<PAGE>
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SCHEDULE 14A INFORMATION
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:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Precision Auto Care, Inc.
- --------------------------------------------------------------------------------
(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):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] 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:
-------------------------------------------------------------------------
(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:
<PAGE>
[Precision Auto Care Logo]
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,
/s/ Eliot G. Bowytz
-------------------
Eliot G. Bowytz
Vice President, General Counsel and
Secretary
748 Miller Drive, S.E
Leesburg, Virginia 20175
March 1, 2000
<PAGE>
PRECISION AUTO CARE, INC.
748 MILLER DRIVE, S.E.
LEESBURG, VIRGINIA 20175
---------------------------------------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
April 12, 2000
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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 6,284,673 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.
<PAGE>
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.
2
<PAGE>
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, Class II Director, Gerald A. Zamensky, 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
Chairman of the Board; (management consulting firm) to May 1992.
Chairman--Executive
Committee
Age 52
Bassam N. Ibrahim/(3)/ Partner, Burns, Doane, From June 1994 to August 1996, Mr. Ibrahim
Director since 1993 Swecker & Mathis, LLP, was with Popham, Haik, Schnobrich & Kaufman.
Age 37 Alexandria, VA From June 1990 to June 1994, Mr. Ibrahim was
(law firm) with Mason, Fenwick & Lawrence.
Arthur Kellar/(1)(2)/ Retired Mr. Kellar served as Chairman of the Board of
Director since 1991 WE JAC Corporation, the Company's predecessor,
Chairman-Organization from April 1992 to September 1994. Mr. Kellar
and Compensation served as Chairman of the Board of EZ
Committee Communications, Inc. from June 1992 to
Age 77 April 1997.
</TABLE>
3
<PAGE>
CLASS III DIRECTORS WHOSE TERMS EXPIRING AT THE ANNUAL MEETING FOR 2000
<TABLE>
<CAPTION>
Name Principal Occupation Additional Information
- ---- -------------------- ----------------------
<S> <C> <C>
Lynn E. Caruthers/(3)/ General Partner, Ms. Caruthers has served as Chairperson
Director since 1991 Caruthers Properties, Ltd., of the Board of WE JAC Corporation, the
Age 47 Arlington, VA (commercial Company's predecessor, since September 1994.
real estate developer)
William R. Klumb Vice President, Mr. Klumb previously served as Vice President of
Director since 1997 Car Wash Division Operations of the Car Wash Division since
Age 41 November 1997. Prior to that, he was the founder and
President of certain predecessor companies engaged
in the car wash business.
Bernard Retired From April 1998 until December 1999,
H. Clineburg/(1)/ Mr. Clineburg served as the President of United
since 1993 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
New Director in 2000 Properties, Columbus, OH of the Company from July 1998 to December 1998.
Age 34 (real estate development) Mr. Malas currently serves as an independent
consultant to the Company. He also serves as a
director of Sterling Bank Group.
</TABLE>
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
Director since 1998 Executive Officer Operating Officer and Director of Crown Central
Age 56 Petroleum Corporation. 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
Director since 1997 Chief Executive Officer, Coin Op. Vending Co. since 1983. He also serves as
Chairman--Finance and Pella Co., Columbus, OH Chairman of the Board of Sterling Bancorp and a
Audit Committee (real estate development Director of Heartland Bancorp.
Age 62 firm)
Mauricio Zambrano Vice President, Dessarollo Mr. Zambrano serves as a director of
New Director in 2000 Integrado, S.A. de C.V. Cemex, 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
4
<PAGE>
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 (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
5
<PAGE>
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 1998 Outside Directors' Stock
Option Plan) and the grant of $1,000 worth of stock for each Board meeting
attended in person (under the 2000 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.
6
<PAGE>
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 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 R. 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, as described above under "Restricted Stock Awards", Mr.
Dunlap was granted a restricted stock award of 50,000 shares of the Company's
Common Stock.
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 on or before
September 21, 2000, 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.
7
<PAGE>
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
8
<PAGE>
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 $ 6,107/(4)/
President and Chief
Executive Officer
John F. Ripley 1999 $108,702/(5)/ $80,000/(6)/
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/(7)/ 25,000
Latin America
James A. Hay 1999 $137,185/(8)/ $13,526/(9)/
Former Executive V.P., 1998 117,692 $15,000/(10)/ 35,000 323
North America
Arnold Janofsky 1999 $117,623/(11)/ $11,643/(12)/
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) The amount shown includes $4,492 in housing expenses paid by the Company
on behalf of Mr. Dunlap.
(5) Mr. Ripley resigned from the Company on October 21, 1998.
(6) The amount shown includes severance payments of $80,000.
(7) Mr. Valdes' employment with the Company began April 1998.
(8) Mr. Hay's employment with the Company was terminated effective June 2,
1999.
(9) The amount shown includes severance payments of $12,470.
(10) 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.
(11) Mr. Janofsky's employment with the Company was terminated effective June
2, 1999.
(12) The amount shown includes severance payments of $10,693.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realized Value at
Assumed Annual
Number of % of Rates of Stock
Securities Total Options Weighted Price
Underlying Granted to Average Appreciation for
Options Employees Exercise Expiration Option 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 Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles L. Dunlap 25,000 175,000 $17,188 $51,563
John F. Ripley/(2)/ 93,100 0 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.
10
<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 23, 2000.
<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 19.11%
Avenir Corporation/(2)/ 713,500 11.35%
Falcon Solutions, Ltd./(3)/ 520,421 8.28%
William P. Stiritz/(4)/ 500,000 7.96%
Directors and Executive
Officers:
Lynn E. Caruthers/(5)/ 140,581 2.23%
Charles L. Dunlap/(6)/ 116,666 1.84%
William R. Klumb/(7)/ 63,095 1.00%
Woodley A. Allen/(8)/ 38,000 *
George A. Bavelis/(9)/ 94,617 1.50%
Bernard H. Clineburg/(10)/ 17,500 *
Bassam N. Ibrahim/(11)/ 18,850 *
Arthur Kellar/(12)/ 330,029 5.22%
Ernest S. Malas/(13)/ 272,659 4.33%
Mauricio Zambrano/(14)/ 520,421 8.28%
Jamie Valdes/(15)/ 64,004 1.02%
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 (21
persons)/(19)/ 1,810,665 27.55%
</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.
11
<PAGE>
(6) Includes a restricted stock award of 50,000 shares and includes 66,666
options to purchase shares that are exercisable within 60 days.
(7) Includes a restricted stock award of 10,000 shares and includes 14,999
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 16,666
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) Includes 14,583 options to purchase shares that are exercisable within 60
days.
(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 100,000 shares and includes 373,076
options to purchase shares that are exercisable within 60 days.
12
<PAGE>
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
13
<PAGE>
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 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.
14
<PAGE>
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):
COMPARISON OF 20 MONTH CUMULATIVE TOTAL RETURN*
AMONG PRECISION AUTO CARE, INC.
[GRAPH APPEARS HERE]
<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>
* $100 INVESTED ON 11/6/97 IN STOCK OR ON 10/31/97
IN INDEX--INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
- --------
(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.
15
<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 renegotiated and 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 Company'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.
16
<PAGE>
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.
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. 2000 Outside 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
17
<PAGE>
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 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
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 charged on the note due to the fact that the land was
not then 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 R. 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.
18
<PAGE>
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 a group of disinterested directors of
the Company pursuant to the Company's conflict of interest policy. 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, and later formally approved by a group of
disinterested directors of the Company pursuant to the Company's conflict of
interest policy. 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 Mr. Malas 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 December 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., P.O. 5000, LEESBURG,
VIRGINIA 20177.
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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.
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ARTICLE III
PARTICIPATION
Each Director shall become a participant in the Plan upon a crediting event
under Article IV.
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.
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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 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.
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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.
<TABLE>
<S> <C>
[_] For all nominees [_] WITHHOLD authority for all nominees
[_] For, except authority withheld for the following nominee(s) only: _______________________
</TABLE>
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 given 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.
