners Common Stock or
Prema Properties, Ralston Car Wash or KBG Membership Interests in connection
with the Exchange Offer.
FAILURE TO OBTAIN REQUIRED STOCKHOLDER AND MEMBER APPROVAL AND TENDER
The Combination Agreement provides that (i) if the holders of a majority of
the outstanding shares of common stock of any of WE JAC, Miracle Industries,
Lube Ventures, Rocky Mountain I and Rocky Mountain II fail to approve the
Combination Agreement, such company shall be obligated to issue ratably to the
other parties to the Combination Agreement (other than Precision Auto Care)
shares of its capital stock that will represent 20% of the issued and
outstanding shares of its capital stock calculated on a fully diluted basis;
(ii) if the holders of two-thirds of the outstanding shares of common stock of
Miracle Industries fail to approve the Combination Agreement, Miracle Industries
shall be obligated to issue ratably to the other parties to the Combination
Agreement (other than Precision Auto Care) shares of its capital stock that will
represent 20% of the issued and outstanding shares of its capital stock
calculated on a fully diluted basis; (iii) if the holders of the outstanding
shares of Miracle Partners Common Stock fail to tender for exchange pursuant to
the Exchange Offer all of the outstanding shares of Miracle Partners Common
Stock, Miracle Partners shall be obligated to issue ratably to the other parties
to the Combination Agreement (other than Precision Auto Care) shares of its
capital stock that will represent 20% of the issued and outstanding shares of
its capital stock calculated on a fully diluted basis; and (iv) if the holders
of Membership Interests in any of Prema Properties, Ralston Car Wash and KBG
fail to tender for exchange pursuant to the Exchange Offer a specified
percentage of the outstanding Membership Interests in such company and, within
one year of the date of the Combination Agreement, such company engages in a
sale of substantially all of its assets or a merger or the holders of its common
stock or membership interests transfer in the aggregate a majority of the
outstanding shares or membership interests of such company, such company shall
be obligated to issue ratably to the other parties to the Combination Agreement
(other than Precision Auto Care) Membership Interests that will represent 20% of
its outstanding Membership Interests calculated on a fully diluted basis.
ACCOUNTING TREATMENT
The Combination will be accounted for as a "purchase" for accounting and
financial reporting purposes. WE JAC, as the assumed acquiror, will continue to
be accounted for using the historical cost basis while other Constituent
Companies will be accounted for at fair value as determined by Accounting
Principles Board Opinion No. 16.
FEDERAL INCOME TAX CONSIDERATIONS
TRANSITORY MERGERS AND DIRECT CONTRIBUTIONS AS PART OF AN OVERALL SECTION
351 CONTRIBUTION. The following summary is a general discussion of certain
federal income tax consequences of the five transitory mergers and the four
direct contributions included in the overall Combination Agreement. This summary
is based upon the Internal Revenue Code of 1986, as amended (the "Code"),
regulations and rulings now in effect or proposed thereunder, current
administrative rulings in practice and judicial precedent, all of which are
subject to change. Any such change, which may or may not be retroactive, could
alter the tax consequences of the shareholders of WE JAC, Miracle Industries,
Lube Ventures, Rocky Mountain I, Rocky Mountain II, and Miracle Partners, and to
the members of Prema Properties, Ralston Car Wash and KBG, as set forth herein.
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While this summary addresses the material federal income tax consequences
generally applicable to such shareholders and members, this summary does not
discuss all aspects of federal income tax taxation that may be relevant to a
particular investor in light of personal circumstances or to certain types of
investors subject to special treatment under the federal income tax laws and
does not discuss any aspect of state, local or foreign tax laws. Consummation of
the transitory mergers and the direct contributions are subject to the condition
that an opinion has been obtained from Ernst & Young LLP, dated as of the
Effective Time, substantially to the effect that, on the basis of facts,
representations and assumptions provided by the parties to the Combination as
they exist at the Effective Date, the transitory mergers and the direct
exchanges should be treated for federal income tax purposes as two
interdependent and simultaneous components of a single overall transaction. The
first of which involves a series of reverse triangular mergers, whereby
transitory subsidiaries of Precision Auto Care will be merged into the
corporations (other than Miracle Partners) which are a party to the Combination
under applicable state law. The second of which involves a direct contribution,
by the respective proprietary owners, of all the membership interests in the
limited liability companies, which are a party to the Combination and all the
stock of Miracle Partners, to Precision Auto Care in exchange for stock of
Precision Auto Care.
If each transitory merger and direct contribution constitutes a valid
reorganization within the meaning of Section 368(a)(2)(E) or a valid Section 351
contribution, the following would be the material federal income tax
consequences of the transitory mergers to the shareholders of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II, and Miracle
Partners, and to the members of Prema Properties, Ralston Car Wash and KBG:
(1) No gain or loss will be recognized by the shareholders of WEJAC,
Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II, and
Miracle Partners upon their receipt of Precision Auto Care stock in
exchange for their respective stock in WEJAC, Miracle Industries, Lube
Ventures, Rocky Mountain I, Rocky Mountain II, and Miracle Partners except:
(a) for those shareholders who receive cash or other consideration in
addition to stock of Precision Auto Care as consideration for their
respective transfers, (b) for those shareholders who receive cash in lieu
of fractional shares or (c) those shareholders who exercise dissenters'
rights under applicable state law. Each shareholder who receives cash or
other consideration in addition to stock of Precision Auto Care will
recognize gain equal to the cash or the fair market value of the other
consideration received, limited to the shareholder's realized gain on the
transfer of his proprietory interest. Each shareholder who receives cash in
lieu of fraction shares will recognize gain or loss equal to the difference
between such proceeds and the shareholder's tax basis allocated to such
fractional shares. Each shareholder who exercises dissenters rights under
applicable state law will recognize gain or loss equal to the difference
between such proceeds received by such shareholder and the shareholder's
basis in his stock. The character of such gain will constitute a capital
gain or loss if such stock was held by such shareholder as a capital asset
at the time of the Effective Date. No gain or loss would be recognized by
the members of Prema Properties, Ralston Car Wash and KBG upon their
receipt of Precision Auto Care stock received in exchange for their
membership interest in Prema Properties, Ralston Car Wash and KBG, except
for those members who receive cash or other consideration in addition to
stock of Precision Auto Care or those members who receive cash in lieu of
fractional shares. Each member who receives cash or other consideration in
addition to stock of Precision Auto Care will recognize gain equal to the
cash or fair market value of such other consideration received, limited to
the members' realized gain on the transfer of his membership interest. Each
member who receives cash in lieu of fractional shares will recognize gain
or loss equal to the difference between such proceeds and the member's tax
basis allocated to such fractional share. Members would also have to
recognize gain under Section 357(c), to the extent that the liabilities
associated with their membership interest exceeded their tax basis in their
membership interest. Each respective member's membership interest would be
treated as subject to that member's share of the limited liability
company's recourse and non-recourse liabilities. Each member would
recognize gain under Section 357(c) to the extent that the liabilities to
which his or her membership interest was subject exceeds their tax basis in
their membership interest. Each member's tax basis in their respective
membership interest includes that member's share of such limited liability
company's liabilities.
(ii) The tax basis of the shares of Precision Auto Care Common Stock
received by each shareholder of WE JAC, Miracle Industries, Lube Ventures,
Rocky Mountain, Rocky Mountain II and Miracle Partners and by each member
of Prema Properties, Ralston Car Wash and KBG would be the same as the tax
basis of each WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I,
Rocky Mountain II, Miracle Partners, Prema Properties, Ralston Car Wash or
KBG common stock or membership interest, as the case may be.
(iii) The holding period for federal income tax purposes of the
Precision Auto Care Stock in the hands of each WE JAC, Miracle Industries,
Lube Ventures, Rocky Mountain I, Rocky Mountain II, Miracle Partners, Prema
Properties, Ralston Car Wash and KBG shareholders and member will include
the holding period of his WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I, Rocky Mountain II, Miracle Partners, Prema Properties, Ralston
Car
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Wash and KBG common stock or membership interests, provided such common
stock or membership interest is held as a capital asset at the Effective
Time.
Holders of WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I and
Rocky Mountain II common stock who receive cash, and or other consideration, in
exchange for their transferred interests, or receive cash in lieu of fractional
shares, or receive cash upon the exercise of dissenters' rights generally will
recognize gain or loss measured by the difference between the amount of cash
received and their adjusted tax basis in such shares. Such gain or loss
generally would be capital gain or loss, provided such shares are held as a
capital asset at the Effective Time, and would be long-term capital gain or loss
if such shares have been held for more than one year at the Effective Time.
However, shareholders who exercise dissenters' rights and who own shares of
Precision Auto Care Common Stock or who are considered for federal income tax
purposes constructively to own shares of Precision Auto Care Common Stock
actually owned by other persons may, under certain circumstances, recognize
dividend (taxable as ordinary income) equal to the full amount of the cash they
receive.
Upon transfer of the member's membership interest to Precision Auto Care,
as part of the overall Section 351 transaction, any member who transfers a
membership interest subject to liabilities in excess of his tax basis in their
limited liability company interest will have to recognize gain under Section
357(c). Each member's interest will be treated as subject to that member's share
of the entity's liabilities, both recourse and non-recourse. The character of
this gain will depend upon the characterization of the property transferred.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY, SUCH DISCUSSION MAY NOT BE APPLICABLE TO A WE JAC SHAREHOLDER
WHO ACQUIRED WE JAC, MIRACLE INDUSTRIES, LUBE VENTURES, ROCKY MOUNTAIN I, ROCKY
MOUNTAIN II, MIRACLE PARTNERS, PREMA PROPERTIES, RALSTON CAR WASH AND KBG COMMON
STOCK OR MEMBERSHIP INTERESTS PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK
OPTION OR OTHERWISE AS COMPENSATION. WE JAC, MIRACLE INDUSTRIES, LUBE VENTURES,
ROCKY MOUNTAIN I, ROCKY MOUNTAIN II, MIRACLE PARTNERS, PREMA PROPERTIES, RALSTON
CAR WASH AND KBG SHAREHOLDERS AND MEMBERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS FOR MORE SPECIFIC AND DEFINITE ADVICE AS TO THE FEDERAL INCOME TAX
CONSEQUENCES TO THEM ON THE EXCHANGE OF THEIR WE JAC, MIRACLE INDUSTRIES, LUBE
VENTURES, ROCKY MOUNTAIN I, ROCKY MOUNTAIN II, MIRACLE PARTNERS, PREMA
PROPERTIES, RALSTON CAR WASH AND KBG COMMON STOCK AND MEMBERSHIP INTERESTS
PURSUANT TO THE MERGERS AND THE EXCHANGE OFFERS, AS WELL AS ADVICE AS TO THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
THE COMBINATION AGREEMENT
The Combination Agreement was entered into by and among Precision Auto
Care, WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky
Mountain II, Miracle Partners, Prema Properties, Ralston Car Wash and KBG, on
August 27, 1997. A COPY OF THE COMBINATION AGREEMENT IS ATTACHED TO THIS JOINT
PROXY STATEMENT/PROSPECTUS AS APPENDIX A AND IS INCORPORATED BY REFERENCE
HEREIN. THE FOLLOWING DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE COMBINATION AGREEMENT AND YOU ARE URGED TO CAREFULLY REVIEW THE COMBINATION
AGREEMENT IN ITS ENTIRETY.
Pursuant to the terms of the Combination Agreement, WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain II will become
wholly owned subsidiaries of Precision Auto Care through the Mergers of WE JAC
Acquisition into WE JAC, Miracle Industries Acquisition into Miracle Industries,
Lube Ventures Acquisition into Lube Ventures, Rocky Mountain I Acquisition into
Rocky Mountain I, and Rocky Mountain II Acquisition into Rocky Mountain II.
Miracle Partners, Prema Properties, Ralston Car Wash and KBG will each become
subsidiaries of Precision Auto Care through Precision Auto Care's acquisition of
the outstanding Miracle Partners Common Stock and membership interests in Prema
Properties, Ralston Car Wash and KBG through the Exchange Offer.
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CLOSING AND EFFECTIVE TIME OF THE COMBINATION
The Combination will become effective (the "Effective Time") upon (i) the
completion of the filing of properly executed Articles of Merger with the
Departments of State of Colorado, Delaware, and Ohio to reflect, as applicable,
the mergers of WE JAC Acquisition into WE JAC, Miracle Industries Acquisition
into Miracle Industries, Lube Ventures Acquisition into Lube Ventures, Rocky
Mountain I Acquisition into Rocky Mountain I, and Rocky Mountain II Acquisition
into Rocky Mountain II, (ii) the exchange of shares of Precision Auto Care for
the shares of Miracle Partners Common Stock tendered by Miracle Partners
stockholders for exchange and the exchange of Precision Auto Care Common Stock
for the membership interests tendered by Prema Properties, Ralston Car Wash and
KBG members for exchange, which filings and exchanges will be made after
satisfaction of certain conditions set forth in the Combination Agreement.
Except as set forth below, none of the Mergers will be consummated unless all
such filings are made and none of the Exchange Offers will be consummated unless
all of the Exchange Offers are consummated. See " -- Conditions of the
Combination."
EFFECT OF THE MERGERS/EXCHANGE OFFERS
As of the Effective Time, the following will occur:
(1) The separate existence of WE JAC Acquisition will cease, and WE JAC
Acquisition will be merged with and into WE JAC.
(2) The separate existence of Miracle Industries Acquisition will cease,
and Miracle Industries Acquisition will be merged with and into Miracle
Industries.
(3) The separate existence of Lube Ventures Acquisition will cease, and
Lube Ventures Acquisition will be merged with and into Lube Ventures.
(4) The separate existence of Rocky Mountain I Acquisition will cease,
and Rocky Mountain I Acquisition will be merged with and into Rocky Mountain I.
(5) The separate existence of Rocky Mountain II Acquisition will cease,
and Rocky Mountain II Acquisition will be merged with and into Rocky Mountain
II.
(6) Miracle Partners will continue to exist as a subsidiary of Precision
Auto Care by reason of Precision Auto Care's acquisition of the Miracle Partners
common stock pursuant to the Exchange Offer.
(7) Prema Properties will continue to exist as a subsidiary of Precision
Auto Care by reason of Precision Auto Care's acquisition of the membership
interests of Prema Properties pursuant to the Exchange Offer.
(8) Ralston Car Wash will continue to exist as a subsidiary of Precision
Auto Care by reason of Precision Auto Care's acquisition of the membership
interests of Ralston Car Wash pursuant to the Exchange Offer.
(9) KBG will continue to exist as a subsidiary of Precision Auto Care by
reason of Precision Auto Care's acquisition of the membership interest of KBG
pursuant to the Exchange Offer.
(10) Each issued and outstanding share of WE JAC Common Stock (except
for those held by stockholders who perfect their right to dissent under the
Delaware General Corporation Law) will be converted into the right to receive
1.0 fully paid and nonassessables shares of Precision Auto Care Common Stock.
Twenty percent of the shares to be received by each holder of WE JAC Common
Stock will be placed into escrow pursuant to the escrow arrangements discussed
below.
(11) Each issued and outstanding share of Miracle Industries Common
Stock (except for those held by stockholders who perfect their right to dissent
under the Ohio General Corporation Law) will be converted into the right to
receive 21.442 fully paid and nonassessable shares of Precision Auto Care Common
Stock. Twenty percent of the shares to be received by each holder of Miracle
Industries Common Stock will be placed into escrow pursuant to the escrow
arrangements discussed below.
(12) Each issued and outstanding share of Lube Ventures Common Stock
(except for those held by stockholders who perfect their right to dissent under
the Delaware General Corporation Law) will be converted into the right to
receive 1,691.680 fully paid and nonassessable shares of Precision Auto Care
Common Stock. Twenty percent of the shares to be received by each holder of Lube
Ventures Common Stock will be placed into escrow pursuant to the escrow
arrangements discussed below.
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(13) Each issued and outstanding share of Rocky Mountain I Common Stock
(except for those held by stockholders who perfect their right to dissent under
the Colorado Business Corporation Act) will be converted into the right to
receive 12.355 fully paid and nonassessable shares of Precision Auto Care Common
Stock. Twenty percent of the shares to be received by each holder of Rocky
Mountain I Common Stock will be placed into escrow pursuant to the escrow
arrangements discussed below.
(14) Each issued and outstanding share of Rocky Mountain II Common Stock
(except for those held by stockholders who perfect their right to dissent under
the Colorado Business Corporation Act) will be converted into the right to
receive 12.356 fully paid and nonassessable shares of Precision Auto Care Common
Stock. Twenty percent of the shares to be received by each holder of Rocky
Mountain II Common Stock will be placed into escrow pursuant to the escrow
arrangements discussed below.
(15) Each issued and outstanding share of Miracle Partners Common Stock
tendered for exchange by a Miracle Partners stockholder will be exchanged for
188.640 fully paid nonassessable shares of Precision Auto Care Common Stock.
Twenty percent of the shares to be received by each holder of Miracle Partners
Common Stock will be placed into escrow pursuant to the escrow arrangements
discussed below.
(16) Each one percent Membership Interest tendered for exchange by
members of Prema Properties will be exchanged for 1,488.890 fully paid
nonassessable shares of Precision Auto Care Common Stock. Twenty percent of the
shares to be received by each Prema Properties member will be placed into escrow
pursuant to the escrow arrangements discussed below.
(17) Each one percent Membership Interest tendered for exchange by
members of Ralston Car Wash will be exchanged for 291.610 fully paid
nonassessable shares of Precision Auto Care Common Stock. Twenty percent of the
shares to be received by each Ralston Car Wash member will be placed into escrow
pursuant to the escrow arrangements discussed below.
(18) Each one percent Membership Interest tendered for exchange by
members of KBG will be exchanged for 124.110 fully paid nonassessable shares of
Precision Auto Care Common Stock. Ten percent of the shares to be received by
each KBG member will be placed into escrow pursuant to the escrow arrangements
discussed below.
(19) Each share of common stock of WE JAC Acquisition, Miracle
Industries Acquisition, Lube Ventures Acquisition, Rocky Mountain I Acquisition
and Rocky Mountain II Acquisition will be converted into one share of common
stock of, respectively, WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I or Rocky Mountain II (in each case, as the surviving corporation of a
merger).
(20) Each option, warrant or right to acquire WE JAC Common Stock,
whether vested or unvested, will be assumed by Precision Auto Care and converted
into the option, warrant or right to acquire or receive, on the same terms and
condition as are applicable under the option, warrant or right to purchase WE
JAC Common Stock, the number of shares of Precision Auto Care Common Stock equal
to the number of shares subject to the option, warrant or right at an exercise
price per share of WE JAC Common Stock equal to the former exercise price per
share.
ESCROW OF PRECISION AUTO CARE SHARES ISSUED IN THE COMBINATION
INDEMNITY ESCROW. Pursuant to the Combination Agreement, Precision Auto
Care will deposit into escrow at the Closing of the Combination 10% of the
shares issuable to the owners of the Constituent Companies pursuant to the
Combination (the "Indemnity Escrow Shares"). Precision Auto Care will be able to
reacquire, liquidate or retire the Indemnity Escrow Shares in order to satisfy
claims it may have with respect to the breach of certain representations,
warranties and covenants made with respect to each of the Constituent Companies
in the Combination. Precision Auto Care will not be able to proceed against any
owner individually in the event that Precision Auto Care's Losses exceed the
amounts represented by the Indemnity Escrow Shares. In the event that Precision
Auto Care validly asserts a claim for indemnification against Escrow Shares,
Precision Auto Care will be able to reacquire, liquidate and retire Indemnity
Escrow Shares with a value equal to the full amount of damages, liabilities and
expenses, including reasonable attorney's fees, suffered or incurred by
Precision Auto Care as a result of any such breach. Precision Auto Care 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.
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The number of Indemnity Escrow Shares Precision Auto Care 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 Precision
Auto Care by the price per share at which Precision Auto Care's shares of common
stock are sold to the public in the Initial Public Offering. When Precision Auto
Care proceeds against Indemnity Escrow Shares attributable to a Constituent
Company the Indemnity Escrow Shares 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 Precision Auto Care
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 Precision Auto Care prior to the first anniversary of closing).
INDEBTEDNESS ESCROW. The Combination Agreement further provides that the
debt level of each Constituent Company (other than KGB) 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, Precision Auto
Care 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 to the Company
the debt levels of each of the Constituent Companies as of the closing of the
Combination. The Combination Agreement provides that Precision Auto Care will
review the closing date debt level of each of the Constituent Companies and
deliver the result thereof to each Constituent Company, within 60 days of
closing. In the event that any Constituent Company disputes Precision Auto
Care's calculation of debt, Ernst & Young shall audit the debt level of such
Constituent Company. To the extent that the actual debt level of a Constituent
Company exceeds the specified debt level, Precision Auto Care will have the
right to reacquire, liquidate and retire Indebtedness Escrow Shares having a
value equal to the dollar amount of the excess debt. The number of Indebtedness
Escrow Shares Precision Auto Care shall be entitled to reacquire, liquidate and
retire shall be equal to the dollar amount determined by dividing the amount of
the excess debt of the Constituent Company by the price per share at which
Precision Auto Care's shares of common stock are sold to the public in the
Initial Public Offering. The table below sets forth the required debt level for
each Constituent Company.
DEBT LEVEL AT REQUIRED DEBT LEVEL
CONSTITUENT COMPANY JUNE 30, 1997 AT CLOSING
- -------------------- ------------- -------------------
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
Under the terms of the Combination Agreement, the required debt levels
specified above may be increased to reflect certain transactions permitted by
the Combination Agreement or transactions approved by a majority vote of a
committee comprising John F. Ripley, Peter Kendrick, William R. Klumb and Ernest
Malas.
ESCROWED SHARES ARE EXCLUSIVE REMEDY. As noted above, in the event that
Precision Auto Care suffers losses in excess of the Indebtedness 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, Precision Auto Care 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
Precision Auto Care 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 Precision
Auto Care could be materially adversely affected.
IN THE EVENT THAT PRECISION AUTO CARE EXERCISES ITS RIGHTS TO PROCEED
AGAINST THE INDEMNITY ESCROW SHARES OR THE INDEBTEDNESS ESCROW SHARES,
STOCKHOLDERS OF THE CORPORATION OR MEMBERS OF THE LIMITED LIABILITY COMPANY WITH
RESPECT TO WHICH
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PRECISION AUTO CARE LAWFULLY EXERCISES ITS RIGHTS WILL NOT RECEIVE THE FULL
AMOUNT OF THE PRECISION AUTO CARE SHARES ALLOCATED TO SUCH HOLDER WITH RESPECT
TO THE APPLICABLE MERGER OR EXCHANGE OFFER.
CERTAIN DISTRIBUTIONS CONTINGENT CASH DIVIDENDS
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
Companies to 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.
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 the cash
proceeds of a certain $190,000 promissory note held by Rocky Mountain I; 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).
REAL ESTATE OPTIONS AND RELATED LEASE ARRANGEMENTS
Under the terms of the Combination Agreement, certain real property which
Precision Auto Care 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 (a 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. Precision Auto Care 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 real estate. 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.
AGREEMENTS NOT TO COMPETE
Pursuant to the terms of the Combination Agreement, each owner of more than
10% of the Common Stock or 10% of the membership interests of a Constituent
Company must execute and deliver an agreement not to compete at the closing. The
terms of these agreements generally provide that, for a period of four years
following the closing of the Combination, the person executing such agreement
will not compete with Precision Auto Care in the line of business conducted by
the Constituent Company or Companies as to which such person is a stockholder or
member as of closing or to engage in the franchising of such business within
specified geographic areas. The discussion of the terms and conditions of the
agreement not to compete is qualified in its entirety by reference to the terms
of the form of the agreement not to compete attached to this Joint Proxy
Statement/Prospectus as Appendix D. Holders who are required to execute and
deliver this agreement at closing are urged to consult with their own legal
counsel with respect to the effect of executing and delivering the agreement not
to compete at closing.
FAILURE TO OBTAIN REQUIRED STOCKHOLDER AND MEMBER APPROVAL AND TENDER
The Combination Agreement provides that (i) if the holders of a majority of
the outstanding shares of common stock of any of WE JAC, Miracle Industries,
Lube Ventures, Rocky Mountain I and Rocky Mountain II fail to approve the
Combination Agreement, such company shall be obligated to issue ratably to the
other parties to the Combination Agreement (other than Precision Auto Care)
shares of its capital stock that will represent 20% of the issued and
outstanding shares of its capital stock calculated on a fully diluted basis;
(ii) if the holders of two-thirds of the outstanding shares of common stock of
Miracle Industries fail to approve the Combination Agreement, Miracle Industries
shall be obligated to issue ratably to the other
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parties to the Combination Agreement (other than Precision Auto Care) shares of
its capital stock that will represent 20% of the issued and outstanding shares
of its capital stock calculated on a fully diluted basis; (iii) if the holders
of the outstanding shares of Miracle Partners Common Stock fail to tender for
exchange pursuant to the Exchange Offer all of the outstanding shares of Miracle
Partners Common Stock, Miracle Partners shall be obligated to issue ratably to
the other parties to the Combination Agreement (other than Precision Auto Care)
shares of its capital stock that will represent 20% of the issued and
outstanding shares of its capital stock calculated on a fully diluted basis; and
(iv) if the holders of Membership Interests in any of Prema Properties, Ralston
Car Wash and KBG fail to tender for exchange pursuant to the Exchange Offer a
specified percentage of the outstanding Membership Interests in such company
and, within one year of the date of the Combination Agreement, such company
engages in a sale of substantially all of its assets or a merger or the holders
of its common stock or membership interests transfer in the aggregate a majority
of the outstanding shares or membership interests of such company, such company
shall be obligated to issue ratably to the other parties to the Combination
Agreement (other than Precision Auto Care) Membership Interests that will
represent 20% of its outstanding Membership Interests calculated on a fully
diluted basis.
RESTRICTIONS ON RESALES OF PRECISION AUTO CARE COMMON STOCK
Shares of WE JAC Common Stock, Miracle Industries Common Stock, Lube
Ventures Common Stock, Rocky Mountain I Common Stock, Rocky Mountain II Common
Stock, Miracle Partners Common Stock, Prema Properties Membership Interest,
Ralston Car Wash Membership Interest and KBG Membership Interest outstanding
prior to the consummation of the Combination will, after their conversion or
exchange into shares of Precision Auto Care Common Stock, be freely tradeable
without restrictions under the Securities Act after consummation of the
Combination, except that shares of Precision Auto Care Common Stock restricted
by contract or received by persons who are deemed to be "affiliates" (as that
term is defined in Rule 144 of the Securities Act) of Precision Auto Care, WE
JAC, Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II,
Miracle Partners, Prema Properties, Ralston Car Wash and KBG may be resold by
them only in transactions permitted by the resale provisions of Rule 145 or as
otherwise permitted under the Act. Certain persons who may be deemed affiliates
of WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain
II, Miracle Partners, Prema Properties, Ralston Car Wash and KBG have agreed not
to dispose of the shares of Precision Auto Care Common Stock that they will
receive in the Combination as required under Rule 145 of the Securities Act and
for a period of up to 180 days following the consummation of the Combination
(the "Restricted Holders"). Based on the number of outstanding shares of WE JAC
Common Stock, Miracle Industries Common Stock, Lube Ventures Common Stock, Rocky
Mountain I Common Stock, Rocky Mountain II Common Stock, Miracle Partners Common
Stock, Prema Properties Membership Interests, Ralston Car Wash Membership
Interests and KBG Membership Interests as of , 1997, assuming that
no stockholders exercised their rights to dissent and no cash is paid in lieu of
fractional shares and assuming the consummation of the Initial Public Offering,
approximately 5,080,695 shares of Precision Auto Care Common Stock will be
outstanding upon consummation of the Combination, of which shares of
Precision Auto Care Common Stock will be held by the Restricted Holders. In
addition, the terms of the Combination Agreement will restrict the ability of
holders who receive 3,000 or more shares of Precision Auto Care Common Stock in
the offering from selling or otherwise disposing of their shares, in the open
market, or otherwise, for a period of 180 days following the consummation of the
Combination. The certificates representing the shares of Precision Auto Care
Common Stock that are subject to this 180-day restriction will bear a
restrictive legend to such effect.
INITIAL PUBLIC OFFERING
It is a condition to the closing of the Combination that Precision Auto
Care simultaneously complete an Initial Public Offering of at least 2,300,000
shares of its Common Stock (exclusive of any shares to be included in the
offering on behalf of selling third parties). Precision Auto Care has filed a
registration statement with the Securities and Exchange Commission covering an
initial public offering of 2,300,000 shares of its Common Stock. Based on
discussions which Precision Auto Care has had to date with the underwriters who
Precision Auto Care has engaged to manage the underwritten public offering,
Precision Auto Care expects that the shares will be offered and sold to the
public at an initial price between $10.00 and $12.00 per share.
The terms of the Combination Agreement, however, do not (1) require that
the shares to be offered by Precision Auto Care in the Initial Public Offering
be offered at any minimum price or (2) require Precision Auto Care to receive
any minimum amount of net cash proceeds from the Initial Public Offering. The
Combination Agreement provides that the price per share at which the shares are
to be offered to the public must be acceptable to Precision Auto Care's Finance
Committee
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(Messrs. Ripley, Malas, Pappas and Klumb) or a majority of the entire Precision
Auto Care Board of Directors in the event that the Finance Committee is
deadlocked on the issue.
The net proceeds to Precision Auto Care from the sale of 2,300,000 shares
of its Common Stock, at an assumed offering price of $11.00 per share, are
estimated to be approximately $22.0 million, after deducting underwriting
discounts and commissions and estimated offering expenses.
In connection with the Combination, Precision Auto Care plans to use
approximately $18.5 million of the net proceeds of the Initial Public 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.
Precision Auto Care intends to spend approximately $2.0 million to upgrade
and equip each center in the Precision Auto Care system with 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 towards the purchase of Precision Auto Care'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 from borrowings under a revolving credit
facility.
Precision Auto Care has recently entered into a letter of understanding to
purchase substantially all of the capital stock of Worldwide Drying Systems,
Inc. for $2.7 million. Worldwide Drying Systems, Inc. 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
Precision Auto Care's delivery of a promissory note in the principal amount 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.
Precision Auto Care expects to close the transaction immediately following the
consummation of the Initial Public Offering and the Combination. Precision Auto
Care intends to use $1.5 million of the net proceeds of the Initial Public
Offering to pay the cash portion of the purchase price.
Pending application of the net proceeds as described above, Precision Auto
Care intends to invest the net proceeds in short-term, investment grade or
government-issued, interest-bearing securities.
Precision Auto Care intends to spend approximately $1.5 million to upgrade
substantially all of the company-owned car wash facilities to Precision Auto
Wash standards following the Combination. This will include installation of
HydroSpray car wash equipment. Precision Auto Care also intends to spend
approximately $500,000 to upgrade and improve the Company's management
information and accounting systems at the retail and corporate level. Precision
Auto Care intends to fund these expenditures through borrowings under a
revolving credit facility and internally generated funds.
The discussion of the application of the net cash proceeds set forth above
assumed that the shares of Precision Auto Care Common Stock to be issued in the
Initial Public Offering will be sold at an offering price of $11.00 per share.
If the shares are sold at a price of less than $11.00 per share, Precision Auto
Care will fund the shortfall through borrowings under a revolving credit
facility and internally generated funds.
RIGHT TO INCLUDE SHARES OF PRECISION AUTO CARE COMMON STOCK IN INITIAL PUBLIC
OFFERING
As noted above, it is a condition of the consummation of the Combination
that Precision Auto Care complete the Initial Public Offering. The Combination
Agreement contains provisions which enable persons who will hold 3,000 or more
shares of Precision Auto Care Common Stock immediately following the
consummation of the Combination to include a portion of their shares of
Precision Auto Care Common Stock in the Initial Public Offering. Holders of
fewer than 3,000 shares of Precision Auto Care Common Stock are not being given
the opportunity to include their shares in the Initial Public Offering because
the shares of Precision Auto Care Common Stock they receive will be freely
tradable immediately following the consummation of the Combination. Precision
Auto Care is enabling holders of 3,000 or more shares of Precision Auto Care to
include a portion of the shares in the Initial Public Offering because under the
terms of the Combination Agreement, holders of 3,000 or more shares of Precision
Auto Care Common Stock will not be able to sell or otherwise dispose of their
shares of Precision Auto Care Common Stock for value for a period of 180 days
following the consummation of the Combination. Precision Auto Care shall have no
obligation to include in the Initial Public Offering more than 19% of the
Precision Auto Care Common Stock in the aggregate received by all selling
shareholders and selling members (the "Combination Shares") as a result of the
Combination (the "Selling Shareholder Share Limitation"). If selling
shareholders or selling members of the Constituent Companies shall elect to
include in the Initial Public Offering an aggregate number of Combination Shares
which exceeds either (a) the Selling Shareholders Share Limitation, or (b) the
aggregate number of shares which the
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managing underwriter reasonably determines would not adversely affect the
marketing of shares in the Initial Public Offering, Precision Auto Care shall be
obligated to include in the Initial Public Offering only those shares equal to
the Selling Shareholder Share Limitation or such lesser number of shares as the
managing underwriter reasonably determines would not adversely affect the
marketing of shares in the Initial Public Offering (the "Permissible Shares").
If the number of Combination Shares requested to be included in the Initial
Public Offering exceeds the Permissible Shares, each Tax Preference Selling
Shareholder shall have the right, in preference to all other selling
stockholders or selling members, to include in the Initial Public Offering, such
number of Combination Shares, which, when sold in the Initial Public Offering,
will yield to such Tax Preference Selling Shareholder sufficient net cash
proceeds to satisfy his combined federal and state income tax liability which
will arise from the Combination and his sale of such shares and the number of
Combination Shares which each other selling stockholder or selling member is
entitled to include in the Initial Public Offering shall be reduced pro rata,
based upon the number of Combination Shares that each such other selling
shareholder or selling member initially requested be included in the Initial
Public Offering, so that the aggregate number of Combination Shares held by
selling shareholders and selling members to be included in the Initial Public
Offering does not exceed the number of Permissible Shares. If such reduction
does not result in the number of Combination Shares to be included in the
Initial Public Offering being less than or equal to the number of Permissible
Shares, the number of Combination Shares that each Tax Preference Selling
Shareholder shall be entitled to include in the Initial Public Offering shall be
reduced pro rata, based upon the number of Combination Shares that each Tax
Preference Selling Shareholder initially requested be included, so that the
number of Combination Shares to be included in the Initial Public offering does
not exceed the number of Permissible Shares. The term "Tax Preference Selling
Shareholder" shall refer to any selling stockholder or selling member who shall
be required by Federal or any applicable state income tax law to recognize
income as a result of the Combination in the year in which the Closing Date
shall occur other than income recognized as a result of payment in lieu of
fractional shares.
Persons who wish to include Combination Shares in the Initial Public
Offering must complete the Selling Shareholder Notice/Questionnaire/Power of
Attorney (the "Selling Shareholder Notice") that accompanies this Joint Proxy
Statement/Prospectus, which includes a power of attorney authorizing Arnold
Janofsky and John F. Ripley to execute the underwriting agreement in the form
attached to the Selling Shareholder Notice. Pursuant to the terms of that
underwriting agreement, each person who includes Combination Shares in the
Initial Public Offering agrees to indemnify and hold harmless Precision Auto
Care and the underwriter with respect to information included in this Joint
Proxy Statement/Prospectus relating to the Initial Public Offering that is
consistent with information provided to Precision Auto Care in the Questionnaire
that forms a part of the Selling Shareholder Notice.
The costs and expenses (other than underwriting discounts or commissions or
similar payments) of all registrations and qualifications under the Securities
Act and applicable state securities or blue sky laws, and of all other actions
that Precision Auto Care is required to take or effect in order to register
shares in the Initial Public Offering 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 Precision Auto Care) shall be borne and paid for by
Precision Auto Care. All selling stockholders and selling members (other than
Tax Preference Selling Shareholders) shall bear their pro rata portion of
underwriting discounts or commissions or similar payments payable on any
Combination Shares sold in the Initial Public Offering. These discounts and
commissions will not exceed % of the Initial Public Offering Price.
ASSUMPTION OF WE JAC STOCK PLANS
In connection with the Mergers and the adjustments to be made to the
outstanding stock options to purchase WE JAC Common Stock, Precision Auto Care
will assume the outstanding obligations of WE JAC under various stock options
plans under which those options and rights are currently outstanding. No further
options will be granted under the assumed plans. The plans to be so assumed by
Precision Auto Care may be summarized as follows:
PRECISION TUNE STOCK OPTION PLAN. WE JAC has reserved a total of 175,000
shares of its Common Stock for issuance pursuant to the Precision Tune Stock
Option Plan. This plan was established in August of 1995 to provide incentives
to members of the Board of Directors and key employees of WE JAC 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
Joint Proxy Statement/Prospectus, 175,000 options have been granted and are
outstanding and no options have been exercised. The exercise price for each
share under option is not to be less than the "fair market value" of WE JAC's
stock at the date of grant. Because no public market has existed for shares of
WE JAC Stock, the exercise price for options granted to date has been determined
in good faith by the company's board of directors upon the recommendation of the
committee administering the Plan. In connection with determining the fair market
value of WE JAC's Common Stock on the date the grant, the board
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of directors has considered a number of factors, including the financial
condition and business prospects of the company. With respect to all of the
options currently granted, one-third of the shares under each option are
exercisable one year from the date of grant, another third are exercisable two
years from the date of grant, and the final third are exercisable three years
from the date of grant. The terms of the Precision Tune Stock Option Plan
contain provisions which required that an appropriate adjustment be made in the
number of shares and exercise price in the event of the merger of WE JAC. As a
result of the foregoing, options to purchase 175,000 shares of WE JAC Common
Stock, at a weighted average exercise price of $8.58 per share will be converted
into options to purchase 175,000 shares of Precision Auto Care Common Stock at
the same weighted average exercise price per share upon the consummation of the
Combination. See "The Combination -- Interest of Certain Persons in the
Combination."
1997 EMPLOYEE STOCK PURCHASE PLAN. WE JAC has reserved a total of 20,000
shares of Common Stock for issuance pursuant to the Precision Tune 1997 Employee
Stock Purchase Plan. This Plan was established to promote the long-term success
of WE JAC by providing the employees of Precision Tune the opportunity to become
stockholders of WE JAC. The Plan commenced on November 1, 1996. Employees who
are participating in the Plan have until October 31, 1997, to acquire the shares
they have 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 WE
JAC's board of directors. Participating employees purchase the shares with
amounts they have contributed to the Plan through payroll deductions for up to
10% of the employee's base income, lump sum cash payments or a combination of
both. The Board of Directors set a fair market value of common stock at the
November 1, 1996 and February 1, 1997 grant dates at $8.00 per share and $10.00
per share at the March 1, 1997 grant date. 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 market value of WE JAC Common Stock.
Following the consummation of the Combination, the employees of Precision Tune
who have elected to participate in the Plan shall be entitled to purchase in the
aggregate 20,000 shares of Precision Auto Care Common Stock at a price of $6.80
per share on October 31, 1997.
OTHER STOCK OPTION ARRANGEMENTS. WE JAC has issued options to purchase
82,500 shares of its Common Stock in the aggregate to eight directors at an
exercise price of $10.00 per share. Precision Auto Care has also awarded Mr.
Ripley options to purchase 193,100 shares of WE JAC Common Stock, which options
have a weighted average exercise price of $8.69 per share. All of the foregoing
options will be converted into options to purchase an identical number of shares
at the same exercise price pursuant to the Combination Agreement. See "The
Combination -- Interest of Certain Persons in the Combination."
WE JAC has also issued warrants to purchase 43,000 shares of Common Stock
to third parties which have an aggregate exercise price of $7.39. These warrants
will be converted into warrants to purchase 43,000 shares of Precision Auto Care
Common Stock at the same weighted average exercise price.
CONDITIONS OF THE COMBINATION AGREEMENT
Conditions to the closing of the Combination Agreement include, but are not
limited to, the following:
1. Performance of obligations: Each of Precision Auto Care, WE JAC,
Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II,
Miracle Partners, Prema Properties, Ralston Car Wash and KBG shall perform
in all material respects its obligations under the Combination Agreement
required to be performed by it at or prior to the Effective Time.
2. Stockholder approval: The Combination Agreement and the
transactions contemplated thereby shall have been approved and adopted by
the affirmative vote of the holders of the required number of the
outstanding shares of each of WE JAC Common Stock, Miracle Industries
Common Stock, Lube Ventures Common Stock, Rocky Mountain I Common Stock and
Rocky Mountain II Common Stock.
3. At the closing the aggregate number of shares of Precision Auto
Care Common Stock attributable to WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I and Rocky Mountain II stockholders who validly
perfect their right to dissent to the Mergers (or who 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 be multiplied by the initial price per share that Precision Auto Care
Common Stock was sold to the public in the Initial Public Offering. It is a
condition to closing that the amount so determined not exceed 10% of the
net cash proceeds realized by Precision Auto Care in the Initial Public
Offering.
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4. Minimum participation in Exchange Offers: The ownership interests
of the stockholders of Miracle Partners and the members of each of Prema
Properties, Ralston Car Wash and KBG who do elect to participate in the
Exchange Offers shall not be less than 100%, 75%, 95% and 100% of each of
Miracle Partners, Prema Properties, Ralston Car Wash and KBG, respectively.
5. Tax Opinion: With regard to the combination of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II, Miracle
Partners, Prema Properties, Ralston Car Wash and KBG, Ernst & Young LLP
shall have issued an opinion substantially to the effect that (i) each of
the mergers, contemplated by the combination, should qualify either as a
reorganization within the meaning of Section 368(a)(2)(E) of the Code or an
exchange within the meaning of Section 351 of the I.R.C. and (ii) each of
the direct contributions, contemplated by the Combination by means of the
Exchange Offers, should qualify as an exchange within the meaning of
Section 351 of the I.R.C. See -- "Federal Income Tax Consequences", below.
See "The Combination -- Federal Income Tax Consequences" below.
6. Resignation of Current Directors: Each of the respective current
directors of WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain I
and Rocky Mountain II shall have resigned effective as of the Effective
Time.
7. Initial Public Offering: Precision Auto Care shall have consummated
the Initial Public Offering of 2,300,000 shares of its Common Stock
pursuant to a firm commitment underwriting agreement that provides that
gross per share price to the pubic (before the deduction of underwriting
discounts) is not less than $10 unless the Finance Committee of the Board
of Directors of Precision Auto Care (or a majority of the entire Board of
Directors if the Finance Committee cannot reach a majority decision)
approves a lower price.
8. Accuracy of Representations: Each of the representations and
warranties made by each party to the Combination Agreement shall be true in
all material respects and Precision Auto Care shall be satisfied with the
environmental condition of the real properties of the Constituent
Companies.
TERMINATION OF THE COMBINATION AGREEMENT
The Combination Agreement may be terminated prior to the Effective Time
upon certain occurrences, including, but not limited to, the following:
1. A mutual written consent of each of the Constituent Companies.
2. Automatically, if the Combination shall not have been consummated
on or before November 14, 1997, unless such deadline is extended by
agreement of the Constituent Companies.
3. In the event that the managing underwriter for the Initial Public
Offering determines that the per share price for common stock of Precision
Auto Care to be sold in the Initial Public Offering can be reasonably
expected to be less than $10, a majority of the Finance Committee of the
Board of Directors of Precision Auto Care (or a majority of the entire
Board of Directors if the Finance Committee cannot reach a majority
decision) may terminate the Combination Agreement.
In addition, any of the Constituent Companies may withdraw from the
transaction if (1) a material adverse effect occurs with respect to those
Constituent Companies (other than the withdrawing Constituent Company)
which are deemed to be material to the Combination, which, for purposes of
the Combination Agreement, are WE JAC, Miracle Industries, Miracle
Partners, Prema Properties, Lube Ventures and Rocky Mountain II, or (2) any
of the Conditions to a Constituents Company's obligation to close has not
been fulfilled or waived by November 14, 1997 in either of which events the
Combination Agreement shall terminate unless the remaining Constituent
Companies elect to proceed. Finally, two-thirds of the Board of Directors
of Precision Auto Care may vote to exclude Rocky Mountain I or Ralston Car
Wash from the Combination if the relevant Constituent Company suffers a
material adverse change.
If the Combination Agreement is terminated or any Constituent Company
withdraws or is excluded from the Combination, the Constituent Companies
shall continue to be liable for their agreed portion of the transaction
expenses. In addition, any party (including one that withdraws or is
excluded from the Combination Agreement) that commits a willful breach of
the Combination Agreement shall also be liable to the other parties for the
actual damages suffered by the other parties as the result of such breach.
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EXCHANGE OF STOCK CERTIFICATES/ASSIGNMENT OF MEMBERSHIP INTERESTS
Promptly after consummation of the Mergers and the Exchange Offers, First
Union Bank, or such other bank or trust company designated by Precision Auto
Care (the "Exchange Agent"), will mail written transmittal materials concerning
the exchange of stock certificates to each record holder of outstanding shares
of WE JAC Common Stock, Miracle Industries Common Stock, Lube Ventures Common
Stock, Rocky Mountain I Common Stock and Rocky Mountain II Common Stock and each
record holder of Miracle Partners Common Stock, Prema Properties, Ralston Car
Wash and KBG Membership Interests who participate in the Exchange. The
transmittal materials will contain instructions with respect to the proper
method of (1) the surrender of certificates formerly representing shares of WE
JAC, Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II and
Miracle Partners in exchange for certificates representing shares of Precision
Auto Care Common Stock and (2) duly and validly assigning the Prema Properties,
Ralston Car Wash and KBG Membership Interests to Precision Auto Care in exchange
for certificates representing Precision Auto Care Common Stock. Upon surrender
to the Exchange Agent by a WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I, Rocky Mountain II or Miracle Partners stockholder of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II or Miracle
Partners Common Stock certificates for cancellation, together with properly
completed transmittal materials, such stockholder will be entitled to receive a
certificate representing the number of whole shares of Precision Auto Care
Common Stock into which the stockholder's shares of WE JAC, Miracle Industries,
Lube Ventures, Rocky Mountain I, Rocky Mountain II or Miracle Partners Common
Stock have been converted or exchanged (as the case may be), less the amount of
shares which are being placed into escrow pursuant to the Combination Agreement
and a check for cash in lieu of the issuance of any fractional share of
Precision Auto Care Common Stock. Upon delivery to the Exchange Agent by a Prema
Properties, Ralston Car Wash or KBG member of the materials duly and validly
assigning the membership interests in Prema Properties, Ralston Car Wash or KBG,
such member will be entitled to receive a certificate representing the number of
whole shares of Precision Auto Care Common Stock for which the member's
Membership Interests in Prema Properties, Ralston Car Wash or KBG have been
exchanged, less the amount of shares which are being placed into escrow pursuant
to the Combination Agreement and a check for cash in lieu of the issuance of any
fractional share of Precision Auto Care Common Stock. Former WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II or Miracle
Partners stockholders and Prema Properties, Ralston Car Wash or KBG members will
not be entitled to receive interest on any such cash to be received in the
Combination.
Until they have surrendered their WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I, Rocky Mountain II or Miracle Partners Common Stock
certificates for exchange, stockholders will not be entitled to receive any
dividends or other distributions that may be declared and payable to holders of
record of Precision Auto Care Common Stock. Upon the surrender of WE JAC,
Miracle Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II and
Miracle Partners Common Stock certificates, Precision Auto Care Common Stock
certificates (together with any such withheld dividends or other distributions,
without interest) will be delivered. At the same time or as soon as possible
thereafter, any cash payment for a fractional share will be paid (without
interest).
After the effective date, certificates representing shares of WE JAC,
Miracle Industries, Lube Ventures, Rocky Mountain I and Rocky Mountain II Common
Stock converted into Precision Auto Care Common Stock in the Mergers will be
deemed for all corporate purposes to evidence ownership of the shares of
Precision Auto Care Common Stock into which they were converted. Any stockholder
whose certificate for WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain
I and Rocky Mountain II Common Stock has been lost, destroyed or stolen will be
entitled to issuance of a certificate representing the shares of Precision Auto
Care Common Stock into which such WE JAC, Miracle Industries, Lube Ventures,
Rocky Mountain I or Rocky Mountain II Common Stock will have been converted upon
compliance with such requirements as Precision Auto Care and the Exchange Act
customarily apply in connection with loss, stolen or destroyed certificates.
PAYMENT IN LIEU OF FRACTIONAL SHARES/MEMBERSHIP INTERESTS
No fractional shares of Precision Auto Care will be issued as a result of
the Combination. In lieu of the issuance of fractional shares, each stockholder
or member who otherwise would be entitled to a fractional share of Precision
Auto Care Common Stock will receive a cash payment equal to the product
obtaining by multiplying the fractional share interest to which such holder
would otherwise be entitled by the price per share at which the Precision Auto
Care Common Stock was issued and sold to the public in the Initial Public
Offering. No interest will be paid on any cash payment that is to be made with
respect to fractional shares of Precision Auto Care Common Stock.
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INFORMATION CONCERNING PRECISION AUTO CARE
BUSINESS OF PRECISION AUTO CARE
GENERAL
As a result of the Combination, Precision Auto Care will acquire, pursuant
to the Mergers and the Exchange Offers (i) Precision Tune Auto Care, a business
engaged in franchising and operating automobile repair and maintenance service
centers, (ii) businesses engaged in franchising and operating self-service and
automatic car wash centers, and (iii) a business engaged in franchising and
operating fast oil change and lubrication service centers. Following the
Combination Precision Auto Care will continue to franchise and operate the
"Precision Tune Auto Care" automobile repair and maintenance service centers
currently operated by WE JAC. Precision Auto Care intends to consolidate and
engage in operating and franchising the self-service and automatic car wash
businesses and the fast oil change and lubrication franchise operations
conducted by the other Constituent Companies under the "Precision Car Wash" name
in the case of the car wash operations, and "Precision Lube Express" name in the
case of the fast oil change and lubrication business.
Precision Auto Care intends to leverage Precision Tune Auto Care's broad
name recognition and current market position to establish the "Precision brand"
of services as a high-quality, convenient and high value provider in the market
sectors in which it will compete. Precision Auto Care further intends to
cross-sell each type of service offered to existing and potential franchisees to
provide consumers with multiple services and one-stop shopping convenience in
the markets it will serve. In support of the Precision Auto Wash, Precision Lube
Express and Precision Tune Auto Care retail services, Precision Auto Care will
also manufacture and sell car wash equipment, modular fast oil change and lube
buildings, car wash chemicals and automotive parts, equipment and supplies
through its acquisition of the Constituent Companies currently engaged in these
activities.
From and after the Effective Time, each of WE JAC, Miracle Industries, Lube
Ventures, Rocky Mountain I, Rocky Mountain II, Miracle Partners, Prema
Properties, Ralston Car Wash and KBG will operate as subsidiaries of Precision
Auto Care. See "Information Concerning Precision Auto Care."
UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES IN THIS SECTION OF
THE JOINT PROXY STATEMENT/PROSPECTUS TO "PRECISION AUTO CARE" SHALL MEAN
PRECISION AUTO CARE, INC., A VIRGINIA CORPORATION, AND THE CONSTITUENT COMPANIES
TAKEN AS A WHOLE AND ASSUME THAT THE COMBINATION HAS BEEN CONSUMMATED IN
ACCORDANCE WITH ITS TERMS.
The management team headed by John F. Ripley, WE JAC's president and chief
executive officer, joined WE JAC (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 Precision Auto Care into a multiple-solutions provider of automotive
services by effectively cross-marketing the depth and breadth of the company's
services.
Precision Auto Care intends to employ the following strategies to
accomplish its objectives:
(Bullet) Leverage Precision Tune's 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. Precision Auto Care believes that
no national brand leader currently markets the full range of automotive
maintenance services Precision Auto Care provides and that the fragmented nature
of the industry presents a unique opportunity to amass market share. Precision
Auto Care's manufacturing capabilities will provide an opportunity for the
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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 Precision Auto Care to consolidate these sectors
of the industry more quickly.
At June 30, 1997, Precision Auto Care had 556 franchise Precision Tune Auto
Care centers thirteen additional Precision Tune Auto Care Centers, it is in the
process of relocating 36 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.
Precision Auto Care 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 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. Precision Auto Care
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).
Precision Auto Care'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. Precision Auto Care 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.
Precision Auto Care 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.
Precision Auto Care 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.
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COMPETITIVE STRENGTHS
Precision Auto Care believes that the following characteristics provide
competitive advantages:
STRONG BRAND AWARENESS. Although Precision Auto Care 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. Precision Auto Care 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. Precision Auto Care 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.
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.
Precision Auto Care 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. As of June
30, 1993 there were 32 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 Precision Auto
Care'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. Precision Auto Care 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
Precision Auto Care defines as quality, service and convenience at a fair price.
ATTRACTIVE UNIT ECONOMICS. When operated in accordance with Precision Auto
Care guidelines, each of the three types of retail centers can provide
attractive economic returns to the owner. Precision Auto Care 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.
Precision Auto Care also believes that the levels of initial investment required
of franchisees make Precision Auto Care'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
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has implemented a series of programs designed to give Precision Auto Care a
common vision, shared goals and a culture of responsibility and accountability.
GROWTH STRATEGY
Precision Auto Care'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, Precision Auto Care 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. Precision Auto Care 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.
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. Precision Auto Care's
domestic franchising efforts seek to establish critical mass in regional
markets. Although it has relied heavily on area subfranchisors in the past,
Precision Auto Care 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, Precision Auto Care 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. Precision Auto Care
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. Precision Auto Care
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. Precision Auto Care 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 Precision Auto
Care, 4 auto wash centers which the Company manages and in
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which it holds 50% equity interests 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 Precision Auto Care 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.
Precision Auto Care manufactures and installs the prefabricated buildings from
which Precision Lube Express operations are conducted. Precision Auto Care
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.
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 Precision Auto
Care'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, Precision
Auto Care 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, Precision Auto Care 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. Precision Auto Care actively assists franchisees with site
selection and evaluation of the proposed site, after which Precision Auto Care
has the right to reject sites selected by franchisees.
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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. Precision Auto Care's current data base includes
approximately three million names. Precision Auto Care 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. Precision Auto Care has also recently initiated a
fleet service program pursuant to which Precision Auto Care services automotive
fleets at volume discounts.
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 Precision Auto Care's national training center in Leesburg, Virginia.
Precision Auto Care 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 Precision Auto Care'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.
Precision Auto Care 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 Precision Auto Care 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 Precision Auto Care's parts and equipment division are
features currently under development. Upon completion of the Initial Public
Offering, each center will receive $2,500 to upgrade its existing computer
system to PIN or to install a PIN system if it 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. Precision Auto Care has
a comprehensive franchise sales process that starts with the placement of
advertising in appropriate franchise and business publications. Precision Auto
Care 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. Precision Auto Care 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.
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Precision Tune Auto Care's area development system has played a major role
in Precision Auto Care'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. Precision Auto Care is free to establish and operate company-owned
centers in areas in which it has granted development rights to area developers.
In that event Precision Auto Care 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 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. Precision Auto Care 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% equity interest in the remaining four. Precision Auto Care
intends to commence the sale of Precision Auto Wash franchises promptly
following the Combination and after Precision Auto Care complies with applicable
state franchise filing and other regulations.
Precision Auto Care 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. Precision Auto Care 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:
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(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 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.
Precision Auto Care 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. Precision Auto Care 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 Precision Auto Care'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. Precison Auto Care 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
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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 Precision Auto Care 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 Precision Auto Care.
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. Precision Auto Care will pay all of
the costs incident to the conversion and estimates that this will cost
approximately $150,000 if all 24 centers convert. Precision Auto Care will fund
these costs from internally generated funds and borrowings under its revolving
credit facility. Precision Auto Care intends to commence the sale of Precision
Lube Express franchises promptly following the Combination and after Precision
Auto Care complies with applicable state franchise filing and other regulations.
The "above-ground" configuration of the modular Lube Express building
manufactured and sold by Precision Auto Care 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, Precision Auto Care'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, Precision Auto Care 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.
Precision Auto Care 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
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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.
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 Precision Auto Care 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
Precision Auto Care'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 Precision Auto Care 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
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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. Precision Auto Care 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.
Precision Auto Care conducts these manufacturing operations at a 27,000
square foot facility located in Mansfield, Ohio. Precision Auto Care 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. Precision Auto
Care is not dependent upon any single supplier and the parts and materials
Precision Auto Care uses in connection with its manufacturing process can be
obtained from a variety of suppliers.
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 Precision Auto Care,
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, Precision Auto Care 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, Precision Auto Care has delegated these
duties on area developers under its area developer system.
Upon non-renewal and transfer, Precision Auto Care has the first right to
purchase the operating assets and obtain an assignment of leased facilities in
certain cases. Precision Auto Care occasionally repurchases franchise rights.
The decision to repurchase is made solely at the company's discretion and is not
a contractual obligation. Precision Auto Care 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. Precision Auto Care intends to establish relationships
with Precision Auto Wash franchisees pursuant to the terms of a standard
franchise agreement. Precision Auto Care 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).
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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. Precision Auto Care 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. Precision Auto Care 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.
Precision Auto Care 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 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
Precision Auto Care 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. Precision Auto Care 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. Precision Auto Care's
competitors include, but are not limited to, Mark VII Industries, Inc., Ryko,
PDQ and many smaller businesses. Some of these
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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
Precision Auto Care 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." Precision Auto Care'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, Precision Auto Care 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. Precision Auto Care 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 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 Precision Auto Care 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, Precision Auto Care 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 Precision Auto Care 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
Precision Auto Care'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. Precision Auto Care 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. Precision Auto Care's annual
rental obligations on the headquarters and warehouse leases aggregate $311,500.
Precision Auto Care 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."
Precision Auto Care 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.
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Precision Auto Care believes that the three manufacturing facilities
described above will provide the company with sufficient manufacturing capacity
for the foreseeable future.
Precision Auto Care owns 28 of its company-owned car wash centers and
leases 3 of its company-owned car wash centers from unaffiliated third parties.
Precision Auto Care 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 interests. 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, Precision Auto Care 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."
Precision Auto Care also owns a small piece of property in Lake Charles,
Louisiana that previously had been the site of a Precision Tune Auto Care
center.
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
Precision Auto Care 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
Precision Auto Care to be material to its business or financial condition or
results of operations.
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MANAGEMENT OF PRECISION AUTO CARE
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth certain information concerning each of the
executive officers and directors of Precision Auto Care.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- --------------------------------------------------------------------------------------
<S> <C> <C>
Lynn E. Caruthers(1)(3) 44 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 53 Senior Vice President, Secretary & General Counsel
Peter Kendrick 42 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) 49 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) 68 Class I Director
Arthur Kellar(1)(3) 74 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 stockholders 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 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 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 President and 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.
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.
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 Proctor and Gamble.
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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.
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.
GRANT G. NICOLAI was named 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.
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 Corporation 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. Ms. Eliopulos, a founder of Lube Ventures, has
also been a partner in partnerships which manage real estate and own and operate
a restaurant plaza in Ohio.
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, Duene,
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 1991. He has 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 National Bank of Zanesville since 1982. He has also served as a director
of the National Gas and Oil Company since 1983 and as a director of 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 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.
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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
plastic.
The Board of Directors has standing Executive, Audit and Organization 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, Robert Corish, Bassam N. Ibrahim, Arthur Kellar and Robert Kelly 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 Initial Public 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.
Precision Auto Care 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
SUMMARY 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 following table and text summarize, in accordance with the
regulations of the Securities and Exchange Commission, the compensation earned
and paid to each executive officer of a Constituent Company (in their capacity
as an executive officer) that is to serve as an executive officer or director of
Precision Auto Care following the Combination.
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<PAGE>
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
SECURITIES
SOURCE OF OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------------------------ ------------ ---- -------- ------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
John F. Ripley(1) WE JAC(2) 1997 $181,734 $34,000 100,000
President and Chief 1996 169,131 93,100
Executive Officer 1995
James A. Hay(3) WE JAC(2) 1997 35,000 5,000
Senior Vice President -- 1996
Retail Operations 1995
Arnold Janofsky(4) WE JAC(2) 1997 117,269 9,646 4,000
Senior Vice President and 1996 80,385 17,500
General Counsel 1995
Peter Kendrick(5) WE JAC(2) 1997 15,576
Senior Vice President -- 1996
Chief Financial Officer 1995
Grant G. Nicolai(6) WE JAC(2) 1997 110,809 8,577
Senior Vice President -- 1996 85,769 8,625
Franchise Development 1995 48,462
Effie Eliopulos Miracle 1996 75,000
Director Industries 1995 65,000
1994 65,000
George Bavelis(7) Miracle 1996 30,000
Director Industries 1995 30,000
1994 30,000
William R. Klumb(8) Rocky 1996 61,112 7,066
Vice President of Car Wash Mountain I; 1995 58,377 7,656
Operations Rocky 1994 55,390 7,656
Mountain II;
Ralston Car
Wash
Clarence E. Deal Miracle 1996 46,000
Director Partners 1995 14,000
1994 14,000
</TABLE>
- ---------------
(1) Mr. Ripley's employment with WE JAC commenced on July 1, 1995.
(2) The fiscal year for WE JAC begins on July 1, and runs through June 30 of the
following year.
(3) Mr. Hay was employed by WE JAC as a consultant from April, 1997 to June 30,
1997.
(4) Mr. Janofsky's employment with WE JAC commenced on October 1, 1995.
(5) Mr. Kendrick's employment with WE JAC commenced on May 1, 1997.
(6) Mr. Nicolai's employment with WE JAC commenced on September 11, 1995.
(7) Mr. Bavelis received $30,000 in common stock of Miracle Industries each year
valued at $100 per share.
(8) Mr. Klumb received salary of $6,013; $8,426, and $7,376 from Rocky Mountain
I in 1996, 1995 and 1994, respectively. All other amounts in the table were
paid to Mr. Klumb by Rocky Mountain II.
OPTION/SAR GRANTS IN LAST FISCAL YEAR. WE JAC is the only Constituent
Corporation that has a stock option plan or that otherwise granted stock options
to its executive officers during its last fiscal year. No SARs were granted to
any executive officer of any Constituent Corporation during its last fiscal
year. The following table sets forth certain information with respect to grants
made by the Constituent Company of stock options to named executive officers who
will be continuing as executive officers of the combined Corporation pursuant to
the Corporation's stock option plans. No SARs were granted to executive officers
during fiscal year 1997.
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<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION ------------------------
NAME GRANTED (1) FISCAL YEAR BASE PRICE DATE 5% 10%
- -------------------- ----------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
John F. Ripley 100,000 75.7% $ 10.00 1/1/07 $629,000 $1,594,000
Arnold Janofsky 4,000 3% 10.00 1/29/07 25,160 63,760
Grant G. Nicolai -- -- -- -- -- --
James A. Hay 5,000 3.8% 10.00 4/22/07 31,450 79,700
</TABLE>
- ---------------
(1) The referenced stock options have an exercise price equal to the fair market
value of Common Stock on the date of grant as defined in the underlying
stock option plan, and become exercisable in three equal annual installments
commencing one year after the date of grant. Because WE JAC Common Stock is
not publicly or otherwise actively traded, the stock options plans require
the board of directors to determine the fair market value of WE JAC Common
Stock on the date of grant. Since WE JAC Common Stock is not publicly or
otherwise actively traded, there can be no assurance that the board of
directors' determination approximates the fair market value of WE JAC Common
Stock were such a trading market to develop.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES. The following table sets forth certain information with respect to the
exercise of stock options by WE JAC's named executive officers during fiscal
year 1997 and information concerning the number and value of unexercised stock
options at June 30, 1997. The value of unexercised stock options is based on the
Board of Directors determination that the fair market value of WE JAC Common
Stock was $10.00 on June 30, 1997. No stock options or SAR's were exercised
during the fiscal year ended June 30, 1997. As of June 30, 1997 no SARs were
outstanding.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF THE UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT JUNE 30, 1997 JUNE 30, 1997
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John F. Ripley 31,033 162,067 $91,462 $ 182,927
Arnold Janofsky 5,833 15,667 10,208 20,417
Grant G. Nicolai 4,167 8,333 7,292 14,583
James A. Hay 5,000
</TABLE>
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
Precision Auto Care 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 Precision Auto Care.
Precision Auto Care intends to grant options to purchase 20,000, 3,500, 20,000,
and 12,500 shares of Precision Auto Care's Common Stock to Messrs. Hay,
Janofsky, Kendrick and Nicolai, respectively. These options, which shall be
effective upon the closing of the Combination, will be granted pursuant to
Precision Auto Care's 1997 Stock Option Plan. Such options will have an exercise
price per share equal to the price per share of Precision Auto Care Common Stock
in the Initial Public Offering. 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 Initial Public
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
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
Precision Auto Care's Common Stock prior to the Combination.
Mr. Ripley entered into an employment agreement with Precision Tune, WE
JAC's principal operating subsidiary, pursuant to which Mr. Ripley agreed to
serve as Precision Tune's President and Chief Executive Officer for a period of
three
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years commencing July 1, 1995. The agreement also provides that Mr. Ripley will
serve as a member of Precision Tune's and 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 Corporation up to a maximum of 50% of Mr. Ripley's base
salary. 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 Precision Tune, and he is
prohibited from competing with Precision Tune in the United States during any
time he is performing duties for Precision Tune and for a period of two years
thereafter. In the event Mr. Ripley's employment is terminated by Precision Tune
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. Precision Auto Care intends to enter into an
agreement with Mr. Ripley containing terms substantially identical to the terms
of his employment agreement with WE JAC, immediately following the closing of
the Combination.
In connection with Mr. Ripley's employment with Precision Tune as President
and Chief Executive Officer, 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 are 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 Initial Public Offering.
Pursuant to that 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 100,000 shares of 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 Precision Auto Care 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 Precision Auto Care 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 Precision Auto Care'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 Precision Auto Care 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 Precision Auto
Care 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 of termination as well as any
other benefits to which the employee is entitled under any benefit plan, policy
or program maintained by Precision Auto Care in which the senior vice president
participated. Mr. Klumb's agreement contains substantially the same severance
benefit upon termination of his employment by Precision Auto Care 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.
Precision Auto Care has also entered into a consulting agreement with
Ernest Malas. The Agreement will have a three year term and Mr. Malas will be
required to assist Precision Auto Care in business development activities and
relationships
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<PAGE>
with its manufacturing distributors. Mr. Malas will receive $10,000 per month
and will be eligible to receive bonuses. He will be required to maintain the
confidentiality of proprietary business or technical information he obtains
while consulting and will be prohibited from competing with Precision Auto Care
in the United States during the term of the consulting agreement and for a
period of two years thereafter. In the event his consulting agreement is
terminated by Precision Auto Care other than for cause or by Mr. Malas for good
reason, he will be entitled to receive a severance benefit equal to 18 months of
his base consulting fee.
COMPENSATION PURSUANT TO PLANS
Pursuant to the terms of the Combination Agreements, Precision Auto Care
will succeed to a Precision Tune Stock Option Plan and a Precision Tune Employee
Stock Purchase Plan currently administered by WE JAC Corporation. See "The
Combination Agreement -- Assumption of WE JAC Stock Option Plans."
1997 PRECISION AUTO CARE STOCK OPTION PLAN. Precision Auto Care has adopted
a 1997 Precision Auto Care Stock Option Plan and has reserved 400,000 shares of
common stock for issuance pursuant to this plan. This plan was established in
May 1997 to provide incentives to members of the board of directors of Precision
Auto Care and key employees to expand and improve the profits and prosperity of
Precision Auto Care. The plan provides for the grant of incentive stock options
and non-qualified stock options. The exercise price for each share under option
is to be not less than the "fair market value" of Precision Auto Care Common
Stock at the date of grant. Precision Auto Care expects that substantially all
of the options granted under the plan will be exercisable in equal annual
installments over a period of three years from the date of grant.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Precision Auto Care's Certificate of Incorporation and Bylaws,
Precision Auto Care 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 Precision Auto Care. Precision Auto Care 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 Precision Auto Care 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>
PRECISION AUTO CARE PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of the Common Stock by (i) each person known to Precision Auto Care to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii)
each director and executive officer of Precision Auto Care and (iii) all
directors and executive officers of Precision Auto Care 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 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 Eliopolos 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 45.81 26.06
</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 Initial Public Offering.
(3) Includes 24,500 shares held by CARFAM Associates, and 77,938 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 Initial Public
Offering.
(4) Includes options to purchase 5,833 shares which Mr. Janofsky may exercise
within 60 days of the Initial Public Offering.
(5) Includes options to purchase 4,167 shares which Mr. Nicolai may exercise
within 60 days of the Initial Public Offering.
(6) Includes options to purchase 10,000 shares which Mr. Allen may exercise
within 60 days of the Initial Public Offering.
(7) Includes options to purchase 10,000 shares which Mr. Clineburg may exercise
within 60 days of the Initial Public Offering.
(8) Includes options to purchase 10,000 shares which Mr. Ibrahim may exercise
within 60 days of the Initial Public Offering.
(9) Includes options to purchase 10,000 shares which Mr. Kellar may exercise
within 60 days of the Initial Public Offering.
(10) Includes 12,500 options which Mr. Pappas may exercise within 60 days of the
Initial Public Offering.
(11) Includes 47,731 shares held by Mr. Zamensky's spouse.
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DESCRIPTION OF PRECISION AUTO CARE CAPITAL STOCK
GENERAL. Precision Auto Care is authorized to issue nineteen million
(19,000,000) shares of Common Stock, $.01 par value per share, and one million
(1,000,000) shares of preferred stock, $.01 par value per share (the "Preferred
Stock"). The following description of capital stock of Precision Auto Care
qualified in its entirety by reference to Precision Auto Care's Articles of
Incorporation, a copy of which is filed as an exhibit to the Registration
Statement of which this Joint Proxy Statement/Prospectus forms a part.
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. Precision Auto Care 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 Precision Auto Care, after any preferential amounts
to be distributed to the Preferred Stock and any other class or series of stock
having a preference of 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. Precision Auto Care's Articles of Incorporation states that no
holder of any class or series of stock of the company shall have any preemptive
rights. Precision Auto Care may, in its sole discretion, redeem certain of the
shares of Precision Auto Care'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 by, the rights of holders of shares of any series of Preferred
Stock which Precision Auto Care 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. Precision Auto Care has no present intention to issue any series
of Preferred Stock.
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS. Precision Auto Care's
Articles of Incorporation provide for mandatory indemnification of the officers
and directors of Precision Auto Care 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 Precision Auto Care'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. Precision Auto Care 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 Precision Auto Care as to which indemnification is being sought, and
Precision Auto Care 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 of a
majority of the outstanding shares entitled to 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 Precision Auto Care'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."
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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 Precision Auto Care 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.
Precision Auto Care'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 Precision Auto Care 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.
Precision Auto Care'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 Precision Auto Care
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 Precision Auto Care'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 Precision Auto Care 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 Precision Auto Care'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. Precision Auto
Care's Articles of 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
Precision Auto Care and to discourage certain types of transactions that involve
an actual or threatened change of control of Precision Auto Care. 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
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<PAGE>
Precision Auto Care to an unsolicited takeover proposal or to an unsolicited
proposal for the restructuring or sale of all or part of Precision Auto Care.
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 Precision Auto Care's shareholders. These provisions are
intended to encourage persons seeking to acquire control of Precision Auto Care
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 Precision Auto Care, even though such an attempt might be beneficial
to Precision Auto Care 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
Precision Auto Care's Common Stock is First Union Bank.
105
<PAGE>
UNAUDITED PRO FORMA CAPITALIZATION OF PRECISION AUTO CARE
The following table sets forth the capitalization of Precision Auto Care as
of June 30, 1997 (i) on a pro forma basis to reflect the Combination and (ii) on
a pro forma as adjusted basis to give effect to the Combination and the sale of
2,300,000 shares of Common Stock of Precision Auto Care in the Initial Public
Offering and the application of the net proceeds therefrom, which, for purposes
of this Joint Proxy Statement/Prospectus are estimated to be approximately $22.0
million based on an assumed Initial Public Offering price of $11.00 per share.
See "The Combination Agreement -- Initial Public Offering." The following table
should be read in conjunction with the Unaudited Pro Forma Combined Financial
Statements of Precision Auto Care included elsewhere in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
PRO FORMA
PRO FORMA COMBINED
COMBINED AS ADJUSTED(1)
--------- --------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT SHARE
DATA)
Short-term debt, including current portion of long-term debt, capital lease obligations and notes
payable to related parties...................................................................... $11,417 $ --
--------- --------------
Long-term debt, less current portion.............................................................. $10,908 $ 5,525
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 $ 53,767
--------- --------------
--------- --------------
</TABLE>
- ---------------
(1) Does not include 658,100 shares of Common Stock issuable upon the exercise
of stock options granted under Precision Auto Care Stock option plans
(177,000 of which are expected to be granted at the closing of the
Combination). See "The Combination -- Interests of Certain Persons in the
Combination" and "Information Concerning Precision Auto Care -- Management."
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 Precision Auto Care based on the historical
financial statements of WE JAC, which is deemed the acquirer of the remaining
Constituent Companies in this Joint Proxy Statement/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 Precision Auto Care, 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 the Initial Public Offering and (iii)
the consummation of the Combination, the Initial Public 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 Initial Public Offering and (iii) the Combination,
the Initial Public 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, including the notes thereto, that appear elsewhere in
this Joint Proxy Statement/Prospectus.
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<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 all Constituent Companies 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 $2.5 million upgrade to existing
Precision Tune Auto Care company centers with proceeds from the Initial
Offering as described in "The Combination -- Initial Public Offering."
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<PAGE>
(3) As adjusted to reflect the proceeds and use of proceeds from the Initial
Public 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 "The Combination -- Initial Public
Offering."
(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 Precision Auto Care 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 Initial Public Offering.
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<PAGE>
INFORMATION CONCERNING WE JAC
BUSINESS OF WE JAC
WE JAC was formed for the purpose of acting as a holding company for
Precision Tune, Inc. ("Precision Tune"). Precision Tune is an automotive service
specialist engaged in the business of providing quality comprehensive automobile
maintenance services. At June 30, 1997 these services were provided at 556
Precision Tune centers owned and operated by Precision Tune franchisees. The
automotive maintenance services provided by Precision Tune 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 believes it is a leading provider of comprehensive automotive maintenance
services in the United States and enjoys a reputation for providing quality
service quickly and conveniently for a fair price.
Precision Automotive Components ("PAC"), another wholly owned subsidiary of
WE JAC, distributes automotive parts and equipment. 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 centers. PAC carries an inventory of approximately 5,500
SKU's, many of which are privately labeled for the Precision brand.
Precision Tune has been engaged in franchising Precision Tune Centers since
1977. Precision Tune enters into franchise agreements pursuant to which a
franchisee is granted the right to establish and operate a Precision Tune
center. As of June 30, 1997, all of Precision Tune's centers were owned and
managed by franchisees. Precision Tune's franchises have been sold during the
preceding years under franchise agreements which vary in detail as the Precision
Tune's franchise program has evolved. Currently, the Precision Tune's standard
form of franchise agreement requires payment to Precision Tune 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 its current form of franchise agreement, Precision Tune 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, Precision Tune has delegated these
duties to a subfranchisor under its area subfranchisor system.
Precision Tune's area subfranchisor system has played a major role in
Precision Tune's franchise development efforts. Under this system, Precision
Tune has entered into area subfranchisor agreements that grant area
subfranchisors the right and obligation to develop franchises on Precision
Tune's behalf within specific geographic regions for stated periods of time.
Franchise agreements within the area are between Precision Tune and the
franchisee. The area subfranchisor typically receives up to one-half of the
initial franchise fee and one-half of franchise renewal and transfer fees.
Following the creation of a franchise, the area subfranchisor performs some or
all of Precision Tune's franchisor obligations. In exchange for performing such
services, an area subfranchisor generally receives one-half of the royalty
revenues Precision Tune receives from the franchisees in the subfranchisor's
area. As of June 30, 1997, 32 area subfranchisors had an ownership interest in a
total of 157 Precision Tune centers and provided support to another 263 centers.
Precision Tune's current strategy is to pursue aggressively the direct
development of open areas in which area subfranchisors have not been granted
rights. To facilitate this strategy, Precision Tune has implemented an open area
development plan supported by a devoted franchise development team on the
corporate 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. Precision
Tune believes that significant expansion potential exists in areas not
controlled currently by area subfranchisors.
Precision Tune also enters into master franchise agreements to develop
international markets. Generally, the master franchisor pays a master license
fee and is required to develop Precision Tune centers in accordance with an
agreed upon schedule within the defined area. Franchise agreements within the
area are between the master franchisor and the franchisee. The master franchisor
is required to perform all of the obligations of the franchisor, and Precision
Tune generally receives only a portion of the initial franchise fee and ongoing
royalty fees. Precision Tune expects approximately 200 overseas Precision Tune
Centers to be developed over the next five years under the master franchisor
system.
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<PAGE>
PRINCIPAL STOCKHOLDERS OF WE JAC
The following table sets forth information as of June 30, 1997 with respect
to (i) each person known to WE JAC to be the beneficial owner of more than 5% of
the outstanding shares of WE JAC Common Stock, (ii) each director of WE JAC,
(iii) each executive officer of WE JAC, and (iv) all directors and executive
officers of WE JAC as a group.
<TABLE>
<CAPTION>
SHARES OF WE JAC % OF WE JAC
DIRECTORS, OFFICERS AND 5% BENEFICIAL OWNERS COMMON STOCK COMMON STOCK
- ------------------------------------------------------------------------------------------ ---------------- ------------
<S> <C> <C>
DIRECTORS AND OFFICERS:
Lynn E. Caruthers(1).................................................................... 130,381
John F. Ripley(2)....................................................................... 71,801 5.17
James A. Hay............................................................................ 0
Arnold Janofsky(3)...................................................................... 7,794
Peter Kendrick.......................................................................... 0
Grant G. Nicolai(4)..................................................................... 11,918 *
Woodley A. Allen(5)..................................................................... 7,000 *
Edward Bannourah(6)..................................................................... 33,527 2.5
Bernard H. Clineburg(7)................................................................. 6,250 *
J. Robert Corish(8)..................................................................... 39,637 2.9
Bassam N. Ibrahim(9).................................................................... 13,850 *
Arthur Kellar(10)....................................................................... 150,029 11.2
Robert J. Kelley(11).................................................................... 5,500 *
Harry G. Pappas, Jr.(12)................................................................ 27,500 2.06
All Directors and Executive Officers as a Group (14 Persons)
5% BENEFICIAL OWNERS:
Farid Al-Awadi(13)...................................................................... 71,183 5.34
c/o Advance Technology Co. -- W.L.L.
P.O. Box 44558 -- Hawally
32062 Hawally, Kuwait
Salah and Sawsan Al-Awadi(14)........................................................... 155,958 [9.51]
c/o Advance Technology Co. -- W.L.L.
P.O. Box 44558 -- Hawally
32062 Hawally, Kuwait
Abdul-Wahid Akil Zaman.................................................................. 10,500 5.04
c/o Advance Technology Co. -- W.L.L.
P.O. Box 44558 -- Hawally
32062 Hawally, Kuwait
</TABLE>
- ---------------
(1) Represents 22,943 shares held by Ms. Caruthers, 24,500 shares held by Car
FAM Associates and 77,938 shares held by Caruthers Properties, Ltd., of
which Ms. Caruthers is a general partner, and does not include 12,500
shares held by Preston C. Caruthers, over which she disclaims beneficial
ownership. 5,000 shares represent options to purchase Common Stock which
currently are exercisable or become exercisable within 60 days.
(2) Represents 12,950 shares held by Mr. Ripley and his wife, as tenants by the
entirety, and 53,559 options held by Mr. Ripley under his stock option
agreement with the Corporation and 5,292 options under his future grants
agreement with the Corporation, all currently are exercisable or become
exercisable within 60 days.
(3) Includes options to purchase 5,833 shares which currently are exercisable
or become exercisable within 60 days.
(4) Represents 7,752 shares held by Mr. Nicolai and 4,166 options held by Mr.
Nicolai which currently are exercisable or become exercisable within 60
days.
(5) 5,000 shares represent options to purchase Common Stock which currently are
exercisable or become exercisable within 60 days.
(6) Represents 23,000 shares held by Mr. Bannourah and his wife as tenants by
the entirety, 7,527 shares held by Bannourah Corporation, of which Mr.
Bannourah is the President, and 3,000 options held by Mr. Bannourah.
(7) Represents 1,250 shares held by Mr. Clineburg and 5,000 shares which Mr.
Clineburg may obtain upon the exercise of options which are currently
exercisable.
(8) Does not include shares held by each of Mr. Corish's five children, over
which he disclaims beneficial ownership. 5,000 shares represent options
which currently are exercisable or become exercisable within 60 days.
110
<PAGE>
(9) Represents shares held by Mr. Ibrahim and his wife, as tenants by the
entirety. 5,000 shares represent options to purchase Common Stock which
currently are exercisable or become exercisable within 60 days.
(10) Represents shares held by E.Z. Communications, Inc., of which Mr. Kellar is
the Chairman of the Board, and does not include shares held by each of Mr.
Kellar's three children, over which he disclaims beneficial ownership.
5,000 shares represent options to purchase Common Stock which currently are
exercisable or become exercisable within 60 days.
(11) Represents shares held by Mr. Kelley and his wife, as joint tenants, with
rights of survivorship. 5,000 shares represent options which currently are
exercisable or become exercisable within 60 days.
(12) Represents 15,000 shares held by Mr. Pappas and 12,500 options to purchase
Common Stock which currently are exercisable or become exercisable within
60 days.
(13) Does not include shares held by Ms. Al-Awadi's relatives, of which she
disclaims beneficial ownership.
(14) Represents shares jointly held and shares held individually by Salah
Al-Awadi.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Mr. John F. Ripley, Jr. loaned the Company the sum of $250,000 on June 10,
1996, in connection with 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.
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<PAGE>
WE JAC SELECTED CONSOLIDATED FINANCIAL DATA
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
---------- -------- -------- -------- --------
---------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
APRIL 30, ----------------------------------------------
BALANCE SHEET DATA: 1993 1994 1995 1996 1997
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Working capital (deficit)..................................... $ 1,994 $ 1,599 $ (940) $ 180 $(7,242)(2)
Total assets.................................................. 24,725 25,325 24,810 25,654 26,694
Total debt(2)................................................. 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 1993, 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) 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.
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<PAGE>
WE JAC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Joint Proxy Statement/Prospectus.
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
113
<PAGE>
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 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.
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<PAGE>
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.
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.
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INFORMATION REGARDING MIRACLE INDUSTRIES
BUSINESS OF MIRACLE INDUSTRIES
Miracle Industries is involved directly and indirectly in all phases of the
self-service car wash industry. Miracle Industries acts as a manufacturer of
equipment through its interest in HydroSpray, as a sales and service agency for
car wash equipment, as a manufacturer and seller of car wash chemicals, and
finally, and as an operator of car wash centers through its direct ownership of
car washes located in the State of Ohio and its indirect ownership of car washes
located in the State of Indiana. From its facility in Mansfield, Ohio, Miracle
Industries markets car wash equipment manufactured by HydroSpray and conducts
its service business through which it provides service both to units
manufactured by HydroSpray and other manufacturers. From its facility in
Cambridge, Ohio, Miracle Industries manufactures chemical products necessary to
operate all types of car washes. Miracle Industries markets those chemicals both
to companies who have originally purchased car wash equipment from Miracle
Industries as well as other third parties located throughout the industry. The
car wash chemicals are primarily marketed directly by Miracle Industries and are
also marketed through several distributors. Miracle Industries sells its
chemicals primarily in the states of Ohio, Kentucky, West Virginia, Indiana,
Pennsylvania and Iowa. In addition to the sale and manufacture of car wash
equipment and chemicals, Miracle Industries also operates eleven (11) car washes
throughout Ohio. These car washes consist of an aggregate of 62 car wash bays,
55 of which are self-service and 7 of which are automatic.
PRINCIPAL STOCKHOLDERS OF MIRACLE INDUSTRIES
The following table sets forth information as of April 15, 1997 with
respect to (i) each person known to Miracle Industries to be the beneficial
owner of more than 5% of the outstanding shares of Miracle Industries Common
Stock, (ii) each director of Miracle Industries, (iii) each executive officer of
Miracle Industries, and (iv) all directors and executive officers of Miracle
Industries as a group.
<TABLE>
<CAPTION>
SHARES OF % OF MIRACLE
MIRACLE INDUSTRIES INDUSTRIES
DIRECTORS, OFFICERS AND 5% BENEFICIAL OWNERS COMMON STOCK COMMON STOCK
- ------------------------------------------------------------------------------------------- ------------------ ------------
<S> <C> <C>
DIRECTORS AND OFFICERS:
George Bavelis............................................................................. 3,494 9.99%
Effie Eliopoulos........................................................................... 9,552 27.32%
Richard O. Johnson......................................................................... 2,687 7.69%
Ernest S. Malas............................................................................ 9,672 27.67%
Gerald Zamensky............................................................................ 4,027 11.52%
Gloria Zamensky............................................................................ 2,227 6.37%
All Directors and Officers as a Group (6 persons).......................................... 31,659 90.56%
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Miracle Industries owns a 90% interest in HydroSpray Car Wash Equipment
Company, Ltd. ("HydroSpray"). The terms of the Combination Agreement call for
Miracle Industries to acquire the remaining 10% of HydroSpray for $300,000
immediately prior to the closing of the Exchange. HydroSpray has agreed to sell
its products to Miracle Industries at a price equal to HydroSpray's cost plus
15%. During 1996, Miracle Industries purchased approximately $965,000 of car
wash equipment and chemicals from HydroSpray. Additionally, Miracle Industries
sells certain car wash chemicals to HydroSpray at its cost plus 15%. HydroSpray
permits Miracle Industries to offset its purchase price of HydroSpray products
by the amount of sales by Miracle Industries to HydroSpray. In 1996, the credits
given Miracle Industries by HydroSpray for purchases made by HydroSpray of
Miracle Industries products totalled $181,000.
Certain directors and officers of Miracle Industries are equity holders in
Prema Properties. George Bavelis, a 10% equity holder of Miracle Industries and
an officer and director of Miracle Industries, is a 15.12% equity holder in
Prema Properties. Effie Eliopoulos, a director, officer and 27.33% shareholder
of Miracle Industries, is a 15.12% shareholder in Prema Properties. Ernest S.
Malas, a director, officer and 27.6% shareholder in Miracle Industries, is a
15.12% shareholder in Prema Properties. Prema Properties purchased car wash
equipment, parts and maintenance services from Miracle Industries. Prema
Properties was provided a discount from the standard quoted prices of Miracle
Industries of ranging between 5% and 35% depending on the items being purchased.
The amount of the discount was determined upon the amount of activity required
of Miracle Industries in providing the product or service. The Company sold
supplies and equipment of approximately $282,000
116
<PAGE>
and $100,000 during 1996 and 1995, respectively, to Prema Properties, Ltd. As of
December 31, 1996, the amount receivable from Prema Properties is $58,436.
Miracle Industries owns a 50% equity interest in Indy Ventures, Ltd. ("Indy
Ventures"). Gerald A. Zamensky, a director, officer and 11.52% shareholder of
Miracle Industries, owns a 25% equity interest in Indy Ventures. Miracle
Industries has committed to provide equipment with a list price of $400,000 to
Indy Ventures for the upgrade of car washes owned by Indy Ventures and the
installation of fast oil change and lube facilities. During 1996, Miracle
Industries has provided approximately $380,000 in equipment to Indy Ventures,
including two in-bay lube inserts that were purchased from Lube Ventures at a
cost of $123,000. The remaining equipment will be purchased during 1997.
Additionally, Indy Ventures has a contract to purchase an existing car wash
facility in Lawrence, Indiana. Miracle Industries has committed $50,000 to Indy
Ventures toward that purchase.
Certain directors, officers and shareholders of Miracle Industries are
equity interest holders of Lube Ventures. Ernest S. Malas, a director, officer
and 27.67% shareholder of Miracle Industries, owns a 25% equity interest in Lube
Ventures. Effie Eliopoulos, a director, officer and 27.33% shareholder of
Miracle Industries, owns a 25% interest in Lube Ventures. Clarence E. Deal, a
director, officer and 50% shareholder of Lube Ventures, owns less than a 1%
interest in Miracle Industries. During 1995, the Company loaned Lube Ventures
$100,000 payable on demand plus interest at 9%. During 1996, Miracle Industries
purchased equipment from Lube Ventures and applied the total principal and
interest due towards that purchase. Miracle Industries has purchased two in-bay
units for installation in car wash facilities owned by Indy Ventures. The
purchase price of these units was approximately $123,000. This is the prevailing
price for in-bay units from Lube Ventures.
Miracle Industries has also transacted business with Malas Crawford
Enterprises, Inc. ("Malas Crawford"). Ernest S. Malas, a 29.67% shareholder of
Miracle Industries, is a shareholder and director of Malas Crawford. Malas
Crawford purchases equipment and supplies from Miracle Industries. During 1996,
Malas Crawford purchased less than $3,000 of equipment and supplies from Miracle
Industries. Malas Crawford also purchased three lube units from Lube Ventures.
Malas Crawford paid the prevailing retail price for those lube units.
Miracle Industries 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.
Gerald Zamensky, a director of Miracle Industries, extended a loan in the
principal amount of $500,000 to Miracle Industries in July, 1997. The loan has a
term of six months and bears interest at one half percent over the prime rate of
interest.
117
<PAGE>
MIRACLE INDUSTRIES SELECTED CONSOLIDATED FINANCIAL DATA
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 December 31, 1995 and 1996 and the
balance sheet data as of December 31, 1996 is derived from the audited
consolidated financial statements of Miracle Industries included elsewhere in
this Joint Proxy Statement/Prospectus. The statement of operations data set
forth below with respect to the six months ended June 30, 1996 and 1997 and the
balance sheet data as of June 30, 1997 is derived from unaudited consolidated
financial statements included in this Joint Proxy Statement/Prospectus. The
unaudited consolidated financial statements include all normal recurring
adjustments that Miracle Industries considers necessary for a fair presentation
of its 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>
YEARS ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................................ $3,234 $9,068 $3,519 $3,251
Direct cost........................................................ 2,438 7,445 2,783 2,865
------------ ------------ ------------ ------------
Contribution....................................................... 796 1,623 736 386
General and administrative expenses................................ 561 1,126 487 539
------------ ------------ ------------ ------------
Operating income................................................... 235 497 249 (153)
Other income (expense)............................................. (168) (327) (181) (241)
------------ ------------ ------------ ------------
Income (loss)...................................................... $ 68 $ 170 $ 68 $ (394)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ------------
------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................... $ 390 $ 121 $ 71
Total assets....................................................... 4,401 8,451 8,488
Total debt......................................................... 2,005 4,315 5,013
Stockholders' equity............................................... 2,099 2,272 2,014
</TABLE>
118
<PAGE>
MIRACLE INDUSTRIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Joint Proxy Statement/Prospectus.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues decreased $268,000 or 8%, to $3,251,000 for the six
months ended June 30, 1997 from $3,519,000 for the six months ended June 30,
1996. This change was due to severe rains and poor weather in the spring of 1997
which adversely impacted revenues from the sale of car wash equipment and car
wash sales.
GROSS PROFIT. Costs of sales consists of direct costs related to car wash
equipment, chemicals and supplies. Cost of services consists of direct costs
incurred in relation to the operation of the company-owned car wash facilities.
Gross profit decreased $350,000 or 48% to $386,000 for the six months ended June
30, 1997 from $736,000 for the six months ended June 30, 1996. Gross profit as a
percentage of revenues decreased from 21% in 1996 to 12% in 1997. The decrease
in gross profit is largely attributable to the $424,000 decrease in services
revenue associated with the severe rains and poor weather which limited
installation of car wash equipment and car wash sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $52,000, or 11%, to $539,000 for the six months ended June 30, 1997
from $487,000 for the six months ended June 30, 1996. General and administrative
expenses as a percentage of revenues increased to 17% in 1997 from 14% in 1996.
The increase in general and administrative expenses was partially attributable
to additional legal and accounting fees.
OTHER INCOME (EXPENSE). Net other expense increased $60,000 or 33% to
$(241,000) in 1997 from $(181,000) in 1996 primarily due to an increase in
interest expense associated with Miracle's assumption of the debt obligations of
HydroSpray and losses associated with Miracle Industries, Inc.'s November 1996
equity investment in Indy Ventures, Inc.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased $5,834,000, or 180%, to $9,068,000 for the
year ended December 31, 1996 from $3,234,000 for the year ended December 31,
1995. This change was due to the inclusion of $6,035,000 in revenues from
HydroSpray, of which Miracle Industries acquired a 90% ownership in February
1996, and a $201,000 decrease in revenues from operations of the Company's
pre-acquisition core business attributable to a planned reduction in the sale of
parts and supplies in 1996 from 1995.
GROSS PROFIT. Costs of sales consists of direct costs related to car wash
equipment, chemicals and supplies. Cost of services consists of direct costs
incurred in relation to the operation of the company-owned car wash facilities.
Gross profit increased $827,000 or 104% to $1,623,000 in 1996 from $796,000 in
1995. Gross profit as a percentage of revenues decreased to 18% in 1996 from 25%
in 1995. These changes were a result of the HydroSpray acquisition which
contributed $1,556,000 in gross profit to the consolidated results of
operations, which represented a 27% profit margin in 1996 compared to a 31%
profit margin on Miracle Industries pre-acquisition business.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $565,000, or 101%, to $1,126,000 for the year ended December 31, 1996
from $561,000 for the year ended December 31, 1995. This increase is due
primarily to expenses incurred by HydroSpray. General and administrative
expenses as a percentage of revenues decreased to 12% in 1996 from 17% in 1995.
This decrease was due primarily to the decrease in administrative costs
associated with fewer parts and supplies sales in 1996.
OTHER INCOME (EXPENSE). Net other expense increased $159,000 or 95% to
$(327,000) in 1996 from $(168,000) in 1996 primarily due to a $160,000 increase
in interest expense incurred upon assuming the debt obligations of HydroSpray,
and additional rental income attributable to HydroSpray property acquired.
119
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of Miracle Industries:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31 JUNE 30
---------------- ----------------
1995 1996 1996 1997
----- ------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities.................................... $ 274 $ 596 $ (493) $(465)
Net cash used in investing activities.................................................. (311) (1,521) (2,091) (393)
Net cash provided by financing activities.............................................. 273 721 2,365 834
----- ------- ------- -----
Change in cash and cash equivalents.................................................... $ 236 $ (204) $ (219) $ (24)
----- ------- ------- -----
----- ------- ------- -----
</TABLE>
During the six months ended June 30, 1997, Miracle Industries used $464,000
cash in operating activities, $394,000 of which was the result of losses from
operations. During the six months ended June 30, 1997, Miracle Industries used
$393,000 in investing activities related primarily to the purchase of property
and equipment and, the purchase of a 50% ownership in Indy Ventures, Inc. During
the six months ended June 30, 1997, Miracle Industries received $834,000 from
financing activities primarily related to proceeds on debt, a portion of which
was incurred to finance the purchase of Indy Ventures and $136,000 from the sale
of common stock.
From January 1, 1995 through December 31, 1996, Miracle Industries
generated $870,000 in net cash from operating activities. During this period,
$1,003,000 was generated from net income before non-cash charges, and $133,000
was used for working capital. Cash used in investing activities was attributable
to $1,682,000 in purchases of property and equipment and $150,000 from a net
increase in outstanding notes receivable. 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 $401,000 received upon the
sale of common stock and $956,000 in net proceeds from long-term debt.
120
<PAGE>
INFORMATION REGARDING LUBE VENTURES
BUSINESS OF LUBE VENTURES
Lube Ventures is in the business of manufacturing modular fast oil change
and lube buildings as well as the sale of fast oil change and lube franchise
units throughout the United States. The quick lube modular unit is of a unique
design which has been refined by Lube Ventures over the past three years. The
building is constructed in two or three parts (depending on building size) and
bolted together at the customer's site. The building can be assembled so that
the business becomes operational within ten days to two weeks of delivery of the
modular unit to the site. The Lube Ventures buildings are marketed both to
franchisees and to non-franchisees operating in the fast oil change and lube
business. The franchise units are distinguishable by color, style, and signage
from the non-franchised units.
Lube Ventures markets its franchise units directly and through area
representatives and the company currently has 22 operating franchisees located
in the states of Ohio, Indiana, Pennsylvania, Iowa, Kentucky, New York, Delaware
and Oregon.
PRINCIPAL STOCKHOLDERS OF LUBE VENTURES
The following table sets forth information as of April 15, 1997 with
respect to (i) each person known to Lube Ventures to be the beneficial owner of
more than 5% of the outstanding shares of Lube Ventures Common Stock, (ii) each
director of Lube Ventures, (iii) each executive officer of Lube Ventures, and
(iv) all directors and executive officers of Lube Ventures as a group.
<TABLE>
<CAPTION>
SHARES OF
LUBE % OF LUBE
VENTURES VENTURES
DIRECTORS, EXECUTIVE OFFICERS AND 5% BENEFICIAL OWNERS COMMON STOCK COMMON STOCK
- ---------------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Clarence E. Deal.............................................................................. 50 50%
Ernest S. Malas............................................................................... 25 25%
Effie Eliopoulos.............................................................................. 25 25%
--- ---
All Directors and Executive Officers as a Group............................................... 100 100%
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Certain directors, officers and shareholders of Miracle Industries are
equity interest holders of Lube Ventures. Ernest S. Malas, a director, officer
and 30.78% shareholder of Miracle Industries, owns a 25% equity interest in Lube
Ventures. Effie Eliopoulos, a director, officer and 28.43% shareholder of
Miracle Industries, owns a 25% interest in Lube Ventures. Clarence E. Deal, a
director, officer and 50% shareholder of Lube Ventures, owns less than a 1%
interest in Miracle Industries. During 1995, Lube Ventures borrowed $100,000
from Miracle Industries, payable on demand, plus interest at 9%. During 1996,
Miracle Industries purchased equipment from Lube Ventures and applied the total
principal and interest due towards that purchase. Miracle Industries has
purchased two in-bay units for installation in car wash facilities owned by Indy
Ventures. The purchase price of these units was approximately $123,000. This is
the prevailing price for in-bay units from Lube Ventures.
During 1996, Lube Ventures borrowed $81,500 from Miracle Partners, and the
balance was repaid at December 31, 1996. A $25,000 note payable to Miracle
Partners outstanding at December 31, 1995, was repaid during 1996. At December
31, 1996, Lube Ventures owed $67,165 in accounts receivable from related parties
and Lube Ventures owed $60,000 in demand notes to related parties.
121
<PAGE>
LUBE VENTURES SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and the notes thereto included elsewhere herein. The
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 audited financial statements of Lube Ventures included elsewhere in
this Joint Proxy Statement/Prospectus. The 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 balance sheet data as of June 30,
1997 is derived from unaudited financial statements included in this Joint Proxy
Statement/Prospectus. The balance sheet data as of December 31, 1995 is derived
from unaudited financial statements not included in this Joint Proxy
Statement/Prospectus. The unaudited financial statements include all normal
recurring adjustments that Lube Ventures considers necessary for a fair
presentation of its financial position and results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................................ $1,300 $2,053 $ 662 $ 809
Direct cost........................................................ 1,447 1,497 566 695
------------ ------------ ------------ ------------
Contribution....................................................... (147) 556 96 114
General and administrative expenses................................ 196 327 227 160
------------ ------------ ------------ ------------
Operating income (loss)............................................ (343) 229 (131) (46)
Other income (expense)............................................. (89) (119) (51) (24)
------------ ------------ ------------ ------------
Net Income (loss).................................................. $ (432) $ 110 $ (182) (70)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).......................................... $ (177) $ 7 $ 339
Total assets....................................................... 1,563 1,699 1,869
Total debt......................................................... 1,085 1,070 1,301
Stockholders' equity............................................... 279 389 319
</TABLE>
122
<PAGE>
LUBE VENTURES MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased $147,000, or 22%, to $809,000 for the six
months ended June 30, 1997 from $662,000 for the six months ended June 30, 1996.
This change was due to the sale and installation of more automobile lubrication
facilities in 1997 than in 1996.
GROSS PROFIT. Costs of sales consists of direct costs related to automobile
lubrication facilities, equipment and supplies. Cost of services consists of
direct costs incurred in relation to the operation of the company-owned
lubrication facilities. Gross profit increased $18,000, or 19%, to $114,000 in
1997 from $96,000 in 1996. Gross profit as a percentage of revenues decreased to
14% in 1997 from 15% in 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $67,000, or 30%, to $160,000 for the six months ended June 30, 1997
from $227,000 for the six months ended June 30, 1996. General and administrative
expenses as a percentage of revenues decreased to 20% in 1997 from 34% in 1996
as the increased revenues were better able to cover certain fixed costs.
OTHER INCOME (EXPENSE). Net other expense decreased $27,000, or 53%, to
$(24,000) in 1997 from $(51,000) in 1996. The change was a result of interest
costs on debt offset by the gain on sale of a facility partially owned by Lube
Ventures.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased $753,000, or 58%, to $2,053,000 for the year
ended December 31, 1996 from $1,300,000 for the year ended December 31, 1995.
This change was due to the sale and installation of more automobile lubrication
facilities during 1996 than in 1995.
GROSS PROFIT. Costs of sales consists of direct costs related to automobile
lubrication facilities, equipment and supplies. Cost of services consists of
direct costs incurred in relation to the operation of the company-owned to
automobile lubrication facilities. Gross profit increased $703,000 to $556,000
in 1996 from $(147,000) in 1995. Gross profit as a percentage of revenues
increased to 27% in 1996 from (11)% in 1995. These changes were a result of the
increase in number of new units sold from nine to sixteen during 1996, which was
better able to cover certain fixed costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $131,000, or 67%, to $327,000 for the year ended December 31, 1996
from $196,000 for the year ended December 31, 1995. This increase is due
generally to increased sales volume. Specifically, salaries expense in 1996
increased $94,000 over 1995 salaries. Travel, professional fees and depreciation
expenses also increased due to the increased volume. General and administrative
expenses as a percentage of revenues increased slightly to 16% in 1996 from 15%
in 1995 as the increased revenues were better able to cover certain fixed costs.
OTHER INCOME (EXPENSE). Net other expense increased $30,000, or 34%, to
$(119,000) in 1996 from $(89,000) in 1995 primarily due to higher interest costs
on debt offset by the gain or sale of a facility partially owned by Lube
Ventures.
123
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of Lube Ventures:
<TABLE>
<CAPTION>
YEAR 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......................................... $(208) $ 116 $(171) $(216)
Net cash used in investing activities............................................. (476) (128) (50) 75
Net cash provided by (used in) financing activities............................... 749 (15) 146 231
----- ----- ----- -----
Change in cash and cash equivalents............................................... $ 65 $ (27) $ (75) $ 90
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
During the six months ended June 30, 1997 and 1996, respectively, Lube
Ventures used $216,000 and $171,000 of net cash in operating activities. The
increase in the 1997 period was due primarily to an increase in accounts
receivable due to the increase in sales period to period. During the six months
ended June 30, 1997 and 1996, respectively, Lube Ventures generated $75,000 and
used $50,000, cash in investing activities primarily due to an investment
purchase in 1996 and a sale in 1997.
During the six months ended June 30, 1997 and 1996, respectively, Lube
Ventures generated $231,000 and $146,000 primarily from proceeds on long-term
debt.
From January 1, 1995 through December 31, 1996, Lube Ventures used $92,000
in net cash from operating activities. During this period, $194,000 was used to
fund net income before non-cash charges, and $102,000 was generated through
reductions in working capital. Cash used in investing activities was
attributable to $581,000 in purchases of property and equipment and $27,000 in
purchases of intangible assets. Financing sources consisted of $594,000 in
capital contributions and $140,000 in net proceeds from debt.
124
<PAGE>
INFORMATION REGARDING ROCKY MOUNTAIN I
BUSINESS OF ROCKY MOUNTAIN I
Rocky Mountain I was formed in 1987 in order to own and operate car washes
in the Denver, Colorado metropolitan area. Currently, Rocky Mountain I owns one
self-service car wash site. The total number of bays for the car wash is eight,
one of which is automatic. The site is operated through a centralized control
system located on-site. Such controls include the ability to check the
functions, number and type of transactions, and receipts at the car wash. Rocky
Mountain I's computer system contains highly sophisticated software, which may
be used to change the operational system at the site at any time. The site is
usually staffed by one attendant during specified business hours seven days a
week.
The competition for Rocky Mountain I generally consists of other
self-service car washes (as opposed to full-service car washes). Rocky Mountain
I's business is subject to seasonal fluctuations. The winter months (generally,
November through March) are the busiest for the car wash, and there is an
approximate 30% variation in revenues between the winter and summer months. In
addition, overall weather conditions in any season can affect the receipts of
the car wash. The equipment contained at the site requires considerable
maintenance, which is performed by employees of Rocky Mountain I. The equipment
is upgraded approximately every five years. Rocky Mountain I uses only
biodegradable soap and other ingredients in the operation of the car wash. There
is no state or local regulation of the operations of the car wash, other than
the requirement to obtain a sales tax license.
PRINCIPAL STOCKHOLDERS OF ROCKY MOUNTAIN I
The following table sets forth information as of April 15, 1997 with
respect to (i) each person known to Rocky Mountain I to be the beneficial owner
of more than 5% of the outstanding shares of Rocky Mountain I Common Stock, (ii)
each director of Rocky Mountain I, (iii) each executive officer of Rocky
Mountain I, and (iv) all directors and executive officers of Rocky Mountain I as
a group.
<TABLE>
<CAPTION>
SHARES OF ROCKY % OF ROCKY
MOUNTAIN I MOUNTAIN I
DIRECTORS, OFFICERS AND 5% BENEFICIAL OWNERS COMMON STOCK COMMON STOCK
- --------------------------------------------------------------------------------------------- --------------- ------------
<S> <C> <C>
DIRECTORS AND OFFICERS:
William R. Klumb............................................................................. 577.5 11.1%
5% BENEFICIAL OWNERS:
John Schuhart.............................................................................. 577.5 11.1%
11401 Brookwood
Leawood, Kansas 66210
Frank Loeffler............................................................................. 288.75 5.6%
12609 Delmar
Leawood, Kansas 66209
Charles Snyder............................................................................. 288.75 5.6%
P.O. Box 4673
Breckenridge, Colorado 80424
Stewart M. Stein........................................................................... 288.75 5.6%
4601 College Boulevard
Suite 200
Shawnee Mission, Missouri 66211
Malcolm L. Strauss, Trustee................................................................ 577.5 11.1%
13311 Fairfield Square Drive
Chesterfield, Missouri 63017
Trustees of Elizabeth Bohm Living Trust.................................................... 288.75 5.6%
4601 College Boulevard
Suite 200
Shawnee Mission, Missouri 66211
Milford M. Bohm Trust...................................................................... 2,310.00 44.4%
#1 Stratford Court
Rancho Mirage, California 92270
</TABLE>
125
<PAGE>
ROCKY MOUNTAIN I SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and the notes thereto included elsewhere herein. The
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 audited financial statements of Rocky Mountain I included elsewhere in
this Joint Proxy Statement/Prospectus. The 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 balance sheet data as of June 30,
1997 is derived from unaudited financial statements included in this Joint Proxy
Statement/Prospectus. The balance sheet data as of December 31, 1995 is derived
from unaudited financial statements not included in this Joint Proxy
Statement/Prospectus. The unaudited financial statements include all normal
recurring adjustments that Rocky Mountain I considers necessary for a fair
presentation of its 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 year ended December 31, 1997, or any
other future period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................................ $246 $190 $109 $117
Direct cost........................................................ 142 109 54 54
Contribution....................................................... 104 81 55 63
General and administrative expenses................................ 50 32 22 26
Income from operations............................................. 54 49 33 37
Other income (expense)............................................. (40) (12) (4) (21)
Income (loss)...................................................... 14 37 29 16
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).......................................... $(64) $(16) $191
Total assets....................................................... 712 701 702
Total debt......................................................... 476 486 478
Stockholders' equity............................................... 175 192 207
</TABLE>
126
<PAGE>
ROCKY MOUNTAIN I MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Joint Proxy Statement/Prospectus.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased 7% to $117,000 for the six months ended June
30, 1997, from $109,000 for the six months ended June 30, 1996.
GROSS PROFIT. Costs of sales consists of direct costs related to the
operation of a car wash facility, including personnel, utilities, maintenance
and supplies. Gross profit increased $8,000 in the six months ended June 30,
1997 from $55,000 in the six months ended June 30, 1996. Gross profit as a
percentage of revenues increased to 54% in the six months ended June 30, 1997
from 50% in the six months ended June 30, 1996. These changes were a result of
Rocky Mountain I's efforts to control costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 15% to $26,000 for the six months ended June 30, 1997 from
$22,000 for the six months ended June 30, 1996. This increase is due primarily
to reallocation of overhead expenses among related entities. Selling, general
and administrative expenses as a percentage of revenues increased from 20% for
the six months ended June 30, 1996 to 22% for the six months ended June 30, 1997
for the same reason.
DECREASE IN NET INCOME. Net income decreased in 1997, primarily due to the
receipt in the six months ended June 30, 1996 of interest payments on a note
related to the sale of a car wash in July 1995.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues decreased 23% to $190,000 for the year ended December
31, 1996 from $247,000 for the year ended December 31, 1995. This change was due
primarily to the sale in July 1995 of one of Rocky Mountain I's two car washes.
GROSS PROFIT. Costs of sales consists of direct costs related to the
operation of a car wash facility, including personnel, utilities, maintenance
and supplies. Gross profit decreased $24,000 in 1996 from $105,000 in 1995 due
to the decrease in revenues resulting from the sale of one of the company's two
car washes. Gross profit as a percentage of revenues increased to 46% in 1996
from 43% in 1995. These changes were a result of Rocky Mountain I's efforts to
control costs and the sale of a car wash with higher overhead costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 36% to $32,000 for the year ended December 31, 1996 from $50,000 for
the year ended December 31, 1995. This decrease is due primarily to the decrease
in general and administrative costs required to support one fewer car wash.
General and administrative expenses as a percentage of revenues decreased from
20% for 1995 to 17% for 1996 for the same reason.
OTHER INCOME (EXPENSE). Net other expense decreased by $28,000 to $12,000
in 1996 from $41,000 in 1995 primarily due to $17,000 in interest income earned
on amounts receivable from the sale of a car wash in July 1995 and a $14,000
decrease in interest expense due to the refinancing of long-term debt.
INCREASE IN NET INCOME. Net income increased in 1996, primarily due to the
receipt of interest payments on a note related to the sale of a car wash in July
1995.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of Rocky Mountain I:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30,
-------------- --------------
1995 1996 1996 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by operating activities.............................................. $ 21 $ 58 $(25) $ 6
Net cash used in investing activities.................................................. 14 4 0 0
Net cash provided by (used in) financing activities.................................... (35) (52) 23 (8)
---- ---- ---- ----
Change in cash and cash equivalents.................................................... $ -- $ 10 $ (2) $ (2)
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
127
<PAGE>
For the six months ended June 30, 1997, Rocky Mountain I generated $6,000
in net cash from operations. During this period, $13,000 was generated from net
income before non-cash charges and $17,000 from the change in working capital.
During the six months ended June 30, 1997, Rocky Mountain I used $8,000 in
financing activities primarily related to payments on long-term debt.
From January 1, 1995 through December 31, 1996, Rocky Mountain I generated
$79,000 in net cash from operating activities. During this period, $125,000 was
generated from net income before non-cash charges, and $46,000 was used in the
reduction of working capital. Investing sources consisted of $4,000 from a net
decrease in outstanding notes receivable and $14,000 from the sale of equipment.
Cash used in financing activities was attributable to $55,000 in net payments on
debt, and $31,000 in other financing activities. Rocky Mountain I refinanced a
portion of its long-term debt and paid off a prior loan during 1996, for a gain
of $16,000. At the end of fiscal year 1996, Rocky Mountain I had no commitments
for material capital expenditures.
128
<PAGE>
INFORMATION REGARDING ROCKY MOUNTAIN II
BUSINESS OF ROCKY MOUNTAIN II
Rocky Mountain II was formed in 1987 in order to own and operate car washes
in the Denver, Colorado metropolitan area. Currently, Rocky Mountain II has 7
car wash sites, all of which are operated as self-service car washes. All but
one of these car washes also have one automatic car wash bay. The total number
of bays for all of the car washes is 39. Three of the sites are operated through
a centralized control system located at Rocky Mountain II's principal office and
the remainder are operated through control systems located at each car wash.
Such controls include the ability to check the functions, number and type of
transactions, and receipts at each of the car wash sites. At one site, the
centralized system allows for the issuance to customers of "frequent wash" cards
and debit cards, which allow customers to use a machine at the site to keep
track of all uses, and to obtain a free wash after a certain number of washes.
This system is being phased in at Rocky Mountain II's other car wash sites.
Rocky Mountain II's computer system contains highly sophisticated software,
which may be used to change the operational system at each site at any time.
Each site is usually staffed by one attendant during specified business hours
seven days a week. Rocky Mountain II has a total of seven full-time and eleven
part-time employees, although certain of these employees are allocated to sites
owned by Rocky Mountain I and Ralston Car Wash.
Six of the sites are owned by Rocky Mountain II and one site is leased. The
competition for Rocky Mountain II generally consists of other self-service car
washes (as opposed to full-service car washes). Rocky Mountain II is not the
largest self-service car wash in the Denver area; one of its competitors has 25
sites. Rocky Mountain II's business is subject to seasonal fluctuations. The
winter months (generally, November through March) are the busiest for each car
wash, and there is an approximate 30% variation in revenues between the winter
and summer months. In addition, overall weather conditions in any season can
affect the receipts of the car washes. The equipment contained at each site
requires considerable maintenance, which is performed by employees of Rocky
Mountain II. The equipment is upgraded approximately every five years. Rocky
Mountain II is developing computer software to keep track of its equipment for
inventory and maintenance purposes. The company uses only biodegradable soap and
other ingredients in the operation of the car washes. There is no state or local
regulation of the operations of the car washes, other than the requirement of
obtaining sales tax licenses.
PRINCIPAL STOCKHOLDERS OF ROCKY MOUNTAIN II
The following table sets forth information as of April 15, 1997 with
respect to (i) each person known to Rocky Mountain II to be the beneficial owner
of more than 5% of the outstanding shares of Rocky Mountain II Common Stock,
(ii) each director of Rocky Mountain II, (iii) each executive officer of Rocky
Mountain II, and (iv) all directors and executive officers of Rocky Mountain II
as a group.
<TABLE>
<CAPTION>
SHARES OF ROCKY % OF ROCKY
MOUNTAIN II MOUNTAIN II
DIRECTORS, EXECUTIVE OFFICERS AND 5% BENEFICIAL OWNERS COMMON STOCK COMMON STOCK
- --------------------------------------------------------------------------------------------- --------------- ------------
<S> <C> <C>
DIRECTORS AND OFFICERS:
William R. Klumb............................................................................. 1,601.54 11.0%
5% BENEFICIAL OWNERS:
Trustees of Malcolm L. Strauss Living Trust................................................ 1,051.13 7.2%
13311 Fairfield Square Drive
Chesterfield, Missouri 63017
Trustees of the Milford M. Bohm Trust...................................................... 6,542.16 45.0%
c/o Milford M. Bohm
1 Stratford Court
Rancho Mirage, CA 92270
Mimi Margulies............................................................................. 809.78 5.6%
2446 N. Valley View Drive
Ashland, Oregon 97520
</TABLE>
129
<PAGE>
<TABLE>
<CAPTION>
SHARES OF ROCKY % OF ROCKY
MOUNTAIN II MOUNTAIN II
DIRECTORS, EXECUTIVE OFFICERS AND 5% BENEFICIAL OWNERS COMMON STOCK COMMON STOCK
- --------------------------------------------------------------------------------------------- --------------- ------------
<S> <C> <C>
Vicki Norberg-Bohm......................................................................... 809.78 5.6%
50 Wyman Street
Arlington, MA 02174
David Bohm................................................................................. 809.78 5.6%
465 Steeple Lane
Chesterfield, MO 63005
Robert Bohm................................................................................ 809.78 5.6%
1469 Chesterfield Estates Drive
Chesterfield, MO 63005
</TABLE>
ROCKY MOUNTAIN II SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and the notes thereto included elsewhere herein. The
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 audited financial statements of Rocky Mountain II included elsewhere in
this Joint Proxy Statement/Prospectus. The statement of operations data set
forth below with respect to the year ended December 31, 1995 and the six months
ended June 30, 1996 and 1997 and the balance sheet data as of June 30, 1997 is
derived from unaudited financial statements included in this Joint Proxy
Statement/Prospectus. The balance sheet data as of December 31, 1995 is derived
from unaudited financial statements not included in this Joint Proxy
Statement/Prospectus. The unaudited financial statements include all normal
recurring adjustments that Rocky Mountain II considers necessary for a fair
presentation of its 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 year ended December 31, 1997, or any
other future period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
---------------------------- ----------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................................ $1,258 $1,377 $ 731 $ 758
Direct cost........................................................ 776 842 394 407
Contribution....................................................... 482 535 337 351
General and administrative expenses................................ 286 317 198 188
Income from operations............................................. 196 218 139 163
Other income (expense)............................................. (160) (201) (111) (89)
Income............................................................. 36 17 28 74
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working deficit.................................................... $ (161) $ (425) $ (138)
Total assets....................................................... 2,521 2,458 2,479
Total debt......................................................... 1,739 1,727 1,641
Stockholders' equity............................................... 510 535 609
</TABLE>
130
<PAGE>
ROCKY MOUNTAIN II MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Joint Proxy Statement/Prospectus.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased 4% to $758,000 for the six months ended June
30, 1997, from $731,047 for the six months ended June 30, 1996.
GROSS PROFIT. Costs of sales consists of direct costs related to the
operation of a car wash facility, including personnel, utilities, maintenance
and supplies. Gross profit increased $13,000, or 4% to $351,000 in the six
months ended June 30, 1997 from $337,000 in the six months ended June 30, 1996.
Gross profit as a percentage of revenues remained the same in the two periods.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 5% to $188,000 for the six months ended June 30, 1997 from $198,000
for the six months ended June 30, 1996. This decrease is due primarily to the
reallocation of overhead expenses among related entities. General and
administrative expenses as a percentage of revenues decreased to 25% in the six
months ended June 30, 1997 from 27% in the six months ended June 30, 1996 for
the same reason.
NET INCOME. Net income increased $46,000 to $74,000 in the six months ended
June 30, 1997 from $28,000 in the six months ended June 30, 1996 primarily due
to increased revenues, a decrease in interest expense, and a decrease in general
and administrative expenses.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased 10% to $1,377,000 for the year ended December
31, 1996 from $1,258,000 for the year ended December 31, 1995. This change was
due to the operation for a full year of a car wash that had begun operating in
April 1995.
GROSS PROFIT. Costs of sales consists of direct costs related to the
operation of a car wash facility, including personnel, utilities, maintenance
and supplies. Gross profit increased $53,000, or 11%, to $535,000 in 1996 from
$482,000 in 1995. Gross profit as a percentage of revenues increased to 39% in
1996 from 38% in 1995. These changes were a result of the higher volume of
revenues during 1996 which covered certain direct, fixed costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 11% to $317,000 for the year ended December 31, 1996 from $286,000 for
the year ended December 31, 1995. This increase is due primarily to increased
sales volume, and approximately $15,000 in related expenses incurred for the
operation of a new car wash for a full year, including additional employee
expenses and research and development costs related to the development of an
automated frequent wash card system utilizing bar codes. General and
administrative expenses as a percentage of revenues remained constant at 23% in
1996 and 1997.
OTHER INCOME (EXPENSE). Net other expense increased $41,000 to $201,000 in
1996 from $160,000 in 1995 primarily as a result of payment for the entire year
in 1996 of financing expenses incurred in late 1995.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of Rocky Mountain II:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30
-------------- --------------
1995 1996 1996 1997
----- ----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by operating activities.................................................. $ 196 $ 168 $ 25 $ 152
Net cash used in investing activities...................................................... (344) (54) (44) (79)
Net cash provided by (used in) financing activities........................................ 172 (102) -- (87)
----- ----- ----- -----
Change in cash and cash equivalents........................................................ $ 24 $ 11 $ (19) $ (14)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
For the six months ended June 30, 1997, Rocky Mountain II generated
$152,000 in net cash from operations. During this period, $104,000 was generated
from net income before non-cash charges and $27,000 was generated from the
change in
131
<PAGE>
working capital. During the six months ended June 30, 1997, cash used in
investing activities was primarily attributable to the acquisition of fixed
assets. Cash used in financing activities was attributable to $87,000 in net
payments on debt.
From January 1, 1995 through December 31, 1996, Rocky Mountain II generated
$364,000 in net cash from operating activities. During this period, $330,000 was
generated from net income before non-cash charges, and $34,000 from the change
in working capital. Cash used in investing activities was attributable to
$412,000 in purchases of property and equipment. Investing sources consisted of
$14,000 from a net decrease in outstanding notes receivable. Cash used in
financing activities was attributable to $83,000 in payments on stockholders.
Financing sources consisted of $153,000 of net proceeds from debt. At the end of
1996, Rocky Mountain II had no commitments for material capital expenditures. If
this transaction is not consummated, Rocky Mountain II would seek to expand and
would need to obtain equity or other financing for such expansion.
132
<PAGE>
INFORMATION REGARDING MIRACLE PARTNERS
BUSINESS OF MIRACLE PARTNERS
Miracle Partners was incorporated in 1988 for the sole purpose of owning
and operating self-service car washes in the Columbus, Ohio metropolitan area.
If the Exchange Offer is consummated, Miracle Partners will be contributing the
operations from five locations to the Combination through Precision Auto Care's
acquisition of Miracle Partners' Common Stock. All of the sites operated by
Miracle Partners operate self-service car wash bays. One of the sites has an
automatic car wash bay. The total number of bays for all car washes is 41. All
of the locations have coin-operated systems so that personnel needs are minimal.
One attendant oversees operations during normal business hours, seven days a
week. One location rents space to a Lube Depot franchise and another location
rents space to a sign company. The Columbus metropolitan market has many
competitors. However, Miracle Partners believes that it operates in some of the
best locations in that market. The car wash business is a cyclical business with
the winter months generally providing the greatest revenue. Maintenance on the
facilities is done on a on-going basis, as required, primarily by company
personnel.
PRINCIPAL STOCKHOLDERS OF MIRACLE PARTNERS
Clarence E. Deal owns 500 shares of the outstanding Common Stock of Miracle
Partners. The 500 shares owned by Mr. Deal represent all of the outstanding
shares of the Common Stock of Miracle Partners. No other person or entity owns
of record or beneficially any securities convertible into Miracle Partners
Common Stock or has the right to acquire Miracle Partners Common Stock or any
such securities.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Clarence E. Deal has extended loans to Miracle Partners, which loans, as of
March 31, 1997, had an aggregate outstanding balance of approximately $69,900.
The outstanding balance of the loans bear interest at the rate of 9% per annum
and is payable on demand.
During 1996, Miracle Partners borrowed $36,036 from Star Auto Center, Inc.
at an interest rate of 10% which loan is collateralized by equipment. Star Auto
Center, Inc. is wholly-owned by the sole shareholder of Miracle Partners.
During 1996, Miracle Partners loaned $165,000 to GEM Development Corp., the
balance of which was repaid at December 31, 1996. During 1996, Miracle Partners
loaned $81,500 to Lube Ventures, the balance of which was repaid at December 31,
1996. A $25,000 note receivable from Lube Ventures outstanding at December 31,
1995, was repaid in 1996. The sole shareholder of Miracle Partners owns 22% of
GEM Development Corp. and 50% of Lube Ventures.
During 1996, Miracle Partners earned management fees of $89,500 and $24,000
from Sunbrite, Inc. and Miracle CW, Inc., respectively. Miracle Partner's sole
shareholder owns 50% of Sunbrite, Inc. and 50% of Miracle CW, Inc. During 1996,
Miracle Partners sold equipment to Miracle CW, Inc. for a recorded gain of
$20,676.
133
<PAGE>
MIRACLE PARTNERS SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and the notes thereto included elsewhere herein. The
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 audited financial statements of Miracle Partners included elsewhere in
this Joint Proxy Statement/Prospectus. The 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 balance sheet data as of June 30,
1997 is derived from unaudited financial statements included in this Joint Proxy
Statement/Prospectus. The balance sheet data as of December 31, 1995 is derived
from unaudited financial statements not included in this Joint Proxy
Statement/Prospectus. The unaudited financial statements include all normal
recurring adjustments that Miracle Partners considers necessary for a fair
presentation of its 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 year ended December 31, 1997, or any
other future period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
---------------------------- ----------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................................ $ 416 $ 443 $256 $229
Direct cost........................................................ 149 117 81 87
Contribution....................................................... 267 326 175 142
General and administrative expenses................................ 216 224 124 132
Income from operations............................................. 51 103 51 10
Other income (expense)............................................. (25) 31 (18) 11
Income (loss)...................................................... 26 134 33 21
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working deficit.................................................... $ (38) $ (160) $ (121)
Total assets....................................................... 1,797 1,751 1,792
Total debt......................................................... 1,535 1,356 1,353
Stockholders' equity............................................... 232 367 387
</TABLE>
134
<PAGE>
MIRACLE PARTNERS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Joint Proxy Statement/Prospectus.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
REVENUE. Revenue decreased approximately $27,000 to $229,000 for the six
months ended June 30, 1997 from $256,000 for the six months June 30, 1996. This
decrease was primarily attributable to the severe rains and poor weather in the
spring of 1997 which adversely impacted revenues from car wash sales.
GROSS PROFIT. Cost of sales consists of direct costs related to the
operation of car wash facilities, including personnel, utilities, maintenance
and supplies. Gross profit decreased 19% to $142,000 in 1997 from $175,000 in
1996. Gross profit as a percentage of revenue decreased to 62% in 1997 from 68%
in 1996. The decrease was largely a result of the decrease in service revenues
attributable to the severe rains and poor weather in the spring of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $8,000 or 6% to $132,000 for the six months ended June 30, 1997 from
$124,000 for the six months ended June 30, 1996. General and administrative
expenses as a percentage of revenue increased to 58% in 1997 from 48% in 1996.
The increase was partially attributable to additional legal and accounting fees.
OTHER INCOME (EXPENSE). Other income increased $29,000 to $11,000 in 1997
from expense of $18,000 in 1996. This change is primarily attributable to a
decrease in interest expense of $15,000 coupled with an increase in management
fees of $14,000.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased 7% to $443,000 for the year ended December 31,
1996 from $416,000 for the year ended December 31, 1995. This change was due
primarily to increased management fees income.
GROSS PROFIT. Costs of sales consists of direct costs related to the
operation of car wash facilities, including personnel, utilities, maintenance
and supplies. Gross profit increased 22% to $326,000 in 1996 from $267,000 in
1995. Gross profit as a percentage of revenues increased to 74% in 1996 to 64%
in 1995. These changes were a result of the increase in management fee income
which generates a higher profit margin.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 4% to $224,000 for the year ended December 31, 1996 from $216,000 for
the year ended December 31, 1995. This increase is due primarily to increased
sales volume during 1996. General and administrative expenses as a percentage of
revenues decreased to 51% in 1996 from 52% in 1995.
OTHER INCOME (EXPENSE). Net other expense increased $55,000 from 1996 to
1995 primarily due to a gain on sale of equipment and an increase in other
income.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of Miracle Partners:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30
-------------- --------------
1995 1996 1996 1997
----- ----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by operating activities.................................................. $ 148 $ 242 $ 142 $ 114
Net cash used in investing activities...................................................... (134) (91) (25) (89)
Net cash provided by (used in) financing activities........................................ (7) (180) (112) (2)
----- ----- ----- -----
Change in cash and cash equivalents........................................................ $ 7 $ (29) $ 5 $ 23
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
For the six months ended June 30, 1997, Miracle Partners generated $114,000
in net cash from operations. During this period, $76,000 was generated from net
income before non-cash charges and $16,000 was generated from the change in
working capital. During the six months ended June 30, 1997, cash used in
investing activities was primarily attributable to the
135
<PAGE>
acquisition of fixed assets. Cash used in financing activities was attributable
to proceeds from debt of $31,000 offset by payments on debt of $33,000.
From January 1, 1995 through December 31, 1996, Miracle Partners generated
$390,000 in net cash from operating activities. During this period, $373,000 was
generated from net income before non-cash charges, and $17,000 was generated
through reductions in working capital. Cash used in investing activities was
attributable to $225,000 in purchases of property and equipment. Cash used in
financing activities was attributable to $187,000 in net payments on debt.
136
<PAGE>
INFORMATION REGARDING PREMA PROPERTIES
BUSINESS OF PREMA PROPERTIES
Prema Properties owns and operates nine (9) car wash centers in Ohio. The
centers are located primarily in central Ohio and the Cleveland, Ohio area. The
nine car wash centers contain in the aggregate 58 self-service units and seven
automatic units. Of the seven automatic units, six of them have been installed
within the last two years and all of the 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 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. This
unit is operated by two full-time employees and one part-time employee. The Lube
Depot employees also service the car wash facility at that location. Major
maintenance requirements for the car wash systems are provided by Miracle
Industries, Inc.
PRINCIPAL MEMBERS OF PREMA PROPERTIES
The following table sets forth information as of April 15, 1997 with
respect to (i) each person known to Prema Properties to be the beneficial owner
of more than 5% of the outstanding membership interests in Prema Properties,
(ii) each Managing Member of Prema Properties, (iii) each executive officer of
Prema Properties, and (iv) all Managing Members and executive officers of Prema
Properties as a group.
<TABLE>
<CAPTION>
% OF PREMA
PROPERTIES
MANAGING MEMBERS, OFFICERS AND 5% BENEFICIAL OWNERS MEMBERSHIP INTERESTS
- --------------------------------------------------------------------------------------------------------- --------------------
<S> <C>
MANAGING MEMBERS AND OFFICERS:
George A. Bavelis........................................................................................ 15.12
Lee D. Adamantidis....................................................................................... 8.40
Effie Eliopulos.......................................................................................... 15.12
Ernest S. Malas.......................................................................................... 15.12
Clarence E. Deal......................................................................................... 15.12
George Pandozi........................................................................................... 15.12
Richard Krahe............................................................................................ 8.0
Mitchell Krahe........................................................................................... 8.0
------
All Managing Members, Executive Officers and
5% Beneficial Owners as a group........................................................................ 100%
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Certain directors and officers of Miracle Industries are equity holders in
Prema Properties. George Bavelis, a 7.94% equity holder of Miracle Industries
and an officer and director of Miracle Industries, is a 15.12% equity holder in
Prema Properties. Effie Eliopoulos, a director, officer and 28.43% shareholder
of Miracle Industries, is a 15.12% shareholder in Prema Properties. Ernest S.
Malas, a director, officer and 30.78% shareholder in Miracle Industries, is a
15.12% shareholder in Prema Properties. Prema Properties purchased car wash
equipment, parts and maintenance services from Miracle Industries. Prema
Properties was provided a discount from the standard quoted prices of Miracle
Industries of ranging between 5% and 35% depending on the items being purchased.
The amount of the discount was determined upon the amount of activity required
of Miracle Industries in providing the product or service. Prema Properties
purchased approximately $282,000 and $100,000 of equipment and supplies during
1996 and 1995, respectively. At December 31, 1996, accounts payable to Miracle
Industries totaled $58,436.
Prema Properties 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 Prema Properties. The
note was made to finance the purchase of additional property and equipment. At
December 31, 1996, the balance due was $448,793.
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PREMA PROPERTIES SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and the notes thereto included elsewhere herein. The
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 audited financial statements of Prema Properties included elsewhere in
this Joint Proxy Statement/Prospectus. The statement of operations data set
forth below with respect to the year ended December 31, 1995 and the six months
ended June 30, 1996 and 1997 and the balance sheet data as of June 30, 1997 is
derived from unaudited financial statements included in this Joint Proxy
Statement/Prospectus. The statement of operations data for the year ended
December 31, 1995 is derived from unaudited financial statements not included in
this Joint Proxy Statement/Prospectus. The unaudited financial statements
include all normal recurring adjustments that Prema Properties considers
necessary for a fair presentation of its 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 year ended
December 31, 1997 or any other future period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue............................................................ $ 354 $ 672 $ 312 $ 390
Direct cost........................................................ 235 609 374 323
------------ ------------ ------------ ------------
Contribution....................................................... 119 63 (62) 67
General and administrative expenses................................ 25 52 31 24
------------ ------------ ------------ ------------
Income from operations............................................. 94 11 (93) 43
Other income (expense)............................................. (81) (204) (78) (148)
------------ ------------ ------------ ------------
Income (loss)...................................................... $ 13 $ 193 $ (171) $ (105)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working deficit.......................................................... $ (179) $ (643) $ (828)
Total assets............................................................. 1,298 3,255 3,144
Total debt............................................................... 879 2,977 3,008
Stockholders' equity..................................................... 385 193 88
</TABLE>
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PREMA PROPERTIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Joint Proxy Statement/Prospectus.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased $78,000, or 25%, to $390,000 for the six
months ended June 30, 1997 from $312,000 for the six months ended June 30, 1996.
This change was due to the installation of additional car washes in 1997.
GROSS PROFIT. Costs of sales consists of direct costs related to the
installation and operation of car washes, including fees, salaries, supplies,
chemicals and maintenance. Gross profit increased to $129,000 in 1997 from
$(62,000) in 1996. Gross profit as a percentage of revenues increased to 17% in
1997 from (20)% in 1996. These changes were largely attributable to increased
revenues in 1997 from the 5 new car wash facilities installed in 1996 without
the corresponding installation costs incurred in 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $7,000 or 23% to $24,000 for the six months ended June 30, 1997 from
$31,000 for the six months ended June 30, 1996. General and administrative
expenses as a percentage of revenues decreased to 6% in 1997 from 10% in 1996
due to a reduction in administrative costs attributable to the installation of
fewer car wash facilities in 1996 versus 1997.
OTHER INCOME (EXPENSE). Net other expense increased $70,000 to $(148,000)
in 1997 from $(78,000) in 1996. The change was a result of interest costs on
debt associated with the acquisition of new car wash facilities in 1996 and
1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased $318,000, or 90%, to $672,000 for the year
ended December 31, 1996 from $354,000 for the year ended December 31, 1995. This
change was due to the installation of five new car washes during 1996.
GROSS PROFIT. Costs of sales consists of direct costs related to the
installation and operation of car washes, including fees, salaries, supplies,
chemicals and maintenance. Gross profit decreased $56,000 or 47% to $63,000 in
1996 from $119,000 in 1995. Gross profit as a percentage of revenues decreased
to 9% in 1996 from 34% in 1995. These changes were a result of costs incurred to
install the five new car wash facilities.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $27,000, or 111%, to $52,000 for the year ended December 31, 1996 from
$25,000 for the year ended December 31, 1995. General and administrative
expenses as a percentage of revenues remained relatively constant at 8% in 1996
and 7% in 1995.
OTHER INCOME (EXPENSE). Net other expense increased $123,000 to $(204,000)
in 1996 from $(81,000) in 1995 primarily due to a $137,000 increase in interest
expense related to new debt obligations entered into during 1996 in order to
fund the increase in operations, and a $15,000 change in investment income
attributable to Tamarack Car Wash.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of Prema Properties:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31 JUNE 30,
------------------ -----------------
1995 1996 1996 1997
----- ------- ------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities............................. $ 110 $ 28 $ (92) $(40)
Net cash used in investing activities........................................... (184) (1,955) (1,640) (26)
Net cash provided by financing activities....................................... 102 1,964 1,818 31
----- ------- ------- ----
Change in cash and cash equivalents............................................. $ 28 $ 37 $ 86 $(35)
----- ------- ------- ----
----- ------- ------- ----
</TABLE>
During the six months ended June 30, 1997 and 1996, respectively, Prema
Properties used $40,000 and $92,000 net cash in operating activities. The
difference is due primarily to a decrease in accounts payable period to period.
During the six months ended June 30, 1997 and 1996, Prema Properties used
$26,000 and $1,640,000 net cash in investing activities primarily towards the
purchase of property and equipment. During the six months ended June 30, 1997
and 1996, respectively, Prema Properties received $31,000 and $1,818,000 in cash
flow from financing sources primarily due to debt proceeds. The higher level of
investment in property and equipment in 1996 was funded by the higher level of
debt proceeds in the same period.
139
<PAGE>
From January 1, 1995 through December 31, 1996, Miracle Partners generated
$138,000 in net cash from operating activities. During this period, $64,000 was
generated from net income before non-cash charges, and $74,000 was generated
through reductions in working capital. Cash used in investing activities was
attributable to $2,054 in purchases of property and equipment, $62,000 in
investments and $23,000 in other purchases. Financing sources consisted of
$2,066,000 in net debt proceeds.
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<PAGE>
INFORMATION REGARDING RALSTON CAR WASH
BUSINESS OF RALSTON CAR WASH
Ralston Car Wash was formed in 1987 in order to own and operate car washes
in the Denver, Colorado metropolitan area. Currently, Ralston Car Wash owns one
self-service car wash site. The total number of bays for the car wash is ten,
one of which is automatic. The site is operated through a centralized control
system located on-site. Such controls include the ability to check the
functions, number and type of transactions, and receipts at the car wash site.
Ralston Car Wash's computer system contains highly sophisticated software, which
may be used to change the operational system at the site at any time. The site
is usually staffed by one attendant during specified business hours seven days a
week.
The competition for Ralston Car Wash generally consists of other
self-service car washes (as opposed to full-service car washes). Ralston Car
Wash's business is subject to seasonal fluctuations. The winter months
(generally, November through March) are the busiest for the car wash, and there
is an approximate 30% variation in revenues between the winter and summer
months. In addition, overall weather conditions in any season can affect the
receipts of the car wash. The equipment contained at the site requires
considerable maintenance, which is performed by employees of Ralston Car Wash.
The equipment is upgraded approximately every five years. Ralston Car Wash uses
only biodegradable soap and other ingredients in the operation of the car wash.
There is no state or local regulation of the operations of the car wash, other
than the requirement to obtain a sales tax license.
PRINCIPAL MEMBERS OF RALSTON CAR WASH
William R. Klumb, the Managing Member of Ralston Car Wash, owns 99.9999% of
the outstanding Membership Interests in Ralston Car Wash.
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<PAGE>
RALSTON CAR WASH SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and the notes thereto included elsewhere herein. The
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 audited financial statements of Ralston Car Wash included elsewhere in
this Joint Proxy Statement/Prospectus. The 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 balance sheet data as of December
31, 1995 and June 30, 1997 is derived from unaudited financial statements
included in this Joint Proxy Statement/Prospectus. The balance sheet data as of
December 31, 1995 is derived from unaudited financial statements not included in
this Joint Proxy Statement/Prospectus. The unaudited financial statements
include all normal recurring adjustments that Ralston Car Wash considers
necessary for a fair presentation of its 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 year
ended December 31, 1997, or any other future period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
---------------------------- ----------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................................ $149 $164 $ 88 $ 94
Direct cost........................................................ 65 91 52 57
Contribution....................................................... 84 73 36 37
Selling, general and administrative expenses....................... 48 39 17 16
Income from operations............................................. 36 34 19 21
Other income (expense)............................................. (30) (37) (11) (12)
Income (loss)...................................................... 6 (3) 8 9
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working deficit................................................ $ (119) $(78) $(72)
Total assets................................................... 227 220 210
Total debt..................................................... 248 286 257
Stockholders' deficit.......................................... (95) (98) (89)
</TABLE>
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<PAGE>
RALSTON CAR WASH MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Joint Proxy Statement/Prospectus.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased 7% to $94,000 for the six months ended June
30, 1997 from $88,000 for the six months ended June 30, 1996. This change was
due to efforts by Ralston Car Wash to increase sales volume.
GROSS PROFIT. Costs of sales consists of direct costs related to costs
associated with installation and operation of car washes, including fees,
salaries, supplies, chemicals and maintenance. The cost of sales increased
$5,000 due to the reallocation of overhead expenses among related entities.
Gross profit and gross profit as a percentage of revenues remained essentially
the same for the two periods.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased 10% to $164,000 for the year ended December
31, 1996 from $149,000 for the year ended December 31, 1995. This change was due
to efforts by the Ralston Car Wash to increase sales volume.
GROSS PROFIT. Costs of sales consists of direct costs related to costs
associated with installation and operation of car washes, including fees,
salaries, supplies, chemicals and maintenance. The cost of sales increased due
to maintenance requirements and customer marketing programs. Gross profit
decreased $11,000 in 1996 from $84,000 in 1995. Gross profit as a percentage of
revenues decreased to 45% in 1996 from 57% in 1995. These changes were a result
of the allocation of costs between related entities and the reinvestment in the
company to upgrade its existing facility.
OTHER INCOME (EXPENSE). Interest expense increased $7,000 to $37,000 in
1996 from $30,000 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from the statement of
cash flows of Ralston Car Wash:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30
-------------- --------------
1995 1996 1996 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by operating activities.............................................. $ 25 $ 12 $ 12 $ 24
Net cash used in investing activities.................................................. -- (11) (8) --
Net cash provided by (used in) financing activities.................................... (21) 2 (6) (28)
---- ---- ---- ----
Change in cash and cash equivalents.................................................... $ 3 $ 3 $ (2) $ (4)
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
For the six months ended June 30, 1997, Prema Properties used $40,000 in
net cash in operations. During this period, the Ralston recorded a net loss of
$105,000 which was offset by $102,000 of non-cash charges and $36,000 from the
reduction in working capital. During the six months ended June 30, 1997, cash
used in investing activities was primarily attributable to the acquisition of
fixed assets. Cash used in financing activities was attributable to proceeds
from debt of $130,000 offset by payments on debt of $92,000.
From January 1, 1995 through December 31, 1996, Ralston Car Wash generated
$37,000 in net cash from operating activities. During this period, $52,000 was
generated from net income before non-cash charges, and $15,000 was used in the
reduction of working capital. Cash used in investing activities was attributable
to $11,000 in purchases of property and equipment. Cash used in financing
activities was attributable to $19,000 in net payments on debt. At the end of
1996, Ralston Car Wash had no commitments for material capital expenditures. If
this transaction is not consummated, Ralston would seek to expand its current
facility, and would need to obtain additional financing for such expansion.
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INFORMATION REGARDING KBG
BUSINESS OF KBG
KBG LLC owns proprietary Programmable Logic Controller (PLC) software
designed by Karl Byrer and used to integrate all aspects of a self-service car
wash operation into one centralized control point. KBG offers marketing,
managing and site consulting to the car wash and fast lube industries. An
outgrowth of these activities has been development by KBG of sophisticated
computer control systems. In addition, KBG is a distributor of HydroSpray Car
Wash Equipment and Miracle Chemicals.
KBG LLC was formed by Karl Byrer Group, Inc. and funded with the software
in exchange for the membership interests simply to create an entity with a
single asset and no liabilities to provide a vehicle for the corporation to
exchange equity interests with Karl Byrer Group, Inc. By exchanging interests,
Precision Auto Care has obtained the software it desired and Karl Byrer Group,
Inc. has obtained the Precision Auto Care Common Stock.
PRINCIPAL MEMBERS OF KBG
Karl Byrer Group, Inc. owns 100% of the Membership Interests in KBG LLC.
KBG LLC is managed by Karl Byrer Group, Inc. Karl Byrer Group, Inc. is owned,
100%, by Karl W. Byrer and he is the President of the corporation and sole
Director.
CERTAIN RELATIONSHIPS
The Karl Byrer Group, Inc. is engaged in a number of related party
transactions. The Karl Byrer Group, Inc. is involved in providing marketing and
consulting services to Lube Ventures, Inc. on an ongoing basis. This
relationship has existed for approximately two years, and has amounted to
revenues for the Karl Byrer Group of approximately $20,000.
The Karl Byrer Group, Inc. provides marketing and consulting services to
Rocky Mountain Ventures. In addition, the Company provides systems integration
for Rocky Mountain Ventures utilizing the PLC software designed by the principal
of the Karl Byrer Group, and owned by KBG LLC a 100% subsidiary of Karl Byrer
Group, Inc. The relationship between the Karl Byrer Group, Inc. and Rocky
Mountain Venture has existed for the past seven years, and produces revenue to
the Karl Byrer Group of approximately $75,000 per year.
Karl Byrer and William Klumb, a principal of Rocky Mountain Ventures, each
individually own a 50% membership interest in Intermountain Lube, LLC.
Intermountain Lube, LLC will be engaged in the business of operating a
franchised automotive car wash which is currently under construction. This car
wash will be a Precision Auto Care lube and wash after the Combination. The Karl
Byrer Group, Inc. also provides ongoing marketing, technical and consulting
services to Miracle Industries. These services include the use of the PLC
software owned by KBG LLC. The Karl Byrer Group, Inc. has been providing these
consulting services to Miracle Industries for the past five years, and receives
revenue from this relationship in the amount of approximately $75,000 per year.
Karl Byrer Group, Inc. acts as a distributor for Miracle Chemical and
HydroSpray car wash equipment. Sales attributed to Karl Byrer Group, Inc.
totalled approximately $100,000, and the commissions owed to Karl Byrer Group,
Inc. from those sales totalled approximately $20,000.
COMPARATIVE RIGHTS OF SECURITY HOLDERS
The stockholders or members, as the case may be, of each of WE JAC, Miracle
Industries, Lube Ventures, Rocky Mountain I, Rocky Mountain II, Miracle
Partners, Prema Properties, Ralston Car Wash and KBG should be aware that upon
receipt of Precision Auto Care Common Stock, their rights as stockholders or
members, which are now governed by the laws of their respective states of
incorporation, their articles of incorporation, certificate of incorporation and
bylaws or membership agreement, as the case may be, of their respective
companies (the "Governance Documents"), will be governed by the laws of the
State of Virginia, the state of incorporation of Precision Auto Care and by
Precision Auto Care's articles of incorporation (the "Precision Auto Care
Certificate") and bylaws (the "Precision Auto Care Bylaws"). Upon the Effective
Time of the Combination, the rights of the stockholders and members, as
applicable, of each of WE JAC, Miracle Industries, Lube Ventures, Rocky Mountain
I, Rocky Mountain II, Miracle Partners, Prema Properties, Ralston Car Wash and
KBG will be different, and possibly adversely affected, due to the differences
between the laws of the various states of incorporation
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<PAGE>
and between the Governance Documents and the Precision Auto Care Certificate and
Precision Auto Care Bylaws. Accordingly, the stockholders and members, as
applicable, of each the Constituent Companies should carefully review the
following, which the Constituent Companies believe addresses all material
differences in the rights of stockholders or members, as applicable, upon
consummation of the Combination, to understand how certain of their rights as
stockholders and members will be affected upon completion of the Combination.
The following is a brief description of those differences. This description
does not purport to be a complete explanation of all of the differences between
the rights of Precision Auto Care stockholders and the stockholders and members,
as applicable, of each of WE JAC, Miracle Industries, Lube Ventures, Rocky
Mountain I, Rocky Mountain II, Miracle Partners, Prema Properties, Ralston Car
Wash and KBG. Furthermore, the identification of specific differences is not
meant to indicate that other differences do not exist. The following summary is
also qualified in its entirety by reference to the Colorado Business Corporation
Act (the "CBCA"), the Delaware General Corporation Law (the "DGCL"), the Ohio
General Corporation Law (the "OGCL"), the Virginia Stock Corporation Act (the
"VSCA"), the Governance Documents and the Precision Auto Care Certificate and
Precision Auto Care Bylaws. WE JAC, Lube Ventures and Miracle Partners are
incorporated under the laws of the State of Delaware. Consequently, the Mergers
will affect the rights of WE JAC, Lube Ventures and Miracle Partners
stockholders to the extent that there are differences between the VSCA and the
DGCL and between the WE JAC, Lube Ventures and Miracle Partners certificates of
incorporation and the Precision Auto Care Certificate and between the WE JAC,
Lube Ventures and Miracle Partners bylaws and the Precision Auto Care Bylaws.
Miracle Industries is incorporated under the laws of the State of Ohio;
therefore, the Mergers and Exchange Offers will affect the rights of
stockholders of Miracle Industries to the extent there are differences between
the VSCA and the OCGL, and between the Miracle Industries articles of
incorporation and bylaws and the Precision Auto Care Certificate and Precision
Auto Care Bylaws. Rocky Mountain I and Rocky Mountain II are incorporated under
the laws of the State of Colorado; therefore, the Mergers will affect the rights
of stockholders of Rocky Mountain I and Rocky Mountain II to the extent there
are differences between the VSCA and the CBCA, and between the Rocky Mountain I
and Rocky Mountain II articles of incorporation and bylaws and the Precision
Auto Care Certificate and Precision Auto Care Bylaws. Prema Properties is a
limited liability company formed under the laws of Ohio. Therefore, the Exchange
Offer will affect the rights of members of Prema Properties to the extent there
are differences between limited liability companies and corporations and to the
extent there are differences between the VSCA and the Ohio LLC Act ("OLLCA") and
between the Prema Properties membership agreement and the Precision Auto Care
Certificate and Precision Auto Care Bylaws. Ralston Car Wash and KBG are limited
liability companies formed under the laws of the State of Colorado. Therefore,
the Exchange Offer will affect the rights of Ralston Car Wash and KBG members to
the extent there are differences between limited liability companies and
corporations and to the extent there are differences between the VSCA and the
LLC Act of the State of Colorado (the "CLLCA") and between the respective
membership agreements and the Precision Auto Care Certificate and the Precision
Auto Care Bylaws.
Because the certificate of incorporation and bylaws of WE JAC, Lube
Ventures and Miracle Partners, all of which are incorporated under the laws of
the State of Delaware, are substantially the same with respect to the rights
discussed below, the discussion of each of the rights applicable to those
corporations has been combined for the convenience of the reader. Because the
articles of incorporation and bylaws of Rocky Mountain I and Rocky Mountain II,
each of which are incorporated under the laws of the State of Colorado, are
substantially the same with respect to the rights discussed below, the
discussion of each of the rights applicable to those corporations has also been
combined for the convenience of the reader. Because Ralston Car Wash and KBG are
Colorado limited liability companies, the discussion of the rights applicable to
these limited liability companies has also been combined.
GENERAL
LIABILITY OF DIRECTORS/MANAGING MEMBERS
PRECISION AUTO CARE. The articles of incorporation of a Virginia
corporation may limit or eliminate the personal liability of a director to the
corporation or its stockholders for the director's breach of fiduciary duty to
the corporation. The articles of incorporation cannot limit or eliminate the
director's liability for the director's (i) willful misconduct, (ii) 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 (iii) payment of unlawful
distributions, including dividends and stock redemptions. Precision Auto Care,
Inc.'s articles of incorporation eliminate directors' liability to Precision
Auto Care and to its shareholders to the fullest extent permitted by Virginia
law.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Under the DGCL the certificate
of incorporation of a Delaware corporation may include a provision limiting or
eliminating the personal liability of a director to the corporation or its
stockholders
145
<PAGE>
for monetary damages for breach of fiduciary duty as a director. Such provision,
however, may not eliminate or limit the liability of a director for (i) breaches
of the director's duty of loyalty to the corporation or its stockholder; (ii)
acts or omissions not in good faith or involving intentional misconduct or
knowing violations of the law; (iii) the payment of unlawful dividends or
unlawful stock repurchases or redemptions; or (iv) transactions in which the
director received an improper benefit. WE JAC's, Lube Ventures and Miracle
Partners' certificates of incorporation limits director liability to the fullest
extent permitted by law.
MIRACLE INDUSTRIES. Ohio has codified the directors' common law duty of
care and, in part, their common law duty of loyalty. Section 1701.59(B) of the
OGCL provides in pertinent part: "A director shall perform his duties as a
director, including his duties as a member of any committee of the directors
upon which he may serve, in good faith, in a manner he reasonably believes is to
be in or not opposed to the best interests of the corporation, and with the care
that an ordinarily prudent person in a like position would use under similar
circumstances."
Under Ohio law, a director is not liable for monetary damages unless it is
proved by clear and convincing evidence that his action or failure to act was
undertaken with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation. This higher
standard of proof must be met in any action brought against a director for
breach of his duties, including any action involving or affecting (i) a change
or potential change in control of the corporation, (ii) a termination or
potential termination of a director's service to the corporation as a director
or (iii) a director's service in any other position or relationship with the
corporation. The higher standard of proof, however, does not affect the
liability of directors for unlawful loans, dividends or distributions under
Section 1701.95 of the OGCL. There is no comparable provision limiting the
liability of officers, employees or agents of Ohio corporations.
Ohio law provides specific statutory authority for directors, when
determining what they reasonably believe to be in the best interests of the
corporation, to consider, in addition to the interests of the corporation's
shareholders, other factors such as the interests of the corporation's
employees, suppliers, creditors and customers; the economy of the state and
nation; community and societal considerations; the long-term and the short-term
interests of the corporation and its shareholders; and the possibility that
these interests may be best served by the continued independence of the
corporation.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. Under the CBCA, a director who
votes for or assents to a distribution made in violation of the CBCA or the
articles of incorporation of the corporation, is personally liable to the
corporation for the portion of the distribution which is unlawful. No
distribution may be made under the CBCA if the corporation would be unable to
pay its debts as they become due in the usual course of business or if the
corporation's total assets would be less than the sum of its total liabilities,
plus the amount that would be needed to satisfy preferential rights upon
dissolution of shareholders whose preferential rights are superior to those of
shareholders receiving the distribution. Directors may also be liable if they
fail to meet the required standards of conduct. Each director of a Colorado
corporation is required to discharge his duties in good faith, with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances and in a manner he reasonably believes to be in the best interests
of the corporation. The CBCA permits a corporation to eliminate or limit the
personal liability of a director to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director, subject to certain
exceptions. The articles of incorporation of Rocky Mountain I and Rocky Mountain
II do not contain such a provision.
PREMA PROPERTIES. Prema Properties is an Ohio Limited Liability Company
("LLC"). Therefore, it does not have directors. Under the Ohio LLC Act
("OLLCA"), a LLC may either reserve the management to its members or appoint
manager(s). Under the operating agreement of Prema Properties, the management
has been vested in a general manager. The OLLCA provides that neither the
members nor the managers of a LLC are liable solely by reason of being a member
or manager of a LLC. A manager in an Ohio LLC is required to perform his duties
in good faith in a manner he reasonably believes would be in the best interest
of the LLC and with the care that the ordinary prudent person in similar
situation would use. A manager of a LLC does not violate this standard unless it
is proved by clear and convincing evidence that he has not acted in good faith
in the manner he reasonably believes to be in the best interest of the LLC or
with the care that an ordinary prudent person would use in similar
circumstances. The manager of a LLC is liable for damages for any action which
he takes or fails to take only if it is proved by the clear and convincing
evidence that his actions were undertaken with deliberate intent to cause injury
to the LLC or with reckless disregard for the best interest of the LLC.
RALSTON CAR WASH AND KBG. Under the CLLCA, the managing member is required
to act in good faith in a manner the managing member reasonably believes to be
in the best interest of the LLC, and with such care as an ordinarily prudent
person in a like position would use in similar circumstances. The managing
member is entitled to rely on information, opinions, reports or statements of
the LLC's employees, accountants or other experts and certain committees unless
the manager has knowledge of the matter in question that will cause such
reliance not to be warranted.
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INDEMNIFICATION
PRECISION AUTO CARE. Under the VSCA, a Virginia corporation may indemnify a
director or officer against liability if the director or officer conducted
himself in good faith and believed that his official conduct was in the best
interests of the corporation and all other non-official conduct was not opposed
to the corporation's best interests, or in the case of a criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. A corporation may
not indemnify a director or officer in connection with a proceeding in which the
director or officer is adjudged liable on the basis that he received an improper
personal benefit. A director or officer also cannot be indemnified in connection
with a proceeding by or in the right of the corporation in which the director or
officer is adjudged liable to the corporation. In addition, under the VSCA, any
corporation may indemnify, including an indemnity with respect to a proceeding
by or in the right of the corporation, and may provide for advances or
reimbursement of expenses, to any director, officer, employee or agent that is
authorized by the articles of incorporation or any bylaw approved by the
stockholders or any resolution adopted, before or after the subject event, by
the stockholders except an indemnity against (i) willful misconduct or (ii) a
knowing violation of criminal law. To the fullest extent permitted by the VSCA,
Precision Auto Care's Articles of Incorporation require indemnification of all
directors, advisory directors and officers of Precision Auto Care, and permit
indemnification of employees and agents of Precision Auto Care and directors,
advisory directors, officers, employees and agents of subsidiaries and
affiliates of Precision Auto Care. Subject to the statutory exceptions,
Precision Auto Care's Articles of Incorporation eliminate liability of any
director, advisory director or officer of Precision Auto Care in connection with
a proceeding by or in the right of the corporation or by or on behalf of its
stockholders, unless the director, advisory director or officer engaged in
willful misconduct or knowingly violated any criminal or securities law.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. To the extent a director,
officer, employee or agent has succeeded on the merits or otherwise in defense
of any action, suit or proceeding brought in connection with his holding such a
position, indemnification is mandatory under Delaware law. Indemnification shall
cover expenses, including attorneys fees, actually and reasonably incurred by
that person in connection therewith.
In addition to the mandatory indemnification described in the preceding
paragraph, Delaware law generally permits, and WE JAC's, Lube Ventures' and
Miracle Partners' bylaws require indemnification for expenses, judgments, and
amounts paid in settlement incurred in connection with third-party actions, and
for expenses incurred in connection with derivative actions, provided there is a
determination that the person seeking indemnification acted in good faith and in
a manner reasonably believed to be in, or not opposed to, the best interests of
the corporation, or, in a criminal proceeding, that the person had no reason to
believe his conduct to be unlawful. The determination must be made (i) by a
majority of the directors who were not parties to the action, even though less
than a quorum, or (ii) if there are no such directors, or if such directors so
direct, by independent legal counsel, or (iii) by the stockholders.
Notwithstanding the foregoing, without court approval, however, no
indemnification may be made in respect of any derivative action in which such
person is adjudged liable.
A Delaware corporation may, and WE JAC's, Lube Ventures' and Miracle
Partners' bylaws provide that it should, make advances of expenses to a director
or an officer in defending any action, suit or proceeding in advance of its
final disposition upon the receipt of an undertaking by or on behalf of such
director or officer to repay such if it is ultimately determined that the
director or officer is not entitled to indemnification. Such advances also may
be provided to employees and agents of the corporation upon approval by the
board of directors. WE JAC's, Lube Ventures' and Miracle Partners' bylaws so
provide.
WE JAC's, Lube Ventures' and Miracle Partners' bylaws provide that, unless
otherwise provided when authorized, indemnification and advancement of expenses
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of that person's heirs, executors and administrators.
MIRACLE INDUSTRIES. Under Section 1701.13(E) of the OGCL, directors,
officers, employees and agents of Ohio corporations have an absolute right to
indemnification for expenses (including attorneys' fees) actually and reasonably
incurred by them to the extent they are successful in defense of any action,
suit or proceeding, including derivative actions, brought against them, or in
defense of any claim, issue or matter asserted in any such proceeding. Directors
(but not officers, employees or agents) are entitled to mandatory payment of
expenses by the corporation as they are incurred, in advance of the final
disposition of the action, suit or proceeding, provided the director agrees to
cooperate with the corporation concerning the matter and to repay the amount
advanced if it is proved by clear and convincing evidence that his act or
failure to act was done with deliberate intent to cause injury to the
corporation or with reckless disregard for the corporation's best interests.
The OGCL permits a corporation to indemnify directors, officers, employees
or agents of the corporation in circumstances where indemnification is not
mandated by the statute if certain statutory standards are satisfied. A
corporation may
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grant indemnification in actions other than actions brought by, or derivatively
in the right of, the corporation if the indemnitee has acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Such
indemnification is permitted against expenses (including attorneys' fees) as
well as judgments, fines and amounts paid in settlement actually and reasonably
incurred by the indemnitee.
An Ohio corporation may also provide indemnification in actions brought by,
or derivatively in the right of, the corporation for attorneys' fees and
expenses actually and reasonably incurred in connection with the defense or
settlement of an action if the officer, director, employee or agent acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation. Ohio law does not expressly authorize
indemnification against judgments, fines and amounts paid in settlement in such
actions. The corporation may not indemnify a director, officer, employee or
agent in such actions for attorneys' fees and expenses if the director, officer,
employee or agent is adjudged to be liable to the corporation for negligence or
misconduct in the performance of his duties to the corporation, unless and only
to the extent that a court determines that, despite the adjudication of
liability, such person is fairly and reasonably entitled to indemnity.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. A Colorado corporation may
indemnify an individual who is or was a director or officer of the corporation
or who is or was serving as a director or officer of another corporation at the
request of the corporation, against liabilities incurred in such person's
capacity as a director or officer if the person conducted himself in good faith
and reasonably believed that his conduct was in the best interest of the
corporation, or that his conduct was at least not opposed to the corporation's
best interests. Unless limited by its articles of incorporation, a Colorado
corporation is required to indemnify a person who is or was serving as a
director or officer who is wholly successful in the defense of any proceeding to
which the person was a party because the person is or was a director or officer,
against reasonable expenses incurred in connection with the defense of the
proceeding. The articles of incorporation and the bylaws of Rocky Mountain I and
Rocky Mountain II do not contain any provisions relating to the indemnification
of directors and officers.
PREMA PROPERTIES. A manager of an Ohio LLC may be indemnified against
expenses, including attorney's fees, judgments, fines and settlement amounts
that are incurred in connection with any proceedings in which he has been made
or is threatened with being made a party (other than an action by or on behalf
of the LLC), arising out of the position or its service on behalf of the LLC, so
long as the Manager's actions are taken in good faith and the manager reasonably
believed the act to be in the best interest of the LLC, and, in connection with
any criminal action, the manager had no reasonable cause to believe his conduct
was unlawful. If the action against the Manager is by the LLC, the manager may
be indemnified if his actions were in good faith and in a manner he reasonably
believes to be in the best interest of the LLC, except that the manager may not
be indemnified with respect to any matter in which he is judged to be liable for
negligence or misconduct in the performance of his duty to the LLC, unless a
court determines that the manager is fairly and reasonably entitled to such
indemnification. To the extent that the manager of the LLC has been successful
in defense of any proceeding, he is entitled to indemnification against
expenses, including attorney's fees, that were actually and reasonably incurred
by him. Where indemnification is discretionary with the LLC, the determination
whether the Manager has met the applicable standards of conduct is made under
one of the following methods: (i) a majority vote of a quorum consisting of the
managers who are not parties or threatened to be made parties to the proceeding;
(ii) a written opinion by independent legal counsel; (iii) by the members, or
(iv) by the court in which proceedings are brought. The LLC may purchase or
maintain liability insurance or similar protection on behalf of the manager of
the LLC whether or not the LLC would have the power to indemnify the
representative against that liability.
RALSTON CAR WASH AND KBG. Under the CLLCA, if authorized by the majority
vote of members, a managing member is entitled to indemnification if he
conducted himself in good faith and reasonably believed that his conduct was in
the LLC's best interest if such conduct was in the managing member's official
capacity; or in all other cases, if the managing member's conduct was at least
not opposed to the LLC's best interest and in the case of a criminal proceeding,
the managing member had no reasonable cause to believe his conduct was unlawful.
A LLC is not entitled to indemnify the managing member in connection with any
proceeding by or in the right of the LLC in which the managing member was
adjudged liable to the LLC or in connection with any proceeding charging
improper personal benefit to the manager. Indemnification in connection with a
proceeding by or in the right of the LLC is limited to reasonable expenses
incurred in connection with the proceeding. Unless the articles of organization
of the LLC provide otherwise, a LLC shall be required to indemnify a managing
member who was wholly successful, on the merits or otherwise in defense of any
proceeding to which he was a party with respect to his reasonable expenses
incurred in connection with the proceeding. A LLC is entitled to purchase
liability insurance on behalf of a managing member against any liability,
asserted against him in that capacity whether or not the LLC has the power to
indemnify the managing member against such liability. Any indemnification to a
managing member if arising out of proceedings by or on behalf of the LLC shall
be reported in writing to the members before the next members' meeting. The
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1994 CLLCA has simplified the indemnification provisions and now it merely
states that a LLC shall indemnify every managing member with respect to payments
made and personal liabilities reasonably incurred by that managing member in the
ordinary and proper conduct of the LLC's business or for the preservation of the
LLC's business or property.
DISTRIBUTIONS AND REDEMPTIONS
PRECISION AUTO CARE. Virginia law has abolished the statutory distinctions
among various types of surplus that traditionally regulate whether distributions
are lawful. Instead, Virginia law generally permits distributions provided that,
after the distribution (1) the corporation may continue to pay its debts in the
ordinary course of business, and (2) the corporation's assets equal or exceed
its liabilities plus the dissolution preferences of preferred equity securities.
Virginia law requires that the corporation's board of directors base its
determination that the distribution is permitted on financial statements
prepared on the basis of accounting principles that are reasonable in the
circumstances or on a fair valuation or other method that is reasonable under
the circumstances.
Virginia law permits a corporation to acquire its own shares. Shares so
redeemed become authorized but unissued shares of the same class, but
undesignated as to series. The articles of incorporation of Precision Auto Care,
Inc. contain no provision forbidding the reissuance of acquired shares.
Virginia law deems stock redemptions to be distributions. Accordingly, a
Virginia corporation considering a stock redemption must consider whether, after
the redemption, the corporation would become insolvent. The corporation's board
of directors uses the same financial tests and criteria of solvency as they
would for any other distribution as described above.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Delaware law permits a
corporation to declare and pay dividends out of surplus or, if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or for the preceding fiscal year as long as the amount of capital
of the corporation following the declaration and payment of the dividend is not
less than the aggregate amount of the capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets. This provision does not invalidate or otherwise affect a note, debenture
or other obligation of the corporation that it paid as a dividend if at the time
such obligation was delivered by the corporation, the corporation had either
surplus or net profits from which that dividend could lawfully have been paid.
In addition, Delaware law generally provides that a corporation may redeem or
repurchase its shares only if such redemption or repurchase would not impair the
capital of the corporation. Notwithstanding the foregoing, a Delaware
corporation may redeem or repurchase shares having a preference upon the
distribution of any of its assets (or shares of common stock, if there are no
such shares of preferred stock) out of its capital if such shares will be
retired upon acquisition (and provided, that after the reduction in capital made
in connection with such retirement of shares, the corporation's remaining assets
are sufficient to pay any debts not otherwise provided for).
MIRACLE INDUSTRIES. An Ohio corporation may pay dividends out of surplus,
however created, in cash, property or shares. An Ohio corporation must notify
its shareholders if a dividend is paid out of capital surplus. Under the Ohio
General Corporation Law, a corporation may repurchase its own shares if
authorized to do so by its articles or under certain other circumstances but may
not do so if immediately thereafter its assets would be less than its
liabilities plus its stated capital, if any, or if the corporation is insolvent
or would be rendered insolvent by such a purchase or redemption.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. A Colorado corporation may make
distributions to its shareholders and may acquire its own shares unless the
corporation would not be able to pay its debts as they become due in the usual
course of business after such distribution or acquisition or its total assets
would be less than the sum of its total liabilities plus any amounts needed to
satisfy preferential rights of shareholders upon dissolution.
PREMA PROPERTIES. The OLLCA provides that a LLC may make distributions to
its members and that unless otherwise provided in the operating agreement, such
distribution shall be made to the members in proportion to the value of their
respective interests in the LLC. Upon withdrawal from membership, unless
otherwise provided in the operating agreement, a member is entitled to receive
any distribution to which he is entitled to under the operating agreement and
has a right within a reasonable time to receive the fair value of his membership
interest. Except as provided in the operating agreement, a member has no right
to receive any distribution from the LLC other than cash. A member who knowingly
receives a wrongful distribution from a LLC is liable to the LLC for the amount
received that is in excess of the amount that would have been distributed
without violation of the operating agreement. The operating agreement of Prema
Properties provides that cash flow shall be distributed for each taxable year to
the members in proportion to their percentages within seventy-five (75) days of
the end of that taxable year. Distribution from capital transactions are
distributed to the members in proportion to their
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Adjusted Capital Balances and thereafter in proportion to the positive capital
accounts and then in proportion to their percentages. On liquidation, the assets
are distributed to the members in accordance with their respective capital
accounts. The operating agreement provides that no member has a right to
voluntarily withdraw from the LLC and in addition, in the event of an
involuntarily withdrawal, the successor to the withdrawing member does not
become a member. In addition, if the LLC continues its operations, the successor
shall have all rights of an interest holder but shall not be entitled to receive
the fair market value of the membership interest in the LLC as otherwise
provided in the OLLCA.
RALSTON CAR WASH AND KBG. Under the CLLCA, a member is entitled to receive
distributions before his resignation and dissolution of the LLC at times
specified in the operating agreement. The operating agreements of Ralston Car
Wash and KBG provide that distribution of cash and other assets shall be
allocated among the members in proportion to their percentage interests. The
Agreements are silent as to the timing of such distributions. Upon resignation,
a member is entitled to receive any distribution to which he is entitled under
the operating agreement (subject to a right of offset for damages for breach of
the operating agreement) and is entitled to receive the fair value of his
membership interest in the LLC as of the date of resignation. A member is not
entitled to receive a distribution if at the time giving effect to this
distribution all the liabilities of the LLC would exceed the fair market value
of the LLC's assets. If a member receives a return of part of his contribution
in violation of the operating agreement or the CLLCA, he is liable for a period
of six (6) years to return the wrongfully distributed amount. If a member has
received a return of any part of his contribution without violation of the
operating agreement or the CLLCA, he is liable for a period of six (6) years
thereafter to return the contribution but only to the extent necessary to
discharge the LLC's liability to creditors who extended credit to the LLC during
the period such contribution was held by the LLC.
STOCKHOLDER/MEMBER INSPECTION OF BOOKS AND RECORDS
PRECISION AUTO CARE. Virginia law grants stockholders the right to examine
the list of stockholders of a corporation during a stockholders meeting. A
stockholder of a corporation whose securities are registered under the
Securities Exchange Act of 1934 may inspect the list of stockholders at least
ten (10) days before the stockholders meeting provided: (i) he has been a
stockholder for at least six (6) months or owns at least five percent (5%) of
all the outstanding shares; (ii) his demand is made in good faith and for a
proper purpose; (iii) he describes his purpose with reasonable particularity,
and (iv) the list of stockholders is directly connected with his purpose.
Virginia law entitles a stockholder to inspect and copy the following
corporation records provided the stockholder gives the corporation at least five
(5) business days written notice before the date he wishes to inspect and copy:
(i) the corporation's current articles of incorporation, (ii) the corporation's
current by-laws; (iii) resolutions adopted by the board of directors creating
one or more classes or series of shares, and fixing their relative rights, if
shares issued pursuant to those resolutions are outstanding, (iv) the minutes of
shareholders meetings during the past three (3) years, (v) all written
communications from the corporation to its shareholders, including financial
statements, furnished during the past three (3) years, (vi) the names and
business addresses of the corporation's current directors and officers, and
(vii) the corporation's most recent annual report to the Virginia State
Corporation Commission. Virginia law grants stockholders the additional right to
inspect and copy the following records: (1) excerpts from minutes of meetings of
the stockholders, the board of directors or its committees, or actions by
consent in lieu of meeting, (2) the accounting records of the corporation, and
(3) the list of stockholders. However, a stockholder seeking to exercise his
right to inspect or copy said records must satisfy the tests that a stockholder
of a public company must pass in order to inspect or copy the list of
stockholders before the meeting of stockholders described above.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Pursuant to Delaware law,
stockholders have a right for a period of ten (10) days prior to any stockholder
meeting, and during such meeting, to examine a list of stockholders, arranged in
alphabetical order and showing the address and the number of shares held by such
stockholder, for any purpose germane to such meeting. In addition, any
stockholder, following a written request satisfying the requirements of the
DGCL, has the right to inspect and make copies of the corporation's books and
records, including the stockholder list, during usual business hours for a
proper purpose.
MIRACLE INDUSTRIES. Pursuant to Section 1701.37 of the OGCL, an Ohio
corporation is required to keep correct and complete books and records of
account, together with the corporation's minutes and a list of its shareholders
with their names and addresses and the number and class of shares issued or
transferred to or from them from time to time. Upon the request of any
shareholder at any meeting of shareholders, the Ohio corporation is required to
produce an alphabetically arranged list of the shareholders of record as of the
applicable record date who are entitled to vote at such meeting, together with
their respective addresses and the number and class of shares held by each.
Shareholders of an Ohio corporation, upon written
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demand stating the specific purchase thereof, have the right to examine in
person or by agent or attorney at any reasonable time and for any reasonable and
proper purpose, the corporation's governing documents, minutes, shareholders'
records and voting trust agreements, if any, and to make copies or extracts
thereof. Under Section 1701.38 of the OGCL, an Ohio corporation is required to
provide shareholders at each annual meeting financial statements consisting of a
balance sheet and a statement of profit and loss and surplus, which financial
statements have appended an opinion signed by the president, vice president or
treasurer of the corporation or by a public accounting firm or accountant.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. A shareholder or his agent or
attorney is entitled to inspect and copy during regular business hours certain
records of a Colorado corporation, including its articles of incorporation,
bylaws, minutes of all shareholder meetings, consents of shareholders,
communications with shareholders, names and business addresses of current
directors and officers, its most recent corporate report filed with the Colorado
Secretary of State and financial statements prepared for periods ending during
the last three (3) years, if the shareholder gives the corporation written
notice at least five (5) business days before the proposed date of inspection.
If a shareholder desires to inspect certain additional records of the
corporation, including records relating directors' meetings, accounting records
and the corporation's list of shareholders, the shareholder must have been a
shareholder for at least three (3) months immediately preceding the demand to
inspect these corporate records or be a shareholder of at least five percent
(5%) of all of the outstanding shares of any class of shares of the corporation
as of the date the demand is made, and must give the corporation written notice
at least five business days before the proposed date of inspection. A demand to
inspect such corporate records must be made in good faith and for a proper
purpose.
PREMA PROPERTIES. Under OLLCA, a member, subject to reasonable standards
contained in an operating agreement, has the right to obtain from the LLC true
and full information regarding the status of the business and financial
condition of the LLC, all income tax returns of the LLC, a list of members and
managers, copies of the articles of organization, operating agreement and all
amendments thereto, and all other information of the LLC that is fair and
reasonable. The operating agreement may set forth standards regarding the type
and nature of information of documents to be furnished, the time and location to
be furnished and who will pay the expense of furnishing them. Unless otherwise
provided in the operating agreement, a LLC has a right to keep confidential from
its members for a reasonable period of time any information that the LLC
reasonably considers to be in the nature of trade secrets or any other
information as follows: information the LLC in good faith reasonably believes
disclosure of which is not to be in the best interest of the LLC or could damage
the LLC; and information which the LLC is required by law or by agreement with a
third party to keep confidential. A LLC may require that any demand for such
information be made in writing. In compliance with this section, a LLC may elect
to either provide a member right to examine the documents in person or by agent
and to make copies of relevant documents or provide the member true and accurate
copies of documents responsive to the demand. The operating agreement of Prema
Properties provides that each member shall reimburse the LLC for all costs and
expenses incurred by the LLC in connection with the members inspections or
copying of the LLC's books and records.
RALSTON CAR WASH AND KBG. Under the CLLCA, a member of a LLC has the right
to inspect LLC records required to be kept by the LLC. These include a list of
all members and managers, copies of the articles of organization, operating
agreement and all amendments thereto, a copy of all tax returns and reports for
the three most recent years, any minutes of the members or consents of members,
copies of any financial statements of the LLC for the three most recent years,
and a statement prepared and certified as accurate by a manager of the LLC which
describes the contributions made and required to be made by members to the LLC,
rights of members to terminate their membership and the amounts and method of
determining distributions upon such termination and terms and conditions of the
distribution and termination.
DISSENTERS' RIGHTS
PRECISION AUTO CARE. Under Virginia law, a stockholder of a corporation who
does not consent to certain major transactions may, under various circumstances,
be entitled to dissenters' rights pursuant to which that stockholder may receive
cash in the amount of the fair market value of his shares in lieu of the
consideration he would otherwise receive in the transaction. Virginia law
generally denies dissenters' rights to holders of shares of any class or series
which, at the record date fixed to determine the stockholders entitled to
receive notice of and vote on the proposed action, were (i) listed on a national
securities exchange (including the NASDAQ National Market System on which
Precision Auto Care expects that its shares of Common Stock will initially be
listed), or (ii) held by at least 2,000 record stockholders. Virginia law
creates three exceptions to the rule that dissenters rights are not available
for holders of publicly traded securities. Those exceptions are as follows: (i)
The articles of incorporation of the Corporation grants dissenters rights (and
the articles of incorporation of Precision Auto Care grant no such additional
dissenters rights); (ii) the holders of a class or series are required to accept
anything other than (a) cash, or (b) publicly traded securities, or (c) a
combination of cash and publicly traded securities in exchange for their
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securities pursuant to the proposed transaction; or (iii) the transaction to be
voted on is an "affiliated transaction" that was not approved by a majority of
the disinterested directors. Virginia law governing affiliated transactions is
described in greater detail below.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Pursuant to Delaware law, a
stockholder of a corporation who does not consent to or vote in favor of a
merger or consolidation may, under varying circumstances, be entitled to
appraisal rights pursuant to which such stockholder may receive cash in the
amount of the fair market value of his shares in lieu of the consideration he
otherwise would receive in the merger or consolidation. Such appraisal rights
are not available in certain circumstances, including without limitation (a)
with respect to a merger or consolidation by a corporation the shares of which
are either listed on a national securities exchange or are held of record by
more than 2,000 holders if such stockholders receive only shares of the
surviving corporation, shares of any other corporation which are either listed
on a national securities exchange or held of record by more than 2,000 holders,
cash in lieu of fractional shares or any combination thereof, or (b) to
stockholders of a corporation surviving a merger if no vote of the stockholders
of the surviving corporation is required to approve the merger because the
merger agreement does not amend the existing certificate of incorporation, each
share of the surviving corporation outstanding prior to the merger is an
identical outstanding or treasury share after the merger, and the number of
shares to be issued in the merger does not exceed twenty percent (20%) of the
shares of the surviving corporation outstanding immediately prior to the merger
and if certain other conditions are met. In addition, stockholders of a Delaware
corporation are not entitled to appraisal rights with respect to a sale of the
corporation's assets or an amendment to the corproation's certificate of
incorporation, unless the corporation's certificate of incorporation provides
otherwise. Each of WE JAC's, Lube Ventures' and Miracle Partner's certificates
of incorporation does not provide otherwise.
MIRACLE INDUSTRIES. Under the OGCL, dissenting shareholders are entitled to
appraisal rights in connection with the lease, sale, exchange, transfer or other
disposition of all or substantially all of the assets of a corporation and in
connection with amendments to its article which change the rights of
shareholders in a substantially prejudicial manner. In addition, shareholders of
an Ohio corporation being merged into a new corporation are also entitled to
appraisal rights. Shareholders of an acquiring corporation are entitled to
appraisal rights in a merger, combination or majority share acquisition in which
such shareholders are entitled to voting rights.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. A shareholder of a Colorado
corporation is entitled to dissent and obtain payment of the fair value of the
shareholders' shares upon the consummation of (i) a merger to which the
corporation is a party if approval by the shareholders of the corporation is
required or the corporation is a subsidiary that is merged with its parent
corporation, (ii) a plan of share exchange to which the corporation is a party
as the corporation whose shares will be acquired, (iii) a sale or lease or other
disposition of all or substantially all of the property of the corporation for
which a shareholder vote is required, or (iv) a sale, lease or other disposition
of all or substantially all of the property of an entity whose shares or other
interests held by the corporation constitute all or substantially all of the
property of the corporation. A shareholder is not entitled to dissent with
respect to any shares which are listed on a national securities exchange under
the Securities Exchange Act of 1934 or are included in the national market
system of the National Association of Securities Dealers Automated Quotation
System (NASDAQ) or held of record by more than 2,000 shareholders.
PREMA PROPERTIES. Unless otherwise provided in an operating agreement, a
member of an Ohio LLC that is being merged is entitled to relief as a dissenting
member. In order for a member of an Ohio LLC to exercise such rights, he must be
a record holder of the membership interest entitled to notice of the membership
meeting in which the merger proposal is submitted and must not have voted those
interests in favor of the proposal. Within ten (10) days after the vote on the
proposal is taken, the dissenting member must deliver to the LLC written demand
for payment of fair cash value membership interest and the amount so claimed. If
the merger is submitted without meeting, the dissenting member must not have
indicated its approval of the proposal and the dissenting member must deliver to
the LLC within fifteen (15) days after the date in which the request for
approval was mailed a written demand for payment. Unless the operating agreement
provides reasonable basis for determination for paying cash fair value for
membership interests, or the LLC and the dissenting member come to an agreement
within three (3) months after demand for payment, the dissenting member, the LLC
or the survivor of any merger may file a complaint in the Ohio Courts for
determination of the value. Unless otherwise provided, the dissenting member's
rights in the LLC including voting or distribution rights are suspended from the
time that the demand for cash value of the membership interests. The fair value
of the membership is to be determined as to what a willing seller would be
willing to accept and that a willing buyer would be willing to pay for the
membership interest. The fair value paid shall not exceed what a member
specified in his demand for cash payment. In computing fair value of the
membership interest, any appreciation in market values from the merger is
excluded.
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RALSTON CAR WASH AND KBG. The CLLCA is silent as to mergers and as to any
specific dissenter's right of a member of an LLC that takes part in a merger.
The operating agreements of Ralston Car Wash and KBG are also silent as to any
rights of a dissenter to a merger.
STAGGERED BOARD OF DIRECTORS/MANAGING MEMBERS
PRECISION AUTO CARE. Virginia law authorizes a corporation to divide its
board of directors into classes to create staggered terms. The articles of
incorporation of Precision Auto Care, Inc. create three classes of directors and
terms staggered such that one third (1/3) of the total number of directors are
elected each year.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Delaware law permits division
of the board of directors into three classes to allow for staggering of terms.
However, each of Lube Ventures' and Miracle Partners' certificates of
incorporation and bylaws does not contain a provision so staggering its board.
Therefore, all directors of Lube Ventures and Miracle Partners are elected on an
annual basis for one (1) year terms. WE JAC's bylaws, however, provide that the
terms of its directors shall be staggered in such a manner so that the terms of
no more than three (3) directors shall expire in any one (1) year.
MIRACLE INDUSTRIES. The OGCL authorizes the creation of a staggered board.
The terms of the Miracle Industries directors are not staggered.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. The CBCA provides that the terms of
directors may be staggered by dividing the total number of directors into two or
three groups, with each group containing one-half (1/2) or one-third (1/3) of
the total, as near as may be. If the terms are staggered, the terms of directors
in the first group expire at the first annual meeting of shareholders after
their election, the term of the directors of the second group expire at the
second annual shareholders meeting after such directors' election, and the terms
of the directors in the third group, if any, expire at the third annual
shareholders meeting after their election. The terms of the directors of Rocky
Mountain I and Rocky Mountain II are not staggered.
PREMA PROPERTIES. Prema Properties is a LLC that does not have directors.
It is governed by a general manager who is appointed and, does not have any
specific term.
RALSTON CAR WASH AND KBG. Ralston Car Wash and KBG are LLCs and do not have
directors. They are managed by a managing member who is elected by the members
for a one year term.
STOCKHOLDER/MEMBER VOTING REQUIREMENTS
PRECISION AUTO CARE. Under Virginia law, each stockholder is entitled to
one (1) vote for each share of stock he owns, unless the articles of
incorporation ascribe different voting rights to a class or series of stock. The
articles of incorporation of Precision Auto Care provide that each share of
common stock has one (1) vote. The articles of incorporation empower the board
of directors to establish the voting entitlement of each series of preferred
stock upon issuance.
Virginia law provides that a stockholder may vote his shares in person or
by proxy. A proxy is generally effective for eleven (11) months unless the proxy
states a different period.
Under Virginia law, the presence of a majority of shares entitled to vote
constitutes a quorum. Virginia law allows a corporation to adopt different
quorum requirements in its articles of incorporation. The articles of
incorporation of Precision Auto Care do not adopt different quorum requirements.
Virginia law generally provides that, once a quorum of shares is present,
action on a matter is approved if the number of shares voting for the matter
exceeds the number of shares voting against the matter. The articles of
incorporation and By-Laws of Precision Auto Care correspond with Virginia law.
Virginia law authorizes a corporation to adopt voting requirements in its
articles of incorporation different from those provided by statute. The articles
of incorporation of Precision Auto Care establish that eighty percent (80%) of
the voting power of the then outstanding shares of stock generally entitled to
elect directors, voting together as a single voting group, must vote in favor of
the following actions: (i) to approve certain transactions, including mergers,
transfers of assets, transfer of corporation securities, dissolutions, and
recapitalizations involving certain stockholders or affiliates of the
corporation; (ii) to remove incumbent directors; (iii) to make or amend by-laws;
or (iv) to amend the articles of incorporation of the corporation.
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WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Under Delaware law, each
stockholder shall be entitled to one (1) vote for each share of capital stock
unless otherwise provided by the certificate of incorporation, but subject to
statutory requirements for fixing the record date. Each stockholder entitled to
vote at a stockholders meeting may authorize another person or persons to act
for him by proxy, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. WE JAC's,
Lube Ventures and Miracle Partners' bylaws provide that each share of common
stock shall be entitled to one (1) vote and that stockholders may be represented
by proxy.
Under Delaware law, the certificate of incorporation or bylaws of a
corporation may specify the number of shares that shall be present in person or
represented by proxy at any meeting in order to constitute a quorum for the
transaction of business. In no event, however, shall a quorum consist of less
than one-third (1/3) of the shares entitled to vote at the meeting. In the
absence of such specification in the certificate of incorporation or bylaws: a
majority of shares entitled to vote, present in person or represented by proxy,
shall constitute a quorum for a stockholders meeting; in all matters other than
the election of directors, and except as otherwise provided by the DGCL, the
affirmative vote of the majority of shares present in person or represented by
proxy and entitled to vote on the matter shall be the act of the stockholders;
directors shall be elected by a plurality of shares present in person or
represented by proxy and entitled to vote on the election of directors; and
where a separate vote by a class or classes is required, a majority of
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter, and the affirmative vote of the majority of shares of such
class or classes present in person or represented by proxy at the meeting shall
be the act of such class.
WE JAC's, Lube Ventures' and Miracle Partners' bylaws provide that, except
as otherwise provided by law or specified in its certificate of incorporation or
bylaws, the affirmative vote of a majority of shares present in person or
represented by proxy and entitled to vote shall be the act of the shareholders.
Under the bylaws, directors may be elected by a plurality of the shares present
or represented by proxy.
MIRACLE INDUSTRIES. Pursuant to the OGCL, unless otherwise specified in the
articles of incorporation, the shares of each class of capital stock of an Ohio
corporation is entitled to one vote per share on each matter properly submitted
to the shareholders, except where cumulative voting is permitted with respect to
the election of directors.
Under the OGCL, unless specifically eliminated by an amendment to the
corporation's articles, cumulative voting in the election of directors is
mandatory if written notice is given by any shareholder to the present, a vice
president or the secretary of the corporation, not less than forty-eight (48)
hours before a meeting held for the purpose of electing directors (if the
meeting notice has been given at least ten days prior thereto, and otherwise not
less than twenty-four (24) hours before the meeting), that the shareholder
desires that the vote for the election of directors be cumulative, and if an
announcement of the giving of such notice is made upon the convening of the
meeting by the chairman or secretary or by or on behalf of the shareholder
giving such notice. Pursuant to cumulative voting, each share of stock is
entitled to as many votes as there are directors to be elected and each
shareholder may cast all his votes for a single candidate or distribute such
votes among two or more candidates. Miracle Industries' Articles of
Incorporation have not eliminated cumulative voting.
Under the OGCL and the company's Articles of Incorporation, an agreement of
merger or consolidation must be approved by the directors of each constituent
corporation and adopted by shareholders of each constituent Ohio corporation
(other than the surviving corporation in the case of a merger) holding at least
two-thirds (2/3) of the corporation's voting power. In the case of a merger, the
agreement must also be adopted by the shareholders of the surviving corporation
by similar vote, if one or more of the following conditions exist: (i) the
articles or regulations of the surviving corporation then in effect require that
the agreement be adopted by the shareholders or by the holders of a particular
class of shares of that corporation; (ii) the agreement conflicts with the
articles or regulations of the surviving corporation then in effect, or changes
the articles or regulations, or authorizes any action that, if it were being
made or authorized apart from the merger, would otherwise require adoption by
the shareholders or by the holders of a particular class of shares of that
corporation; (iii) the merger involves the issuance or transfer by the surviving
corporation to the shareholders of the other constituent corporation or
corporations of such number of shares of the surviving corporation as will
entitle the holders of the shares immediately after the consummation of the
merger to exercise one-fifth (1/5) or more of the voting power of that
corporation in the election of directors; or (iv) the agreement of merger makes
such change in the directors of the surviving corporation as would otherwise
require action by the shareholders or by the holders of a particular class of
shares of that corporation.
Subject to certain exceptions, under the OGCL and the company's Articles of
Incorporation, the approval of two-thirds (2/3) of the voting power of the
company is required for (i) the consummation of the combinations and majority
share acquisitions involving the transfer or issuance of such number of shares
as would entitled the holders thereof to exercise at least one-fifth (1/5) of
the voting power of such corporation in the election of directors immediately
after the consummation
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of such transaction; (ii) the disposition of all or substantially all of the
corporation's assets other than in the regular course of business and (iii)
voluntary dissolutions.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. For mergers, share exchanges and
sales, leases or other dispositions of assets for which a shareholder vote is
required under the CBCA, such corporate transactions must be approved by the
affirmative vote of a majority of the holders of shares entitled to vote on such
matters unless the articles of incorporation, bylaws adopted by the
shareholders, or the board of directors provide for or require a greater vote to
approve such transactions. Cumulative voting in the election of directors is
allowed by the articles of incorporation of Rocky Mountain I and Rocky Mountain
II. A quorum of the Rocky Mountain I and Rocky Mountain II shareholders is a
majority of the votes entitled to be cast on the matter by the shareholders who
are members of the same voting group. If a quorum exists, action on a matter
other than the election of directors is approved by a voting group if the votes
cast within that voting group favoring the action exceed the votes cast within
the voting group opposing the action, unless a greater number of affirmative
votes is required under CBCA or the articles of incorporation.
PREMA PROPERTIES. Under the OLLCA, unless as otherwise provided in the
operating agreement, the voting of the members is in proportion to their
contributions to the capital of the LLC. In addition, the OLLCA provides that
certain votes are needed to accomplish specific transactions. The OLLCA provides
that all members of the LLC must authorize the assignment in trust for
creditors, the disposition of the goodwill of the business or the performance of
any other act that would make it impossible to carry out the ordinary business
of the LLC, the confession of a judgment or submission of a claim for liability
to the LLC for arbitration. Unless otherwise provided in the operating
agreement, the requirement of a member to make contributions or return property
distributed in violation of law may be compromised only by the consent of all
members. The operating agreement of Prema Properties provides that the members
shall vote in accordance with their percentage interests. The operating
agreement vests operational power in the general manager who may be removed by a
majority of the percentages held by the members at any time or for any reason.
In addition, the manager may not take any of the following actions without the
approval of the members: any capital transaction, the loaning of company money,
or admission of additional members. Except where the Agreement provides
otherwise, the approval of the members holding the majority of interests of
percentage of the members shall be required to approve any manner addressed at a
meeting of members. Except as otherwise provided by the Agreement or required by
the OLLCA, wherever the consent of the members is required to approve any
action, the operating agreement requires an affirmative vote of seventy percent
(70%) or more of the percentage interests held by the members.
RALSTON CAR WASH AND KBG. Subject to the provisions of the CLLCA which
majority and unanimous consent vote, or agreement of the members (such as
provisions requiring the unanimous written agreement of members to dissolve, and
unanimous consent of members to admit a transferee as a member), the operating
agreement may grant to all or a specified group of members the right to consent,
vote, or agree, on any basis on any matter. Unless otherwise provided in the
operating agreement or articles of organization, the CLLCA also requires the
vote of a majority of members entitled to vote to remove a manager, and requires
the unanimous written consent of the members to compromise an obligation of a
member to make a contribution or return money or other property paid or
distributed in violation of the CLLCA. The operating agreements of Ralston Car
Wash and KBG provide that voting by the members shall be in accordance with
their percentage ownership of the LLC and, in the case of Ralston Car Wash, that
cumulative voting is authorized. The Ralston Car Wash and KBG articles of
organization and operating agreement do not contain any provisions that alter
the voting requirements provided in the CLLCA.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS/MEMBERS
PRECISION AUTO CARE. Virginia law authorizes stockholders to act by signing
a unanimous consent in writing to the action in lieu of approving the action at
a meeting. The articles of incorporation of Precision Auto Care specify that
action by the stockholders of the corporation must be taken at a duly called
meeting of the stockholders.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Pursuant to Delaware law,
unless the certificate of incorporation provides otherwise, stockholders may
take action without a meeting of stockholders by the written consent of
stockholders having not less than the minimum number of votes that would be
necessary to authorize or take the action at a meeting at which all stockholders
entitled to vote were present and voted. Each of WE JAC's, Lube Ventures' and
Miracle Partners' certificates of incorporation does not prohibit stockholder
action by written consent. Accordingly, any action which may be taken at a
stockholders annual or special meeting may be taken by consent of the
stockholders without a meeting, without prior notice and without a vote. The
consents shall be given in writing, setting forth the action taken, and shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to take such
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action at a meeting at which all shares entitled to vote were present and voted.
Every written consent shall bear the date of signature of each stockholder who
signs it, and no written consent shall be effective to take the corporate action
unless, within sixty (60) days of the earliest dated consent delivered to the
Corporation, written consents signed by a sufficient number of stockholders are
delivered to the Corporation. Prompt notice of any action by less than unanimous
written consent shall be given to all shareholders who have not consented in
writing to the action.
MIRACLE INDUSTRIES. Pursuant to Section 1701.54 of the OGCL, unless an Ohio
corporation's articles or regulations provided otherwise, an action which may be
authorized or taken at a meeting of the shareholders or of the directors may be
authorized or taken without a meeting with the written consent of all of the
shareholders who would be entitled to notice of such meeting or all of the
directors, as the case may be.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. Any action that may be taken by the
shareholders of a Colorado corporation pursuant to a vote at an annual or
special meeting of shareholders may be taken by written consent of all of the
shareholders entitled to vote on such action.
PREMA PROPERTIES. The operating agreement for Prema Properties and the
OLLCA provide that in lieu of a meeting, the members may take any action by an
written instrument indicating consent to the members.
RALSTON CAR WASH AND KBG. The operating agreements of Ralston Car Wash and
KBG and the CLLCA provide that any action required or permitted to be taken at a
meeting of the members may be taken without a meeting if evidenced by a written
consent signed by each member entitled to vote on the matter.
NOTICE PROCEDURES FOR STOCKHOLDER PROPOSALS
PRECISION AUTO CARE. Virginia law does not prescribe the procedures by
which stockholders propose actions to a corporation. The By-Laws of Precision
Auto Care establish the following procedure by which stockholders may introduce
proposals for stockholder action:
(1) The stockholder must provide timely notice in writing to the Secretary
of the corporation of the action he proposes. Notice is timely if delivered to
the corporation no fewer than seventy (70) and no more than ninety (90) days
before the first anniversary of the preceding year's annual meeting. If the date
of the next annual stockholders meeting is advanced more than twenty (20) days
or delayed more than seventy (70) days from the anniversary date, the
stockholder's notice must be delivered to the corporation no earlier than ninety
(90) days before the annual meeting, and no later than seventy (70) days prior
to such annual meeting. Under certain circumstances, notice is timely if it is
delivered ten (10) days after the corporation's announcement of the annual
meeting.
(2) The stockholder's notice shall state (i) the names of all persons the
stockholder intends to nominate for election or reelection as director of the
corporation, together with all information about such nominees required by
applicable securities laws; (ii) a brief description of any other business the
stockholder proposes to bring before the meeting, the reasons for conducting
said business at the meeting, and any material interest the stockholder has in
said business; (iii) the name and address of the stockholder and beneficial
owner; (iv) the class and number of shares of the Corporation owned by the
stockholder and beneficial owner; and (v) whether the proponent intends or is
part of a group that intends to solicit proxies from other stockholders in
support of his proposal.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Delaware statutes do not
address notice procedures for stockholder proposals, nor do WE JAC's, Lube
Ventures' or Miracle Partners' certificate of incorporation or bylaws.
MIRACLE INDUSTRIES. The OGCL does not address notice procedures for
stockholder proposals, nor do the articles of incorporation or bylaws of Miracle
Industries.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. The articles of incorporation and
bylaws of Rocky Mountain I or Rocky Mountain II do not impose any notice
requirements with respect to proposals to be brought up by shareholders at an
annual meeting. Only matters within the purpose or purposes described within the
notice of a special meeting of shareholders may be considered at such special
meeting.
PREMA PROPERTIES. The OLLCA and Prema Properties operating agreement do not
address notice procedures for member proposals.
RALSTON CAR WASH AND KBG. The Ralston Car Wash and KBG operating agreements
provide that a special meeting may be held at any time upon the call of a
majority in interest of the ownership of the company. The CLLCA imposes a notice
requirement with respect to proposals to be brought up at a special meeting.
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BOARD/MANAGING MEMBER VACANCIES
PRECISION AUTO CARE. Under Virginia law, vacancies and newly created
directorships may be filled either by the stockholders or by the majority of the
remaining directors, or by a sole remaining director, even though the directors
who remain do not constitute a quorum. The articles of incorporation of
Precision Auto Care authorize the remaining directors to fill vacancies and
newly created directorships on the Board of Directors.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Pursuant to Delaware law,
vacancies and newly created director-ships may be filled by a majority of the
directors then in office or a sole remaining director (even though less than a
quorum) unless otherwise provided in the certificate of incorporation or bylaws.
WE JAC's, Lube Ventures' and Miracle Partners' bylaws follow the statute.
However, Delaware law also provides that if the directors then in office
constitute less than a majority of the corporation's board of directors, then,
upon application by stockholders representing at least ten percent (10%) of
outstanding shares entitled to vote for such directors, the Court of Chancery
may order a stockholder election of directors to be held.
MIRACLE INDUSTRIES. Vacancies in the Board of Directors of the corporation
and any newly-created directorships resulting from any increase in the number of
the directors may be filled by the directors, acting by the vote of a majority
of the directors then in office, even if less than a quorum. A director elected
to the Board to fill a vacancy would hold office for the unexpired portion of
the term of the directors whose place has been filled. A director elected by the
Board to fill a newly-created directorship resulting from an increase in the
number of directors would hold office until the next election of the class of
which the director was elected.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. Vacancies on the Board of Directors
of Rocky Mountain I and Rocky Mountain II may be filled by the shareholders or
the Board of Directors. If the vacant office was held by a director elected by a
voting group of shareholders and one or more of the remaining directors were
elected by the same voting group, such directors are entitled to vote to fill
the vacancy if it is filled by the directors, and only the holders of shares of
that voting group are entitled to vote to fill the vacancy if it is filled by
the shareholders.
PREMA PROPERTIES. Prema Properties does not have directors as such, but
instead has a general manager. The general manager is appointed and may be
removed by a vote of majority of the members, and any vacancy of the general
manager is also to be voted on the majority of the members.
RALSTON CAR WASH AND KBG. The Ralston Car Wash and KBG operating agreements
provide that the managing member of the LLC shall serve on an annual basis and
that any vacancy in such position shall be filled by a majority of vote of the
members.
KBG. KBG's Operating Agreement provides that the sole member may appoint
the manager if any vacancy exists.
REMOVAL OF DIRECTORS/MEMBERS
PRECISION AUTO CARE. Virginia law provides that directors may be removed,
with or without cause, by a majority of the votes entitled to be cast at an
election of directors of the voting group by which the director was elected.
Virginia law permits a corporation's articles of incorporation to require a
greater vote to remove directors or to permit removal of a director only for
cause. The articles of incorporation of Precision Auto Care, Inc. require that
directors may be removed only for cause and then only by the affirmative vote of
eighty percent (80%) of the outstanding shares entitled to vote generally in the
election of directors, voting as a single class.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Pursuant to Delaware law, a
director generally may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors, unless
the certificate of incorporation otherwise provides. WE JAC's, Lube Ventures'
and Miracle Partners' bylaws do not provide otherwise. Additionally, WE JAC's,
Lube Ventures' and Miracle Partners' bylaws provide that any officer may be
removed from office, with or without cause, by resolution passed by the
directors.
MIRACLE INDUSTRIES. Under the OGCL, a director or directors may be removed
from office, with or without cause, by the affirmative vote of the holders of at
least a majority of the voting power of the corporation which entitles them to
elect directors in place of those to be removed.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. The shareholders of Rocky Mountain
I or Rocky Mountain II may remove one or more directors, with or without cause.
If a director is elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove that
director. A director may be removed by the shareholders only
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at a meeting called for the purpose of removing that director, and the meeting
notice shall state that the purpose or one of the purposes of the meeting is
removal of the director.
PREMA PROPERTIES. The operating agreement of Prema Properties provides that
the manager may be removed for any reason by a majority vote of the members of
the LLC as determined by their ownership interest in the LLC.
RALSTON CAR WASH AND KBG. The operating agreements of Ralston Car Wash and
KBG do not provide any specifics for removal of managers. However, the CLLCA
provides that at a meeting called expressly for that purpose, managing members
may be removed with or without cause by a vote of the majority of the members
entitled to vote at an election of managers.
AMENDMENTS OF CHARTERS/MEMBERSHIP AGREEMENTS
PRECISION AUTO CARE. Virginia law generally requires that amendments to the
articles of incorporation of a corporation be adopted using the following
procedure: (1) the Corporation's board of directors approves the amendment and
submits the amendment to the stockholders for approval; and (2) the stockholders
approve the amendment by vote of more than two-thirds (2/3) of all the votes
entitled to be cast by each voting group entitled to vote on the amendment.
Virginia law permits a corporation's articles of incorporation to require
greater affirmative vote of the stockholders to approve amendments. The articles
of incorporation of Precision Auto Care require that amendments to the articles
of incorporation be approved by the affirmative vote of eighty percent (80%) of
all outstanding shares, voting as a single class, with respect to amendments
affecting the following sections of the corporation's articles of incorporation:
Article V Business Combinations
Article VI Board of Directors
Article VII Stockholder Action
Article VIII By-Law Amendments
Article IX Amendments to the Articles of Incorporation
Amendments to sections of the articles of incorporation other than those
described above require the affirmative vote of two-thirds (2/3) of the
outstanding shares of each voting group entitled to vote on the amendment.
If a Virginia corporation has more than one class or series of stock,
holders of that class or series are entitled to vote on a proposed amendment,
regardless of whether the corporation's articles of incorporation grant said
class the right to vote, if the amendment proposes changing certain features of
the class or series. The following changes trigger the right of a class or
series to vote as a class or series on approving the amendment: (i) a change in
the number of authorized shares of the class or series; (ii) an exchange or
reclassification of the shares into another class or series; (iii) an exchange
or reclassification of shares of another class or series into the affected class
or series; (iv) a change in the rights of the class or series; (v) a change of
the number of shares outstanding in a class or series into a different number of
shares in the same class or series; (vi) creation or alteration of a class or
series of shares into a class or series with rights substantially equal to or
superior to the affected class, or the augmentation of rights to a class or
series previously having rights superior to or substantially equal to those of
the affected class; (vii) division of an existing class or series into new
classes or series; (viii) limitation or elimination of an existing preemptive
right; or (ix) cancellation or restriction on distributions previously accrued
but not yet declared.
The foregoing provision of Virginia law could trigger voting rights as a
class in preferred stock in the event the corporation issues preferred stock and
later attempts to change any of its characteristics outlined above.
Virginia law allows a corporation's articles of incorporation to empower
its board of directors to fix the relative rights of a class or series of stock.
In all cases, the class or series of stock is designated and described by
amending the corporation's articles of incorporation. The board of directors of
the corporation may approve the amendment to the articles of incorporation
creating, designating, and describing the rights of a new class or series
without action by the stockholders. After shares of a class or series are
outstanding, amendments to the articles of incorporation affecting that class or
series require the approval of the stockholders of the affected class or series.
The articles of incorporation of Precision Auto Care empower its board of
directors to create, designate, and determine the rights of multiple series
within the preferred class of stock.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. To amend a certificate of
incorporation, Delaware law requires that the board of directors adopt a
resolution declaring that the proposed amendment is advisable and directing that
it be submitted for consideration at an annual or special meeting of the
stockholders. The amendment must be approved by the holders of a majority of the
outstanding stock entitled to vote thereon, except that the certificate of
incorporation may require a greater
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majority. WE JAC's, Lube Ventures' and Miracle Partners' certificate of
incorporation does not alter the requirement of a simple majority vote. If a
Delaware corporation has more than one class of stock, holders are entitled to
vote as a class on proposed amendments, whether or not entitled to vote thereon
by the certificate of incorporation, if the amendment would change the number of
authorized shares of the class, change the par value of the shares of the class,
or adversely affect the powers, preferences or special rights of the shares of
the class.
MIRACLE INDUSTRIES. Under the OGCL, an amendment to the articles must be
adopted by the affirmative vote of the holders of shares entitling them to
exercise two-thirds of the voting power of the corporation on the proposal, or a
different proportion but not less than a majority of the voting power, as
provided in the articles.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. Amendments to the articles of
incorporation of Rocky Mountain I and Rocky Mountain II must be approved by the
board of directors and submitted to the shareholders for approval. The board of
directors is required to recommend the amendment to the shareholders unless the
amendment is proposed by shareholders or unless the board of directors
determines that, because of a conflict of interest or other special
circumstances, it should make no recommendation and communicates the basis for
that determination to the shareholders with the amendment. Unless a greater vote
is required by the articles of incorporation or bylaws adopted by the
shareholders, the amendment must be approved by the affirmative vote of a
majority of the votes entitled to be cast on the amendment by each separate
voting group entitled to vote on the amendment.
PREMA PROPERTIES. Prema Properties as a LLC was organized pursuant to
articles of organization. The articles of organization only contained the name,
period of duration, the address to which interested persons made direct requests
for copies for any operating agreement and any bylaws and any other provision
which the members elect to set forth in the articles. There is no provision in
the OLLCA regarding amendments to the articles other than correcting false
statements and permitting amendments. There is no specific provision in the
OLLCA or the operating agreement of Prema Properties which otherwise deals with
amendments to the articles.
RALSTON CAR WASH AND KBG. Ralston Car Wash and KBG were organized pursuant
to articles of organization. The CLLCA requires that articles of organization
contain the LLC's name, period of duration, its principal place of business, the
name and address of the registered agent for service of process, the names and
business addresses of the manager and any other optional provisions as desired.
The articles are required to be amended if there is a change in the name of the
limited liability company, any statement contained therein is incorrect, there
is a change in the time stated in the articles of organization for the
dissolution of the limited liability company, or if members desire to make a
change to the articles of organization to more accurately reflect their
agreement. There is no specific provision of the Ralston Car Wash and KBG
operating agreements regarding amendments to articles of organization.
AMENDMENT OF BYLAWS
PRECISION AUTO CARE. Virginia law permits a corporation's board of
directors to adopt, amend, or repeal by-laws. Under Virginia law, the articles
of incorporation of a corporation may reserve the power to adopt, amend, or
repeal by-laws to the stockholders. A corporation's stockholders may amend or
repeal by-laws even though the By-laws may also be amended by the board of
directors. Stockholders may provide, in adopting or amending a by-law, that the
Board of Directors may not amend or repeal that by-law. The articles of
incorporation of Precision Auto Care provide that either its board of directors
or stockholders may make, amend, or repeal by-laws. The articles of
incorporation specify that actions of the stockholders that make, amend or
repeal by-laws must be approved by the affirmative vote of eighty percent (80%)
of the outstanding shares of all classes of stock generally entitled to elect
directors, voting together as a single class.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Under Delaware law, the power
to adopt, amend or repeal the bylaws is vested in the stockholders entitled to
vote, but a corporation may, in its certificate of incorporation, also confer
that power upon the directors. The fact that such power has been conferred upon
the directors shall not divest the stockholders of that power or limit its
exercise. WE JAC's, Lube Ventures' and Miracle Partners' certificates of
incorporation confer upon the directors the power to adopt, amend or repeal the
bylaws.
MIRACLE INDUSTRIES. Under Ohio law, bylaws may be amended or new ones
adopted by the shareholders at a meeting called for such purpose, or by a
majority of shares entitle to vote, or without a meeting by written consent of
two-thirds of the shareholders entitled to vote. If the charter or bylaws
permit, and the charter and bylaws of Miracle Industries do not, the bylaws may
be amended without a meeting by a greater or lesser proportion than two-thirds
of the shareholders entitled to vote, but not by less than a majority.
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ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. The CBCA permits both the
shareholders and the board of directors to amend the bylaws, unless the articles
of incorporation or bylaws or a provision of the CBCA reserves such power
exclusively to the shareholders or a particular bylaw expressly prohibits the
board of directors from doing so. Pursuant to the bylaws of Rocky Mountain I and
Rocky Mountain II, the shareholders of Rocky Mountain and Rocky Mountain II may
amend the bylaws at any annual meeting or at a special meeting when a proposal
to amend the bylaws was stated in the notice for such special meeting. A
majority vote of the shareholders represented at the meeting is required to
alter, amend, or repeal and adopt new bylaws.
PREMA PROPERTIES. While the OLLCA does permit a LLC to adopt bylaws that
are not inconsistent with its articles of organization or its operating
agreements, Prema Properties has not adopted such bylaws. The operating
agreement of Prema Properties is silent as to whether it can be amended and the
OLLCA is silent as to amendments of operating agreements.
RALSTON CAR WASH AND KBG. Ralston Car Wash and KBG are not required to and
do not have bylaws. Ralston Car Wash and KBG are governed by operating
agreements, which are silent as to any procedure for amendments.
KBG. KBG is not required to and does not have bylaws. KBG is governed by an
Operating Agreement which may be amended by its sole member.
SPECIAL MEETINGS OF STOCKHOLDERS/MEMBERS
PRECISION AUTO CARE. Virginia law provides that special meetings of
stockholders of the corporation may be called by chairman of the board of
directors, the president, the board of directors, or such other persons
authorized to do so by the articles of incorporation or By-laws. The By-laws of
Precision Auto Care provide that only the Chairman of the Board of Directors or
the Board of Directors may call a special meeting of the stockholders of the
Corporation.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Delaware law provides that
special meetings of stockholders may be called by the board of directors or by
any other person authorized by the certificate of incorporation or by the
bylaws. WE JAC's, Lube Ventures' and Miracle Partners' bylaws provide that
special meetings of stockholders may be called by the Board of Directors. WE
JAC's bylaws also provide that a special meeting may be called by written
request of the holders of not less than fifty-one percent (51%) of the
outstanding shares of the Corporation entitled to vote at the meeting. Pursuant
to the bylaws of each of WE JAC, Lube Ventures and Miracle Partners, business
transacted at the meeting shall be limited to the purpose or purposes for which
the special meeting is called.
MIRACLE INDUSTRIES. Under the OGCL, persons who may call a special meeting
of shareholders include the chairman of the board, the president, or, in case of
the president's absence, death or disability, the vice president authorized to
exercise the authority of the president in the absence of the latter; the
directors by action at a meeting or a majority of the directors acting without a
meeting; persons holding twenty-five percent (25%) or more of the voting power
of all shares entitled to vote, unless the articles or regulations specify a
smaller or larger portion, but not more than fifty percent (50%); or such other
officers or persons as the articles or regulations may authorize.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. Special meetings of the
shareholders of Rocky Mountain I or Rocky Mountain II may be called by the Board
of Directors or the President of the corporation or pursuant to a written demand
executed by the holders of shares representing not less than forty percent (40%)
of all the votes entitled to be cast on any issue proposed to be considered at a
special meeting.
PREMA PROPERTIES. The OLLCA is silent as to any specific notice as to
member proposals. However, the operating agreement of Prema Properties provides
that any member or the general manager or those members holding more than 51% of
the interest held by the LLC may call a meeting with the members of the LLC at
any time. The requirements give not less then 10 days and no more than 90 days
notice before such meeting. The notice shall state the time, place and purpose
of the meeting.
RALSTON CAR WASH. The operating agreement for Ralston Car Wash in addition
to providing for annual meetings states that a special meeting may be called at
any time by a majority of interest of the ownership of the LLC. The operating
agreement is silent as to the necessary time period to call such meeting,
however, the CLLCA provides that written notice of a meeting, including a
special meeting, shall be delivered not less than 10 days or more than 50 days
before the date of such meeting and if a special meeting, such notice shall
state the purpose for which the meeting is called. KBG is a single person LLC
and, therefore, its Operating Agreement and its Articles do not have any
provisions for special meetings.
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AFFILIATED TRANSACTIONS
PRECISION AUTO CARE. The VSCA generally permits transactions involving a
Virginia corporation and an interested director of that corporation if (i) the
material facts are disclosed to the board of directors or a committee thereof
and a majority of the disinterested directors on the board or such committee
authorized, approved or ratified the transactions, (ii) the material facts are
disclosed to the stockholders entitled to vote and the transaction is
authorized, approved or ratified by the vote of a majority of the shares
entitled to be voted on the matter (excluding shares owned or controlled by the
interested director or entity), or (iii) the transaction is fair to the
corporation.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Pursuant to Delaware law,
certain contracts or transactions in which one (1) or more of a corporation's
directors has an interest are not void or voidable because of such interest,
provided that certain conditions are met. Delaware law provides that any such
contract or transaction shall not be void or voidable for such reason (i) if
approved or ratified by the stockholders or a majority of disinterested members
of the board of directors or a committee thereof if the material facts are
disclosed or known thereto, or (ii) the contract or transaction was fair to the
corporation at the time it was approved or ratified.
MIRACLE INDUSTRIES. Unless the charter or bylaws provide otherwise, Ohio
law provides that transactions involving an interested director or officer of
the corporation shall not be void or voidable if: (i) the material facts as to
the interested person's interest in the transaction are disclosed or otherwise
known to the directors and a majority of disinterested directors, or a committee
of them, approves the transaction in good faith reasonably justified by such
facts, even if the disinterested directors constitute less than quorum; (ii) the
material facts as to the interested person's interest in the transaction are
disclosed or otherwise known to the shareholders entitled to vote and a majority
of the disinterested shareholders approves the transaction in good faith
reasonably justified by such facts; or (iii) the transaction is fair as to the
corporation as of the time it is approved. Interested directors may be counted
in determining the presence of a quorum for a meeting of the directors, a
committee of them, to approve the transaction. Miracle Industries' charter
provides only for approval of interested director, officer or other agent
transactions (i) by a vote of disinterested directors, but not of stockholders,
in the manner permitted under the statute, or (ii) if the transaction is no less
favorable than an arm's length transaction in which no director, officer or
other agent has any interest, or the transaction is otherwise fair to the
corporation as of the time it is approved.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. A loan to or a guarantee by a
corporation of an obligation of one of such corporation's directors or an entity
in which a director is a director or officer or has a financial interest, or a
contract or transaction between a corporation and one of its directors or
between the corporation and an entity in which a director of the corporation is
a director or officer or has a financial interest (each of the foregoing a
"conflicting interest transaction") may be voidable at the option of the
corporation unless certain requirements are met. A conflicting interest
transaction is not voidable if, after disclosure of the material facts as to the
director's relationship or interest and as to the conflicting interest
transaction, the conflicting interest transaction is authorized, approved or
ratified in good faith by the affirmative vote of a majority of the
disinterested directors of the corporation or by the shareholders, or the
conflicting interest transaction is fair to the corporation.
PREMA PROPERTIES. The OLCCA provides that unless otherwise provided in the
operating agreement, transactions that involve potential conflict of interest
between a LLC and one more of its members, or managers, are not void or voidable
if any of the following circumstances exist: (i) the material facts as to the
potential conflict of interest are disclosed and known to the other members or
managers and the other members or managers in good faith reasonably authorize
the transaction by an affirmative vote of majority of disinterested members or
managers, (ii) the materials facts as to potential conflict of interest are
known to the members entitled to vote on the transaction approved at a meeting
of the members held for that purpose by affirmative vote of the members not
interested in the transaction; or (iii) the transaction is fair to the LLC.
Furthermore, regardless of any personal financial interest of a member or
manager, the members by the affirmative vote of majority of voting power of the
LLC, if the LLC is run by the members, or the manager of the LLC, have the right
to establish reasonable compensation for services of members, or managers. A
member or manager is not deemed to be involved in the conflict of interest
transaction simply because the subject may involve a change in control of the
LLC.
RALSTON CAR WASH AND KBG. The CLLCA is silent as to conflict of interest
other than to provide that, except as provided in an operating agreement, a
member or manager may lend money to, act as surety for, and transact other
business with the LLC and, subject to other applicable law, has the same rights
and obligations as a person who is not a member or manager except that such
provisions do not relieve the manager from his duties as provided in the CLLCA,
including his duty to act in good faith.
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ANTITAKEOVER PROVISIONS
PRECISION AUTO CARE. The Virginia Stock Corporation Act sets forth
restrictions on "affiliated transactions" (including, among other various
transactions, mergers, share exchanges, sales, leases, or other dispositions of
material assets, issuances of securities, dissolutions, and similar
transactions) with 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 requirements do not apply to affiliated
transactions if, among other things, a majority of the disinterested directors
approve the interested shareholder's acquisition of voting shares making such
person an interested shareholder prior to such acquisition. Beginning three
years after the shareholder becomes an interested shareholder, the corporation
may engage in an affiliated transaction with the interested shareholder if (i)
the transaction is approved by the holders of two-thirds of the corporation's
voting shares, other than shares beneficially owned by the interested
shareholder, (ii) the affiliated transaction has been approved by a majority of
the disinterested directors, or (iii) 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 stockholders receive fair and
equivalent consideration, regardless of when they tender their shares.
The articles of incorporation of Precision Auto Care restrict affiliated
transactions in ways very similar to the restrictions imposed by Virginia
statute. As defined by the articles of incorporation, "affiliated transactions"
include: (i) A merger between the corporation and a stockholder owning at least
twenty percent (20%) of the stock of the corporation, or with an entity
affiliated with such a stockholder; (ii) The transfer to a stockholder owning at
least twenty percent (20%) of the stock of the corporation of corporation assets
with a fair market value of $500,000 or more; (iii) The issuance to a
stockholder owning at least twenty percent (20%) of the stock of the corporation
of securities of the corporation with a fair market value of $500,000 or more;
(iv) A reclassification of securities of a corporate reorganization that will
have the effect of increasing, by any amount, the percentage of the
corporation's outstanding securities held by the stockholder holding at least
twenty percent (20%) of the stock of the corporation; (v) A plan or proposal for
dissolution of the corporation proposed by or on behalf of a stockholder owning
at least twenty percent (20%) of the stock of the corporation.
The articles of incorporation of Precision Auto Care prohibit affiliated
transactions for an indefinite period unless the transaction is approved by: (1)
A majority, but not less than two of the corporation's disinterested directors,
or (2) Eighty percent (80%) of the outstanding shares issued by the corporation
generally entitled to elect directors; or (3) The stockholder owning twenty
percent (20%) of the corporation's stock pays at least a value defined in the
articles of incorporation to each class of securities.
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. WE JAC, Lube Ventures and
Miracle Partners are not subject to Delaware's antitakeover statute because they
do not have a class of voting shares that is (i) listed on a national securities
exchange, (ii) authorized for quotation on the NASDAQ Stock Market, or (iii)
held of record by more than 2,000 stockholders.
MIRACLE INDUSTRIES. Miracle Industries is not subject to Ohio's
antitakeover statute because it is a closely held corporation.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. Colorado does not have an
antitakeover statute.
PREMA PROPERTIES. Prema Properties' operating agreement and the OLLCA are
silent as to any antitakeover provisions.
RALSTON CAR WASH AND KBG. The operating agreements of Ralston Car Wash and
KBG and the CLLCA are silent as to any antitakeover provisions.
CONTROL SHARE ACQUISITIONS
PRECISION AUTO CARE. 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 20%, 33 1/3%
and 50% of all outstanding shares may, under certain circumstances, be denied
unless conferred by a special stockholder vote of a majority of the outstanding
shares entitled to 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
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with the corporation. If authorized in the corporation's articles or by-laws
(and Precision Auto Care'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 stockholders may have the right to
have their shares repurchased by the corporation for "fair value."
WE JAC, LUBE VENTURES AND MIRACLE PARTNERS. Delaware law does not have a
control share acquisition statute.
MIRACLE INDUSTRIES. Miracle Industries is not subject Ohio's control share
statute because it is a closely held corporation.
ROCKY MOUNTAIN I AND ROCKY MOUNTAIN II. Colorado has no control share
acquisition act which affects the ability of parties to acquire a controlling
interest in a Colorado corporation.
PREMA PROPERTIES. The OLLCA does not have the equivalent of a control share
acquisition provision.
RALSTON CAR WASH AND KBG. The CLLCA does not have the equivalent of a
control share acquisition provision.
ADDITIONAL DIFFERENCES BETWEEN CORPORATIONS AND LIMITED LIABILITY COMPANIES
In addition to the differences described above, holders of Prema Properties
and Ralston Car Wash Membership Interests have different rights from holders of
Precision Auto Care Common Stock due to the differences between limited
liability companies and corporations.
FORM OF ORGANIZATION
PRECISION AUTO CARE. Precision Auto Care is a Virginia corporation. The
corporation will be a separate taxable entity for federal and state income tax
purposes. The corporation may remain in existence in perpetuity.
PREMA PROPERTIES. Prema Properties is a limited liability company. It has
elected to be taxed as a partnership for federal income tax purposes and,
therefore, is not a separate tax paying entity, instead all of its taxable
income is taxed to its owners. Further, Prema Properties has a term that expires
on September 26, 2024 and may also terminate on certain other specific events
including a withdrawal of a member.
RALSTON CAR WASH AND KBG. Ralston Car Wash and KBG are Colorado limited
liability companies and are taxed as a partnership for federal income tax
purposes. This means that Ralston Car Wash and KBG are not separate tax paying
entities, but instead their income is taxed to its owners. Ralston Car Wash and
KBG have specific terms of 30 years, but they may dissolve earlier under certain
circumstances including the withdrawal of a member.
RESTRICTIONS ON TRANSFERABILITY
PRECISION AUTO CARE. Precision Auto Care shares, subject to federal and
state securities laws (and, in the case of shares to be issued to certain
holders in the Combination, the 180-day "lock-up" restrictions), do not have any
restrictions on transfer imposed on them as a matter of Virginia corporate law.
PREMA PROPERTIES. The OLLCA provides that membership interests are
assignable in whole or in part, but that an assignee does not become a member or
have any rights as a member. The assignee is entitled to receive the
distributions of cash or property and allocations of profits and losses with
respect to the interest assigned. In addition, the operating agreement of Prema
Properties provides significant transfer restrictions, and provides that a
member must first offer Prema Properties the right to purchase the Membership
Interests at a price provided for in the operating agreement before the member
sells his interest to a third party.
RALSTON CAR WASH. An interest in Ralston Car Wash under both the CLLCA and
the operating agreement may be assigned. However, unless all of the other
members of Ralston Car Wash consent, such assignee shall have no right to
participate in the management or the business and affairs of Ralston Car Wash or
become a member. The assignee only receives the share of profits and all other
compensation that the transferring member would have otherwise received.
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LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of
Precision Auto Care Common Stock to be issued pursuant to the Mergers and the
Exchange Offers are being passed upon for Precision Auto Care by Miles &
Stockbridge, a Professional Corporation, Baltimore, Maryland.
EXPERTS
The financial statements appearing in this Joint Proxy Statement/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, of Rocky Mountain I for the year ended December 31, 1996, of Rocky
Mountain II for the year ended December 31, 1996, of Prema Properties for the
year ended December 31, 1996, of Miracle Partners for the year ended December
31, 1996 and of Ralston Car Wash 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.
164
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
WE JAC CORPORATION
Report of Independent Auditors....................................................................................... F-3
Consolidated Balance Sheets as of June 30, 1996 and June 30, 1997.................................................... F-4
Consolidated Statements of Operations for the three years in the period ended June 30, 1997.......................... F-5
Consolidated Statements of Stockholders' Equity for the years in the period ended June 30, 1997...................... F-6
Consolidated Statements of Cash Flows for the three years in the period ended June 30, 1997.......................... F-7
Notes to Consolidated Financial Statements........................................................................... F-8
MIRACLE INDUSTRIES, INC.
Report of Independent Auditors....................................................................................... F-16
Consolidated Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (unaudited)........................... F-17
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-18
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-19
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-20
Notes to Consolidated Financial Statements........................................................................... F-21
LUBE VENTURES, INC.
Report of Independent Auditors....................................................................................... F-27
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited)................................................. F-28
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-29
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-30
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-31
Notes to Financial Statements........................................................................................ F-32
PREMA PROPERTIES, LTD.
Report of Independent Auditors....................................................................................... F-36
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited)................................................. F-37
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-38
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-39
Notes to Consolidated Financial Statements........................................................................... F-40
RALSTON CAR WASH, LTD.
Report of Independent Auditors....................................................................................... F-43
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited)................................................. F-44
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-45
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-46
Notes to Financial Statements........................................................................................ F-47
ROCKY MOUNTAIN VENTURES, INC.
Report of Independent Auditors....................................................................................... F-49
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited)................................................. F-50
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-51
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-52
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-53
Notes to Financial Statements........................................................................................ F-54
ROCKY MOUNTAIN VENTURES II, INC.
Report of Independent Auditors....................................................................................... F-56
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited)................................................. F-57
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-58
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
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-59
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-60
Notes to Financial Statements........................................................................................ F-61
MIRACLE PARTNERS, INC.
Report of Independent Auditors....................................................................................... F-64
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited)................................................. F-65
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-66
Statement of Stockholders' Equity for the years ended December 31, 1995 (unaudited) and 1996 and the six months ended
June 30, 1996 and 1997 (unaudited)................................................................................ F-67
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-68
Notes to Financial Statements........................................................................................ F-69
PRECISION AUTO CARE, INC.
Report of Independent Auditors....................................................................................... F-72
Balance Sheet as of June 30, 1997.................................................................................... F-73
Notes to Financial Statement......................................................................................... F-74
</TABLE>
F-2
<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-3
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1996 1997
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<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-4
<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-5
<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-6
<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 and amortization.................................................. 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-7
<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
---------- ----------- -----------
<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-8
<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:
YEARS
-----
Building and leasehold improvements.................................... 7-15
Furniture and fixtures................................................. 3-8
Equipment.............................................................. 3-8
Other items............................................................ 3-7
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-9
<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 EXPENSES
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-10
<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 8) 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-11
<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.
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>
F-12
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LEASE COMMITMENTS -- Continued
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.
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
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
</TABLE>
F-13
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY -- Continued
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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, addition 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.
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
F-14
<PAGE>
WE JAC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYEES' SAVINGS PLAN -- Continued
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.
Mr. John F. Ripley, Jr. 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.
F-15
<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-16
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- -----------
1995 1996 1997
---------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................................. $ 287,580 $ 83,388 $ 59,786
Accounts receivable, less allowance of
$40,000 and $4,000 at December 31, 1996
and 1995, respectively........................................................ 214,911 794,377 610,218
Inventories...................................................................... 428,301 1,771,496 1,873,727
Prepaid expenses and other current assets........................................ 79,781 26,644 28,613
---------- ----------- -----------
Total current assets............................................................... 1,010,573 2,675,905 2,572,344
Investment in Indy Ventures, Ltd................................................... -- 251,286 407,468
Property and equipment, net........................................................ 2,641,115 3,853,375 3,746,280
Notes receivable-related parties................................................... 150,000 -- --
Intangible assets, net:
Goodwill......................................................................... 482,294 1,515,664 1,626,428
Other............................................................................ 117,302 155,104 135,592
---------- ----------- -----------
599,596 1,670,768 1,762,020
---------- ----------- -----------
Total assets....................................................................... $4,401,284 $ 8,451,334 $8,488,112
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................................ $ 223,000 $ 469,948 $ 444,950
Lines of credit.................................................................. 100,000 395,766 758,652
Accounts payable, trade.......................................................... 140,301 1,198,825 794,161
Accrued taxes and other liabilities.............................................. 157,233 490,251 502,957
---------- ----------- -----------
Total current liabilities.......................................................... 620,534 2,554,790 2,500,720
Long-term debt, net of current portion............................................. 1,681,741 3,449,605 3,809,406
Minority interest in subsidiary.................................................... -- 174,720 163,620
---------- ----------- -----------
Total liabilities.................................................................. 2,302,275 6,179,115 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................................... 1,973,200 2,339,700 2,476,100
Retained earnings (deficit)...................................................... 125,809 262,519 (131,734)
---------- ----------- -----------
2,099,009 2,602,219 2,344,366
Treasury stock, at cost (3,300 shares)........................................... -- (330,000) (330,000)
---------- ----------- -----------
Total stockholders' equity......................................................... 2,099,009 2,272,219 2,014,366
---------- ----------- -----------
Total liabilities and stockholders' equity......................................... $4,401,284 $ 8,451,334 $8,488,112
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See accompanying notes.
F-17
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1995 1996 1996 1997
---------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Product and equipment sales....................................... $2,259,758 $8,091,675 $2,948,604 $2,786,412
Services.......................................................... 974,412 976,209 570,052 464,986
---------- ---------- ----------- -----------
3,234,170 9,067,884 3,518,656 3,251,398
Cost of sales and operations:
Product and equipment sales....................................... 1,938,418 6,879,500 2,494,359 2,562,722
Services.......................................................... 499,820 565,890 288,714 302,637
---------- ---------- ----------- -----------
2,438,238 7,445,390 2,783,073 2,865,359
Gross profit........................................................ 795,932 1,622,494 735,583 386,039
General and administrative expenses................................. 561,138 1,126,030 486,668 539,233
---------- ---------- ----------- -----------
Operating income (loss)............................................. 234,794 496,464 248,915 (153,194)
Other income (expense):
Other income (expense), net....................................... 3,200 26,579 (50,692) (21,372)
Interest income................................................... 10,495 13,290 -- 74
Interest expense.................................................. (181,600) (341,629) (136,378) (230,861)
---------- ---------- ----------- -----------
(167,905) (301,760) (187,070) (252,159)
---------- ---------- ----------- -----------
Income (loss) before minority interest.............................. 66,889 194,704 61,845 (405,353)
Minority interest in earnings (loss) of subsidiary.................. -- 24,720 (6,390) 11,100
---------- ---------- ----------- -----------
Net income (loss)................................................... $ 66,889 $ 169,984 $ 68,235 $ (394,253)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See accompanying notes.
F-18
<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) $ 2,014,360
--------- ----------- --------- --------- -------------
--------- ----------- --------- --------- -------------
</TABLE>
See accompanying notes.
F-19
<PAGE>
MIRACLE INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------ --------------------------
1995 1996 1996 1997
--------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................................................... $ 66,889 $ 169,984 $ 68,235 $(394,253)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................................. 287,431 413,275 227,508 253,004
Other.......................................................... -- 65,879 -- (11,100)
Changes in operating assets and liabilities:
Accounts receivable......................................... 78,354 (466,637) (896,220) 184,159
Inventories................................................. (5,550) (460,041) (1,136,437) (102,231)
Prepaid expenses and other current assets................... (26,305) 108,668 38,565 (1,969)
Accounts payable............................................ (85,621) 655,763 794,859 (391,958)
Accrued taxes and other liabilities......................... (40,972) 109,186 410,161 --
--------- ----------- ----------- -----------
Net cash provided by (used in) operating activities.............. 274,226 596,077 (493,329) (464,348)
INVESTING ACTIVITIES
Purchases of property and equipment............................ (161,336) (1,521,082) (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............................ (311,336) (1,521,082) (2,090,948) (393,343)
FINANCING ACTIVITIES
Proceeds from long-term debt................................... 553,662 2,181,947 2,242,701 400,000
Repayments of long-term debt................................... (315,000) (1,464,360) -- (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...................................... 34,500 366,500 452,500 136,400
--------- ----------- ----------- -----------
Net cash provided by financing activities........................ 273,162 720,813 2,365,201 834,089
--------- ----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents............. 236,052 (204,192) (219,076) (23,602)
Cash and cash equivalents, beginning of period................... 51,528 287,580 287,580 83,388
--------- ----------- ----------- -----------
Cash and cash equivalents, end of period......................... $ 287,580 $ 83,388 $ 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-20
<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-21
<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:
YEARS
-----
Buildings and improvements............................................ 40
Equipment............................................................. 10
Vehicles.............................................................. 5
Office furniture and equipment........................................ 6-10
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-22
<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:
1996
----------
Revenues............................................ $9,308,389
----------
Net income.......................................... $ 74,728
----------
----------
F-23
<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:
1997............................................................ $ 469,948
1998............................................................ 471,594
1999............................................................ 429,514
2000............................................................ 417,557
2001............................................................ 537,152
Thereafter...................................................... 1,593,788
----------
$3,919,553
----------
----------
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-24
<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:
1997.............................................................. $111,000
1998.............................................................. 59,000
1999.............................................................. 38,000
2000.............................................................. 39,000
2001.............................................................. 40,000
Thereafter........................................................ 84,000
--------
--------
$371,000
--------
--------
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.
F-25
<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.
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-26
<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-27
<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-28
<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........................................................... $1,165,689 $ 1,751,272 $ 594,733 $ 690,119
Service........................................................... 134,680 231,058 55,100 56,681
Franchise and royalty............................................. -- 71,004 11,681 62,411
---------- ----------- ----------- -----------
1,300,369 2,053,334 661,514 809,211
Cost of goods sold.................................................. 1,447,283 1,497,510 565,732 695,363
---------- ----------- ----------- -----------
Gross profit...................................................... (146,914) 555,824 95,782 113,848
General and administrative expenses................................. 196,451 326,560 226,698 159,899
---------- ----------- ----------- -----------
Operating income (loss)............................................. (343,365) 229,264 (130,916) (46,051)
Other income (expense):
Interest expense.................................................. (130,059) (123,090) (51,866) (50,754)
Non-operating rebates............................................. 36,633 -- -- 301
Other............................................................. 5,000 3,625 1,000 26,283
---------- ----------- ----------- -----------
(88,426) (119,465) (50,866) (24,170)
---------- ----------- ----------- -----------
Net income (loss)................................................... $ (431,791) $ 109,799 $(181,782) $ (70,221)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-29
<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-30
<PAGE>
LUBE VENTURES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------ ---------------------------
1995 1996 1996 1997
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................................................... $(431,791) $ 109,799 $(181,782) $ (70,221)
Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:
Depreciation and amortization....................................... 49,043 78,740 47,184 35,375
Changes in operating assets and liabilities:
Accounts receivable.............................................. (94,098) (11,437) (11,668) (222,786)
Inventory........................................................ 88,016 (91,801) (62,819) 55,405
Accounts payable and accrued expenses............................ 125,659 (12,306) 41,335 27,201
Deferred revenue................................................. -- 32,000 (17,999)
Other............................................................ 55,278 10,773 (3,038) (22,896)
--------- --------- ----------- -----------
Net cash provided (used in) by operating activities................... (207,893) 115,768 (170,788) (215,921)
INVESTING ACTIVITIES
Purchase of property and equipment.................................. (449,373) (132,416) (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................... (476,357) (128,166) (50,281) 74,719
FINANCING ACTIVITIES
Net proceeds (payments) from long-term debt......................... (13,983) 115,560 136,308 230,727
Net proceeds (payments) of related party loans...................... 185,000 (130,339) -- --
Proceeds from contributed capital................................... 593,956 -- -- --
Payments on shareholder loans....................................... (15,522) -- 9,661 --
--------- --------- ----------- -----------
Net cash (used in) provided by financing activities................... 749,451 (14,779) 145,969 230,727
--------- --------- ----------- -----------
Net (decrease) increase in cash....................................... 65,201 (27,177) (75,100) 89,525
Cash, beginning of period............................................. 25,119 90,320 90,320 63,143
--------- --------- ----------- -----------
Cash, end of period................................................... $ 90,320 $ 63,143 $ 15,220 $ 152,668
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
See accompanying notes.
F-31
<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:
Manufacturing raw materials....................................... $131,391
Work-in-process................................................... 22,348
Finished goods.................................................... 325,851
Supplies.......................................................... 35,427
--------
$515,017
--------
--------
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-32
<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:
YEARS
-----
Buildings and improvements............................................. 40
Equipment.............................................................. 10
Vehicles............................................................... 5
Office furniture and equipment......................................... 6-10
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-33
<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-34
<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-35
<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-36
<PAGE>
PREMA PROPERTIES, LTD.
(A LIMITED LIABILITY COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
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-37
<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,
------------------------ --------------------------
1995 1996 1996 1997
----------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue.................................................................. $ 353,854 $ 672,161 $ 311,927 $ 389,682
Direct operating costs................................................... 234,738 608,705 374,278 323,263
----------- --------- ----------- -----------
Gross profit........................................................... 119,116 63,456 (62,351) 66,419
General and administrative expenses...................................... 24,834 52,354 31,060 23,454
----------- --------- ----------- -----------
Operating income (loss).................................................. 94,282 11,102 (93,411) 42,965
Other income (expense):
Interest expense....................................................... (76,659) (214,143) (77,935) (148,143)
Other income (expense)................................................. (4,380) 10,578 -- --
----------- --------- ----------- -----------
(81,039) (203,565) (77,935) (148,143)
----------- --------- ----------- -----------
Net (loss) income........................................................ 13,243 (192,463) (171,346) (105,178)
Members' equity, beginning of year....................................... 372,058 385,301 385,301 192,838
----------- --------- ----------- -----------
Members' equity, end of year............................................. $ 385,301 $ 192,838 $ 213,955 $ 87,660
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
See accompanying notes.
F-38
<PAGE>
PREMA PROPERTIES, LTD.
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- ---------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income.................................................. $ 13,243 $ (192,463) $ (171,346) $(105,178)
Adjustments to reconcile net (loss) income to cash
provided by operating activities:
Depreciation and amortization.................................... 86,490 164,473 65,790 101,844
Other............................................................ 4,380 (10,578) -- --
Changes in operating assets and liabilities:
Inventory..................................................... (4,500) (7,500) (12,500) --
Accounts payable.............................................. 10,457 74,623 25,629 (36,717)
----------- ----------- ----------- -----------
Net cash provided by operating activities.......................... 110,070 28,555 (92,427) (40,051)
INVESTING ACTIVITIES
Net purchases of property and equipment.......................... (122,248) (1,931,950) (1,640,376) (25,738)
Purchase of investment........................................... (61,500) -- -- --
Other.............................................................. -- (23,365) -- --
----------- ----------- ----------- -----------
Net cash used in investing activities:............................. (183,748) (1,955,315) (1,640,376) (25,738)
FINANCING ACTIVITIES
Proceeds from notes payable...................................... 185,000 348,793 117,398 130,000
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............................. (83,230) (146,780) -- (91,853)
----------- ----------- ----------- -----------
Net cash provided by financing activities.......................... 101,770 1,963,947 1,818,352 30,924
----------- ----------- ----------- -----------
Net increase (decrease) in cash.................................... 28,092 37,187 85,549 (34,865)
Cash, beginning of period.......................................... 1,546 29,638 29,638 66,825
----------- ----------- ----------- -----------
Cash, end of period................................................ $ 29,638 $ 66,825 $ 115,187 $ 31,960
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-39
<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:
YEARS
-----
Buildings and improvements................................. 40
Equipment.................................................. 10
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-40
<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-41
<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. EVENT 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-42
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
RALSTON CAR WASH, LTD.
We have audited the accompanying balance sheet of Ralston Car Wash, LTD. (a
Colorado Limited Liability Company) as of December 31, 1996 and the related
statements of operations and members' deficit, 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 Ralston Car Wash, LTD. at
December 31, 1996 and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Vienna, Virginia
March 28, 1997
F-43
<PAGE>
RALSTON CAR WASH, LTD.
(A LIMITED LIABILITY COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................................ $ 9,049 $ 4,552
Prepaid expenses and other current assets....................................................... 1,027 4,648
------------ -----------
Total current assets.............................................................................. 10,076 9,200
Property and equipment, net....................................................................... 209,908 200,606
------------ -----------
Total assets...................................................................................... $219,984 $ 209,806
------------ -----------
------------ -----------
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable................................................................................ $ 9,930 $ 14,997
Accrued liabilities............................................................................. 22,342 26,339
Notes payable to related parties................................................................ 24,986 18,052
Current portion of long-term debt............................................................... 31,098 21,912
------------ -----------
Total current liabilities......................................................................... 88,356 81,300
Long-term debt.................................................................................... 229,660 217,474
------------ -----------
Total liabilities................................................................................. 318,016 298,774
Total members' deficit............................................................................ (98,032) (88,968)
------------ -----------
Total liabilities and members' deficit............................................................ $219,984 $ 209,806
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-44
<PAGE>
RALSTON CAR WASH, LTD.
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS AND MEMBERS' DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------- --------------------------
1996 1995 1996 1997
-------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................................................................. $163,660 $ 149,276 $ 88,260 $ 93,662
Direct operating costs.................................................... 90,816 64,690 51,539 56,426
-------- ----------- ----------- -----------
Gross profit............................................................ 72,844 84,586 36,721 37,236
Selling, general, and administrative expenses............................. 39,113 48,293 16,882 16,047
-------- ----------- ----------- -----------
Operating income........................................................ 33,731 36,293 19,839 21,189
Interest expense.......................................................... (36,864) (30,556) (11,573) (12,125)
-------- ----------- ----------- -----------
Net (loss) income......................................................... (3,133) 5,737 8,266 9,064
Members' deficit, beginning of period..................................... (94,899) (100,636) (94,899) (98,032)
-------- ----------- ----------- -----------
Members' deficit, ending of period........................................ $(98,032) $ (94,899) $ (86,633) $ (88,968)
-------- ----------- ----------- -----------
-------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-45
<PAGE>
RALSTON CAR WASH, LTD.
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------------- --------------------------
1996 1995 1996 1997
-------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income......................................................... $ (3,133) $ 5,737 $ 8,266 $ 9,064
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization........................................... 19,971 29,016 11,146 9,302
Changes in operating assets and liabilities:
Prepaid expenses and other current assets............................ (544) -- -- (3,621)
Accounts payable and accrued liabilities............................. (3,977) (10,106) (7,332) 9,064
-------- ----------- ----------- -----------
Net cash provided by operating activities................................. 12,317 24,647 12,080 23,809
INVESTING ACTIVITIES
Net purchases of property and equipment................................. (11,229) -- (7,814) --
-------- ----------- ----------- -----------
Net cash used in investing activities................................... (11,229) -- (7,814) --
FINANCING ACTIVITIES
Proceeds from long-term debt............................................ 31,098 -- -- --
Payments on long-term debt.............................................. (29,069) (21,356) (5,961) (28,306)
-------- ----------- ----------- -----------
Net cash provided by (used in) financing activities....................... 2,029 (21,356) (5,961) (28,306)
-------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents...................... 3,117 3,291 (1,695) (4,497)
Cash and cash equivalents, beginning of period............................ 5,932 2,641 6,414 9,049
-------- ----------- ----------- -----------
Cash and cash equivalents, end of period.................................. $ 9,049 $ 5,932 $ 4,719 $ 4,552
-------- ----------- ----------- -----------
-------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-46
<PAGE>
RALSTON CAR WASH, LTD.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Ralston Car Wash, LTD. (the Company) owns and operates a self-serve car
wash facility in the Denver metropolitan area. Virtually all of the Company's
customers are individual automobile owners.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed on the
straight-line method over estimated useful lives of the related assets which are
as follows:
YEARS
-----
Buildings.................................................. 31.5
Machinery and equipment.................................... 5-7
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash, current liabilities and
borrowings under its long-term arrangements approximate their fair values.
REVENUE RECOGNITION
Car wash revenues are recognized at the time of service.
INCOME TAXES
Ralston Car Wash, LTD is a Colorado 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 individual members. No income
tax expense or liability for federal income tax purposes is provided for in
these financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of highly liquid investments with
original maturities of three months or less.
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 AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Land.......................................................................... $ 82,000
Buildings..................................................................... 96,031
Machinery and equipment....................................................... 96,584
Vehicle....................................................................... 7,814
--------
282,429
Accumulated depreciation...................................................... (72,521)
--------
Net property and equipment.................................................... $209,908
--------
--------
</TABLE>
Depreciation expense was approximately $20,000 and $29,000 during 1996 and
1995, respectively. The cost basis and net book value of assets purchased under
capital leases at December 31, 1996 is $68,195 and $34,147, respectively.
Amortization expense of assets recorded under capital leases is included in
depreciation expense.
F-47
<PAGE>
RALSTON CAR WASH, LTD.
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Various notes payable to banks and capital lease obligations; monthly payments ranging
from $200 to $2,000, plus interest at rates ranging from 9% to 16.5%, collateralized by
substantially all the property and equipment of the Company and guaranteed by the
majority owner.......................................................................... $260,758
Less current maturities................................................................... (31,098)
--------
$229,660
--------
--------
</TABLE>
Maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.......................................................................... $ 31,098
1998.......................................................................... 26,956
1999.......................................................................... 202,704
--------
$260,758
--------
--------
</TABLE>
The Company paid interest of approximately $37,000 and $31,000 during 1996
and 1995, respectively.
4. RELATED PARTY TRANSACTIONS
During 1996, the Company was charged expenses of $32,000 from an entity
under common ownership for payroll, accounting, technical, and management
services.
At December 31, 1996, the Company owes $24,986 to related parties.
5. EVENT 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 291.610 shares of Precision
Auto Care common stock for each outstanding one percentage membership interest
of the Company.
F-48
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
ROCKY MOUNTAIN VENTURES, INC.
We have audited the accompanying balance sheet of Rocky Mountain Ventures,
Inc. (an S Corporation) as of December 31, 1996 and the related statement 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 Rocky Mountain Ventures,
Inc. at 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 28, 1997
F-49
<PAGE>
ROCKY MOUNTAIN VENTURES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................................ $ 12,864 $ 10,577
Prepaid expenses and other current assets....................................................... 6,403 26,463
Current portion of note receivable.............................................................. 4,146 188,045
------------ ------------
Total current assets.............................................................................. 23,413 225,085
Note receivable, net of current portion......................................................... 185,581 --
Property and equipment, net....................................................................... 480,190 466,768
Other assets, net................................................................................. 11,573 10,206
------------ ------------
Total assets...................................................................................... $ 700,757 $ 702,059
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................................................ $ 2,577 $ 2,040
Accrued expenses................................................................................ 19,806 14,219
Current maturities of long-term debt............................................................ 16,848 17,530
------------ ------------
Total current liabilities......................................................................... 39,231 33,789
Long-term debt, net of current maturities......................................................... 469,354 460,784
------------ ------------
Total liabilities................................................................................. 508,585 494,573
Stockholders' equity:
Common stock, $100 par value; 6,000 shares authorized, 5,198 shares issued and outstanding...... 519,750 519,750
Accumulated deficit............................................................................. (327,578) (312,264)
------------ ------------
Total stockholders' equity........................................................................ 192,172 207,486
------------ ------------
Total liabilities and stockholders' equity........................................................ $ 700,757 $ 702,059
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-50
<PAGE>
ROCKY MOUNTAIN VENTURES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ---------------------------
1996 1995 1996 1997
-------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................................................ $190,403 $ 246,608 $ 109,227 $ 117,277
Direct operating costs.............................................. 109,338 141,502 54,041 54,244
-------- ----------- ----------- -----------
Gross profit...................................................... 81,065 105,106 55,186 63,033
General and administrative expenses................................. 31,895 49,638 22,154 25,818
Operating income.................................................. 49,170 55,468 33,032 37,215
Other income (expense):
Gain on sale of property and equipment............................ -- 16,582 -- --
Interest income................................................... 17,305 -- -- --
Interest expense.................................................. (45,537) (57,402) (20,935) (21,901)
-------- ----------- ----------- -----------
(28,232) (40,820) (20,935) (21,901)
Income before extraordinary items................................... 20,938 14,648 12,097 15,314
Extraordinary gain.................................................. 16,535 -- 16,535 --
-------- ----------- ----------- -----------
Net income.......................................................... $ 37,473 $ 14,648 $ 28,632 $ 15,314
-------- ----------- ----------- -----------
-------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-51
<PAGE>
ROCKY MOUNTAIN VENTURES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------
NUMBER TOTAL
OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
------ -------- ----------- -----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 (unaudited)................................... 5,198 $519,750 $(344,727) $ 175,023
Net income for 1996...................................................... -- -- 37,473 37,473
Distributions to stockholders............................................ -- -- (20,324) (20,324)
------ -------- ----------- -----------------
Balance at December 31, 1996............................................... 5,198 519,750 (327,578) 192,172
Net income (unaudited)..................................................... -- -- 15,314 15,314
------ -------- ----------- -----------------
Balance at June 30, 1997 (unaudited)....................................... 5,198 $519,750 $(312,264) $ 207,486
------ -------- ----------- -----------------
------ -------- ----------- -----------------
</TABLE>
See accompanying notes.
F-52
<PAGE>
ROCKY MOUNTAIN VENTURES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ --------------------------
1996 1995 1996 1997
--------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................................... $ 37,473 $ 14,648 28,632 15,314
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization.......................................... 26,370 29,581 12,957 13,422
Gain on sale of property and equipment................................. -- 16,582 -- --
Changes in operating assets and liabilities:
Prepaid expenses and other current assets........................... 3,589 1,293 (21,228) (17,011)
Accounts payable and accrued expenses............................... (9,018) (40,967) (45,214) (6,124)
--------- ----------- ----------- -----------
Net cash provided (used in) by operating activities...................... 58,414 21,137 (24,853) 5,601
INVESTING ACTIVITIES
Proceeds from sale of property and equipment........................... -- 13,818 -- --
Payments on notes receivable........................................... 3,791 -- -- --
--------- ----------- ----------- -----------
Net cash provided by investing activities................................ 3,791 13,818 -- --
FINANCING ACTIVITIES
Proceeds from long-term debt........................................... 412,071 -- 22,568 --
Payments on long-term debt............................................. (432,432) (35,179) -- (7,888)
Other.................................................................. (31,265) -- -- --
--------- ----------- ----------- -----------
Net cash provided by (used in) financing activities...................... (51,626) (35,179) 22,568 (7,888)
--------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents..................... 10,579 (224) (2,285) (2,287)
Cash and cash equivalents, beginning of period........................... 2,285 2,509 2,285 12,864
--------- ----------- ----------- -----------
Cash and cash equivalents, end of period................................. $ 12,864 $ 2,285 -- 10,577
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-53
<PAGE>
ROCKY MOUNTAIN VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING
Policies
NATURE OF OPERATIONS
Rocky Mountain Ventures, Inc., owns and operates a self-serve car wash
facility in the Denver, Colorado metropolitan area.
NOTES RECEIVABLE
During 1995, the Company sold a car wash facility for cash and notes
totaling approximately $253,000 resulting in a gain on sale of approximately
$17,000. The balance of the note receivable was approximately $189,000 at
December 31, 1996.
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:
YEARS
-----
Buildings.............................................................. 31.5
Machinery and equipment................................................ 5-7
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash, accounts payable and long-term
notes payable approximate their fair values.
REVENUE RECOGNITION
Car wash revenues are recognized at the time of service.
INCOME TAXES
Rocky Mountain Ventures, Inc. 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 stockholders individually. No income tax expense or liability for
federal income tax purposes is provided for in these financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
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.
F-54
<PAGE>
ROCKY MOUNTAIN VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
Land............................................................. $ 197,625
Buildings and improvements....................................... 344,882
Machinery and equipment.......................................... 136,083
---------
678,590
Accumulated depreciation......................................... (198,400)
---------
Net property, plant and equipment................................ $ 480,190
---------
---------
Depreciation expense was approximately $26,000 and $30,000 during 1996 and
1995, respectively.
3. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996:
Notes payable to banks, monthly payments ranging from $700 to
$4,200 plus interest rates ranging from 8.75% to 10.75%,
collateralized by substantially all the property and equipment
of the Company, and guaranteed by a stockholder................. $486,202
Current maturities................................................ (16,848)
--------
Long-term debt, net of current maturities......................... $469,354
--------
--------
Maturities of long-term debt at December 31, 1996 are as follows:
1997.............................................................. $ 16,848
1998.............................................................. 18,370
1999.............................................................. 20,030
Thereafter........................................................ 430,954
--------
$486,202
--------
--------
The Company paid interest of approximately $46,000 and $58,000 during 1996
and 1995, respectively.
4. EXTRAORDINARY GAIN
The Company recognized an extraordinary gain of approximately $17,000
during 1996 in conjunction with the refinancing of $393,734 of its long-term
debt which carried an effective interest rate of 10.5%.
5. RELATED PARTY TRANSACTIONS
During 1996, the Company was charged expenses of $36,000 from an entity
under common ownership for payroll, accounting, technical and management
services.
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 formed a wholly-owned subsidiary, Rocky Mountain I Acquisition
Company. If the Agreement is approved by the Company's stockholders, Rocky
Mountain I 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
12.355 shares of Precision Auto Care common stock.
F-55
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
ROCKY MOUNTAIN VENTURES II, INC.
We have audited the accompanying balance sheet of Rocky Mountain Ventures
II, Inc. (an S corporation) as of December 31, 1996 and the related statement 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 Rocky Mountain Ventures II,
Inc. at December 31, 1996 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Vienna, Virginia
April 7, 1997
F-56
<PAGE>
ROCKY MOUNTAIN VENTURES II, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................................................... $ 36,155 $ 22,609
Receivables from related parties............................................................... 48,375 75,869
Prepaid expenses and other current assets...................................................... 49,850 88,740
------------ -----------
Total current assets............................................................................. 134,380 187,218
Property and equipment, net...................................................................... 2,307,907 2,282,130
Other assets..................................................................................... 15,837 9,534
------------ -----------
Total assets..................................................................................... $2,458,124 $ 2,478,882
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................................... $ 60,999 $ 53,523
Accrued liabilities............................................................................ 134,875 175,855
Current portion of long-term debt.............................................................. 363,094 95,519
------------ -----------
Total current liabilities........................................................................ 558,968 324,897
Long-term debt, net of current portion........................................................... 1,364,248 1,545,283
------------ -----------
Total liabilities................................................................................ 1,923,216 1,870,180
Stockholders' equity:
Common stock, $1.00 par value, 50,000 shares authorized; 14,539 shares issued and outstanding.... 1,453,889 1,453,889
Accumulated deficit.............................................................................. (918,981) (845,187)
------------ -----------
Total stockholders' equity....................................................................... 534,908 608,702
------------ -----------
Total liabilities and stockholders' equity....................................................... $2,458,124 $ 2,478,882
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-57
<PAGE>
ROCKY MOUNTAIN VENTURES II, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- --------------------------
1996 1995 1996 1997
---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................................................... $1,377,237 $ 1,257,654 $ 731,047 $ 757,894
Direct operating costs................................................. 841,774 775,930 393,942 407,427
---------- ----------- ----------- -----------
Gross profit......................................................... 535,463 481,724 337,105 350,367
Selling, general and administrative expenses........................... 316,760 286,247 197,770 188,008
---------- ----------- ----------- -----------
Operating income....................................................... 218,703 195,477 139,335 162,459
Interest expense....................................................... (200,809) (159,615) (111,222) (88,665)
---------- ----------- ----------- -----------
Net income............................................................. $ 17,894 $ 35,862 $ 28,113 $ 73,794
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-58
<PAGE>
ROCKY MOUNTAIN VENTURES II, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- TOTAL
NUMBER OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
--------- ---------- ----------- -------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 (unaudited).......................... 14,539 $1,453,889 $(854,307) $ 599,582
Net income for 1996............................................. -- -- 17,894 17,894
Distributions to stockholders................................... -- -- (82,568) (82,568)
--------- ---------- ----------- -------------------
Balance at December 31, 1996...................................... 14,539 1,453,889 (918,981) 534,908
Net income (unaudited).......................................... -- -- 73,794 73,794
--------- ---------- ----------- -------------------
Balance at June 30, 1997 (unaudited).............................. 14,539 $1,453,889 $(845,187) $ 608,702
--------- ---------- ----------- -------------------
--------- ---------- ----------- -------------------
</TABLE>
See accompanying notes.
F-59
<PAGE>
ROCKY MOUNTAIN VENTURES II, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ --------------------------
1996 1995 1996 1997
--------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................................... $ 17,894 $ 35,862 $ 28,113 $ 73,794
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 145,604 130,373 61,854 104,387
Changes in operating assets and liabilities:
Accounts receivable, prepaid expenses and other current assets...... (11,013) 30,281 23,725 (60,081)
Accounts payable, accrued taxes and other liabilities............... 15,404 (688) (89,394) 33,504
--------- ----------- ----------- -----------
Net cash provided by operating activities................................ 167,889 195,828 24,298 151,604
INVESTING ACTIVITIES
Purchases of property and equipment.................................... (54,370) (358,067) (43,564) (78,610)
Payments on notes receivable........................................... -- 14,422 -- --
--------- ----------- ----------- -----------
Net cash used in investing activities.................................... (54,370) (343,645) (43,564) (78,610)
FINANCING ACTIVITIES
Proceeds from long-term debt........................................... 29,330 180,421 99 --
Payments on long-term debt............................................. (48,661) (8,069) -- (86,540)
Distributions to stockholders.......................................... (82,568) -- -- --
--------- ----------- ----------- -----------
Net cash (used in) provided by financing activities...................... (101,899) 172,352 99 (86,540)
--------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents..................... 11,620 24,535 (19,167) (13,546)
Cash and cash equivalents, beginning of period........................... 24,535 -- 24,535 36,155
--------- ----------- ----------- -----------
Cash and cash equivalents, end of period................................. $ 36,155 $ 24,535 $ 5,368 $ 22,609
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-60
<PAGE>
ROCKY MOUNTAIN VENTURES II, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Rocky Mountain Ventures II, Inc. owns and operates seven self-serve car
wash facilities in the Denver metropolitan area.
PLANT AND EQUIPMENT
Plant and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets.
Estimated useful lives are as follows:
YEARS
-----
Buildings.............................................................. 31.5
Machinery and Equipment................................................ 5-7
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash, accounts payable and borrowings
under its long-term debt arrangements approximate their fair values.
INCOME TAXES
Rocky Mountain Ventures II, Inc. 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 stockholders individually, and no income tax expense or liability
for federal income tax purposes is provided for in these financial statements.
REVENUE RECOGNITION
Car wash revenues are recognized at the time of service.
ADVERTISING COSTS
Costs of advertising are expensed when incurred and totaled approximately
$32,952 and $23,438 for 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.
F-61
<PAGE>
ROCKY MOUNTAIN VENTURES II, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Land.................................................................................... $ 890,273
Buildings............................................................................... 1,420,808
Machinery and equipment................................................................. 859,091
Vehicles................................................................................ 20,773
Office furniture and equipment.......................................................... 14,263
----------
3,205,208
Accumulated depreciation................................................................ (897,301)
----------
Net property and equipment.............................................................. $2,307,907
----------
----------
</TABLE>
Depreciation expense was approximately $137,000 and $117,000 in 1996 and
1995, respectively. 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>
Note Payable bearing interest at 9.5%, payable in monthly installments
through 1999.......................................................................... $ 355,533
Note Payable bearing interest at 10.5%, payable in monthly installments
through 2022.......................................................................... 281,003
Note Payable bearing interest at 9.5%, payable in monthly installments
through 1997.......................................................................... 242,016
Note Payable bearing interest at prime rate plus 2%, payable in monthly installments
through 1999.......................................................................... 231,786
Note Payable bearing interest at monthly average yield on one year United States
Treasury Securities plus 4%, payable in monthly installments through 1998............. 206,984
Note Payable bearing interest at prime rate plus 2%, payable in monthly installments
through 1999.......................................................................... 197,830
Note Payable bearing interest at 9.5%, payable in monthly installments
through 2005.......................................................................... 116,642
Other notes payable..................................................................... 95,548
----------
1,727,342
Less current maturities................................................................. (363,094)
----------
Long-term debt, net of current maturities............................................... $1,364,248
----------
----------
</TABLE>
The above notes are guaranteed by a stockholder and are collateralized by
substantially all the property and equipment of the Company.
Maturities of long-term debt at December 31, 1996 are as follows:
1997............................................................ $ 363,094
1998............................................................ 292,735
1999............................................................ 512,359
2000............................................................ 28,634
2001............................................................ 31,735
Thereafter...................................................... 498,785
----------
$1,727,342
----------
----------
The Company paid interest of approximately $201,000 and $160,000 during
1996 and 1995, respectively.
F-62
<PAGE>
ROCKY MOUNTAIN VENTURES II, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. COMMITMENTS
The Company has commitments under long-term operating leases, principally
for office space and land. Lease terms generally cover periods from 1 to 10
years. Rental expense under operating leases was $34,000 and $33,000 for 1996
and 1995, respectively. Future minimum lease payments under noncancelable
operating leases at December 31, 1996 are:
1997............................................................... $34,539
1998............................................................... 27,510
1999............................................................... 13,755
-------
Total.............................................................. $75,804
-------
-------
5. RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE
At December 31, 1996, the Company is owed approximately $48,000 in notes
receivable from related parties.
RALSTON CAR WASH, LTD.
During 1996 and 1995, the Company charged Ralston Car Wash, Ltd., a car
wash operation which is wholly owned by a stockholder, approximately $32,000
and, $30,000 respectively for payroll, accounting, technical and management
services.
ROCKY MOUNTAIN VENTURES, INC.
During 1996 and 1995, the Company charged Rocky Mountain Ventures, Inc., a
car wash operation of which several stockholders of the Company collectively own
85%, approximately $32,000 and $30,000, respectively for payroll, accounting,
technical and management services.
6. EVENT 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 formed a wholly-owned subsidiary, Rocky Mountain II Acquisition
Company. If the Agreement is approved by the Company's stockholders, Rocky
Mountain II 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
12.356 shares of Precision Auto Care common stock.
F-63
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
STOCKHOLDERS
MIRACLE PARTNERS, INC.
We have audited the accompanying balance sheet of Miracle Partners, Inc.
(an S Corporation) as of December 31, 1996, and the related statements of
income, 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 Miracle Partners, Inc. at
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-64
<PAGE>
MIRACLE PARTNERS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................................................ $ 20,259 $ 43,024
Other....................................................................................... 6,331 12,521
------------ ------------
Total current assets.......................................................................... 26,590 55,545
Property and equipment, net................................................................... 1,724,430 1,736,702
------------ ------------
Total assets.................................................................................. $1,751,020 $1,792,247
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................................ $ 28,810 $ 51,628
Current portion of long-term debt........................................................... 158,323 125,000
------------ ------------
Total current liabilities................................................................ 187,133 176,628
Long-term debt, net of current portion...................................................... 1,197,178 1,228,198
------------ ------------
Total liabilities............................................................................. 1,384,311 1,404,826
Stockholders' equity:
Common stock, no par value; 500 shares
authorized, issued and outstanding....................................................... 450,000 450,000
Additional paid-in capital.................................................................. 284,330 284,330
Accumulated deficit......................................................................... (367,621) (346,909)
------------ ------------
Total stockholders' equity.................................................................... 366,709 387,421
------------ ------------
Total liabilities and stockholders' equity.................................................... $1,751,020 $1,792,247
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-65
<PAGE>
MIRACLE PARTNERS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ --------------------------
1996 1995 1996 1997
--------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue.................................................................. $ 443,411 $ 416,069 $ 256,067 $ 228,877
Direct operating costs................................................... 116,560 148,676 81,080 87,186
--------- ----------- ----------- -----------
Gross profit........................................................... 326,851 267,393 174,987 141,691
General and administrative expenses...................................... 223,455 215,660 124,169 132,104
--------- ----------- ----------- -----------
Operating income......................................................... 103,396 51,733 50,818 9,587
Other income (expense):
Management fees........................................................ 113,500 65,000 36,000 49,367
Gain on sale of equipment.............................................. 20,676 -- -- --
Other income, net...................................................... 36,000 30,464 18,000 18,380
Interest expense....................................................... (139,237) (120,561) (71,818) (56,622)
--------- ----------- ----------- -----------
30,939 (25,097) (17,818) 11,125
--------- ----------- ----------- -----------
Net income............................................................... $ 134,335 $ 26,636 $ 33,000 $ 20,712
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-66
<PAGE>
MIRACLE PARTNERS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- -------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 (unaudited)...................... 500 $450,000 $ 284,330 $(528,592) $205,738
Net income for 1995 (unaudited)........................... -- -- -- 26,636 26,636
--- -------- ---------- ----------- --------------
Balance at December 31, 1995 (unaudited).................... 500 450,000 284,330 (501,956) 232,374
Net income for 1996....................................... -- -- -- 134,335 134,335
--- -------- ---------- ----------- --------------
Balance at December 31, 1996................................ 500 450,000 284,330 (367,621) 366,709
Net income (unaudited).................................... -- -- -- 20,712 20,712
--- -------- ---------- ----------- --------------
Balance at June 30, 1997 (unaudited)........................ 500 $450,000 $ 284,330 $(346,909) $387,421
--- -------- ---------- ----------- --------------
--- -------- ---------- ----------- --------------
</TABLE>
See accompanying notes.
F-67
<PAGE>
MIRACLE PARTNERS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ --------------------------
1996 1995 1996 1997
--------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................................... $ 134,335 $ 26,636 33,000 20,712
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 89,127 123,464 61,731 76,721
Changes in operating assets and liabilities:
Current assets...................................................... 10,244 (3,040) 28,856 (6,190)
Accounts payable.................................................... 8,412 1,046 18,502 22,818
--------- ----------- ----------- -----------
Net cash provided by operating activities................................ 242,118 148,106 142,089 114,061
INVESTING ACTIVITIES
Purchase of property and equipment....................................... (116,408) (109,173) (24,283) (88,993)
Loan to affiliated company............................................... (246,500) (25,000) -- --
Repayment of loan to affiliated company.................................. 271,500 -- -- --
--------- ----------- ----------- -----------
Net cash used in investing activities.................................... (91,408) (134,173) (24,283) (88,993)
FINANCING ACTIVITIES
Proceeds from long-term debt............................................. 36,036 57,832 -- --
Repayment of long-term debt.............................................. (215,923) (64,595) (112,449) (2,303)
--------- ----------- ----------- -----------
Net cash used in financing activities.................................... (179,887) (6,763) (112,449) (2,303)
--------- ----------- ----------- -----------
Net (decrease) increase in cash.......................................... (29,177) 7,170 5,357 22,765
Cash at beginning of period.............................................. 49,436 42,266 49,436 20,259
--------- ----------- ----------- -----------
Cash at end of period.................................................... $ 20,259 $ 49,436 $ 54,793 $ 43,024
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-68
<PAGE>
MIRACLE PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Miracle Partners, Inc. (the Company) owns and operates four self-serve car
wash facilities, serving individual motorists, in Central Ohio.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over estimated useful lives of the related assets.
Estimated useful lives are as follows:
YEARS
-----
Buildings.............................................................. 15
Machinery and Equipment................................................ 5-7
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash, accounts payable and borrowings
under its long-term debt arrangements approximate their fair values.
INCOME TAXES
Miracle Partners, Inc. is a sub chapter S Corporation for federal income
tax purposes. The tax effect of the Company's income or loss passes through to
the shareholders individually, and no income tax expense or liability for
federal income tax purposes is provided for in these financial statements.
REVENUE RECOGNITION
Car wash revenues are recognized at the time of service.
ADVERTISING COSTS
Costs of advertising are expensed when incurred and totaled approximately
$9,000 during 1996. No advertising expenses were incurred during 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Land and land improvements.............................................................. $1,048,258
Buildings............................................................................... 1,084,109
Machinery and equipment................................................................. 701,597
----------
2,833,964
Accumulated depreciation................................................................ (1,109,534)
----------
Net property, plant and equipment....................................................... $1,724,430
----------
----------
</TABLE>
Depreciation expense was approximately $87,000 and $121,000 during 1996 and
1995, respectively.
F-69
<PAGE>
MIRACLE PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Note payable bearing interest at 9.75%; monthly payments of $13,447 through August 1998;
collateralized by assets.............................................................. $1,126,188
Note payable bearing interest at 9.25%; monthly payments of $6,264 through August 1999;
collateralized by specific assets..................................................... 166,151
Note payable to shareholder bearing interest at 9.00% (See Note 4)...................... 29,842
Notes payable to related party (See Note 4)............................................. 33,320
----------
1,355,501
Less current portion.................................................................... 158,323
----------
Long-term debt, net of current portion.................................................. $1,197,178
----------
----------
</TABLE>
Maturities of long-term debt at December 31, 1996 are as follows:
1997............................................................ $ 158,323
1998............................................................ 1,151,111
1999............................................................ 46,067
----------
$1,355,501
----------
----------
The Company paid interest of approximately $139,000 and $121,000 during
1996 and 1995, respectively.
4. RELATED PARTY TRANSACTIONS
STAR AUTO CENTER, INC.
During 1996, the Company borrowed $36,036 from Star Auto Center, Inc.
(interest rate of 10%) which is collateralized by equipment. Star Auto Center
Inc., is wholly owned by the sole shareholder of Miracle Partners, Inc.
NOTES RECEIVABLE
During 1996, the Company loaned $165,000 to GEM Development Corp. The
balance was repaid at December 31, 1996. During 1996, the Company loaned $81,500
to Lube Ventures, Inc. The balance was repaid at December 31, 1996. A $25,000
note receivable from Lube Ventures, Inc. outstanding at December 31, 1995, was
repaid during 1996. The sole shareholder of Miracle Partners, Inc. owns 22% of
GEM Development Corp. and 50% of Lube Ventures, Inc.
GAIN ON DISPOSAL
During 1996, the Company sold equipment to Miracle CW, Inc. for a recorded
gain of $20,676. The sole shareholder of the Company owns 50% of Miracle CW,
Inc.
MANAGEMENT FEE
During 1996, the Company earned management fees of $89,500 and $24,000 from
Sunbrite, Inc. and Miracle CW, Inc., respectively. The sole shareholder of
Miracle Partners, Inc. owns 50% of Sunbrite, Inc. and 50% of Miracle CW, Inc.
During 1995, the Company earned management fees of $65,000 from Sunbrite, Inc.
NOTE PAYABLE TO SHAREHOLDER
At December 31, 1996, the Company owed the sole shareholder $29,842 under a
note payable. The note carries an interest rate of 9%.
F-70
<PAGE>
MIRACLE PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. EVENT 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 exchange 188.640 shares of Precision Auto Care common
stock for each outstanding share of common stock of the Company.
F-71
<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-72
<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>
F-73
<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-74
<PAGE>
APPENDICES
A Combination Agreement
B Opinion of Ferris, Baker Watts, Incorporated
C Opinion of Quist Financial, Inc.
D Form of Agreement Not to Compete
E Section 262 of the Delaware General Corporation Law
F Section 1701.85 of the Ohio General Corporation Law
G Article 113 of the Colorado Business Corporation Act
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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).
9
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
(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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<PAGE>
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
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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
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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
----------------------------------------------------
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
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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
--------------------------------------------------
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
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REPRESENTATIONS AND WARRANTIES OF MIRACLE PARTNERS
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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 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
-------
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
------------
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
-------------
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
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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
-----------
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
------------
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
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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
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MISCELLANEOUS
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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 Venturess, 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.
180
<PAGE>
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.
181
<PAGE>
________________________ 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
<PAGE>
APPENDIX B
FERRIS, BAKER WATTS, INCORPORATED
100 LIGHT STREET
BALTIMORE, MARYLAND 21202
(410) 685-2600
August 27, 1997
The Board of Directors
WE JAC Corporation
748 Miller Drive, SE
Leesburg, VA 22075
Ladies and Gentlemen:
WE JAC Corporation ("WE JAC" or the "Company") has requested a review of
the proposed transaction (the "Transaction") involving the combination of
certain businesses. The businesses to be combined are WE JAC, Lube Ventures,
Inc., Miracle Industries, Inc., (including its interests in Hydro Spray
Equipment Co. and Indy Ventures, LLC), Prema Properties, Rocky Mountain
Ventures, Inc., Rocky Mountain Ventures II, Inc., Ralston Car Wash, LLC, KBG
LLC. Specifically, you have requested a review of the consideration received by
the shareholders of the Company in connection with the Transaction and the
simultaneous Public Offering of 2,300,000 shares of common stock (2,645,000 if
the over-allotment option is exercised) by the entity to be formed as a result
of the Transaction, Precision Auto Care ("PAC"). We were retained by the Board
of Directors and commenced our investigation of the Transaction on November 22,
1996.
Pursuant to the Agreement, the Company's shareholders will receive one
share of common stock of PAC for each share of WE JAC. Additionally, option
holders will receive one option in PAC for each option currently held in WE JAC
on the same terms.
In connection with the opinion, we have reviewed, among other things, (i)
the proposed Transaction, including without limitation the Plan of
Reorganization and Agreement for Share Exchange Offers dated August 27, 1997
(and all exhibits thereto), (ii) historical operating results of the businesses
which are a part of the Transaction, and (iii) internally prepared projections
of the businesses which are a part of the Transaction. We have held discussions
with the members of the management of the Company and the other entities who are
party to the Transaction regarding the past and current business operations and
financial condition as well as the future prospects for the Company and such
entities. We have reviewed industry specific data regarding the valuation of
publicly traded companies in the automotive after-care market as well as other
such information as we considered appropriate.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by us for purposes
of this opinion whether publicly available or provided to us by the Company or
representatives of the other entities, and we have not assumed any
responsibility for independent verification of such information. We express no
opinion as to the allocation to be received by holders of interests who may
perfect dissenters' statutory fair appraisal remedies. Based upon the foregoing
and based upon such other matters that we consider relevant, it is our opinion
that the consideration to be received by the shareholders of the Company as a
result of the Transaction is fair from a financial point of view as of the date
hereof.
Our opinion is necessarily based upon economic, market and other conditions
as in effect on, and the information made available to us as of August 27, 1997.
Our opinion is directed to the Board of Directors of the Company and does not
constitute a recommendation to any stockholder of the Company as to how the
stockholder should vote at the stockholder's meeting held in connection with the
Agreement. It is understood that subsequent developments may affect the
conclusions reached in this opinion and that we do not have any obligation to
update, revise or reaffirm this opinion.
Very truly yours,
FERRIS, BAKER WATTS, INC.
B-1
<PAGE>
APPENDIX C
QUIST FINANCIAL, INC.
5360 MANHATTAN CIRCLE
SUITE 200
BOULDER, CO 80303
August 25, 1997
Mr. William R. Klumb
President
Rocky Mountain Ventures Inc.
15200 East Girard Avenue, Suite 2700
Aurora, CO 80014-5039
Dear Mr. Klumb:
Quist Financial, Inc. has been engaged by Rocky Mountain Ventures, Inc., Rocky
Mountain Ventures II Inc. and Ralston Car Wash LLC ("Klumb Entities") to:
A. Review historical financial performance data, projected contributions and
related documentation of Precision Tune Auto Care, Inc., and WE JAC
Corporation ("Precision Entities"), Lube Ventures, Inc., Miracle
Industries, Inc., and Prema Properties ("Malas Entities"), and the Klumb
Entities, in connection with these entities', Miracle Partners, Inc.'s and
KBG, LLC's merger into (or exchange of common stock with) ("transaction"),
and the simultaneous initial public offering ("IPO") of common stock of,
WE JAC Corporation ("Precision Auto Care");
B. Evaluate the proposed allocation of Precision Auto Care common stock to
the Klumb Entities, as a group; and
C. Issue an opinion as to the fairness of the transaction, from a financial
point of view, to the Klumb Entities' shareholders and members.
Quist Financial provides independent valuations of common and preferred stocks,
partnership interests, debt instruments and intangibles in connection with
mergers, acquisitions, litigation, ESOPs, gift and estate planning, charitable
gifts, purchase price allocations, private placements, fairness opinions and
management stock option plans.
In conducting our analysis and rendering an opinion, we held discussions with
Mr. William R. Klumb, President of Rocky Mountain Ventures Inc. We reviewed a
January 21, 1997 document entitled PRECISION AUTO CARE MERGER: FIVE YEAR
FORECAST. We reviewed historical balance sheets and income statements for Rocky
Mountain Ventures, Inc., Rocky Mountain Ventures II and Ralston Car Wash, LLC
for the periods ending December 31, 1995 and December 31, 1996. We read an
October 18, 1996 Memorandum of Understanding among the parties to the
transaction and reviewed a list of Rocky Mountain Ventures shareholders.
We reviewed schedules from January 31, 1997, March 14, 1997 and August 12, 1997
Proforma Merger and IPO documents which profiled the proposed allocation of
Precision Auto Care stock among the participants to the transaction. We
additionally reviewed a projected Operational Income Analysis of the entities
for 1996 and 1997.
We reviewed the Form S-4 Registration Statement Under The Securities Act of 1933
and August 27, 1997 Plan of Reorganization and Agreement for Share Exchange
Offers.
In assessing the fairness of the transaction, from a financial point of view, to
Klumb Entities' shareholders/members, we assumed the Precision Auto Care initial
public offering will achieve the targeted price of $11.00 per share. Quist does
not express an opinion, however, as to the targeted price or value of Precision
Auto Care common stock at the time of or subsequent to the initial public
offering.
We identified, researched and analyzed similar companies with publicly traded
stock. We reviewed summary background and financial information on 21 companies
within Standard Industrial Classification codes #7532 to #7549. Based upon
further analysis, five (5) entities were selected for consideration as guideline
companies. Our selection criteria primarily included size of asset base, market
capitalization, product line, capital structure and operating performance.
<PAGE>
Two general methodologies were utilized to assess allocations and fairness, from
a financial point of view, to the Klumb Entities shareholders/members: (A)
discounting of five year projected cash flows and (B) market analysis of similar
publicly traded companies. A description of these methodologies appears within
the text of our report.
Based upon our analysis we conclude that:
A. The transaction's proposed allocation to the Klumb Entities exceeds the
allocations we determined under both discounted cash flow and market
analysis approaches; and
B. The transaction is fair, from a financial point of view, to the Klumb
Entities' shareholders/members, taken as a group. We do not, however,
render our opinion as to fairness toward the specific companies,
shareholders or members affiliated with the Klumb Entities.
The assumptions and limiting conditions of our analysis and opinion appear
within the accompanying report.
Sincerely,
/s/ David M. Grenat
________________________
David M. Grenat CFA, CMA
Vice President
<PAGE>
APPENDIX D
AGREEMENT NOT TO COMPETE
------------------------
(Former Rocky Mountain Ventures Stockholders and Ralston Car Wash Members)
THIS AGREEMENT NOT TO COMPETE (this "Agreement") is made and entered
into as of the ___ day of [November], 1997 by ________________, a resident of
the State of [Colorado] (the "Former [Stockholder][Member]") in favor of
PRECISION AUTO CARE, INC., a Virginia corporation ("Precision Auto Care"), and
[ROCKY MOUNTAIN VENTURES [I], INC., a Colorado corporation][RALSTON CAR WASH,
LTD., a Colorado limited liability company] (the "Company").
WITNESSETH:
WHEREAS, pursuant to the terms of a Plan of Reorganization and
Agreement for Share Exchange Offers dated as of August 27, 1997 by and among
Precision Auto Care, WE JAC Corporation, a Delaware corporation, Miracle
Industries, Inc., an Ohio corporation, Lube Ventures, Inc., an Ohio corporation,
Miracle Partners, Inc., a Delaware corporation, Rocky Mountain Ventures, Inc., a
Colorado corporation, Rocky Mountain Ventures II, Inc., a Colorado corporation,
Prema Properties, Ltd., an Ohio limited liability company, Ralston Car Wash,
Ltd., a Colorado limited liability company, and The Karl Byrer Group, Inc., a
Colorado corporation (the "Plan of Reorganization"), the Former
[Stockholder][Member] has, effective as of the date hereof, become entitled to
receive shares of the capital stock of Precision Auto Care in exchange for all
of his shares of the capital stock of the Company as a result of a merger of a
subsidiary corporation of Precision Auto Care with and into the Company; and
WHEREAS, the Company is engaged in the businesses of owning and
operating a [chain of car washes][car wash] in the Denver, Colorado area; and
WHEREAS, pursuant to the closing of the transactions contemplated by
the Plan of Reorganization, Precision Auto Care has acquired, in addition to all
of the issued and outstanding [shares of the capital stock] [membership
interests] of the Company, all of the issued and outstanding shares of the
capital stock and membership interests of certain of the other parties to the
Plan of Reorganization, some of which also are engaged in the business of owning
and operating car wash businesses in other areas of the United States; and
WHEREAS, an essential component of the business plan of Precision Auto
Care is to engage in the businesses of owning, operating, buying, developing and
franchising car wash centers throughout the world; and
WHEREAS, an important aspect of the value of the Company to be acquired
by Precision Auto Care under the Plan of Reorganization is the goodwill of the
Company including its relationships with others having business relationships
with the Company, such that there is a significant risk that this goodwill may
be lost if the Former [Stockholder][Member] were to compete with the Company;
and
WHEREAS, the Former [Stockholder][Member] also has gained and developed
specialized knowledge and information concerning the business of the Company as
a result of his ownership interest in the Company, which, if disclosed or used
in competition with the Company could cause irreparable harm and substantial
damage to the Company;
- 1 -
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the receipt and sufficiency of which
consideration are hereby acknowledged, the Former [Stockholder][Member] hereby
covenants and agrees in favor of Precision Auto Care and the Company as follows:
1. Competition. For a period of four (4) years commencing on the date
of this Agreement, the Former [Stockholder][Member] shall not, except on behalf
or as a franchisee of Precision Auto Care and its presently existing or
hereafter created subsidiaries and affiliated companies (collectively, the
"Precision Auto Care Group"), directly or indirectly, own, manage, operate, join
or control, or participate in the ownership, management, operation or control
of, or be a proprietor, director, officer, stockholder, member, partner or an
employee or agent of, or a consultant to, any business, firm, corporation,
partnership or other entity which engages in any of the following businesses:
(a) owning or operating car wash centers within 5 miles of a car wash center
owned or operated by the Company as of the date hereof other than those
franchised by the Precision Auto Care Group; or (b) franchising a system for the
operation of car wash centers anywhere in the world.
2. Solicitations of Employees. For a period of four (4) years
commencing on the date of this Agreement, the Former [Stockholder][Member] shall
not, directly or indirectly, for his own account, or as a proprietor,
stockholder, partner, director, officer, employee, agent or otherwise for or on
behalf of any person, business, firm, corporation, partnership or other entity
other than the members of the Precision Auto Care Group, solicit any employee of
the Company for employment with any person, business, firm, corporation,
partnership or other entity other than a member of the Precision Auto Care Group
or hire any employee of the Company either directly or for or on behalf of any
person, business, firm, corporation, partnership or other entity other than a
member of the Precision Auto Care Group.
3. Confidential Information. From and after the date of this Agreement,
the Former [Stockholder][Member] shall not at any time, directly or indirectly,
disclose to, or use for the benefit of, any person, business, firm, corporation,
partnership or other entity other than the Precision Auto Care Group or any
franchisee thereof any confidential or proprietary information concerning the
Company or its business, suppliers or customers. All information, whether
written or otherwise, regarding the business of the Company, including but not
limited to, information regarding customers, customer lists, customer leads,
costs, prices, earnings, systems, operating or marketing procedures, prospective
and executed contracts and other business arrangements, and sources of supply
are presumed to be confidential and proprietary information for purposes of this
Agreement.
4. Cumulative Provisions. The covenants and agreements contained in
this Agreement are independent of each other and cumulative.
5. Acknowledgments. The Former [Stockholder][Member] acknowledges the
broad scope of the covenants contained in this Agreement, but agrees that such
covenants are reasonable in light of the scope of the business of Precision Auto
Care Group and the consideration received by him pursuant to closing of the
transactions contemplated by the terms of the Plan of Reorganization. The Former
[Stockholder][Member] further acknowledges and agrees that the covenants
contained in this Agreement do not unreasonably restrict his employment
opportunities or unduly burden or deprive him of a means of earning a
livelihood.
6. Recitals. The recitals set forth above constitute and are an
integral part of this Agreement and are incorporated herein by this reference.
- 2 -
<PAGE>
7. Binding Effect; Third Party Beneficiaries. The provisions of this
Agreement shall inure to the benefit of each of the members of the Precision
Auto Care Group. The provisions of this Agreement shall be binding upon the
Former [Stockholder][Member], his heirs, personal representatives, successors
and assigns. The Former [Stockholder][Member] acknowledges and agrees that each
of the members of the Precision Auto Care Group are intended to be beneficiaries
of the covenants and agreements made by him herein, even though not named
herein, and that each member of the Precision Auto Care Group shall have the
right to exercise all remedies available to Precision Auto Care and the Company
under the terms hereof in the event of any breach or threatened breach by the
Former [Stockholder][Member] of the covenants and agreements made by him herein.
8. Remedies for Breach. The Former [Stockholder][Member] further
acknowledges and agrees that his obligations under this Agreement are unique and
that any breach or threatened breach of such obligations may result in
irreparable harm and substantial damages to the Precision Auto Care Group.
Accordingly, in the event of a breach or threatened breach by the Former
[Stockholder][Member] of any of the provisions of this Agreement, any member of
the Precision Auto Car Group (including Precision Auto Care and the Company)
shall have the right, in addition to exercising any other remedies at law or
equity which may be available to it under the Plan or Reorganization or
otherwise, and notwithstanding the provisions of Article XXI of the Plan of
Reorganization, to obtain ex parte, preliminary, interlocutory, temporary or
permanent injunctive relief, specific performance and other equitable remedies
in any court of competent jurisdiction to prevent the Former
[Stockholder][Member] from violating such provision or provisions or to prevent
the continuance of any violation thereof, together with an award or judgment for
any and all damages, losses, liabilities, expenses and costs incurred by the
Precision Auto Care Group as a result of such breach or threatened breach
including, but not limited to, attorneys' fees incurred by the Precision Auto
Care Group in connection with, or as a result of, the enforcement of this
Agreement (it being the intent of the Former [Stockholder][Member] that the
obligations set forth herein and the rights and remedies provided to the
Precision Auto Care Group hereunder shall be independent of the obligations,
rights and remedies provided for or set forth in the Plan of Reorganization).
The Former [Stockholder][Member] expressly waives any requirement based on any
statute, rule or procedure, or other source, that any member of the Precision
Auto Care Group post a bond as a condition of obtaining any of the above
described remedies.
9. Assignment. The Former [Stockholder][Member] may not assign this
Agreement or delegate any duties or obligations arising under this Agreement
without the prior written consent of Precision Auto Care.
10. Divisibility. The Former [Stockholder][Member] agrees that the
provisions of this Agreement are divisible and separable so that if any
provision or provisions hereof shall be held to be unreasonable, unlawful or
unenforceable, in whole or in part, such holding shall not impair or affect any
of the remaining provisions hereof. If any provision hereof is held to be
unreasonable, unlawful or unenforceable, in whole or in part, in duration,
geographical scope or character of restriction by any court of competent
jurisdiction, such provision shall be modified to the extent necessary in order
that any such provision or portion thereof shall be legally enforceable to the
fullest extent permitted by law, and the parties hereto do hereby expressly
authorize any court of competent jurisdiction to enforce any such provision or
portion thereof or to modify any such provision or portion thereof in order that
any such provision or portion thereof shall be enforced by such court to the
fullest extent permitted by applicable law.
- 3 -
<PAGE>
11. Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties hereto with respect to the matters set forth
herein, and all prior negotiations, writings and understandings relating to the
subject matter of this Agreement are merged herein and are superseded and
canceled by this Agreement.
12. Waiver. This Agreement and the provisions hereof may be amended,
modified or supplemented in whole or in part only by a written instrument making
specific reference to this Agreement and executed by Precision Auto Care and the
Former [Stockholder][Member]. No waiver of any provision of this Agreement shall
be valid unless in writing, making express reference to this Agreement, and
signed by the person against whom enforcement of such waiver is sought. The
failure of Precision Auto Care or any other member of the Precision Auto Care
Group at any time to insist upon strict performance of any provision hereof
shall not be construed as a waiver or relinquishment of the right to insist upon
strict performance of the same provision at any future time.
13. Law And Interpretation. This Agreement shall be governed by,
construed, interpreted and enforced in accordance with the laws of the
Commonwealth of Virginia. With respect to each and every term and condition in
this Agreement, the parties 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. [For Former [Stockholder][Member]s to be employed by Precision
Auto Care only: Nothing contained herein shall be construed or interpreting as
limiting or modifying in any respect any of the terms or provisions of that
certain Employment Agreement dated of even date herewith by and between the
Former [Stockholder][Member] and Precision Auto Care].
14. Headings. The headings of this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning or
interpretation of any of the provisions of this Agreement.
16. Counterparts. This Agreement may be executed in multiple
counterparts and originals, all of which shall be deemed to be originals hereof
for all purposes, but all of which taken together shall be one and the same
instrument.
IN WITNESS WHEREOF, the Former [Stockholder][Member] has executed this
Agreement, intending it to constitute an instrument under seal, on the day and
year first above written.
WITNESS:
___________________________ _______________________________(SEAL)
[Name of the Former [Stockholder][Member]]
- 4 -
<PAGE>
AGREEMENT NOT TO COMPETE
------------------------
(Former Lube Venture Stockholders)
THIS AGREEMENT NOT TO COMPETE (this "Agreement") is made and entered
into as of the ___ day of [November], 1997 by ________________, a resident of
the State of ______ (the "Former Stockholder") in favor of PRECISION AUTO CARE,
INC., a Virginia corporation ("Precision Auto Care"), and LUBE VENTURE, INC., an
Ohio corporation (the "Company").
WITNESSETH:
WHEREAS, pursuant to the terms of a Plan of Reorganization and
Agreement for Share Exchange Offers dated as of August 27, 1997 by and among
Precision Auto Care, WE JAC Corporation, a Delaware corporation, Miracle
Industries, Inc., an Ohio corporation, the Company, Miracle Partners, Inc., a
Delaware corporation, Rocky Mountain Ventures, Inc., a Colorado corporation,
Rocky Mountain Ventures II, Inc., a Colorado corporation, Prema Properties,
Ltd., an Ohio limited liability company, Ralston Car Wash, Ltd., a Colorado
limited liability company, and The Karl Byrer Group, Inc., a Colorado
corporation (the "Plan of Reorganization"), the Former Stockholder has,
effective as of the date hereof, become entitled to receive shares of the
capital stock of Precision Auto Care in exchange for all of his shares of the
capital stock of the Company in connection with the merger of a subsidiary
corporation of Precision Auto Care with and into the Company; and
WHEREAS, the Company is engaged in the businesses of manufacturing and
selling modular fast lube center buildings, owning and operating fast lube
centers and franchising a system for the operation of fast lube centers; and
WHEREAS, an essential component of the business plan of Precision Auto
Care is to engage in the businesses of manufacturing and selling modular fast
lube center buildings, owning and operating fast lube centers and franchising a
system for the operation of fast lube centers; and
WHEREAS, an important aspect of the value of the Company to be acquired
by Precision Auto Care under the Plan of Reorganization is the goodwill of the
Company including its relationships with others having business relationships
with the Company, such that there is a significant risk that this goodwill may
be lost if the Former Stockholder were to compete with the Company; and
WHEREAS, the Former Stockholder also has gained and developed
specialized knowledge and information concerning the business of the Company as
a result of his ownership interest in the Company, which, if disclosed or used
in competition with the Company could cause irreparable harm and substantial
damage to the Company;
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the receipt and sufficiency of which
consideration are hereby acknowledged,
- 1 -
<PAGE>
the Former Stockholder hereby covenants and agrees in favor of Precision Auto
Care and the Company as follows:
1. Competition. For a period of four (4) years commencing on the date
of this Agreement, the Former Stockholder shall not, except on behalf or as a
franchisee of Precision Auto Care and its presently existing and hereafter
created subsidiaries and affiliated companies (collectively, the "Precision Auto
Care Group"), directly or indirectly, own, manage, operate, join or control, or
participate in the ownership, management, operation or control of, or be a
proprietor, director, officer, stockholder, member, partner or an employee or
agent of, or a consultant to, any business, firm, corporation, partnership or
other entity which engages in any of the following businesses: (a) owning or
operating fast lube centers except those franchised by the Precision Auto Care
Group within 5 miles of a fast lube center owned or operated by the Company as
of the date hereof; (b) franchising a system for the operation of fast lube
centers anywhere in the world; or (c) manufacturing, selling or distributing
modular fast lube center buildings anywhere in the world.
2. Solicitations of Customers. For a period of four (4) years
commencing on the date of this Agreement, the Former Stockholder shall not,
directly or indirectly, for his own account or as a proprietor, stockholder,
member, partner, director, officer, employee, agent or otherwise for or on
behalf of any person, business, firm, corporation, partnership or other entity
other than the Precision Auto Care Group, sell or broker, offer to sell or
broker or solicit any orders for the purchase of modular fast lube center
buildings to or from any person, corporation or other entity which is a customer
or franchisee of the Company as of the date of this Agreement or which was a
customer or franchisee of the Company at any time during the two (2) years
immediately preceding the date of this Agreement. For purposes of this
Agreement, a "customer" shall mean and include any and all persons, businesses,
corporations, partnerships or other entities which have done business with the
Company as a customer during the relevant time period, and all persons,
businesses, corporations, partnerships or other entities which control, or are
controlled by, the same person, business, corporation, partnership or other
entity which controls, any such customer.
3. Solicitations of Suppliers. For a period of four (4) years
commencing on the date of this Agreement, the Former Stockholder shall not,
directly or indirectly, for his own account, or as a proprietor, stockholder,
partner, director, officer, employee, agent or otherwise for or on behalf of any
business, firm, corporation, partnership or other entity other than the
Precision Auto Care Group, purchase or broker or offer to purchase or broker any
materials or equipment designed primarily for use in the manufacture of modular
fast lube center buildings to or from any person, corporation or other entity
which is a supplier or vendor to the Company as of the date of this Agreement or
which was a supplier or vendor to the Company at any time during the [two (2)]
years immediately preceding the date of this Agreement. For purposes of this
Agreement, "suppliers" and "vendors" shall mean and include any and all persons,
businesses, corporations, partnerships or other entities which have done
business with the Company as a supplier or vendor during the relevant time
period, and all persons, businesses, corporations, partnerships or other
entities which now or hereafter control, or are controlled by, the same person,
business, corporation, partnership or other entity which controls, any such
supplier or vendor.
- 2 -
<PAGE>
4. Solicitations of Employees. For a period of four (4) years
commencing on the date of this Agreement, the Former Stockholder shall not,
directly or indirectly, for his own account or as a proprietor, stockholder,
partner, director, officer, employee, agent or otherwise for or on behalf of any
person, business, firm, corporation, partnership or other entity other than the
Precision Auto Care Group solicit any employee of the Company for employment
with any person, business, firm, corporation, partnership or other entity other
than a member of the Precision Auto Care Group or hire any employee of the
Company either directly or for or on behalf of any person, business, firm,
corporation, partnership or other entity other than a member of the Precision
Auto Care Group.
5. Confidential Information. From and after the date of this Agreement,
the Former Stockholder shall not at any time, directly or indirectly, disclose
to, or use for the benefit of, any person, business, firm, corporation,
partnership or other entity other than a member of the Precision Auto Care Group
any confidential or proprietary information concerning the Company or its
business, suppliers, franchisees or customers. All information, whether written
or otherwise, regarding the business of the Company, including but not limited
to, information regarding franchisees, customers, customer lists, customer
leads, distribution of products, costs, prices, earnings, systems, operating or
marketing procedures, prospective and executed contracts and other business
arrangements, and sources of supply are presumed to be confidential and
proprietary information for purposes of this Agreement.
6. Cumulative Provisions. The covenants and agreements contained in
this Agreement are independent of each other and cumulative.
7. Acknowledgments. The Former Stockholder acknowledges the broad scope
of the covenants contained in this Agreement, but agrees that such covenants are
reasonable in light of the scope of the business of the Precision Auto Care
Group and the consideration received by him pursuant to closing of the
transactions contemplated by the terms of the Plan of Reorganization. The Former
Stockholder further acknowledges and agrees that the covenants contained in this
Agreement do not unreasonably restrict his employment opportunities or unduly
burden or deprive him of a means of earning a livelihood.
8. Recitals. The recitals set forth above constitute and are an
integral part of this Agreement and are incorporated herein by this reference.
9. Binding Effect; Third Party Beneficiaries. The provisions of this
Agreement shall inure to the benefit of each member of the Precision Auto Care
Group. The provisions of this Agreement shall be binding upon the Former
Stockholder, his heirs, personal representatives, successors and assigns. The
Former Stockholder acknowledges and agrees that each of the members of the
Precision Auto Care Group are intended to be beneficiaries of the covenants and
agreements made by him herein, even though not named herein, and that each
member of the Precision Auto Care Group shall have the right to exercise all
remedies available to the Holding Company and the Company under the terms hereof
in the event of any breach or threatened breach by the Former Stockholder of the
covenants and agreements made by him herein.
- 3 -
<PAGE>
10. Remedies for Breach. The Former Stockholder further acknowledges
and agrees that his obligations under this Agreement are unique and that any
breach or threatened breach of such obligations may result in irreparable harm
and substantial damages to the Precision Auto Care Group. Accordingly, in the
event of a breach or threatened breach by the Former Stockholder of any of the
provisions of this Agreement, any member of the Precision Auto Car Group
(including the Holding Company and the Company) shall have the right, in
addition to exercising any other remedies at law or equity which may be
available to it under the Plan or Reorganization or otherwise, and
notwithstanding the provisions of Article XXI of the Plan of Reorganization, to
obtain ex parte, preliminary, interlocutory, temporary or permanent injunctive
relief, specific performance and other equitable remedies in any court of
competent jurisdiction to prevent the Former Stockholder from violating such
provision or provisions or to prevent the continuance of any violation thereof,
together with an award or judgment for any and all damages, losses, liabilities,
expenses and costs incurred by the Precision Auto Care Group as a result of such
breach or threatened breach including, but not limited to, attorneys' fees
incurred by the Precision Auto Care Group in connection with, or as a result of,
the enforcement of this Agreement (it being the intent of the Former Stockholder
that the obligations set forth herein and the rights and remedies provided to
the Precision Auto Care Group hereunder shall be independent of the obligations,
rights and remedies provided for or set forth in the Plan of Reorganization).
The Former Stockholder expressly waives any requirement based on any statute,
rule or procedure, or other source, that any member of the Precision Auto Care
Group post a bond as a condition of obtaining any of the above described
remedies.
11. Assignment. The Former Stockholder may not assign this Agreement or
delegate any duties or obligations arising under this Agreement without the
prior written consent of the Holding Company.
12. Divisibility. The Former Stockholder agrees that the provisions of
this Agreement are divisible and separable so that if any provision or
provisions hereof shall be held to be unreasonable, unlawful or unenforceable,
in whole or in part, such holding shall not impair or affect any of the
remaining provisions hereof. If any provision hereof is held to be unreasonable,
unlawful or unenforceable, in whole or in part, in duration, geographical scope
or character of restriction by any court of competent jurisdiction, such
provision shall be modified to the extent necessary in order that any such
provision or portion thereof shall be legally enforceable to the fullest extent
permitted by law, and the parties hereto do hereby expressly authorize any court
of competent jurisdiction to enforce any such provision or portion thereof or to
modify any such provision or portion thereof in order that any such provision or
portion thereof shall be enforced by such court to the fullest extent permitted
by applicable law.
13. Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties hereto with respect to the matters set forth
herein, and all prior negotiations, writings and understandings relating to the
subject matter of this Agreement are merged herein and are superseded and
canceled by this Agreement.
- 4 -
<PAGE>
14. Waiver. This Agreement and the provisions hereof may be amended,
modified or supplemented in whole or in part only by a written instrument making
specific reference to this Agreement and executed by the Holding Company and the
Former Stockholder. No waiver of any provision of this Agreement shall be valid
unless in writing, making express reference to this Agreement, and signed by the
person against whom enforcement of such waiver is sought. The failure of the
Holding Company or any other member of the Precision Auto Care Group at any time
to insist upon strict performance of any provision hereof shall not be construed
as a waiver or relinquishment of the right to insist upon strict performance of
the same provision at any future time.
15. Law And Interpretation. This Agreement shall be governed by,
construed, interpreted and enforced in accordance with the laws of the
Commonwealth of Virginia. With respect to each and every term and condition in
this Agreement, the parties 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. [For former stockholders to be employed by the Holding Company
only: Nothing contained herein shall be construed or interpreting as limiting or
modifying in any respect any of the terms or provisions of that certain
Employment Agreement dated of even date herewith by and between the Former
Stockholder and the Holding Company].
16. Headings. The headings of this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning or
interpretation of any of the provisions of this Agreement.
17. Counterparts. This Agreement may be executed in multiple
counterparts and originals, all of which shall be deemed to be originals hereof
for all purposes, but all of which taken together shall be one and the same
instrument.
IN WITNESS WHEREOF, the Former Stockholder has executed this Agreement,
intending it to constitute an instrument under seal, on the day and year first
above written.
WITNESS:
___________________________ _______________________________(SEAL)
[Name of the Former Stockholder]
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<PAGE>
AGREEMENT NOT TO COMPETE
------------------------
(Former Miracle Industries Stockholders)
THIS AGREEMENT NOT TO COMPETE (this "Agreement") is made and entered
into as of the ___ day of [November], 1997 by ________________, a resident of
the State of ______ (the "Former Stockholder") in favor of PRECISION AUTO CARE,
INC., a Virginia corporation ("Precision Auto Care"), and MIRACLE INDUSTRIES,
INC., an Ohio corporation (the "Company").
WITNESSETH:
WHEREAS, pursuant to the terms of a Plan of Reorganization and
Agreement for Share Exchange Offers dated as of August 27, 1997 by and among
Precision Auto Care, WE JAC Corporation, a Delaware corporation, the Company,
Lube Ventures, Inc., an Ohio corporation, Miracle Partners, Inc., a Delaware
corporation, Rocky Mountain Ventures, Inc., a Colorado corporation, Rocky
Mountain Ventures II, Inc., a Colorado corporation, Prema Properties, Ltd., an
Ohio limited liability company, Ralston Car Wash, Ltd., a Colorado limited
liability company, and The Karl Byrer Group, Inc., a Colorado corporation (the
"Plan of Reorganization"), the Former Stockholder has, effective as of the date
hereof, become entitled to receive shares of the capital stock of Precision Auto
Care in exchange for all of his shares of the capital stock of the Company in
connection with the merger of a subsidiary corporation of Precision Auto Care
with and into the Company; and
WHEREAS, the Company is engaged in the businesses of owning and
operating a chain of car washes in the central Ohio area and manufacturing
chemicals for use by operators of car wash businesses; and
WHEREAS, the Company is the holder of a [90]% membership interest in
Hydro-Spray Equipment Co., Inc., an Iowa limited liability company
("Hydro-Spray"), which is engaged in the business of manufacturing and selling
equipment designed for use in car wash center businesses, and of a 50%
membership interest in Indy Ventures, Ltd., an Indiana limited company ("Indy
Ventures"), which is engaged in the business of owning and operating a chain of
car washes in the Indianapolis, Indiana area; and
WHEREAS, pursuant to the closing of the transactions contemplated by
the Plan of Reorganization, Precision Auto Care has acquired, in addition to all
of the issued and outstanding capital stock of the Company, all of the issued
and outstanding shares of the capital stock and membership interests of certain
of the other parties to the Plan of Reorganization, some of which also are
engaged in the business of owning and operating car wash businesses in other
areas of the United States; and
WHEREAS, an essential component of the business plan of Precision Auto
Care is to engage in the businesses of owning, operating, buying, developing and
franchising car wash centers and manufacturing, selling, distributing, brokering
or otherwise dealing in chemicals or equipment designed for use by operators of
car wash centers throughout the world; and
WHEREAS, an important part aspect of the value of the Company to be
acquired by Precision Auto Care under the Plan of Reorganization is the goodwill
of the Company (and of Hydro-Spray and Indy Ventures) including its
relationships with others having business relationships with the Company,
- 1 -
<PAGE>
such that there is a significant risk that this goodwill may be lost if the
Former Stockholder were to compete with the Company; and
WHEREAS, the Former Stockholder also has gained and developed
specialized knowledge and information concerning the business of the Company
(and of Hydro-Spray and Indy Ventures) as a result of his ownership interest in
the Company, which, if disclosed or used in competition with the Company could
cause irreparable harm and substantial damage to the Company;
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the receipt and sufficiency of which
consideration are hereby acknowledged, the Former Stockholder hereby covenants
and agrees in favor of Precision Auto Care and the Company as follows:
1. Competition. For a period of four (4) years commencing on the date
of this Agreement, the Former Stockholder shall not, except on behalf or as a
franchisee of Precision Auto Care and its presently existing and hereafter
created subsidiaries and affiliated companies (the "Precision Auto Care Group"),
directly or indirectly, own, manage, operate, join or control, or participate in
the ownership, management, operation or control of, or be a proprietor,
director, officer, stockholder, member, partner or an employee or agent of, or a
consultant to, any business, firm, corporation, partnership or other entity
which engages in any of the following businesses: (a) owning or operating car
wash centers other than those franchised by the Precision Auto Care Group within
5 miles of a car wash center owned or operated by the Company as of the date
hereof; (b) franchising a system for the operation of car wash centers anywhere
in the world; (c) manufacturing, selling, distributing, brokering or otherwise
dealing in chemicals or equipment designed for use by operators of car wash
centers anywhere in the world; or (d) any other business competitive with the
business engaged by the Company as of the date of this Agreement.
2. Solicitations of Customers. For a period of four (4) years
commencing on the date of this Agreement, the Former Stockholder shall not,
directly or indirectly, for his own account, or as a proprietor, stockholder,
member, partner, director, officer, employee, agent or otherwise for or on
behalf of any person, business, firm, corporation, partnership or other entity
other than the Precision Auto Care Group, sell or broker, offer to sell or
broker or solicit any orders for the purchase of equipment or chemicals designed
primarily for use in the operation of a car wash center business to or from any
person, corporation or other entity which is a customer of the Company or of
Hydro-Spray or Indy Ventures as of the date of this Agreement or which was a
customer of the Company or of Hydro-Spray or Indy Ventures at any time during
the two (2) years immediately preceding the date of this Agreement. For purposes
of this Agreement, a "customer" shall mean and include any and all persons,
businesses, corporations, partnerships or other entities which have done
business with the Company or Hydro-Spray or Indy Ventures as a customer during
the relevant time period, and all persons, businesses, corporations,
partnerships or other entities which now or hereafter control, or are controlled
by, the same person, business, corporation, partnership or other entity which
controls, any such customer.
3. Solicitations of Suppliers. For a period of four (4) years
commencing on the date of this Agreement, the Former Stockholder shall not,
directly or indirectly, for his own account, or as a proprietor, stockholder,
partner, director, officer, employee, agent or otherwise for or on behalf of any
business, firm, corporation, partnership or other entity other than the
Precision Auto Care Group, purchase or broker or
- 2 -
<PAGE>
offer to purchase or broker any equipment or chemicals designed primarily for
use in the operation of a car wash center business to or from any person,
corporation or other entity which is a supplier or vendor to the Company or to
Hydro-Spray or Indy Ventures as of the date of this Agreement or which was a
supplier or vendor to the Company or Hydro-Spray or Indy Ventures at any time
during the [two (2)] years immediately preceding the date of this Agreement. For
purposes of this Agreement, "suppliers" and "vendors" shall mean and include any
and all persons, businesses, corporations, partnerships or other entities which
have done business with the Company or Hydro-Spray or Indy Ventures as a
supplier or vendor during the relevant time period, and all persons, businesses,
corporations, partnerships or other entities which control, or are controlled
by, the same person, business, corporation, partnership or other entity which
controls, any such supplier or vendor.
4. Solicitations of Employees. For a period of four (4) years
commencing on the date of this Agreement, the Former Stockholder shall not,
directly or indirectly, for his own account, or as a proprietor, stockholder,
partner, director, officer, employee, agent or otherwise for or on behalf of any
person, business, firm, corporation, partnership or other entity other than the
Precision Auto Care Group solicit any employee of the Company (or of Hydro-Spray
or Indy Ventures) for employment with any person, business, firm, corporation,
partnership or other entity other than a member of the Precision Auto Care Group
or hire any employee of the Company (or of Hydro-Spray or Indy Ventures) either
directly or for or on behalf of any person, business, firm, corporation,
partnership or other entity other than a member of the Precision Auto Care
Group.
5. Confidential Information. From and after the date of this Agreement,
the Former Stockholder shall not at any time, directly or indirectly, disclose
to, or use for the benefit of, any person, business, firm, corporation,
partnership or other entity other than a member of the Precision Auto Care Group
or any franchisee thereof any confidential or proprietary information concerning
the Company or Hydro-Spray or Indy Ventures or their respective businesses,
suppliers and customers. All information, whether written or otherwise,
regarding the respective businesses of the Company and Hydro-Spray and Indy
Ventures, including but not limited to, information regarding customers,
customer lists, customer leads, sources of supply, distribution of products,
costs, prices, earnings, systems, operating or marketing procedures, prospective
and executed contracts and other business arrangements are presumed to be
confidential and proprietary information for purposes of this Agreement.
6. Cumulative Provisions. The covenants and agreements contained in
this Agreement are independent of each other and cumulative.
7. Acknowledgments. The Former Stockholder acknowledges the broad scope
of the covenants contained in this Agreement, but agrees that such covenants are
reasonable in light of the scope of the business of the Precision Auto Care
Group and the consideration received by him pursuant to closing of the
transactions contemplated by the terms of the Plan of Reorganization. The Former
Stockholder further acknowledges and agrees that the covenants contained in this
Agreement do not unreasonably restrict his employment opportunities or unduly
burden or deprive him of a means of earning a livelihood.
8. Recitals. The recitals set forth above constitute and are an
integral part of this Agreement and are incorporated herein by this reference.
- 3 -
<PAGE>
9. Binding Effect; Third Party Beneficiaries. The provisions of this
Agreement shall inure to the benefit of each member of the Precision Auto Care
Group. The provisions of this Agreement shall be binding upon the Former
Stockholder, his heirs, personal representatives, successors and assigns. The
Former Stockholder acknowledges and agrees that each of the members of the
Precision Auto Care Group are intended to be beneficiaries of the covenants and
agreements made by him herein, even though not named herein, and that each
member of the Precision Auto Care Group shall have the right to exercise all
remedies available to Precision Auto Care and the Company under the terms hereof
in the event of any breach or threatened breach by the Former Stockholder of the
covenants and agreements made by him herein.
10. Remedies for Breach. The Former Stockholder further acknowledges
and agrees that his obligations under this Agreement are unique and that any
breach or threatened breach of such obligations may result in irreparable harm
and substantial damages to the Precision Auto Care Group. Accordingly, in the
event of a breach or threatened breach by the Former Stockholder of any of the
provisions of this Agreement, any member of the Precision Auto Car Group
(including Precision Auto Care and the Company) shall have the right, in
addition to exercising any other remedies at law or equity which may be
available to it under the Plan or Reorganization or otherwise, and
notwithstanding the provisions of Article XXI of the Plan of Reorganization, to
obtain ex parte, preliminary, interlocutory, temporary or permanent injunctive
relief, specific performance and other equitable remedies in any court of
competent jurisdiction to prevent the Former Stockholder from violating such
provision or provisions or to prevent the continuance of any violation thereof,
together with an award or judgment for any and all damages, losses, liabilities,
expenses and costs incurred by the Precision Auto Care Group as a result of such
breach or threatened breach including, but not limited to, attorneys' fees
incurred by the Precision Auto Care Group in connection with, or as a result of,
the enforcement of this Agreement (it being the intent of the Former Stockholder
that the obligations set forth herein and the rights and remedies provided to
the Precision Auto Care Group hereunder shall be independent of the obligations,
rights and remedies provided for or set forth in the Plan of Reorganization).
The Former Stockholder expressly waives any requirement based on any statute,
rule or procedure, or other source, that any member of the Precision Auto Care
Group post a bond as a condition of obtaining any of the above described
remedies.
11. Assignment. The Former Stockholder may not assign this Agreement or
delegate any duties or obligations arising under this Agreement without the
prior written consent of Precision Auto Care.
12. Divisibility. The Former Stockholder agrees that the provisions of
this Agreement are divisible and separable so that if any provision or
provisions hereof shall be held to be unreasonable, unlawful or unenforceable,
in whole or in part, such holding shall not impair or affect any of the
remaining provisions hereof. If any provision hereof is held to be unreasonable,
unlawful or unenforceable, in whole or in part, in duration, geographical scope
or character of restriction by any court of competent jurisdiction, such
provision shall be modified to the extent necessary in order that any such
provision or portion thereof shall be legally enforceable to the fullest extent
permitted by law, and the parties hereto do hereby expressly authorize any court
of competent jurisdiction to enforce any such provision or portion thereof or to
modify any such provision or portion thereof in order that any such provision or
portion thereof shall be enforced by such court to the fullest extent permitted
by applicable law.
- 4 -
<PAGE>
13. Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties hereto with respect to the matters set forth
herein, and all prior negotiations, writings and understandings relating to the
subject matter of this Agreement are merged herein and are superseded and
canceled by this Agreement.
14. Waiver. This Agreement and the provisions hereof may be amended,
modified or supplemented in whole or in part only by a written instrument making
specific reference to this Agreement and executed by Precision Auto Care and the
Former Stockholder. No waiver of any provision of this Agreement shall be valid
unless in writing, making express reference to this Agreement, and signed by the
person against whom enforcement of such waiver is sought. The failure of
Precision Auto Care or any other member of the Precision Auto Care Group at any
time to insist upon strict performance of any provision hereof shall not be
construed as a waiver or relinquishment of the right to insist upon strict
performance of the same provision at any future time.
15. Law And Interpretation. This Agreement shall be governed by,
construed, interpreted and enforced in accordance with the laws of the
Commonwealth of Virginia. With respect to each and every term and condition in
this Agreement, the parties 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. [For former stockholders to employed by Precision Auto Care
only: Nothing contained herein shall be construed or interpreting as limiting or
modifying in any respect any of the terms or provisions of that certain
Employment Agreement dated of even date herewith by and between the Former
Stockholder and Precision Auto Care].
16. Headings. The headings of this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning or
interpretation of any of the provisions of this Agreement.
17. Counterparts. This Agreement may be executed in multiple
counterparts and originals, all of which shall be deemed to be originals hereof
for all purposes, but all of which taken together shall be one and the same
instrument.
IN WITNESS WHEREOF, the Former Stockholder has executed this Agreement,
intending it to constitute an instrument under seal, on the day and year first
above written.
WITNESS:
___________________________ _______________________________(SEAL)
[Name of the Former Stockholder]
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<PAGE>
AGREEMENT NOT TO COMPETE
------------------------
(Gene Deal re: Miracle Partners)
THIS AGREEMENT NOT TO COMPETE (this "Agreement") is made and entered
into as of the ___ day of [November], 1997 by C. EUGENE DEAL, a resident of the
State of Ohio (the "Former Stockholder") in favor of PRECISION AUTO CARE, INC.,
a Virginia corporation (the "Holding Company"), and MIRACLE PARTNERS, INC., a
Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, pursuant to the terms of a Plan of Reorganization and
Agreement for Share Exchange Offers dated as of August 27, 1997 by and among
Precision Auto Care, WE JAC Corporation, a Delaware corporation, Miracle
Industries, Inc., an Ohio corporation, Lube Ventures, Inc., an Ohio corporation,
the Company, Rocky Mountain Ventures, Inc., a Colorado corporation, Rocky
Mountain Ventures II, Inc., a Colorado corporation, Prema Properties, Ltd., an
Ohio limited liability company, Ralston Car Wash, Ltd., a Colorado limited
liability company, and The Karl Byrer Group, Inc., a Colorado corporation (the
"Plan of Reorganization"), the Former Stockholder has, effective as of the date
hereof, become entitled to receive shares of the capital stock of Precision Auto
Care in exchange for all of his shares of the capital stock of the Company in
connection with the merger of a subsidiary corporation of Precision Auto Care
with and into the Company; and
WHEREAS, the Company is engaged in the businesses of owning and
operating a chain of car washes in the Columbus, Ohio area; and
WHEREAS, pursuant to the closing of the transactions contemplated by
the Plan of Reorganization, Precision Auto Care has acquired, in addition to all
of the issued and outstanding capital stock of the Company, all of the issued
and outstanding shares of the capital stock and membership interests of certain
of the other parties to the Plan of Reorganization, some of which also are
engaged in the business of owning and operating car wash businesses in other
areas of the United States; and
WHEREAS, an essential component of the business plan of Precision Auto
Care is to engage in the businesses of owning, operating, buying, developing and
franchising car wash centers throughout the world; and
WHEREAS, prior to the closing of the transactions contemplated by the
Plan of Reorganization, the Former Stockholder served in managerial and
executive capacities for the Company; and
WHEREAS, an important part of his duties with the Company was to
develop goodwill for the Company through his personal contact with others having
business relationships with the Company, such that there is a significant risk
that this goodwill, a proprietary interest of the Company, may be lost if the
Former Stockholder were to compete with the Company; and
WHEREAS, the Former Stockholder also has gained and developed
specialized knowledge and information concerning the business of the Company as
a result of his employment by the Company, which, if disclosed or used in
competition with the Company could cause irreparable harm and substantial damage
to the Company;
- 1 -
<PAGE>
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the receipt and sufficiency of which
consideration are hereby acknowledged, the Former Stockholder hereby covenants
and agrees in favor of Precision Auto Care and the Company as follows:
1. Competition. For a period of four (4) years commencing on the date
of this Agreement, the Former Stockholder shall not, except (a) on behalf or as
a franchisee of Precision Auto Care and its presently existing and hereafter
created subsidiaries and affiliated companies) (collectively, the "Precision
Auto Care Group"), or (b) for the Former Stockholder's ownership and operation
of a car wash center located at Main and Cook Streets, Mansfield, Ohio,
indirectly, own, manage, operate, join or control, or participate in the
ownership, management, operation or control of, or be a proprietor, director,
officer, stockholder, member, partner or an employee or agent of, or a
consultant to, any business, firm, corporation, partnership or other entity
which engages in any of the following businesses: (a) owning or operating car
wash centers except those franchised by the Precision Auto Care Group within 5
miles of a car wash center owned or operated by the Company as of the date
hereof; or (b) franchising a system for the operation of car wash centers
anywhere in the world.
2. Solicitations of Employees. For a period of four (4) years
commencing on the date of this Agreement, the Former Stockholder shall not,
directly or indirectly, for his own account or as a proprietor, stockholder,
partner, director, officer, employee, agent or otherwise for or on behalf of any
person, business, firm, corporation, partnership or other entity other than the
Precision Auto Care Group solicit any employee of the Company (other than Patty
Hamilton) for employment with any person, business, firm, corporation,
partnership or other entity other than a member of the Precision Auto Care Group
or hire any employee of the Company either directly or for or on behalf of any
person, business, firm, corporation, partnership or other entity other than a
member of the Precision Auto Care Group.
3. Confidential Information. From and after the date of this Agreement,
the Former Stockholder shall not at any time, directly or indirectly, disclose
to, or use for the benefit of, any person, business, firm, corporation,
partnership or other entity other than a member of the Precision Auto Care Group
or any franchisee thereof any confidential or proprietary information concerning
the Company or its business, suppliers or customers. All information, whether
written or otherwise, regarding the business of the Company, including but not
limited to, information regarding customers, customer lists, customer leads,
costs, prices, earnings, systems, operating or marketing procedures, prospective
and executed contracts and other business arrangements, and sources of supply
are presumed to be confidential and proprietary information for purposes of this
Agreement.
4. Cumulative Provisions. The covenants and agreements contained in
this Agreement are independent of each other and cumulative.
5. Acknowledgments. The Former Stockholder acknowledges the broad scope
of the covenants contained in this Agreement, but agrees that such covenants are
reasonable in light of the scope of the business of the Precision Auto Care
Group and the consideration received by him pursuant to closing of the
transactions contemplated by the terms of the Plan of Reorganization. The
Former Stockholder further acknowledges and agrees that the covenants contained
in this Agreement do not
- 2 -
<PAGE>
unreasonably restrict his employment opportunities or unduly burden or deprive
him of a means of earning a livelihood.
6. Recitals. The recitals set forth above constitute and are an
integral part of this Agreement and are incorporated herein by this reference.
7. Binding Effect; Third Party Beneficiaries. The provisions of this
Agreement shall inure to the benefit of each member of the Precision Auto Care
Group. The provisions of this Agreement shall be binding upon the Former
Stockholder, his heirs, personal representatives, successors and assigns. The
Former Stockholder acknowledges and agrees that each of the members of the
Precision Auto Care Group are intended to be beneficiaries of the covenants and
agreements made by him herein, even though not named herein, and that each
member of the Precision Auto Care Group shall have the right to exercise all
remedies available to Precision Auto Care and the Company under the terms hereof
in the event of any breach or threatened breach by the Former Stockholder of the
covenants and agreements made by him herein.
8. Remedies for Breach. The Former Stockholder further acknowledges and
agrees that his obligations under this Agreement are unique and that any breach
or threatened breach of such obligations may result in irreparable harm and
substantial damages to the Precision Auto Care Group. Accordingly, in the event
of a breach or threatened breach by the Former Stockholder of any of the
provisions of this Agreement, any member of the Precision Auto Car Group
(including Precision Auto Care and the Company) shall have the right, in
addition to exercising any other remedies at law or equity which may be
available to it under the Plan or Reorganization or otherwise, and
notwithstanding the provisions of Article XXI of the Plan of Reorganization, to
obtain ex parte, preliminary, interlocutory, temporary or permanent injunctive
relief, specific performance and other equitable remedies in any court of
competent jurisdiction to prevent the Former Stockholder from violating such
provision or provisions or to prevent the continuance of any violation thereof,
together with an award or judgment for any and all damages, losses, liabilities,
expenses and costs incurred by the Precision Auto Care Group as a result of such
breach or threatened breach including, but not limited to, attorneys' fees
incurred by the Precision Auto Care Group in connection with, or as a result of,
the enforcement of this Agreement (it being the intent of the Former Stockholder
that the obligations set forth herein and the rights and remedies provided to
the Precision Auto Care Group hereunder shall be independent of the obligations,
rights and remedies provided for or set forth in the Plan of Reorganization).
The Former Stockholder expressly waives any requirement based on any statute,
rule or procedure, or other source, that any member of the Precision Auto Care
Group post a bond as a condition of obtaining any of the above described
remedies.
9. Assignment. The Former Stockholder may not assign this Agreement or
delegate any duties or obligations arising under this Agreement without the
prior written consent of Precision Auto Care.
10. Divisibility. The Former Stockholder agrees that the provisions of
this Agreement are divisible and separable so that if any provision or
provisions hereof shall be held to be unreasonable, unlawful or unenforceable,
in whole or in part, such holding shall not impair or affect any of the
remaining provisions hereof. If any provision hereof is held to be unreasonable,
unlawful or unenforceable, in whole or in part, in duration, geographical scope
or character of restriction by any court of competent
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jurisdiction, such provision shall be modified to the extent necessary in order
that any such provision or portion thereof shall be legally enforceable to the
fullest extent permitted by law, and the parties hereto do hereby expressly
authorize any court of competent jurisdiction to enforce any such provision or
portion thereof or to modify any such provision or portion thereof in order that
any such provision or portion thereof shall be enforced by such court to the
fullest extent permitted by applicable law.
11. Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties hereto with respect to the matters set forth
herein, and all prior negotiations, writings and understandings relating to the
subject matter of this Agreement are merged herein and are superseded and
canceled by this Agreement.
12. Waiver. This Agreement and the provisions hereof may be amended,
modified or supplemented in whole or in part only by a written instrument making
specific reference to this Agreement and executed by Precision Auto Care and the
Former Stockholder. No waiver of any provision of this Agreement shall be valid
unless in writing, making express reference to this Agreement, and signed by the
person against whom enforcement of such waiver is sought. The failure of
Precision Auto Care or any other member of the Precision Auto Care Group at any
time to insist upon strict performance of any provision hereof shall not be
construed as a waiver or relinquishment of the right to insist upon strict
performance of the same provision at any future time.
13. Law And Interpretation. This Agreement shall be governed by,
construed, interpreted and enforced in accordance with the laws of the
Commonwealth of Virginia. With respect to each and every term and condition in
this Agreement, the parties 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. [For former stockholders to be employed by Precision Auto Care
only: Nothing contained herein shall be construed or interpreting as limiting or
modifying in any respect any of the terms or provisions of that certain
Employment Agreement dated of even date herewith by and between the Former
Stockholder and Precision Auto Care].
14. Headings. The headings of this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning or
interpretation of any of the provisions of this Agreement.
16. Counterparts. This Agreement may be executed in multiple
counterparts and originals, all of which shall be deemed to be originals hereof
for all purposes, but all of which taken together shall be one and the same
instrument.
IN WITNESS WHEREOF, the Former Stockholder has executed this Agreement,
intending it to constitute an instrument under seal, on the day and year first
above written.
WITNESS:
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___________________________ _______________________________(SEAL)
C. Eugene Deal
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APPENDIX E
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
(section mark) 262 Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to
(section mark) 228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (section mark) 251 (other than a merger effected pursuant
to (section mark) 2Sl(g) of this title), (section mark) 252, (section mark) 254,
(section mark) 257, (section mark) 258, (section mark) 263 or (section mark) 264
of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) HELD
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (section mark) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(section mark)(section mark) 251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof; b.
Shares of stock of any other corporation, or depository receipts in respect
thereof, which shares of stock or depository receipts at the effective date
of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu
of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a. and b. of this paragraph; or d. Any combination
of the shares of stock, depository receipts and cash in lieu of fractional
shares or fractional depository receipts described in the foregoing
subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (section mark) 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares
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of the constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on
the merger or consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
(section mark) 228 or (section mark) 253 of this title, each constituent
corporation, either before the effective date of the merger or
consolidation or within ten days thereafter, shall notify each of the
holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice
is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all
such holders of any class or series of stock of a constituent corporation
that are entitled to appraisal rights. Such notice may, and, if given on or
after the effective date of the merger or consolidation, shall, also notify
such stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the Surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation.
Within 120 days after the effective date of the merger or consolidation,
any stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
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hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the Stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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APPENDIX F
SECTION 1701.85 OF THE OHIO GENERAL CORPORATION LAW
1701.85 QUALIFICATIONS OF AND PROCEDURES FOR DISSENTING SHAREHOLDERS
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (AX2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is
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required to be made in other cases. On the day fixed for the hearing on the
complaint or any adjournment of it, the court shall determine from the complaint
and from such evidence as is submitted by either party whether the dissenting
shareholder is entitled to be paid the fair cash value of any shares and, if so,
the number and class of such shares. If the court finds that the dissenting
shareholder is so entitled, the court may appoint one or more persons as
appraisers to receive evidence and to recommend a decision on the amount of the
fair cash value. The appraisers have such power and authority as is specified in
the order of their appointment. The court thereupon shall make a finding as to
the fair cash value of a share and shall render judgment against the corporation
for the payment of it, with interest at such rate and from such date as the
court considers equitable. The costs of the proceeding, including reasonable
compensation to the appraisers to be fixed by the court, shall be assessed or
apportioned as the court considers equitable. The proceeding is a special
proceeding and final orders in it may be vacated, modified, or reversed on
appeal pursuant to the Rules of Appellate Procedure and, to the extent not in
conflict with those rules, Chapter 2505. of the Revised Code. If, during the
pendency of any proceeding instituted under this section, a suit or proceeding
is or has been instituted to enjoin or otherwise to prevent the carrying out of
the action as to which the shareholder has dissented, the proceeding instituted
under this section shall be stayed until the final determination of the other
suit or proceeding. Unless any provision in division (D) of this section is
applicable, the fair cash value of the shares that is agreed upon by the parties
or fixed under this section shall be paid within thirty days after the date of
final determination of such value under this division, the effective date of the
amendment to the articles, or the consummation of the other action involved,
whichever occurs last. Upon the occurrence of the last such event, payment shall
be made immediately to a holder of uncertificated securities entitled to such
payment. In the case of holders of shares represented by certificates, payment
shall be made only upon and simultaneously with the surrender to the corporation
of the certificates representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be willing to accept and that a willing
buyer who is under no compulsion to purchase would be willing to pay, but in no
event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the
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shares by the corporation, all rights of the holder shall be restored and all
distributions which, except for the suspension, would have been made shall be
made to the holder of record of the shares at the time of termination.
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APPENDIX G
ARTICLE 113 OF THE COLORADO BUSINESS CORPORATION ACT
(SECTION MARK) 7-113-101. DEFINITIONS
For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section
7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
(SECTION MARK) 7-113-102. RIGHT TO DISSENT
(1) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event of
any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if:
(I) Approval by the shareholders of that corporation is required
for the merger by section 7-111-103 or 7-111-104 or by the articles of
incorporation; or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for which a
shareholder vote is required under section 7-112-102(1); and
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled by the
corporation if the shareholders of the corporation were entitled to vote
upon the consent of the corporation to the disposition pursuant to section
7-112-102(2).
(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class or
series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934," as amended, 15
U.S.C.A (section mark)78a et seq., or on the national market system of the
national association of securities dealers automated quotation system, or were
held of record by more than two thousand shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders' meeting at
which the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine
shareholders entitled to sign writings consenting to the corporate action;
or
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(c) The effective date of the corporate action if the corporate action
is authorized other than by a vote of shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall
not apply if the shareholder will receive for the shareholder's shares, pursuant
to the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan
of merger or share exchange;
(b) Shares of any other corporation which at the effective date of the
plan of merger or share exchange either will be listed on a national
securities exchange registered under the federal "Securities Exchange Act
of 1934," as amended, 15 U.S.C. (section mark)78(a), et seq., or on the
national market system of the national association of securities dealers
automated quotation system, or will be held of record by more than two
thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu
of fractional shares.
(2) Deleted by Laws 1996, H.B.96-1285, (section mark) 30, eff. June 1,
1996.
(2.5) A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the fair value of the shareholder's shares in the
event of a reverse split that reduces the number of shares owned by the
shareholder to a fraction of a share or to scrip if the fractional share or
scrip so created is to be acquired for cash or the scrip is to be voided under
section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
(SECTION MARK) 7-113-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and causes the corporation to receive written notice which states such
dissent and the name, address, and federal taxpayer identification number, if
any, of each person on whose behalf the record shareholder asserts dissenters'
rights. The rights of a record shareholder under this subsection (1) are
determined as if the shares as to which the record shareholder dissents and the
other shares of the record shareholder were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
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PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
(SECTION MARK) 7-113-201. NOTICE OF DISSENTERS' RIGHTS
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting, the notice
of the meeting shall be given to all shareholders, whether or not entitled to
vote. The notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and shall be accompanied by a copy of this
article and the materials, if any, that, under articles 101 to 117 of this
title, are required to be given to shareholders entitled to vote on the proposed
action at the meeting. Failure to give notice as provided by this subsection (1)
shall not affect any action taken at the shareholders' meeting for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202(1).
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to execute
a writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any action taken pursuant to section 7-107-104 for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202(2).
(SECTION MARK) 7-113-202. NOTICE OF INTENT TO DEMAND PAYMENT
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting and if
notice of dissenters' rights has been given to such shareholder in connection
with the action pursuant to section 7-113-201(1), a shareholder who wishes to
assert dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken,
written notice of the shareholder's intention to demand payment for the
shareholder's shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104 and if notice of dissenters' rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201(2) a
shareholder who wishes to assert dissenters' rights shall not execute a writing
consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
(SECTION MARK) 7-113-203. DISSENTERS' NOTICE
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized, the corporation shall give a written
dissenters' notice to all shareholders who are entitled to demand payment for
their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for certificated
shares must be deposited;
(c) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
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<PAGE>
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date shall not be
less than thirty days after the date the notice required by subsection (1)
of this section is given;
(f) State the requirement contemplated in section 7-113-103(3), if
such requirement is imposed; and
(g) Be accompanied by a copy of this article.
(SECTION MARK) 7-113-204. PROCEDURE TO DEMAND PAYMENT
(1) A shareholder who is given a dissenters' notice pursuant to section
7-113-203 and who wishes to assert dissenters' rights shall, in accordance with
the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may be
the payment demand form contemplated in section 7-113-203(2)(d), duly
completed, or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the right
to receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209(1)(b), the demand
for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
(SECTION MARK) 7-113-205. UNCERTIFICATED SHARES
(1) Upon receipt of a demand for payment under section 7-113-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
(SECTION MARK) 7-113-301. COURT ACTION
(1) If a demand for payment under section 7-113-209 remains unresolved, the
corporation may, within sixty days after receiving the payment demand, commence
a proceeding and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay to each dissenter whose demand remains
unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state where the
corporation's principal office is located or, if the corporation has no
principal office in this state, in the district court of the county in which its
registered office is located. If the corporation is a foreign corporation
without a registered office, it shall commence the proceeding in the county
where the registered office of the domestic corporation merged into, or whose
shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding commenced
under subsection (2) of this section as in an action against their shares, and
all parties shall be served with a copy of the petition, Service on each
dissenter shall be by registered or certified mail, to the address stated in
such dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to such order. The parties to
the proceeding are entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if any,
by which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount
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<PAGE>
paid by the corporation, or for the fair value, plus interest, of the
dissenter's shares for which the corporation elected to withhold payment under
section 7-113-208.
(SECTION MARK) 7-113-302. COURT COSTS AND COUNSEL FEES
(1) The court in an appraisal proceeding commenced under section 7-113-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation; except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the
court finds the corporation did not substantially comply with the
requirements of part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor
of any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefitted.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement among Precision Auto Care, Inc., A.G. Edwards & Sons, Inc. and Ferris, Baker Watts,
Incorporated.*
2.1 Plan of Reorganization and Agreement for the Combination of Businesses dated as of August 27, 1997 by and among
Precision Auto Care, Inc., 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
is hereby incorporated by reference from the Company's Registration Statement on Form S-1 as filed with the Commission
on even date herewith.
3.1 Certificate of Incorporation of Precision Auto Care, Inc., together with all certificates amendatory thereof filed with
the Secretary of State of Virginia through the date hereof is hereby incorporated by reference from the Company's
Registration Statement on Form S-1 as filed with the Commission on even date herewith.
3.2 By-Laws of Precision Auto Care, Inc., as amended through the date hereof is hereby incorporated by reference from the
Company's Registration Statement on Form S-1 as filed with the Commission on even date herewith.
4.1 Form of stock certificate.*
5 Opinion of Miles & Stockbridge, a Professional Corporation.*
8 Opinion of Ernst & Young LLP as to tax matters.*
10.1 WE JAC Corporation 1996 Stock Option Plan is hereby incorporated by reference from the Company's Registration Statement
on Form S-1 as filed with the Commission on even date herewith.
10.2 WE JAC Corporation 1997 Employee Stock Purchase Plan is hereby incorporated by reference from the Company's Registration
Statement on Form S-1 as filed with the Commission on even date herewith.
10.3 Precision Auto Care 1997 Stock Option Plan is hereby incorporated by reference from the Company's Registration Statement
on Form S-1 as filed with the Commission on even date herewith.
10.4 Employment Agreement between Precision Auto Care, Inc. and John F. Ripley.*
10.5 Employment Agreement between Precision Auto Care, Inc. and James A. Hay is hereby incorporated by reference from the
Company's Registration Statement on Form S-1 as filed with the Commission on even date herewith.
10.6 Employment Agreement between Precision Auto Care, Inc. and William Klumb.*
10.7 Employment Agreement between Precision Auto Care, Inc. and Arnold Janofsky is hereby incorporated by reference from the
Company's Registration Statement on Form S-1 as filed with the Commission on even date herewith.
10.8 Employment Agreement between Precision Auto Care, Inc. and Grant G. Nicolai is hereby incorporated by reference from the
Company's Registration Statement on Form S-1 as filed with the Commission on even date herewith.
10.9 Employment Agreement between Precision Auto Care, Inc. and Peter Kendrick is hereby incorporated by reference from the
Company's Registration Statement on Form S-1 as filed with the Commission on even date herewith.
</TABLE>
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<TABLE>
<S> <C>
10.10 Consulting Agreement between Precision Auto Care, Inc. and Ernie 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.
99.1 Form of Proxy for Holders of Common Stock of WE JAC Corporation.*
99.2 Form of Proxy for Holders of Common Stock of Miracle Industries, Inc.*
99.3 Form of Proxy for Holders of Common Stock of Lube Ventures, Inc.*
99.4 Form of Proxy for Holders of Common Stock of Rocky Mountain Ventures, Inc.*
99.5 Form of Proxy for Holders of Common Stock for Rocky Mountain Ventures II, Inc.*
99.6 Form of Proxy for Holders of Common Stock of Miracle Partners.*
99.7 Form of Prema Properties, Ltd. Letter of Transmittal.*
99.8 Form of Ralston Car Wash, Ltd. Letter of Transmittal.*
99.9 Form of KBG, LLC Letter of Transmittal.*
99.10 Form of Selling Shareholder Notice/Questionnaire/Power of Attorney.*
</TABLE>
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
Proxy Statement/Prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering Proxy
Statement/Prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
2. The registrant undertakes that every Proxy Statement/Prospectus (i) that
is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, 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 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 Act and will be governed by the final adjudication of
such issue.
4. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
5. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
6. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration Statement:
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<PAGE>
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that paragraphs (a)(1) (i) and (a)(1) (ii) of this section do
not apply if the registration statement is on Form S-3, Form S-8 or Form F-3,
and the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference into the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To supply by means of a post-effective amendment all information
concerning any transaction, any company being acquired involved therein, which
is not the subject of and included in the registration statement when it became
effective.
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<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 August 27, 1997
- --------------------------------------------- Officer and Director
JOHN F. RIPLEY
/s/ Peter Kendrick Senior Vice President and August 27, 1997
- --------------------------------------------- Chief Financial Officer
PETER KENDRICK (Principal Financial and
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
Director August 27, 1997
- ---------------------------------------------
RICHARD O. JOHNSON
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
* 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>
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S-4 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 Proxy Statement of
Precision Auto Care, Inc. that is made a part of the Registration Statement
(Form S-4 dated on or about August 27, 1997) and Prospectus of Precision Auto
Care, Inc. for the registration of 2,780,695 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 Proxy Statement of Precision
Auto Care, Inc. that is made a part of the Registration Statement (Form S-4
dated on or about August 27, 1997) and Prospectus of Precision Auto Care, Inc.
for the registration of 2,780,695 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 Proxy Statement of Precision Auto
Care, Inc. that is made a part of the Registration Statement (Form S-4 dated on
or about August 27, 1997) and Prospectus of Precision Auto Care, Inc. for the
registration of 2,780,695 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 Proxy Statement of Precision Auto Care,
Inc. that is made a part of the Registration Statement (Form S-4 dated on or
about August 27, 1997) and Prospectus of Precision Auto Care, Inc. for the
registration of 2,780,695 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 21, 1997 with respect to the financial statements
of Prema Properties, Ltd., included in the Proxy Statement of Precision Auto
Care, Inc. that is made a part of the Registration Statement (Form S-4 dated on
or about August 27, 1997) and Prospectus of Precision Auto Care, Inc. for the
registration of 2,780,695 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 Miracle Partners, Inc., included in the Proxy Statement of Precision Auto
Care, Inc. that is made a part of the Registration Statement (Form S-4 dated on
or about August 27, 1997) and Prospectus of Precision Auto Care, Inc. for the
registration of 2,780,695 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 28, 1997 with respect to the financial statements
of Rocky Mountain Ventures, Inc., included in the Proxy Statement of Precision
Auto Care, Inc. that is made a part of the Registration Statement (Form S-4
dated on or about August 27, 1997) and Prospectus of Precision Auto Care, Inc.
for the registration of 2,780,695 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 April 7, 1997 with respect to the financial statements
of Rocky Mountain Ventures II, Inc., included in the Proxy Statement of
Precision Auto Care, Inc. that is made a part of the Registration Statement
(Form S-4 dated on or about August 27, 1997) and Prospectus of Precision Auto
Care, Inc. for the registration of 2,780,695 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 28, 1997 with respect to the financial statements
of Ralston Car Wash, Ltd., included in the Proxy Statement of Precision Auto
Care, Inc. that is made a part of the Registration Statement (Form S-4 dated on
or about August 27, 1997) and Prospectus of Precision Auto Care, Inc. for the
registration of 2,780,695 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-4 (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 27, 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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