UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _________________
Commission file number 1-14510
PRECISION AUTO CARE, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1847851
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
748 Miller Drive, S.E., Leesburg, Virginia 20175
(Address of principal executive offices)
(Zip Code)
703-777-9095
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date 6,120,543
shares of Common Stock as of May 1, 1999.
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Precision Auto Care, Inc.
Index
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Page No.
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Part I. Financial Information
Item 1. Financial Statements 1
General Information 1
Consolidated Balance Sheets at March 31, 1999 and June 30, 1998 2
Consolidated Statement of Operations for the three months and nine 4
months ended March 31, 1999, 1998 and Pro Forma 1998
Consolidated Statement of Cash Flows for the nine months ended 5
March 31, 1999 and 1998
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 11
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II. Other Information 19
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibit Index 23
</TABLE>
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FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934. When used in this report, the words
"anticipate," "believe," "estimate," "expect," "intend" and "plan" as they
relate to Precision Auto Care, Inc. or its management are intended to identify
such forward-looking statements. All statements regarding Precision Auto Care,
Inc. or Precision Auto Care, Inc.'s expected future financial position, business
strategy, cost savings and operating synergies, projected costs and plans, and
objectives of management for future operations are forward-looking statements.
Although Precision Auto Care, Inc. believes the expectations reflected in such
forward-looking statements are based on reasonable assumptions, no assurance can
be given that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the
expectations reflected in the forward-looking statements herein include, among
others, the factors set forth in the Company's 10-K filing for the year ending
June 30, 1998 under the caption "Business -- Risk Factors," general economic and
business and market conditions, changes in federal and state laws, increased
competitive pressure in the automotive after-market services business, and costs
or difficulties relating to the integration of acquired businesses (including
the businesses the Company acquired in connection with its November 1997 initial
public offering), including difficulties in achieving expected cost savings and
operating synergies.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
General Information
Precision Auto Care, Inc. ("Precision Auto Care" or the "Company") is a provider
of automotive maintenance services with franchised and Company-operated centers
located in the United States and in certain international locations. The
Company's services are provided to automobile owners and focus on those high
frequency services required to properly maintain vehicles on a periodic basis.
The Company offers these services through three "Precision" brands that are
intended to be complementary:
o Precision Tune Auto Care provides automotive maintenance services
which require relatively short service times including engine
performance, oil change and lubrication and brake services. At March
31, 1999 these services were provided at 583 Precision Tune Auto Care
centers, four of which are owned and operated by the Company.
o Precision Auto Wash provides self-service and touchless automatic car
wash services. The advanced operating systems used at prototype
Precision Auto Wash centers permit remote monitoring and administration
of operations. The no-touch car wash technology employed in Precision
Auto Wash centers also provides a high-quality wash with less risk of
vehicle damage than traditional car wash systems. At March 31, 1999,
there were 37 Precision Auto Wash centers, 29 of which are owned and
operated by the Company.
o Precision Lube Express provides convenient fast oil change and lube
services. Because Precision Lube Express centers consist of "above
ground" configured modular buildings manufactured and sold by the
Company, operations can commence more quickly and with less capital
investment than is the case for many competitors. At March 31, 1999,
there were 16 Precision Lube Express centers, seven of which are owned
and operated by the Company. As of that date there were also 18 Lube
Depot centers operated by franchisees, some of which are expected to
become Precision Lube Express centers.
The Company supports its franchisees and Company-owned centers by distributing
certain automotive and car washing parts and supplies, and manufacturing and
distributing pre-fabricated modular buildings and car wash equipment and
chemicals.
The Company, a Virginia corporation, was incorporated in April 1997, but through
predecessors has been in the automotive maintenance services business for over
twenty years. The first Precision Tune was established in 1976 to provide quick,
convenient and inexpensive engine tune-ups. Franchising of Precision Tune
centers began the next year. As changes in automotive technology reduced the
need for traditional tune-ups, Precision Tune expanded its menu of offered
automotive maintenance services to include oil changes, fuel injection service,
air conditioning service, cooling system service, brake service and more
diagnostic services. In September 1996, Precision Tune's name was changed to
Precision Tune Auto Care to reflect the shift in emphasis.
The Company is the result of the November 1997 combination of WE JAC Corporation
(the owner of Precision Tune Auto Care) and nine other automotive maintenance
services companies in connection with the Company's initial public offering (the
"IPO Combination"). The nine companies joined with WE JAC Corporation in the IPO
Combination were: Miracle Industries, Inc.; Lube Ventures, Inc.; Rocky Mountain
Ventures, Inc.; Rocky Mountain Ventures II, Inc.; Prema Properties, Ltd.;
Miracle Partners, Inc.; Ralston Car Wash Ltd.; KBG, LLC and Worldwide Drying
Systems, Inc. (referred to individually as a "Predecessor Company" or
collectively, the "Predecessor Companies"). With the IPO Combination, the
"Precision" family of brands was expanded to include car wash and quick oil
change and lube services. In March 1998, the Company acquired Promotora de
Francquicias Praxis S.A. de C.V., previously a holder of a master franchise
agreement for Precision Tune Auto Care in Mexico and Puerto Rico.
Precision Auto Care, Inc. and Subsidiaries
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Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
March 31,
1999 June 30,
(Unaudited) 1998
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ASSETS
Current assets:
Cash and cash equivalents $78 $2,070
Accounts receivable, net 5,697 9,050
Inventory 4,461 4,202
Notes receivable, current portion, net of allowance 196 1,520
Prepaid expenses 793 2,217
Prepaid and deferred income taxes 2,793 722
------ ------
Total current assets 14,018 19,781
Notes receivable, non-current portion, net of allowance - 654
Property, plant and equipment, at cost 21,177 20,978
Less accumulated depreciation (2,740) (1,678)
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18,437 19,300
Goodwill and other intangibles, net of accumulated 44,824 45,632
amortization
Deposits, trademarks and other assets 313 1,182
------- -------
Total assets $77,592 $86,549
======= =======
</TABLE>
See accompanying notes to financial statements.
2
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Precision Auto Care, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
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<CAPTION>
March 31,
1999 June 30,
(Unaudited) 1998
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LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $8,366 $9,336
Revolving line of credit 4,150
Current maturities, term loan 4,500 2,353
Current maturities, notes payable 626 1,061
Deferred revenue, current portion 807 963
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Total current liabilities 18,449 13,713
Revolving line of credit, net of current portion 2,109 10,333
Term loan, net of current portion 5,424 9,045
Notes payable, net of current portion 2,000 1,471
Notes payable to related parties 7,000
Deferred revenue, net of current portion 612 393
Other liabilities 1,873 639
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Total liabilities 37,467 35,594
Stockholders' equity:
Common stock, $0.01 par 61 61
Additional paid-in capital 45,683 45,683
Retained earnings (5,705) 5,211
Foreign currency translation adjustment 86 ---
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Total stockholders' equity 40,125 50,955
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Total liabilities and stockholders' equity $77,592 $86,549
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</TABLE>
See accompanying notes to financial statements.
3
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Precision Auto Care, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In Thousands Except Per Share Amounts)
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<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
1999 1998 1999 1998 1998
Actual Actual Actual Actual Pro Forma
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- ----------- -----------
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Sales:
Franchise development $ 273 $453 $715 $983 $985
Royalties 3,313 3,440 10,468 10,752 10,756
Manufacturing & distribution 5,238 5,497 16,621 13,975 18,816
Company centers 1,899 1,456 5,498 2,165 3,517
Other 24 157 144 273 273
-------- ---- --------- ------ ------
Total sales 10,747 11,003 33,446 28,148 34,347
Direct cost 8,880 8,015 28,813 19,942 24,449
-------- ---- --------- ------ ------
Contribution 1,867 2,988 4,633 8,206 9,898
General and administrative expense 3,117 885 8,098 2,706 3,050
Depreciation expense 283 170 1,150 565 761
Amortization of franchise rights & goodwill 526 433 1,567 813 1,056
Loss on sale of assets --- --- 710 --- ---
-------- ---- --------- ------ ------
Operating income (loss) (2,059) 1,500 (6,892) 4,122 5,031
Interest expense (945) (238) (2,059) (730) (483)
Interest income 144 40 244 136 121
Other income (expense) (2,744) (68) (3,796) (32) (37)
-------- ---- --------- ------ ------
Income (loss) before income taxes (5,604) 1,234 (12,503) 3,496 4,632
Provision for income tax expense (benefit) --- 615 (1,587) 1,656 2,194
-------- ---- --------- ------ ------
Net income (loss) ($5,604) $619 ($10,916) $1,840 $2,438
======== ==== ========= ====== ======
Basic net income (loss) per share ($0.92) $0.11 ($1.79) $0.51 $0.45
Diluted net income (loss) per share ($0.92) $0.11 ($1.79) $0.50 $0.44
Weighted avg. shares outstanding - basic 6,121 5,481 6,121 3,609 5,470
Weighted avg. shares outstanding - diluted 6,121 5,549 6,121 3,655 5,516
</TABLE>
See accompanying notes to financial statements.
4
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Precision Auto Care, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1999 1998
(Unaudited) (Unaudited)
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Cash flow from operating activities:
Net income (loss) ($10,916) $1,840
Adjustments to reconcile net income to net cash
flow from operating activities
Depreciation and amortization 2,717 1,378
Deferred income taxes (2,071) ---
Severance accrual 1,153 ---
Loss (gain) on sale of assets 710 (29)
Foreign currency translation adjustment 86 ---
Changes in operating assets and liabilities:
Accounts and notes receivable, net 5,332 (3,858)
Inventory (260) (774)
Prepaid expenses 1,424 (644)
Accounts payable and accrued liabilities (2,124) 463
Income taxes payable 391
Other operating assets and liabilities 2,166 80
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Net cash provided by operating activities (1,783) (1,153)
Cash flow from investing activities:
Purchases of property and equipment (1,787) (1,409)
Proceeds from sale of assets 3,727 127
Purchase of franchise agreements and rights (3,695) (582)
Acquisition of businesses --- (19,859)
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Net cash used in investing activities (1,755) (21,723)
Cash flow from financing activities:
Issuance of common stock net of transaction costs --- 19,670
Proceeds from term loan and line of credit --- 15,885
Proceeds from note payable 7,000 (9,778)
Repayments of long-term debt and notes payable (5,454)
Payment of cash dividend (361)
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Net cash provided by (used in) financing activities 1,546 25,416
------- ------
Net change in cash and cash equivalents (1,992) 2,540
Cash and cash equivalents at beginning of year 2,070 577
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Cash and cash equivalents at end of the period $78 $3,117
======= ======
</TABLE>
See accompanying notes to financial statements.
5
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Precision Auto Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the three and nine months ended March 31, 1999
(Unaudited)
NOTE 1. BUSINESS AND ORGANIZATION
Precision Auto Care, Inc. (the Company) began business operations upon
completion of its November 1997 Initial Public Offering (IPO) of common stock.
Concurrent with the IPO, ten companies were combined to create Precision Auto
Care. All of the combining companies had conducted business operations prior to
the IPO. The financial statements presented herein for the period ending March
31, 1998 have been prepared based in part on the historical financial statements
of WE JAC Corporation, which was deemed to be the accounting acquirer of the
remaining combining companies for financial reporting purposes. The Company has
made several other acquisitions subsequent to the IPO. The Company conducts
substantially all of its operations through its subsidiaries.
The accompanying financial statements are unaudited, and certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
Significant intercompany accounts and transactions have been eliminated in
consolidation. The statements have been prepared in the ordinary course of
business for the purpose of providing information with respect to the interim
periods, and are subject to audit at the end of the fiscal year. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments
necessary to fairly present the financial position of the Company, results of
operations and cash flows with respect to the interim financial statements, have
been included. The interim condensed consolidated financial statements should be
read in conjunction with the Company's June 30, 1998 and 1997 audited financial
statements included with the Company's filing on Form 10K. The results for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries and divisions, Precision Tune Auto
Care, Inc., HydroSpray Car Wash Equipment Co., Ltd., Precision Building
Solutions Incorporated, Car Wash Division (comprised of companies formerly known
as Prema Properties, Ltd., Miracle Partners, Inc., Rocky Mountain Ventures,
Inc., Rocky Mountain Ventures II, Ralston Car Wash Ltd.), National Auto
Chemical, Worldwide Drying Systems, Inc., Indy Ventures, Inc. and Promotora de
Francquicias Praxis, S.A. de C.V., ("Praxis") (a Mexican corporation.)
Currency Translation
The U.S. dollar is the functional currency for all the Company's consolidated
operations, including its Mexican subsidiary whose economic environment is
highly inflationary. All gains and losses from currency translation are
included in earnings.
Revenue Recognition
Revenue from the sale of parts is recognized when the parts are shipped from the
Company's warehouse. Revenue from the sale of modular automobile lubrication
units is recognized when such units have been shipped to customers and the
Company has performed on all obligations related to the sale, such as
installation and assistance with site development.
The Company's royalty revenues are recognized as earned and in accordance with
specific terms of each franchise agreement. At the end of each accounting
period, royalty revenue estimates are made for the franchisee's revenues earned
but not yet reported. The royalty accrual is reestimated each period and takes
into account differences between franchisee's reported and estimated revenues.
6
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Revenue from the sale of a franchise is recognized 50% at the time of sale and
50% upon the opening of the franchised center.
The Company enters into domestic Area Representative Agreements and
international Master License Agreements (Agreements) which grant the area
representative and master licensor, respectively, the right to sell, on the
Company's behalf, Precision Tune Auto Care franchises, Precision Auto Wash
franchises and Precision Lube Express franchises within a specific geographic
region. Revenue from the sale of area representative 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 franchises opened. Revenue from the sale of master license rights,
for geographic areas outside the U.S., is recognized upon signing the Agreement
because the Company is not required to support the international franchises as
there is no contractual agreement between the Company and the international
franchisees.
Revenues from automobile oil change, lubrication and wash services are generally
paid in cash and are recognized at the time of service.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid instruments with
original maturities of three months or less.
Inventory
Inventory is stated at cost, which is lower than market. The cost of auto parts
inventory is determined by the "moving average" method. The cost of modular
automotive lubrication units, car wash equipment, and car wash supplies is
determined by the first-in, first-out (FIFO) 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 11-30
Furniture and fixtures 5-7
Equipment 7-10
Other items 5-7
Goodwill and Other Intangible Assets
Purchase price in excess of the fair market value of net assets acquired is
included in goodwill/franchise rights. Franchise rights held by one of the
Company's predecessors are being amortized over 30 years on a straight line
basis. Goodwill related to the Company's acquisitions is being amortized on a
straight line basis over 30 years. Certain other intangibles, including
covenants not to compete and consulting agreements, are amortized on a straight
line basis over periods ranging from six months to two years.
The Company occasionally repurchases franchise rights. The lower of the cost or
fair market value of repurchased franchise rights is also included in goodwill
and other intangibles. 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 amortizes
the repurchased franchise rights over the remaining terms of the franchise
agreements on a straight line basis.
Income Taxes
7
<PAGE>
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.
The companies combining at the time of the IPO filed final individual federal
tax returns for the period ending November 12, 1997. For the year ended June 30,
1998, the Company filed a consolidated federal income tax return. For financial
reporting purposes, the Company computes its federal and state income taxes on a
separate company basis.
Impairment of Long-Lived Assets
The Company evaluates the carrying amount of long-lived assets to be held and
used, including goodwill, franchise rights and other intangible assets, when
events and circumstances warrant such a review. The carrying amount of a
long-lived asset is considered impaired when the estimated undiscounted cash
flow from each asset is less than its carrying amount. In that event, the
Company would record a loss equal to the amount by which the carrying amount
exceeds the fair market value of the long-lived asset. Fair market value would
be determined primarily using the estimated cash flows discounted at a rate
consistent with the risk involved.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, trade accounts
receivable and notes receivable. The Company's cash is held at what management
believes to be stable financial institutions. The trade receivable balances are
dispersed among a wide customer and franchisee base. The Company routinely
assesses the financial strength of its customers. The Company maintains reserves
for credit losses, and such losses have been within management's expectations.
All of the Company's assets are located in the United States, except trade
receivables of $1.4 million, inventory of $453,000, property and equipment of
$460,000, and capitalized franchise rights of $570,000, which are located in
Mexico.
Earnings Per Share
In February 1997, the Financial Accounting Standards Boards (FASB) issued SFAS
No. 128, "Earnings Per Share," which became effective for reporting periods
ending after December 15, 1997. The Company has disclosed basic and diluted
earnings per share for all periods presented in accordance with this standard.
Comprehensive Income
Effective for the fiscal year ended June 30, 1999, the Company will adopt SFAS
No. 130, "Reporting Comprehensive Income." SFAS 130 requires that an enterprise
classify items of other comprehensive income by their nature and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid in capital. The Company will be required to restate
earlier periods provided for comparative purposes, but does not believe the
adoption of SFAS 130 will be material to the Company's financial statements.
Business Segments
Effective for the fiscal year ended June 30, 1999, the Company will adopt SFAS
No. 131, "Disclosure about Segments of an Enterprise and Related Information."
The Company is reviewing the requirements of this statement and believes that it
will require some additional disclosure. This statement does not impact the
basic consolidated financial statements; it only affects the nature, extent and
presentation of segment information in the notes to the consolidated financial
statements.
8
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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.
Stock Based Compensation
The Company applies Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for stock options and presents in Note 12 pro forma net income and
earnings per share data as if the accounting prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" had been applied.
Other
The Company was established to create an international provider of automotive
services which are offered principally as franchise operations marketed under
the "Precision" brand name. On November 12, 1997, PAC acquired the Predecessor
Companies for consideration consisting of common stock. The closing of the
Offering also occurred on that date.
For financial statement purposes, WEJAC, one of the Predecessor Companies, has
been identified as the accounting acquirer. Accordingly, the historical
financial statements represent those of WEJAC prior to the Combination and the
Offering. The Combination was accounted for using the purchase method of
accounting. Allocations of the purchase price to the assets acquired and
liabilities assumed of the Predecessor Companies have been initially assigned
and recorded based on the fair market value at the time of the Combination and
may be revised as additional information concerning the valuation of such assets
and liabilities becomes available.
The interim financial statements for the three month and nine month periods
ended March 31, 1998 and 1999 are unaudited, and certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments necessary to fairly present the financial position of the company,
results of operations and cash flows with respect to the interim financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.
NOTE 3. CREDIT FACILITY AND LONG-TERM DEBT
On November 12, 1997, the Company entered into a $25 million Loan and Security
Agreement (the Loan Agreement) with its primary lender (the Lender). The loan is
a combination of a Line of Credit Loan, which may not exceed $11 million, and an
Acquisition Line of Credit, and is secured by all of the assets of the Company.
The loan originally accrued interest, payable monthly, at a base rate which
approximated prime, or the LIBOR Rate, plus an applicable margin varying from
zero to 2.0%.
The Loan Agreement contains affirmative, negative and financial covenants. As
of June 30, 1998, September 30, 1998, December 31, 1998 and March 31, 1999 the
Company was in violation of certain covenants, which the lender subsequently
waived.
On October 12, 1998, the Company and the Lender executed an amendment to the
Loan Agreement with an effective date of October 1, 1998, amount to pursuant
financial covenants were revised and the amounts available under the Line of
Credit Loan and Acquisition Line of Credit were required to be reduced to $5
million and $10 million, respectively, effective on the earlier of January 31,
1999 or the execution of certain real estate refinancing transactions which the
Company currently had in process. The Company expected that these financings
would yield approximately $15 million in net cash proceeds and would require
monthly payments based on
9
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annual rates of 8.5% to 11% for terms of ten to twenty years. Additionally,
amounts repaid under the Acquisition Line of Credit were not to be reborrowed.
Pursuant to the amended Credit Agreement, the Company was required to comply
with various loan covenants, which include maintenance of certain financial
ratios, restrictions on, among other things, additional indebtedness, liens,
guarantees, advances, capital expenditures, sale of assets and dividends. In
addition, the Company was not permitted to make any acquisitions without the
bank's prior consent. Interest on the outstanding balances under the credit
facility was to continue to be computed based on either the bank's floating and
fluctuating prime portion lending rate or the London Interbank Offered Rate
(Libor) plus a margin of 4.75%. Availability fees ranging from 0.25% to 0.5%
were to be payable on the unused portion of the Line of Credit Loan. The
Company's subsidiaries are joint and several obligors with respect to all
amounts due under the credit facility.
On October 15, 1998, the Company entered into a subordinated debt agreement with
Board LLC, which was organized by substantially all of the Directors of the
Company for the sole purpose of providing additional financing to the Company.
Under the terms of the agreement, the Company received $2 million and was to
make monthly interest payments at an annual rate of 14% with the principal to be
paid at the end of the loan term of twelve months. The terms of the subordinated
debt call for increases in the interest rate if the Company defaults in the
timely payment of interest on the subordinated debt, and the Company is not
permitted to make any payment with respect to the subordinated debt during the
continuance of a default or event of default under the Company's senior
indebtedness. As a result of a combination of defaults under the Company's
senior indebtedness and the Company's failure to make interest payments on the
subordinated debt, the subordinated debt has accrued interest at 16% per annum
since the date of its issuance.
Based on the anticipated results of the quarter ending December 31, 1998, the
Company determined that it would not be in compliance with the revised financial
ratios it had negotiated with the Lender. The Company notified the Lender of
such expected non-compliance and requested that the bank grant waivers or
amendments to relieve this non-compliance. On January 25, 1999, the Company
reached an agreement in principle with its lender to restructure its credit
agreements, which was reduced to writing on February 22, 1999, and which
includes a waiver of financial covenant noncompliance. Under the terms of the
Amended and Restated Credit Agreement, the Company is required to complete a
series of financings and sales of assets, from which the bank is to receive a
portion of those proceeds as permanent reductions in the Company's credit
facility.
On January 25, 1999, the Company consummated a subordinated debt financing with
a director in the principal amount of $5,000,000. This subordinated debenture
bears interest at 15% per annum, with provisions for higher rates in the event
of default, and matures on May 25, 1999 if not paid prior to that time. Interest
and a one point origination fee are payable in shares of the Company's common
stock valued at the closing price on the day prior to repayment of principal.
The principal and interest for the subordinated debenture may only be paid if
the Company has made all required payments to the bank as set forth above and
the Company is not in default of the bank credit agreement.
On March 8, 1999, the Company entered into an entered into a mortgage with
Heartland Bank in the principal amount of $1,035,000 million with an annual
interest rate of 8.75%. The debt is secured by mortgages on four of the
Company's car washes located in the State of Ohio. Interest only is payable for
five years followed by a twenty year amortization of principal with a balloon
payment due February 2009.
The Company is required to classify approximately $8,650,000 in indebtedness to
its primary lender as current liabilities because these amounts mature on
September 30, 1999, and the Company has not reached agreement with its current
Lender or any other financial institution to refinance this indebtedness.
NOTE 4. CAPITAL STOCK
On November 12, 1997 PAC completed the Offering, which involved the sale by PAC
of 2,666,540 shares of Common stock at a price to the public of $9.00 per share.
The net proceeds to PAC from the Offering (after deducting underwriting
discounts, commissions and offering expenses) was approximately $20.1 million.
Of this amount approximately $18.6 million was used to repay debt.
10
<PAGE>
NOTE 5. INCOME TAXES
Prior to the combinations, the stockholders of Miracle Industries, Lube
Ventures, Rocky Mountain I, Rocky Mountain II, and Miracle Partners elected to
be taxed under Subchapter S of the Internal Revenue Code. The members of Prema
Properties, Ralston Car Wash, and KBG elected to be taxed as Limited Liability
Companies of the Internal Revenue Code. Under these provisions, the entities
were not subject to income taxation for federal purposes. As pass through
entities the stockholders and members report their share of taxable earnings or
losses in their personal tax returns.
The Company files a consolidated federal income tax return which includes the
operations of the Predecessor Companies for periods commencing on the date of
the Combinations (November 12, 1997). The Predecessor Companies were
individually responsible for filing federal income tax returns based on earnings
through November 11, 1997.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company carries a broad range of insurance coverage, including general and
business liability, commercial property, workers' compensation and general
umbrella policies. In November 1997, the Company secured Directors and Officers
and Prospectus Liability insurance coverage with an aggregate limit of $5
million. The Company has not incurred significant claims or losses on any of its
insurance policies during the periods presented in the accompanying financial
statements.
On March 23, 1999 the Company entered into agreements with Maxi Ideas, Ltd, Inc.
to sell three car wash properties for approximately $1.4 million.
At March 31, 1999 the Company had lease commitments for office space, a
training center, and a number of service center locations. These leases
expire between 1999 and 2008, with renewal options in certain of the leases.
Most of the service center location leases are subleased to franchisees.
NOTE 7. SUBSEQUENT EVENTS
On May 14, 1999, the Company completed a mortgage financing with FFCA
Acquisition Corporation for certain real properties for $7,204,000.
Contemporaneously with closing, the Company used $5.5 million of the proceeds
repay its principle Lender to repay $5,000,000 in outstanding under the
Acquisition Line of Credit, and to repay and permanently reduce the Line of
Credit by $500,000. The balance of approximately $1,500,000 in net proceeds was
used to pay a portion of the $5.0 million Subordinated Debt.
On May 14, 1999, the Company reached an agreement with the Company's Senior
Lender on modifications to its loan agreement and a waiver of financial
covenants through June 30, 1999. The proposed modification with the Senior
Lender calls for the Company to reduce its outstanding indebtedness with the
bank to $14.1 million by June 1, 1999 and reduce it to $13.65 million by July
31, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The following discussion should be read in conjunction with the Actual and Pro
Forma Financial Statements of the Company and related notes thereto included in
the Company's Registration Statements and in the Form 10-K filed for the year
ending June 30, 1998.
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<PAGE>
The Company, a Virginia corporation, was incorporated in April 1997. It began
operations after the November 1997 combination with WE JAC Corporation (the
owner of Precision Tune Auto Care) and nine other automotive maintenance
services companies in connection with the Company's initial public offering (the
"IPO Combination"). The nine companies joined with WE JAC Corporation in
connection with the IPO Combination were: Miracle Industries, Inc.; Lube
Ventures, Inc.; Rocky Mountain Ventures, Inc.; Rocky Mountain Ventures II, Inc.;
Prema Properties, Ltd.; Miracle Partners, Inc.; Ralston Car Wash Ltd.; KBG, LLC
and Worldwide Drying Systems, Inc. (referred to individually as a "Predecessor
Company" or collectively, the "Predecessor Companies"). In March 1998 the
Company acquired Promotora de Francquicias Praxis S.A. de C.V. ("Praxis"), a
company which operates five company-owned centers and served as the holder of a
master franchise agreement for Mexico and Puerto Rico. The results presented
herein for the nine months ending March 31, 1998 represent those of WE JAC
through the IPO Combination on November 12, 1997, and combined results for WE
JAC and the Predecessor Companies thereafter. The results presented herein as
Pro Forma consist of combined results of WE JAC and the Predecessor Companies
as if these entities had been combined for all periods presented herein. The Pro
Forma results do not reflect any results of Praxis for periods of time prior to
the date on which it was acquired.
Company revenues are derived from four primary areas: franchise development,
royalties, manufacturing and distribution, and Company-owned centers. Franchise
development revenues include sales of franchises and master licenses along with
revenue from the Company's turnkey program, under which the Company sells retail
centers to franchisees. Royalty revenues are derived from royalty fees paid by
individual franchisees to the Company based on qualified retail sales by the
franchisee. Manufacturing and distribution revenues are derived from the sale of
automotive parts and equipment and the manufacture and sale of car wash
equipment, parts, supplies and chemicals. Company-owned center revenue is
derived from Precision Auto Wash and Precision Lube Express centers owned and
operated by the Company.
Direct costs consist of the cost of parts and equipment, fees paid to area
developers for the sale of new franchises and for supporting franchisees on an
ongoing basis, corporate costs associated with directly supporting the franchise
system, and the cost of operating Company-owned centers. General and
administrative expenses include all legal, accounting, general overhead,
information technology and corporate staff expenses. Other income and expense
items consist of depreciation and amortization, interest income and expense and
the operating results of Precision Tune Auto Care centers held for resale by the
Company.
During the year ended June 30, 1998, the Company negotiated the terms of seven
acquisitions that would have added approximately 470 retail centers producing
approximately $210 million in system-wide retail sales to the Company's existing
retail system. (System-wide retail sales include sales of both franchise stores,
only a portion of which is recognized by the Company as royalty revenue, and
Company-owned centers.) The Company had been arranging approximately $150
million of financing for the proposed acquisitions. As previously announced, the
Company determined that it would not proceed with the proposed acquisitions. As
a result, the Company recognized a charge to earnings of $602,000 in the quarter
ending June 30, 1998 and a charge of $200,000 in the quarter ended September 30,
1998 and $618,000 in the quarter ended March 31, 1999 relating to professional
fees, deposits and other costs relating to abandoned acquisitions.
In October 1998, a new President and Chief Executive Officer was hired by the
Company and since June 1998 the Company has transitioned to new leadership in
its finance group. This new management is focused on improving the Company's
cash flow, operations, processes, financing and accounting practices. During the
quarter ending December 31, 1998 and March 31, 1999 this new management has
implemented a program to improve its cash flow that involves selected reductions
in staffing levels, reductions of expenses, the disposition and refinancing of
selected assets and the accelerated collection of receivables. In addition, the
Company's management performed an extensive review of its operations, and
determined that its real estate development program be substantially curtailed,
and other functions be reorganized or shut down.
As a result of this extensive review, the Company recorded total charges of $3.4
million in the quarter ending December 31, 1998 and $900,000 in the quarter
ended March 31, 1999. These included the write-off or reserving of approximately
$1.8 million in accounts and notes receivable, a charge of $1.2 related to a
change of assumptions used by the Company in estimating accounts receivable for
royalties generated by franchisees which the franchisees have not reported to
the Company at the end of a reporting period. The Company also recognized a
charge of $200,000 to buyout certain long-term operating lease obligations.
Additionally, the Company recognized a charge of $1.2 million relating to
severance payments
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made to certain former members of management terminated as part of the business
and management reorganization. This charge is also reported on a pre- tax basis
and is reported as a component of other income and expense. Company management
is still evaluating additional actions to improve the Company's cash flow and
long-term strategic position. Such actions may have adverse impact on the
reported results for the quarter ending June 30, 1999.
Three Months Ending March 31, 1999 Compared to Three Months Ending March 31,
1999
The following table sets forth certain selected financial data as a percentage
of revenues for the period indicated:
Three Months Ending March 31,
(Thousands) 1999 % 1998 %
- ----------- ---- - ---- -
Revenue $10,747 100 $11,003 100
Direct Cost 8,880 83 8,015 73
General and Administrative 3,117 29 885 8
Operating Income (Loss) (2,059) -19 1,500 14
Revenue. Revenue for the three months ending March 31, 1999 was $10.7 million, a
decrease of $256,000, or 2%, compared with revenue of $11.0 million for the
corresponding period of the prior year. Actual results for the quarter ending
March 31, 1999 include $538,000 of franchise revenues (franchise development and
royalties) from Praxis which, as mentioned above, was acquired March 31, 1998.
The addition of franchise revenues from Praxis was partly offset by a decline in
domestic franchise revenues in the U.S. of $744,000 or 19%. Royalty revenue
decreased as a result of the adoption of more conservative assumptions used to
estimate royalty revenues generated by franchisees. In addition, the Company has
made an ongoing effort to remove under-performing stores from the franchise
system. Manufacturing and distribution revenues for the three months ending
March 31, 1998 decreased by $359,000, or 7%. Revenue from parts distribution was
down $1.4 million or 45% and prefabricated lube buildings were down $339,000 or
65%. This was partly offset by increases in sales of $818,000 or 48% at the
Company's car wash equipment manufacturing operations and the inclusion of
revenues of $508,000 for Praxis. Consistent with the prior quarter the Company's
auto parts distribution business was adversely affected by the Company's
constrained cash flow during the three months ending March 31, 1999. Revenue
from Company-owned and operated stores increased by $444,000 or 30%, principally
due to the inclusion of $571,000 of revenue from stores owned by Praxis.
Domestic wash and lube retail sales declined by $128,000 or 9% due to a fewer
number of company owned stores. Overall Company-owned wash and lubes had
improved same-store sales due to equipment upgrades and focused marketing
efforts.
Direct Cost. Direct cost for the three months ending March 31, 1999 was $8.9
million, an increase of $865,000 or 11%, compared with $8.0 million for the
corresponding period of the prior year. The increase was due in part to direct
cost from Praxis of $1.4 million which was not included in last year's results.
In addition, higher costs of $1.4 million or 104% at the Company's car wash
equipment manufacturing business were partially offset by lower costs in parts
distribution, $1.5 million or 51%, and prefabricated lube buildings $220,000 or
55%. Domestic franchising costs decreased $176,000 or 8%, and company owned
stores direct costs decreased $65,000 or 6%.
General and Administrative Expense. General and administrative expense was $3.1
million for the three months ending March 31, 1999, an increase of $2.2 million,
or 252%, compared with the corresponding period of the prior year. The increase
is partly attributed to writeoffs or reserves of accounts receivable, $700,000,
long-term lease buyouts, $200,000 and higher legal and accounting fees incurred
during the quarter. Charges or reserves are made to accounts which management
determines are uncollectible or doubtful. Actions were taken in the latter part
of the quarter ended March 31, 1999 to reduce these costs and to generate other
savings by eliminating several middle and senior management positions. These
changes did not have a significant impact on expenses for the quarter. The
Company expects savings from those actions to be realized in coming quarters.
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<PAGE>
Operating Income (Loss). The Company recorded an operating loss for the three
months ending March 31, 1999 of $2.1 million which represents a decline in
operating income of $3.6 million or 237% compared with operating income of $1.5
million for the corresponding period of the prior year. This decline resulted
from a decrease in the contribution margin of $1.1 million, related to the
decreases in revenues and increases in costs described above, as well as an
increase of general and administrative expenses.
Net Income (Loss). The Company recorded a loss of $5.6 million, or $0.92 per
share, for the three months ending March 31, 1999, compared with net income of
$619,000, or $0.11 per share, for the corresponding period of the prior year.
The decrease in net income is primarily the result of the $3.6 million decline
in operating income. Additionally, the Company recognized a charge of $700,000
related to severance for employees terminated, $535,000 for abandoned stores and
equipment as part of a reorganization program that was included in other income
and expense. The company has not recognized a tax benefit in the current period.
Future taxable income would be offset by extent of the current taxable loss.
Nine Months Ending March 31, 1999 Compared to Nine Months Ending March 31, 1998
The following table sets forth certain selected financial data as a percentage
of revenues for the period indicated:
<TABLE>
<CAPTION>
Nine Months Ending March 31,
(Thousands) 1999 % 1998 % 1998 %
- ----------- Actual Actual Pro Forma
<S><C>
Revenue $33,446 100 $28,148 100 $34,347 100
Direct Cost 28,813 86 19,942 71 24,449 71
General and Administrative 8,098 24 2,706 10 3,050 9
Operating Income (Loss) (6,892) -21 4,122 15 5,031 15
</TABLE>
Revenue. Revenue for the nine months ended March 31, 1999 was $33.4 million, an
increase of $5.3 million, or 19%, compared with revenue of $28.1 million for the
corresponding period of the prior year. Actual results for the nine months
ending March 31, 1998 includes five months of post-merger results for the
entities merged in conjunction with the simultaneous IPO/Combination on November
12, 1997 while the nine months ending March 31, 1999 includes nine months of
results for those entities as well as results for Praxis. Praxis contribution of
$5.0 million offset a decline in pro forma revenue of $5.9 million from the
prior year's comparable period. Revenue from franchising activities decreased
$475,000 or 4%, from the prior year. The addition of franchise revenues from
Praxis of $1.5 million was partly offset by declines in franchise revenues in
the U.S. of $210,000, international license sales of $264,000 and royalty
revenues of $1.5 million. Royalty revenue decrease was the result of the
adoption of more conservative assumptions used to estimate royalty revenue
generated by franchisees who have not been submitted royalty reports by the end
of the period. In addition, the Company has made an ongoing effort to remove
under-performing stores from the franchise system. Manufacturing and
distribution revenues increased by $2.6 million, or 18%. This increase was
attributable to the inclusion of revenues and the results of the companies
acquired simultaneously with and after the IPO Combination, offset by decreased
revenues of $2.5 million or 28% at the Company's distribution business, which,
as noted above, was adversely affected by the Company's constrained cash flow
during the nine months ending March 31, 1999. Pro forma revenue for
manufacturing distribution for the nine months ended March 31, 1998 was $18.8
million. Revenue from Company-owned and operated stores increased by $3.3
million or 154%, to $5.5 million, compared with $2.2 million for the
corresponding period of the prior year. The increase was principally due to the
inclusion of revenue from stores owned by Praxis, $1.5 million, as well the
inclusion of Company-owned stores for all of the nine months ending March 31,
1999 but only for five months of the same period a year earlier. Pro forma
revenue for the company stores for the nine months ended 1998 was $3.5 million.
Direct Cost. Direct cost for the nine months ending March 31, 1999 was $28.8
million, an increase of $8.9 million, or 44%, compared with direct cost of $19.9
million for the corresponding period of the prior year. The increase was due in
part to direct cost from Praxis of $4.5 million which was not included in last
year's results. The remainder of the increase was related to the inclusion of
costs for the merged companies for all nine months ending March 31, 1999, but
only for five months of the same period a year earlier. Pro forma direct costs
for the nine months ended March 31, 1998 was $24.4
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<PAGE>
million. The increase was partially offset by lower direct costs of $2.0 million
or 25% for parts distribution and $580,000 or 9% for franchising. These lower
costs result from lower sales and reductions in overhead.
General and Administrative Expense. General and administrative expense for the
nine months ending March 31, 1999 was $8.1 million, an increase of $5.4 million
or 199%, compared with expense of $2.7 million for the corresponding period of
the prior year. The Company recorded charges totaling $2.3 million before taxes
during the previous quarter in addition to $1.5 million during the quarter ended
March 31, 1999 following a detailed periodic review of the Company's operations.
A charge was taken of $2.4 million to write off or reserve accounts receivable
and notes receivable which were determined to be uncollectible, or the
collection of which was doubtful, in the course of management's periodic review.
A charge of $1.4 million was taken for the abandonment of acquisitions. A
$200,000 charge was taken for the buyout of long-term operating leases. A $1.2
million charge was made that related to a change in the assumptions used to
estimate accounts receivable for royalties generated by franchisees which
franchisees have not reported to the Company at the end of a period. This
increase was also due, in part, to the development of the Company's
infrastructure in anticipation of the growth plan it suspended, particularly in
the areas of corporate communications and business development. Actions were
taken in the latter part of the quarter ended March 31, 1999 to reduce these
costs, but these actions were effected too late in this period to have a
significant impact on expenses. The Company expects savings from those actions
to be realized in coming quarters. Pro forma general and administrative expenses
for the nine months ended March 31, 1999 was $3.1 million.
Operating Income (Loss). The Company recorded an operating loss for the nine
months ending March 31, 1999 of $6.9 million, which represents a decline in
operating income of $11.0 million or 267% compared with operating income of $4.1
million for the corresponding period of the prior year. This decline resulted
from a decrease in the contribution margin of $3.6 million, related to the
increase in costs described above relative to the increase in revenues, an
increase in general and administrative expenses of $5.4 million and an increase
of $1.4 million or 98%, in depreciation and amortization related to businesses
acquired following the Company's IPO Combination. Additionally, a charge of
$710,000 was taken for a loss on the sale of non-strategic company car washes.
Net Income (Loss). The Company recorded a loss before income taxes of $12.5
million and a net loss of $10.9 million, or $2.05 per share and $1.79 per share
respectively, for the nine months ending March 31, 1999, compared with income
before taxes of $3.5 million and net income of $1.8 million, or $0.50 per share,
for the corresponding period of the prior year. The decrease in net income is
primarily the result of the $11.0 million decline in operating income.
Additionally, the Company recognized a charge of $1.2 million related to
severance for employees terminated as part of a reorganization program that is
included in other income and expense along with the $535,000 charge for
abandoned stores and equipment. The impact of these items was partially offset
by the recognition of a tax benefit of $1.6 million for the nine months ending
March 31, 1999.
Liquidity and Capital Resources
The following table sets forth selected information from the statement of cash
flows of Precision Auto Care, Inc.
Nine months ended March 31,
1999 1998
---- ----
Net cash used in operating activities ($1,783,000) ($1,153,000)
Net cash used in investing activities (1,755,000) (21,723,000)
Net cash provided by financing activities 1,546,000 25,416,000
--------- ----------
Change in cash and cash equivalents ($1,992,000) $2,540,000
============ ==========
During the nine months ended March 31, 1999, the Company's operations used $1.8
million in cash compared with $1.2 million for the prior year. The outflow of
cash was principally due to the net loss for the period and cash used to make
reductions in accounts payable and accrued expenses, partially offset by
reductions in accounts receivable and the effect of non-cash charges on the net
loss.
Cash used in investing activities during the nine months ended March 31, 1999
was $3.7 million, compared with a cash outflow of $21.7 million for the prior
year. The outflow in the current year consisted primarily of the repurchase of
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<PAGE>
franchise operations of $1.8 million and capital expenditures of $1.8 million.
The capital expenditures consisted mainly of PIN system purchases and signage
upgrades, and upgrades to the Company's internal computer hardware and software
systems.
Cash provided by financing activities was $1.5 million for the nine months ended
March 31, 1999, compared with $25.4 million for the previous year. Financing
activities during the nine months ended March 31, 1999, included borrowings
against the Company's term loan and line of credit and the proceeds of
subordinated debentures in the aggregate principal amount of $7.0 million
purchased by members of the Company's Board of Directors, partially offset by
repayments and permanent reductions of the Company's term loan and line of
credit.
As the Company previously announced, the Company has drawn substantially all of
the amounts available under its bank credit facility principally as a result of
acquisition activities the Company suspended during the quarter ending September
30, 1998, and the working capital requirements described above. As of January 1,
1999, the Company had borrowed approximately $23 million under its bank credit
agreement, of which $13.5 million represented amounts extended under a portion
of the bank credit facility that was dedicated to funding acquisitions and
capital expenditures (the "Acquisition Line of Credit") and of which $9.5
million represented funds advanced under a general revolving credit portion of
the credit facility (the "Line of Credit Loan").
Between June 30, 1998 and September 30, 1998, the Company was not in compliance
with various covenants contained in its bank credit agreement. On October 12,
1998, the Company and the Bank executed an amendment to its credit agreement
effective October 1, 1998. Pursuant to this amendment, amounts available under
the Acquisition Line of Credit and the Line of Credit Loan were to be reduced to
$10 million and $5 million, respectively, for a total of $15 million. These
reductions became effective on January 31, 1999. Pursuant to the amendment,
loans extended by the bank under the Acquisition Line of Credit and the Line of
Credit Loan will mature on September 30, 1999, instead of the November 1, 2000
date which was in effect prior to the amendment. Additionally, subsequent to
September 28, 1998, amounts repaid under the Acquisition Line of Credit could
not be reborrowed.
The terms of this amendment also required the Company to obtain $2 million in
the form of equity financing or debt financing that is subordinate to the bank,
in each case on terms acceptable to the bank, which the Company arranged on
October 15, 1998. This subordinated debt bears interest at 14% and matures on
October 15, 1999. The terms of the subordinated debt call for increases in the
interest rate if the Company defaults in the timely payment of interest on the
subordinated debt, and the Company is not permitted to make any payment with
respect to the subordinated debt during the continuance of a default or event of
default under the Company's senior indebtedness. As a result of a combination of
defaults under the Company's senior indebtedness and the Company's failure to
make interest payments on the subordinated debt, the subordinated debt has
accrued interest at 16% per annum since the date of its issuance.
In December 1998, the Company notified its bank that, based on expected results
for the quarter ending December 31, 1998, it would not be in compliance with
certain revised financial covenants contained in the October 1, 1998 amendment
to the bank credit agreement. On January 25, 1999, the Company and the bank
reached agreement in principle concerning the terms of an amended and restated
bank credit agreement (the "Amended and Restated Credit Agreement"), which was
reduced to writing on February 22, 1999, and which included a waiver of
financial covenant noncompliance. Under these terms of the Amended and Restated
Credit Agreement, the Company is required to complete a series of financings and
sales of assets, from which the bank is to receive a portion of the proceeds as
permanent reductions in the Company's credit facility. The terms of the Amended
and Restated Credit Agreement were further amended on May 13, 1999, to revise
the terms of certain required real estate transactions and the application of
proceeds to reduce the Acquisition Line of Credit and the Line of Credit Loan.
To date the Company has succeeded in concluding four of the six required
transactions, resulting in a permanent reduction of outstandings under the Line
of Credit Loan of $5,000,000 and the repayment of outstandings under the
Acquisition Line of Credit in the amount of $5,000,000. These transactions also
generated a small amount of working capital availability and approximately
$1,500,000 to repay a portion of the principal due under the $5,000,000
subordinated debenture due May 25, 1999. The final two transactions are expected
to result in additional permanent reductions of the Line of Credit Loan of
16
<PAGE>
$1,400,000 by June 1, 1999 and $450,000 by July 31, 1999. As a result by July
31, 1999, the Line of Credit Loan is expected to have been permanently reduced
to $4,150,000.
Although the foregoing transactions improved cash flow by converting short
term obligations into long term debt, they have not significantly contributed
to working capital. Accordingly, there can be no assurance that the Company
will not require additional working capital financing to conduct its operations.
In addition, the Company raised $5 million through a subordinated debenture that
was placed with a member of its board of directors, of which $2.5 million was
used to permanently reduce the Company's credit facility and $2.5 million was
used for vendor payments. This subordinated debenture bears interest at 15% per
annum, with provisions for higher rates in the event of default, and matures on
May 25, 1999 if not paid prior to that time. Accrued interest and a one point
origination fee are payable in shares of the Company's common stock valued at
the closing price on the day prior to repayment of principal. The principal and
interest on the subordinated debenture may only be paid if the Company has made
all required payments to the bank as required by the terms of the Amended and
Restated Credit agreement set forth above and the Company is not otherwise in
default of the Amended and Restated Credit Agreement.
From the time that the Company utilized substantially all of its credit facility
in August 1998, the Company's cash flow has been constrained. As a result, the
Company's ability to meet obligations to its suppliers in a timely manner has
been adversely affected, which in turn has adversely affected revenues and
profits of several of its businesses, particularly its distribution business in
the U.S. The Company expects that its businesses will continue to be adversely
affected until sufficient cash is available to meet ongoing supplier obligations
in a timely manner. In October 1998, a new Chief Executive Officer joined the
Company and under his direction the management of the Company has initiated a
program to improve its cash flow. Actions taken to date under this program
include: a reduction in staffing levels of 10% in the Company's field operations
and 15% at the Company's headquarters; reductions in expenses; improved
inventory management; and an acceleration in the collection of accounts
receivable. Future actions under this program are expected to include expanded
expense reductions, dispositions of selected assets, an assessment of the
strategic and financial performance of all aspects of the Company's operations
and the continued restructuring and reorganization of those operations of the
Company that are not meeting their strategic and financial objectives.
The Company's Board of Directors has authorized the Company to retain the
services of an investment banker to review strategic and recapitalization
opportunities.
While Company management believes that this program will improve its cash flow
and ability to meet future bank covenants and vendor obligations in a timely
manner, there can be no assurance that such program will be effective in meeting
its objectives or that if such objectives are met, that the resulting
improvements in cash flow will be sufficient to avoid the need for additional
reductions in expenditures, sales of additional assets, or supplemental
financing.
Seasonality and Quarterly Fluctuations
Seasonal changes may impact various sectors of the Company's business
differently and, accordingly, the Company's operations may be affected by
seasonal trends in certain periods. In particular, severe weather in winter
months can adversely affect the Company because such weather makes it difficult
for consumers in affected parts of the country to travel to Precision Auto Care,
Precision Lube Express, and Precision Auto Wash centers. Severe winter weather
and rainy conditions may also adversely impact the Company's sale and
installation of car was 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.
Year 2000 (Y2K) Compliance
The Company has conducted a review of its computer systems and has identified
the systems that could be affected by the "Year 2000" issue. The Year 2000 issue
is principally the result of computer programs that have time-sensitive software
which may recognize a date using "00" as the year 1900 rather than the year
2000. The Year 2000 issue may also affect the systems and applications of the
Company's vendors or customers.
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<PAGE>
While the Company has not performed a detailed analysis of the Y2K capabilities
of its primary vendors, management believes that sufficient alternative sources
of supplies and services are available to be called upon in the event one of the
Company's vendors suffers a Y2K related disruption of its operations.
As part of management's proactive review of internal telecommunications and
computer systems, a decision was reached in 1997 to replace a portion of the
Company's current computer system, which is not Y2K compliant, with a new
management information system (MIS) system starting in 1998 for completion in
1999. New software and hardware were identified and a new system purchased in
the first quarter of 1998. The new MIS system is certified to be Y2K compliant.
Hardware and software costs were approximately $180,000 in FY98. Additional
programming costs are expected to reach $250,000 during FY99 representing 33% of
the MIS budget. The new software has been loaded on the new computer and is
currently being integrated into the Company's existing network. The Company
converted a substantial part of its corporate headquarters based activities and
expects these activities to be fully migrated to the new system by June 30,
1999. Field activities are scheduled to be brought online during the remainder
of 1999. Potential risks of this conversion include the lack of adequate
internal personnel resources to perform the conversion and unanticipated delays
in software modifications specific to managing franchise royalty accounting.
Item 3. Quantitative and Qualitative Disclosure about Market Risks
The Company's major market risk exposure is to changing interest rates. The
Company's policy is to manage interest rate risk through the use of a
combination of fixed and floating rate debt. The table below provides
information about the Company's debt obligations that are sensitive to changes
in interest rates.
Principal Payments and Interest Rate Detail by Contractual Maturity Dates
(In $Thousands)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S><C>
Short-term debt:
Term loan 4,500 --- --- --- --- $4,500
Variable rate LIBOR + 4.75%
Line of credit 4,150 --- --- --- --- 4,150
Variable rate LIBOR + 4.75%
Long-term debt:
Term loan --- 5,424 --- --- --- --- 5,424
Variable rate LIBOR + 4.75%
Line of credit --- 2,109 --- --- --- --- 2,109
Variable rate LIBOR + 4.75%
Board LLC note 2,000 --- --- --- --- --- 2,000
Fixed rate 14%
Kellar note 5,000 --- --- --- --- --- 5,000
Fixed rate 14%
Heartland bank 1,000 --- --- --- --- --- 1,000
Fixed rate 8.75%
</TABLE>
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are subject to routine litigation in the
ordinary course of business, including contract, franchise and
employment-related litigation. In the course of enforcing its rights under
existing and former franchise agreements, the Company is subject to complaints
and letters threatening litigation concerning the interpretation and application
of these agreements, particularly in the case of defaults and terminations. None
of these routine matters, individually or in the aggregate, are believed by the
Company to be material to its business or financial condition or results of
operations.
During the second and third quarters of 1998, the Company conducted negotiations
with principals of PAISA, Inc. ("PAISA"), a corporation which owns, operates and
franchises automotive service centers in the States of California and Nevada,
concerning the Company's possible acquisition of PAISA. In connection with those
negotiations, the Company made a loan in the amount of $500,000 to PAISA. This
loan was secured by certain promissory notes payable to PAISA which were pledged
to secure the repayment of the loan. Under the terms of the loan, the entire
outstanding principal balance accrued but unpaid interest is due and payable at
the earlier of (i) the closing of the Company's acquisition of PAISA (in the
event the acquisition is consummated) or (ii) nine months after the Company
makes demand for payment (in the event the Company elects not to proceed with
the acquisition).
The Company advised PAISA that it would not be able to proceed with the
acquisition of PAISA and the Company notified PAISA on or about September 11,
1998 that it was demanding the repayment of the loan.
PAISA recently instituted a lawsuit against the Company in the United States
District Court for the Central District of California. The lawsuit alleges that
the Company failed to use its good faith efforts to obtain financing for the
transaction in the manner contemplated by a term sheet. PAISA has alleged that
the Company committed fraud, negligent misrepresentation and breach of contract
with and as a result of its failure to consummate an acquisition of PAISA.
PAISA is seeking damages in the amount of $15,000,000 plus interest, costs and
any consequential damages determined by the court. PAISA is seeking to enjoin
the Company from collecting the $500,000 promissory note or from collecting the
promissory notes owed to PAISA which ensures PAISA's obligation to repay the
Company.
On April 16, 1999, a notice of voluntary dismissal without prejudice was
filed by the plaintiff and granted by the Court. Plaintiff re-filed their
complaint in the Superior Court of the State of California for the County of Los
Angeles Central District on April 27, 1999, Case No. BC209390.
The Company believes that the lawsuit is wholly without merit and intends to
vigorously contest and defend the action.
Item 2. Changes in Securities and Use of Proceeds
a) Not applicable.
b) Not applicable.
c) On October 15, 1998 the Company issued subordinated debt in the
amount of $2 million to Board LLC, a Virginia limited liability
company, in a transaction exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof and Rules
505 and 506 promulgated thereunder. Given that Board LLC was formed
and capitalized solely by members of the Company's Board of
Directors (all but Messrs. Pappas and Clineburg), Board LLC is an
"accredited investor" as that term is defined by Rule 501.
19
<PAGE>
On January 25, 1999, the Company issued subordinated debt in the
amount of $5,000,000 to a director in a transaction exempt from
registration under the Securities Act pursuant to Section 4(2)
thereof and Rules 505 and 506 promulgated thereunder.
d) Not applicable.
Item 3. Defaults Upon Senior Securities.
The information concerning defaults and the subsequent cure thereof with respect
to the Company's indebtedness contained in Note 3 to the Company's financial
statements and appearing at "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" is
incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on March 16, 1998, for the
election of four Class I directors, to consider and approve a 1998 Employee
Stock Purchase Plan, to consider and approve a 1998 Outside Directors' Stock
Option Plan, and to ratify the selection of Ernst & Young LLP as independent
public accountants for the Company for the fiscal year ending June 30, 1999. A
total of 3,821,230 of the 6,120,543 votes entitled to be cast at the meeting
were present in person or by proxy. At the meeting, the stockholders:
(1) Elected the following four Class I directors for a term expiring in
2001:
Number of Shares
Number of Shares Voted Against or
Directors Voted For Authority Withheld
Charles L. Dunlap 3,814,369 6,861
Richard O. Johnson 3,814,369 6,861
Harry G. Pappas 3,553,485 267,745
George A. Bavelis 3,811,444 9,786
Following the election, Woodley A. Allen, Bassam N. Ibrahim, Arthur Kellar and
Gerald A. Zamensky continued to serve as Class II directors with terms expiring
in 1999 and Lynn E. Caruthers, William R. Klumb, Bernard H. Clineburg and Effie
L. Eliopulos continued to serve as Class III directors with terms expiring in
2000.
(2) Approved the 1998 Employee Stock Purchase Plan by an affirmative vote
of 3,767,219; votes against ratification were 51,411; and abstentions were
2,600.
(3) Approved the 1998 Outside Directors' Stock Option Plan by an
affirmative vote of 3,726,877; votes against ratification were 79,254; and
abstentions were 15,099.
(4) Ratified the selection of Ernst & Young LLP as independent public
accountants for the Company for fiscal year ending June 30, 1999 by an
affirmative vote of 3,561,456; votes against ratification were 252,585; and
abstentions were 7,189.
20
<PAGE>
No other matters were submitted to a vote of the stockholders at the meeting.
Item 5. Other Information
The Company does not meet the net tangible asset requirements for
continued listing on the Nasdaq National Market under applicable Nasdaq Stock
Market maintenance standards and has been advised by the Nasdaq Stock Market
that the Company's shares of common stock will be delisted from the Nasdaq
National Market in the next several weeks. The Company recently made a
presentation to Nasdaq Stock Market representatives concerning this situation
and the Company has submitted an application to have its common stock listed on
the Nasdaq SmallCap Stock Market. Nasdaq Stock Market representatives have
indicated that although the Company meets the technical requirements for listing
on the Nasdaq SmallCap Stock Market they may not grant the Company's request in
light of the Company's recent performance. The Company expects that the Nasdaq
Stock Market will make a final determination with respect to the Company's
request that its common stock be listed on the Nasdaq SmallCap Stock Market
within the next three to four weeks and the Company understands that its shares
will continue to be listed on the Nasdaq National Market until this final
determination has been made. The Company intends to issue a press release
promptly following the time it has been advised of the National Stock Market's
final determination with respect to the future listing of the Company's shares
of common stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
10(a) Subordinated Debenture dated January 25, 1999 in the principal
amount of $5,000,000 (incorporated by reference from the
Company's Current Report on Form 8-K filed with the Commission
February 1, 1999).
10(b) Incorporated by reference from the Company's Quarterly Report
on Form 10-Q filed with the Commission on February 16, 1999.
10(c) Incorporated by reference from the Company's Quarterly Report
on Form 10-Q filed with the Commission on February 16, 1999.
10(d) Mortgage Financing Documents (Heartland Bank dated March 8,
1999)
11 Computation of Earnings Per Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on February 1, 1999 reporting
under Item 5 of the Form (i) the Company's issuance of a Subordinated Debenture
in the principal amount of $5,000,000 and (ii) progress the Company had made in
reaching agreement in principle with its lender concerning the terms of proposed
modifications to the Company's Credit Agreement. The Company did not file any
other reports on Form 8-K during the three-month period ended March 31, 1999.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 17, 1999 PRECISION AUTO CARE, INC.
By:
____________________________________
Charles L. Dunlap
President and Chief Executive Officer
By:
____________________________________
John N. Tarrant
Corporate Controller
(Principal Accounting Officer)
22
<PAGE>
EXHIBIT INDEX
Number Page
- ------ ----
10(d) Mortgage Finance Documents (Heartland Bank, dated March 8, 1999)
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
23
ADJUSTABLE RATE COMMERCIAL COGNOVIT PROMISSORY NOTE
---------------------------------------------------
AMOUNT $1,035,000.00 March 8, 1999
COLUMBUS, OHIO
FOR VALUE RECEIVED, Precision Auto Care, Inc., a Virginia Corporation, Miracle
Acquisition, Inc., a Delaware corporation, and Miracle Partners, Inc., a
Delaware corporation (collectively "Borrower"), whose principal places of
business are located at 748 Miller Drive S.E., Leesburg, Virginia, 748 Miller
Drive S.E., Leesburg, Virginia, and 748 Miller Drive S.E., Leesburg, Virginia,
promise to pay to the order of HEARTLAND BANK, its successors or assigns
("Bank"), the principal sum of One Million Thirty-Five Thousand and 00/100
Dollars ($1,035,000.00), (the "Principal Sum"), with interest thereon from the
date of this Note at the rate and manner set forth below. This Note provides for
changes in the interest rate and monthly payments.
INTEREST AND INDEX.
- -------------------
Interest will be charged on that part of the principal that has been disbursed.
Interest will be charged beginning on the date of the Note and continue until
the full amount of principal has been paid.
Beginning on March 10, 1999, interest shall be charged at the initial rate of
Eight and Three-Quarters (8.75%) per cent per annum, and shall continue at that
same rate of interest for the first sixty (60) months of the loan period.
Commencing on March 10, 2004, and continuing on the 10th of March every sixty
(60) months thereafter until the Maturity Date (the "Change Date"), the interest
rate will change to adjust to three and three-quarters percent (3.75%) above the
Weekly Average Yield on United States Treasury Security, Adjusted to a Constant
Maturity of Five Years. All interest computations are based upon a three hundred
sixty (360) day year for the actual number of days elapsed during the month.
TERM.
- -----
The entire unpaid Principal Sum of this Note, together with accrued interest and
all charges thereon, shall be due and payable on the 10th day of March, 2009
(the "Maturity Date"); provided, however, that periodic payments of principal
and interest shall be made in accordance with the terms of this Note.
PAYMENT.
- --------
1. Time and Place of Payments
Monthly payments shall commence with the payment due for the 10th day of April,
1999, and will continue each and every month thereafter on the 10th day of each
succeeding month until the Maturity Date. All monthly payments shall be made at
Heartland Bank, 850 North Hamilton Road, Gahanna, Ohio 43230, or at a different
place if required by Bank. The monthly payments will be applied first to
advances, then to any unpaid charges, and then to interest.
2. Amount of Monthly Payments
The Borrower shall pay to Bank initial monthly payments of principal and
interest in installments in the amount of Nine Thousand Two Hundred Twenty-Seven
and 00/100 Dollars ($9,227.00), based upon a twenty year amortization schedule.
Monthly payments shall be made each month thereafter on the 10th
Precision Auto Care, Inc. Promissory Note
Page 1 of 4
<PAGE>
day of the month ("Date Due"), until the Maturity Date, at which time all
accrued interest and principal and all other amounts owed under the Note will be
paid in full. That amount could be greater than the amount of the Borrower's
last monthly payment before the maturity date.
Bank shall change the monthly payment on the first monthly payment date after
the Change Date in an amount adjusted accordingly to confine the loan to its
remaining amortization term. Bank will then determine the amount of the monthly
payment that would be sufficient to repay the unpaid principal balance of
Borrower's loan as of the Change Date pursuant to the original twenty year
amortization schedule at the new interest rate in substantially equal payments.
The result of this calculation will be the new amount of the monthly payments.
DEFAULT/DEFAULT RATE.
- ---------------------
If any payment, by acceleration or otherwise, required under the Note or
Mortgage is not made within thirty (30) days after the Date Due, or upon
Borrower's failure to perform any of the covenants or conditions contained in
said Note and Mortgage, this Note shall, at the Bank's option, bear interest
thereafter at the rate of 2% per annum in excess of the rate provided for in the
Note, but that interest rate shall not exceed the maximum interest rate
permitted by applicable law, and the entire principal balance then remaining
unpaid, together with all accrued interest, shall, at Bank's option, become
immediately due and payable without any notice or demand and Bank may proceed to
foreclose all liens and security interests securing this Note. Failure of Bank
to exercise this option shall not constitute a waiver of the right to exercise
the same in the event of any subsequent event of default.
SECURITY
- --------
The payment of this Note shall be secured by Mortgages and Assignments of Rent
on real property commonly known as 1027 King Avenue, Columbus, Ohio, 3121
Olentangy River Road, Columbus, Ohio, 401 South Sandusky Street, Delaware, Ohio,
and 46 Liberty Road, Delaware, Ohio, more fully described in attached Exhibit
"A," a Security Agreement and U.C.C. Financing Statements ("Financing
Documents") of even date to be recorded in the appropriate records of the State
of Ohio and Franklin County, Ohio, from Borrower to Bank, which Financing
Documents shall constitute a lien on the personal property owned by Borrower
more fully described in Attached Exhibit "B." Said Financing Documents are given
by Borrower as security for compliance with terms and conditions of this Note.
LATE CHARGE
- -----------
For each payment of principal or interest not received by the Bank on or before
the tenth (10th) day following the Date Due, Borrower agrees to pay a late
charge of five (5.00%) percent of the total monthly payment.
PREPAYMENT.
- -----------
In the event this Note is prepaid within the first sixty months, a prepayment
penalty of two percent (2%) of the outstanding balance shall be assessed.
Commencing on March 10, 2004, this Note may be prepaid at any time, in whole or
in part, during the remaining term of this Note. Any prepayment shall be applied
against the principal balance outstanding and shall not postpone the due date of
any
Precision Auto Care, Inc. Promissory Note
Page 2 of 4
<PAGE>
subsequent installment of principal or interest nor shall it change the amount
of such installment, unless Bank, in writing, shall agree otherwise.
WAIVER OF PRESENTMENT, ETC.
- ----------------------------
All Persons, including, but not limited to, Borrowers, sureties, endorsers, and
guarantors, now or hereafter liable for the payment of this Note, or any part
thereof, do hereby expressly:
1. Waive demand, present for payment, notice of nonpayment, protest,
notice of protest, and all other notices, and agree that the time for
payment, or payments, of any part of this Note may be extended without
releasing or otherwise affecting their liability on this Note, or the
liens on any collateral securing this Note;
2. Waive the requirement that Bank file suit or diligently collect this
Note, or that Bank enforce any of its security rights or proceed
against the property covered by the Mortgage before proceeding against
the Borrower, sureties, endorsers, or guarantors;
3. Agree to any substitution, exchange, addition or release of any
security, or the addition or release of any person or entity or person
primarily or secondarily liable herein;
4. Agree that Bank shall not be required to first institute any suit, or
to exhaust Bank's remedies against Borrower before Bank institutes
proceedings against any other person or entity primarily or secondarily
liable hereunder in order to enforce payment of this Note;
5. Consent to any extensions, rearrangement, renewal or postponement of
time of payment of this Note, and to any other indulgence with respect
hereto, without notice, consent or consideration to Borrower or to any
other person or entity liable hereunder; and
6. Agree that, notwithstanding the occurrence of any of the foregoing,
except as to any such entity or person expressly released, in writing,
by Bank, Borrower, together with all sureties, endorsers and guarantors
of this Note, shall be, and remain, jointly and severally, directly and
primarily, liable for all sums due and under this Note, the Mortgage
and/or the Loan Agreement.
COSTS OF COLLECTION.
- --------------------
Borrower hereby unconditionally agrees to pay the costs of collection of this
Note, including, but not limited to, reasonable attorney fees and costs incurred
by Bank.
CONFESSION OF JUDGMENT.
- -----------------------
THE UNDERSIGNED, and each of them, hereby authorize any attorney at law to
appear in any court of record in the State of Ohio, or elsewhere, where any of
the Undersigned resides or signed this Note, after the obligation evidenced
hereby, any time after the Note becomes due, whether by acceleration or
otherwise, and to waive the issuance and service of process and confess judgment
against any or all of the Undersigned in favor of the Bank for the amount then
appearing due, together with the costs of suit and reasonable attorney fees, and
thereupon to release all errors and waive all rights of appeal and
Precision Auto Care, Inc. Promissory Note
Page 3 of 4
<PAGE>
stays of execution, but no judgment, or judgments, against less than all of the
Undersigned shall be a bar to any subsequent judgment against those of the
Undersigned against whom judgment has not been taken.
IN WITNESS WHEREOF, Precision Auto Care, Inc., a Virginia Corporation, Miracle
Acquisition, Inc., a Delaware Corporation, and Miracle Partners, Inc., a
Delaware Corporation, as Borrower, have executed this Note as of the day, date
and year first above written.
W A R N I N G ! ! ! BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE
AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE, AND THE POWERS OF A COURT CAN BE USED
TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE
CREDITOR--WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO
COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE (Please refer to Section 2323.13
of the Ohio Revised Code)
AS BORROWER:
- ------------
Precision Auto Care, Inc., a Virginia Corporation
By: /s/ Charles L. Dunlap
____________________________
Charles L. Dunlap
Its: President
____________________________
Miracle Acquisition, Inc., a Ohio Corporation
nka Miracle Industries, Inc.
By: /s/ Charles L. Dunlap
____________________________
Charles L. Dunlap
Its: President
____________________________
Miracle Partners, Inc., a Delaware Corporation
By: /s/ Charles L. Dunlap
____________________________
Charles L. Dunlap
Its: President
____________________________
THIS INSTRUMENT PREPARED BY: David A. Skrobot, Esq., Skrobot, Pope, Levy &
Fisher LLP, 410 East Town Street, Suite 210, Columbus, Ohio 43215, 614:
233-6950(T) 233-6860(F)
Precision Auto Care, Inc. Promissory Note
Page 4 of 4
<PAGE>
MORTGAGE
--------
and
---
ASSIGNMENT OF LEASES AND RENTS
------------------------------
THE UNDERSIGNED, Miracle Partners, Inc., a Delaware Corporation, ("Mortgagor"),
whose address is 748 Miller Dr, Leesburg, VA, for good and valuable
consideration paid by HEARTLAND BANK its successors or assigns ("Lender" and/or
"Mortgagee"), whose address is 850 North Hamilton Road, Gahanna, Ohio 43230, the
receipt and sufficiency of which is hereby acknowledged, hereby mortgages,
grants, bargains, sells, and conveys to Lender the following described real
estate:
See Exhibit "A"
Together with all privileges, easements, appurtenances, and other rights now or
hereafter belonging or appertaining thereto, all buildings and other
improvements now or hereafter located thereon, all easements, rights,
appurtenances, rents, royalties, mineral, oil and gas rights and profits, water,
water rights, and water stock appurtenant to the real estate and all property of
every kind and nature whatsoever, whether real, personal or mixed real and
personal property, tangible and intangible, now owned or hereafter acquired by
Mortgagor and now or hereafter located in, on, or about the real estate or used
or intended to be used in connection with the real estate or intended or
designed (wherever located) to be incorporated into the structures situated or
to be situated on the real estate including, but not limited to, all (i) all
fixtures, inventory, machinery, building materials, equipment, tools, supplies,
furniture, furnishings, appliances, antennas, trees and plants, manufacturing,
fabricating, processing, transporting and packaging equipment, power systems,
elevator systems, heating, cooling and ventilating systems, sewerage and garbage
disposal systems, radio, telephone, television and communication systems
(excepting, however, any leased telephone and television systems), electric, gas
and water distribution systems, food, restaurant and bar service systems, fire
prevention, alarm and security systems, laundry systems, computer and data
processing systems and all hardware and software therefor, and all equipment and
supplies therefor, floor, wall and ceiling coverings, draperies, blinds and
window treatments, storm doors and window; and (ii) all rentals, revenues,
payments, repayments, deposits, income, charges and moneys derived from the use,
lease, sublease, rental or other disposition of the property and the proceeds
from any insurance or condemnation award pertaining thereto; and (iii) all
accounts, contract rights, general intangibles, income tax refunds, actions and
rights of action, instruments and documents; and (iv) all permits, consents,
approvals, authorizations, licenses, franchises, patents, trademarks, trade
names, service marks, copyrights, insignia, signs, slogans or emblems of all
governmental or regulatory authorities or of any persons, corporations,
partnerships, trusts or other entities, used or intended to be used in
connection with the real estate; all of which including all proceeds and
products thereof, and all replacements, additions and accessions therefor and
thereto now owned or hereafter acquired by Mortgagor and located in, or about
said real estate and used, usable or intended to be used in connection with, or
pertaining to or derived from the present or future operations of the real
estate shall be deemed to be and remain a part of the real estate; all of the
foregoing together with said real estate are herein referred to as the
"Property".
To have and to hold the Premises to Lender, Lender's personal
representatives, heirs, successors, and assigns, forever, subject to the
conditions hereinafter set forth.
Mortgagor further assigns to Lender any and all leases now existing, and
all future leases, together with all rents now due or to become due under those
existing or future leases, in which Mortgagor has, or may have, an interest in
or to as same relate to the following-described real estate or any portion
thereof.
This Mortgage/Assignment is given in order to secure repayment of money as
required by a certain Adjustable Rate Commercial Cognovit Promissory Note
("Note") of even date, in the amount of One Million Thirty-Five Thousand and
00/100 Dollars ($1,035,000.00), together with accrued interest and other
applicable charges.
1. ASSIGNMENT OF RENT AND APPOINTMENT OF LENDER AS AGENT TO COLLECT RENT.
Mortgagor hereby assigns to Lender, as additional security, all rental
income, whether denominated minimum rental, additional rental, or otherwise,
to be received by Mortgagor pursuant to the conditions, terms and provisions
of any lease agreement entered into by and between Mortgagor and any other
person or entity relating to the
Miracle Partners, Inc. Mortgage
Page 1 of 7
<PAGE>
Premises subject to this Mortgage/Assignment. The powers and rights
conferred upon Lender herein shall only be exercised by Lender in the event
of the occurrence of an event of default, as same is defined in the Note.
Mortgagor hereby confers upon Lender the exclusive power, to be used or not
to be used, in Lender's sole discretion, to act as agent, or to appoint a
third person to act as agent, for Mortgagor, with full powers, to take or
collect all rents arising from the subject Premises and apply such rents, at
the sole option of Lender, to the payment of the Note or to any taxes, costs
of maintenance, repairs and expenses incident to the Premises and the
management thereof, in such order of priority as Lender may, in Lender's
sole discretion, determine, and to turn any balance remaining over to
Mortgagor; but such collection of rents shall not operate as an affirmance
of any tenant or lease in the event Mortgagor's title to the Premises, or
any portion thereof, should be acquired by Lender. Lender shall be liable to
account only for rents and profits actually received by Lender. In
exercising any of the powers contained in this Mortgage/Assignment, Lender
may also take possession of, and for these purposes use, any and all
personal property contained in the Premises and used by Mortgagor in the
rental and leasing thereof, or any part thereof.
Mortgagor herein specifically assigns no interest to Lender of any of
Mortgagor's obligations under any such lease, or leases, and Mortgagor shall
be, and shall remain, solely liable and responsible for performing or
fulfilling all such obligations under such lease, or leases.
Consent To Notification Of Lessees In The Event Of Default. Mortgagor agrees
that in the event of an occurrence of default, Lender may immediately notify
any, or all, lessees of the Premises of the event of default; and Lender may
direct that all rental payments should then be made directly to Lender
pursuant to conditions, terms and provisions of this Mortgage/Assignment.
Mortgagor hereby directs each such lessee of the Premises to immediately
begin making all such rental payments as required to be made under the
conditions terms and provisions of the lease said lessee has entered into
with Mortgagor directly to Lender, or at such other place as Lender may,
from time to time, specify.
2. PAYMENT OF DEBT. Mortgagor shall pay when due the principal and interest on
the indebtedness evidenced by the Note in accordance with the terms thereof.
3. STATE OF TITLE; WARRANTY. Mortgagor is lawfully seized of the Premises and
the Premises are free and clear of all encumbrances whatsoever except: (a)
the lien of all property taxes and assessments not yet due and payable; (b)
legal highways; (c) zoning ordinances; (d) restrictions, conditions,
covenants and utility easements of record; and Mortgagor will forever
warrant and defend the Premises.
4. REAL PROPERTY TAXES; ASSESSMENTS; LIENS AND CHARGES. Subject to applicable
law or to a written waiver by Lender, Mortgagor shall pay to Lender on the
day monthly installments of principal or interest are payable under the Note
(or on another day designated in writing by Lender), until the Note is paid
in full, a sum (herein "Funds") equal to one-twelfth of (a) the yearly water
and sewer rates and taxes and assessments which may be levied on the
Property, and (b) the yearly premium installments for fire and other hazard
insurance, rent loss insurance and such other insurance covering the
Property as Lender may require pursuant to Paragraph 5 hereof. Any waiver by
Lender of a requirement that Mortgagor pay such Funds may be revoked by
Lender, in Lender's sole discretion, at any time upon notice in writing to
Mortgagor. Lender may require Mortgagor to pay to Lender, in advance, such
other Funds for other taxes, charges, premiums, assessments and impositions
in connection with Mortgagor or the Property which Lender shall reasonably
deem necessary to protect Lender's interests (herein "Other Impositions").
Unless otherwise provided by applicable law, Lender may require Funds for
Other Impositions to be paid by Mortgagor in a lump sum or in periodic
installments, at Lender's option.
The Funds shall be held in an institution(s) the deposits or accounts of
which are insured or guaranteed by a Federal or state agency (including
Lender if Lender is such an institution). Lender shall apply the Funds to
pay said rates, taxes, assessments, insurance premiums and Other Impositions
so long as Mortgagor is not in breach of any covenant or agreement of
Mortgagor in this Instrument. Lender shall make no charge for holding and
applying the Funds, analyzing said account or for so verifying and compiling
said assessments and bills, unless Lender pays Mortgagor interest, earnings
or profits on the Funds and applicable law permits Lender to
Miracle Partners, Inc. Mortgage
Page 2 of 7
<PAGE>
make such a charge. Mortgagor and Lender agree at the time of execution of
this Instrument that no interest on the Funds shall be paid to Mortgagor,
and unless such agreement is made or applicable law requires interest,
earnings or profits to be paid, Lender shall not be required to pay
Mortgagor any interest, earnings or profits on the Funds. Lender shall give
to Mortgagor, without charge, an annual accounting of the Funds in Lender's
normal format showing credits and debits to the Funds and the purpose for
which each debit to the Funds was made. The funds are pledged as additional
security for the sums secured by this Instrument.
If the amount of the Funds held by Lender at the time of the annual
accounting thereof shall exceed the amount deemed necessary by Lender to
provide for the payment of water and sewer rates, taxes, assessments,
insurance premiums, and Other Impositions, as they fall due, such excess
shall be credited to Mortgagor on the next monthly installment or
installments of funds due. If at any time the amount of the Funds held by
Lender shall be less than the amount deemed necessary by Lender to pay water
and sewer rates, taxes, assessments, insurance premiums, and Other
Impositions, as they fall due, Mortgagor shall pay to Lender any amount
necessary to make up the deficiency within thirty days after notice from
Lender to Mortgagor requesting payment thereof.
Upon Mortgagor's breach of any covenant or agreement of Mortgagor in this
Instrument, Lender may apply, in any amount and in any order as Lender shall
determine, in Lender's sole discretion, any Funds held by Lender at the time
of application (i) to pay rates, taxes, assessments, insurance premiums and
Other Impositions which are now or will hereafter become due, or (ii) as a
credit against sums secured by this Instrument. Upon payment in full of all
sums secured by this Instrument, Lender shall promptly refund to Mortgagor
any Funds held by Lender.
5. INSURANCE. At Mortgagor's expense, Mortgagor shall obtain and maintain in
full force and effect at all times during the continuance of this Mortgage
fire and extended coverage insurance in an amount sufficient to prevent
Mortgagor from being a co-insurer under said policy of insurance, but in no
event less than the aggregate payoff balance on the Note and of all
obligations secured by mortgages encumbering the Premises which have
priority over this Mortgage. All such insurance policies or renewals
thereof shall include a standard mortgage clause in favor of and in form
acceptable to Lender. Mortgagor shall promptly furnish Lender with a copy of
said policies and all receipts of paid premiums. The policies of insurance
shall provide for written notice to Lender at least 30 days prior to any
cancellation, modification or lapse thereof. In the event of loss, Mortgagor
shall give prompt written notice to Lender and Lender may make proof of loss
if not promptly made by Mortgagor.
6. MAINTENANCE OF PREMISES. Mortgagor shall keep the Premises in good repair
and shall not commit waste or permit deterioration to the Premises,
reasonable wear and tear excepted, and shall comply with all governmental
(Federal, State or Local) regulations concerning the Premises. If this
Mortgage is on a unit in a condominium, Mortgagor shall perform all of
Mortgagor's obligations under the constituent condominium documents.
Without Lender's prior consent, Mortgagor shall not grant any easements
affecting the Premises, apply for any change in the current zoning
designation for the Premises, change the use of the Premises other than what
it is being utilized for as of the date hereof, create or change or modify
any existing restrictions, conditions or covenants affecting the Premises,
subdivide the Premises, or construct or make any structural or substantial
improvements, alterations or modifications to the Premises.
7. PROTECTION OF LENDER'S SECURITY. If Mortgagor fails to perform the covenants
and agreements contained in this Mortgage, or if any action or proceeding is
commenced which Lender, in Lender's reasonable judgment, believes is
detrimental to or impairs Lender's security in the Premises, including, but
not limited to eminent domain, insolvency, code enforcement, or arrangements
or proceedings involving a bankrupt or decedent, then Lender, at Lender's
sole option and upon notice to Mortgagor, may make such appearances,
disburse such sums and take such action as is necessary to protect Lender's
interest, including but not limited to, disbursement of reasonable
attorney's fees and entry upon the Premises to make repairs.
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Any amounts disbursed by Lender pursuant to this Paragraph 7 or for advances
made for the payment of real property, taxes, assessments or insurance
premiums, with interest thereon as hereinafter provided, shall become
additional amounts owed by Mortgagor which are secured by this Mortgage.
Such amounts shall be payable upon notice to Mortgagor from Lender
requesting payment thereof and shall bear interest from the date of
disbursement at the rate payable from time to time on the unpaid principal
under the Note. Nothing contained herein shall require Lender to incur any
expense or take any action hereunder, and Mortgagor hereby waives any and
all claims or right against Lender to any payment on, or offset against, the
indebtedness secured hereby by reason of any such payment by Lender.
Lender, or Lender's agents, shall have the right to enter upon the Premises
at all reasonable times for the purpose of inspecting the same, provided
Lender shall give Mortgagor adequate and reasonable notice under the
circumstances prior to any such entry. The notice provided for herein need
not conform with the provisions of Paragraph 15 below.
8. EMINENT DOMAIN. The proceeds of any award or claim for damages, direct or
consequential, in connection with any condemnation proceedings or other
taking of the Premises, or a part thereof, or for conveyances in lieu of
condemnation, are hereby assigned to Lender and shall be paid to Lender.
When there is a total taking of the Premises, the proceeds shall be applied
to the sums secured by this Mortgage, and the balance, if any, shall be paid
to Mortgagor. When there is a partial taking of the Premises, unless Lender
and Mortgagor otherwise agree in writing, or unless in Lender's sole opinion
the value of the remaining premises has been adversely affected by the
taking, the proceeds paid for such taking shall be applied to the sums
secured by this Mortgage in the proportion which the unpaid principal amount
of the sums secured by this Mortgage immediately prior to the date of taking
bears to the fair market value of the Premises immediately prior to the date
of taking, and the balance of such proceeds shall be paid to Mortgagor. In
the event that the Lender determines, in its sole opinion, that the value of
the remaining premises has been adversely affected by the taking, the
proceeds shall be applied to the sums secured by this Mortgage, and the
balance, if any, shall be paid to Mortgagor.
If (a) the Premises are abandoned, or (b) after notice by Lender to
Mortgagor that the condemning authority offers to make an award or settle a
claim for damages, Mortgagor fails to respond to Lender within 30 days after
the date of such notice is mailed, Lender is hereby authorized to collect
and apply the proceeds, at Lender's option, either to restoration or repair
of the Premises or to the sums secured by this Mortgage.
Unless Lender and Mortgagor otherwise agree in writing, any application of
proceeds to the sums secured by this Mortgage shall not extend or postpone
the due date of the payment of the Note or change the amount of any
installments due under the Note.
9. TRANSFER OF THE PREMISES. If all or any part of the Premises or any interest
therein is sold or transferred by Mortgagor without Lender's prior written
consent, Lender may, at Lender's option, declare all sums secured by this
Mortgage to be immediately due and payable; provided, however that the
following transfers or conveyances shall not accelerate the indebtedness
secured hereby: (a) the creation of a lien or encumbrance subordinate to
this Mortgage, excluding, however, a conveyance by a Land Installment
Contract or the granting of a leasehold interest containing an option to
purchase, either of which shall require the prior written consent of Lender;
(b) the creation of a purchase money security interest for personal
property; and (c) a transfer by devise or descent, or a transfer by
operation of law upon the death of a co-owner.
10. SECURITY AGREEMENT; ASSIGNMENT OF RENTS. This Mortgage shall act as and
constitute a Security Agreement under the Uniform Commercial Code. Upon
Lender's request, Mortgagor shall execute and deliver to Lender financing
statements and other documents required to perfect a security interest in
Mortgagor's personal property located at the Premises. The cost of recording
such documents shall be paid by Mortgagor.
As part of the security granted by this Mortgage, Mortgagor hereby assigns
to Lender the rents of the Premises, provided that Mortgagor shall, prior
to any acceleration of the amounts secured by this Mortgage, have the right
to collect and retain such rents. All rents collected by Lender or Lender's
agent shall be applied first to the
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payment of costs of operation and management of the Premises and collection
of rents, including but not limited to, receiver's bonds and fees,
reasonable attorney's fees and then to the sums secured by this Mortgage.
11. DEFAULT; REMEDIES. The entire unpaid principal amount of the Note, together
with all unpaid and accrued interest and all other charges and amounts
payable to Lender under the Note or this Mortgage, shall, at Lender's option
become immediately due and payable; (a) if Mortgagor does not promptly and
fully pay when due the amounts owed Lender under the Note in accordance with
the terms and tenor of the Note; (b) if the Premises or any part thereof or
any interest thereon are sold or transferred except as permitted under the
provisions of Paragraph 9 of this Mortgage; (c) if Mortgagor fails to
observe or perform any other provision, covenant or condition required of
Mortgagor under the Note or this Mortgage within 30 days after Lender gives
notice to Mortgagor of Mortgagor's failure to observe or perform such
provision, covenant or condition; (d) if the Premises are abandoned; (e) if
an order for relief under any bankruptcy laws of the United States is issued
naming Mortgagor as debtor or if Mortgagor makes an assignment for the
benefit of creditors or enters into a composition agreement with Mortgagor's
creditors; (f) if the interest of Mortgagor in the Premises is attached,
levied upon, or seized by legal process; or (g) if a trustee, receiver or
liquidator is appointed on behalf of Mortgagor. Upon an acceleration of the
amounts secured by this Mortgage as provided for in this Paragraph 11 Lender
shall have the right to foreclose this Mortgage lien, have a receiver
appointed, take possession of and manage the Premises, collect the rents
derived from the Premises, and take any and all other action available to
Lender under law.
12. APPLICATION OF PAYMENTS. All payments received by Lender under the Note or
this Mortgage, unless otherwise stated in this Mortgage, shall be applied by
Lender first to the payment of any amounts advanced or paid by Lender for
the protection of the security granted by this Mortgage, then to expenses
incurred by Lender by reason of Mortgagor's default under this Mortgage,
then to interest payable on the Note, and then to the principal of the Note.
13. FORBEARANCE; REMEDIES CUMULATIVE. If Lender (a) grants any extension of time
or forbearance with respect to the payment of any sums secured by this
Mortgage, (b) takes other or additional security for the payment thereof,
(c) waives or fails to exercise any right granted in this Mortgage or in the
Note, (d) grants any release with or without consideration of the whole or
part of the security granted by this Mortgage, or (e) amends or modifies in
any respect any of the terms and provisions of this Mortgage or the Note,
any such act or omission shall not release Mortgagor of any obligations
under this Mortgage or under the Note, nor preclude Lender from exercising
any right granted in this Mortgage or under law for a default by Mortgagor
or for any subsequent default.
Lender's procurement and payment of fire and casualty insurance and Lender's
payment of real property taxes and assessments and other governmental
charges and liens after Mortgagor has failed to pay the same shall not be a
waiver of Mortgagor's default or Lender's right to accelerate the
indebtedness secured hereby.
All remedies provided in this Mortgage are distinct and cumulative to any
other right or remedy under this Mortgage or which are afforded under law
and may be exercised concurrently, independently or successively.
14. SUCCESSORS AND ASSIGNS; JOINT AND SEVERAL LIABILITY; CAPTIONS; GOVERNING
LAW; SEVERABILITY. Subject to the provisions of Paragraph 9 above, the
covenants and agreements of this Mortgage shall bind, and the rights
hereunder shall inure to, the respective successors and assigns, personal
representatives and heirs of Lender and Mortgagor. All covenants and
agreements of Mortgagor shall be joint and several. The captions and section
headings of this Mortgage are for convenience only and shall not be used to
interpret or define the provisions of this Mortgage. This Mortgage shall be
governed by the laws of the State of Ohio, and, if any provision or clause
of this Mortgage or the Note conflicts with applicable law, such conflict
shall not affect other provisions of this Mortgage or the Note which can be
given effect without the conflicting provision. The provisions of this
Mortgage and the Note are severable.
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15. NOTICES. Except as otherwise set forth in this Mortgage or as may otherwise
be required by applicable law, any notice to be given under this Mortgage
shall be in writing and mailed with postage prepaid to Lender and Mortgagor
at the addresses set forth at the beginning of this Mortgage or to such
other addresses as Lender or Mortgagor may designate by notice given to the
other party as provided for in this Paragraph 15.
16. RELEASES. Upon payment of all sums secured by this Mortgage and the
observance and performance of each of the covenants and agreements of this
Mortgage to be observed and performed by Mortgagor, Lender shall provide to
Mortgagor, in recordable form, a release of this Mortgage and of any other
security interest given to Lender to secure the Note, in recordable form.
17. FINANCIAL STATEMENTS, RENT ROLLS AND OPERATING STATEMENTS:
On or before the 120th day following the end of Mortgagor's fiscal/calendar
year, and at such other times as Lender may require, Mortgagor shall furnish
to Lender a copy of Mortgagor's current financial statement, current
certified rent roll and the prior year's annual operating statement setting
forth, in such detail as Lender requires, the income and expenses derived
from and attributable to the subject premises. Lender, at Lender's sole
option, may require that said statements be prepared by an independent
Certified Public Account. In the event that Mortgagor fails to furnish the
statements within the time set forth herein, the Note rate of interest shall
be increased by two percent (2%) without prior notice to Mortgagor until the
statements are furnished to Lender in a form which is satisfactory to
Lender.
18. ENVIRONMENTAL LAW COMPLIANCE AND INDEMNIFICATION. In its use, possession,
and maintenance of the mortgage property, Mortgagor, its employees, agents,
independent contractors and assigns shall strictly comply with the
Comprehensive Environmental Response, Compensation, and Liability Act and
any other federal, state, or local statute, law, regulation, ordinance,
code, rule, order, or decree, whether now or hereafter in effect, requiring
or imposing standards for environmental safety and cleanliness concerning
the placement, use, storage, transportation or discharge of any hazardous,
toxic, or dangerous waste, substance, or material ("Environmental Laws").
Mortgagor hereby expressly represents, warrants, and covenants to Lender
that: (a) neither Mortgagor nor any other person to the actual knowledge of
Mortgagor has used or permitted any hazardous substances to be placed, held,
stored, disposed on or discharged from the mortgaged property or any portion
thereof in violation of any Environmental Laws; (b) to the best of
Mortgagor's knowledge, the mortgaged property does not now contain any
hazardous substance in violation of any Environmental Laws; and (c)
Mortgagor, so long as any indebtedness secured by this Mortgage remains
unpaid, shall not allow any hazardous substances to the placed, held,
stored, disposed on the mortgaged property or discharged from the mortgaged
property or any portion thereof or incorporated into any improvements to be
constructed on the mortgaged property in violation of any Environmental
Laws. For purposes of this paragraph, the term "hazardous substance" shall
include but not be limited to any hazardous, toxic, or dangerous waste,
substance, or material defined as such in or for the purpose of any
Environmental Laws.
Mortgagor hereby agrees to hold Lender harmless from and indemnify Lender
from and against any and all losses, liabilities, damages, injuries, costs,
expenses, and claims, including reasonable attorney fees, of any and every
kind whatsoever, paid, incurred, or suffered by or asserted against Lender
as a direct or indirect result of any of the following: (a) the presence on
or under, or the escape, seepage, leakage, spillage, discharge, emission, or
release from the mortgaged property or any portion thereof of any hazardous
substance; or (b) any liens, interests, or rights against the mortgaged
property, or any portion thereof, created, permitted, or imposed under
authority of Environmental Laws now or hereafter existing.
The provisions of this paragraph 18 shall survive payment of the Note and
Mortgage/Assignment.
THIS MORTGAGE/ASSIGNMENT incorporates, as if fully rewritten herein, the
conditions, terms and provisions of the Note and Loan Agreement, both of even
date, and or any other documents which may have been executed by Mortgagor,
and/or any endorser, co-maker or guarantor, in connection with the Loan made by
Lender to Mortgagor
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THIS MORTGAGE/ASSIGNMENT, together with the Note or any other documents which
may have been executed by Mortgagor in connection with the Loan made by Lender
to Mortgagor, constitute the entire agreement entered into by and among
Mortgagor and Lender, and no prior or contemporaneous representations, whether
oral or written, not contained herein, shall be of any effect.
THIS MORTGAGE/ASSIGNMENT shall not be modified, changed, or altered in any
respect, except in writing, executed by Lender and Mortgagor and all endorsers,
comakers and guarantors to the Note.
IN WITNESS WHEREOF, the undersigned Miracle Partners, Inc., a Delaware
Corporation have executed this Mortgage and Assignment of Leases and Rents on
this the 8th day of March, 1999.
SIGNED AND ACKNOWLEDGED Miracle Partners, Inc., a Delaware Corporation
IN THE PRESENCE OF:
/s/ Arnold Janofsky By: /s/ Charles L. Dunlap
________________________ __________________________
Witness Charles L. Dunlap
Print: Arnold Janofsky Its: President
_________________ _________________________
/s/ Diana M. Kash
________________________
Witness
Print: Diana M. Kash
_________________
STATE OF VIRGINIA
_______________ }
COUNTY OF LOUDOUN } ss:
______________
The foregoing Mortgage was acknowledged before me this 8th day of March,
1999, by Charles L. Dunlap, President of Miracle Partners, Inc., a Delaware
corporation, on behalf of the corporation.
/s/ Evelyn Sue Saverine
________________________
NOTARY PUBLIC
My Commission Expires: 5/31/2000
This Instrument Prepared By:
____________________________
David A. Skrobot, Esq.
400 East Town Street, Suite 210
Columbus, OH 43215
614: 233-6950(T) 233-6960(F)
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<PAGE>
MORTGAGE
--------
and
---
ASSIGNMENT OF LEASES AND RENTS
------------------------------
THE UNDERSIGNED, Miracle Acquisition, Inc. now known as Miracle Industries,
Inc., an Ohio Corporation, ("Mortgagor"), whose address is 748 Miller Drive,
Leesburg, VA, for good and valuable consideration paid by HEARTLAND BANK its
successors or assigns ("Lender" and/or "Mortgagee"), whose address is 850 North
Hamilton Road, Gahanna, Ohio 43230, the receipt and sufficiency of which is
hereby acknowledged, hereby mortgages, grants, bargains, sells, and conveys to
Lender the following described real estate:
See Exhibit "A"
Together with all privileges, easements, appurtenances, and other rights now or
hereafter belonging or appertaining thereto, all buildings and other
improvements now or hereafter located thereon, all easements, rights,
appurtenances, rents, royalties, mineral, oil and gas rights and profits, water,
water rights, and water stock appurtenant to the real estate and all property of
every kind and nature whatsoever, whether real, personal or mixed real and
personal property, tangible and intangible, now owned or hereafter acquired by
Mortgagor and now or hereafter located in, on, or about the real estate or used
or intended to be used in connection with the real estate or intended or
designed (wherever located) to be incorporated into the structures situated or
to be situated on the real estate including, but not limited to, all (i) all
fixtures, inventory, machinery, building materials, equipment, tools, supplies,
furniture, furnishings, appliances, antennas, trees and plants, manufacturing,
fabricating, processing, transporting and packaging equipment, power systems,
elevator systems, heating, cooling and ventilating systems, sewerage and garbage
disposal systems, radio, telephone, television and communication systems
(excepting, however, any leased telephone and television systems), electric, gas
and water distribution systems, food, restaurant and bar service systems, fire
prevention, alarm and security systems, laundry systems, computer and data
processing systems and all hardware and software therefor, and all equipment and
supplies therefor, floor, wall and ceiling coverings, draperies, blinds and
window treatments, storm doors and window; and (ii) all rentals, revenues,
payments, repayments, deposits, income, charges and moneys derived from the use,
lease, sublease, rental or other disposition of the property and the proceeds
from any insurance or condemnation award pertaining thereto; and (iii) all
accounts, contract rights, general intangibles, income tax refunds, actions and
rights of action, instruments and documents; and (iv) all permits, consents,
approvals, authorizations, licenses, franchises, patents, trademarks, trade
names, service marks, copyrights, insignia, signs, slogans or emblems of all
governmental or regulatory authorities or of any persons, corporations,
partnerships, trusts or other entities, used or intended to be used in
connection with the real estate; all of which including all proceeds and
products thereof, and all replacements, additions and accessions therefor and
thereto now owned or hereafter acquired by Mortgagor and located in, or about
said real estate and used, usable or intended to be used in connection with, or
pertaining to or derived from the present or future operations of the real
estate shall be deemed to be and remain a part of the real estate; all of the
foregoing together with said real estate are herein referred to as the
"Property".
To have and to hold the Premises to Lender, Lender's personal
representatives, heirs, successors, and assigns, forever, subject to the
conditions hereinafter set forth.
Mortgagor further assigns to Lender any and all leases now existing, and
all future leases, together with all rents now due or to become due under those
existing or future leases, in which Mortgagor has, or may have, an interest in
or to as same relate to the following-described real estate or any portion
thereof.
This Mortgage/Assignment is given in order to secure repayment of money as
required by a certain Adjustable Rate Commercial Cognovit Promissory Note
("Note") of even date, in the amount of One Million Thirty-Five Thousand and
00/100 Dollars ($1,035,000.00), together with accrued interest and other
applicable charges.
1. ASSIGNMENT OF RENT AND APPOINTMENT OF LENDER AS AGENT TO COLLECT RENT.
Mortgagor hereby assigns to Lender, as additional security, all rental
income, whether denominated minimum rental, additional rental, or otherwise,
to be received by Mortgagor pursuant to the conditions, terms and provisions
of any lease agreement entered into by and between Mortgagor and any other
person or entity relating to the
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Premises subject to this Mortgage/Assignment. The powers and rights
conferred upon Lender herein shall only be exercised by Lender in the event
of the occurrence of an event of default, as same is defined in the Note.
Mortgagor hereby confers upon Lender the exclusive power, to be used or not
to be used, in Lender's sole discretion, to act as agent, or to appoint a
third person to act as agent, for Mortgagor, with full powers, to take or
collect all rents arising from the subject Premises and apply such rents, at
the sole option of Lender, to the payment of the Note or to any taxes, costs
of maintenance, repairs and expenses incident to the Premises and the
management thereof, in such order of priority as Lender may, in Lender's
sole discretion, determine, and to turn any balance remaining over to
Mortgagor; but such collection of rents shall not operate as an affirmance
of any tenant or lease in the event Mortgagor's title to the Premises, or
any portion thereof, should be acquired by Lender. Lender shall be liable to
account only for rents and profits actually received by Lender. In
exercising any of the powers contained in this Mortgage/Assignment, Lender
may also take possession of, and for these purposes use, any and all
personal property contained in the Premises and used by Mortgagor in the
rental and leasing thereof, or any part thereof.
Mortgagor herein specifically assigns no interest to Lender of any of
Mortgagor's obligations under any such lease, or leases, and Mortgagor shall
be, and shall remain, solely liable and responsible for performing or
fulfilling all such obligations under such lease, or leases.
Consent To Notification Of Lessees In The Event Of Default. Mortgagor agrees
that in the event of an occurrence of default, Lender may immediately notify
any, or all, lessees of the Premises of the event of default; and Lender may
direct that all rental payments should then be made directly to Lender
pursuant to conditions, terms and provisions of this Mortgage/Assignment.
Mortgagor hereby directs each such lessee of the Premises to immediately
begin making all such rental payments as required to be made under the
conditions terms and provisions of the lease said lessee has entered into
with Mortgagor directly to Lender, or at such other place as Lender may,
from time to time, specify.
2. PAYMENT OF DEBT. Mortgagor shall pay when due the principal and interest on
the indebtedness evidenced by the Note in accordance with the terms thereof.
3. STATE OF TITLE; WARRANTY. Mortgagor is lawfully seized of the Premises and
the Premises are free and clear of all encumbrances whatsoever except: (a)
the lien of all property taxes and assessments not yet due and payable; (b)
legal highways; (c) zoning ordinances; (d) restrictions, conditions,
covenants and utility easements of record; and Mortgagor will forever
warrant and defend the Premises.
4. REAL PROPERTY TAXES; ASSESSMENTS; LIENS AND CHARGES. Subject to applicable
law or to a written waiver by Lender, Mortgagor shall pay to Lender on the
day monthly installments of principal or interest are payable under the Note
(or on another day designated in writing by Lender), until the Note is paid
in full, a sum (herein "Funds") equal to one-twelfth of (a) the yearly water
and sewer rates and taxes and assessments which may be levied on the
Property, and (b) the yearly premium installments for fire and other hazard
insurance, rent loss insurance and such other insurance covering the
Property as Lender may require pursuant to Paragraph 5 hereof. Any waiver by
Lender of a requirement that Mortgagor pay such Funds may be revoked by
Lender, in Lender's sole discretion, at any time upon notice in writing to
Mortgagor. Lender may require Mortgagor to pay to Lender, in advance, such
other Funds for other taxes, charges, premiums, assessments and impositions
in connection with Mortgagor or the Property which Lender shall reasonably
deem necessary to protect Lender's interests (herein "Other Impositions").
Unless otherwise provided by applicable law, Lender may require Funds for
Other Impositions to be paid by Mortgagor in a lump sum or in periodic
installments, at Lender's option.
The Funds shall be held in an institution(s) the deposits or accounts of
which are insured or guaranteed by a Federal or state agency (including
Lender if Lender is such an institution). Lender shall apply the Funds to
pay said rates, taxes, assessments, insurance premiums and Other Impositions
so long as Mortgagor is not in breach of any covenant or agreement of
Mortgagor in this Instrument. Lender shall make no charge for holding and
applying the Funds, analyzing said account or for so verifying and compiling
said assessments and bills, unless Lender pays Mortgagor interest, earnings
or profits on the Funds and applicable law permits Lender to
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<PAGE>
make such a charge. Mortgagor and Lender agree at the time of execution of
this Instrument that no interest on the Funds shall be paid to Mortgagor,
and unless such agreement is made or applicable law requires interest,
earnings or profits to be paid, Lender shall not be required to pay
Mortgagor any interest, earnings or profits on the Funds. Lender shall give
to Mortgagor, without charge, an annual accounting of the Funds in Lender's
normal format showing credits and debits to the Funds and the purpose for
which each debit to the Funds was made. The funds are pledged as additional
security for the sums secured by this Instrument.
If the amount of the Funds held by Lender at the time of the annual
accounting thereof shall exceed the amount deemed necessary by Lender to
provide for the payment of water and sewer rates, taxes, assessments,
insurance premiums, and Other Impositions, as they fall due, such excess
shall be credited to Mortgagor on the next monthly installment or
installments of funds due. If at any time the amount of the Funds held by
Lender shall be less than the amount deemed necessary by Lender to pay water
and sewer rates, taxes, assessments, insurance premiums, and Other
Impositions, as they fall due, Mortgagor shall pay to Lender any amount
necessary to make up the deficiency within thirty days after notice from
Lender to Mortgagor requesting payment thereof.
Upon Mortgagor's breach of any covenant or agreement of Mortgagor in this
Instrument, Lender may apply, in any amount and in any order as Lender shall
determine, in Lender's sole discretion, any Funds held by Lender at the time
of application (i) to pay rates, taxes, assessments, insurance premiums and
Other Impositions which are now or will hereafter become due, or (ii) as a
credit against sums secured by this Instrument. Upon payment in full of all
sums secured by this Instrument, Lender shall promptly refund to Mortgagor
any Funds held by Lender.
5. INSURANCE. At Mortgagor's expense, Mortgagor shall obtain and maintain in
full force and effect at all times during the continuance of this Mortgage
fire and extended coverage insurance in an amount sufficient to prevent
Mortgagor from being a co-insurer under said policy of insurance, but in no
event less than the aggregate payoff balance on the Note and of all
obligations secured by mortgages encumbering the Premises which have
priority over this Mortgage. All such insurance policies or renewals
thereof shall include a standard mortgage clause in favor of and in form
acceptable to Lender. Mortgagor shall promptly furnish Lender with a copy of
said policies and all receipts of paid premiums. The policies of insurance
shall provide for written notice to Lender at least 30 days prior to any
cancellation, modification or lapse thereof. In the event of loss, Mortgagor
shall give prompt written notice to Lender and Lender may make proof of loss
if not promptly made by Mortgagor.
6. MAINTENANCE OF PREMISES. Mortgagor shall keep the Premises in good repair
and shall not commit waste or permit deterioration to the Premises,
reasonable wear and tear excepted, and shall comply with all governmental
(Federal, State or Local) regulations concerning the Premises. If this
Mortgage is on a unit in a condominium, Mortgagor shall perform all of
Mortgagor's obligations under the constituent condominium documents.
Without Lender's prior consent, Mortgagor shall not grant any easements
affecting the Premises, apply for any change in the current zoning
designation for the Premises, change the use of the Premises other than what
it is being utilized for as of the date hereof, create or change or modify
any existing restrictions, conditions or covenants affecting the Premises,
subdivide the Premises, or construct or make any structural or substantial
improvements, alterations or modifications to the Premises.
7. PROTECTION OF LENDER'S SECURITY. If Mortgagor fails to perform the covenants
and agreements contained in this Mortgage, or if any action or proceeding is
commenced which Lender, in Lender's reasonable judgment, believes is
detrimental to or impairs Lender's security in the Premises, including, but
not limited to eminent domain, insolvency, code enforcement, or arrangements
or proceedings involving a bankrupt or decedent, then Lender, at Lender's
sole option and upon notice to Mortgagor, may make such appearances,
disburse such sums and take such action as is necessary to protect Lender's
interest, including but not limited to, disbursement of reasonable
attorney's fees and entry upon the Premises to make repairs.
Miracle Acquisition, Inc. Mortgage
Page 3 of 7
<PAGE>
Any amounts disbursed by Lender pursuant to this Paragraph 7 or for advances
made for the payment of real property, taxes, assessments or insurance
premiums, with interest thereon as hereinafter provided, shall become
additional amounts owed by Mortgagor which are secured by this Mortgage.
Such amounts shall be payable upon notice to Mortgagor from Lender
requesting payment thereof and shall bear interest from the date of
disbursement at the rate payable from time to time on the unpaid principal
under the Note. Nothing contained herein shall require Lender to incur any
expense or take any action hereunder, and Mortgagor hereby waives any and
all claims or right against Lender to any payment on, or offset against, the
indebtedness secured hereby by reason of any such payment by Lender.
Lender, or Lender's agents, shall have the right to enter upon the Premises
at all reasonable times for the purpose of inspecting the same, provided
Lender shall give Mortgagor adequate and reasonable notice under the
circumstances prior to any such entry. The notice provided for herein need
not conform with the provisions of Paragraph 15 below.
8. EMINENT DOMAIN. The proceeds of any award or claim for damages, direct or
consequential, in connection with any condemnation proceedings or other
taking of the Premises, or a part thereof, or for conveyances in lieu of
condemnation, are hereby assigned to Lender and shall be paid to Lender.
When there is a total taking of the Premises, the proceeds shall be applied
to the sums secured by this Mortgage, and the balance, if any, shall be paid
to Mortgagor. When there is a partial taking of the Premises, unless Lender
and Mortgagor otherwise agree in writing, or unless in Lender's sole opinion
the value of the remaining premises has been adversely affected by the
taking, the proceeds paid for such taking shall be applied to the sums
secured by this Mortgage in the proportion which the unpaid principal amount
of the sums secured by this Mortgage immediately prior to the date of taking
bears to the fair market value of the Premises immediately prior to the date
of taking, and the balance of such proceeds shall be paid to Mortgagor. In
the event that the Lender determines, in its sole opinion, that the value of
the remaining premises has been adversely affected by the taking, the
proceeds shall be applied to the sums secured by this Mortgage, and the
balance, if any, shall be paid to Mortgagor.
If (a) the Premises are abandoned, or (b) after notice by Lender to
Mortgagor that the condemning authority offers to make an award or settle a
claim for damages, Mortgagor fails to respond to Lender within 30 days after
the date of such notice is mailed, Lender is hereby authorized to collect
and apply the proceeds, at Lender's option, either to restoration or repair
of the Premises or to the sums secured by this Mortgage.
Unless Lender and Mortgagor otherwise agree in writing, any application of
proceeds to the sums secured by this Mortgage shall not extend or postpone
the due date of the payment of the Note or change the amount of any
installments due under the Note.
9. TRANSFER OF THE PREMISES. If all or any part of the Premises or any interest
therein is sold or transferred by Mortgagor without Lender's prior written
consent, Lender may, at Lender's option, declare all sums secured by this
Mortgage to be immediately due and payable; provided, however that the
following transfers or conveyances shall not accelerate the indebtedness
secured hereby: (a) the creation of a lien or encumbrance subordinate to
this Mortgage, excluding, however, a conveyance by a Land Installment
Contract or the granting of a leasehold interest containing an option to
purchase, either of which shall require the prior written consent of Lender;
(b) the creation of a purchase money security interest for personal
property; and (c) a transfer by devise or descent, or a transfer by
operation of law upon the death of a co-owner.
10. SECURITY AGREEMENT; ASSIGNMENT OF RENTS. This Mortgage shall act as and
constitute a Security Agreement under the Uniform Commercial Code. Upon
Lender's request, Mortgagor shall execute and deliver to Lender financing
statements and other documents required to perfect a security interest in
Mortgagor's personal property located at the Premises. The cost of recording
such documents shall be paid by Mortgagor.
As part of the security granted by this Mortgage, Mortgagor hereby assigns
to Lender the rents of the Premises, provided that Mortgagor shall, prior
to any acceleration of the amounts secured by this Mortgage, have the right
to collect and retain such rents. All rents collected by Lender or Lender's
agent shall be applied first to the
Miracle Acquisition, Inc. Mortgage
Page 4 of 7
<PAGE>
payment of costs of operation and management of the Premises and collection
of rents, including but not limited to, receiver's bonds and fees,
reasonable attorney's fees and then to the sums secured by this Mortgage.
11. DEFAULT; REMEDIES. The entire unpaid principal amount of the Note, together
with all unpaid and accrued interest and all other charges and amounts
payable to Lender under the Note or this Mortgage, shall, at Lender's option
become immediately due and payable; (a) if Mortgagor does not promptly and
fully pay when due the amounts owed Lender under the Note in accordance with
the terms and tenor of the Note; (b) if the Premises or any part thereof or
any interest thereon are sold or transferred except as permitted under the
provisions of Paragraph 9 of this Mortgage; (c) if Mortgagor fails to
observe or perform any other provision, covenant or condition required of
Mortgagor under the Note or this Mortgage within 30 days after Lender gives
notice to Mortgagor of Mortgagor's failure to observe or perform such
provision, covenant or condition; (d) if the Premises are abandoned; (e) if
an order for relief under any bankruptcy laws of the United States is issued
naming Mortgagor as debtor or if Mortgagor makes an assignment for the
benefit of creditors or enters into a composition agreement with Mortgagor's
creditors; (f) if the interest of Mortgagor in the Premises is attached,
levied upon, or seized by legal process; or (g) if a trustee, receiver or
liquidator is appointed on behalf of Mortgagor. Upon an acceleration of the
amounts secured by this Mortgage as provided for in this Paragraph 11 Lender
shall have the right to foreclose this Mortgage lien, have a receiver
appointed, take possession of and manage the Premises, collect the rents
derived from the Premises, and take any and all other action available to
Lender under law.
12. APPLICATION OF PAYMENTS. All payments received by Lender under the Note or
this Mortgage, unless otherwise stated in this Mortgage, shall be applied by
Lender first to the payment of any amounts advanced or paid by Lender for
the protection of the security granted by this Mortgage, then to expenses
incurred by Lender by reason of Mortgagor's default under this Mortgage,
then to interest payable on the Note, and then to the principal of the Note.
13. FORBEARANCE; REMEDIES CUMULATIVE. If Lender (a) grants any extension of time
or forbearance with respect to the payment of any sums secured by this
Mortgage, (b) takes other or additional security for the payment thereof,
(c) waives or fails to exercise any right granted in this Mortgage or in the
Note, (d) grants any release with or without consideration of the whole or
part of the security granted by this Mortgage, or (e) amends or modifies in
any respect any of the terms and provisions of this Mortgage or the Note,
any such act or omission shall not release Mortgagor of any obligations
under this Mortgage or under the Note, nor preclude Lender from exercising
any right granted in this Mortgage or under law for a default by Mortgagor
or for any subsequent default.
Lender's procurement and payment of fire and casualty insurance and Lender's
payment of real property taxes and assessments and other governmental
charges and liens after Mortgagor has failed to pay the same shall not be a
waiver of Mortgagor's default or Lender's right to accelerate the
indebtedness secured hereby.
All remedies provided in this Mortgage are distinct and cumulative to any
other right or remedy under this Mortgage or which are afforded under law
and may be exercised concurrently, independently or successively.
14. SUCCESSORS AND ASSIGNS; JOINT AND SEVERAL LIABILITY; CAPTIONS; GOVERNING
LAW; SEVERABILITY. Subject to the provisions of Paragraph 9 above, the
covenants and agreements of this Mortgage shall bind, and the rights
hereunder shall inure to, the respective successors and assigns, personal
representatives and heirs of Lender and Mortgagor. All covenants and
agreements of Mortgagor shall be joint and several. The captions and section
headings of this Mortgage are for convenience only and shall not be used to
interpret or define the provisions of this Mortgage. This Mortgage shall be
governed by the laws of the State of Ohio, and, if any provision or clause
of this Mortgage or the Note conflicts with applicable law, such conflict
shall not affect other provisions of this Mortgage or the Note which can be
given effect without the conflicting provision. The provisions of this
Mortgage and the Note are severable.
Miracle Acquisition, Inc. Mortgage
Page 5 of 7
<PAGE>
15. NOTICES. Except as otherwise set forth in this Mortgage or as may otherwise
be required by applicable law, any notice to be given under this Mortgage
shall be in writing and mailed with postage prepaid to Lender and Mortgagor
at the addresses set forth at the beginning of this Mortgage or to such
other addresses as Lender or Mortgagor may designate by notice given to the
other party as provided for in this Paragraph 15.
16. RELEASES. Upon payment of all sums secured by this Mortgage and the
observance and performance of each of the covenants and agreements of this
Mortgage to be observed and performed by Mortgagor, Lender shall provide to
Mortgagor, in recordable form, a release of this Mortgage and of any other
security interest given to Lender to secure the Note, in recordable form.
17. FINANCIAL STATEMENTS, RENT ROLLS AND OPERATING STATEMENTS:
On or before the 120th day following the end of Mortgagor's fiscal/calendar
year, and at such other times as Lender may require, Mortgagor shall furnish
to Lender a copy of Mortgagor's current financial statement, current
certified rent roll and the prior year's annual operating statement setting
forth, in such detail as Lender requires, the income and expenses derived
from and attributable to the subject premises. Lender, at Lender's sole
option, may require that said statements be prepared by an independent
Certified Public Account. In the event that Mortgagor fails to furnish the
statements within the time set forth herein, the Note rate of interest shall
be increased by two percent (2%) without prior notice to Mortgagor until the
statements are furnished to Lender in a form which is satisfactory to
Lender.
18. ENVIRONMENTAL LAW COMPLIANCE AND INDEMNIFICATION. In its use, possession,
and maintenance of the mortgage property, Mortgagor, its employees, agents,
independent contractors and assigns shall strictly comply with the
Comprehensive Environmental Response, Compensation, and Liability Act and
any other federal, state, or local statute, law, regulation, ordinance,
code, rule, order, or decree, whether now or hereafter in effect, requiring
or imposing standards for environmental safety and cleanliness concerning
the placement, use, storage, transportation or discharge of any hazardous,
toxic, or dangerous waste, substance, or material ("Environmental Laws").
Mortgagor hereby expressly represents, warrants, and covenants to Lender
that: (a) neither Mortgagor nor any other person to the actual knowledge of
Mortgagor has used or permitted any hazardous substances to be placed, held,
stored, disposed on or discharged from the mortgaged property or any portion
thereof in violation of any Environmental Laws; (b) to the best of
Mortgagor's knowledge, the mortgaged property does not now contain any
hazardous substance in violation of any Environmental Laws; and (c)
Mortgagor, so long as any indebtedness secured by this Mortgage remains
unpaid, shall not allow any hazardous substances to the placed, held,
stored, disposed on the mortgaged property or discharged from the mortgaged
property or any portion thereof or incorporated into any improvements to be
constructed on the mortgaged property in violation of any Environmental
Laws. For purposes of this paragraph, the term "hazardous substance" shall
include but not be limited to any hazardous, toxic, or dangerous waste,
substance, or material defined as such in or for the purpose of any
Environmental Laws.
Mortgagor hereby agrees to hold Lender harmless from and indemnify Lender
from and against any and all losses, liabilities, damages, injuries, costs,
expenses, and claims, including reasonable attorney fees, of any and every
kind whatsoever, paid, incurred, or suffered by or asserted against Lender
as a direct or indirect result of any of the following: (a) the presence on
or under, or the escape, seepage, leakage, spillage, discharge, emission, or
release from the mortgaged property or any portion thereof of any hazardous
substance; or (b) any liens, interests, or rights against the mortgaged
property, or any portion thereof, created, permitted, or imposed under
authority of Environmental Laws now or hereafter existing.
The provisions of this paragraph 18 shall survive payment of the Note and
Mortgage/Assignment.
THIS MORTGAGE/ASSIGNMENT incorporates, as if fully rewritten herein, the
conditions, terms and provisions of the Note and Loan Agreement, both of even
date, and or any other documents which may have been executed by Mortgagor,
and/or any endorser, co-maker or guarantor, in connection with the Loan made by
Lender to Mortgagor
Miracle Acquisition, Inc. Mortgage
Page 6 of 7
<PAGE>
THIS MORTGAGE/ASSIGNMENT, together with the Note or any other documents which
may have been executed by Mortgagor in connection with the Loan made by Lender
to Mortgagor, constitute the entire agreement entered into by and among
Mortgagor and Lender, and no prior or contemporaneous representations, whether
oral or written, not contained herein, shall be of any effect.
THIS MORTGAGE/ASSIGNMENT shall not be modified, changed, or altered in any
respect, except in writing, executed by Lender and Mortgagor and all endorsers,
comakers and guarantors to the Note.
IN WITNESS WHEREOF, the undersigned Miracle Acquisition, Inc., a Delaware
Corporation have executed this Mortgage and Assignment of Leases and Rents on
this the 8th day of March, 1999.
SIGNED AND ACKNOWLEDGED Miracle Acquisition, Inc., a Ohio Corporation
IN THE PRESENCE OF: now known as Miracle Industries, Inc.
/s/ Arnold Janofsky By: /s/ Charles L. Dunlap
________________________ __________________________
Witness Charles L. Dunlap
Print: Arnold Janofsky Its: President
_________________ _________________________
/s/ Diana M. Kash
________________________
Witness
Print: Diana M. Kash
_________________
STATE OF VIRGINIA
_______________ }
COUNTY OF LOUDOUN } ss:
______________
The foregoing Mortgage was acknowledged before me this 8th day of March,
1999, by Charles L. Dunlap, President of Miracle Acquisition, Inc., a Ohio
corporation, on behalf of the corporation.
/s/ Evelyn Sue Saverine
________________________
NOTARY PUBLIC
My Commission Expires: 5/31/2000
This Instrument Prepared By:
____________________________
David A. Skrobot, Esq.
400 East Town Street, Suite 210
Columbus, OH 43215
614: 233-6950(T) 233-6960(F)
Miracle Acquisition, Inc. Mortgage
Page 7 of 7
Precision Auto Care, Inc.
Exhibit 11-Statement Re: Computation of Per Share Earnings
(In Thousands, except per share data)
Pro Forma Combined As Adjusted
For Combination and Offering
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
<S><C>
Weighted average shares outstanding
common stock 6,121 5,481 6,121 5,475
Weighted average shares issuable upon
exercise of dilutive common
stock options -- 60 -- 46
Common stock and common stock
equivalents issued at prices
below the IPO price during the twelve
months preceding the
initial filing of the Registration
Statement -- 8 -- 8
-------- ----- --------- ------
Total weighted average shares 6,121 5,541 6,121 3,655
======== ===== ========= ======
Net Income (Loss) ($5,604) $619 ($10,916) $1,840
======== ==== ========= ======
Earnings (loss) per share ($0.92) $0.11 ($1.79) $0.11
======== ==== ========= ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 78,000
<SECURITIES> 0
<RECEIVABLES> 5,697,000
<ALLOWANCES> 0
<INVENTORY> 4,461,000
<CURRENT-ASSETS> 14,018,000
<PP&E> 21,177,000
<DEPRECIATION> 2,740,000
<TOTAL-ASSETS> 77,592,000
<CURRENT-LIABILITIES> 18,449,000
<BONDS> 0
0
0
<COMMON> 61,205
<OTHER-SE> 45,683,000
<TOTAL-LIABILITY-AND-EQUITY> 77,592,000
<SALES> 10,747,000
<TOTAL-REVENUES> 33,446,000
<CGS> 8,880,000
<TOTAL-COSTS> 28,813,000
<OTHER-EXPENSES> (2,744,000)
<LOSS-PROVISION> (5,604,000)
<INTEREST-EXPENSE> (945,000)
<INCOME-PRETAX> (5,604,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,604,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,604,000)
<EPS-PRIMARY> (0.92)
<EPS-DILUTED> (0.92)
</TABLE>
