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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
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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)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 12, 2000
The Annual Meeting of Shareholders of Precision Auto Care, Inc. (the "Company")
for 1999 will be held at the Company's headquarters located as 748 Miller Drive,
S.E., Leesburg, Virginia on April 12, 2000 at 11:00 a.m., for the following
purposes:
1. To elect three Class II Directors to serve for a term of three years;
2. To consider approval of the issuance of 71, 111 shares of Common Stock
by the Company in payment of interest in connection with a $2,000,000
Subordinated Debenture due September 30, 2000;
3. To consider approval of the adoption of the 2000 Outside Directors'
Stock Plan and the reservation of 50,000 shares for issuance
thereunder;
4. To consider approval of the appointment of Ernst & Young LLP as
independent auditors for the fiscal year ending June 30, 2000; and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only holders of shares of Common Stock of record on the books of the
Company at the close of business February 23, 2000 will be entitled to notice of
and to vote at the 1999 Annual Meeting or any adjournment thereof.
You are cordially invited to be present at the Annual 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 G. Bowytz
Vice President, General Counsel
and Secretary
748 Miller Drive, S.E
Leesburg, Virginia 20175
March 1, 2000
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PRECISION AUTO CARE, INC.
748 MILLER DRIVE, S.E.
LEESBURG, VIRGINIA 20175
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
APRIL 12, 2000
INFORMATION CONCERNING TIMING OF THE MEETING, 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 1999 Annual Meeting
of Shareholders of the Company to be held on the 12th day of April, 2000,
commencing at 11:00 a.m., or at any adjournment thereof, pursuant to the
accompanying notice of said meeting. The 1999 Annual 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 Annual Meeting on or about March 1,
2000.
This is the second Annual Meeting the Company has held since its formation and
initial public offering. While the 1998 fiscal year ended June 30, 1998, due to
unforeseen circumstances the Annual Meeting for 1998 was delayed and was not
held until January 27, 1999. Similarly, certain circumstances prevented the
Annual Meeting for 1999 from being held last year. As a result, the Company
expects to hold two Annual Meetings this year. The Annual Meeting for 2000 is
expected to be held in October or November 2000.
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 by the
proxy holders as directed by management.
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 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.
VOTING RIGHTS AND OUTSTANDING SHARES
Only shareholders of record on the books of the Company at the close of business
on February 23, 2000 will be entitled to notice of and to vote at the Annual
Meeting. As of that date, there were ____________ shares of Common Stock issued
and outstanding and entitled to vote. Each share of Common Stock is entitled to
one vote for each matter submitted to the shareholders for approval.
A majority of the outstanding shares entitled to vote must be present in person
or represented by proxy at the 1999 Annual Meeting to constitute a quorum.
Abstentions and shares of record held by a broker or its nominee ("Broker
Shares") that are voted on any matter at the meeting, will be counted for
purposes of determining if a quorum exists. Broker Shares that are not voted on
any matter at the meeting will not be included in determining whether a quorum
is present.
The election of each nominee for Class II Director requires the affirmative vote
of the holders of the shares representing a plurality of the votes cast in the
election of the Class II Directors. Votes that are withheld and Broker Shares
that are not voted in the election of the Class II Directors will not be
included in determining the number of votes cast and, therefore, will have no
effect on the election of the Class II Directors.
Actions on all other matters to come before the 1999 Annual Meeting, including
the approval of the issuance of Common Stock in payment of interest on the
subordinated debt, the approval of the Outside Directors' Stock Plan, and the
approval of the appointment of the Company's independent auditors require that
the votes cast in favor of the action exceed the votes cast against it.
Abstentions and Broker Shares that are not voted are not considered cast either
for or against a matter and, therefore will have no effect on the outcome of the
other matters to come before the 1999 Annual Meeting.
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ITEM 1: ELECTION OF CLASS II DIRECTORS
The Company's Articles of Incorporation classifies the Board of Directors into
three classes, as nearly equal in number as possible, with terms which expired
or will expire at the Annual Meetings of Shareholders in 1998, 1999, and 2000,
respectively. After the initial rotation is complete, one class of directors
will be elected at each subsequent Annual Meeting of Shareholders to serve
three-year terms.
The terms of three directors will expire at the 1999 Annual Meeting: Messrs.
Allen, Ibrahim, and Kellar ("Class II Directors"). One Class II Director, Gerald
Zamensky, resigned on February 2, 2000. The Class II Director nominees have been
nominated for election for a three-year term expiring at the 2002 Annual
Meeting.
Class I Director, Harry G. Pappas, Jr. resigned on October 25, 1999. Class I
Director, Richard O. Johnson, and Class III Director, Effie L. Eliopulos,
resigned on February 2, 2000. At a meeting held on February 2, 2000, the Board
of Directors elected Mr. Mauricio Zambrano as Mr. Johnson's successor and Ernest
S. Malas as Ms. Eliopulos' successor. Mr. Zambrano's term will expire at the
Annual Meeting for 2001and Mr. Malas' term will expire at the Annual Meeting for
2000. The Board of Directors decided not to fill the vacancies created by the
resignations of Mr. Pappas and Mr. Zamensky. Also at the February 2 Board
meeting, Lynne E. Caruthers resigned from her positions as Chairperson of the
Board and Chairperson of the Executive Committee. She will continue to serve as
a Class III Director. Mr. Woodley Allen was elected to succeed Ms. Caruthers in
both capacities. In addition, Mr. Allen decided to step down as Chairman of the
Audit Committee and Mr. George Bavelis was elected to succeed him. Dates of
service listed below include service with predecessors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE CLASS II DIRECTOR
NOMINEES LISTED BELOW.
CLASS II DIRECTOR NOMINEES FOR TERMS EXPIRING AT THE ANNUAL MEETING FOR 2002
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION ADDITIONAL INFORMATION
- ---- -------------------- ----------------------
<S> <C> <C>
Woodley A. Allen President, Allen Management Mr. Allen served as Chief Financial Officer of EZ
Director since 1991 Services, Oakton, VA Communications, Inc. from March 1973 to May 1992.
Chairman of the Board; (management consulting
Chairman - Executive Committee firm)
Age 52
Bassam N. Ibrahim(3) Partner, Burns, Doane, From June 1994 to August 1996, Mr. Ibrahim was with Popham,
Director since 1993 Swecker & Mathis, LLP, Haik, Schnobrich & Kaufman. From June 1990 to June 1994, Mr.
Age 37 Alexandria, VA (law firm) Ibrahim was with Mason, Fenwick & Lawrence.
Arthur Kellar(1)(2) Retired Mr. Kellar served as Chairman of the Board of WE JAC
Director since 1991 Corporation, the Company's predecessor, from April 1992 to
Chairman-Organization and September 1994. Mr. Kellar served as Chairman of the Board of
Compensation Committee EZ Communications, Inc. from June 1992 to April 1997.
Age 77
</TABLE>
CLASS III DIRECTORS WHOSE TERMS EXPIRING AT THE ANNUAL MEETING FOR 2000
<TABLE>
<S> <C> <C>
Lynn E. Caruthers(3) General Partner, Ms. Caruthers has served as Chairperson of the Board of WE JAC
Director since 1991 Caruthers Properties, Ltd., Corporation, the Company's predecessor, since September 1994.
Age 47 Arlington, VA (commercial
real estate developer)
William R. Klumb Vice President, Mr. Klumb previously served as Vice President of Operations
Director since 1997 Car Wash Division of the Car Wash Division since November 1997. Prior to that,
Age 41 he was the founder and President of certain predecessor companies
engaged in the car wash business.
Bernard H. Clineburg(1) Retired From April 1998 until December 1999, Mr. Clineburg served as the
since 1993 President of United Director Bankshares and Chairman and CEO of
Age 50 United Bank. He was a Director of George Mason Bankshares, Inc. and
The George Mason Bank from October 1990 to April 1998.
Ernest S. Malas General Partner, Magna Mr. Malas previously served as Senior Vice President of the Company
New Director in 2000 Properties, Columbus, OH from July 1998 to October 1998. Mr. Malas currently serves as an
Age 34 (real estate development) independent consultant to the Company. He also serves as a director
of Sterling Bank Group.
</TABLE>
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CLASS I DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING FOR 2001
<TABLE>
<S> <C> <C>
Charles L. Dunlap(1) President and Chief Mr. Dunlap previously served as President, Chief Operating
Director since 1998 Executive Officer Officer and Director of Crown Central Petroleum Corporation.
Age 56 He is also a former director of the Clipper Group, a wholly-
owned subsidiary of Credit Swisse-First Boston
George A. Bavelis(1) Chairman, President and Mr. Bavelis has served as Chairman and President of Coin Op.
Director since 1997 Chief Executive Officer, Vending Co. since 1983. He also serves as Chairman of the Board
Chairman - Finance and Pella Co., Columbus, OH of Sterling Bancorp and a Director of Heartland Bancorp.
Audit Committee (real estate development
Age 62 firm)
Mauricio Zambrano Vice President, Dessarollo Mr. Zambrano serves as a director of Cemex, S.A. de C.V.
New Director in 2000 Integrado, S.A. de C.V.
Age 53 Monterey, Mexico
</TABLE>
(1) Member -- Executive Committee
(2) Member -- Finance and Audit Committee
(3) Member -- Organization and Compensation Committee
MEETINGS AND COMMITTEES OF THE BOARD
The Company has three standing Committees of the Board of Directors: (i) the
Executive Committee; (ii) the Finance and Audit Committee; and (iii) the
Organization and Compensation Committee. The Board of Directors does not have a
Nominating Committee. The Board of Directors of the Company held 13 meetings, 7
of which were special meetings, during the fiscal year ended June 30, 1999. With
the exception of Messrs. Kellar and Clineburg, all directors attended at least
75% of the aggregate number of meetings of the Board of Directors and Committees
on which they served. Overall attendance at such meetings was 85%.
The Executive Committee has the power and authority of the Board of Directors
and meets several times during the year in months when the Board of Directors
does not meet. Mr. Allen was recently elected Chairman of the Executive
Committee. Messrs. Dunlap, Bavelis, Clineburg and Kellar serve as members.
During the fiscal year ended June 30, 1999, the Executive Committee met four
times and Ms. Caruthers served as Chairperson.
The Finance and Audit Committee makes recommendations regarding the engagement
of the Company's independent auditors, reviews the arrangement and scope of the
audit, considers comments made by the independent auditors with respect to the
adequacy of the Company's internal accounting controls, and reviews non-audit
services provided by the firm. Mr. Bavelis was recently elected Chairman of the
Audit and Finance Committee. Mr. Kellar also serves as a member of the
Committee. During the fiscal year ended June 30, 1999, the Finance and Audit
Committee met three times and Mr. Allen served as Chairman. Mr. Pappas, prior to
his resignation, also served on this Committee.
The Organization and Compensation Committee reviews and approves (or recommends
to the full Board) the annual salary, bonus and other benefits of senior
management of the Company; reviews and makes recommendations to the Board
relating to executive compensation and plans; and establishes, and periodically
reviews, the Company's policy with respect to management perquisites. Mr. Kellar
serves as Chairman and Ms. Caruthers and Mr. Ibrahim serve on the Organization
and Compensation Committee. During the fiscal year ended June 30, 1999, the
Organization and Compensation Committee met two times.
COMPENSATION OF DIRECTORS
Directors who are employees receive no additional compensation for serving as
directors. The Company's cash flow difficulties had an impact on the
compensation of non-employee directors during the fiscal year ended June 30,
1999. The Company's policy had been for non-employee directors to receive: (i)
$1,000 for each Board of Directors meeting attended in person; (ii) $500 for
each Board of Directors meeting attended via telephone; and (iii) for members of
Board Committees, $200 for each Committee meeting attended. In October 1998, the
Board decided to suspend payment of such fees. In addition the Board determined
to suspend the grant of options under the 1998 Outside Directors' Stock Option
Plan. In March 1999, the non-employee directors agreed to forgo payment of all
fees owed for the fiscal year ended June 30, 1999. However, in lieu of such cash
fees, the Board granted restricted stock awards of 5,000 shares of the Company's
Common Stock to each of the following non-employee directors: Woodley A. Allen;
George A. Bavelis; Lynn E. Caruthers; Bernard Clineburg; Bassam N. Ibrahim;
Richard O. Johnson; Arthur Kellar; Harry G. Pappas, Jr.; and Gerald A. Zamensky.
Under the terms of each grant, each outside director's right, title and interest
to the 5,000 shares will not vest until the third anniversary of the grant
(i.e., March 2002). No portion of the restricted stock award will vest and no
shares will be issued prior to the third anniversary unless the following
conditions are satisfied: (a) if the Company's stock price closes at $4.00 per
share, 25% of the shares will become vested; (b) if the Company's stock price
closes at $6.00 per share, 75% will become vested; and
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(c) if the Company's stock price closes at $8.00 per share, 100% of the shares
will become vested. Each of the above-named directors (including Messrs.
Johnson, Pappas and Zamensky who have since resigned as directors) were issued
1,250 shares of Common Stock in September 1999 under the terms of their
restricted stock awards because the share price of the Common Stock had closed
at above $4.00. The Board recently decided to reinstate the grant of options
under the 1998 Outside Director's Stock Option Plan. Therefore, following the
Annual Meeting for 1999, each outside director who has served as a director of
the Company for at least one year as of that date will be granted an option to
purchase 2,500 shares of the Company's Common Stock. Those directors who have
served less than one year shall receive an option for a prorated portion of
2,500 shares based on their terms of service as determined by the Compensation
Committee. In addition, the Board has adopted the 2000 Outside Directors' Stock
Plan, subject to final approval by shareholders. The new plan will provide for
the grant of stock in the amount of $1,000 to each outside director attending a
meeting of the Board of Directors in person. Grants under the new plan will
commence as soon as the underlying stock has been registered with the SEC. If
the Outside Directors' Stock Plan is approved by shareholders at the 1999 Annual
Meeting, the compensation of outside directors will thereafter consist of a
grant of 2,500 options on the date of each annual meeting of shareholders (under
the Outside Directors' Stock Option Plan) and the grant of $1,000 worth of stock
for each Board meeting attended in person (under the Outside Directors' Stock
Plan).
Mr. Woodley Allen is due to be paid $10,000 per month for his services as a
special financial consultant to the Company from December 1998 through January
1999. In addition, in December 1998, the Board of Directors awarded Mr. Allen an
option to purchase 10,000 restricted shares of the Company's Common Stock with
an exercise price of $3.625. The underlying shares are not registered under the
federal securities laws. The option expires December 31, 2008.
EXECUTIVE COMPENSATION
REPORT OF THE ORGANIZATION AND COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee of the Board of Directors, which is
composed of outside directors of the Company, is responsible for developing and
recommending to the Board of Directors the Company's general compensation
policies. The Committee approves the compensation plans for the Company's
executive officers, including the Chief Executive Officer (CEO), and determines
the compensation to be paid to the executive officers. The Organization and
Compensation Committee also is responsible for the granting of stock options and
restricted stock awards to the executive officers and the administration of the
Company's various incentive compensation plans.
The Organization and Compensation Committee has furnished the following report
for fiscal year 1999:
COMPENSATION PHILOSOPHY. The Company's philosophy with respect to executive
compensation is reflective of the principle that the compensation of its
executive officers should be competitive with compensation of senior executives
at comparable companies, and that a meaningful portion of the compensation
received should be closely tied to the performance of the Company and, in
certain instances, to the achievement of individual goals. Through this link
between pay and performance, it is the intent of the Company to provide direct
incentives for the Company's financial success and the creation of incremental
shareholder value.
EXECUTIVE OFFICER COMPENSATION. The key components of compensation for the
executive officers consist of annual compensation provided by base salary and
annual performance bonuses, and long-term compensation provided by stock options
and restricted stock awards.
None of the executive officers were paid a cash bonus based upon fiscal 1999
performance.
Members of the Committee believe they have a general awareness of pay practices
among companies of roughly comparable size, complexity, and/or industry focus.
In addition, in setting the compensation for the former President and Chief
Executive Officer in 1998, an unrelated third party was engaged to review
compensation for this position at comparable companies. Based upon the
Committee's general knowledge and the commissioned study, it is believed that
the Company's compensation levels are generally commensurate with those of
similar companies. Other than as indicated above, compensation of the executive
officers is a subjective determination and has not been determined by reference
to any specific criteria or factors related to corporate performance.
STOCK OPTIONS. Stock options are granted to executive officers, as well as other
employees, based upon the subjective evaluation of employees' general overall
performance and upon their relative rank within the Company. No specific
performance criteria are considered, and there is no fixed formula for
differentiating the number of options granted to an individual or to all
employees in the aggregate. The Company's approach to long-term incentives
provided by stock options has been a flexible one, in which the effort is to
attract and retain able key employees by giving them an opportunity for stock
ownership. A total of 560,875 options were awarded in fiscal 1999. These options
generally vest in three equal installments commencing one year from the
anniversary. Options granted in March 1999 also include an acceleration of
vesting provision whereby, to the extent not previously vested, 25% of the
options will vest when the Company's stock price closes at $4.00 per share, 75%
will vest when the stock price closes at $6.00 per share, and
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100% will vest when the stock price closes at $8.00 per share.
RESTRICTED STOCK AWARDS. Upon the adoption of the 1999 Employee Stock Option and
Restricted Stock Plan in March 1999, certain executive officers were granted
restricted stock awards for shares of the Company's Common Stock including:
Charles Dunlap -- 50,000 shares; and William F. Klumb - 20,000 shares. Under the
terms of each grant, each executive officer's right, title and interest to the
shares of Common Stock awarded will not vest until the third anniversary of the
grant (i.e., March 2002). No portion of the restricted stock award will vest and
no shares will be issued prior to the third anniversary unless the following
conditions are satisfied: (a) if the Company's stock price closes at $4.00 per
share, 25% of the shares will become vested; (b) if the Company's stock price
closes at $6.00 per share, 75% will become vested; and (c) if the Company's
stock price closes at $8.00 per share, 100% of the shares will become vested. In
September 1999, Messrs. Dunlap and Klumb were issued 12,500 shares and 5,000
shares of Common Stock, respectively under the terms of their restricted stock
awards because the share price of the Common Stock had closed at above $4.00.
COMPENSATION OF THE CURRENT CHIEF EXECUTIVE OFFICER. Charles L. Dunlap, the
current President and Chief Executive Officer, joined the Company on October 21,
1998. His compensation package, including salary and the grant of stock options,
was established by the Organization and Compensation Committee and is consistent
with the Company's philosophy for executive compensation set out above. The
Committee relied on the previously mentioned study and their general knowledge
and business judgment in setting Mr. Dunlap's compensation. Mr. Dunlap's base
salary for the fiscal year ended June 30, 1999 was $200,000.
In October 1998, Mr. Dunlap was granted an option to purchase 100,000 shares of
the Company's Common Stock with an exercise price of $4.25. The options vest in
three equal installments commencing one year from the date of the grant. The
options expire on October 21, 2008.
In March 1999, Mr. Dunlap was granted an option to purchase 100,000 shares of
the Company's Common Stock with an exercise price of $2.375. The options vest in
three equal installments commencing one year from the date of the grant. In
addition, these options include an acceleration of vesting provision whereby, to
the extent not previously vested, 25% of the options will vest when the
Company's stock price closes at $4.00 per share, 75% will vest when the stock
price closes at $6.00 per share, and 100% will vest when the stock price closes
at $8.00 per share. The options expire on March 31, 2009.
Also in March 1999, Mr. Dunlap was granted a restricted stock award of 50,000
shares of the Company's Common Stock. Under the terms of the grant, Mr. Dunlap's
right, title and interest to the shares of Common Stock awarded will not vest
until the third anniversary of the grant (i.e., March 2002). No portion of the
restricted stock award will vest and no shares will be issued prior to the third
anniversary unless the following conditions are satisfied: (a) if the Company's
stock price closes at $4.00 per share, 25% of the shares will become vested; (b)
if the Company's stock price closes at $6.00 per share, 75% will become vested;
and (c) if the Company's stock price closes at $8.00 per share, 100% of the
shares will become vested. In September 1999, Mr. Dunlap was issued 12,500
shares of Common Stock under the terms of his restricted stock awards because
the share price of the Common Stock had closed at above $4.00.
The Board of Directors in September 1999 approved a bonus retention program
whereby certain key executive officers would receive bonuses to be paid in the
event of a sale, merger or change of control of the Company which includes a
change in ownership of 50% or more. Upon the happening of an event described
above, Mr. Dunlap would be entitled to 100% of his salary, which in September
1999 was increased to $250,000 per annum.
The Committee believes its approach to compensation for the President and Chief
Executive Officer is consistent with the Company's ongoing effort to achieve a
responsible balance between short-term and long-term performance for the Company
and its shareholders, and to provide compensation incentives for its senior
executives that encourage those results.
TAX COMPLIANCE POLICY. Section 162(m) of the Internal Revenue Code generally
limits to $1 million the tax deductible compensation paid to a company's Chief
Executive Officer and to each of the four highest-paid executives employed as
executive officers on the last day of the fiscal year. However, the limitation
does not apply to performance-based compensation provided certain conditions are
satisfied. The Committee does not anticipate that in the foreseeable future any
officer of the Company will earn compensation in excess of $1 million that would
not qualify as performance-based compensation. Therefore, the Committee has not
yet determined a policy with respect to Section 162(m). The Committee intends to
review the implications of Section 162(m) when it becomes more relevant with
respect to the Company's executive compensation policies.
All members of the Organization and Compensation Committee concur in this
report to the shareholders.
The Organization and Compensation Committee
Arthur Kellar, Chairman
Lynn E. Caruthers
Bassam N. Ibrahim
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SUMMARY COMPENSATION TABLE
The table below sets forth the compensation earned and paid to each Named
Executive Officer (including certain former executive officers of the Company)
who earned $100,000 or more during the periods presented. Amounts shown for a
portion of 1997 represent compensation for employment by WE JAC Corporation, the
Company's predecessor. Options grants shown for 1997 and a portion of 1998
represent grants by WE JAC Corporation which were assumed by the Company in
connection with the IPO Combination.
<TABLE>
<CAPTION>
Restricted Securities
Other Annual Stock Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Awards Options Compensation(1)
- --------------------------- ---- ------ ----- ------------ ------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles L. Dunlap................ 1999 $131,538(2) $118,750(3) 200,000 $ 1,615
President and Chief Executive
Officer
John F. Ripley.................... 1999 $108,702(4) $80,000(5)
Former President and 1998 199,654 $100,000 87,762 279
Chief Executive Officer 1997 181,734 63,438 100,000
Jaime Valdes...................... 1999 $120,000 25,000
Senior Vice President 1998 21,250(6) 25,000
Latin America
James A. Hay...................... 1999 $137,185(7) $13,526(8)
Former Executive V.P., 1998 117,692 $15,000(9) 35,000 323
North America
Arnold Janofsky................... 1999 $117,623(10) $11,643(11)
Former Senior Vice President 1998 127,308 $ 9,646 3,500 600
and General Counsel 1997 117,269 4,000
</TABLE>
(1) Amounts represent the Company's matching contributions to the 401(k)
Savings Plan and severance payments as indicated below.
(2) Mr. Dunlap's employment with the Company began October 1998.
(3) Mr. Dunlap was awarded a grant of 50,000 shares of restricted stock on
March 31, 1999 valued at $2/3//8 per share price. As of June 30, 1999,
this grant was worth $153,150 based on a $3/1//16 per share price. No
dividends will be paid on this award.
(4) Mr. Ripley resigned from the Company on October 21, 1998.
(5) The amount shown includes severance payments of $80,000.
(6) Mr. Valdes' employment with the Company began April 1998.
(7) Mr. Hay's employment with the Company was terminated effective June 2,
1999.
(8) The amount shown includes severance payments of $12,470.
(9) Mr. Hay's employment with WE JAC Corporation, the Company's predecessor
commenced on July 1, 1997. The amount shown is for the reimbursement of
relocation expenses.
(10) Mr. Janofsky's employment with the Company was terminated effective June
2, 1999.
(11) The amount shown includes severance payments of $10,693.
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OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realized Value
Number of % of at Assumed Annual
Securities Total Options Weighted Rates of Stock Price
Underlying Granted to Average Appreciation for Option
Options Employees Exercise Expiration Term(4)
Name Granted(1) in Fiscal Year Price(2) Date(3) 5% 10%
- ---- ------------- --------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Charles L. Dunlap 200,000 36.0% 3.475 03/31/09 $288,831 $834,692
John F. Ripley (5) -- 0.0%
Jaime Valdes 25,000 4.55% 2.375 03/31/09 63,857 134,708
James A. Hay (6) -- 0.0%
Arnold Janofsky (6) -- 0.0%
</TABLE>
(1) Stock options exercisable into 549,375 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, 1999.
(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.
(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. Options granted in March 1999 also include
an acceleration of vesting provision whereby, to the extent not previously
vested, 25% of the options will vest when the Company's stock price closes
at $4.00 per share, 75% will vest when the stock price closes at $6.00 per
share, and 100% will vest when the stock price closes at $8.00 per share.
(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 dependent 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.
(6) Mr. Hay's and Mr. Janofsky's employment with the Company was terminated
effective June 2, 1999.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of the Unexercised
Securities Underlying in-the-money
Unexercised Options Options at
at June 30, 1999 June 30, 1999(1)
----------------------------------- ----------------------------------
Name Unexercisable Exercisable Unexercisable Exercisable
- ---- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Charles L. Dunlap 25,000 175,000 $17,188 $51,563
John F. Ripley (2) 0 93,100 0 0
Jaime Valdes 14,583 35,417 4,297 12,891
James A. Hay (3) 14,999 0 0 0
Arnold Janofsky (3) 19,833 0 0 0
</TABLE>
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
Stock Market on June 30, 1999 was $3.0625. Value is calculated on the basis
of the difference between the option exercise price and $3.0625, 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 provided that Mr. Ripley would have until October 1999 to exercise
93,100 of his vested options. The remainder of Mr. Ripley's options has been
terminated.
(3) Mr. Hay and Janofsky were terminated from the Company effective June 2,
1999. Unexercisable options held at the time they departed expired by their
terms.
7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the shares of Common Stock beneficially owned by
(i) person known by the Company to beneficially own greater than 5% of the
Company's outstanding stock, (ii) each director of the Company, (iii) each
executive officer named in the table below labeled Summary Compensation Table,
and (iv) all directors and executive officers of the Company as a group. 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, (a) the Company believes that each individual owner listed below
exercises sole voting and dispositive power over their shares; and (b) the
information presented is as of February ___, 2000.
[TO BE UPDATED]
<TABLE>
<CAPTION>
Amount of Percentage of Outstanding
Name of Beneficial Owner Beneficial Ownership Common Stock
- ------------------------ -------------------- -------------------------
<S> <C> <C>
Five-Percent Shareholders:
SAFECO Corporation(1)................................................. 1,200,900 ____%
Avenir Corporation(2)................................................. 713,500 ____%
Falcon Solutions, Ltd.(3)............................................. 520,421
William P. Stiritz(4)................................................. 500,000 ____%
Directors and Executive Officers:
Lynn E. Caruthers(5).................................................. 140,581 ____%
Charles L. Dunlap(6).................................................. 108,333 ____%
William R. Klumb(7)................................................... 61,429 *
Woodley A. Allen(8)................................................... 38,000 *
George A. Bavelis(9).................................................. 93,317 ____%
Bernard H. Clineburg(10).............................................. 17,500 *
Bassam N. Ibrahim(11)................................................. 18,850 *
Arthur Kellar(12)..................................................... 210,029 ____%
Ernest S. Malas(13)................................................... 272,660 ____%
Mauricio Zambrano(14)................................................. 520,421 ____%
Jamie Valdes (15)..................................................... _______ ____%
John F. Ripley(16).................................................... 11,950 ____%
James A. Hay(17)...................................................... 3,161 *
Arnold Janofsky(18)................................................... 3,725 *
All directors and executive officers as a group (19 persons)(19))..... _______ ____%
</TABLE>
* Represents less than 1%.
(1) As reported in Schedule 13G (Amendment No. 3) filed with the Commission on
February 11, 2000. Includes shares held by SAFECO Common Stock Trust,
SAFECO Resource Series Trust and SAFECO Asset Management Company. Safeco
Corporation's business address is SAFECO Plaza, Seattle, Washington 98185.
(2) As reported in Schedule 13G (Amendment No. 1) filed with the Commission on
February 11, 1999. Avenir Corporation's business address is 1725 K Street,
NW, Suite 410, Washington, DC 20006.
(3) As listed in the Company's stock transfer records. The business address of
Falcon Solutions, Ltd. ("Falcon") is P.O. Box 531628, Harlingen, Texas
78553. Falcon is 100% owned by members of Mr. Mauricio Zambrano's family.
Mr. Zambrano, a director of the Company owns more than 10% of Falcon.
(4) 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. Mr. Stiritz's business address is
10401 Clayton Road, Suite 101, St. Louis, Missouri 63131.
(5) Includes a restricted stock award of 5,000 shares and 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.
(6) Includes a restricted stock award of 50,000 shares and includes 58,333
options to purchase shares that are exercisable within 60 days.
(7) Includes a restricted stock award of 10,000 shares and includes 13,333
options to purchase shares that are exercisable within 60 days.
(8) Includes restricted stock awards of 15,000 shares and includes 20,000
options to purchase shares that are exercisable within 60 days.
(9) Includes a restricted stock award of 5,000 shares and includes 4,500
options to purchase shares that are exercisable within 60 days.
(10) Includes a restricted stock award of 5,000 shares and includes 10,000
options to purchase shares that are exercisable within 60 days.
(11) Includes a restricted stock award of 5,000 shares and includes 10,000
options to purchase shares that are exercisable within 60 days.
(12) Includes a restricted stock award of 5,000 shares and includes 35,000
options to purchase shares that are exercisable within 60 days.
(13) Includes 17,000 shares held by Mr. Malas' children and includes 16,667
options to purchase shares that are exercisable within 60 days.
(14) Includes shares held by Falcon Solutions, Ltd. Falcon is 100% owned by
members of Mr. Zambrano's family. Mr. Zambrano owns more than 10% of
Falcon.
(15) INSERT INFO.
(16) Mr. Ripley resigned from the Company on October 21, 1998.
(17) Mr. Hay's employment with the Company was terminated effective June 2,
1999.
(18) Mr. Janofsky's employment with the Company was terminated effective June 2,
1999.
(19) Includes restricted stock awards of 130,000 shares and includes 373,597
options to purchase shares that are exercisable within
8
<PAGE>
60 days of executive officers and directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers to file reports of ownership and
changes of ownership with the SEC and the Nasdaq Stock Market. The Company
believes that during the period from July 1, 1998 through June 30, 1999, its
directors and executive officers complied with all applicable Section 16(a)
filing requirements, except as follows: (i) initial Form 3's for Messrs.
Wiegand, Little, Byrer, Marshall, Rooney, Tarrant and Bowytz as newly appointed
executive officers were not filed on a timely basis; (ii) Messrs. Allen,
Bavelis, Caruthers, Clineburg; Ibrahim, and Kellar, each a director of the
Company, was delinquent in reporting the grant of a restricted stock award on
Form 4; (iii) Messrs. Dunlap, Klumb, and Wiegand, each an executive officer of
the Company, was delinquent in reporting the grant of a restricted stock award
on Form 4; (iv) Messrs. Kellar and Bavelis, each a director of the company, was
delinquent in reporting the grant of a restricted stock option on Form 4; and
(v) Form 5's for each of the Company's directors and executive officers were not
filed on a timely basis.
EMPLOYMENT ARRANGEMENTS
Employment Agreements
General. 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. (This
amount was increased to $250,000 per annum in September 1999). 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.
In June 1999, the Company entered into an agreement with Jerry L. Little
pursuant to which Mr. Little agreed to serve as Senior Vice President and Chief
Financial Officer. Mr. Little will receive a base salary of $20,000 per month.
In conjunction with Mr. Little's employment, Mr. Little was granted an option to
purchase 35,000 shares of the Company's Common Stock. These options have an
exercise price of $2.50 and vest as follows: 17,500 shares vested upon the
completion of the 1999 fiscal year end audit and filing of the SEC form 10K and
the balance shall vest upon satisfactory completion of the installation of the
Company's financial software system unless the stock price achieves certain
price levels then a portion of the shares shall vest upon each achievement.
These options expire June 1, 2009. The agreement provides that either Mr. Little
or the Company may terminate the agreement by providing 90 days notice.
Severance Arrangements. In October 1998, the Company entered into an
agreement with John (Jay) F. Ripley in connection with his resignation as
President and Chief Executive Officer of Precision Auto Care, Inc. Pursuant to
the terms of this separation agreement, Mr. Ripley was entitled to receive
payments of $10,000 a month until October 1999 for serving as a special advisor
to the Company. The Board of Directors also extended to October 1999 the period
of time Mr. Ripley had to exercise 93,100 of his vested stock options.
In connection with reorganizing the Company in order to reduce costs and provide
for a more responsive management structure, the Company eliminated the senior
management positions occupied by Messrs. Hay and Janofsky and their employment
with the Company terminated effective June 2, 1999. Following the elimination of
these positions, Messrs. Hay and Janofsky 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 two executives concerning ways to resolve the parties' differences.
Revised Employment Agreements. In March 1999, the Company granted stock
options and awards to certain executive officers. As a condition to the grant of
certain options, those executive officers that had entered into employment
agreements previously were asked to terminate these prior agreements and enter
into new employment agreements. In April 1999 and September 1999, the Company
entered into revised employment agreements with Jaime Valdes and William R.
Klumb respectively pursuant to which Mr. Valdes agreed to serve as Senior Vice
President--Latin American Division and Mr. Klumb as Vice President--Car Wash
Division for a
9
<PAGE>
period of three years beginning April 1, 1998 and August 26, 1997 respectively.
Messrs. Valdes and Klumb will each receive a base salary of $120,000 per annum.
Under the terms of the employment agreements, Messrs. Valdes and Klumb are
required to maintain the confidentiality of proprietary business or technical
information they obtain in the course of their employment with the Company, and
are prohibited from competing with the Company in the United States during any
time they are performing duties for the Company and for a period of two years
thereafter except that if Mr. Klumb's employment is terminated by the Company
other than for cause, or is terminated by Mr. Klumb for good reason, then Mr.
Klumb's non-competition covenant shall last for a period of time equal to the
lessor of 12 months or the remainder of his initial term (if it has not yet
expired) or the number of months remaining in any additional one-year term
arising thereafter. In the event Messrs. Valdes' or Klumb's employment is
terminated by the Company other than for cause, or is terminated by either one
of them for good reason (e.g., following a change of control of the Company),
the terminated officer 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 lessor
of the 12 months or the remainder of his initial term (if it has not yet
expired) or the number of months remaining in any additional one-year term
arising thereafter, and will be entitled to receive any salary and benefits
accrued, vested or unpaid as of the date of termination.
SHAREHOLDER RETURN COMPARISON
Set forth below is a line-graph presentation comparing the cumulative
shareholder return on the Company's Common Stock, on an indexed basis, against
the cumulative total returns of the Nasdaq Stock Market (U.S. Index), an index
composed of peer companies(1), the Russell 200 Index, the S&P Small Cap 600
Index, the S&P Auto Parts & Equipment Index and the Nasdaq Retail Trade Index
since the Company's initial public offering (November 6, 1997 = 100):
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------------------------------------------------------------------------------------------------
11/6/97 11/97 12/97 1/98 2/98 3/98 4/98 5/98 6/98 7/98 8/98 9/98 10/98 11/98 12/98 1/99 2/99 3/99 4/99 5/99 6/99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRECISION AUTO
CARE, INC. 100 100 100 100 118 121 119 118 110 108 89 51 44 42 25 26 24 26 24 29 34
PEER GROUP 100 99 101 97 108 113 105 105 102 102 85 83 87 93 87 87 84 78 79 84 89
NASDAQ STOCK
MARKET (U.S.) 100 101 99 102 112 116 118 111 119 117 94 107 112 123 139 159 145 156 160 156 170
S & P SMALL CAP
600 100 99 101 99 108 112 113 107 107 103 83 88 93 98 104 103 93 95 101 103 109
RUSSELL 2000 100 99 101 99 107 111 112 108 108 99 80 86 90 95 100 102 94 93 101 104 108
S & P AUTO PARTS
& EQUIPMENT 100 100 102 101 115 123 127 147 153 156 129 133 146 148 148 142 135 134 147 159 156
NASDAQ RETAIL
TRADE 100 102 102 103 113 122 123 118 125 116 86 91 101 115 124 126 117 124 126 120 128
</TABLE>
(1) The peer group index prepared for the purposes of this line-graph includes
the following companies: Auto Zone, Inc., Genuine Parts Co., O'Reilly
Automotive, Inc., Discount Auto Parts, Inc., Monro Muffler & Brake, Inc.,
Pep Boys, Inc., and Pennzoil Company.
10
<PAGE>
ITEM 3: APPROVAL OF COMMON STOCK ISSUANCE IN PAYMENT OF INTEREST DUE ON
SUBORDINATED DEBENTURE
The Board of Directors believes that it is in the Company's best interest to
issue Common Stock for the payment of interest due on an outstanding
subordinated debenture. On October 15, 1998, the Company entered into a
Subordinated Debenture with Board LLC, an entity organized and funded by certain
members of the Board of Directors of the Company. Under the terms of the
agreement, the Company received $2 million and was required to make monthly
interest payments at an annual rate of 14% with the principal to be paid at the
end of the loan term of twelve months. The agreement also provided that the
interest rate would increase if the Company defaulted on the timely payment of
interest on the subordinated debt or defaulted on any other senior indebtedness.
As a result of such defaults the subordinated debt has accrued interest at 16%
per annum from the date of its issuance.
As previously disclosed in the Company's Form 10-K, Board LLC initially approved
the waiver of existing events of default and the extension of the maturity date
on the Subordinated Debenture to November 1, 2000. This agreement was re-
negotiated and on in February 2000, the Company and Board LLC formally executed
an amendment to the Subordinated Debenture, which formally waived existing
events of default and extended the maturity date on the debt to September 30,
2000. In addition, the interest rate was returned to 14% effective August 15,
1999 and, it was agreed that default interest in the amount of $266,667 would be
paid in 71,111 shares of Common Stock of the Company if approved by
shareholders. The amount of shares was determined by dividing 266,667 by the
average closing price per share of the Corporation's common stock in the fifteen
day period between August 1, 1999 and August 15, 1999. This translates into an
issuing price per share of $3.75. If shareholder approval for the issuance of
the stock is not obtained by April 12, 2000, the $266,667 is to be paid by the
Company in cash on September 30, 2000.
Rules applicable to issuers, such as the Company, whose shares are listed on the
NASDAQ Stock Market require shareholder approval of certain issuances of voting
company stock. Under these rules, the issuance of common stock by the Company to
Board LLC in payment of the interest due under the Subordinated Debenture is
subject to the Company's prior receipt of shareholder approval.
At the 1999 Annual Meeting of Shareholders, the Board of Directors is seeking
shareholder approval of the issuance of Common Stock for the payment of the
interest on the Subordinated Debenture. In the event that shareholder approval
is not obtained, the Company will have to pay the interest in cash. The Board
believes that it is in the Company's best interest that such interest is paid in
Common Stock in order to conserve the Company's cash resources.
THE BOARD OF DIRECTORS RECOMMENDS THAT ALL SHAREHOLDERS VOTE FOR APPROVAL
---
OF THE ISSUANCE OF COMMON STOCK IN PAYMENT OF INTEREST DUE ON THE SUBORDINATED
DEBENTURE.
ITEM 4: APPROVAL OF THE 2000 OUTSIDE DIRECTORS' STOCK PLAN
The Board has adopted the Precision Auto Care, Inc. 2000 Outside Directors'
Stock Plan ("Plan"), subject to the approval by the Company's shareholders. The
purpose of the Plan is to attract and retain persons of exceptional ability to
serve as directors and further align the common interests of directors and
shareholders in enhancing the value of Precision Auto Care, Inc. Common Stock.
Participation is not voluntary for qualifying directors. Shares of Precision
Auto Care, Inc. Common Stock payable under the Plan will be in lieu of any cash
retainer payable to directors for attendance in person at meetings of the Board
of Directors.
The following description of the principal features of the Plan is qualified in
its entirety by reference to the complete text of the Precision Auto Care, Inc.
2000 Outside Directors' Stock Plan, a copy of which is attached to this Proxy
Statement.
Under the Plan, each eligible director will receive, on the date that
corresponds to the Effective Date and every regularly scheduled meeting of the
Directors following the Effective Date (the "Award Date"), an award equal to the
number of shares of Precision Auto Care, Inc. Common Stock that $1,000 would
then buy. Eligible directors include all directors who are not officers or
employees of Precision Auto Care, Inc. or a subsidiary. A director who is not
serving as a director on an Award Date or who does not attend the Board meeting
in person is not eligible to receive an award for that date. The value of the
Precision Auto Care, Inc. Common Stock for purpose of establishing the number of
shares will be its fair market value at the time of crediting, determined by
reference to the selling price or the bid and asked price for shares of the
Corporation's Common Stock on the applicable market. Over the ten year term of
the Plan, an aggregate of 50,000 shares of Precision Auto Care, Inc. Common
Stock may be issued to all eligible directors in the aggregate.
11
<PAGE>
Awards will be settled and paid in shares of Precision Auto Care, Inc. Common
Stock upon each Award Date. The number of shares subject to the Plan are subject
to appropriate adjustment in event of stock split, recapitalization or other
reorganization.
The Plan may be amended from time to time by the Precision Auto Care, Inc. Board
in its sole discretion, without shareholder approval, but subject to applicable
legal requirements. No guidelines have been established relating to the nature
of the amendments that may be made to the Plan without shareholder approval.
Amendments made without shareholder approval could increase the costs of the
Plan, although the amount thereof is not determinable. The term of the Precision
Auto Care, Inc. Directors' Stock Plan is ten years, subject to earlier
termination by the Precision Auto Care, Inc. Board of Directors.
In general, under current federal income tax laws, awards under the Plan will be
includable in taxable income of an eligible director and deductible to Precision
Auto Care, Inc. based on the fair market value of the Precision Auto Care, Inc.
Common Stock at the time or times the shares are delivered to a director.
THE BOARD OF DIRECTORS OF PRECISION AUTO CARE, INC. RECOMMENDS A VOTE FOR
---
ADOPTION OF THE PRECISION AUTO CARE, INC. 2000 OUTSIDE DIRECTORS' STOCK PLAN.
ITEM 5: APPROVAL OF INDEPENDENT AUDITORS
At the Annual Meeting, the shareholders will be asked to approve the appointment
of Ernst & Young LLP as the Company's independent auditors for the fiscal year
ending June 30, 2000. The Audit Committee has recommended that the appointment
of Ernst & Young LLP be approved by the shareholders. Representatives of Ernst &
Young LLP are expected to be present at the Annual Meeting with the opportunity
to make a statement if they desire to do so, and such representatives are
expected to be available to respond to appropriate questions.
Approval of the selection of the independent auditors will require the
affirmative vote of holders of shares of Common Stock representing a majority of
the number of votes present in person or represented by proxy at the Annual
Meeting, provided a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT ALL SHAREHOLDERS VOTE FOR APPROVAL OF THE
INDEPENDENT AUDITORS.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1997, certain directors either directly or through affiliated
entities, were granted options to purchase certain properties and lease them
back to the Company (the "Hellenic Options"). Hellenic, LLC, a limited
liability company partially owned by directors George A. Bavelis (15.12%) and
Ernest S. Malas (6.61%) and former director Effie L. Eliopulos (15.12%) held the
Hellenic Options on the real estate relating to nine car wash centers. In March
1999, in a non-related party transaction, the Company entered into an agreement
to sell the real estate related to the Hellenic Options. As consideration for
the waiver of the Hellenic Options, the Company agreed to grant Hellenic LLC the
option to purchase 25,000 shares of the Company's Common Stock at an exercise
price of $2.00. The underlying shares have not been registered under the federal
securities laws. Subsequently, Hellenic LLC assigned portions of this restricted
stock option to its members, of which, Mr. Bavelis, Mr. Malas and Ms. Eliopulos
received options for 4,500 shares, 0 shares, and 9,000 shares of the Company's
Common Stock, respectively.
In October 1998, all of the Company's then existing directors except Messrs.
Clineburg and Pappas participated in the creation of Board LLC, a limited
liability company formed for the purpose of loaning the Company $2 million in a
subordinated debt financing. The loan was initiated by these directors and
subsequently incorporated as a requirement of the Company's existing credit
facility. The loan bears interest at a rate of 14% per annum and its terms call
for the rate of interest to be increased in the event of a default by the
Company on this loan or on any of the Company's senior indebtedness. Board LLC
and the Company recently signed an amendment to the subordinated debenture
extending the loan due date until September 30, 2000. Board LLC also agreed to
waive existing events of default and accept 71,111 shares of the Company's
Common Stock in lieu of the outstanding accrued interest through August 15, 1999
if approved by shareholders at the 1999 Annual Meeting.
In January 1999, the Company borrowed $5.0 million from Arthur Kellar, a
director of the Company, pursuant to the terms of a subordinated debt financing
(the "Kellar Note"). The Kellar Note bears interest at a rate of 15% per annum
and its terms call for the rate of interest to be increased in the event of a
default by the Company. As an inducement for the purchase of Kellar Note, the
Company agreed to issue Mr. Kellar options to purchase 25,000 shares of the
Company's Common Stock at an exercise price equal to $2.00. The Company also
agreed to pay Mr. Kellar a financing fee at the maturity of the Kellar Note in
the amount of $50,000. In May 1999, the shareholders approved the issuance of
shares of the Company's Common Stock in order to pay the interest and fees on
12
<PAGE>
the Kellar Note. These shares were not registered under the federal securities
laws. On October 8, 1999, Mr. Kellar agreed to waive existing events of default
and to extend the maturity date on the remaining unpaid principal amount of $3.6
million on the Kellar Note to April 15, 2001.
In June 1998, the Company entered into a contract to sell a parcel of real
estate located in Greenwood, Indiana to Precision Ventures, LLC. ("Precision
Ventures") for $260,000. Precision Ventures also purchased two franchises from
the Company to operate at that location for $26,000. Precision Ventures is
partially owned by Ernest Malas (25%), a director of the Company, and Andrew
Zamensky (25%) who is the son of Gerald Zamensky, a former director of the
Company. The Company acquired the property in December 1997 for $220,000. John
F. Ripley, the former Chief Executive Officer of the Company, approved the
fairness of the negotiated sales price at the time of the transaction. In June,
1998, the Company received $26,000 of the sales price for the real estate. The
balance was due on or before November 30, 1998 under a promissory note. No
interest was being charged on the note due to the fact that the land is not yet
zoned for the operation of a car wash and quick oil change and lube business.
Due to the fact that zoning was delayed, the promissory note was not paid until
July 1999 for a reduced amount of $223,000. Charles Dunlap, the Company's
current Chief Executive Officer, approved the reduction in purchase price.
In June 1998, the Company sold a Company-owned auto care center located in
Denver, Colorado to Inter-Ventures, LLC ("Inter-Ventures") for $220,000.
Inter-Ventures is partially owned by William B. Klumb (25%), Ernest S. Malas
(16.67%) and Effie L. Eliopulos (16.67%). Mr. Klumb is an officer and director,
Mr. Malas is a director, and Ms. Eliopulos is a former director of the Company.
The Company acquired the center, which it had been operating under a management
agreement since February 1997 in June 1998 for $106,200. James A. Hay, a former
executive officer of the Company, approved the fairness of the negotiated sales
price at the time of the transaction. The Company has been paid the purchase
price in full. In relation to this transaction and due to the fact that the
Company was not able to assign the then current lease to Inter-Ventures, the
Company agreed to pay Inter-Ventures the sum of $19,150 which represents the
value of the higher monthly rental over the old lease or a credit of $25,000 to
be used against franchise operating fees and/or purchase of supplies and
equipment from the Company's subsidiary and that the Company would offer its
guaranty in lieu of the individual principals. In addition, the Company agreed
to pay the attorneys' fees of Inter-Ventures related to the negotiation of a new
lease, which amounted to $4,387.13. The Finance and Audit Committee approved and
the Company's Board of Directors (without the participation of Mr. Klumb,
Mr. Malas or Ms. Eliopulos), ratified the offset / credit and payment of
attorneys' fees. In conjunction with this center, Inter-Ventures pays the
Company approximately $4,000 per month for franchise royalties, inventory and
supplies associated with these operations.
In December 1999, the Company sold two Company-owned car washes located in
Columbus, Ohio to Magna National Realty, LLC ("Magna National") for $915,000.
Magna National is owned by George A. Bavelis and Ernest S. Malas, directors of
the Company, and Effie L. Eliopulos a former director of the Company. These car
washes were appraised to be worth $900,000 according to appraisals dated July
1998. The fairness of the negotiated sales price was determined at the time of
the transaction by Charles L. Dunlap, the Company's Chief Executive Officer, and
later formally approved by disinterested directors of the Company. The Company
has been paid the purchase price in full.
In December 1999, the Company entered into a letter of intent for the sale of
three Company-owned car washes, two of which are located in Delaware, Ohio and
one is located in Marion, Indiana, to Sandusky Lube Limited, LLC ("Sandusky
Lube") for $1,225,000. Sandusky is partially owned by Ernest S. Malas, a newly
appointed director of the Company, and Harriet Malas, Mr. Malas' mother. These
car washes were appraised to be worth $1,064,000 according to appraisals dated
July 1998. The fairness of the negotiated sales price was determined at the time
of the transaction by Charles L. Dunlap, the Company's Chief Executive Officer.
The sale of the two Delaware washes was closed on January 28, 2000 and the
Company received $600,000. The Company expects the transaction relating to the
Marion wash to be closed by March 1, 2000.
Bassam N. Ibrahim, a director of the Company, is a partner in Burns, Doane,
Swecker & Mathis, LLP, an Alexandria, Virginia law firm that performs legal
services for the Company related to intellectual property protection. Fees paid
to the firm by the Company in the fiscal year ended June 30, 1999 did not exceed
five percent of the firm's gross revenues.
Ernest S. Malas, a newly appointed director of the Company, also serves as an
consultant to the Company. The Company entered into an independent contractor
agreement with in November 1997 pursuant to which Mr. Malas agreed to serve as
an senior business development consultant to the Company for a period of three
years. From July 1998 to October 1998, Mr. Malas served as Senior Vice President
of the Company, after which he returned to his independent contractor status
under the terms of the November 1997 agreement. Pursuant to the agreement, Mr.
Malas is paid $10,000 per month plus expenses.
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SHAREHOLDER PROPOSALS
In order for a shareholder proposal to be considered for the 2000 Annual Meeting
of Shareholders, it must be received by the Company at its offices no later than
July 12, 2000. All such shareholder proposals should be mailed to the Company's
headquarters and addressed to the attention of Eliot G. Bowytz, Secretary. To be
eligible for inclusion in the proxy material for that meeting, 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.
OTHER MATTERS
The Board of Directors does not know of any other matters to be presented at the
1999 Annual Meeting or action to be taken thereat except those set forth in this
Proxy Statement. If, however, any other business properly comes before the 1999
Annual Meeting, the persons named in the proxy accompanying this Proxy Statement
will have the discretionary authority to vote upon such business, as well as
matters incident to the conduct of the 1999 Annual Meeting.
UPON THE WRITTEN REQUEST OF ANY RECORD HOLDER OR BENEFICIAL OWNER OF COMMON
STOCK ENTITLED TO VOTE AT THE ANNUAL MEETING OF SHAREHOLDERS, THE COMPANY WILL
PROVIDE WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM 10-K, INCLUDING THE
FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES, REQUIRED TO BE FILED
WITH THE SEC FOR THE COMPANY'S MOST RECENT FISCAL YEAR. ADDRESS REQUESTS TO
ELIOT BOWYTZ, SECRETARY, PRECISION AUTO CARE, INC., 748 MILLER DRIVE, S.E.,
LEESBURG, VIRGINIA 20175
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APPENDIX A
PRECISION AUTO CARE, INC.
2000 OUTSIDE DIRECTORS' STOCK PLAN
ARTICLE I
TITLE, PURPOSE AND AUTHORIZED SHARES
This Plan shall be known as the "Precision Auto Care, Inc. 2000 Outside
Directors' Stock Plan" and shall become effective as provided in Section 7.6.
The purpose of this Plan is to attract, motivate and retain experienced and
knowledgeable directors of the Corporation and to further align their economic
interest with the interests of shareholders generally. The total number of
shares of Common Stock that may be delivered pursuant to awards under this Plan
is 50,000 shares, subject to adjustments contemplated by Section 4.3.
ARTICLE II
DEFINITIONS
Whenever the following terms are used in this Plan they shall have the
meaning specified below unless the context clearly indicates to the contrary:
Award means the award of Common Stock to a Director under this Plan.
Award Date means that date that corresponds to the Effective Date and
each regularly scheduled meeting of the Directors thereafter.
Board of Directors or Board means the Board of Directors of the
Corporation.
Code means the Internal Revenue Code of 1986, as amended.
Common Stock means shares of Common Stock of the Corporation, par
value $0.001 per share, subject to adjustments made under Section 4.3 or by
operation of law.
Corporation means Precision Auto Care, Inc., and its successors and
assigns.
Director means a member of the Board of Directors of the Corporation
who is not an officer or employee of the Corporation or any of its
subsidiaries.
Effective Date means the effective date referred to in Section 7.6.
Exchange Act means the Securities Exchange Act of 1934, as amended
from time to time.
Fair Market Value is defined as the mean between the highest and
lowest quoted selling prices on the Award Date, or if none, the weighted
average of the means between the highest and lowest sales prices on the
nearest date before and the nearest date after the Award Date. If actual
sales are not available during a reasonable period beginning before and
ending after the Award Date, the term "Fair Market Value" shall be the mean
between the bona fide bid and asked prices for a share of Common Stock as
reported on the National Association of Securities Dealers Automated
Quotation (NASDAQ) System on the Award Date, or if none, the weighted
average of the means between the bona fide bid and asked prices on the
nearest trading date before and the nearest trading date after the Award
Date.
Plan means the Precision Auto Care, Inc. 2000 Outside Directors' Stock
Plan.
Stock means Common Stock.
ARTICLE III
PARTICIPATION
Each Director shall become a participant in the Plan upon a crediting event
under Article IV.
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ARTICLE IV
AWARDS
4.1 Stock Award.
Each Director shall receive on each Award Date the number of shares of
Common Stock of the Corporation determined by dividing $1,000 by the Fair Market
Value of the Common Stock on the Award Date. A person who is not serving as a
Director on an Award Date or who does not attend the Board meeting in person on
the Award Date is not eligible for the Award for that Award Date.
4.2 Distribution of Common Stock.
(a) Time of Distribution. Each Director shall be entitled to receive a
distribution of his or her Award as soon as administratively practicable
following each Award Date. The Corporation shall not be required to issue or
deliver any certificate for shares of Common Stock in connection with any Award
hereunder unless, in the opinion of legal counsel to the Corporation, there has
been compliance with all applicable securities registrations or other applicable
legal requirements.
(b) Manner of Distribution. The Award shall be paid and distributed by
means of a distribution of an equivalent whole number of shares of the Common
Stock, but any fractional interest in a share of Common Stock shall be paid in
cash on final distribution.
4.3 Adjustments in Case of Changes in Common Stock. If there shall occur
any recapitalization, stock split (including a stock split in the form of a
stock dividend), reverse stock split, merger, combination, consolidation, or
other reorganization or any extraordinary non-cash dividend or other
extraordinary distribution in respect of the Stock (whether in the form of
Stock, other securities, or other property), or any split-up, spin-off,
extraordinary redemption, or exchange of outstanding Stock, or there shall occur
any other similar corporate transaction or event in respect of the Stock, or a
sale of substantially all the assets of the Corporation as an entirety,
proportionate and equitable adjustments consistent with the effect of such event
on shareholders generally shall be made in the number and type of shares of
Common Stock (or other cash, property or securities in respect thereof) reserved
for issuance under this Plan.
4.4 Corporation's Right to Withhold. The Corporation shall satisfy state
or federal income tax withholding obligations, if any, arising upon the Awards
by reducing the number of shares of Common Stock otherwise deliverable to the
Director by the appropriate number of shares (based on the Fair Market Value)
required to satisfy such tax withholding obligation. If the Corporation, for any
reason, cannot satisfy the withholding obligation in accordance with the
preceding sentence, the Director shall pay or provide for payment in cash of the
amount of any taxes which the Corporation may be required to withhold with
respect to the benefits hereunder.
4.5 Restrictions on Resale. Stock distributed under this Plan may be
legended or otherwise restricted as counsel to the Corporation deems necessary
or advisable to comply with any applicable law or other legal requirements.
ARTICLE V
ADMINISTRATION
5.1 In General. This Plan shall be construed, interpreted and, to the
extent required, administered by the Board or a committee appointed by the Board
to act on its behalf under this Plan. Notwithstanding the foregoing, but subject
to Section 6.1 hereof, the Board shall have no discretionary authority with
respect to the amount, price or timing of any Award granted under this Plan and
no Director shall participate in any decision relating solely to his or her
benefits. Subject to the foregoing, the Board may resolve any questions and make
all other determinations and adjustments required by this Plan, maintain all the
necessary records for the administration of this Plan, and provide forms and
procedures to facilitate the implementation of this Plan.
5.2 Decisions Final; Delegation; Reliance; and Limitation on Liability.
Any determination of the Board or committee made in good faith shall be
conclusive. In performing its duties, the Board or the committee shall be
entitled to rely on public records and on information, opinions, reports or
statements prepared or presented by officers or employees of the Corporation or
other experts believed to be reliable and competent. The Board or the committee
may delegate ministerial, bookkeeping and other non-discretionary functions to
individuals who are officers or employees of the Corporation.
Neither the Corporation nor any member of the Board, nor any other person
participating in any determination of any question under this Plan, or in the
interpretation, administration or application of this Plan, shall have any
liability to any party for any action taken or not taken in good faith under
this Plan or for the failure of an Award (or action or payment in respect of an
Award) to
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satisfy Code requirements for realization of intended tax consequences, or to
comply with any other law, compliance with which is not required on the part of
the Corporation.
ARTICLE VI
PLAN CHANGES AND TERMINATION
6.1 Amendments. The Board of Directors shall have the right to amend this
Plan in whole or in part from time to time or may at any time suspend or
terminate this Plan; provided, however, that no amendment or termination shall
cancel or otherwise adversely affect in any way, without his or her written
consent, any Director's rights with respect to his or her Award.
6.2 Term. This Plan shall continue for a period of 10 years following the
Effective Date, but continuance of this Plan is not assumed as a contractual
obligation of the Corporation. In the event that the Board of Directors decides
to terminate this Plan, it shall notify the Directors of its action in an
instrument in writing, and this Plan shall be terminated at the time therein set
forth, and all Directors shall be bound thereby.
ARTICLE VII
MISCELLANEOUS
7.1 Limitation on Directors' Rights. Participation in this Plan shall not
give any Director the right to continue to serve as a member of the Board or any
rights or interests other than as herein provided. No Director shall have any
right to any payment or benefit hereunder except to the extent provided in this
Plan. This Plan shall create only a contractual obligation on the part of the
Corporation as to such Awards and shall not be construed as creating a trust.
This Plan, in and of itself, has no assets. Directors shall have only the
rights of general unsecured creditors of the Corporation with respect to
benefits payable, if any, hereunder.
7.2 Benefits Not Assignable; Obligations Binding Upon Successors. Benefits
of a Director under this Plan shall not be assignable or transferable and any
purported transfer, assignment, pledge or other encumbrance or attachment of any
payments or benefits under this Plan, or any interest therein shall not be
permitted or recognized. Obligations of the Corporation under this Plan shall be
binding upon successors of the Corporation.
7.3 Governing Law; Severability. The validity of this Plan or any of its
provisions shall be construed, administered and governed in all respects under
and by the laws of the Commonwealth of Virginia. If any provisions of this
instrument shall be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to be fully
effective.
7.4 Compliance With Laws. This Plan and the offer, issuance and delivery
of shares of Common Stock under this Plan are subject to compliance with all
applicable federal and state laws, rules and regulations (including but not
limited to state and federal reporting, registration, insider trading and other
securities laws) and to such approvals by any listing agency or any regulatory
or governmental authority as may, in the opinion of counsel for the Corporation,
be necessary or advisable in connection therewith. Any securities delivered
under this Plan shall be subject to such restrictions, and the person acquiring
the securities shall, if requested by the Corporation, provide such assurances
and representations to the Corporation as the Corporation may deem necessary or
desirable to assure compliance with all applicable legal requirements.
7.5 Headings Not Part of Plan. Headings and subheadings in this Plan are
inserted for reference only and are not to be considered in the construction of
this Plan.
7.6 Shareholder Approval; Effective Date. This Plan has been approved by
the Board of Directors. This Plan shall become effective upon the approval of
this Plan by the shareholders of the Corporation.
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PRECISION AUTO CARE, INC.
The undersigned hereby appoints Charles L. Dunlap, Jerry L. Little and
Eliot G. Bowytz 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 February 23, 2000, at the Annual Meeting of
Shareholders to be held on April 12, 2000, or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL LISTED NOMINEES AND FOR
PROPOSALS 2-4.
1. Election of Class II Directors: Woodley A. Allen, Bassam N. Ibrahim,
and Arthur Kellar.
[_] For all nominees [_] WITHHOLD authority for all nominees
[_] For, except authority withheld for the following nominee(s) only:
-----------------------------------------------------------------
2. Approval of the issuance of 71,111 shares of Common Stock by the
Company in payment of interest in connection with a $2,000,000 Subordinated
Debenture due September 30, 2000.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Approval of the adoption of the 2000 Outside Directors' Stock Plan and
the reservation of 50,000 shares for issuance thereunder.
[_] FOR [_] AGAINST [_] ABSTAIN
4. Approval of the appointment of Ernst & Young LLP as independent
auditors for the fiscal year ending June 30, 2000.
[_] 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, 3 AND 4. 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.
Date___________________, 2000
_____________________________
Signature
_____________________________
Signature
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
