<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Precision Auto Care, Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[PRECISION AUTO CARE LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS,
MAY 25, 1999
A Special Meeting of Shareholders of Precision Auto Care, Inc. (the
"Company") will be held at the Company's headquarters located at 748 Miller
Drive, S.E., Leesburg, Virginia on May 25, 1999 at 11:00 a.m., for the following
purposes:
1. To consider approval of the issuance of Common Stock by the Company in
payment of interest and a financing fee in connection with a
$5,000,000 Subordinated Debenture due May 25, 1999;
2. To consider approval of the adoption of the 1999 Employee Stock Option
and Restricted Stock Plan and the reservation of 600,000 shares of
Common Stock for issuance thereunder; and
3. To consider approval of the grant of restricted stock awards to the
non-employee members of the Company's board of directors.
Only holders of shares of Common Stock of record on the books of the
Company at the close of business on April 14, 1999 will be entitled to notice of
and to vote at the Special Meeting or any adjournment thereof.
You are cordially invited to be present at the Special Meeting. IF YOU
CANNOT ATTEND, PLEASE EXECUTE AND MAIL PROMPTLY THE ENCLOSED FORM OF PROXY,
USING THE ENCLOSED RETURN ENVELOPE.
By Order of the Board of Directors,
Eliot Bowytz
Secretary
748 Miller Drive, S.E
Leesburg, Virginia 20175
April 18, 1999
<PAGE>
PRECISION AUTO CARE, INC.
748 MILLER DRIVE, S.E.
LEESBURG, VIRGINIA 20175
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
May 25, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The following information is submitted concerning the enclosed form of
proxy and the matters to be acted upon under authority thereof at the Special
Meeting of Shareholders of the Company to be held on the 25/th/ day of May,
1999, commencing at 11:00 a.m., or at any adjournment thereof, pursuant to the
accompanying notice of said meeting. The Special Meeting will be held at the
Company's headquarters located at 748 Miller Drive, S.E., Leesburg, Virginia
20175. The Company intends to mail this proxy statement and accompanying proxy
to all shareholders entitled to vote at the Special Meeting on or about
April 18, 1999.
The Company is the result of the combination of WE JAC Corporation (the
owner of Precision Tune Auto Care) and eight other automotive maintenance
services companies in connection with the Company's November 1997 initial public
offering (the "IPO Combination"). The eight companies joined with WE JAC
Corporation were: Miracle Industries, Inc.; Lube Ventures, Inc.; Rocky Mountain
Ventures, Inc.; Rocky Mountain Ventures II, Inc.; Prema Properties, Ltd.;
Miracle Partners, Inc.; Ralston Car Wash Ltd.; and KBG, LLC. With the IPO
combination, the "Precision" family of brands was expanded to include car wash
and quick oil change and lube services. The Company acquired Worldwide Drying
Systems, Inc. shortly after the IPO Combination. In March 1998, the Company
acquired Promotora de Francquicias Praxis S.A. de C.V., previously the holder of
a master franchise agreement for Precision Tune Auto Care in Mexico and Puerto
Rico.
SOLICITATION AND REVOCABILITY OF PROXIES
The proxy is solicited on behalf of the Board of Directors of the Company.
It may be revoked by the shareholder at any time prior to the exercise thereof
by filing with the Secretary of the Company a written revocation or a duly
executed proxy bearing a later date. The proxy shall be suspended if the
shareholder shall be present at the meeting and elect to vote in person.
Attendance at the meeting will not, by itself, revoke a proxy. Shares
represented by proxies received will be voted. Where the shareholder has
specified his choice with respect to the proposal to be acted upon, the shares
will be voted in accordance with the specification so made, and in the absence
thereof will be voted FOR each of the three proposals presented at the meeting.
The cost of solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, certain directors, officers and regular
employees of the Company may solicit proxies by
<PAGE>
facsimile, telephone or personal interview for which they will receive no
additional compensation. In addition, arrangements will be made with brokerage
firms and other custodians, nominees and fiduciaries to forward solicitation
material for the meeting to beneficial owners, and the Company will reimburse
them for their reasonable expenses in so doing.
QUORUM AND VOTING REQUIREMENTS
On the record date for the meeting, there were 6,120,543 shares of Common
Stock outstanding. The presence at the meeting, in person or by proxy, of
shareholders entitled to cast a majority of all votes entitled to be cast at the
meeting, is necessary to constitute a quorum for the meeting. Each outstanding
share of Common Stock is entitled to one vote on all matters. Shareholders of
record who are present at the meeting, in person or by proxy, and those who
abstain, including brokers holding shares of record for customers who cause
abstentions to be recorded at the meeting, are considered shareholders who are
present and entitled to vote and are counted for purposes of determining if a
quorum exists.
Brokers holding shares of record for customers generally are not entitled
to vote on certain matters unless they receive voting instructions from their
customers. These shares for which brokers have not received voting instructions
from the beneficial owner are generally referred to as "uninstructed shares." As
used herein, "broker non-votes" means the votes that could have been cast on the
matter in question by brokers with respect to uninstructed shares if the brokers
had received their customers' instructions. The Company will apply the
principles set forth below with respect to broker non-votes.
Quorum Requirements: Broker non-votes will not be counted for purposes of
determining whether a quorum exists. The existence of a quorum will be
determined based upon the number of shares held by shareholders present in
person plus the largest number of shares represented by proxies in which votes
have been cast or as to which authority to vote has not been withheld on any
proposal. Accordingly, if a broker has exercised discretionary authority with
respect to a proposal or has not withheld authority to vote on a proposal, those
shares may be counted as votes entitled to be cast at the meeting for quorum
purposes and the number of shares entitled to be voted for quorum purposes will
not be reduced by broker non-votes on a different proposal.
Approval of Issuance of Common Stock in Payment of Interest and Fees Due on
Subordinated Debenture: To be approved, rules applicable to issuers such as the
Company whose shares are listed on the NASDAQ Stock Market require that the
proposal receive the affirmative vote of the majority of the votes which are
cast at the
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meeting on this particular proposal. Uninstructed shares are not entitled to
vote on this matter and therefore broker non-votes do not affect the outcome.
Under applicable NASDAQ Stock Market votes, abstentions are considered as votes
cast and, accordingly, they have the affect of a vote against the proposal.
Approval of the 1999 Stock Option and Restricted Stock Plan: To be
approved, rules applicable to issuers such as the Company whose shares are
listed on the NASDAQ Stock Market require that the Plan receive the affirmative
vote of the majority of the votes which are cast at the meeting on this
particular proposal. Uninstructed shares are not entitled to vote on this matter
and therefore broker non-votes do not affect the outcome. Under applicable
NASDAQ Stock Market votes, abstentions are considered as votes cast and,
accordingly, they have the affect of a vote against the proposal.
Approval of Grants of Restricted Stock Awards to Outside Directors:
To be approved, rules applicable to issuers such as the Company whose shares are
listed on the NASDAQ Stock Market require that the grants of the restricted
stock awards receive the affirmative vote of the majority of the votes which are
cast the meeting on this particular proposal. Uninstructed shares are not
entitled to vote on this matter and therefore broker non-votes do not affect the
outcome. Under applicable NASDAQ Stock Market votes, abstentions are considered
as votes cast and, accordingly, they have the affect of a vote against the
proposal.
Other Matters: Because this is a Special Meeting of shareholders,
Virginia law provides that no other business may be conducted at the meeting.
INFORMATION WITH RESPECT TO CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS OF THE COMPANY
The shareholders named in the following table are those known to the
Company to be the beneficial owners of 5% or more of the Company's Common Stock.
For purposes of this table, and as used elsewhere in this Proxy Statement, the
term "beneficial owner" means any person who, directly or indirectly, has or
shares the power to vote, or to direct the voting of a security or the power to
dispose, or to direct the disposition of, a security. Except as otherwise
indicated, the Company believes that each individual owner listed below
exercises sole voting and dispositive power over their shares.
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<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT OF BENEFICIAL OUTSTANDING
NAME AND ADDRESS OWNERSHIP (SHARES) COMMON STOCK
- ---------------- -------------------- ------------
<S> <C> <C>
SAFECO Corporation/(1)/ 1,215,500 19.8%
SAFECO Plaza
Seattle, Washington 98185
William P. Stiritz/(2)/ 500,000 8.17%
10401 Clayton Road, Suite 101
St. Louis, Missouri 63131
Roberto Zambrano V. 499,799 8.17%
Mauricio Zambrano V.
David Zambrano V.
& Daniel Zambrano V.(3)
P.O. Box 1499
Olmito, Texas 78575
</TABLE>
___________
(1) As reported in Schedule 13G (Amendment No. 2) filed with the Commission on
or about February 12, 1999.
(2) As reported on Schedule 13D filed with the Commission on December 31, 1997.
Does not include 10,000 shares owned by Mr. Stiritz's son, of which Mr.
Stiritz disclaims beneficial ownership.
(3) As listed in the Company's stock transfer records. The shares are held in
the names of the listed individuals as joint tenants.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 15, 1999 by: (i) each
director of the Company, (ii) each executive officer named in the table below
labeled Summary Compensation Table, and (iii) all directors and executive
officers of the Company as a group. This table is based on information provided
by the Company's directors and executive officers and the Company's review of
filings with the Securities and Exchange Commission with respect to executive
officers not currently employed with the Company. Unless otherwise indicated in
the footnotes below, and subject to community property laws where applicable,
each of the named persons exercises sole voting and dispositive power over his
or her shares.
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<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK
- ------------------------ ------------------- ------------
<S> <C> <C>
Lynn E. Caruthers/(1)/ 135,581 2.21%
John F. Ripley/(2)/ 110,050 1.77
James A. Hay/(3)/ 13,162 *
Arnold Janofsky/(4)/ 25,058 *
Grant G. Nicolai/(5)/ 25,816 *
Peter J. Kendrick 0 *
William R. Klumb/(6)/ 42,263 *
Woodley A. Allen/(7)/ 23,000 *
George A. Bavelis 83,817 1.44
Bernard H. Clineburg/(7)/ 12,500 *
Effie L. Eliopulos 258,104 4.21
Bassam N. Ibrahim/(7)/ 13,850 *
Richard O. Johnson 56,497 *
Arthur Kellar/(8)/ 180,029 2.94
Harry G. Pappas, Jr./(9)/ 26,000 *
Gerald A. Zamensky/(10)/ 111,298 1.82
All directors and executive 1,060,525 16.85
officers as a group (22
persons)/(11)/
</TABLE>
_______________
*Represents less than 1%.
(1) Includes 24,500 shares held by CARFAM Associates and 77,938 shares held by
Caruthers Properties, Ltd., limited partnerships in which Ms. Caruthers
holds limited partnership interests, and options to purchase 10,000 shares
which Ms. Caruthers may exercise within 60 days.
(2) Mr. Ripley resigned from the Company on October 21, 1998. His separation
agreement provides that Mr. Ripley will have until October 1999 to exercise
93,100 of his vested options. The remainder of Mr. Ripley's options have
been terminated.
(3) Includes options to purchase 10,001 shares that are exercisable within 60
days.
(4) Includes options to purchase 21,333 shares that are exercisable within 60
days.
(5) Includes options to purchase 16,667 shares that are exercisable within 60
days.
(6) Includes options to purchase 4,167 shares that are exercisable within 60
days.
(7) Includes options to purchase 10,000 shares that are exercisable within 60
days.
(8) Includes options to purchase 35,000 shares that are exercisable within 60
days.
(9) Includes options to purchase 12,120 shares that are exercisable within 60
days.
(10) Includes 47,176 shares held by Mr. Zamensky's spouse.
(11) Includes shares beneficially owned by the executive officers named in the
Summary Compensation Table and those individuals who are executive officers
as of the date of this Proxy Statement.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Directors who are employees receive no additional compensation for serving
as directors. All non-employee directors receive fees for each meeting of the
Board of Directors they attend, $1,000 for each meeting attended in person and
$500 for each meeting attended via telephone. Non-employee directors who also
serve as members of Committees of the Board of Directors receive $200 per
committee meeting attended. In light of the Company's recent cash flow
difficulties, at the Board of Directors meeting held on October 21, 1998, the
Board decided to indefinitely suspend the payment of their compensation.
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<PAGE>
In connection with the resignation of John Moynahan as Chief Financial
Officer effective January 15, 1999, Woodley A. Allen agreed to serve as a
special financial consultant to the Company on a full-time basis until the
Company hired a new chief financial officer. Mr. Allen served in that capacity
from December 1, 1998 to January 31, 1999, the date on which the Company hired a
new chief financial officer. The Company agreed to pay Mr. Allen $10,000 per
month and granted Mr. Allen's stock options for 10,000 shares of common stock
with an exercise price of $3.625 per share as consideration for his services.
EXECUTIVE COMPENSATION
The table below sets forth the compensation earned and paid to each named
executive officer who earned $100,000 or more during the periods presented.
Amounts shown for 1996 and for a portion of 1997 represent compensation for
employment by WE JAC Corporation, the Company's predecessor. Options grants
shown for 1996, 1997 and a portion of 1998 represent grants by WE JAC
Corporation which were assumed by the Company in connection with the IPO
Combination.
Mr. Ripley resigned from the Company on October 21, 1998 and Mr. Kendrick
resigned from the Company on January 1, 1999. In connection with reorganizing
and streamlining the Company's management structure, the Company recently
determined it was appropriate to eliminate the positions occupied by James A.
Hay, Arnold Janofsky and Grant G. Nicolai. Accordingly, the employment of
Messrs. Hay, Janofsky and Nicolai will terminate effective June 2, 1999.
Information concerning Charles L. Dunlap, the Company's current President
and Chief Executive Officer and certain other current executive officers of the
Company is included below under the caption "Employment Agreements" and "New
Plan Benefits."
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION/(1)/
-------- ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
John F. Ripley 1998 $199,654 $100,000 87,762 $2,594
Former President and 1997 181,734 63,438 100,000
Chief Executive 1996 169,131 34,000 80,338
Officer/(2)/
James A. Hay 1998 117,692 $15,000 35,000 1,765
Executive Vice President--
North America/(3)/
Arnold Janofsky 1998 127,308 3,500 1,841
Senior Vice President and 1997 117,269 9,646 4,000
General Counsel/(4)/ 1996 80,385 17,500
Grant G. Nicolai 1998 117,115 7,700 25,000 1,076
Senior Vice President-- 1997 110,809 8,577 17,175
International/(5)/ 1996 85,769 8,625
Peter J. Kendrick 1998 124,231 7,500 1,846
Vice President--Finance/(6)/ 1997 15,577 5,000
</TABLE>
____________________
(1) Amounts represent the Company's matching contributions to the Company's
401(k) Savings Plan.
(2) Mr. Ripley resigned from the Company on October 21, 1998.
(3) Mr. Hay's employment with WE JAC Corporation, the Company's predecessor
commenced on July 1, 1997. The amount shown as "Other Annual Compensation"
is for the reimbursement of relocation expenses. Mr. Hay's employment with
the Company will terminate on June 2, 1999.
(4) Mr. Janofsky's employment with the Company will terminate on June 2, 1999.
(5) Mr. Nicolai's employment with the Company will terminate on June 2, 1999.
Amounts shown as "Other Annual Compensation" are for commissions on the
sale of franchises.
(6) Mr. Kendrick's employment with WE JAC Corporation, the Company's
predecessor commenced on April 21, 1997. Mr. Kendrick resigned from the
Company on January 1, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES OF STOCK PRICE APPRECI-
UNDERLYING % OF TOTAL OPTIONS WEIGHTED ATION FOR OPTION TERM/(4)/
---------------------
OPTIONS GRANTED TO EMPLOYEES AVERAGE EXPIRATION
Name GRANTED/(1)/ IN FISCAL YEAR EXERCISE PRICE/(2)/ DATE/(3)/ 5% 10%
------- -------------- -------------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
John F. Ripley/(5)/ 268,100 33.61% $8.99 06/17/08 $1,520,933 $3,848,041
James A. Hay 40,000 5.02% $9.41 06/17/08 210,150 557,350
Arnold Janofsky 25,000 3.13% $8.64 11/12/07 150,625 367,625
Grant G. Nicolai 25,000 3.13% $8.63 11/12/07 150,875 367,875
Peter J. Kendrick/(6)/ 12,500 1.57% $9.40 11/12/07 65,750 174,250
</TABLE>
________________
(1) Stock options exercisable into 797,600 shares of Common Stock were granted
to all employees, non-employee directors of the Company and related parties
as a group during the fiscal year ended June 30, 1998. Total includes
474,600 options granted by WE JAC Corporation and
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<PAGE>
assumed by the Company during fiscal 1998, including 193,100, 5,000,
21,500, 12,500 and 5,000 options granted by Messrs. Ripley, Hay, Janofsky,
Nicolai, and Kendrick, respectively.
(2) The exercise price is the "fair market value" of the Company's Common Stock
at the date of grant as determined in good faith by the Company's Board of
Directors or the Board of directors of WE JAC Corporation in the case of
options assumed in the IPO Combination.
(3) Date shown is expiration date of latest grant. Options generally vest and
become exercisable in annual installments of 33% of the shares covered by
each grant commencing on the first anniversary of the grant date, and
expire ten years after the grant date.
(4) The dollar amounts under the potential realizable values column use the 5%
and 10% rates of appreciation permitted by the SEC, and are not intended to
forecast actual future appreciation in the stock price. Actual gains, if
any, on stock option exercises are dependant on the future performance of
the Company's Common Stock. There can be no assurance that the amounts
reflected in this table will be achieved. The assumed rates are compounded
annually to the full ten-year term of the options.
(5) Mr. Ripley resigned from the Company on October 21, 1998. His separation
agreement provides that Mr. Ripley will have until October 1999 to exercise
93,100 of his vesting options. The remainder of Mr. Ripley's options have
been terminated.
(6) Mr. Kendrick resigned from the Company on January 1, 1999 and Mr.
Kendrick's options have been terminated.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF THE UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT JUNE 30, 1998 OPTIONS AT JUNE 30, 1998/(1)/
------------------------------------ ------------------------
Name EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
John F. Ripley(2) 193,100 75,000 $241,805 $ 9,375
James A. Hay 1,667 38,333 0 19,375
Arnold Janofsky 12,999 12,001 18,957 12,543
Grant G. Nicolai 8,333 16,667 13,540 17,711
Peter J. Kendrick(3) 1,667 10,833 0 6,563
</TABLE>
______________
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
Stock Market on June 30, 1998 was $9.875. Value is calculated on the basis
of the difference between the option exercise price and $9.875, multiplied
by the number of shares of Common Stock underlying the option.
(2) Mr. Ripley resigned from the Company on October 21, 1998. His separation
agreement provides that Mr. Ripley will have until October 1999 to exercise
93,100 of his vesting options. The remainder of Mr. Ripley's options have
been terminated.
(3) Mr. Kendrick resigned from the Company on January 1, 1999 and Mr.
Kendrick's options have been terminated.
EMPLOYMENT ARRANGEMENTS
EMPLOYMENT AGREEMENTS
General. Each of Messrs. Hay, Janofsky, Kendrick and Nicolai entered into
employment agreements to serve as vice presidents for a period of three years
commencing August 1, 1997. Mr. Klumb entered into an employment agreement to
serve as a vice president for a period of three years commencing November 12,
1997. The agreements provide that Messrs. Hay, Janofsky, Kendrick and Nicolai
will each receive a base salary of $120,000 per annum, Mr. Klumb will receive a
base salary of $90,000 per annum, and each of them are entitled to receive a
performance bonus under the plan developed for all of the Company's vice
presidents. Under the terms of each employment agreement, each vice president
is required to maintain the confidentiality of proprietary business or technical
information obtained during the course of employment with the Company. Messrs.
Hay, Janofsky, Kendrick and Nicolai are each prohibited from competing with the
Company in the United States during
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<PAGE>
the time each is employed by the Company and for a period of two years
thereafter. Mr. Klumb is prohibited from competing with the Company in the
United States during the time he is employed by the Company and for a period of
one year thereafter. The employment agreements provide that in the event the
vice president's employment is terminated by the Company other than for cause,
or is terminated by the vice president for good reason (e.g., following a change
of control of the Company), the vice president will be entitled to receive a
severance benefit equal to his base salary at the rate in effect at the time of
termination for 18 months, in the case of Messrs. Hay, Janofsky and Nicolai, and
for 12 months in the case for Mr. Klumb. The vice president will also be
entitled to receive any salary and benefits accrued, vested or unpaid as of the
date of termination as well as any other benefits to which the employee is
entitled under any benefit plan, policy or program maintained by the Company in
which the vice president participated. See "Severance Arrangements."
In October 1998, the Company entered into an employment agreement with
Charles L. Dunlap pursuant to which Mr. Dunlap agreed to serve as President and
Chief Executive Officer for a period of three years. The agreement also
provides that Mr. Dunlap will serve as a member of the Company's Board of
Directors. Mr. Dunlap will receive a base salary of $200,000 per annum. Under
the terms of the employment agreement, Mr. Dunlap is required to maintain the
confidentiality of proprietary business or technical information he obtains in
the course of his employment with the Company, and he is prohibited from
competing with the Company in the United States during any time he is performing
duties for the Company and for a period of two years thereafter. In the event
Mr. Dunlap's employment is terminated by the Company other than for cause, or is
terminated by Mr. Dunlap for good reason (e.g., following a change of control of
the Company), Mr. Dunlap will be entitled to receive a severance benefit equal
to his base salary at the rate in effect at the time of termination for the
remainder of his initial term or 18 months, whichever is greater, and will be
entitled to receive any salary and benefits accrued, vested or unpaid as of the
date of termination. In the event of such termination, Mr. Dunlap also will be
entitled to receive a pro rata portion of his performance bonus.
Mr. Dunlap was also granted stock options for 100,000 shares of the
Company's Common Stock on October 21, 1998 with an exercise price of $4.25. The
options vest in three equal installments commencing one year from the date of
grant. The options expire on October 21, 2008.
In July 1998, the Company entered into an employment agreement with William
E. Roller pursuant to which Mr. Roller agreed to serve as Senior Vice President,
Manufacturing and Distribution for a period of three years. The agreement
provides that Mr. Roller will receive a base salary of $110,000 per annum and
may also be awarded a performance bonus consistent with the Company's
performance bonus plans for all Senior Vice Presidents in the Company. Under
the terms of the employment agreement, Mr. Roller is required to maintain the
confidentiality of proprietary business or technical information he obtains in
the course of his employment with the Company, and he is prohibited from
competing with the Company in the United States during any time he is performing
duties for the Company and for a period of two years thereafter. In the event
Mr. Roller's employment is terminated by the Company other than for cause, or is
terminated by Mr. Roller for good reason (e.g., following a change of control of
the Company), Mr. Roller will be entitled to receive a severance benefit equal
to his base salary at the rate in effect at the time of termination for the
remainder of his initial term or 18 months, whichever is greater, and will be
entitled to
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<PAGE>
receive any salary and benefits accrued, vested or unpaid as of the date of
termination as well as any other benefits to which Mr. Roller is entitled under
any benefit plan, policy or program maintained by the Company in which Mr.
Roller participated.
Severance Arrangements. In October 1998, the Company entered into an
agreement with John (Jay) F. Ripley in connection with his resignation from
Precision Auto Care, Inc. Pursuant to the terms of this agreement, Mr. Ripley
will receive monthly payments of $10,000 for a period of at least one year for
serving as a special advisor to the Company. If certain conditions are met,
these monthly payments could be extended through April 2000. The Board of
Directors has extended to one year the period of time Mr. Ripley has to exercise
93,100 of his vested stock options. If certain conditions are met, this period
could be extended through April 2000.
On January 1, 1999, Peter Kendrick resigned from the Company. In
connection with his resignation, the Company agreed to pay Mr. Kendrick $90,000
in three monthly installments of $30,000 and to continue Mr. Kendrick's health
benefits through December 31, 1999. Mr. Kendrick's stock options were forfeited
and terminated at the time of his resignation.
In connection with reorganizing the Company in order to reduce costs and
provide for a more responsive management structure, the Company recently
eliminated the senior management positions occupied by Messrs. Hay, Janofsky and
Nicolai and their employment with the Company will be terminated effective on or
about June 2, 1999. Following the elimination of these positions, Messrs. Hay,
Janofsky and Nicolai advised the Company that they believed that the severance
benefit to which they are entitled under their respective employment agreements
is to be paid to them as a lump sum. The Company believes that the terms of the
agreements require the Company to continue to make salary payments to the
executives on a regular basis for the proscribed period and not in the form of a
lump sum payment. The Company is presently holding discussions with these three
executives concerning ways to resolve the parties' differences.
ITEM 1: APPROVAL OF COMMON STOCK ISSUANCE IN PAYMENT OF INTEREST AND FEES DUE
ON SUBORDINATED DEBENTURE
On January 25, 1999, the Company borrowed $5.0 million from Arthur C.
Kellar, a director of the Company, pursuant to the terms of a Subordinated
Debenture (the "Subordinated Debenture"). Under the terms of the Subordinated
Debenture, payment of principal and interest is subordinated to all of the
Company's outstanding senior indebtedness, including indebtedness payable to
First Union National Bank, the Company's senior bank lender. On January 25,
1999, the Company had approximately $18.2 million in outstanding senior
indebtedness payable to First Union National Bank.
The principal amount outstanding under the terms of the Subordinated
Debenture bears interest at the rate of 15% per annum unless the Company
defaults under the terms of the Subordinated Debenture, in which case the
interest rate increases to 17%. As an inducement for the purchase of the
Subordinated Debenture, the Company issued Mr. Kellar options to purchase 25,000
shares of the Company's common stock at an exercise price equal to $2.00, the
closing price of the
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<PAGE>
Company's common stock on the date the Subordinated Debenture was issued. The
Company also agreed to pay Mr. Kellar a financing fee at the maturity of the
Subordinated Debenture in the amount of $50,000. The issuance of the
Subordinated Debenture on such terms and conditions was approved unanimously by
the Company's Board of Directors. The Board of Directors believed that the terms
of the financing were favorable to the Company at the time, particularly in
light of the Company's liquidity position and the senior lender's requirement
that the financing be subordinate to the Company's senior indebtedness. Mr.
Kellar abstained from voting with respect to the matter.
Under the terms of the Subordinated Debenture, the $5.0 million principal
amount is due to be repaid in cash on May 25, 1999. If the Subordinated
Debenture is repaid in full on that date, interest in the amount of $250,000 and
the $50,000 financing fee will also be due and payable. The Subordinated
Debenture provides that the interest and the financing fee are to be paid in
shares of the Company's common stock. The Subordinated Debenture provides that
the Company's common stock will be valued at its closing price per share on the
date immediately prior to the date on which the interest and the financing fee
is actually paid to Mr. Kellar.
Although the terms of the Subordinated Debenture require the Company to
repay the Subordinated Debenture on May 25, 1999, it is possible that the
Subordinated Debenture will not be repaid in whole or in part on that date
because the terms of the Company's credit agreement with its senior lender
require the Company to engage in certain sale and refinancing transactions
related to the Company's real estate. The proceeds of these transactions must
be applied to reduce the principal amount of loans outstanding to the senior
lender by specified dates.
The terms of the Company's credit agreement, as it has been modified
recently with its senior lender, require the Company to generate approximately
$9.0 million in proceeds from the sale of assets or financing transactions by
April 25, 1999. In order to accomplish this, the Company has been pursuing a
variety of real estate financing transactions and asset dispositions, some of
which have been completed. The Company presently expects that it will close on
the remainder of the contemplated transactions by April 25, 1999, as required by
the terms of its senior lender credit agreement. The Company's senior lender
has agreed that if the Company satisfies this requirement and is not otherwise
in default under the credit agreement, the senior lender will apply $2.5 million
of the proceeds from the final transaction to repay in part the Subordinated
Debenture on May 25, 1999. In that event, the Company would also be entitled to
pay the remaining amounts due under the Subordinated Debenture to Mr. Kellar on
the May 25, 1999 maturity date. If the Company fails to satisfy the requirement
that it generate approximately $9.0 million in transaction proceeds by April 25,
1999 or is otherwise in default under its bank credit agreement, the Company
would not be entitled to repay the Subordinated Debenture on May 25, 1999,
without the consent of the senior lender. Also, to the extent the Company
satisfies the requirement that it obtain $9.0 million by April 25, 1999 and is
not otherwise in default under the bank credit agreement, the Company will have
to generate an additional $2.5 million from the sale of assets or other
financing transactions in order to repay the Subordinated Debenture in full on
May 25, 1999.
If the Company is unable to repay the Subordinated Debenture in whole or in
part on May 25, 1999, interest would continue to accrue on the unpaid balance
following such date at the
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<PAGE>
default rate of 17% per annum. Such additional interest will also be payable in
shares of the Company's common stock valued in the manner described above.
Rules applicable to issuers, such as the Company, whose shares are listed
on the NASDAQ Stock Market require stockholder approval of certain issuances of
voting company stock. Under these rules, the issuance of common stock by the
Company to Mr. Kellar in payment of the interest and financing fee due under the
Subordinated Debenture is subject to the Company's prior receipt of stockholder
approval. Accordingly, the terms of the Subordinated Debenture provide that any
issuance of common stock for the purpose of paying the interest and financing
fees on the Subordinated Debenture is subject to the Company's receipt of the
approval of its shareholders. In the event that shareholder approval is not
obtained, the Company will pay the interest and financing fees in cash. The
Company believes that it is in the Company's best interest that the Company pay
the interest and financing fees in common stock in order to conserve the
Company's cash resources.
At the Special Meeting of Shareholders, the Company is seeking shareholder
approval of the issuance of common stock in order to pay the interest and fees
on the Subordinated Debenture in shares of common stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT ALL SHAREHOLDERS VOTE FOR APPROVAL
---
OF THE ISSUANCE OF COMMON STOCK IN PAYMENT OF INTEREST AND FEES DUE ON THE
SUBORDINATED DEBENTURE.
ITEM 2: APPROVAL OF 1999 EMPLOYEE STOCK OPTION AND RESTRICTED STOCK PLAN
Subject to shareholder approval, the Board of Directors has adopted the
Precision Auto Care, Inc. 1999 Employee Stock Option and Restricted Stock Plan
(the "1999 Plan") and has authorized an aggregate of 600,000 shares of the
Company's Common Stock for issuance under the 1999 Plan. The 1999 Plan is
intended as an incentive to attract qualified individuals to join the Company as
employees as well as to retain and motivate existing employees by providing them
with the opportunity to increase their proprietary interests in the Company.
Having a personal stake in the Company increases an individual's interest in the
Company's growth and success and provides a long-range inducement for continued
employment with the Company. Attached as Appendix A is a copy of the 1999 Plan.
At the time the 1999 Plan was adopted by the Board of Directors, 98,000
options remained available to be granted under the Company's other outstanding
stock option plans. In connection with the adoption of the 1999 Plan, the Board
of Directors determined that the Company will not issue any of those options in
the future but may reissue options under those plans to the extent that those
options which are presently outstanding under those plans are later cancelled,
expire or are otherwise terminated in accordance with the terms of such plans.
The Company presently has options to purchase 457,000 shares of its Common Stock
under those other plans.
-12-
<PAGE>
RECENT GRANTS
On March 31, 1999, the date on which the Plan was adopted by the Board of
Directors, the Board granted restricted share awards to each of the following
executive officers of the Company in the amounts indicated:
Charles L. Dunlap, President and Chief Executive officer (50,000 shares)
Clifford H. Harris, Chief Financial Officer (20,000 shares)
William F. Klumb, Vice President Wash Operations (10,000 shares)
William E. Roller, Senior Vice President, Manufacturing and Distribution
(20,000 shares)
John T. Wiegand, Vice President Operations (15,000 shares)
Under the terms of each grant, each of the officers' right, title and
interest in the shares which are subject to his grant will not vest until the
third anniversary of the date of grant. No portion of the restricted stock will
vest prior to the third anniversary unless the following conditions are
satisfied: If the Company's common stock closes at a price of at least $4.00
per share, 25% of the shares covered by each restricted stock award will vest
immediately. If the Company's common stock closes at a price per share of at
least $6.00 per share, 75% of the shares covered by each restricted stock award
will vest immediately. If the Company's common stock closes at a price of $8.00
per share, all of the shares covered by each restricted stock award will vest
immediately.
The Company also granted stock options to each of the following executive
officers in the amounts indicated:
Charles L. Dunlap, President and Chief Executive Officer (options to
purchase 100,000 shares)
William F. Klumb, Vice President Wash Operations (options to purchase
10,000 shares)
William E. Roller, Senior Vice President, Manufacturing and Distribution
(options to purchase 20,000 shares)
John T. Wiegand, Vice President Operations (options to purchase 10,000
shares)
The options are exercisable at a price of $2.375 per share, the closing
price of the Company's common stock on the date of grant, and have a term of ten
years. Under the terms of each grant, one-third of the options will vest, to
the extent that options have not vested pursuant to the acceleration provisions
described below, on each of the first three anniversaries of the date of grant.
Also, the vesting of such options may be accelerated on the following basis: If
the Company's common stock closes at a price of at least $4.00 per share prior
to the first anniversary of the date of grant, 25% of the options will vest
immediately. If the Company's common stock closes at a price of at least $6.00
per share, 75% of the options, to the extent that options have not previously
vested, will vest immediately. If the Company's common stock closes at a price
of $8.00 per share, all of the unvested options will vest immediately.
The grants of the restricted share awards and stock options were made
subject to the Company's receipt of shareholder approval.
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<PAGE>
SUMMARY OF THE 1999 PLAN
The 1999 Plan is administered by the Organization and Compensation
Committee of the Board of Directors. Six hundred thousand (600,000) shares of
the Company's Common Stock have been reserved for issuance under the 1999 Plan.
No member of the Committee and no member of the Board of Directors who is not
also an employee is eligible to participate in the 1999 Plan.
Option Grants. Options recommended by the Committee must be approved by the
Board of Directors before they may be granted. The exercise price for options
issued under the 1999 Plan shall be the fair market value at the time of the
grant. Fair market value is defined as the then current fair market value of
the Company's Common Stock as determined by reference to the selling price of
the shares on the applicable market. Options under the 1999 Plan may not be
granted after March 31, 2009. Options may extend for a period of up to 10 years
from the date of grant with the actual term to be established by the Board of
Directors at the time of grant. Upon termination of an option holder's active
employment with the Company and its subsidiaries for any reason (including
illness or disability), the option and rights thereunder shall terminate on the
date of termination of employment. The Board of Directors has the discretion in
the event the option holder takes a leave of absence from the Company and its
subsidiaries for personal reasons or for military service to take such action in
respect of the option as the Board of Directors may deem appropriate, including
extending the time following termination of active employment during which the
option holder is entitled to purchase the shares of Common Stock subject to his
option. If an option holder's employment with the Company and its subsidiaries
terminates by reason of death or retirement pursuant to normal Company policies,
the retired employee or personal representative of the deceased employee may
elect to exercise the option within ninety (90) days of the termination of the
option holder's employment. In no event may any option be exercised after the
expiration of its term. Options are nontransferable and nonassignable except by
inheritance.
The purchase price for shares of Common Stock on the exercise of options
generally may be paid either in cash, by delivering to the Company shares of
Common Stock previously owned by the option holder for at least six months that,
together with any cash tendered with the shares, will equal in value the full
purchase price, or by other "cashless" exercise methods specified in the 1999
Plan. Permitting stock-for-stock payments or other cashless exercises allows
option holders to acquire shares of Common Stock without incurring the costs
that may arise when the exercise price must be paid in cash.
The Board of Directors has the discretion to grant either incentive stock
options or nonqualified stock options under the 1999 Plan.
Restricted Share Awards. The Committee may, in its sole discretion, issue
Common Stock as compensation for services rendered to the Company and its
subsidiaries. The Committee may subject such shares to any restrictions it
deems appropriate at the time of making the award, such as conditions relating
to performance, vesting, sale, assignment, encumbrance or other transfer. This
Common Stock is thus called "Restricted Shares." The terms, conditions and any
performance requirements of Restricted Shares will be determined by the
Committee and set forth in a written
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<PAGE>
agreement executed by the Company and the employee. The holders of Restricted
Shares will have the same voting, dividend and other rights as the Company's
other stockholders. Restricted Shares may be sold or awarded under the 1999 Plan
for such consideration as the Committee may determine, including cash, cash
equivalents, full-recourse promissory notes, past services and future services.
If an award consists of newly issued Restricted Shares, the employee must
furnish consideration to the Company with a value not less than the par value of
such Restricted Shares in the form of cash, cash equivalents or past services
rendered to the Company or its subsidiaries, as the Committee may determine.
In General. The 1999 Plan is not qualified under Section 401(a) of the
Internal Revenue Code and is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974. The 1999 Plan contains
provisions to prevent dilution in case of stock dividends, stock splits and
changes in the structure of shares of the Common Stock. The 1999 Plan may be
amended, modified or discontinued at any time by the Board of Directors, except
that the Board does not have the power to (i) revoke or alter the terms of any
valid option or Restricted Share award previously made pursuant to the 1999
Plan, (ii) increase the number of shares of Common Stock to be reserved for
issuance and sale pursuant to options or Restricted Share awards made pursuant
to the 1999 Plan, (iii) decrease the exercise price of options granted pursuant
to the 1999 Plan, (iv) change the class of employee to whom options or
Restricted Share awards may be made pursuant to the 1999 Plan, or (v) provide
for options exercisable more than 10 years after the date granted.
CERTAIN TAX CONSEQUENCES OF THE 1999 PLAN
The following discussion of the Federal tax consequences of the 1999 Plan
is based on the Internal Revenue Code provisions currently in effect, current
regulations thereunder, and existing administrative rulings of the Internal
Revenue Service. The discussion is limited to the tax consequences on United
States citizens and does not consider the potential impact of state tax laws.
It is not intended to be a complete discussion of all of the United States
income tax consequences of the 1999 Plan or of all the requirements that must be
satisfied to qualify for the tax treatment described in this discussion.
Changes in the law and the regulations may modify the discussion, and, in some
cases, changes may be retroactive. In addition, the tax consequences may vary
depending on the personal circumstances of individual holders of options and
Restricted Shares, and tax requirements applicable to residents of countries
other than the United States.
Options. An option holder will not recognize income upon the grant of an
option under the 1999 Plan, or at any other time prior to the exercise of the
option. Upon exercise of a nonqualified option, the option holder will
recognize compensation taxable as ordinary income in an amount equal to the
excess of the fair market value of the Common Stock on the date the option is
exercised over the option price of the Common Stock. This income is subject to
withholding and other employment taxes. The Company then will be entitled to a
deduction in a like amount for compensation paid to the option holder. The
ordinary income recognized upon exercise of the option will constitute "personal
service income" for purposes of Federal income taxes.
-15-
<PAGE>
A subsequent taxable disposition of shares of Common Stock acquired upon
exercise of a nonqualified option and held as a capital asset will result in a
capital gain or loss measured by the difference between the fair market value of
the stock on the date the option was exercised and the amount realized on later
disposition.
An option holder will not recognize income upon the grant or exercise of an
incentive stock option under the 1999 Plan if (i) no disposition of the Common
Stock acquired pursuant to the option is made by the option holder within two
years from the date of the granting of the option or within one year after the
transfer of such Common Stock to the option holder and (ii) at all times during
the period beginning on the date the option was granted and ending on the day
three months before the date of such exercise, the option holder was an employee
of the Company. The difference between the fair market value of the Common
Stock on the date of exercise and the option price, however, is an item of tax
preference for purposes of the alternative minimum tax.
If an option holder who has acquired shares of Common Stock by the exercise
of an incentive stock option makes a taxable disposition of such Common Stock
after satisfying the above holding period requirements, the option holder
generally will recognize long-term capital gain or loss measured by the
difference between the option price and the selling price. In such a case, the
Company will not be entitled to any deduction for compensation paid to the
option holder.
If an option holder who has acquired shares of Common Stock by the exercise
of an incentive stock option makes a taxable disposition of such Common Stock
within two years from the date of the granting of the option or within one year
after the transfer of such Common Stock to the option holder, a disqualifying
disposition occurs. In that event the option holder recognizes ordinary income
equal to the lesser of (i) the actual gain or (ii) the difference between the
exercise price and the fair market value of the Common Stock on the date of
exercise. This income is subject to withholding and other employment taxes.
The Company will then be entitled to a deduction in like amount for any
compensation paid to the option holder. If a loss is sustained on such a
disposition, the loss will generally be treated as a capital loss. If the
amount received on the disqualifying disposition exceeds the fair market value
of the Common Stock on the date of exercise, the excess will generally be either
long- or short-term capital gain.
Restricted Shares. Restricted Share awards are subject to a vesting
schedule (or some other substantial risk of forfeiture). If a holder of
Restricted Shares separates from employment before vesting in the shares, the
shares are forfeited and revert to the Company. If the employee paid for the
shares, the purchase price will be refunded. Generally, the employee will not
recognize taxable income at the time of an award or purchase of Restricted
Shares. However, the employee may make an election under Section 83(b) of the
Internal Revenue Code ("Code") to be taxed at the time of the award.
If an election under Code 83(b) to recognize income at the time of the
award or purchase is not timely made, the employee will recognize taxable income
at the time of vesting. The taxable income will be equal to the excess of the
fair market value of the Restricted Shares at the time the shares vest over the
amount (if any) that the employee paid for the Restricted Shares.
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<PAGE>
If an employee receives or purchases Restricted Shares that remain subject
to vesting, the employee may elect under Code 83(b) to include as ordinary
income in the year of the award or purchase an amount equal to the excess of (a)
the fair market value of the shares on the transfer date over (b) the purchase
price (if any) paid for the shares. The fair market value of the Restricted
Shares will be determined as if the shares were not subject to forfeiture. If
the employee makes the Code 83(b) election, the employee will not recognize any
additional income when the shares vest. Any appreciation in the value of the
Restricted Shares after the award or purchase is not taxed as compensation but
instead is taxed as capital gain when Restricted Shares are sold or transferred.
If an employee makes a Section 83(b) election and the Restricted Shares are
later forfeited, the holder is not entitled to a tax deduction or a refund of
the tax already paid.
Income that is characterized as compensation income, whether as a result of
vesting in the Restricted Shares or in connection with a Code 83(b) election,
will be subject to withholding and other employment taxes. The Company will be
entitled to a deduction in like amount, and in the same tax year, for any
compensation income reportable by the holder of Restricted Shares.
Dividends received by a holder of Restricted Shares on unvested Restricted
Shares are treated as taxable compensation and are subject to withholding if the
holder is an employee or former employee. The Company is entitled to a
deduction equal to the amount of the dividends paid on unvested restricted
shares. Dividends received on Restricted Shares subject to a Code 83(b)
election are taxed as dividends instead of compensation.
Approval of the adoption of the 1999 Plan and the reservation of 600,000
shares of Common Stock for issuance under the 1999 Plan is subject to the
affirmative vote of the holders of a majority of voting power of the Company
Common Stock present in person or represented by proxy at the Special Meeting.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE ADOPTION OF THE PLAN AND
---
THE RESERVATION OF SIX HUNDRED THOUSAND SHARES OF COMMON STOCK FOR ISSUANCE
UNDER THE PLAN.
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<PAGE>
ITEM 3. APPROVAL OF THE GRANT OF RESTRICTED STOCK AWARDS TO THE NON-EMPLOYEE
MEMBERS OF THE COMPANY'S BOARD OF DIRECTORS
As noted above in the portion of this Proxy Statement relating to the
compensation of the Company's directors, on October 21, 1998 the Company's Board
of Directors determined it was appropriate to suspend the payment of cash
director fees in light of the Company's need for liquidity. At a meeting held
on March 31, 1999, the Board of Directors unanimously approved the grant of
restricted stock awards to each of the members of the Company's Board of
Directors who is not also an employee of the Company, subject to the approval of
the Company's stockholders.
These restricted stock awards were made in order to provide the outside
board members with appropriate compensation in lieu of their cash fees through
the June 30, 1999 end of the Company's fiscal year. The Company believes that
the restricted stock awards are particularly appropriate, given the number of
board and committee meetings the directors have attended and the amount of time
board members have devoted to the Company's affairs during the past seven
months. Accordingly, at the March 31, 1999 board of directors meeting, each of
Woodley A. Allen, George Bavelis, Lynn Caruthers, Bernard Clineburg, Bassam
Ibrahim, Richard Johnson, Arthur Kellar, Harry G. Pappas, Jr. and Gerald
Zamensky was granted a restricted stock award covering 5,000 shares of the
Company common stock.
Under the terms of each grant, each of the outside director's right, title
and interest to the 5,000 shares which are the subject of his or her grant will
not vest until the third anniversary of the date of grant. No portion of the
restricted stock award will vest prior to the third anniversary unless the
following conditions are satisfied: If the Company's common stock closes at a
price of at least $4.00 per share, 25% of the shares covered by each restricted
stock award will vest immediately. If the Company's common stock closes at a
price of at least $6.00 per share, 75% of the shares covered by each restricted
stock award will vest immediately. If the Company's common stock closes at a
price of $8.00 per share, all of the shares covered by each restricted stock
award will vest immediately.
The Board of Directors awarded the restricted stock grants subject to the
Company's receipt of shareholder approval. Rules applicable to issuers, such as
the Company, whose shares are listed on the Nasdaq Stock Market, require
stockholder approval of certain issuances of voting common stock. Under these
rules, the issuance of common stock by the Company to the directors in the form
of these restricted stock awards is subject to stockholder approval.
At the Special Meeting of Shareholders, the Company is seeking approval of
the grants to each of the outside directors of the restricted stock awards
described above and the reservation of 45,000 shares of the Company's common
stock to be issued thereunder.
THE BOARD OF DIRECTORS RECOMMENDS THAT ALL SHAREHOLDERS VOTE FOR APPROVAL
---
OF THE GRANT OF THE RESTRICTED STOCK AWARDS TO THE COMPANY'S NON-EMPLOYEE
DIRECTORS.
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<PAGE>
NEW PLAN BENEFITS
Set forth in the table below are benefits or amounts that would be
received by or allocated to the persons and groups referenced for each of the
1999 Plan and the restricted stock awards being granted to outside directors.
None of the benefits or amounts that actually will be received are determinable
at this time.
<TABLE>
<CAPTION>
OUTSIDE
1999 PLAN DIRECTOR RESTRICTED
---------
STOCK AWARDS
------------
DOLLAR VALUE
OF DOLLAR VALUE
RESTRICTED RESTRICTED STOCK RESTRICTED OF RESTRICTED
NAME AND POSITION SHARES/(1)/ SHARES/(2)/ OPTIONS/(1)/ SHARES SHARES/(2)/
----------------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Charles Dunlap
President and Chief
Executive Officer 50,000 $118,750 100,000 0 0
Clifford H. Harris
Chief Financial Officer 20,000 $ 47,500 0 0 0
William F. Klumb
Vice President, Wash
Operations 10,000 $ 23,750 10,000 0 0
William E. Roller
Senior Vice President,
Manufacturing and
Distribution 20,000 $ 47,500 20,000 0 0
John T. Wiegand
Vice President,
Operations 15,000 $ 35,625 10,000 0 0
Woodley A. Allen,
Director 0 0 0 5,000 $ 11,875
George Bavelis, Director 0 0 0 5,000 $ 11,875
Lynn Caruthers, Director 0 0 0 5,000 $ 11,875
Bernard Clineburg,
Director 0 0 0 5,000
Bassam Ibrahim, Director 0 0 0 5,000 $ 11,875
Richard Johnson, Director 0 0 0 5,000 $ 11,875
Arthur Kellar, Director 0 0 0 5,000 $ 11,875
Harry G. Pappas, Jr.,
Director 0 0 0 5,000 $ 11,875
Gerald Zamensky,
Director 0 0 0 5,000 $ 11,875
Executive Group/(3)/ 125,000 $296,875 187,500 0 0
Non-Executive Director
Group 0 0 0 45,000 $106,875
Non-Executive Officer
Employee Group 0 0 140,625 0 0
</TABLE>
____________________
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<PAGE>
(1) The selection of participants under the 1999 Plan and the number of shares
of Common Stock subject to options and restricted shares granted and
awarded thereunder are at the discretion of the Company's Organization and
Compensation Committee. The number of options and restricted shares
included in the table is the number the Board of Directors granted at the
time the 1999 Plan was adopted.
(2) The dollar value is based upon the $2.375 closing price of the Company's
stock on March 31, 1999, the date on which the plan or arrangement was
adopted. The actual dollar amounts will depend upon the value of the
Company's common stock at the time shares subject to each award vest.
(3) The Executive Group consists of those individuals who are executive
officers as of the date of this Proxy Statement.
SHAREHOLDER PROPOSALS
In order for a shareholder proposal to be considered for the Company's 1999
Annual Meeting of Shareholders, it must be received by the Company at its
offices no later than July 19, 1999. All such shareholder proposals should be
mailed to the Company's headquarters and addressed to the attention of Eliot
Bowytz, Secretary. To be eligible for inclusion in next year's proxy material,
such proposals must conform to the requirements set forth in Regulation 14A
under the Securities Exchange Act of 1934, as amended. In order to be
considered at an Annual Meeting, a shareholder proposal must be presented by the
proponents or their representatives in attendance at the meeting.
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<PAGE>
APPENDIX A
PRECISION AUTO CARE, INC. 1999 EMPLOYEE
STOCK OPTION AND RESTRICTED STOCK PLAN
<PAGE>
PRECISION AUTO CARE, INC. 1999 EMPLOYEE
STOCK OPTION AND RESTRICTED STOCK PLAN
1. PURPOSE
The proper execution of the duties and responsibilities of the executives
and key employees of Precision Auto Care, Inc. (the "Corporation") and its
subsidiaries is a vital factor in the continued growth and success of the
Corporation. Toward this end, it is necessary to attract and retain effective
and capable individuals to assume positions that contribute materially to the
successful operation of the business of the Corporation and its subsidiaries.
It will benefit the Corporation, therefore, to bind the interests of these
persons more closely to its own interests by offering them an attractive
opportunity to acquire a proprietary interest in the Corporation and thereby
provide them with added incentive to remain in the service of the Corporation
and its subsidiaries and to increase the prosperity, growth, and earnings of the
Corporation. This stock option and restricted stock plan is intended to serve
these purposes.
2. DEFINITIONS
The following terms wherever used herein shall have the meanings set forth
below.
(a) The term "Award" means award of an Option or a Restricted Share under
the Plan.
(b) The term "Board of Directors" shall mean the Board of Directors of the
Corporation.
(c) The term "Change in Control of the Corporation" shall mean a change in
control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of the Regulation 14A promulgated under the Exchange Act,
whether or not the Corporation is in fact required to comply therewith, provided
that, without limitation, such a change in control shall be deemed to have
occurred if (A) any "person" (as such term is used in Section 13(d) and 14(d) of
the Exchange Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Corporation or any of its subsidiaries or
a corporation owned, directly or indirectly, by the stockholders of the
Corporation in substantially the same proportions as the ownership of Common
Stock of the Corporation, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding securities; (B) during any period of two
consecutive years (not including any period prior to the adoption of the Plan),
individuals who at the beginning of such period constitute the Board and any new
director (other than a director designated by a person who has entered into an
agreement with the Corporation to effect a transaction described in clauses (A)
or (D) of this definition) whose election by the Board or nomination for
election by the Corporation's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of the
Board; (C) the Corporation enters into an agreement, the consummation
Appendix A - Page 1
<PAGE>
of which would result in the occurrence of a Change in Control of the
Corporation; or (D) the stockholders of the Corporation approve a merger, share
exchange or consolidation of the Corporation with any other corporation, other
than a merger, share exchange or consolidation that would result in the voting
securities of the Corporation outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the combined voting power of
the voting securities of the Corporation of such surviving entity outstanding
immediately after such merger, share exchange or consolidation, or the
stockholders of the Corporation approve a plan of complete liquidation of the
Corporation or an agreement for the sale of disposition by the Corporation of
all or substantially all the Corporation's assets.
(d) The term "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder.
(e) The term "Committee" shall mean a committee to be appointed by the
Board of Directors to consist of three or more members, all of whom are members
of the Board of Directors.
(f) The term "Common Stock" shall mean the shares of common stock, par
value $0.01 per share, of the Corporation.
(g) The term "Corporation" shall mean Precision Auto Care, Inc., a Virginia
corporation.
(h) The term "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(i) The term "Fair Market Value" of the Common Stock shall be (a) the
average on the applicable date of the high and low prices of a share of Common
Stock on the principal national securities exchange on which shares of Common
Stock are then trading, or, if shares were not traded on such date, then on the
next preceding date on which a trade occurred; or (b) if Common Stock is not
traded on a national securities exchange but is quoted on the National
Association of Securities Dealers, Inc. Authorized Quotation System ("NASDAQ")
or a successor quotation system, the last reported sale price on such date as
reported by NASDAQ or such successor quotation system; or (c) if Common Stock is
not traded on a national securities exchange and is not reported in NASDAQ or a
successor quotation system, the closing bid price (or average bid prices) last
quoted on such date by an established quotation service for over-the-counter
securities; or (d) if Common Stock is not traded on a national securities
exchange, is not reported on NASDAQ or a successor quotation system and is not
otherwise publicly traded on such date, the fair market value of a share of
Common Stock as established by the Board acting in good faith and taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale or offer prices for the Common Stock in private arm's-
length transactions. During periods when the Fair Market Value of a share of
Common Stock cannot be determined under any of the methods specified in clauses
(a), (b) and (c), above, the Committee shall have the authority to establish the
Fair Market Value of the Common Stock as of the beginning of (or periodically
during) each fiscal year of the Company and to use such value for all
transactions occurring thereafter within such fiscal year.
Appendix A - Page 2
<PAGE>
(j) The term "Incentive Stock Option" shall mean any Option granted
pursuant to the Plan that is designated as an Incentive Stock Option and which
satisfies the requirements of Section 422(b) of the Code.
(k) The term "Nonqualified Stock Option" shall mean any Option granted
pursuant to the Plan that is not an Incentive Stock Option.
(l) The term "Option" or "Stock Option" shall mean a right granted pursuant
to the Plan to purchase shares of Common Stock.
(m) The term "Option Agreement" shall mean the written agreement
representing Options granted pursuant to the Plan as contemplated by Paragraph 7
of the Plan.
(n) The term "Plan" shall mean the Precision Auto Care, Inc. 1999 Employee
Stock Option and Restricted Stock Plan as originally approved by the Board of
Directors on March 31, 1999, as the same may be amended from time to time.
(o) The term "Restricted Share" means a share of Common Stock awarded under
the Plan.
(p) The term "Restricted Stock Agreement" means the agreement between the
Corporation and the recipient of a Restricted Share that contains the terms,
conditions and restrictions pertaining to such Restricted Share.
(q) The term "subsidiary" or "subsidiaries" shall mean a corporation of
which capital stock possessing 50% or more of the total combined voting power of
all classes of its capital stock entitled to vote generally in the election of
directors is owned in the aggregate by the Corporation directly or indirectly
through one or more subsidiaries.
3. EFFECTIVE DATE OF THE PLAN
The Plan shall become effective upon stockholder approval, provided that
such approval is received before the expiration of one year from the date the
Plan is approved by the Board of Directors, and provided further that the Board
of Directors may grant Options or award Restricted Shares pursuant to the Plan
prior to stockholder approval if the grant of such Options or the award of such
Restricted Shares by their terms are contingent upon subsequent stockholder
approval of the Plan.
4. ADMINISTRATION
(a) The Plan shall be administered by the Committee.
Appendix A - Page 3
<PAGE>
(b) The Committee may establish, from time to time and at any time, subject
to the approval of the Board of Directors and subject to the limitations of the
Plan as set forth herein, such rules and regulations and amendments and
supplements thereto, as it deems necessary to comply with applicable law and
regulation and for the proper administration of the Plan. A majority of the
members of the Committee shall constitute a quorum. The vote of a majority of a
quorum shall constitute action by the Committee.
(c) The Committee shall from time to time submit to the Board of Directors
for its approval the names of those key employees who, in its opinion, should
receive Awards, and shall recommend the numbers of shares on which Awards should
be granted to each such person and the nature of the Awards to be granted.
(d) Awards shall be granted by the Corporation and shall become effective
only after prior approval of the Board of Directors, and upon the execution of
an Option Agreement or a Restricted Stock Agreement, as applicable, between the
Corporation and the recipient of the Award.
(e) The Committee's interpretation and construction of the provisions of
the Plan and the rules and regulations adopted by the Committee shall be final,
unless otherwise determined by the Board of Directors. No member of the
Committee or the Board of Directors shall be liable for any action taken or
determination made, in respect of the Plan, in good faith.
5. PARTICIPATION IN THE PLAN
(a) Participation in the Plan shall be limited to the executives and key
employees of the Corporation and its subsidiaries who shall be designated by the
Committee and approved by the Board of Directors.
(b) No member of the Board of Directors who is not also an employee of the
Corporation shall be eligible to participate in the Plan.
6. STOCK SUBJECT TO THE PLAN
(a) There shall be reserved for the granting of Awards pursuant to the
Plan, and for issuance and sale pursuant to such Awards, six hundred thousand
(600,000) shares of Common Stock. To determine the number of shares of Common
Stock available at any time for the granting of Awards, there shall be deducted
from the total number of reserved shares of Common Stock, the number of shares
of Common Stock in respect of which Awards have been made pursuant to the Plan
that are still outstanding or have been exercised. The shares of Common Stock
to be issued in connection with Awards made pursuant to the Plan shall be made
available from the authorized and unissued shares of Common Stock. If for any
reason shares of Common Stock as to which an Award has been made are forfeited
or otherwise cease to be subject to purchase thereunder, then such shares of
Common Stock again shall be available for issuance in connection with Awards
made pursuant to the Plan.
Appendix A - Page 4
<PAGE>
(b) In the event of reorganization, recapitalization, stock split, stock
dividend, combination of shares of Common Stock, merger, consolidation, share
exchange, acquisition of property or stock, or any change in the capital
structure of the Corporation, the Committee shall make such adjustments as may
be appropriate, in its discretion, in the number and kind of shares reserved for
Awards and in the number, kind and price of shares covered by Awards made
pursuant to the Plan.
7. TERMS AND CONDITIONS OF OPTIONS
(a) Each Option granted pursuant to the Plan shall be evidenced by an
Option Agreement in such form as the Committee from time to time may determine.
(b) The exercise price per share for Options shall be established by the
Board of Directors upon the recommendation of the Committee at the time of the
grant of Options pursuant to the Plan and shall not be less than the Fair Market
Value of a share of Common Stock on the date on which the Option is granted. If
the Board of Directors does not establish a specific exercise price per share at
the time of grant, the exercise price per share shall be equal to the Fair
Market Value of a share of Common Stock on the date of grant of the Option.
(c) Each Option, subject to the other limitations set forth in the Plan,
may extend for a period of up to 10 years from the date on which it is granted.
The term of each Option shall be determined by the Board of Directors at the
time of grant of the Option, provided that if no term is established by the
Board of Directors, the term of the Option shall be 10 years from the date on
which it is granted.
(d) The Board of Directors, upon recommendation of the Committee, may
provide in the Option Agreement that the right to exercise each Option for the
number of shares subject to each Option shall vest in the Option holder over
such period of time as the Committee, in its discretion, shall determine for
each Option holder. If the Committee does not designate a vesting schedule, the
Option granted to the Option holder shall not be exercisable until three years
after the date of grant, at which time the Option will be fully exercisable.
Notwithstanding the foregoing, each Option Agreement shall provide that upon the
occurrence of a Change in Control of the Corporation, all Options then
outstanding shall become immediately exercisable; except that (i) in the case of
an Incentive Stock Option, the acceleration of exercisability shall not occur
without the Optionee's written consent; and (ii) if the Corporation and the
other party to the transaction constituting a Change in Control of the
Corporation agree that such transaction is to be treated as a "pooling of
interests" for financial reporting purposes, and if such transaction in fact is
so treated, then the acceleration of exercisability shall not occur to the
extent that the Corporation's independent accountants and such other party's
independent accountants each determine in good faith that such acceleration
would preclude the use of "pooling of interests" accounting.
(e) Options shall be nontransferable and nonassignable, except that Options
may be transferred by testamentary instrument or by the laws of descent and
distribution.
Appendix A - Page 5
<PAGE>
(f) Upon voluntary or involuntary termination of an Option holder's active
employment for any reason (including illness or disability), his Option and all
rights thereunder shall terminate effective at the close of business on the date
the Option holder ceases to be an active, regular employee of the Corporation or
any of its subsidiaries, except (i) to the extent previously exercised and (ii)
as provided in subparagraphs (g), (h) and (i) of this Paragraph 7.
(g) In the event an Option holder (i) takes a leave of absence from the
Corporation or any of its subsidiaries for personal reasons or as a result of
entry into the armed forces of the United States, or any of the departments or
agencies of the United States government or (ii) terminate his employment or
ceases providing services to the Corporation and any of its subsidiaries, by
reason of illness, disability, voluntary termination with the consent of the
Committee, or other special circumstances, the Committee may consider his case
and may take such action in respect of the related Option Agreement as it may
deem appropriate under the circumstances, including accelerating the time
previously granted Options may be exercised and extending the time following the
Option holder's termination of active employment during which the Option holder
is entitled to purchase the shares of Common Stock subject to such Options,
provided that in no event may any Option be exercised after the expiration of
the term of the Option.
(h) If an Option holder dies during the term of his Option without having
fully exercised his Option, the executor or administrator of his estate or the
person who inherits the right to exercise the Option by bequest or inheritance
shall have the right within ninety (90) days of the Option holder's death to
purchase the number of shares of Common Stock that the deceased Option holder
was entitled to purchase at the date of his death, after which the Option shall
lapse, provided that in no event may any Option be exercised after the
expiration of the term of the Option.
(i) If an Option holder terminates employment without his having fully
exercised his Option due to his retirement with the consent of the Corporation,
then such Option holder shall have the right within ninety (90) days of the
Option holder's termination of employment to purchase the number of shares of
Common Stock that the Option holder was entitled to purchase at the date of his
termination, after which the Option shall lapse, provided that in no event may
any Option be exercised after the expiration of the term of the Option. The
Committee may cancel an Option during the ninety-day period referred to in this
paragraph, if the Participant engages in employment or activities contrary, in
the opinion of the Committee, to the best interests of the Corporation. The
Committee shall determine in each case whether a termination of employment shall
be considered a retirement with the consent of the Corporation, and, subject to
applicable law, whether a leave of absence shall constitute a termination of
employment. Any such determination of the Committee shall be final and
conclusive, unless overruled by the Board.
(j) The granting of an Option pursuant to the Plan shall not constitute or
be evidence of any agreement or understanding, express or implied, on the part
of the Corporation or to retain or employ the Option holder for any specified
period.
Appendix A - Page 6
<PAGE>
(k) In addition to the general terms and conditions set forth in this
Paragraph 7 in respect of Options granted pursuant to the Plan, Incentive Stock
Options granted pursuant to the Plan shall be subject to the following
additional terms and conditions:
(i) "Incentive stock options" shall be granted only to individuals
who, at the date of grant of the Option, are regular, full-time
employees of the Corporation or any of its subsidiaries;
(ii) No employee who owns beneficially more than 10% of the total
combined voting power of all classes of stock of the
Corporation shall be eligible to be granted an "incentive stock
option", unless the exercise price per share is at least 110%
of the Fair Market Value of the Common Stock subject to the
Option on the date of grant of the Option and the Option, by
its terms, is not exercisable after the expiration of five
years from the date the Option is granted.
(iii) To the extent that aggregate fair market value (determined at
the time the Option is granted) of the shares of Common Stock
in respect of which an Option is exercisable for the first time
by the Option holder during any calendar year (and taking into
account all "incentive stock option" plans of the Corporation
and its subsidiaries) exceeds $100,000, that number of whole
shares for which an option issued hereunder is exercisable with
an aggregate fair market value in excess of this $100,000 limit
shall not be treated as having been granted under an "incentive
stock option"; and
(iv) Any other terms and conditions specified by the Board of
Directors that are not inconsistent with the Plan, except that
such terms and conditions must be consistent with the
requirements for "incentive stock options" under Section 422 of
the Code.
8. METHODS OF EXERCISE OF OPTIONS
(a) An Option holder (or other person or persons, if any, entitled to
exercise an Option hereunder) desiring to exercise an Option granted pursuant to
the Plan as to all or part of the shares of Common Stock covered by the Option
shall (i) notify the Corporation in writing at its principal office at 748
Miller Drive, S.E., Leesburg, Virginia 20175 to that effect, specifying the
number of shares of Common Stock to be purchased and the method of payment
therefor, and (ii) make payment or provisions for payment for the shares of
Common Stock so purchased in accordance with this Paragraph 8. Such written
notice may be given by means of a facsimile transmission. If a facsimile
transmission is used, the Option holder should mail the original executed copy
of the written notice to the Corporation promptly thereafter.
(b) Payment or provision for payment shall be made as follows:
Appendix A - Page 7
<PAGE>
(i) The Option holder shall deliver to the Corporation at the
address set forth in subparagraph 8(a), United States currency
in an amount equal to the aggregate purchase price of the shares
of Common Stock as to which such exercise relates; or
(ii) The Option holder shall tender to the Corporation shares of
Common Stock already owned by the Option holder that, together
with any cash tendered therewith, have an aggregate fair market
value (determined based on the Fair Market Value of a share of
Common Stock on the date the notice set forth in subparagraph
8(a) is received by the Corporation) equal to the aggregate
purchase price of the shares of Common Stock as to which such
exercise relates; or
(iii) The Option holder shall deliver to the Corporation an exercise
notice together with irrevocable instructions to a broker to
deliver promptly to the Corporation the amount of sale or loan
proceeds necessary to pay the aggregate purchase price of the
shares of Common Stock as to which such exercise relates and to
sell the shares of Common Stock to be issued upon exercise of
the Option and deliver the cash proceeds, less commissions and
brokerage fees to the Option holder or to deliver the remaining
shares of Common Stock to the Option holder.
Notwithstanding the foregoing provisions, the Committee and the Board
of Directors, in granting Options pursuant to the Plan, may limit the methods in
which an Option may be exercised by an person and, in processing any purported
exercise of an Option granted pursuant to the Plan, may refuse to recognize the
method of exercise selected by the Option holder (other than the method of
exercise set forth in subparagraph 8(b)(i)).
(c) In addition to the alternative methods of exercise set forth in
subparagraph (b), holders of Nonqualified Stock Options shall be entitled, at or
prior to the time the written notice provided for in subparagraph 8(a) is
delivered to the Corporation, to elect to have the Corporation withhold from the
shares of Common Stock to be delivered upon exercise of the Nonqualified Stock
Option that number of shares of Common Stock (determined based on the Fair
Market Value of a share of Common Stock on the date the notice set forth in
subparagraph 8(a) is received by the Corporation) necessary to satisfy any
withholding taxes attributable to the exercise of the Nonqualified Stock Option.
Alternatively, such holder of a Nonqualified Stock Option may elect to deliver
previously owned shares of Common Stock upon exercise of the Nonqualified Stock
Option to satisfy any withholding taxes attributable to the exercise of the
Nonqualified Stock Option. If the Board of Directors does not include any
provisions relating to this withholding feature in its resolutions granting the
Nonqualified Stock Option or in the Option Agreement, however, the maximum
amount that an Option holder may elect to have withheld from the shares of
Common Stock otherwise deliverable upon exercise or the maximum number of
previously owned shares an Option holder may deliver shall be equal to the
minimum federal and state withholding. Notwithstanding the foregoing
provisions, the Committee or the Board of Directors may include in the
Appendix A - Page 8
<PAGE>
Option Agreement relating to any such Nonqualified Stock Option provisions
limiting or eliminating the Option holder's ability to pay his withholding tax
obligation with shares of Common Stock or, if no such provisions are included in
the Option Agreement but in the opinion of the Committee or the Board of
Directors such withholding would have an adverse tax, accounting or other effect
to the Corporation, at or prior to exercise of the Nonqualified Stock Option,
the Committee or the Board of Directors may so limit or eliminate the Option
holder's ability to pay his withholding tax obligation with shares of Common
Stock. Notwithstanding the foregoing provisions, a holder of a Nonqualified
Stock Option may not elect any of the methods of satisfying his withholding tax
obligation in respect of any exercise if, in the opinion of counsel to the
Corporation, such method would not be in compliance with all applicable laws and
regulations.
(d) An Option holder at any time may elect in writing to abandon an Option
in respect of all or part of the number of shares of Common Stock as to which
the Option shall not have been exercised.
(e) An Option holder shall have none of the rights of a stockholder of the
Corporation until the shares of Common Stock covered by the Option are issued to
him upon exercise of the Option.
9. TERMS AND CONDITIONS OF RESTRICTED SHARE AWARDS.
(a) Each award of Restricted Shares under the Plan shall be evidenced by a
Restricted Stock Agreement between the recipient and the Corporation. Such
Restricted Shares shall be subject to all applicable terms of the Plan and may
be subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Restricted Stock Agreements entered into under the
Plan need not be identical.
(b) Restricted Shares may be sold or awarded under the Plan for such
consideration as the Committee may determine, including (without limitation)
cash, cash equivalents, full-recourse promissory notes, past services and future
services; provided, however, that to the extent that an Award consists of newly
issued Restricted Shares, the Award recipient shall furnish consideration with a
value not less than the par value of such Restricted Shares in the form of cash
equivalents or past services rendered to the Corporation or its subsidiaries, as
the Committee may determine.
(c) Each award of Restricted Shares may or may not be subject to vesting.
Vesting shall occur, in full or in installments, upon satisfaction of the
conditions specified in the Restricted Stock Agreement. A Restricted Stock
Agreement may provide for accelerated vesting in the event of the Participant's
death, disability or retirement or other events. Notwithstanding the foregoing,
each Restricted Stock Agreement shall provide that all Restricted Stock Shares
subject to the agreement shall become fully vested in the event that a Change in
Control occurs with respect to the Corporation, except if the Corporation and
the other party to the transaction constituting a Change in Control of the
Corporation agree that such transaction is to be treated as a "pooling of
interests" for financial reporting purposes, and if such transaction in fact is
so treated, then the acceleration of vesting shall not occur to the extent that
the Corporation's independent accountants and such other
Appendix A - Page 9
<PAGE>
party's independent accountants each determine in good faith that such
acceleration would preclude the use of "pooling of interests" accounting.
(d) The holders of Restricted Shares awarded under the Plan shall have the
same voting, dividend and other rights as the Corporation's other stockholders.
A Restricted Stock Agreement, however, may require that the holders of
Restricted Shares invest any cash dividends received in additional Restricted
Shares. Such additional Restricted Shares shall be subject to the same
conditions and restrictions as the Award with respect to which the dividends
were paid.
10. AMENDMENTS AND DISCONTINUANCE OF THE PLAN
The Board of Directors shall have the right at any time and from time to
time to amend, modify, or discontinue the Plan provided that, except as provided
in subparagraph 6(c), no such amendment, modification, or discontinuance of the
Plan shall (i) revoke or alter the terms of any Award previously granted
pursuant to the Plan, (ii) increase the number of shares of Common Stock to be
reserved for issuance and sale pursuant to Awards granted pursuant to the Plan,
(iii) change the maximum aggregate number of shares of Common Stock that may be
issued upon or in connection with Awards granted pursuant to the Plan to any
single individual, (iv) decrease the price determined pursuant to the provisions
of subparagraph 7(b), (v) change the class of persons to whom Awards may be made
pursuant to the Plan, or (vi) provide for Options exercisable more than 10 years
after the date granted.
11. PLAN SUBJECT TO GOVERNMENTAL LAWS AND REGULATIONS
The Plan and the terms of the Awards made pursuant to the Plan shall be
subject to all applicable governmental laws and regulations. Notwithstanding
any other provision of the Plan to the contrary, the Board of Directors may in
its sole and absolute discretion make such changes in the Plan as may be
required to conform the Plan to such laws and regulations.
12. DURATION OF THE PLAN
No Awards may be made pursuant to the Plan after the close of business on
March 31, 2009.
Appendix A - Page 10
<PAGE>
[Precision Auto Care, Inc. Logo appears here]
The undersigned hereby appoints Charles L. Dunlap, Clifford Harris and
________________ and each of them as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and vote, as set forth
below, all the shares of Common Stock of Precision Auto Care, Inc., held of
record by the undersigned on April 14, 1999, at the Special Meeting of
Shareholders to be held on May 25, 1999, or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 and 3.
1. Approval of the issuance of Common Stock by the Company in payment of
interest and a financing fee in connection with a $5,000,000 Subordinated
Debenture due May 25, 1999.
_________FOR _________AGAINST __________ABSTAIN
2. Approval of the adoption of the 1999 Employee Stock Option and Restricted
Stock Plan and the reservation of the 600,000 shares of Common Stock for
issuance thereunder.
_________FOR __________AGAINST ____________ABSTAIN
3. Approval of the grant of restricted stock awards to the non-employee members
of the Company's Board of Directors.
_________FOR __________AGAINST ____________ABSTAIN
Please sign your name(s) on reverse side
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, IF PROPERLY
EXECUTED, IT WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1,
2 AND 3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
Please sign your name exactly as it appears hereon. If shares are held jointly,
all holders must sign. When signing in a fiduciary or representative capacity
(attorney, executor, administrator, trustee, guardian, officer of corporation,
etc.) please give full title as such. The signer hereby revokes all proxies
heretofore given by the signer to vote at such meeting or and adjournment
thereof.
Dated _____________, 19__ -----------------------------------
Signature
-----------------------------------
Signature
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
