UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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 6,164,673 shares of Common
Stock as of October 31, 1999.
Precision Auto Care, Inc.
Form 10-Q
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
General Information .................................................................... 3
Consolidated Balance Sheets as of September 30, 1999 and
June 30, 1999........................................................................... 5
Consolidated Statements of Operations for the three months
ended September 30, 1999 and 1998....................................................... 6
Consolidated Statements of Cash Flows for the three months
ended September 30, 1999 and 1998....................................................... 7
Notes to the Consolidated Financial Statements.......................................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................... 16
Item 2. Changes in Securities............................................................... 16
Item 3. Defaults Upon Senior Securities..................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders................................. 17
Item 5. Other Information................................................................... 17
Item 6. Exhibits or Reports on Form 8-K..................................................... 17
Signatures................................................................................... 18
Exhibit Index................................................................................ 19
</TABLE>
2
<PAGE>
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, 1999 under the caption "Business--Risk Factors," general economic and
business and market conditions, changes in federal and state laws and increased
competitive pressure in the automotive after-market services business.
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 items required to properly maintain the vehicle 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
September 30, 1999, these services were provided at 542 Precision Tune
Auto Care centers owned and operated by franchisees and one 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 September 30, 1999, there were 24 Company-owned car wash
centers and 18 franchised car wash centers.
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 September 30,
1999, there were 14 Precision Lube Express centers owned and operated
by franchisees and six owned and operated by the Company. As of that
date there were also 17 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.
3
<PAGE>
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"). In March 1998, the Company acquired the holder
of the master franchise agreement for Precision Tune Auto Care in Mexico and
Puerto Rico.
4
<PAGE>
PRECISION AUTO CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
(Unaudited)
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 46,761 $ 50,167
Accounts receivable, net of allowance of $2,557,000 and $2,080,000,
respectively................................................................ 5,152,265 5,242,780
Inventory...................................................................... 2,784,395 3,084,637
Notes receivable, net of allowance............................................. 156,487 379,487
Other assets................................................................... 34,381 209,342
Refundable income taxes........................................................ 1,062,927 1,658,931
----------- ----------
Total current assets...................................................... 9,237,216 10,625,344
Notes receivable, net of allowance.................................................. 321,303 325,254
Property, plant and equipment, at cost.............................................. 18,068,818 17,987,789
Less: Accumulated depreciation................................................. (3,079,503) (2,757,726)
----------- -----------
14,989,315 15,230,063
Goodwill and other intangibles, net of accumulated
amortization ...................................................................... 37,430,851 37,926,905
Deposits and other.................................................................. 107,992 467,857
----------- -----------
Total assets.............................................................. $62,086,677 $64,575,423
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities....................................... $ 8,255,225 $ 8,636,331
Bank facility.................................................................. 1,100,000 1,230,002
Mortgage notes payable......................................................... 302,363 295,064
Other notes payable............................................................ 728,917 541,535
Deferred revenue............................................................... 506,106 842,598
----------- -----------
Total current liabilities................................................. 10,892,611 11,545,530
Bank facility....................................................................... 7,320,667 7,678,667
Subordinated debt................................................................... 5,586,960 5,586,960
Mortgage notes payable.............................................................. 7,860,476 7,938,859
Other notes payable................................................................. 930,643 924,713
Deferred revenue.................................................................... 522,122 239,714
Refundable deposits................................................................. 317,843 245,364
Other liabilities................................................................... 269,900 433,323
----------- -----------
Total liabilities......................................................... 33,701,222 34,593,130
Stockholders' equity:
Common stock, $.01 par; 19,000,000 shares authorized; 6,164,673 and
6,131,548 shares issued and outstanding..................................... 61,647 61,315
Additional paid-in capital..................................................... 46,013,363 46,012,211
Unearned restricted stock...................................................... (231,562) (283,021)
Retained earnings.............................................................. (17,457,993) (15,808,212)
----------- -----------
Total stockholders' equity................................................ 28,385,455 29,982,293
----------- -----------
Total liabilities and stockholder's equity................................ $62,086,677 $64,575,423
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
PRECISION AUTO CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------
1999 1998
(Unaudited) (Unaudited)
---------- ----------
<S> <C> <C>
Revenues:
Franchise development.................................. $ 173,395 $ 283,024
Royalties.............................................. 3,985,033 3,839,218
Manufacturing and distribution......................... 4,623,505 5,824,735
Company centers........................................ 1,287,573 1,794,502
Other.................................................. 30,551 48,276
----------- ----------
Total revenues.................................... 10,100,057 11,789,755
Total direct cost........................................... 8,238,858 9,923,752
----------- ----------
Contribution (exclusive of amortization shown separately
below)................................................... 1,861,199 1,866,003
General and administrative expense.......................... 1,818,795 1,205,938
Depreciation expense........................................ 325,724 306,473
Amortization of franchise rights and goodwill............... 494,847 503,510
----------- ----------
Operating (loss)............................................ (778,167) (149,918)
Other income (expense):
Interest expense....................................... (689,937) (442,948)
Interest income........................................ 25,455 44,507
Other.................................................. (139,955) (314,610)
----------- ----------
Total other (expense)............................. (804,437) (713,051)
----------- ----------
(Loss) before income tax expense............................ (1,582,604) (862,969)
Provision (benefit) for income taxes........................ 67,177 (145,519)
----------- ----------
Net (loss).................................................. $(1,649,781) $ (717,450)
=========== ==========
Basic net (loss) per share.................................. ($0.27) ($0.12)
Diluted net (loss) per share................................ ($0.27) ($0.12)
Weighted average shares outstanding--Basic.................. 6,159,152 6,120,543
Weighted average shares outstanding--Diluted................ 6,159,152 6,120,543
</TABLE>
See accompanying notes.
6
<PAGE>
PRECISION AUTO CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1999 1998
(Unaudited) (Unaudited)
------------ -----------
<S> <C> <C>
Operating activities:
Net (loss)......................................................... $(1,649,781) $ (717,450)
Adjustments to reconcile net (loss) to net cash provided
by operating activities:
Depreciation and amortization................................. 820,571 809,983
Deferred income taxes......................................... -- (145,519)
Services received in exchange for stock.................... 51,459 --
Foreign currency translation adjustment.................... -- (10,975)
Changes in operating assets and liabilities:
Accounts and notes receivable............................ 317,468 1,059,117
Inventory................................................ 300,242 (738,046)
Prepaid expenses, recoverable income taxes, deposits
and other............................................. 1,037,143 (1,156,325)
Accounts payable and accrued liabilities................. (381,105) 705,775
Deferred revenue, net.................................... (54,084) (27,840)
----------- -----------
Net cash provided by (used in) operating activities................ 441,913 (221,280)
Investing activities:
Purchases of property and equipment........................... (81,029) (843,144)
Acquisitions.................................................. -- (1,306,918)
----------- -----------
Net cash (used in) investing activities............................ (81,029) (2,150,062)
Financing activities:
Sale of company stock......................................... 1,484 --
(Repayments of) proceeds from bank facility................... (488,002) 1,357,740
Proceeds from note payable 345,000 --
(Repayments) of mortgage notes and other notes payable....... (222,772) --
----------- -----------
Net cash (used in) provided by financing activities................ (364,290) 1,357,740
----------- -----------
Net change in cash and cash equivalents............................ (3,406) (1,013,602)
Cash and cash equivalents at beginning of year..................... 50,167 2,070,294
----------- -----------
Cash and cash equivalents at end of period......................... $ 46,761 $ 1,056,692
=========== ===========
</TABLE>
See accompanying notes.
7
<PAGE>
Precision Auto Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Interim Financial Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments consisting only of recurring accruals considered
necessary for a fair presentation have been included. Operating results for such
interim periods are not necessarily indicative of the results which may be
expected for a full fiscal year. For futher information, refer to the
consolidated financial statements and footnotes included in Precision Auto Care
Inc.'s (the "Company") annual report on Form 10-K for the year ended June 30,
1999.
Unless the context requires otherwise, all references to the Company herein mean
Precision Auto Care, Inc. and those entities owned or controlled by Precision
Auto Care, Inc.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent 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.
Significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior period financial information has been reclassified
to conform with the current period presentation.
Note 2 - Earnings Per Share
The Company reports earnings per share ("EPS") in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which
specifies the methods of computation, presentation, and disclosure. SFAS No. 128
requires the presentation of basic EPS and diluted EPS. Basic EPS is calculated
by dividing net income (loss) available to common shareholders by the weighted
average number of shares outstanding during the period. Diluted EPS includes the
potentially dilutive effect, if any, which would occur if outstanding options to
purchase Common Stock were exercised. For the three months ended September 30,
1999 and for the three months ended September 30, 1998, diluted EPS is
equivalent to basic EPS as the inclusion of the effect of assumed exercises and
conversions was anti-dilutive.
8
<PAGE>
The following table sets forth the computation of basic and diluted net (loss)
per share.
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
----------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Numerator:
Net Loss................................... $(1,649,781) ($717,450)
Denominator:
Denominator for basic EPS-weighted-average
shares..................................... 6,159,152 6,120,543
Denominator for diluted EPS-weighted-average
shares..................................... 6,159,152 6,120,543
Basic net loss per share............................ ($0.27) ($0.12)
Diluted net loss per share.......................... ($0.27) ($0.12)
</TABLE>
The 890,850 stock options and 97,500 shares of restricted stock were not
included in the 1999 diluted net loss per share calculation because their
effect would be anti-dilutive.
Note 3 - Inventory
The components of inventory are as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- -----------
<S> <C> <C>
Raw materials.......................................... $ 919,556 $1,222,762
Work-in-process........................................ 161,439 98,587
Finished goods......................................... 2,093,400 2,153,288
Reserve for obsolete and unsaleable inventory.......... (390,000) (390,000)
---------- ----------
$2,784,395 $3,084,637
========== ==========
</TABLE>
Note 4 - Debt
On August 15, 1999, the Company executed a promissory note for $345,685
bearing interest at 10% and matures on August 15, 2004. Principal and interest
are due in monthly installments beginning September 15, 1999.
9
<PAGE>
Note 5 - Contingencies
The Company is involved in certain litigation and is subject to unasserted
claims arising in the ordinary course of business. In the opinion of counsel and
management, the ultimate liability, if any, arising from the setlement of these
cases will not have a material adverse effect on the financial operations or
position of the Company.
Note 6 - Joint Venture
On November 10, 1999 the Company entered into a joint venture with a
national distributor of auto parts. The agreement is for three years whereby the
Company and the national distributor will promote the sale of auto parts and
supplies to Precision Tune Auto Care franchisees.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Introduction
The following discussion and analysis of the consolidated financial
condition and results of operations of Precision Auto Care, Inc. (the "Company")
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto. Historical results and percentage relationships set forth herein
are not necessarily indicative of future operations.
Results of Operations
Comparison of the three months ended September 30, 1999 to the three months
ended September 30, 1998
Summary (in thousands)
<TABLE>
<CAPTION>
1999 % 1998 %
---- - ---- -
<S> <C> <C> <C> <C>
Net revenue................................ 10,100 100% 11,790 100%
Direct cost................................ 8,239 82 9,924 84
General and administrative................. 1,819 18 1,206 10
Operating (loss)........................... (778) (8) (150) (1)
</TABLE>
10
<PAGE>
Revenue. Revenue for the three months ending September 30, 1999 was $10.1
million, a decrease of $1.7 million, or 14%, compared with revenue of $11.8
million for the corresponding period of the prior year. The decrease was
primarily the result of decreases in retail sales from company centers,
manufacturing and distribution revenues and franchise development of $506,000,
$1.2 million and $106,000 respectively. These decreases were partially offset by
an increase in royalty revenue of $250,000.
Direct Cost. Direct costs for the three months ending September 30, 1999
totaled $8.2 million, a decrease of $1.7 million or 17%, compared with $9.9
million for the quarter ending September 30, 1998. The decrease is
attributable to cost decreases in company centers, manufacturing and
distribution and franchise develpment of $414,000, $1.1 million and $98,000
respectively.
General and Administrative Expense. General and administrative expense was
$1.8 million for the three months ending September 30, 1999, an increase of
$613,000 or 51%, compared with $1.2 million for the quarter ending September 30,
1998. The increase was partially attributable to increases in bad debt expense
and accounting expenses of $320,000 and $204,000 respectively.
Operating (Loss). The Company recorded an operating loss for the
three months ending September 30, 1999 of $778,000 which represents an increase
in operating loss of $628,000 or 419% compared with an operating loss of
$150,000 for the corresponding period of the prior year.
TABLE 1 - Components of Depreciation and Amortization Expense
The components of depreciation and amortization expense are summarized as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three months ended September 30, 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation $325,724 $306,473
Amortization 494,847 503,510
-------- --------
Total $820,571 $809,983
======== ========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE 2 - Components of Interest Expense
The components of interest expense are summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three months ended September 30, 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest incurred $689,937 $442,948
======== ========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Liquidity and Capital Resources
Sources and Uses of Cash
The following table sets forth selected information from the statement of
cash flows of Precision Auto Care, Inc.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------
1998 1999
-------- ------------
<S> <C> <C>
Net cash provided by (used in)
operating activities....................... $441,912 $(221,280)
Net cash used in investing activities........ (81,029) (2,150,062)
Net cash used in (provided by) financing
activities................................. (364,290) 1,357,740
-------- -----------
Change in cash and cash equivalents.......... $(3,406) $(1,013,602)
======== ===========
</TABLE>
Cash at September 30, 1999 was $47,000 a decrease of $3,000 from $50,000
June 30, 1999. During the period, cash provided by operating activities
was $442,000 which is attributable to decreases in inventory levels of
$300,000 and a decrease in prepaid expenses of $1.0 million, partially offset by
decreases in accounts payable and deferred revenue of $381,000 and $54,000
respectively.
Cash used in investing activities for the quarter ended September 30, 1999
was $81,000. The capital expenditures consisted mainly of PIN systems purchases
and signage upgrades, and upgrades to the Company's internal computer hardware
and software systems.
Cash used in financing activities for the quarter ended September 30, 1999
was $364,000. Financing activities during the period included repayments of the
Company's bank facility of $488,000 and mortgage and notes payable of $222,000.
During the quarter the Company signed a note for $345,000 for the transfer
of the Bay Area franchise territory.
Debt Transactions
As of June 30, 1999, the Company had borrowed approximately $8.9 million
under its bank credit agreement, of which $4.4 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 $4.5 million represented funds advanced under a general revolving
credit portion of the credit facility (the "Line of Credit Loan").
During the first quarter of 1999, 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 was to 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.
12
<PAGE>
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. 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 was for a
period of time accruing interest at 16% per annum.
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 effective retroactively
to February 1, 1999, and which included a waiver of financial covenant
noncompliance. Under these terms of the Amended and Restated Credit Agreement,
the Company was required to complete a series of financings and asset sales,
from which the bank was 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.
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 was to
mature on May 25, 1999. 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. This subordinated debenture has been
extended to April 15, 2001.
To date the Company has succeeded in concluding all but one of the required
real estate transactions, resulting in a permanent reduction of outstandings
under the Line of Credit Loan of $4,600,000 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. On June 1, 1999 the Company
repaid $1.4 million as a permanent reductions of the subordinated debenture. The
Company was required to repay an additional $450,000 upon completing a sale of a
certain car wash property by July 31, 1999, which transaction has not yet
occurred.
On March 8, 1999, the Company entered into a mortgage with Heartland Bank
in the principal amount of $1,035,000 with an annual interest rate of 8.75%. The
rate is subject to adjustment on March 10, 2004. The Company is required to make
monthly payments of principal plus interest beginning on April 10, 1999. The
mortgage is being amortized over a 20 year period, with a balloon payment due on
March 10, 2009. The mortgage is secured by four of the Company's car washes. If
any payment required under the mortgage is not made within thirty days after the
date due, the interest rate will increase by 2%.
On May 17, 1999, the Company executed nineteen promissory notes totaling
$7,204,000, with FFCA Acquisition Corporation. Each note accrues interest at a
rate of 9.9% per annum and matures on June 1, 2014 with the exception of one
which matures on August 1, 2004. Principal and interest payments are due in
monthly installments commencing on July 1, 1999. Each note is secured by
mortgages on properties. In the event of default the interest rate shall
increase to 18%.
13
<PAGE>
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.
On October 14, 1999, the Company and the bank reached agreement in
principal concerning the terms of a second amended and restated loan and
security agreement (the "Second Amended and Restated Loan and Security
Agreement"), which was reduced to writing on October 27, 1999, and effective
retroactively to October 14, 1999, whereby its senior lender, pursuant to which
(among other things) the maturity date of the credit facilities was extended to
October 5, 2000, subject to the satisfaction of certain conditions including the
execution of liens on all owned and unencumbered real property. The terms of the
extension require the Company to engage in a series of further asset sales
generating minimum net proceeds in the aggregate amount of $2,575,000. In
addition the Company is required to by certain deadlines occurring over the
course of its next fiscal year to (a) reduce accounts payable by at least
$250,000 on a cumulative basis during each of the next four fiscal quarters, (b)
not suffer, for the quarter ending December 31, 1999, a negative net income
exceeding $500,000, exclusive of the required asset sales, and (c) achieve for
each quarter beginning with the quarter ending March 31, 2000, a positive
earnings before taxes, depreciation and amortization, but after interest
exclusive of the required asset sales. The Company will be obligated to reduce
bank debt by an additional $200,000 on or before September 1, 2000, and must
continue to make timely payments of principal and interest. The Company is not
permitted to make payment of any amount of principal or interest on its
subordinated debt in cash without the prior written consent of the bank. There
can be no assurances that the Company will be in a position to satisfy each of
these requirements.
The Company has received the approval of the holder of $2 million in
subordinated debt to waive existing events of default and to extend the maturity
thereof to November 1, 2000, in exchange for the satisfaction of a portion of
the accrued and unpaid interest through the issuance of Common Stock subject to
shareholder approval. The Company has received the commitment of the holder of
an additional $3.6 million in subordinated debt to waive existing events of
default and to extend the maturity date to April 15, 2001. The Company expects
to execute definitive agreements giving effect to the extensions and amendments
to its bank debt and subordinated debt in the near future.
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. The Company's auditors have included an explanatory paragraph in
their report to the Company's consolidated financial statements for the fiscal
year ended June 30, 1999 that expresses substantial doubt as to the Company's
ability to continue as a going concern. The expression of this judgement by the
Company's auditors may make successful implementation of the Company's
restructuring program more difficult.
Joint Venture
On November 10, 1999 the Company entered into a joint venture with
a national distributor of auto parts. The agreement is for three years
whereby the Company and the National distributor will promote the sale of auto
parts and supplies to Precision Tune Auto Care franchisees. The Company
expects the joint venture will have a positive impact on cash flow.
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 wash equipment. Conversely, the Precision Auto Wash business
is favorably impacted by normal winter weather conditions as demand for the
Company's car wash service increases substantially in winter months.
14
<PAGE>
Year 2000 (Y2K) Compliance
The Company had 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.
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, the Company has replaced the computer system, both hardware
and software, at its corporate headquarters, which was not Y2K compliant, with a
new management information system (MIS). The new MIS system is certified to be
Y2K compliant. This new system is currently being integrated into the Company's
existing network while conversion of the Company's existing data into the new
system continues. The replacement of non-compliant computer systems at the
Company's field locations will continue during the remainder of 1999. Hardware
and software costs were approximately $330,000 in FY99. Additional programming
costs are expected to reach $100,000 during FY00 representing 30% of the MIS
budget. 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. In
addition, the Company continues to operate under its existing phone system which
is not Y2K compliant. The Company intends on replacing the current phone system
prior to the end of 1999. Costs for a new phone system are expected to be
approximately $75,000.
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 Contractural Maturity Dates
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total
------------- ------------- ---- ---- ---- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Short-term debt: $825,000 $275,000
Term loan......... 1,100,000
Variable rate..... LIBOR + 4.75%
Long-term debt:
Term loan......... 2,841,667 2,841,667
Variable rate..... LIBOR + 4.75%
Line of credit.... 4,479,000 4,479,000
Variable rate..... LIBOR + 4.75%
</TABLE>
15
<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 including 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.
On November 1, 1999, the Court dismissed this case without prejudice.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 15, 1999, the Company issued 32,500 restricted shares of Common Stock
to certain employees and members of the Board of Directors in accordance with
the accelerated vesting provisions of previously awarded restricted stock
grants.
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.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
As previously disclosed, the Company's stock listing was moved from the Nasdaq
National Market to the Nasdaq SmallCap Market on August 16, 1999. The continued
listing of the Company's stock on the Nasdaq SmallCap Market is contingent upon
approval of the Nasdaq Stock Market. The Company intends to issue a press
release promptly following the time it has been advised of the Nasdaq Stock
Market's final determination with respect to the future listing of the Company's
shares of common stock. As of November 17, 1999, the Nasdaq Stock Market has not
made a final determination with regard to the Company's continued listing on the
Nasdaq SmallCap Market.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
10 Second Amended and Restated Loan and Security Agreement
27 Financial Data Schedule
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 15, 1999.
Precision Auto Care, Inc.
/s/ Charles L. Dunlap
By: _____________________________________
Charles L. Dunlap
President and Chief Executive Officer
(Duly Authorized Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
-------------------------- --------------------------- ------------------
<S> <C> <C>
/s/ Charles L. Dunlap President, Chief Executive November 15, 1999
------------------------- Officer and Director
Charles L. Dunlap (Principal Executive Officer)
/s/ Jerry L. Little Senior Vice President and Chief November 15, 1999
------------------------- Financial Officer (Principal
Jerry L. Little Financial Accounting Officer)
</TABLE>
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number PAGE
------ ----
<S> <C>
10 Second Amended and Restated Loan and Security Agreement............................
27 Financial Data Schedule............................................................
</TABLE>
19
SECOND
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
is made between PRECISION AUTO CARE, INC., a Virginia corporation ("PAC"), and
certain of its subsidiaries wholly-owned and/or controlled by it, namely, WE JAC
CORPORATION, a Delaware corporation; PRECISION BUILDING SOLUTIONS INCORPORATED,
formerly known as LUBE VENTURES, INC., a Delaware corporation; ROCKY MOUNTAIN
VENTURES, INC., a Colorado corporation; ROCKY MOUNTAIN VENTURES II, INC., a
Colorado corporation; MIRACLE PARTNERS, INC., a Delaware corporation; RALSTON
CAR WASH, LTD., a Colorado limited liability company; PREMA PROPERTIES, LTD., an
Ohio limited liability company; MIRACLE INDUSTRIES, INC., an Ohio corporation;
KBG, LLC, a Colorado limited liability company; PTW, INC., a Washington
corporation; NATIONAL 60 MINUTE TUNE, INC., a Washington corporation; HYDROSPRAY
CAR WASH EQUIPMENT CO., LTD., an Ohio limited liability company; PRECISION TUNE
AUTO CARE, INC., a Virginia corporation; WORLDWIDE DRYING SYSTEMS, INC., a
Colorado corporation; PAC MEXICAN DELAWARE HOLDING COMPANY, INC., a Delaware
corporation; PAC MEXICAN HOLDING COMPANY LLC, a Virginia limited liability
company; PRECISION AUTO CARE MEXICO II, S. DE R.L. DE C.V., a Mexican limited
liability company; PRECISION AUTO CARE MEXICO I, S. DE R.L. DE C.V., a Mexican
limited liability company; and INDY VENTURES, L.L.C., an Indiana limited
liability company (each of the foregoing and PAC are sometimes hereafter
referred to individually as a "Borrower" and collectively as the "Borrowers"),
and FIRST UNION NATIONAL BANK, as successor to SIGNET BANK (the "Bank").
IMPORTANT NOTICE
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION
WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND
ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
RECITALS
A. The Borrowers are indebted to the Bank under a Third
Consolidated, Amended and Restated Revolving and Acquisition Line of Credit
Promissory Note dated October 1, 1998 in the face amount of $21,072,860.62 (the
"Note").
<PAGE>
B. The Note evidences a Line of Credit (as defined below) and
an Acquisition Line of Credit (as defined below) (which is treated on the Bank's
books as a term loan).
C. As of October 25, 1999, there was due on the Line of Credit
$4,424,000.00 in principal and $11,917.79 in interest.
D. As of October 25, 1999, the Acquisition Line of Credit
consisted of the term loan in the original amount of $4,949,999.98. As of
October 25, 1999, there was due on this term loan principal of $3,849,999.94 and
interest of $10,493.21.
E. Payment of the Note is secured by a security interest in
the personal property collateral described in an Amended and Restated Loan and
Security Agreement dated February 22, 1999 and effective as of February 1, 1999,
as amended by a First Amendment to Amended and Restated Loan and Security
Agreement dated May 13, 1999.
F. PAC is a holding company which conducts business through
its Subsidiaries (as hereafter defined).
G. Because of the ownership relation and the other
relationships described hereafter, PAC and all Subsidiaries have requested the
Bank to continue to provide credit upon the terms and conditions stated herein.
H. PAC is the sole or controlling, direct or indirect, owner
of all of the issued and outstanding capital stock or other equity interests of
all of the Subsidiaries. Each Borrower is a separate legal entity, however, and
in addition to the ownership affiliation, each Borrower will be actively engaged
in interwoven and ongoing business and financial relationships with PAC and the
other Subsidiaries in the conduct of their respective but related businesses.
These relationships include: (a) centralized accounting, data processing,
payroll and other administrative services; (b) the sharing of common
administrative (e.g., legal, accounting, etc.) services; (c) common management
and the utilization of personnel for common services such as purchasing and
administrative services; (d) the purchase and exchange of goods and services
among the Borrowers; (e) the providing by PAC of substantial financial support
to its Subsidiaries through loans; (f) the filing of consolidated federal tax
returns by PAC and a substantial number of the Subsidiaries; and (g) other
contemplated business accommodations by and between the Borrowers. Because of
the affiliation and inter-relationship of the Borrowers, in law and in fact, and
because of the economic dependence of one on the other, and further because each
Borrower is joining in the execution hereof for the purpose of inducing the Bank
to enter into this Agreement, each Borrower promises to pay all Obligations (as
hereafter defined) regardless of which Borrower requested and/or received,
directly or indirectly, the proceeds or benefit of any Loan (as hereafter
defined). For purposes of this Agreement, each Borrower joins as a co-maker, and
the liability of each co-maker shall be joint and several for the repayment of
all Loans, interest thereon and all other Obligations, and the performance of
all terms, conditions and provisions of this Agreement. The Loans may be made to
one Borrower for the use and benefit of one or more other Borrowers, and each
Borrower may act as and be the agent of each
-2-
<PAGE>
other Borrower; the Collateral of each Borrower shall be Collateral for all
Obligations arising hereunder, regardless of which Borrower incurred the
Obligations; notice to PAC or any other Borrower shall constitute notice to all
Borrowers; a request for a Loan by PAC for its use or for the use of another
Borrower shall be valid and binding on all Borrowers. Each Subsidiary
designates, constitutes and appoints PAC as its true and lawful attorney-in-fact
to act for it and on its behalf under this Agreement in all respects, and any
action taken by PAC with respect to any Subsidiary shall be binding on both. No
action now or hereafter taken by the Bank for administrative purposes or
otherwise, including, without limitation, recording this transaction on its
books and records in the name of PAC, administering the Loans through one
deposit account, collateral account or other account or accounts, notifying or
dealing with one Borrower to the exclusion of any other shall be, or shall be
deemed to be, a waiver or relinquishment of any right, power or remedy with
respect to all Borrowers nor a release of any Borrower from strict performance
and unconditional liability under this Agreement.
I. The Borrowers acknowledge that they have benefited from the
making of the Loans.
J. The Borrowers have advised the Bank that they anticipate
consummating (with the Bank's consent) the following transactions:
1. The sale of the National Auto Chemical (Miracle
Industries, Inc.) business on or before October 31, 1999. This sale closed on
October 7, 1999, and generated Net Sale Proceeds of $223,309.19 to Miracle
Industries, Inc. This sale included the real property located at 1000 Highland
Avenue, Cambridge, Ohio.
2. The sale of the real property located at 950 South
Baldwin Street, Marion, Indiana on or before January 31, 2000, generating at
least $600,000 in net sale proceeds.
3. The sale of the parts inventory of Precision Tune
Auto Care, Inc. trading as PAC Manufacturing and Distributing Company to Service
Champ on or before January 31, 2000, generating at least $600,000 in net sale
proceeds (including sales of inventory from June 30, 1999, to date of execution
of this Agreement).
4. The sale of the real property located at 11607 Main
Street, Roscoe, Illinois by March 31, 2000, generating at least $250,000 in net
sale proceeds.
5. The sale of nine prefabricated buildings, with
three buildings generating total net sale proceeds of at least $300,000 to be
sold by December 31, 1999, and two buildings, generating total net sale proceeds
of at least $200,000, to be sold during each of the next three successive
quarters.
K. The Borrowers have requested that the Bank modify certain terms and
provisions of the Amended and Restated Loan and Security Agreement, as amended,
and the Bank is agreeable to doing so, subject to and as evidenced by the
execution of this Agreement. All Borrowers join in the execution hereof and the
joint and several undertakings herein to induce the Bank to make
-3-
<PAGE>
the requested modifications to the Amended and Restated Loan and Security
Agreement, as amended.
NOW, THEREFORE, in consideration of the premises, the
covenants and agreements of the parties hereafter set forth, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings set forth as definitions, unless the specific context clearly requires
a different meaning, and all terms defined in this Article, or elsewhere herein,
shall be capitalized throughout this Agreement. Terms defined in the Uniform
Commercial Code of Maryland or of any other state in which any portion of the
Collateral may be located shall have the meanings ascribed to them in the
applicable uniform commercial code, and all financial terms not otherwise
defined shall have those meanings as determined under generally accepted
accounting principles, as recognized by the American Institute of Certified
Public Accountants ("GAAP"). The plural use of any defined term shall include
the singular, and the singular use of any defined term shall include the plural.
SECTION 1.1. ACCOUNT DEBTOR. The term "Account Debtor" shall
mean any Person who is obligated to pay a Receivable to any Borrower.
SECTION 1.2. ACCOUNTS, CHATTEL PAPER, DOCUMENTS, INVENTORY,
SECURITIES, EQUIPMENT, GENERAL INTANGIBLES AND INSTRUMENTS. The terms
"Accounts," "Chattel Paper," "Documents," "Inventory," "Securities,"
"Equipment," "General Intangibles" and "Instruments" shall have the same
respective meanings as are given to those terms in the Maryland Uniform
Commercial Code-Secured Transactions, Title 9, Commercial Law Article, Annotated
Code of Maryland, as amended.
SECTION 1.3. ACQUISITION. The term "Acquisition" shall mean
any acquisition, whether in a single transaction or series of related
transactions, by PAC or any one or more of its Subsidiaries, or any combination
thereof, of (i) all, or substantially all, of the assets, equity or a going
business or division, of any Person, whether through purchase of assets or
securities, by merger or otherwise, (ii) control of at least eighty percent
(80%) of the outstanding securities of an existing corporation ordinarily (and
apart from rights accruing under special circumstances) having the right to vote
in the election of directors, or (iii) control of a greater than eighty percent
(80%) ownership interest in any existing partnership, joint venture or other
Person.
SECTION 1.4. ACQUISITION COSTS. (intentionally deleted)
SECTION 1.5. ACQUISITION LINE OF CREDIT. The term "Acquisition
Line of Credit" shall mean those Advances evidenced by the term loan described
in the Recitals, and by the Consolidated Note.
-4-
<PAGE>
SECTION 1.6. ACQUISITION LINE OF CREDIT NOTE. (intentionally
deleted).
SECTION 1.7. ADVANCES. The term "Advances" shall mean each
credit to PAC's Deposit Account based on a request from PAC for borrowing as
provided in Article II herein, or any extension of credit under the Line of
Credit as herein provided, regardless of whether a specific request has been
made therefor.
SECTION 1.8. AFFILIATE. The term "Affiliate" shall mean any
corporation, (including all of the Subsidiaries), partnership, limited liability
company, limited liability partnership or other Person of which more than fifty
percent (50%) of the legal or beneficial ownership interests are held, directly
or indirectly, by PAC or any other Borrower, or which is otherwise controlled,
directly or indirectly, through one or more intermediaries, or both, by PAC.
SECTION 1.9. AGENT. The term "Agent" shall mean PAC as
exclusive agent for all of the Subsidiaries to act for and on behalf of each and
all of them, individually and collectively, to request Advances, receive
notices, accept service of process and take all actions deemed necessary in
connection with this Agreement, the Loans and the Consolidated Note.
SECTION 1.10. AGREEMENT. The term "Agreement" shall mean this
Second Amended and Restated Loan and Security Agreement, as amended, restated,
extended or modified from time to time, together with all attachments and
exhibits hereto or thereto.
SECTION 1.10A. ADJUSTED EBITDA. (intentionally deleted)
SECTION 1.11. ANNUALIZED ADJUSTED EBITDA. (intentionally
deleted)
SECTION 1.12. ANNUALIZED ADJUSTED EBITDAR. (intentionally
deleted)
SECTION 1.12A. ANNUALIZED EBITDA. (intentionally deleted)
SECTION 1.12B. ANNUALIZED EBITDAR. (intentionally deleted)
SECTION 1.13. APPLICABLE MARGIN. (intentionally deleted).
SECTION 1.14. ASSUMPTION AGREEMENT. The term "Assumption
Agreement" shall mean an agreement in which a corporation or other business
entity previously or hereafter acquired, directly or indirectly, or subsequently
created, and which otherwise qualifies as a Subsidiary, agrees to be bound by
the terms of this Agreement and assumes joint and several liability for
repayment of the Consolidated Note and all other Obligations.
SECTION 1.15. AVAILABLE LOAN AMOUNT. (intentionally deleted)
SECTION 1.16. BASE RATE. (intentionally deleted).
-5-
<PAGE>
SECTION 1.17. BORROWER. The term "Borrower" or "Borrowers"
shall mean PAC and all of the additional parties identified on the first page of
this Agreement which are Subsidiaries owned and controlled by PAC, and shall
also include such other Persons hereafter qualifying as a Subsidiary which
execute and deliver to the Bank an Assumption Agreement.
Notwithstanding the fact that none of Promotora de Franquicias
Praxis, S.A. de C.V., a Mexican corporation ("PFP"), or any of the "Praxis
Companies" as defined in that certain Subscription and Stock Purchase Agreement
made as of March 31, 1998, by and among PAC, PAC Mexico I and the stockholders
of PFP (the "PFP Purchase Agreement," and all of such entities, collectively,
the "Non-Borrower Mexican Subsidiaries") will enter into an Assumption Agreement
and become a party to this Agreement as a Borrower thereunder, the terms
"Borrower" and "Subsidiary" as used in this Agreement shall include the
Non-Borrower Mexican Subsidiaries for the following purposes:
(a) (intentionally deleted)
(b) The representations and warranties of the Borrowers under
Sections 5.1, 5.2, 5.3, 5.4, 5.10, 5.13, 5.15, 5.17, 5.20 and 5.25 of this
Agreement;
(c) The affirmative covenants of the Borrowers contained in
Sections 6.4, 6.6, 6.7, 6.8, 6.11, 6.12, 6.13, 6.15, 6.16, 6.17, 6.18 and 6.19
of this Agreement; PROVIDED, HOWEVER, that (a) for purposes of such Sections the
covenant and agreement of the Borrowers which are parties to this Agreement
shall be to cause the Non-Borrower Mexican Subsidiaries to comply with the
provisions thereof, and (b) it is understood and agreed that the fiscal year of
PAC shall end on June 30 of each year;
(d) The negative covenants of the Borrowers contained in
Sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.17 and
7.18 of this Agreement; provided, HOWEVER, that (a) for purposes of such
Sections the covenant and agreement of the Borrowers which are parties to this
Agreement shall be not to cause or permit the Non-Borrower Mexican Subsidiaries
to violate any of the provisions thereof, and (b) the contingent obligations of
the Non-Borrower Mexican Subsidiaries identified in Exhibit No. 1 attached
hereto shall not represent a violation of the provisions of Section 7.7 of this
Agreement; and
(e) The Events of Default under Sections 8.7, 8.8, 8.9, 8.10,
8.11, 8.12 and 8.13 of this Agreement.
SECTION 1.18. BUSINESS DAY. The term "Business Day" shall mean
any day other than a Saturday, Sunday or legal holiday or days on which banking
institutions are authorized or obligated to close under the laws of the United
States or the State of Maryland.
SECTION 1.19. CLOSING. (intentionally deleted).
SECTION 1.20. COLLATERAL. The term "Collateral" shall mean all
of the tangible and intangible real and personal property with respect to which
the Borrowers have granted a
-6-
<PAGE>
security interest or lien to the Bank pursuant to the terms of this Agreement,
any document to be executed in connection with this Agreement, or any of the
other Loan Documents.
SECTION 1.21. COMBINATION. (intentionally deleted).
SECTION 1.22. COMPLIANCE CERTIFICATE. (intentionally deleted)
SECTION 1.23 CONSOLIDATED LIABILITIES. (intentionally deleted)
SECTION 1.24. CONSOLIDATED NET INCOME. (intentionally deleted)
SECTION 1.24A. CONSOLIDATED NOTE. The term "Consolidated Note"
shall mean the Third Consolidated, Amended and Restated Revolving and
Acquisition Line of Credit Promissory Note effective February 1, 1999, executed
by the Borrowers as obligors, in the original principal amount of Twenty-one
Million Seventy-two Thousand Eight Hundred Sixty Dollars and Sixty-two cents
($21,072,860.62) and payable to the order of the Bank, and any and all
substitutions, extensions, renewals, amendments, restatements, modifications or
replacements thereof.
SECTION 1.25. CONSOLIDATED TANGIBLE NET WORTH. (intentionally
deleted)
SECTION 1.26. DEPOSIT ACCOUNT. The term "Deposit Account"
shall mean PAC's deposit account(s) established and maintained with the Bank for
thE benefit of itself and all other Borrowers, or any substitute or additional
account(s), to be utilized as the means of advancing funds under the Line of
Credit.
SECTION 1.26A. DOMESTIC ACQUISITION. (intentionally deleted)
SECTION 1.27 EBITDA. (intentionally deleted)
SECTION 1.28. ERISA. The term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended, and all regulations or
rulings promulgated thereunder.
SECTION 1.29. EVENT OF DEFAULT. The term "Event of Default"
shall mean the events constituting defaults under this Agreement as set forth in
Article VIII hereof.
SECTION 1.29A. FOREIGN ACQUISITION. (intentionally deleted)
SECTION 1.30. TOTAL FUNDED DEBT/ANNUALIZED EBITDA RATIO.
(intentionally deleted)
SECTION 1.31. GOVERNING DOCUMENTS. The term "Governing
Documents" shall mean the articles of incorporation, certificate of
incorporation, charter or other organizational instrument of a corporation, the
articles of organization and operating agreement of a limited liability company,
a partnership or joint venture agreement of any partnership, limited liability
-7-
<PAGE>
partnership or joint venture, and the by-laws or other rules for the governance
of any such Person.
SECTION 1.32. LAWS. The term "Laws" shall mean all ordinances,
statutes, rules, regulations, orders, injunctions, writs or decrees of any
government or political subdivision or agency.
SECTION 1.33. LETTER OF CREDIT. (intentionally deleted).
SECTION 1.34. LIBOR RATE. The term, "LIBOR Rate" means a per
annum rate of interest, as determined by the Bank in its sole discretion and
changed as of the first day of each month during the term of this Agreement,
equal to the London Interbank Offered Rate (adjusted to reflect the cost of
insurance premiums and reserve requirements as they exist from time to time)
published by Bloomberg or Dow Jones-Telerate, as BBA LIBOR on page 3750 (or by
Reuters Monitor Money Rates Service (LIBOR page), if Bloomberg or Dow
Jones-Telerate is not available), or such other page as may replace that page on
that service for the purpose of displaying rates or prices comparable to that
rate (rounded upwards, if necessary, to the next higher 1/100%), for deposits in
U.S. dollars on the first day of each such month, for a period of thirty (30)
days (an "Interest Period"). If more than one such rate appears on such page or
its replacement, LIBOR Rate shall be the arithmetic mean of such rates. If the
first day of any such month is not a Business Day, the applicable LIBOR Rate
shall be the rate in effect on the immediately preceding Business Day.
SECTION 1.35. LINE OF CREDIT. The term "Line of Credit" shall
mean those Advances, readvances and other credit accommodations and Loans
provided under this Agreement or the Amended and Restated Loan and Security
Agreement (as amended) for working capital and other ordinary course working
capital purposes, as evidenced by the Consolidated Note, made from time to time
in accordance with the terms of this Agreement or the Amended and Restated Loan
and Security Agreement (as amended).
SECTION 1.35A. LINE OF CREDIT LOAN. The term "Line of Credit
Loan" shall mean the loan or extension of credit evidenced by the Line of
Credit.
SECTION 1.36. LINE OF CREDIT NOTE. (intentionally deleted).
SECTION 1.37. LIQUIDATION COSTS. The term "Liquidation Costs"
shall mean any and all costs and expenses (including actual and reasonable
attorneys' fees and legal expenses) which are incurred by or on behalf of the
Bank (a) to enforce payment of any of the Obligations, (b) to enforce payment of
any Receivable following the occurrence of an Event of Default, whether as
against an Account Debtor, the Borrowers or any surety of any Account Debtor or
of any of the Obligations, (c) in the prosecution or defense of any action
growing out of or connected with the Collateral or any of the Bank's rights
therein or thereto, and (d) in connection with the custody or preservation of
the Collateral following the occurrence of an Event of Default, and the
preparation for sale, sale or other disposition of any Collateral.
-8-
<PAGE>
SECTION 1.38. LOAN. The term "Loan" or "Loans" shall mean all
monies advanced under the Line of Credit and the Acquisition Line of Credit and
the Consolidated Note, including future Advances and readvances, whether now
existing or hereafter arising, including any amendments, extensions,
modifications thereto or replacements or substitutions therefor.
SECTION 1.39. LOAN DOCUMENTS. The term "Loan Documents" shall
mean all documents executed by the Borrowers in connection with the Line of
Credit and the Acquisition Line of Credit, including, but not limited to, this
Agreement, the Amended and Restated Loan and Security Agreement (as amended),
the Consolidated Note, the Trademark Assignment, the Pledge Agreement,
appropriate financing statements and continuation statements, or any amendments,
extensions or modifications thereof or thereto.
SECTION 1.40. MATERIAL ADVERSE EFFECT. The term "Material
Adverse Effect" shall mean, in the good faith opinion of the Bank, and subject
to any applicable cure or grace periods, a material adverse effect upon any of
(a) the financial condition, operations, business or properties of PAC and/or
its Subsidiaries, taken as a whole; (b) the ability of PAC and its Subsidiaries
taken as a whole to perform under any Loan Document or any other material
contract to which any of them are parties; (c) the legality, validity or
enforceability of any Loan Document; (d) the perfection or priority of the liens
of the Bank granted under the Loan Documents or the rights and remedies of the
Bank under the Loan Documents; or (e) the condition or value of any material
portion of the Collateral.
SECTION 1.41. MATURITY. The term "Maturity" shall mean October
5, 2000, the date on which all Loans and Obligations, all accrued interest, and
all other fees, costs and expenses provided for herein, in the Consolidated Note
or the other Loan Documents shall be due and payable, in full, or such earlier
date upon acceleration as provided herein or in the Consolidated Note.
SECTION 1.41A. MAXIMUM LOAN AMOUNT. The term "Maximum Loan
Amount" shall mean the sum of (a) the Line of Credit Portion (as defined in
Section 2.1 hereof), plus (b) the outstanding principal balance of the
Acquisition Line of Credit. The Maximum Loan Amount is subject to reduction in
the manner provided in Section 2.4 hereof, and from and after September 1, 2000,
the Line of Credit Portion of the Maximum Loan Amount shall be Four Million Four
Hundred Thousand Dollars ($4,400,000).
SECTION 1.41B. NET CARS TRANSACTION PROCEEDS. (intentionally
deleted).
SECTION 1.41C. NET MORTGAGE LOAN PROCEEDS. (intentionally
deleted)
SECTION 1.41D. NET SALE PROCEEDS. The term "Net Sale Proceeds"
shall mean the gross proceeds payable to or for the account of a Borrower in
connection with a sale of a Borrower's assets, minus the reasonable and
customary transaction costs payable by the Borrower in connection with the
closing thereof.
SECTION 1.42. NOTES. (intentionally deleted).
-9-
<PAGE>
SECTION 1.43. OBLIGATIONS. The terms "Obligation" or
"Obligations" shall mean any joint or several obligation of payment or
performance by the Borrowers owing to the Bank, including: (a) any and all sums
due to the Bank under the terms of this Agreement, the Consolidated Note, and
the Loan Documents; (b) any and all sums advanced by the Bank to preserve or
protect the Collateral and the value of the Collateral or to preserve, protect,
or perfect the Bank's security interest in the Collateral; (c) in the event of
any proceeding to enforce the collection of the Obligations or any of them, the
reasonable expenses of retaking, holding, preparing for sale, selling or
otherwise disposing of or realizing on the Collateral, or of any exercise by the
Bank of the Bank's rights upon the occurrence of an Event of Default, together
with the actual and reasonable attorneys' fees, expenses of collection, and
court costs as provided in the Loan Documents; (d) the Liquidation Costs; and
(e) any other indebtedness, overdraft or liability of the Borrowers to the Bank,
whether direct or indirect, joint or several, absolute or contingent, now
existing or hereafter arising.
SECTION 1.44. PERMITTED ACQUISITION. (intentionally deleted)
SECTION 1.45. PERMITTED LIENS. The term "Permitted Liens"
shall mean (a) liens or security interests in favor of the Bank; (b) existing
liens described in Exhibit No. 2 attached hereto and incorporated herein by this
reference (including the "Grimaud Lien" as identified in Exhibit No. 2); (c)
liens arising or created in the future with the prior written consent of the
Bank or as otherwise permitted herein; and (d) purchase money security interests
in Equipment which (i) attach concurrently or within ten (10) days after
acquisition thereof, or (ii) are permitted under Section 2.2.10 hereof.
Permitted Liens shall also include:
(i) Liens for current taxes, assessments or other
governmental charges that are not delinquent or remain payable without any
governmental charges or remain payable without any penalty or that are being
contested in good faith and with due diligence by appropriate proceedings,
provided that all such liens in the aggregate have no Material Adverse Effect
and, if reasonably requested by the Bank, PAC or such Subsidiary has established
reserves reasonably satisfactory to the Bank with respect thereto;
(ii) Easements, rights of way, restrictive
covenants, conditions, zoning restrictions and other similar encumbrances on
real estate that do not materially impair the value of the property to which
they relate;
(iii) Carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like liens arising in the ordinary course of
business that are not overdue for a period of more than thirty (30) days, or, if
overdue for more than thirty (30) days, (i) which are being contested in good
faith and by appropriate proceedings; (ii) for which adequate reserves in
accordance with GAAP have been established on the books of PAC or the
appropriate Subsidiary; and (iii) with respect to which the obligations secured
thereby are immaterial;
(iv) Pledges or deposits in connection with workers'
compensation insurance, unemployment insurance and like matters;
-10-
<PAGE>
(v) Deposits to secure the performance of bids,
trade contracts (other than for borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business; and
(vi) Liens in respect of any writ of execution,
attachment, garnishment, judgment or award in an amount less than $100,000, the
time for appeal or petition for rehearing of which shall not have expired, or in
respect of which an appeal or appropriate proceeding for review is being
prosecuted in good faith and a stay of execution pending such appeal or
proceeding for review has been secured.
SECTION 1.46. PLEDGE AGREEMENTS. The term "Pledge Agreements"
shall mean the Pledge Agreements executed and delivered by PAC and certain of
its Subsidiaries in favor of the Bank.
SECTION 1.47. PERSON. The term "Person" shall mean any
individual, corporation, partnership, association, joint-stock company, trust,
unincorporated organization, joint venture, limited liability company, or
limited liability partnership.
SECTION 1.48. RECEIVABLES. As used herein, the term
"Receivables" shall mean all of the Borrowers' Accounts, Instruments, Documents,
Chattel Paper, General Intangibles, notes, notes receivable, royalties,
franchise fees, reimbursements, commissions, fees, choses in action, and all
other rights or entitlements to moneys or property payable by a Person to PAC or
any Subsidiary, now existing or hereafter created or arising, and all cash and
non-cash proceeds and products thereof, and all rights thereto including rights
in rejected, returned or repossessed goods arising from the sale of or providing
of goods or services by the Borrowers.
SECTION 1.49. RECORDS. The term "Records" shall mean
correspondence, memoranda, tapes, discs, papers, books and other documents or
transcribed information of any type, whether expressed in ordinary or machine
language, maintained by the Borrowers in connection with the Collateral or their
business operations.
SECTION 1.50. REGULATION G. The term "Regulation G" shall mean
Regulation G of the Board of Governors of the Federal Reserve System, 12 C.F.R.
Part 207, or any successor or other regulation hereafter promulgated by the
Board to replace the prior Regulation G and having substantially the same
function.
SECTION 1.51. REGULATION U. The term "Regulation U" shall mean
Regulation U promulgated by the Board of Governors of the Federal Reserve
System, 12 C.F.R. Part 221, or any successor or other regulation hereafter
promulgated by the Board to replace the prior Regulation U and having
substantially the same function.
SECTION 1.52. REGULATION X. The term "Regulation X" shall mean
Regulation X promulgated by the Board of Governors of the Federal Reserve
System, 12 C.F.R. Part 224, or
-11-
<PAGE>
any successor or other regulation hereafter promulgated by the Board to replace
the prior Regulation X and having substantially the same function.
SECTION 1.53. RENT EXPENSE. The term "Rent Expense" shall
mean, for any period, all amounts paid, payable or accrued during such period by
the Borrower and its Subsidiaries on a consolidated basis with respect to all
operating leases of real and personal property, excluding intercompany items.
SECTION 1.54. SELLER DEBT. (intentionally deleted)
SECTION 1.55. SUBSIDIARY. The term "Subsidiary" or,
collectively, the "Subsidiaries", shall include all of the Borrowers named
herein except PAC, and any other corporate or other entity now or hereafter
created, acquired or organized in which at least eighty percent (80%) or more of
the voting control and legal and beneficial equity interests therein is held,
directly or indirectly, by PAC or any other Borrower, or any combination
thereof.
SECTION 1.56. SUBORDINATED DEBT. The term "Subordinated Debt"
shall mean any and all indebtedness and liabilities of PAC or any other Borrower
(a) which has been subordinated to the Loans and the other Obligations pursuant
to a written agreement (including the express written terms of the subordinated
indebtedness instruments) in form and substance acceptable to the Bank, and (b)
has been incurred pursuant to written agreements in form and substance
acceptable to the Bank and, if required by the Bank, such covenants of any of
the Borrowers contained therein have been incorporated herein as the Bank may
require.
SECTION 1.57. TOTAL FUNDED DEBT. (intentionally deleted)
SECTION 1.58. TRADEMARK ASSIGNMENT. The term "Trademark
Assignment" shall mean any of the Trademark Assignments executed, delivered and
acknowledged by PAC and other Subsidiaries, assigning to the Bank a lien upon
such registered trademarks identified therein. All such Trademark Assignments
shall be in form suitable for recordation in the United States Patent and
Trademark Office.
SECTION 1.59. UNUSED LINE FEE. (intentionally deleted).
ARTICLE II
TERMS AND PURPOSE OF THE LOANS
SECTION 2.1. THE LINE OF CREDIT LOAN. The Bank agrees to make
Advances to PAC under the Line of Credit during the term of this Agreement in an
amount not to exceed Four Million Six Hundred Thousand Dollars ($4,600,000) (the
"Line of Credit Portion"); provided, HOWEVER, that the Line of Credit Portion is
subject to permanent reduction in the manner provided in Section 2.4 hereof. The
obligation of the Borrowers to repay the Advances under the Line of Credit shall
be evidenced by the Consolidated Note. Subject to the limitations provided
-12-
<PAGE>
herein, the Borrowers may borrow, repay and reborrow under the Line of Credit
and under the Consolidated Note.
SECTION 2.1.1. PURPOSE OF THE LINE OF CREDIT. The Borrowers
may use the proceeds of the Line of Credit Loan for the financing of
Receivables, for other general working capital needs, and for the financing of
capital expenditures; PROVIDED, HOWEVER, that proceeds of the Line of Credit
Loan may also be used to pay accrued interest on, and scheduled installments of
principal with respect to Advances outstanding under, the Acquisition Line of
Credit.
SECTION 2.1.2. INTEREST RATE. Advances under the Line of
Credit shall bear interest at the LIBOR Rate plus 4.75%. Interest shall be
calculated based upon a year of 360 days and the actual number of days elapsed.
The LIBOR Rate shall be determined as of the first day of each month. The Line
of Credit shall be evidenced by, and shall be repaid with interest in accordance
with, the provisions of the Consolidated Note, the terms and conditions of which
are incorporated herein by reference. The date and amount of each Advance made
by the Bank and each payment made by the Borrowers shall be recorded by the Bank
on the books and records of the Bank, but any failure to record such dates or
amounts shall not relieve the Borrowers of their obligation of repayment
hereunder or under the Consolidated Note.
SECTION 2.1.3. LINE OF CREDIT FEES. (intentionally deleted).
SECTION 2.1.4. ADVANCES UNDER THE LINE OF CREDIT. Subject to
compliance by the Borrowers with all of the terms and conditions of this
Agreement, the satisfaction of all conditions precedent to the making of
Advances hereunder and the non-existence of any Event of Default or any event,
circumstance, act or omission which with the giving of notice, the passage of
time, or both, would constitute an Event of Default hereunder, the Bank shall
lend or make Advances to PAC from time to time as set forth in this Agreement
and all additional agreements of the parties hereafter made concerning the
Deposit Account and the procedures for obtaining Advances, and all amendments,
modifications or substitutions of any of the foregoing. All Advances under the
Line of Credit shall be made to the Borrowers' operating account at the Bank.
SECTION 2.1.5. LIMITATION ON BORROWINGS. Notwithstanding
anything to the contrary contained herein, the Borrowers shall not at any time
allow the outstanding principal balance advanced under the Consolidated Note to
exceed the Maximum Loan Amount.
SECTION 2.1.6. REPAYMENT OF THE LINE OF CREDIT. The Borrowers
shall pay accrued interest on the outstanding principal balance of the Line of
Credit on the first day of each month, commencing March 1, 1999. The Borrowers
promise to pay to the order of the Bank all principal, accrued interest, and
other costs and expenses arising under the Line of Credit, this Agreement and
all other Obligations, at Maturity; PROVIDED, HOWEVER, that (a) the outstanding
principal balance of the Line of Credit is subject to mandatory prepayment as
further provided in Section 2.4 hereof, (b) if at any time the principal amount
outstanding under the Line of Credit exceeds the Line of Credit Portion, then
the Borrowers shall immediately pay over a sum equal to the amount by which such
outstanding principal exceeds the Line of Credit Portion, plus
-13-
<PAGE>
accrued interest to the date of prepayment, and (c) upon the occurrence of an
Event of Default, subject to any applicable grace or cure period, the entire
outstanding and unpaid principal balance of the Line of Credit Loan, together
with the accrued interest thereon to the date of payment, shall be immediately
due and payable at the option of the Bank. Interest shall be payable monthly
following preparation by the Bank of an interest statement showing interest due
through the end of the monthly payment period. If interest for the final days of
any period is estimated, PAC's Deposit Account shall be debited or credited, as
the case may be, to reflect actual interest due through the end of such period.
The Bank shall automatically debit PAC's Deposit Account on the due date of, and
in the amount of, the interest shown to be due on each monthly statement.
SECTION 2.1.7. PREPAYMENT OF THE LINE OF CREDIT.
(a) Optional Prepayment. The Borrowers may prepay
the Line of Credit in whole or in part at any time and from time to time without
penalty or additional interest. The Line of Credit may be reduced, from time to
time, to a zero balance without affecting the continuing validity of this
Agreement or the continuing security interest and lien of the Bank in and to the
Collateral.
(b) Mandatory Prepayment. The Borrowers shall be
required to prepay the Line of Credit and to permanently reduce the Line of
Credit Portion in accordance with the provisions of Section 2.4 hereof
SECTION 2.2. THE ACQUISITION LINE OF CREDIT LOAN.
SECTION 2.2.1. THE ACQUISITION LINE OF CREDIT LOAN. The
obligation of the Borrowers to repay the Advances under the Acquisition Line of
Credit is evidenced by the Consolidated Note. Amounts repaid under the
Consolidated Note with respect to the Acquisition Line of Credit may not be
reborrowed, and shall constitute a permanent reduction in the Acquisition Line
of Credit. The Bank will make no further Advances under the Acquisition Line of
Credit.
SECTION 2.2.2. PURPOSE OF THE ACQUISITION LINE OF CREDIT. The
Borrowers represent and warrant that the proceeds of Advances under the
Acquisition Line of Credit were used by PAC or designated Borrowers for the
financing of Acquisitions approved by the Bank.
SECTION 2.2.3. INTEREST RATE. Advances under the Acquisition
Line of Credit shall bear interest at the LIBOR Rate plus 4.75%. Interest shall
be calculated based upon a year of 360 days and the actual number of days
elapsed. The applicable rate of interest shall be determined as of the first day
of each month. The Acquisition Line of Credit is evidenced by, and shall be
repaid with interest in accordance with, the provisions of the Consolidated
Note. The date and amount of each Advance made by the Bank and each payment made
by the Borrowers shall be recorded by the Bank on the books and records of the
Bank, but any failure to record such dates or amounts shall not relieve the
Borrowers of their obligation of repayment hereunder or under the Consolidated
Note.
-14-
<PAGE>
SECTION 2.2.4. LINE OF CREDIT FEES. (intentionally deleted).
SECTION 2.2.5. ADVANCES UNDER THE LINE OF CREDIT.
(intentionally deleted).
SECTION 2.2.6. REPAYMENT OF THE ACQUISITION LINE OF CREDIT.
The Borrowers promise to pay to the order of the Bank all principal, accrued
interest, and other costs and expenses arising under the Acquisition Line of
Credit, this Agreement and all other Obligations, at Maturity. Interest on the
principal balance of the term loan under the Acquisition Line of Credit shall be
payable on the first day of each month. The outstanding principal balance of the
term loan under the Acquisition Line of Credit shall be repaid in consecutive
equal monthly principal installments of $91,666.67, the next such principal
installment being due on November 1, 1999; PROVIDED, HOWEVER, that (a) all
principal, plus interest and other sums due under the Acquisition Line of Credit
shall be absolutely due and payable at Maturity, and (b) upon the occurrence of
an Event of Default, subject to any applicable grace or cure period, the entire
outstanding and unpaid principal balance of the Acquisition Line of Credit,
together with the accrued interest thereon to the date of payment, shall be
immediately due and payable at the option of the Bank. Interest shall be payable
monthly following preparation by the Bank of an interest statement showing
interest due through the end of the monthly payment period. If interest for the
final days of any period is estimated, PAC's Deposit Account shall be debited or
credited, as the case may be, to reflect actual interest due through the end of
such period. The Bank shall automatically debit PAC's Deposit Account on the due
date of, and in the amount of, the monthly payment due on the Acquisition Line
of Credit.
SECTION 2.2.7. PREPAYMENT OF THE ACQUISITION LINE OF CREDIT.
(a) Optional Prepayment. The Borrowers may prepay
the Acquisition Line of Credit in whole or in part at any time and from time to
time without penalty or additional interest.
(b) Mandatory Prepayment. (intentionally deleted)
SECTION 2.2.8. PROCEDURE FOR PERMITTED ACQUISITIONS.
(intentionally deleted).
SECTION 2.2.9. PROCEDURE FOR DOMESTIC AND FOREIGN
ACQUISITIONS. (intentionally deleted)
SECTION 2.2.10. SELLER DEBT. (intentionally deleted)
SECTION 2.3. COMMITMENT FEE. (intentionally deleted).
SECTION 2.4. MANDATORY REPAYMENTS AND PREPAYMENTS. On or
before September 1, 2000, the Borrowers shall permanently reduce the Line of
Credit by $200,000 to $4,400,000.
-15-
<PAGE>
ARTICLE III
SECURITY FOR THE LOANS
The repayment of the Loans, the satisfaction of the Obligations,
and the full, complete and absolute performance by the Borrower of each of the
terms and conditions of this Agreement, the Consolidated Note, the other Loan
Documents and all other Obligations, direct or indirect, owing to the Bank shall
be secured by the following:
SECTION 3.1. GRANT OF SECURITY INTEREST. PAC and each other
Borrower hereby jointly and severally assign to the Bank all of the Borrowers'
right, title, and interest in and to, and confirm and grant to the Bank a
continuing first priority lien and security interest (subject only to any
Permitted Lien) in and to, the following tangible and intangible assets owned by
the Borrowers, wherever located, whether now owned or hereafter acquired by the
Borrowers, together with all substitutions therefor, and replacements and
renewals thereof:
(a) Accounts (including all Receivables);
(b) Inventory;
(c) Chattel Paper;
(d) Documents;
(e) General Intangibles (including
trademarks, trade names, patents,
copyrights and the goodwill
associated therewith, and all rights
to payments due from franchisees of
whatever nature);
(f) Instruments;
(g) Equipment;
(h) Securities (including the capital
stock of all Subsidiaries); and
(i) All Records relating to or pertaining
to any of the above.
In addition to the previously described kinds and types of property of the
Borrowers, the Borrowers hereby assign, transfer and set over to the Bank all of
the Borrowers' right, title and interest in and to, and confirm and grant to the
Bank a continuing security interest in, all amounts that may be owing at any
time and from time to time by the Bank to the Borrowers in any capacity,
including, but not limited to, any balance or share belonging to any Borrower of
any deposit or other account with the Bank, which security interest shall be
independent of and in addition to any right of set-off which the Bank may
possess.
SECTION 3.2. PROCEEDS AND PRODUCTS. The Bank's security
interest provided for herein shall apply to all cash and non-cash proceeds,
including but not limited to insurance proceeds, and the products of the
Collateral.
SECTION 3.3. PRIORITY OF SECURITY INTERESTS. The security
interests granted by the Borrowers to the Bank pursuant to this Agreement and at
the time of any Advance hereunder
-16-
<PAGE>
shall be a first priority lien security interest in the Collateral subject to no
other security interest or lien except Permitted Liens. The Collateral shall
secure the payment and performance of all Obligations hereunder.
SECTION 3.4. REAL ESTATE. Contemporaneously with execution of
this Agreement, the Borrowers shall execute and deliver to the Bank deeds of
trust or mortgages in recordable form on all real estate, or interests in real
estate, now owned by PAC or the Borrowers, except for the real property
encumbered by the FFCA Financing and the Heartland Bank Financing, as these
terms are defined in the Amended and Restated Loan and Security Agreement.
Exhibit No. 3 to this Agreement sets forth a complete list of all real property
owned by each Borrower, and which will be encumbered by first priority deeds of
trust or mortgages in favor of the Bank.
SECTION 3.5. FUTURE ADVANCES. The security interests granted
by the Borrowers shall secure all current and all future Advances made by the
Bank to the extent such current and future Advances constitute Loans or
Obligations, and the Bank may advance or readvance upon repayment by the
Borrowers of all or any portion of the sums loaned to the Borrowers and any such
Advance or readvance shall be fully secured by the security interests created by
this Agreement.
SECTION 3.6. TRADEMARK ASSIGNMENTS. The Borrowers hereby
confirm, assign and grant a security interest and lien upon all federally
registered trademarks, trade names, service marks, copyrights, and patents now
or hereafter existing, and applications therefor, including specifically,
without limitation, the trademarks identified in the Trademark Assignments.
SECTION 3.7. LANDLORD'S WAIVERS. At the request of the Bank,
at any time and from time to time, PAC and/or any Borrower requested by the Bank
shall provide to the Bank appropriate landlords' waivers, in form and content
satisfactory to the Bank, for the location of PAC's or any other Borrower's
chief executive office where its or their original entry books of account are
maintained, and such other locations as may be determined from time to time by
the Bank, which landlords' waivers shall acknowledge the Bank's first priority
lien security interest in the Collateral and shall contain an express
subordination of any rights which the landlord might attempt to assert against
such Collateral to the rights of the Bank.
ARTICLE IV
CONDITIONS PRECEDENT
The Bank's obligation to make Advances under the Line of Credit
is specifically subject to the full satisfaction of the conditions precedent set
forth in this Article IV as follows:
SECTION 4.1. REQUIRED DOCUMENTS AND PAYMENTS. The Borrowers
shall deliver to the Bank at execution of this Agreement (unless otherwise
stated below) the following:
-17-
<PAGE>
(a) A certified copy of resolutions of each Borrower
(i) authorizing the execution, delivery and performance of this Agreement and
all other documents to be executed in connection with this Agreement; and (ii)
stating the incumbency and containing the signatures of the officers of each
Borrower executing this Agreement and all other documents to be executed in
connection with this Agreement, which shall be delivered within five (5)
business days after execution of this Agreement;
(b) A duly executed First Amendment to Third
Consolidated, Amended and Restated Revolving and Acquisition Line of Credit
Promissory Note;
(c) Duly executed deeds of trust/mortgages in
recordable form, in compliance with Section 3.4 of this Agreement;
(d) Such agreements and other documents as a title
insurance agent may require to permit the issuance of a title insurance policy
covering the deeds of trust/mortgages described above; and
(e) Such other items as the Bank may reasonably
require.
SECTION 4.2. COMBINATION AND INITIAL PUBLIC OFFERING.
(intentionally deleted).
SECTION 4.3. SATISFACTION OF TERMS. At the time of each
Advance, or any readvance or other credit extended hereunder, the Borrowers
shall have complied with all of the terms and conditions hereof, all
representations and warranties shall be true and accurate in all material
respects as of such date (other than changes occurring in the ordinary course of
business and not in violation of this Agreement), and no Event of Default shall
have occurred and be continuing.
SECTION 4.4. CLOSING. (intentionally deleted).
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the Bank to make the Loans and enter into this
Agreement, PAC represents and warrants as to the business and affairs of itself
and, to its knowledge, all Subsidiaries, and each Subsidiary represents and
warrants as to its business and affairs, and all Borrowers acknowledge the
Bank's justifiable reliance upon the accuracy of the matters set forth below as
of the date hereof and at the time of each Advance under the Line of Credit:
SECTION 5.1. ACCURACY AND COMPLETENESS OF INFORMATION. All
information, documents, reports, statements, financial statements, and data
submitted by or on behalf of the Borrower in connection with the Loan, or in
support thereof, are true, accurate, and complete in all material respects and
contain no knowingly false, incomplete or misleading statements or omit any
material information.
-18-
<PAGE>
SECTION 5.2. NON-EXISTENCE OF DEFAULTS, ETC. Except to the
extent disclosed to the Bank by the Borrower, as reflected on the attached
Exhibit No. 4, the Borrower is not in material default with respect to any of
its existing indebtedness, and the making and performance of this Agreement and
the Loan Documents will not immediately, or with the passage of time, the giving
of notice, or both: (a) violate the provisions of any Governing Document of the
Borrower, violate any Laws which would impair the Collateral or the Bank's lien
and security interest therein or result in a material default under any material
contract, agreement, or instrument to which the Borrower is a party or by which
the Borrower or its property is bound; or (b) result in the creation or
imposition of any security interest in, or lien or encumbrance upon, any of the
assets of the Borrower, except in favor of the Bank or the holders of Permitted
Liens.
SECTION 5.3. LITIGATION. Except to the extent disclosed in
Exhibit No. 5 attached hereto, as of the date of execution of this Agreement,
there is no action, suit, investigation, or proceeding pending or, to the best
knowledge and belief of the Borrower, threatened against the Borrower, which if
adversely determined could reasonably be expected to have a Material Adverse
Effect on the Borrower.
SECTION 5.4. LIABILITIES OR ADVERSE CHANGES. The Borrower has
no direct or contingent material liability or indebtedness, other than such
indebtedness as is secured by a Permitted Lien, which is known to the Borrower
and not previously disclosed to the Bank.
SECTION 5.5. TITLE TO COLLATERAL. The Borrower has good and
marketable title to all of the existing Collateral and will have good and
marketable title to all of the Collateral hereafter acquired, subject only to
Permitted Liens.
SECTION 5.6. FIRST PRIORITY LIENS. The Loan Documents and the
documents being executed in connection with this Agreement create in favor of
the Bank a valid and enforceable first priority perfected security interest in
and lien upon all right, title and interest of PAC and its Subsidiaries in the
personal property Collateral described therein, subject only to Permitted Liens.
To the best of the Borrowers' knowledge, the Loan Documents and the documents
being executed in connection with this Agreement create in favor of the Bank a
valid and enforceable first priority perfected security interest in and lien
upon all right, title and interest of PAC and its Subsidiaries in the real
property Collateral described therein, subject only to Permitted Liens.
SECTION 5.7. USE OF LOAN PROCEEDS. The Borrower shall use
Advances only for the purposes represented to the Bank and as set forth in this
Agreement.
SECTION 5.8. STATUS. The Borrower is a corporation or a
limited liability company, as the case may be, validly organized and existing
under the Laws of the state of its incorporation or organization and its
operations and affairs have been effectively and validly commenced. The Borrower
has qualified to do business as a foreign corporation or limited liability
company, as the case may be, in all states where the ownership of its properties
or conduct of its business requires qualification. The Borrower has the power to
own its properties,
-19-
<PAGE>
conduct its business and affairs, and enter into the Loan and perform the
Obligations. The Borrower's entry into the Loan with the Bank has been validly
and effectively approved by its Board of Directors, shareholders, members or as
may be required by its Governing Documents or applicable Law. All copies of the
Governing Documents and corporate resolutions of the Borrower shown to the Bank
are true, accurate, and complete and no action has been taken in derogation or
abrogation thereof. The Borrower has not changed its name, been the surviving
corporation in a merger, acquired any business, or conducted business under any
trade name, except as referenced in Exhibit No. 6 attached hereto and
incorporated herein by this reference. No Borrower has changed the county and
state in which its chief executive office is located within the last five (5)
years.
SECTION 5.9. FINANCIAL STATEMENTS.
(a) All financial statements submitted by the Borrowers to the
Bank after the date of this Agreement have been prepared in accordance with GAAP
(subject, with respect to the unaudited financial statements, to the absence of
notes required by GAAP and to normal year-end audit adjustments) and present
fairly the financial position of the Borrowers for the periods then ended.
Neither PAC nor any of its Subsidiaries has directly or indirectly declared,
ordered, paid, made or set apart any amounts or property for any dividend, share
acquisition or other distribution, or agreed to do so.
(b) (intentionally deleted)
SECTION 5.10. SOLVENCY. (intentionally deleted)
SECTION 5.11. VALIDITY, BINDING NATURE, AND ENFORCEABILITY OF
THE LOAN DOCUMENTS. The Loan Documents executed by the Borrower are the valid
and binding obligations of the Borrower, fully enforceable against the Borrower
in accordance with their terms.
SECTION 5.12. DEFAULTS UNDER LOAN DOCUMENTS. (intentionally
deleted).
SECTION 5.13. TAXES. The Borrower has: (a) filed all federal,
state and local tax returns and other reports which are required by Law to be
filed prior to the date hereof, (b) paid or caused to be paid all taxes,
assessments and other governmental charges that are due and payable prior to the
date hereof, except where the same are being contested in good faith by
appropriate proceedings with adequate reserves therefor having been set aside;
and (c) made adequate provision for the payment of such taxes, assessments or
other charges accruing but not yet payable. The Borrower has no knowledge of any
deficiency or additional assessment in a materially important amount in
connection with any taxes, assessments or charges not provided for on the
Borrower's books of account or reflected in the Borrower's financial statements,
nor is the Borrower under audit by any federal, state or local tax authority in
connection with any material tax obligations.
-20-
<PAGE>
SECTION 5.14. ERISA.
(a) Exhibit No. 7 lists all employee benefit plans within the
meaning of Section 3(3) of ERISA maintained or sponsored by PAC or, to the
knowledge of PAC, any of its Subsidiaries or to which PAC or, to the knowledge
of PAC, any of its Subsidiaries is obligated to contribute (the "Plans") and
separately identifies all Qualified Plans (as defined below) and all
multi-employer plans within the meaning of Section 3(37) of ERISA with respect
to which PAC or, to the knowledge of PAC, any of its Subsidiaries is a
participating employer ("Multi-employer Plan"). PAC will at the request of the
Bank deliver true and correct copies of all such Plans to the Bank.
(b) To the best knowledge of PAC, each such Plan is in
compliance in all material respects with the applicable provisions of ERISA, the
Internal Revenue Code and other federal or state law, including, to the
knowledge of PAC, all requirements under the Internal Revenue Code or ERISA for
filing reports (which are true and correct in all material respects as of the
date filed).
(c) The form of each Plan intended to be qualified under
Section 401(a) of the Internal Revenue Code ("Qualified Plan") to the knowledge
of PAC qualifies under Section 401(a) of the Internal Revenue Code, and the
trusts created thereunder are, to the knowledge of PAC, exempt from tax under
the provisions of Section 501(a) of the Internal Revenue Code, and to the
knowledge of PAC nothing has occurred that would cause the loss of such
qualification or tax-exempt status.
(d) There is no outstanding liability under Title IV of ERISA
with respect to any Plan maintained or sponsored by PAC or, to the knowledge of
PAC, its Subsidiaries (as to which PAC or any of its Subsidiaries is or may be
liable), nor with respect to any Plan to which PAC or, to the knowledge of PAC,
any of its Subsidiaries (wherein PAC or any of its Subsidiaries is or may be
liable) contributes or is obligated to contribute which would have a Material
Adverse Effect.
(e) To the knowledge of PAC, none of the Qualified Plans
subject to Title IV of ERISA has any unfunded benefit liability as defined in
Section 4001(a)(18) of ERISA (as to which PAC or any of its Subsidiaries is or
may be liable) which would have a Material Adverse Effect.
(f) PAC and, to the knowledge of PAC, its Subsidiaries have
complied in all material respects with the applicable notice and continuation of
coverage requirements of Section 4980B of the Internal Revenue Code.
(g) No event has occurred or is reasonably expected to occur
with respect to any Plan maintained or sponsored by PAC or any of its
Subsidiaries or to which PAC or any of its Subsidiaries is obligated to
contribute which would constitute a "reportable event" within the meaning of
Section 4043(c) of ERISA (excluding a reportable event for which the notice
-21-
<PAGE>
requirement has been waived by the PBGC) otherwise affect the tax qualification
of any Qualified Plans, or result in a deficiency in any required contributions
which would have a Material Adverse Effect.
(h) As of the date of execution of this Agreement, there are
no pending or, to the knowledge of PAC, threatened claims, actions or lawsuits,
other than routine claims for benefits in the usual and ordinary course,
asserted or instituted against (i) any Plan maintained or sponsored by PAC and,
to the knowledge of PAC, its Subsidiaries or their assets, or (ii) any fiduciary
with respect to any Plan for which PAC or, to the knowledge of PAC, any of its
Subsidiaries may be directly or indirectly liable, through indemnification
obligations or otherwise which would have a Material Adverse Effect.
(i) Neither PAC nor, to the knowledge of PAC, any of its
Subsidiaries has incurred or, to the knowledge of PAC, reasonably expects to
incur (i) any liability (and no event has occurred that, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a Multi-employer Plan or (ii) any
liability under Title IV of ERISA (other than premiums due and not delinquent
under Section 4007 of ERISA) with respect to a Plan which would have a Material
Adverse Effect.
(j) Neither PAC nor, to the knowledge of PAC, any of its
Subsidiaries has engaged, directly or indirectly, in a nonexempt prohibited
transaction (as defined in Section 4975 of the Internal Revenue Code or Section
406 of ERISA) in connection with any Plan that has a Material Adverse Effect.
SECTION 5.15. ASSETS FOR CONDUCT OF BUSINESS. PAC and each of
its Subsidiaries possess adequate assets, licenses, patents, copyrights,
trademarks and trade names necessary to continue to conduct its business
substantially as heretofore conducted without any material conflict with the
rights of other Persons.
SECTION 5.16. TRADEMARKS. Exhibit No. 8 sets forth a true and
complete list of all registered patents, trademarks, trade names and copyrights
owned by the Borrower, or for which applications are pending (the "Intellectual
Property"). Each of the federal registrations pertaining to the Intellectual
Property owned by the Borrower is valid and in full force and effect, and all
required filings in connection with such registrations have been properly made
and all required fees have been paid. The Borrower owns, or has the right to use
pursuant to valid and effective agreements, all Intellectual Property and no
claims are pending against the Borrower by any person with respect to the use of
any Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement relating to the same, and the current
use by the Borrower of the Intellectual Property does not infringe on the rights
of any third party.
SECTION 5.17. COMPLIANCE WITH LAWS. Except as otherwise
disclosed to the Bank, Borrower has complied in all material respects with all
applicable Laws with respect to: (a) any restrictions, specifications, or other
requirements pertaining to products that the Borrower sells or to the services
it performs; (b) the conduct of its business; and (c) the use, maintenance, and
operation of the real and personal properties owned or leased by it in the
conduct of its
-22-
<PAGE>
business. The Borrower has complied, and shall continue to comply with, all
laws, ordinances, rules, regulations, guidelines, orders and decrees in regard
to safety and the disposal of toxic wastes and hazardous materials.
SECTION 5.18. ACCURACY OF REPRESENTATIONS AND WARRANTIES. No
certificate or other document furnished by the Borrower pursuant hereto contains
any untrue statement of material fact or omits to state a material fact
necessary to make such representation or warranty not misleading in light of the
circumstances under which it was made.
SECTION 5.19. CONSENTS, APPROVALS, AND AUTHORIZATIONS. Each
consent, approval or authorization of, or filing, registration or qualification
with, any Person which is required to be obtained or effected by the Borrower in
connection with the execution and delivery of this Agreement and the Loan
Documents, or the undertaking or performance of any obligation hereunder or
thereunder, has been duly obtained or effected.
SECTION 5.20. TITLE TO ASSETS OTHER THAN COLLATERAL. The
Borrower has good and marketable title to all of its material assets, subject to
no security interest, encumbrance, lien, or claim of any Person other than the
Bank, holders of Permitted Liens and lessors under true operating leases.
SECTION 5.21. MARGIN SECURITIES. Neither PAC nor any of its
Subsidiaries owns any "margin stock" within the meaning of Regulation U. None of
the proceeds of the Loans will be used, directly or indirectly, for the purpose
of purchasing or carrying any margin stock, maintaining, reducing or retiring
any indebtedness that was originally incurred to purchase or carry margin stock
or for any other purpose that would violate Regulation G, Regulation U,
Regulation T or Regulation X or any other regulation of the Board of Governors
of the Federal Reserve System, as the same may be in effect from time to time.
SECTION 5.22. PLACE OF BUSINESS. The Borrowers' respective
chief executive offices, principal places of business, and only places of
business where their respective original entry Records are kept, are located at
the addresses set forth in Exhibit No. 6 attached hereto.
SECTION 5.23. ADDITIONAL BUSINESS LOCATIONS. The Borrower
maintains other business locations as set forth in Exhibit No. 6 attached hereto
where Collateral is stored.
SECTION 5.24. OTHER SUBSIDIARIES. As used herein, the term
"Subsidiaries" means those companies (other than PAC) which have executed this
Agreement and assumed the joint and several Obligations hereunder and under the
Consolidated Note, and which are, directly or indirectly, owned and controlled
by PAC, whether directly or through an intermediary which is a Subsidiary. The
term "Subsidiaries" may also include additional parties who subsequently execute
Assumption Agreements and become parties to this Agreement and joint and several
obligors under the Consolidated Note.
SECTION 5.25. MATERIAL CONTRACTS AND COMMITMENTS.
(intentionally deleted)
-23-
<PAGE>
SECTION 5.26. ENVIRONMENTAL MATTERS.
(a) Except as disclosed in the Phase I Environmental Surveys
for each of the Borrower-owned real properties, copies of which were delivered
to the Bank, (i) no Hazardous Substances are unlawfully stored or otherwise
unlawfully located on the business premises of PAC or its Subsidiaries, and
neither PAC nor any of its Subsidiaries has contaminated, nor to the
Subsidiaries' knowledge has any other Person contaminated, any part of the
business premises of PAC or its Subsidiaries, including the groundwater located
thereon and thereunder, with any Hazardous Substance during the ownership,
occupancy or operation thereof by PAC or any of its Subsidiaries; (ii) there
have been no releases of Hazardous Substances in violation of any environmental
Law by PAC or any of its Subsidiaries, or to its Subsidiaries' knowledge by any
other Person, on any real estate previously owned by the Subsidiaries; (iii) to
the Subsidiaries' knowledge, there are no underground storage tanks situated on
the business premises of PAC or its Subsidiaries; and (iv) to the knowledge of
the Subsidiaries, neither PAC nor any of its Subsidiaries has ever sent
Hazardous Substances to a site which, pursuant to any environmental Law, (1) has
been placed on the "National Priorities List" or "CERCLIS List" of hazardous
waste sites (or any similar state list), or (2) which is subject to a claim, an
administrative order or other request to take "removal" or "remedial" action (as
defined under environmental Laws) or to pay for the costs of cleaning up such a
site; and
(b) All activities and operations of PAC and each of its
Subsidiaries comply in all material respects with the requirements of all
applicable environmental Laws of all governmental authorities having
jurisdiction over PAC or any of its Subsidiaries or its properties, and neither
PAC nor any of its Subsidiaries is involved in any suit or proceeding or has
received any written notice from any governmental agency alleging that PAC or
any of its Subsidiaries is a responsible party with respect to a release of
Hazardous Substances or has received written notice of any claims from any
person or entity relating to property damages or personal injuries from exposure
to Hazardous Substances.
(c) As used herein, "Hazardous Substance" means any substances
or materials (i) that are or become defined as hazardous wastes, hazardous
substances, pollutants, contaminants or toxic substances under any environmental
Law; (ii) that are toxic, explosive, corrosive, flammable, infectious,
radioactive, mutagenic or otherwise hazardous and are or become regulated by any
governmental authority; (iii) the presence of which requires investigation or
remediation under any environmental Law or common law; or (iv) that contain,
without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde foam
insulation, petroleum hydrocarbons, petroleum derived substances or waste, crude
oil, nuclear fuel, natural gas or synthetic gas.
SECTION 5.27. GRIMAUD LIEN. PAC will perform all obligations
which are secured by the Grimaud Lien in a timely manner, including
specifically, without limitation, the payment of all subfranchisor fees within
fourteen (14) days of receipt, and in no event shall any payments owing Grimaud
and secured by the Grimaud Lien exceed in the aggregate at any one time the sum
of $100,000. PAC shall notify the Bank in writing of any material disputes, or
possible disputes, relating to the Grimaud Lien, promptly upon having actual
knowledge of a
-24-
<PAGE>
material dispute, or the possibility thereof. PAC shall use its
best efforts in the ordinary conduct of its business to avoid any enforcement
action of the Grimaud Lien.
SECTION 5.28. YEAR 2000. The Borrower is taking action to
ensure that all of the material computer software, computer firmware, computer
hardware (whether general or special purpose) and other similar or related items
of automated, computerized and/or software systems(s) that are used or relied on
by Borrower or any Subsidiary in the conduct of its business will not
malfunction, will not cease to function, will not generate incorrect data, and
will not produce incorrect results when processing, providing and/or receiving
(i) date-related data into and between the twentieth and twenty-first centuries,
and (ii) date-related data in connection with any valid date in the twentieth
and twenty-first centuries.
As used above in this Article V, the singular "Borrower" shall mean each
Borrower (except PAC) for itself, and PAC for and on behalf of itself and all
other Borrowers (except representations of PAC on behalf of its Subsidiaries
shall be to PAC's' knowledge).
ARTICLE VI
AFFIRMATIVE COVENANTS
PAC for itself and all other Borrowers, and each Subsidiary
for itself, covenants and agrees, during the term of this Agreement and while
any Obligations are outstanding and unpaid, to do and perform the following:
SECTION 6.1. PAYMENTS. All Obligations shall be paid in full
when and as due, time being of the essence.
SECTION 6.2. PERFORMANCE. Except in any instance where a cure
period is applicable or otherwise provided by the Bank, all Obligations shall be
fully and completely performed, when and as required, time being of the essence.
SECTION 6.3. PROTECTION OF SECURITY. The value of the
Collateral shall at all times be protected and preserved.
SECTION 6.4. INSURANCE. The Borrower shall obtain and maintain
the following insurance coverages:
SECTION 6.4.1. CASUALTY INSURANCE. The Borrower shall obtain
and maintain during the term of the Loan for all of its assets and properties,
both real, personal, and mixed, including but not limited to the Collateral,
fire and extended coverage casualty insurance. Such insurance shall be written
in amounts satisfactory to the Bank and sufficient to prevent any co-insurance
liability (which amount shall be the full insurable value). The Borrower shall
promptly supply the Bank upon request with a certificate of insurance and/or
duplicate originals or copies of the aforementioned insurance policies and paid
receipts evidencing payment of the premiums due on the same. The aforementioned
policies shall be endorsed so as to make them
-25-
<PAGE>
noncancellable unless thirty (30) days prior notice of cancellation is provided
to the Bank. The Borrower shall give the Bank prompt notice of any material loss
covered by such casualty insurance.
SECTION 6.4.2. LIABILITY AND WORKER'S COMPENSATION INSURANCE.
The Borrower shall obtain and maintain during the term of the Loan public
liability and property damage insurance in such amounts, with insurance
companies, and upon policy forms reasonably acceptable to and approved by the
Bank. The Borrower shall obtain and maintain during the term of the Loan
workers' compensation insurance, in such amounts, with insurance companies, and
in forms reasonably acceptable to and approved by the Bank. The Borrower, on
request, shall supply the Bank with copies of the liability and worker's
compensation insurance policies and receipts evidencing the payment of premiums
due thereon or, alternatively, certificates from the insurance companies
certifying to the existence of policies, summarizing the terms of the policies,
and indicating the payment of premiums due thereon.
SECTION 6.4.3. OTHER INSURANCE. The Borrower shall also
maintain such other forms of insurance as may be customary or prudent for
businesses of the type carried on by each Borrower or as may be required by the
Bank from time to time as determined in its reasonable discretion.
SECTION 6.5. COLLECTION OF ACCOUNTS. The Borrower shall
collect its Accounts only in the ordinary course of business unless written
permission to the contrary is obtained from the Bank.
SECTION 6.6. MAINTENANCE OF EXISTENCE. The Borrower shall take
all necessary actions to preserve its existence, franchises and good standing in
its state of incorporation or organization and in any other state where
qualification as a foreign corporation or organization is required, and shall
comply with all present and future Laws applicable in the operation and conduct
of business, and all material agreements to which it is subject.
SECTION 6.7. NOTICE OF LITIGATION AND PROCEEDINGS. The
Borrower shall give (a) notice to the Bank within fifteen (15) calendar days of
any litigation or proceeding in which it is a party if an adverse decision (i)
would require it to pay more than Two Hundred Thousand Dollars ($200,000) or
deliver assets the value of which equals or exceeds such sum (whether or not the
claim is considered to be covered by insurance), or (ii) could, when aggregated
with all other litigation in which any Borrower is a party, cause any one or
more Borrowers to pay more than Five Hundred Thousand Dollars ($500,000) if an
adverse decision were rendered; and (b) immediate notice to the Bank of the
institution of any other suit or proceeding which might have a Material Adverse
Effect on the Collateral, the Borrower's operations, financial condition,
property or business.
SECTION 6.8. PAYMENT OF INDEBTEDNESS TO THIRD PERSONS.
(intentionally deleted)
-26-
<PAGE>
SECTION 6.9. NOTICE OF CHANGE OF BUSINESS LOCATION. The
Borrower shall notify the Bank thirty (30) days in advance of: (a) any change in
the location of its existing offices or places of business; (b) the
establishment of any new, or the discontinuance of any existing, place of
business; and (c) any change in or addition to the location of the place where
Records are kept.
SECTION 6.10. PENSION PLANS. The Borrower shall: (a) fund all
of its defined benefit plans within the meaning of Section 3(35) of ERISA in
accordance with, and in amounts not less than required by, the minimum funding
standards of Section 302 of ERISA; (b) furnish the Bank promptly, upon request,
with copies of all reports or other statements filed with the United States
Department of Labor or the Internal Revenue Service with respect to any employee
benefit plans governed by ERISA; and (c) promptly advise the Bank of the
occurrence of any "reportable event" within the meaning of Section 4043(c) of
ERISA (excluding a reportable event for which the notice requirement has been
waived by the Pension Benefit Guaranty Corporation) or a non-exempt "prohibited
transaction" within the meaning of Section 406 of ERISA and Section 4975 of the
Internal Revenue Code with respect to any employee benefit plans governed by
ERISA.
SECTION 6.11. MAINTENANCE OF ASSETS AND PROPERTIES. The
Borrower shall maintain its material assets and property, real, personal, and
mixed, in good condition and repair, normal wear and tear excepted, and shall
pay and discharge or cause to be paid and discharged when due, the cost of
repairs to or maintenance of the same, and shall pay or cause to be paid all
rental or mortgage payments due on any real estate used or owned by the
Borrower.
SECTION 6.12. PAYMENT OF TAXES. The Borrower shall pay or
cause to be paid when and as due all taxes, assessments and charges or levies
imposed upon it or on any of its property or which it is required to withhold
and pay over to any taxing authority or which it must pay on its income, except
where contested in good faith by appropriate proceedings with adequate reserves
therefor having been set aside by it. The Borrower shall pay or cause to be paid
all such taxes, assessments, charges or levies forthwith whenever foreclosure on
any lien that attaches appears imminent (or provide security therefor).
SECTION 6.13. FURTHER ASSURANCES AND POWER OF ATTORNEY. The
Borrower agrees to execute such other and further documents, including, without
limitation, promissory notes, security agreements, agreements, financing
statements, continuation statements, and the like as may from time to time in
the reasonable opinion of the Bank be deemed necessary, proper, or convenient,
to perfect, confirm, establish, reestablish, continue, or complete the security
interest in the Collateral and the purposes and intentions of this Agreement as
provided herein, it being the intention of the Borrower to hereby provide a full
and absolute warranty of further assurance to the Bank. Upon the written request
of the Bank that the Borrower execute any such document and the failure of the
Borrower to so execute any such document within ten (10) days, or at any time
and from time to time upon the occurrence and during the continuance of any
Event of Default, as the case may be, the Borrower hereby irrevocably and
automatically appoints the Bank as the Borrower's attorney-in-fact to execute
any such document in the
-27-
<PAGE>
Borrower's name and on the Borrower's behalf and such power of attorney shall
constitute a power of attorney coupled with an interest and be irrevocable.
SECTION 6.14. ADVANCEMENTS. If the Borrower should fail to
perform any of the affirmative covenants contained in this Article within any
grace or cure period as herein provided, or if the Borrower should fail to
protect or preserve the Collateral or the status and priority of the security
interest of the Bank in the Collateral, the Bank may make Advances to perform
the same on behalf of the Borrower. The Bank shall endeavor to give prior notice
to the Borrower of all such advancements; provided that failure to give notice
shall not affect Borrower's liability therefor. All sums so advanced shall be
deemed to be an Advance made pursuant to the Line of Credit and immediately upon
advancement become secured by the security interests created and confirmed by
this Agreement and the terms and provisions of this Agreement, the documents to
be executed in connection with this Agreement, and all of the applicable Loan
Documents, and shall become part of the principal amount owed to the Bank with
interest to be assessed at the applicable rate thereon. The Borrower shall repay
on demand all sums so advanced on the Borrower's behalf, plus any reasonable
expenses or costs incurred by the Bank, including actual and reasonable
attorney's fees, with interest thereon at the highest rate provided for in the
applicable Loan Documents from the date of advancement. The provisions of this
Section shall not be construed to prevent the institution of the rights and
remedies of the Bank upon the occurrence of an Event of Default by the Borrower.
The contrary notwithstanding, the authorization contained in this Section shall
impose no duty or obligation on the Bank to perform any action or make any
Advance on behalf of the Borrower and is for the sole benefit and protection of
the Bank.
SECTION 6.15. MAINTAIN RECORDS AND MAKE AVAILABLE TO BANK FOR
INSPECTION. The Borrower shall maintain Records pertaining to the Collateral and
the conduct and operation of its business, in such detail, form and scope as the
Bank shall from time to time require. During normal business hours, the Bank and
its duly authorized representatives shall have full access to, and the right to
audit, check, inspect and make abstracts and copies from, such Records. The Bank
or the Bank's agents may enter upon any of the Borrower's premises from time to
time during normal business hours for the purpose of inspecting the Collateral
and any and all such Records. The Bank may send verifications of Receivables to
Account Debtors and may confer and correspond with other creditors of the
Borrower. Upon the occurrence and during the continuation of an Event of
Default, the Bank may enter the business premises and take possession of and
remove any or all such Records, or copies thereof, provided, however, such
Records or copies shall be at all times available to the Borrower. All audits,
examinations and inspections shall be performed at the Borrower's expense.
SECTION 6.16. FINANCIAL STATEMENTS. PAC and the other Borrowers shall furnish
the Bank:
(a) as soon as available but in no event later than November
1, 1999, a statement of income and retained earnings of the Borrower for the
fiscal year ending on June 30, 1999, and a statement of cash flows of the
Borrower for such year, and a balance sheet of the Borrower as at the end of
such year, setting forth in each case in comparative form
-28-
<PAGE>
corresponding figures for the preceding fiscal year of the Borrower, prepared in
accordance with GAAP consistently applied and examined and audited by
independent certified public accountants satisfactory to the Bank, accompanied
by a report of such independent certified public accountants with respect to
such financial statements which is satisfactory to the Bank;
(b) as soon as available but in no event more than ninety (90)
days after the end of the June 30, 2000 fiscal year, a statement of income and
retained earnings of the Borrower for the fiscal year ending on June 30, 2000,
and a statement of cash flows of the Borrower for such year, and a balance sheet
of the Borrower as at the end of such year, setting forth in each case in
comparative form corresponding figures for the preceding fiscal year of the
Borrower, prepared in accordance with GAAP consistently applied and examined and
audited by independent certified public accountants satisfactory to the Bank,
accompanied by a report of such independent certified public accountants with
respect to such financial statements which is satisfactory to the Bank;
(c) Promptly after filing, copies of each Borrower's federal
tax return;
(d) As soon as available but in no event later than the 15th
day of each month, beginning on November 15, 1999, an accounts receivable aging
as of the end of the previous month, which aging must include reported royalty
and advertising receivables, but such royalty and advertising receivables do not
have to be aged;
(e) As soon as available but in no event later than the 10th
day of each month, beginning on November 10, 1999, a detailed accounts payable
aging as of the end of the previous month;
(f) As soon as available but in no event later than 11:00 a.m.
on the Tuesday of every week, a report setting forth the cash collections of the
Borrowers, by division, for the previous week;
(g) As soon as practicable and in any event within forty-five
(45) days after the end of each calendar quarter, an unaudited financial
statement (excluding footnote disclosures) on a consolidated and individual
basis for the previous quarter, including an income statement, a balance sheet
and a statement of cash flows, all in detail and scope satisfactory to the Bank,
certified as true and complete by the chief financial officer of PAC.
(h) As soon as practicable and in any event within thirty (30)
days after the close of each fiscal year of PAC, beginning with the current
fiscal year, an annual operating budget and capital budget prepared on a
quarterly basis for PAC and its Subsidiaries on a consolidated basis, in form
and detail reasonably acceptable to the Bank.
(i) Promptly upon receipt thereof, copies of any management
letters or other reports submitted to PAC or its Subsidiaries by its independent
certified public accountants in connection with its examination of or
preparation of financial statements for PAC or its Subsidiaries.
-29-
<PAGE>
(j) Copies of all Forms 10Q and 10K reports filed with the
Securities and Exchange Commission within ten (10) days after the filing
thereof, together with a certificate of the chief executive officer or chief
financial officer of PAC stating whether any Event of Default (or any event
which, with the giving of notice or passage of time (or both) would be an Event
of Default) has occurred and is continuing, and if so, all relevant facts with
respect thereto. The Borrower covenants and agrees to timely file its Forms 10Q
and 10K with the Securities and Exchange Commission.
(k) Copies of all proxy statements and other material reports
or statements filed with the Securities and Exchange Commission (or the National
Association of Securities Dealers) or any other governmental agency including,
without limitation, the Environmental Protection Agency and the Occupational
Safety and Health Administration within ten (10) days of the date such proxy
statements are sent to stockholders or reports or statements are sent to the
governmental or regulatory authority.
(l) Such other information as the Bank may, from time to time,
request.
SECTION 6.17. TOTAL FUNDED DEBT/ANNUALIZED EBITDA RATIO.
(intentionally deleted)
SECTION 6.18. CONSOLIDATED LIABILITIES TO TANGIBLE NET WORTH
RATIO. (intentionally deleted)
SECTION 6.19. ANNUALIZED EBITDAR. (intentionally deleted)
SECTION 6.20. DEPOSITORY BANKS. PAC and each Subsidiary shall
maintain its primary depository banking relation with the Bank (unless
unreasonably inconvenient). The Borrowers shall deposit all cash receipts
(including from the sales and transfers described in the Recitals) into a cash
collateral account at the Bank, which cash receipts shall be applied to pay down
the Line of Credit. PAC shall provide the Bank with the names and addresses of
all financial institutions where it and each Subsidiary maintain any depository,
brokerage, investment or other accounts and the account number of all such
accounts; and such information shall be supplemented as depository accounts are
established or discontinued throughout the term of this Agreement.
Notwithstanding the foregoing, Promotora de Franquicias Praxis, S.A. de C.V., a
Mexican corporation ("PFP"), and each of the "Praxis Companies" as defined in
that certain Subscription and Stock Purchase Agreement made as of March 31,
1998, by and among PAC, Precision Auto Care Mexico I, S. de R.L. de C.V. and the
stockholders of PFP (PFP and each of the Praxis Companies, collectively, the
"Non-Borrower Mexican Subsidiaries") shall maintain their primary depository
banking relationships with one of the following financial institutions: Banco
Serfin, Banco Nationale de Mexico or Bancomer.
SECTION 6.21. SUBORDINATED DEBT. The Borrowers shall make no
principal or interest payments on any Subordinated Debt, except that PAC may
issue and deliver to a holder of Subordinated Debt stock in payment of interest
due on the Subordinated Debt.
-30-
<PAGE>
SECTION 6.22. PERMITTED SALES. With respect to any sales
described in the Recitals above and notwithstanding any other provision of this
Agreement, the Bank's consent to any sale is conditional upon the following:
(a) First Union's receipt, in connection with each sale, of a
sale agreement(s), a settlement statement, and all appraisal information in
Borrowers' possession or control, regarding the real or personal property; and
(b) At a minimum, First Union's receipt, at least three
business days before closing on the transaction, of copies of the sale
agreement(s) and a settlement statement (if available) with respect to the sale
transaction.
SECTION 6.23. BUSINESS PLAN. On or before November 15, 1999,
the Borrowers shall deliver to the Bank a business plan setting forth in
specific detail the precise actions which the Borrowers plan to take to enable
them to make payments to the Bank and the Borrowers' account debtors, so as to
achieve substantial and significant reductions in the outstanding debt of the
Borrowers. This plan shall also address the specific steps which the Borrowers
propose to take to recapitalize the Borrowers and return to profitability. This
plan must be approved by the board of directors of PAC, and must be consistent
with the terms and conditions of this Agreement.
SECTION 6.24. REDUCTION IN ACCOUNTS PAYABLE. By the end of
each quarter, beginning with the quarter ending on December 31, 1999, the
Borrowers shall reduce accounts payable by at least $250,000, on a cumulative
basis. The Borrowers and the Bank acknowledge that the Borrowers' accounts
payable as of September 30, 1999 totaled $5,318,047, subject to adjustment as
Borrowers finalize their September 30, 1999 financial statement.
SECTION 6.25. EARNINGS REQUIREMENTS. The Borrowers shall not
suffer, for the quarter ending on December 31, 1999, a negative earnings before
taxes, depreciation and amortization, but after interest exceeding $500,000,
exclusive of the asset sales described above. The Borrowers shall achieve, for
each quarter, beginning with the quarter ending on March 31, 2000, a positive
earnings before taxes, depreciation and amortization, but after interest,
exclusive of the asset sales described above.
SECTION 6.26. ASSET SALES. The Borrowers shall close on each
asset sale described in the Recitals of this Agreement by the dates indicated,
and shall generate the net sale proceeds which they project to generate in
connection with each sale.
As used above in this Article VI, the singular "Borrower" shall mean each
Borrower (except PAC) for itself, and PAC for and on behalf of itself and all
other Borrowers.
-31-
<PAGE>
ARTICLE VII
NEGATIVE COVENANTS
PAC for itself and all other Borrowers, and each other
Borrower for itself, covenants and agrees during the term of this Agreement and
while any Obligations are outstanding and unpaid not to do or to permit to be
done or to occur any of the acts or events set forth below:
SECTION 7.1. CHANGE OF NAME, MERGER, SALE OF STOCK, ETC.
Except as expressly permitted herein, liquidate, wind up or dissolve, or enter
into any consolidation, merger, or other combination, or agree to do any of the
foregoing; PROVIDED, HOWEVER, that:
(a) any Subsidiary may merge or consolidate with another
Person so long as (i) the Person surviving such merger or consolidation is a
Subsidiary, and (ii) immediately after giving effect thereto, no Event of
Default would exist; and
(b) Neither PAC or any Subsidiary shall change its name
without ten (10) days' prior written notice to, and the approval of, the Bank,
such approval not to be unreasonably withheld. No Subsidiary shall issue any
additional stock unless issued to PAC, without the Bank's written consent, such
consent not to be unreasonably withheld.
SECTION 7.2. SALE OR TRANSFER OF ASSETS. Sell, lease,
transfer, convey or otherwise dispose of any of its assets or property,
including, without limitation, the Collateral, except for (i) sales of inventory
in the ordinary course of business; (ii) the sale of worn out or obsolete
equipment for fair market value or the exchange of used or obsolete equipment
for replacement equipment; (iii) the sale of permitted temporary or overnight
investments; (iv) sales or dispositions of assets or property having a fair
market value of less than $250,000 on an annual aggregate basis; (v) any sale,
lease, transfer or conveyance from one Subsidiary to another Subsidiary or to
PAC, or from PAC to any Subsidiary for fair consideration; and (vi) sales
described in the Recitals of this Agreement; provided that, immediately after
giving effect thereto, no Event of Default would exist.
SECTION 7.3. ENCUMBRANCE OF ASSETS. Create, assume or suffer
to exist any deed of trust, mortgage or encumbrance, lien (including a lien of
attachment, judgment or execution) or security interest (including the interest
of a conditional seller of goods), securing a charge or obligation, in or on any
of its property, real or personal, whether now owned or hereafter acquired,
except for Permitted Liens.
SECTION 7.4. TRANSACTIONS WITH RELATED PARTIES. Except as
provided herein, directly or indirectly make any loan or advance to, or
purchase, assume or guarantee any indebtedness to or from, any of its officers,
directors, stockholders or Affiliates, or subcontract any operations to any
Affiliate, or enter into any other transaction with any Affiliate, except (a) in
the ordinary course of and pursuant to the reasonable requirements of business,
and (b) upon
-32-
<PAGE>
fair and reasonable terms no less favorable to PAC or such Subsidiary than would
apply in a comparable arm's-length transaction with a Person not an Affiliate.
SECTION 7.5. GUARANTEES. Without the prior written consent of
the Bank, become liable, directly or indirectly, as guarantor or otherwise for
any obligation of any other Person, except for (a) the endorsement of checks,
drafts, instruments or commercial paper for deposit or collection in the
ordinary course of business; (b) the guaranty by PAC of payment and performance
with respect to the obligations of the Subsidiaries; and (c) the guaranty by PAC
of ordinary course of business obligations of any Subsidiary.
SECTION 7.6. INDEBTEDNESS. Incur, create, assume, or permit to
exist any indebtedness except:
(a) the Loan;
(b) existing secured indebtedness previously disclosed to
the Bank;
(c) unsecured trade indebtedness incurred in the ordinary
course of business;
(d) indebtedness secured by a Permitted Lien;
(e) Subordinated Debt, if approved by the Bank; and
(f) intercompany debt among the Borrowers.
SECTION 7.7. CONTINGENT OBLIGATIONS. Create, incur, assume or
suffer to exist any contingent obligation other than:
(a) endorsements of instruments or items of payment for
deposit or collection in the ordinary course of business;
(b) contingent obligations incurred pursuant to the Loan
Documents;
(c) contingent obligations consisting of the indemnification
by PAC or any of its Subsidiaries of (i) the officers, directors, employees and
agents of PAC or such Subsidiary, to the extent permissible under the Law of the
jurisdiction in which PAC or such Subsidiary is organized, (ii) commercial
banks, investment bankers and other independent consultants or professional
advisors pursuant to agreements relating to the underwriting of PAC's or such
Subsidiary's securities or the rendering of banking or professional services to
PAC or such Subsidiary, and (iii) landlords, licensors, licensees and other
parties pursuant to agreements entered into in the ordinary course of business
by PAC or such Subsidiary;
(d) contingent obligations consisting of warranties,
indemnities and guaranties regarding copyright and trademark infringement and
other matters approved by the Bank given to customers in the ordinary course of
business consistent with past practices;
-33-
<PAGE>
(e) guarantees by any Borrower or any of its Subsidiaries of
obligations of PAC or its Subsidiaries under leases permitted hereunder; and
(f) guarantees by PAC or any of its Subsidiaries of any other
indebtedness permitted under Section 7.6.
SECTION 7.8. INVESTMENTS. Directly or indirectly, purchase,
own, invest in or otherwise acquire any capital stock, evidence of indebtedness
or other obligation or security or any interest whatsoever in any other Person,
or make or permit to exist any loans, advances or extensions of credit to, or
any investment in cash or by delivery of property in, any other Person, or
become a partner or joint venturer in any partnership or joint venture, or
consummate an Acquisition, or make a commitment or otherwise agree to do any of
the foregoing, other than:
(a) cash investments;
(b) loans and advances to employees not to exceed in the
aggregate $100,000;
(c) Accounts owing to PAC or any of its Subsidiaries created
in the ordinary course of business and payable in accordance with customary
terms prevailing in the industry;
(d) prepaid expenses incurred in the ordinary course of
business;
(e) existing investments in corporations or limited liability
companies that are Subsidiaries as of the date hereof;
(f) investments in Subsidiaries;
(g) investments in and loans to Persons which do not
constitute Subsidiaries; PROVIDED, HOWEVER, that the aggregate amount of all
investments in and loans to any single Person shall not exceed $100,000 at any
time, and the aggregate amount of all investments in and loans to all Persons
which do not constitute Subsidiaries shall not exceed $200,000 at any time;
(h) investments by any Borrower under any swap agreement or
hedging device relating to the indebtedness incurred under this Agreement;
provided that the notional amount of all such swap agreements at any time shall
not exceed the maximum principal amount of the Loan at such time;
(i) loans or advances from a Subsidiary to PAC or to another
Subsidiary, or from PAC to a Subsidiary; and
(j) short-term loans to franchisees from time to time,
however, such loans in the aggregate shall not exceed Four Hundred Thousand
Dollars ($400,000) without the Bank's prior written consent.
-34-
<PAGE>
SECTION 7.9. DIVIDENDS. Without the written consent of the
Bank, pay any dividends, or make any distributions of cash or property to
purchase, redeem, retire or otherwise acquire any shares of stock or equity
interests of PAC or the Subsidiaries, except for stock dividends or stock splits
or any other corporate distribution which does not involve cash or tangible
property.
SECTION 7.10. ACQUISITION OF STOCK OR ASSETS OF THIRD PERSON.
Except as may be otherwise permitted under Section 7.8 hereof, acquire stock or
equity interests of any other Person, or the assets of any third person, except
for temporary investments permitted in this Agreement.
SECTION 7.11. SALE AND LEASEBACK. Enter into any arrangement
with any Person (other than PAC or any of its Subsidiaries) providing for the
leasing by PAC or any of its Subsidiaries of any asset that has been sold or
transferred by PAC or such Subsidiary to such Person.
SECTION 7.12. NEW BUSINESS. Engage in any business other than
businesses primarily within the line of business presently conducted by the
Subsidiaries or make any material change in any of its business objectives,
purposes and operations that would be reasonably likely to materially adversely
affect the repayment of the Loans and Obligations.
SECTION 7.13. SUBSIDIARIES. Except as otherwise permitted by
the terms of this Agreement, create or acquire any new Subsidiary.
SECTION 7.14. TRANSACTIONS AFFECTING THE COLLATERAL. Enter
into any transaction that will have, or could reasonably be expected to have, a
Materially Adverse Effect on the Collateral or the ability of the Borrowers to
repay any of the Loans and Obligations.
SECTION 7.15. HAZARDOUS WASTES. Permit any Hazardous
Substances, the removal of which is required or the maintenance of which is
restricted, prohibited or penalized by any governmental authority, to be
unlawfully brought onto or located on any real property owned or, to the extent
PAC or any of its Subsidiaries is in possession or control of same, leased by
PAC or any of its Subsidiaries, except in material compliance with all
applicable environmental Laws; and if any Hazardous Substance is brought or
found located thereon in material violation of any applicable environmental
Laws, it shall be immediately removed, with proper disposal, and all required
environmental cleanup procedures shall be diligently undertaken pursuant to all
such environmental Laws, and the obligations hereunder with respect to any such
materials brought or located thereon while PAC or any of its Subsidiaries owned
or leased any such real property shall survive any foreclosure of the deeds of
trust or mortgages. EACH BORROWER HEREBY ACKNOWLEDGES THAT ALL HAZARDOUS WASTE
HANDLING PRACTICES AND ENVIRONMENTAL PRACTICES AND PROCEDURES ARE THE SOLE
RESPONSIBILITY OF PAC AND ITS SUBSIDIARIES. PAC FURTHER ACKNOWLEDGES THAT THE
BANK IS NOT AN ENVIRONMENTAL CONSULTANT, ENGINEER, INVESTIGATOR OR INSPECTOR OF
ANY TYPE WHATSOEVER.
-35-
<PAGE>
SECTION 7.16. FISCAL YEAR. Change its fiscal year from a
twelve-month period ending June 30, PROVIDED, HOWEVER, THAT the fiscal year of
any Person subject to the provisions hereof which is organized under the laws of
Mexico shall be a calendar year.
SECTION 7.17. AMENDMENTS; PREPAYMENTS OF INDEBTEDNESS, ETC.
(a) Amend in any material respect its certificate, or articles of incorporation
or articles of organization without thirty (30) days' prior written notice to
the Bank or (b) make any payment or prepayment with respect to any Subordinated
Debt, whether principal, interest or otherwise, which is not permitted under the
terms of the applicable instrument of subordination or this Agreement.
SECTION 7.18. NO INCONSISTENT TRANSACTIONS OR AGREEMENTS.
Enter into any transaction or agreement, or enter into any amendment or other
modification to any currently existing agreement, that by its terms prohibits or
materially restricts the ability of the Borrowers to pay the principal of or
interest on the Loans and all other Obligations.
SECTION 7.19. ASSIGNMENT OF THIS AGREEMENT. Assign or attempt
to assign this Agreement; provided, however, that PAC shall be permitted to add
additional Subsidiaries as Borrowers hereunder in accordance with the procedures
set forth in Section 10.15, the terms of any Assumption Agreement and the
approval of the Bank.
SECTION 7.20. EQUITY OWNERSHIP; CERTIFICATES. Cause or permit
(a) any of the Persons identified in Exhibit No. 9 attached hereto and
incorporated herein to own legal and beneficial title to less than the
interest(s) indicated in such Exhibit in each of the Persons identified therein,
or (b) any of the member interests in PAC Mexican Holding Company LLC, or any of
the partnership or other equity interests in Precision Auto Care Mexico II, S.
de R.L. de C.V. or Precision Auto Care Mexico I, S. de R.L. de C.V. to be
evidenced by any certificate or other writing ("Certificate") unless such
Certificate(s) shall have been delivered to the Bank, together with such
executed instruments of transfer and assignment as the Bank may require.
SECTION 7.21. ACQUISITIONS. Make any Acquisitions without the
prior written consent of the Bank, which the Bank may give or withhold in its
sole discretion.
As used above in this Article VII, the singular "Borrower" shall mean each
Borrower (except PAC) for itself, and PAC for and on behalf of itself and all
other Borrowers.
ARTICLE VIII
EVENTS OF DEFAULT
The occurrence of any of the following events or circumstances
by or with respect to PAC or any other Borrower and the expiration of any
applicable cure or grace period shall constitute "Events of Default" hereunder
and shall entitle the Bank to exercise the Bank's rights and remedies under
Article IX hereof:
-36-
<PAGE>
SECTION 8.1. FAILURE TO PAY. The failure by the Borrowers to
pay any Obligation, which failure shall not be cured or discharged within a
period of five (5) days after the same becomes due and payable.
SECTION 8.2. FAILURE TO PERFORM. The failure of the Borrowers
to perform or observe any Obligation (which failure is not specifically
enumerated in this Article VIII as an Event of Default).
SECTION 8.3. FAILURE OF WARRANTY OR REPRESENTATION TO BE TRUE.
The failure of any representation or warranty provided in this Agreement to be
true and accurate in all material respects, and to continue to be true and
accurate in all material respects at all times while any of the Obligations
remain outstanding or unsatisfied.
SECTION 8.4. FAILURE TO PERFORM COVENANTS RELATING TO
COLLATERAL. The failure by the Borrowers to perform or observe any covenant or
agreement with respect to the Collateral.
SECTION 8.5. FAILURE TO PERFORM OTHER COVENANTS. The failure
by the Borrowers to perform or observe any covenant provided in this Agreement,
other than one specifically enumerated in this Article VIII as an Event of
Default.
SECTION 8.6. DEFAULT UNDER LOAN DOCUMENTS. A breach of or
default by the Borrower under the terms, covenants, and conditions set forth in
any other Loan Document, which is not cured within any applicable cure or grace
period.
SECTION 8.7. JUDGMENTS. The Borrowers shall suffer final
judgments for payment of money aggregating in excess of Two Hundred Fifty
Thousand Dollars ($250,000) during any calendar year and shall not discharge the
same within a period of thirty (30) days unless, pending further proceedings,
the Borrowers post a supersedes bond or execution has been effectively stayed.
SECTION 8.8. LEVY BY SECURED CREDITOR. A secured or judgment
creditor of any Borrower shall obtain possession, or attempt to obtain
possession, of any of the Collateral with a value in excess of Fifty Thousand
Dollars ($50,000) by any means, including, but without limitation, levy,
distraint, replevin or self-help.
SECTION 8.9. FAILURE TO PAY DEBTS TO THIRD PERSONS.
(intentionally deleted)
SECTION 8.10. INVOLUNTARY BANKRUPTCY. The commencement of a
proceeding before a court having jurisdiction against or with respect to any
Borrower in an involuntary case under the federal bankruptcy Laws or any state
insolvency or similar Laws seeking: (a) the liquidation of any Borrower, (b) a
reorganization of any Borrower or the Borrower's business and affairs, or (c)
the appointment of a receiver, liquidator, assignee, custodian, trustee, or
similar official for any Borrower or any of the Borrower's property including,
but not limited to, the Collateral, which proceeding is not dismissed within
thirty (30) days.
-37-
<PAGE>
SECTION 8.11. VOLUNTARY BANKRUPTCY. The commencement by any
Borrower of a voluntary case under the federal bankruptcy Laws or any state
insolvency or similar Laws or the consent by any Borrower to the appointment of
or taking possession by a receiver, liquidator, assignee, custodian, trustee, or
similar official for the Borrower or any of the Borrower's property including,
but not limited to, the Collateral, or the making by Borrower of any assignment
for the benefit of creditors or the failure by Borrower generally to pay its
debts as they become due either as to the amount of such debts or the number of
such debts.
SECTION 8.12. TERMINATION OF MATERIAL CONTRACTS.
(intentionally deleted)
SECTION 8.13. MATERIAL ADVERSE CHANGE. (intentionally deleted)
SECTION 8.14. IMPAIRMENT OF COLLATERAL. Any event or series of
events shall occur which the Bank deems, in good faith and in its sole
discretion, to impair the Collateral or other security for the Loan or otherwise
threaten the value thereof, and which adversely affects the prospects of
repayment of the Loan.
SECTION 8.15. CURE. Notwithstanding anything above contained
in this Article VIII,
(a) An Event of Default shall only occur by reason of the
Borrowers' failure to comply with Section 6.6 if the Borrowers fail, within
thirty (30) days after the occurrence of an event resulting in a violation of
Section 6.6, to remedy the violation.
(b) An Event of Default shall only occur by reason of the
Borrowers' failure to comply with Section 6.7 if the Borrowers fail, within
fifteen (15) days after the occurrence of an event resulting in a violation of
Section 6.7, to remedy the violation.
(c) An Event of Default shall only occur by reason of the
Borrowers' failure to comply with Section 6.9 if the Borrowers fail to notify
the Bank of (i) any change in the location of any existing office or place of
business of a Borrower; (ii) the establishment of any new, or the discontinuance
of any existing, place of business; and (iii) any change in or addition to the
location of the place where Records are kept.
(d) An Event of Default shall only occur by reason of the
Borrowers' failure to comply with Section 6.10 if the Borrowers fail, within
thirty (30) days after the occurrence of an event resulting in a violation of
Section 6.10, to remedy the violation.
(e) An Event of Default shall only occur by reason of the
Borrowers' failure to comply with Section 6.11 if the Borrowers fail, within
thirty (30) days after the occurrence of an event resulting in a violation of
Section 6.11, to remedy the violation.
(f) (intentionally deleted)
(g) (intentionally deleted)
-38-
<PAGE>
Any occurrence constituting an Event of Default by reason of
the failure to comply with Section 6.2 which is specifically identified in one
of the foregoing mentioned sections shall be subject to cure as above provided.
Such cure period may, in the Bank's sole discretion, be extended if such cure is
diligently being pursued and such continuing Event of Default does not
substantially impair the prospects of repayment of the Loans. Nothing herein
contained shall limit the continuing obligation of the Borrowers to notify the
Bank of any Event of Default and the Borrowers' actions to cure such default
within the period above stated.
Upon the occurrence of an Event of Default which is not cured
within the applicable cure period, if any, the Bank shall have no further
obligation to make any additional Advances under the Line of Credit, and the
Bank may declare all Obligations immediately due and payable. All such Events of
Default and remedies are in addition to any such rights and remedies set forth
in the other Loan Documents.
ARTICLE IX
RIGHTS AND REMEDIES UPON THE OCCURRENCE
OF AN EVENT OF DEFAULT
SECTION 9.1. RIGHTS AND REMEDIES. In addition to all other
rights and remedies provided by Law and the Loan Documents, the Bank, upon the
occurrence of any Event of Default or upon Maturity, and subject to any
applicable grace or cure period, may:
(a) Refuse to make further Advances or readvances under
the Line of Credit;
(b) (intentionally deleted)
(c) Accelerate, call due and demand the immediate payment of
the unpaid principal balance of the Loans and the Consolidated Note, and all
accrued interest and other sums due as of the date of default;
(d) Foreclose any security interest, lien, assignment, or
pledge created by any Loan Document or this Agreement;
(e) Confess judgment or file suit against the Borrowers or any
one of them, on the Consolidated Note;
(f) File suit against the Borrowers or any one of them, on
this Agreement, or under any other Loan Document;
(g) Seek specific performance or injunctive relief to enforce
performance of the undertakings, duties, and agreements provided in the Loan
Documents, whether or not a remedy at law exists or is adequate;
-39-
<PAGE>
(h) Exercise any rights of a secured creditor under the
Maryland Uniform Commercial Code-Secured Transactions, Title 9, Commercial Law
Article, Annotated Code of Maryland, as amended, or any other applicable version
of the Uniform Commercial Code, including the right to take possession of the
Collateral without the use of judicial process and the right to require the
Borrower to assemble the Collateral at such place as the Bank may specify; and
(i) Set-off any amounts in any account or represented by any
certificate with the Bank in the name of any Borrower or in which any Borrower
has an interest.
SECTION 9.2. COLLECTION OF RECEIVABLES BY THE BANK. The Bank,
at any time or from time to time following the occurrence of an Event of Default
which is a continuing Event of Default, may terminate the Borrowers' authority
to collect the Receivables and may exercise any or all of the rights contained
in this Section 9.2. Upon such a termination of the Borrowers' authority, the
Bank shall have the right to send a notice of assignment or notice of the Bank's
security interest to any and all Account Debtors or any third party holding or
otherwise concerned with any of the Collateral, and thereafter the Bank shall
have the sole right to collect the Receivables and take possession of the
Collateral and Records relating thereto. All of the Bank's actual and reasonable
collection expenses, including Liquidation Costs, shall be charged to the
Borrowers' account and added to the Obligations. If the Bank is collecting the
Receivables as provided in this Section 9.2, the Bank shall have the right to
receive, endorse, assign and deliver in the Bank's name or the Borrowers' name
any and all checks, drafts and other instruments for the payment of money
relating to the Receivables, and the Borrowers hereby waive notice of
presentment, protest and non-payment of any instrument so endorsed. If the Bank
is collecting the Receivables directly as above provided, the Borrowers hereby
individually and collectively, jointly and severally, constitute and appoint the
Bank and/or the Bank's designee, as the Borrowers' attorney-in-fact with power
with respect to the Receivables: (a) to endorse the Borrowers' name upon any
notes, acceptances, checks, drafts, money orders or other evidences of payment
of Collateral that may come into the Bank's or designee's possession; (b) to
sign the Borrowers' name on any invoice relating to any of the Receivables,
drafts against Account Debtors, assignments and verifications of Receivables and
notices to Account Debtors; (c) to notify the Post Office authorities to change
the address for delivery of mail addressed to the Borrowers; (d) to receive and
open all mail addressed to the Borrowers and accept checks, drafts, money orders
or other evidences of payment, or correspondence relating in any way to a
Receivable or other Collateral (all other items of mail shall be delivered or
made available to PAC; and (e) to do all other acts and things necessary,
proper, or convenient to carry out the terms, conditions, purposes and intent of
this Agreement. All good faith acts of the Bank as such attorney are hereby
ratified and approved, and such attorney or designee shall not be liable for any
acts of omission or commission other than acts of gross negligence or
intentional wrongdoing, nor for any error of judgment or mistake of fact or law
exercised in accordance with this Agreement. The power of attorney hereby
granted, being coupled with an interest, is irrevocable while any of the
Obligations remain unpaid. The Bank or attorney may, without notice to or
consent from the Borrowers, sue upon or otherwise collect, extend the time of
payment of or compromise or settle for cash, credit or otherwise upon any terms,
any of the Receivables or any securities, instruments or insurances applicable
to thereto or release any
-40-
<PAGE>
obligor thereon. The Bank or attorney does not, by anything herein or in any
assignment or otherwise, assume any of the Borrower's obligations under any
contract or agreement assigned to the Bank, and the Bank or attorney shall not
be responsible in any way for the performance by the Borrowers of any of the
terms and conditions thereof.
SECTION 9.3. SALE OF COLLATERAL. In addition to any other
remedy provided herein, upon the occurrence of any Event of Default and subject
to any applicable grace or cure period, the Bank may immediately, without
advertisement, sell in a commercially reasonable manner at public or private
sale or otherwise realize upon the whole or any part of the Collateral, or any
interest which the Borrowers may have therein. After deducting from the proceeds
of sale or other disposition of the Collateral all reasonable expenses,
including all actual and reasonable expenses for legal services, the Bank shall
apply such proceeds toward the satisfaction of the Obligations in any order or
manner as the Bank may determine. Any remainder of the proceeds after
satisfaction in full of the Obligations shall be distributed as required by
applicable Law. Written notice of any sale or other disposition shall be given
to PAC and any other Borrower whose property is being sold at least ten (10)
days before the time of any intended public sale or of the time after which any
intended private sale or other disposition of the Collateral is to be made,
which the Borrowers hereby agree shall be reasonable notice of such sale or
other disposition. The Borrowers agree to assemble, or to cause to be assembled,
at the Borrowers' own expense, the Collateral at such place or places as the
Bank shall designate. At any such sale or other disposition, the Bank may, to
the extent permissible under applicable Law, purchase the whole or any part of
the Collateral, free from any right of redemption on the part of the Borrower,
which right is hereby waived and released. The Borrowers waive the right, if
any, to have the Collateral marshaled upon a sale. Without limiting the
generality of any of the rights and remedies conferred upon the Bank under this
Section, the Bank may, to the full extent permitted by applicable Law: (a)
peacefully enter upon the premises of the Borrowers, exclude therefrom the
Borrowers or any entity connected therewith, and take immediate possession of
the Collateral, either personally or by means of a receiver appointed by a court
of competent jurisdiction, using all necessary permitted force to do so; (b) at
the Bank's option, use, operate, manage, and control the Collateral in any
lawful manner (but without any obligation to continue the business operations of
the Borrower); (c) collect and receive all rents, income, revenue, earnings,
issues, and profits therefrom; and (d) maintain, preserve, alter or remove the
Collateral as the Bank may determine in its sole discretion. The Borrower shall
indemnify and save harmless the Bank and its agents, employees, officers and
directors, for any action or inaction taken in connection therewith, except for
acts or omissions of gross negligence or intentional misconduct.
SECTION 9.4. CONFESSION OF JUDGMENT. Upon the occurrence of a
default under this Agreement, each of the Borrowers, individually and
collectively, jointly and severally, authorize any attorney admitted to practice
before any court of record in the United States, on behalf of itself and any or
all of the other Borrowers, to then confess judgment before any clerk or judge
against PAC and any or all of the Subsidiaries in the full amount due under this
Agreement, the Consolidated Note, and all other Obligations, plus attorneys'
fees equal to fifteen percent (15%) of all amounts due, or $50,000 whichever is
less. Such attorneys' fees shall relate solely to services in connection with
the action or actions relating to the confession of judgment,
-41-
<PAGE>
and shall not diminish or alter the Borrowers' obligations to pay actual and
reasonable legal expenses of the Bank as herein provided and all Liquidation
Costs. Each Borrower consents to the jurisdiction of, and agrees that venue
shall be proper in, the Circuit Court for any County or the City of Baltimore,
Maryland, and the United States District Court for the District of Maryland, if
diversity of citizenship or other jurisdictional basis exists; and if such
confession occurs in the Commonwealth of Virginia, the Borrowers, individually,
collectively, jointly and severally, constitute and appoint Gregory A. Baugher,
Douglas A. Carson, John G. Dumm or any vice president of the Bank their true and
lawful attorney-in-fact for them, or in the name of any one or more of them, to
confess judgment in the Circuit Court for Arlington County, Virginia, in the
Circuit Court for Fairfax County, Virginia or in the Circuit Court for Loudoun
County, Virginia. Each Borrower expressly waives summons and other process and
the benefit of any and every statute, ordinance or rule of court which may be
lawfully waived conferring upon any Borrower any right or privilege of
exemption, stay of execution, or supplementary proceedings, or other relief from
the enforcement or immediate enforcement of a judgment or related proceedings on
a judgment. The authority and power to appear for and enter judgment against any
Borrower shall not be extinguished by any judgment entered pursuant hereto; such
authority and power may be exercised on one or more occasions from time to time,
in the same or different jurisdictions, as often as the holder shall deem
necessary or advisable until all sums due under this Agreement have been paid in
full.
SECTION 9.5. ATTORNEYS' FEES AND EXPENSES. The Borrower shall
pay all Liquidation Costs and/or actual and reasonable attorneys' fees and
expenses which the Bank may incur as a result of the happening of an Event of
Default, even if judgment is not obtained or confessed and the Event of Default
is cured and the Loan is placed in good standing.
SECTION 9.6. REMEDIES CUMULATIVE. The rights and remedies
provided in this Agreement or in the Loan Documents or under applicable Law
shall be cumulative and the exercise of any particular right or remedy shall not
preclude the exercise of any other rights or remedies in addition to, or as an
alternative of, such right or remedy.
SECTION 9.7. PROOF OF SUMS DUE ON THE LOAN. In any action or
proceeding brought by the Bank to collect the sums owed on the Loan, an
affidavit made under oath by an officer of the Bank setting forth the unpaid
balance of principal, and any accrued interest, default interest, and late
charges owed on the Loan shall be presumed correct and shall be admissible in
evidence for the purpose of establishing the truth of what it asserts.
SECTION 9.8. OBLIGATIONS OF THE BORROWER HEREUNDER
UNCONDITIONAL. The payment and performance of the Obligations shall be the
absolute and unconditional duty and obligation of the Borrowers, and shall be
independent of any defense or any rights of set-off, recoupment or counterclaim
which any Borrower might otherwise have against the Bank, and the Borrowers
shall pay absolutely net the payments of principal, and interest to be made on
account of the Loan and all other payments required hereunder, free of any
deductions and without abatement, diminution or set-off, and until such time as
the Obligations have been fully paid and performed, the Borrowers: (a) will not
suspend or discontinue any payments provided for herein in the Consolidated
Note; (b) will perform and observe all of the Borrowers' other covenants and
-42-
<PAGE>
agreements contained in the Loan Documents, including without limitation, making
all payments required to be made to the Bank; and (c) will not terminate or
attempt to terminate the Loan Documents for any cause.
ARTICLE X
GENERAL CONDITIONS AND TERMS
SECTION 10.1. LOAN COSTS. The Loan and all transactions
relating thereto and provided for herein shall be made at no cost to the Bank
and all costs including, without limitation, the Bank's counsel fees,
recordation costs, costs of documentary stamps, photocopying expense,
appraisals, lien searches, travel expenses for the Bank's agents, employees, and
counsel, and all other reasonable out of-pocket expenses shall be paid by the
Borrowers, whenever incurred, such that the subject transactions shall be cost
free to the Bank. The Bank is authorized to debit any account or accounts
maintained by the Borrowers at the Bank for the amount of any costs for which
the Borrowers have failed to reimburse the Bank. The Borrowers acknowledge and
agree that the Bank will obtain title insurance coverage on each of the
mortgages described in Section 3.4 of this Agreement, in an amount not to exceed
$100,000 per mortgage, and that the Borrowers shall pay to the Bank the amount
of all title insurance company or agent charges related to such coverage, which
charges shall not exceed $2,500, within thirty (30) days after submission to the
Borrowers of invoices for such charges.
SECTION 10.2. INCORPORATION. The terms and conditions of the
Loan Documents are incorporated by reference and made a part hereof as if fully
set forth herein. In the event of any inconsistencies between this Agreement and
any other Loan Document, the terms and conditions of this Agreement shall govern
and control.
SECTION 10.3. WAIVERS. The Bank may at any time or from time
to time waive all or any of its rights under this Agreement or any other Loan
Document, but any waiver or indulgence by the Bank at any time or from time to
time shall not constitute, unless specifically so expressed by the Bank in
writing (except to the extent an express waiver need not be in writing under the
provisions of another Section of this Agreement), a future waiver of performance
or exact performance by the Borrower.
SECTION 10.4. NO THIRD PARTY BENEFICIARY RIGHTS. No Person not
a party to this Agreement shall have any benefit hereunder nor have third party
beneficiary rights as a result of this Agreement or any other Loan Documents,
nor shall any party be entitled to rely on any actions or inactions of the Bank
or its agents, all of which are done for the sole benefit and protection of the
Bank.
SECTION 10.5. CONTINUING OBLIGATION OF BORROWERS. The terms,
conditions, and covenants set forth herein and in the Loan Documents shall
survive closing and shall constitute a continuing obligation of the Borrowers
during the course of the transaction contemplated herein. The obligations of the
Borrowers and all Collateral granted under this Agreement shall remain
-43-
<PAGE>
valid and in effect so long as any Obligation is outstanding, unpaid or
unsatisfied between the Borrowers and the Bank.
SECTION 10.6. BINDING OBLIGATION. This Agreement shall be
binding upon and inure to the benefit of the Borrowers and their successors and
permitted assigns, and the Bank and its successors and assigns. Notwithstanding
the foregoing, the Bank agrees that in the absence of an Event of Default which
has not been cured (if such Event of Default is subject to cure), this Agreement
shall not be assigned, in whole or in part, without (90) days notice to PAC, and
the Bank shall advise PAC as to the selection of an assignee.
SECTION 10.7. NOTICES. Any notice required or permitted by or
in connection with this Agreement or any other Loan Document shall be in writing
and made by hand delivery, by certified mail, return receipt requested, postage
prepaid, or by overnight courier for next Business Day delivery, addressed to
the party at the appropriate address set forth below or to such other address as
may be hereafter specified by written notice by any party, and shall be
considered given as of the date of hand delivery, as of three (3) days after the
date of mailing, or the date specified for delivery with an overnight courier
service, independent of the date of actual delivery, as the case may be:
IF TO THE Bank:
FIRST UNION NATIONAL BANK
7th Floor
1970 Chain Bridge Road
McLean, Virginia 22102
Attention: John G. Dumm
Vice President
Telephone: (730) 760-5388
Facsimile: (730) 760-5817
IF TO PAC (WHICH CONSTITUTES NOTICE TO ALL BORROWERS).
PRECISION AUTO CARE, INC.
748 Miller Drive, S.E.
Leesburg, Virginia 20175
Attention: Charles L. Dunlap
President and Chief Executive Officer
Telephone: (703) 777-9095
Telefax: (703) 777-9190
SECTION 10.8. FINAL AGREEMENT. This Agreement and the Loan
Documents contain the final and entire agreement and understanding of the
parties, and any terms and conditions not set forth in this Agreement or the
Loan Documents are not a part of this Agreement and the understanding of the
parties hereof
-44-
<PAGE>
SECTION 10.9. EXTENSIONS. The payment of the Obligations
hereunder may be extended, from time to time, without impairing or otherwise
affecting the liability of the Borrowers, any endorser, guarantor or other party
liable hereunder or under any Loan Document, or the continuing security interest
in the Collateral provided herein.
SECTION 10.10. AMENDMENT. This Agreement may be amended,
modified or altered only in writing signed by the party to be bound by the
amendment, modification or alteration.
SECTION 10.11. TIME. Time is of the essence of this Agreement.
SECTION 10.12. DISCLOSURE. The Bank may disclose financial
information concerning the Borrowers to any other financial institution which
may share, participate or join in the Loan.
SECTION 10.13. NUMBER, GENDER, AND CAPTIONS. As used herein,
the singular shall include the plural and the plural may refer to only the
singular. The use of any gender shall be applicable to all genders. The captions
contained herein are for purposes of convenience only and are not a part of this
Agreement.
SECTION 10.14. SECURITY AGREEMENT; PHOTOCOPIES SUFFICIENT.
This Agreement shall constitute a security agreement as described in Section
9-105(l)(1) of the Maryland Uniform Commercial Code - Secured Transactions,
Title 9, Commercial Law Article, Annotated Code of Maryland, as amended. A
carbon, photographic, photocopy or other reproduction of this Agreement shall be
sufficient as a financing statement.
SECTION 10.15. ADDITIONAL BORROWERS AND ASSUMPTION AGREEMENT,
AMENDMENT TO PLEDGE. Subject to the provisions of Section 2.2.9(b) hereof, any
Subsidiary created or acquired by PAC or the Subsidiaries shall join as parties
to this Agreement and assume all Obligations hereunder and under the
Consolidated Note. Any new Borrower shall deliver such additional resolutions,
certificates and agreements as the Bank may from time to time reasonably require
to grant liens or security interests to the Bank or for such other purposes.
Subject to the provisions of Section 2.2.9(b) hereof, contemporaneously with the
execution of an Assumption Agreement, PAC (or a Subsidiary if applicable) shall
execute and deliver to the Bank such written agreements as the Bank may require
pursuant to which PAC (or such Subsidiary) shall pledge and grant a first
priority security interest to the Bank in the shares of stock or other equity
interests of such new Borrower which are held by PAC (or such Subsidiary) to
further secure the Loan and all other Obligations.
SECTION 10.16. JOINT AND SEVERAL LIABILITY. The Obligations of
the Borrowers hereunder are joint and several. All Persons which hereafter
become Subsidiaries and Borrowers by virtue of executing and delivering an
Assumption Agreement shall assume joint and several liability for all
Obligations then existing or thereafter created and arising hereunder and under
the Consolidated Note. Each Borrower shall have a right of contribution to
obtain reimbursement from each other Borrower for any payment made by such
Borrower in respect of the Obligations
-45-
<PAGE>
to the extent that such payment exceeds the benefit realized by such Borrower
under the Loan. Any right of contribution among the Borrowers which arises as a
result of payments made in respect of the Obligations under this Agreement or
the other Loan Documents shall be subordinate in all respect to the Bank's right
to receive payment in full of the Obligations. The Borrowers acknowledge and
agree that the right of contribution set forth above shall not in any event be
construed in a manner inconsistent with the joint and several liability of each
of the Borrowers for the repayment of all Obligations.
SECTION 10.17. GOVERNING LAW; CONSENT TO JURISDICTION. This
Agreement shall be deemed to have been executed, delivered and accepted in the
State of Maryland and shall be interpreted, and the rights and liabilities of
the parties hereto determined, in accordance with the internal laws (as opposed
to conflicts of law provisions) of the State of Maryland; the Borrowers hereby
consent to the jurisdiction of any state court within Baltimore City of
Baltimore County, Maryland or any federal court located within the Northern
District of the State of Maryland for any proceeding instituted hereunder or
under any of the other Loan Documents, or arising out of or in connection with
this Agreement or any of the other Loan Documents, or any proceeding to which
the Bank and any Borrower is a party, including any actions based upon, arising
out of, or in connection with any course of conduct, course of dealing,
statement (whether oral or written) or actions of the Bank or the Borrower. The
Borrower irrevocably agrees to be bound (subject to any available right of
appeal) by any judgment rendered or relief granted thereby and further waives
any objection that it may have based on lack of jurisdiction or improper venue
or forum non conveniens to the conduct of any such proceeding. The Borrowers
consent that all service of process be made by registered or certified mail
directed to any such Borrower at its address set forth herein, and service so
made shall be deemed to be completed upon the earlier of actual receipt thereof
or three (3) days after deposit in the United States mails, proper postage
prepaid and properly addressed. Nothing in this section shall affect the right
to serve legal process in any other manner permitted by law or affect the right
to bring any action or proceeding against any Borrower or its property in the
courts of any other jurisdiction.
SECTION 10.18. WAIVER OF JURY TRIAL. EACH PARTY HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY A JURY IN ANY SUIT, ACTION OR
PROCEEDING INSTILLED IN CONNECTION WITH THIS AGREEMENT, THE LOAN OR THE
OBLIGATIONS.
SECTION 10.19. RELEASE. Effective as of the date of execution
of this Agreement, the Borrower releases and forever waives and relinquishes all
claims, demands, obligations, liabilities and causes of action of whatsoever
kind or nature, whether known or unknown, which it has, may have, or might have
or assert now or in the future against the Bank and its directors, officers,
employees, attorneys, agents, successors, predecessors and assigns and any
affiliates, subsidiaries or related entities of the Bank and their directors,
officers, employees, attorneys, agents, successors, predecessors and assigns,
directly or indirectly, arising out of, based upon, or in any manner connected
with any transaction, event, circumstance, action, failure to act, or occurrence
of any sort or type, whether known or unknown, which occurred, existed, was
taken, permitted, or begun before the execution of this Agreement.
-46-
<PAGE>
SECTION 10.20. EFFECT ON ORIGINAL LOAN DOCUMENTS, ETC. The
terms and conditions pursuant to which the Bank is making Advances available to
the Borrowers and the other terms and conditions generally related to the
relationship between the Borrower and the Bank are completely restated in this
Agreement. Accordingly, the Amended and Restated Loan and Security Agreement
described in the Recitals is superseded by this Agreement except as provided in
the immediately following sentence. Notwithstanding the foregoing, the Amended
and Restated Loan and Security Agreement shall survive and remain in effect to
the extent that it grants collateral to the Bank as security for the obligations
of any Borrower outstanding on the date hereof or are otherwise necessary to
support the grant of such collateral. The Bank waives any and all existing
defaults under the Amended and Restated Loan and Security Agreement.
IN WITNESS WHEREOF, the Bank and the Borrowers have executed
and sealed this Agreement on this ______ day of October, 1999, effective as of
October 14, 1999, with the specific intention that this Agreement constitute a
document under seal.
WITNESS/ATTEST: FIRST UNION NATIONAL BANK
______________________________ By: _______________________(SEAL)
John G. Dumm
Vice President
PRECISION AUTO CARE, INC.
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
WE JAC CORPORATION
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
-47-
<PAGE>
PRECISION BUILDING SOLUTIONS
INCORPORATED, FORMERLY KNOWN AS
LUBE VENTURES, INC.
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
ROCKY MOUNTAIN VENTURES, INC.
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
ROCKY MOUNTAIN VENTURES II, INC.
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
MIRACLE PARTNERS, INC.
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
-48-
<PAGE>
RALSTON CAR WASH, LTD.
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
Manager
PREMA PROPERTIES, LTD.
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
General Manager
MIRACLE INDUSTRIES, INC.
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
KBG, LLC
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
Manager
PTW, INC.
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
-49-
<PAGE>
NATIONAL 60 MINUTE TUNE, INC.
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
HYDRO-SPRAY CAR WASH
EQUIPMENT CO., LTD.
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
Authorized Member
PRECISION TUNE AUTO CARE, INC.
______________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
WORLDWIDE DRYING SYSTEMS, INC.
_____________________________ By: ________________________(SEAL)
Charles L. Dunlap
President and CEO
-50-
<PAGE>
PAC MEXICAN DELAWARE HOLDING
COMPANY, INC.
____________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
PAC MEXICAN HOLDING COMPANY, LLC
____________________________ By: _______________________(SEAL)
Charles L. Dunlap
President
PRECISION AUTO CARE MEXICO II,
S. de R.L. de C.V.
____________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
PRECISION AUTO CARE MEXICO I,
S. de R.L. de C.V.
____________________________ By: _______________________(SEAL)
Charles L. Dunlap
President and CEO
INDY VENTURES, L.L.C.
___________________________ By: ______________________(SEAL)
Charles L. Dunlap
Manager
-51-
<PAGE>
ACKNOWLEDGMENTS
STATE OF VIRGINIA, CITY/COUNTY OF ____________, to wit:
I HEREBY CERTIFY that on this __ day of February, 1999, before
me, the undersigned Notary Public, personally appeared John G. Dumm, who
acknowledged himself to be a Vice President of First Union National Bank, known
to me (or satisfactorily proved) to be the person who executed the foregoing
Amended and Restated Loan and Security Agreement and acknowledged that he, being
authorized so to do, executed the same for the purposes therein contained as the
duly authorized Vice President of First Union National Bank, by signing the name
of First Union National Bank by himself as Vice President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
--------------------------
Notary Public
My Commission Expires:
- -----------------------
-52-
<PAGE>
STATE OF ______________, CITY/COUNTY OF ________________, to wit:
I HEREBY CERTIFY that on this __________ day of
__________________, 1999, before me, the undersigned, a Notary Public of the
State of aforesaid, personally appeared Charles L. Dunlap, who acknowledged
himself to be the President, Chief Executive Officer of Precision Auto Care,
Inc., a Virginia corporation; WE JAC Corporation, a Delaware corporation;
Precision Building Solutions, Incorporated, formerly known as Lube Ventures,
Inc., a Delaware corporation; Rocky Mountain Ventures, Inc., a Colorado
corporation, Rocky Mountain Ventures II, Inc., a Colorado corporation, Miracle
Partners, Inc., a Delaware corporation; Miracle Industries, Inc., an Ohio
corporation; PTW, Inc., a Washington corporation; National 60 Minute Tune, Inc.
a Washington corporation; Precision Tune Auto Care, Inc. a Virginia corporation;
Worldwide Drying Systems, Inc., a Colorado corporation, PAC Mexican Delaware
Holding Company, Inc., a Delaware corporation; and the Manager of Ralston Car
Wash, Ltd., a Colorado limited liability company, the General Manager of Prema
Properties, Ltd., an Ohio limited KBG, LLC, a Colorado limited liability
company, and Indy Ventures, L.L.C., an Indiana limited liability company; the
General Manager of Prema Properties, Ltd., an Ohio limited liability company;
the Authorized Member of Hydro-Spray Car Wash Equipment Co., Ltd., an Ohio
limited liability company; the President of PAC Mexican Holding Company LLC, a
Virginia limited liability company; the President and General Manager of
Precision Auto Care Mexico II, S. de R.L. de C.V., a Mexican limited liability
company; and Precision Auto Care Mexico I, S. de R.L. de C.V., a Mexican limited
liability company; and Precision Auto Care Mexico I, S. de R.L. de C.V., a
Mexican limited liability company; and that he, as such President, Chief
Executive Officer, General Manager, Authorized Member, Manager and President and
General Manager (as applicable, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
each of the corporations and limited liability companies by himself as
President, Chief Executive Officer, General Manager, Authorized Member, Manager
and General manager (as applicable).
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-------------------------
Notary Public
My Commission Expires:
- -------------------------
-53-
<PAGE>
LIST OF EXHIBITS
Exhibit 1 Non-Borrower Mexican Subsidiaries
Exhibit 2 Existing Liens including the Grimaud Lien
Exhibit 3 Real Property owned by each Borrower
Exhibit 4 Defaults, Etc.
Exhibit 5 Evidence of Litigation
Exhibit 6 Names of Borrowers
Exhibit 7 Employee Benefit Plans
Exhibit 8 List of Registered Patents, Trademarks, Trade Names
and Copyrights owned by Borrower
Exhibit 9 Equity Ownership
-54-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 46,761
<SECURITIES> 0
<RECEIVABLES> 7,709,265
<ALLOWANCES> (2,557,000)
<INVENTORY> 2,784,395
<CURRENT-ASSETS> 9,237,216
<PP&E> 0
<CURRENT-LIABILITIES> 10,892,611
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<BONDS> 0
0
0
<COMMON> 61,647
<OTHER-SE> 28,323,808
<TOTAL-LIABILITY-AND-EQUITY> 62,086,677
<SALES> 10,100,057
<TOTAL-REVENUES> 10,100,057
<CGS> 8,238,858
<TOTAL-COSTS> 10,878,224
<OTHER-EXPENSES> 139,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 689,937
<INCOME-PRETAX> (1,582,604)
<INCOME-TAX> 67,177
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,649,781)
<EPS-BASIC> (.27)
<EPS-DILUTED> (.27)
</TABLE>
