<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to _________________
Commission file number 1-14510
PRECISION AUTO CARE, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1847851
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
748 Miller Drive, S.E., Leesburg, Virginia 20175
(Address of principal executive offices)
(Zip Code)
703-777-9095
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date 6,284,673 shares of Common Stock
as of April 30, 2000.
Precision Auto Care, Inc.
Form 10-Q
<PAGE>
INDEX
PAGE
----
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
General Information............................................. 3
Consolidated Balance Sheets as of March 31, 2000 and
June 30, 1999................................................... 5
Consolidated Statements of Operations for the three and nine months
ended March 31, 2000 and 1999................................... 6
Consolidated Statements of Cash Flows for the nine months
ended March 31, 2000 and 1999................................... 8
Notes to the Consolidated Financial Statements.................. 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 16
Item 2. Changes in Securities..................................... 16
Item 3. Defaults Upon Senior Securities........................... 16
Item 4. Submission of Matters to a Vote of Security Holders....... 17
Item 5. Other Information......................................... 17
Item 6. Exhibits or Reports on Form 8-K........................... 17
Signatures......................................................... 18
Exhibit Index...................................................... 19
<PAGE>
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934. When used in this report, the words
"anticipate," "believe," "estimate," "expect," "intend" and "plan" as they
relate to Precision Auto Care, Inc. or its management are intended to identify
such forward-looking statements. All statements regarding Precision Auto Care,
Inc. or Precision Auto Care, Inc.'s expected future financial position, business
strategy, cost savings and operating synergies, projected costs and plans, and
objectives of management for future operations are forward-looking statements.
Although Precision Auto Care, Inc. believes the expectations reflected in such
forward-looking statements are based on reasonable assumptions, no assurance can
be given that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the
expectations reflected in the forward-looking statements herein include, among
others, the factors set forth in the Company's 10-K filing for the year ending
June 30, 1999 under the caption "Business--Risk Factors," general economic and
business and market conditions, changes in federal and state laws and increased
competitive pressure in the automotive after-market services business.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL INFORMATION
Precision Auto Care, Inc. ("Precision Auto Care" or the "Company") is a provider
of automotive maintenance services with franchised and Company-operated centers
located in the United States and in certain international locations. The
Company's services are provided to automobile owners and focus on those high
frequency items required to properly maintain the vehicle on a periodic basis.
The Company offers these services through three "Precision" brands that are
intended to be complementary:
Precision Tune Auto Care provides automotive maintenance services which require
relatively short service times including engine performance, oil change and
lubrication and brake services. At March 31, 1999, these services were provided
at 592 Precision Tune Auto Care centers owned and operated by franchisees and
one owned and operated by the Company.
Precision Auto Wash provides self-service and touchless automatic car wash
services. The advanced operating systems used at prototype Precision Auto Wash
centers permit remote monitoring and administration of operations. The no-touch
car wash technology employed in Precision Auto Wash centers also provides a
high-quality wash with less risk of vehicle damage than traditional car wash
systems. At March 31, 2000, there were 18 Company-owned car wash centers and 21
franchised car wash centers.
Precision Lube Express provides convenient fast oil change and lube services.
Because Precision Lube Express centers consist of "above ground" configured
modular buildings manufactured and sold by the Company, operations can commence
more quickly and with less capital investment than is the case for many
competitors. At March 31, 2000, there were 14 Precision Lube Express centers
owned and operated by franchisees and four owned and operated by the Company. As
of that date there were also 17 Lube Depot centers operated by franchisees, some
of which are expected to become Precision Lube Express centers.
The Company supports its franchisees and Company-owned centers by distributing
certain car washing parts and supplies, and manufacturing and distributing pre-
fabricated modular buildings and car wash equipment.
The Company, a Virginia corporation, was incorporated in April 1997, but through
predecessors has been in the automotive maintenance services business for over
twenty years. The first Precision Tune was established in 1976 to provide quick,
convenient and inexpensive engine tune-ups. Franchising of Precision Tune
centers began the next year. As changes in automotive technology reduced the
need for traditional tune-ups, Precision Tune expanded its menu of offered
automotive maintenance services to include oil changes, fuel injection service,
air conditioning service, cooling system service, brake service and more
diagnostic services. In September 1996, Precision Tune's name was changed to
Precision Tune Auto Care to reflect the shift in emphasis.
The Company is the result of the November 1997 combination of WE JAC Corporation
(the owner of Precision Tune Auto Care) and nine other automotive maintenance
services companies in connection with the Company's initial public offering (the
"IPO Combination"). In March 1998, the Company acquired the master franchise
agreement for Precision Tune Auto Care in Mexico and Puerto Rico.
<PAGE>
PRECISION AUTO CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
2000 June 30,
(Unaudited) 1999
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 283,484 $ 50,167
Accounts receivable, net of allowance of $1,693,534 and $2,080,000,
respectively........................................................ 4,770,890 5,242,780
Inventory............................................................. 1,948,434 3,084,637
Notes receivable, net of allowance.................................... 220,370 379,487
Other assets.......................................................... 142,196 209,342
Refundable income taxes............................................... 1,026,386 1,658,931
------------ ------------
Total current assets..................................................... 8,391,760 10,625,344
Notes receivable, net of allowance....................................... 321,303 325,254
Property, plant and equipment, at cost................................... 15,634,386 17,987,789
Less: Accumulated depreciation........................................ (3,304,448) (2,757,726)
------------ ------------
12,329,938 15,230,063
Goodwill and other intangibles, net of accumulated
amortization............................................................ 36,457,753 37,926,905
Deposits and other....................................................... 61,300 467,857
------------ ------------
Total assets............................................................. $ 57,562,054 $ 64,575,423
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.............................. $ 8,671,936 $ 8,636,331
Bank facility......................................................... 7,301,615 1,230,002
Mortgage notes payable................................................ 294,610 295,064
Subordinated debt..................................................... 2,000,000 ---
Other notes payable................................................... 482,094 541,535
Deferred revenue...................................................... 377,319 842,598
------------ ------------
Total current liabilities................................................ 19,127,574 11,545,530
Bank facility............................................................ -- 7,678,667
Mortgage notes payable................................................... 6,706,732 7,938,859
Subordinated debt........................................................ 3,586,960 5,586,960
Other notes payable...................................................... 766,412 924,713
Deferred revenue......................................................... 616,835 239,714
Refundable deposits...................................................... 482,632 245,364
Other liabilities........................................................ 139,859 433,323
------------ ------------
Total liabilities........................................................ 31,427,004 34,593,130
Stockholders' equity:
Common stock, $.01 par; 19,000,000 shares authorized; 6,284,673 and
6,131,548 shares issued and outstanding............................. 62,846 61,315
Additional paid-in capital............................................ 46,312,164 46,012,211
Unearned restricted stock............................................. (205,834) (283,021)
Retained earnings..................................................... (20,034,126) (15,808,212)
------------ ------------
Total stockholders' equity............................................... 26,135,050 29,982,293
------------ ------------
Total liabilities and stockholder's equity............................... $ 57,562,054 $ 64,575,423
============ ============
</TABLE>
See accompanying notes.
<PAGE>
PRECISION AUTO CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Revenues:
Franchise development $ 142,693 $ 273,163
Royalties 3,569,774 3,313,000
Manufacturing and distribution 2,182,687 5,238,127
Company centers 1,400,008 1,899,465
Other 92,070 22,979
----------- -----------
Total revenues 7,387,232 10,746,733
Total direct cost 5,875,679 8,879,562
----------- -----------
Contribution (exclusive of amortization shown separately
below) 1,511,553 1,867,171
General and administrative expense 1,597,015 3,116,762
Depreciation expense 328,430 282,765
Amortization of goodwill and other intangibles 493,377 526,495
----------- -----------
Operating (loss) (907,269) (2,058,851)
Other income (expense):
Interest (expense) (640,177) (944,981)
Interest income 16,371 144,378
Other income (expense) 190,179 (2,744,202)
----------- -----------
Total other (expense) (433,627) (3,544,805)
----------- -----------
(Loss) before income tax expense (1,340,896) (5,603,656)
(Benefit) provision for income taxes (43,174) --
----------- -----------
Net (loss) $(1,297,722) $(5,603,656)
=========== ===========
Basic net (loss) per share ($0.21) ($0.92)
Diluted net (loss) per share ($0.21) ($0.92)
Weighted average shares outstanding--Basic 6,258,006 6,120,543
Weighted average shares outstanding--Diluted 6,258,006 6,120,543
</TABLE>
See accompanying notes.
<PAGE>
PRECISION AUTO CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
March 31, 1999
--------------------------
2000 1999
(Unaudited) (Unaudited)
---------- -----------
<S> <C> <C>
Revenues:
Franchise development $ 465,078 $ 714,577
Royalties 11,352,800 10,468,257
Manufacturing and distribution 10,374,510 16,621,277
Company centers 3,879,027 5,497,868
Other 188,965 144,363
----------- ------------
Total revenues 26,260,380 33,446,342
Total direct cost 21,004,861 28,813,118
----------- ------------
Contribution (exclusive of amortization shown separately
below) 5,255,519 4,633,224
General and administrative expense 4,894,978 7,388,302
Depreciation expense 1,015,694 1,149,716
Amortization of goodwill and other intangibles 1,486,017 1,566,885
Loss on sale of assets -- 709,578
----------- ------------
Operating (loss) (2,141,170) (6,181,257)
Other income (expense):
Interest (expense) (1,980,780) (2,058,973)
Interest income 53,082 243,987
Other (expense) (109,541) (4,507,055)
----------- ------------
Total other (expense) (2,037,239) (6,322,040)
----------- ------------
(Loss) before income tax expense (4,178,409) (12,503,298)
(Benefit) provision for income taxes 47,503 (1,587,228)
----------- ------------
Net (loss) $(4,225,912) $(10,916,070)
=========== ============
Basic net (loss) per share ($0.69) ($1.79)
Diluted net (loss) per share ($0.69) ($1.79)
Weighted average shares outstanding--Basic 6,192,920 6,120,543
Weighted average shares outstanding--Diluted 6,192,920 6,120,543
</TABLE>
See accompanying notes.
<PAGE>
PRECISION AUTO CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------------
2000 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Operating activities:
Net (loss)............................................................................. $(4,225,912) $(10,916,071)
Adjustments to reconcile net (loss) to net cash provided and (used in)
by operating activities:
Depreciation and amortization....................................................... 2,501,711 2,716,601
Severance accrual................................................................ -- 1,153,000
Services received in exchange for stock.......................................... 77,187 --
Interest paid with stock......................................................... 300,000 --
(Gain) loss on sale of assets.................................................... (488,561) 709,578
Foreign currency translation adjustment.......................................... -- 85,957
Changes in operating assets and liabilities:
Accounts and notes receivable................................................... 634,957 5,331,774
Inventory....................................................................... 1,136,203 (259,704)
Prepaid expenses, refundable income taxes, deposits
and other..................................................................... 1,311,069 1,456,461
Accounts payable and accrued liabilities........................................ 35,605 (2,123,540)
Deferred revenue, net........................................................... (88,158) 63,000
----------- ------------
Net cash provided by (used in) operating activities.................................... 1,194,101 (1,782,944)
Investing activities:
Purchases of property and equipment................................................. (294,891) (1,787,210)
Sale of property and equipment...................................................... 2,390,000 3,727,054
Acquisitions........................................................................ -- (3,695,559)
----------- ------------
Net cash provided by (used in) investing activities.................................... 2,095,109 (1,755,715)
Financing activities:
Sale of company stock............................................................... 1,484 --
(Repayments of) bank facility....................................................... (1,607,054) (5,547,501)
Proceeds from notes payable 345,685 6,058,681
(Repayments) proceeds from mortgage notes and other notes payable................... (1,796,008) 1,035,000
----------- ------------
Net cash (used in) provided by financing activities.................................... (3,055,893) 1,546,180
----------- ------------
Net change in cash and cash equivalents................................................ 233,317 (1,992,480)
Cash and cash equivalents at beginning of year......................................... 50,167 2,070,294
----------- ------------
Cash and cash equivalents at end of period............................................. $ 283,484 $ 77,814
=========== ============
</TABLE>
See accompanying notes.
<PAGE>
Precision Auto Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Interim Financial Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments consisting only of recurring accruals considered
necessary for a fair presentation have been included. Operating results for such
interim periods are not necessarily indicative of the results which may be
expected for a full fiscal year. For further information, refer to the
consolidated financial statements and footnotes included in Precision Auto Care
Inc.'s (the "Company") annual report on Form 10-K for the year ended June 30,
1999.
Unless the context requires otherwise, all references to the Company herein mean
Precision Auto Care, Inc. and those entities owned or controlled by Precision
Auto Care, Inc.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior period financial information has been reclassified
to conform with the current period presentation.
Note 2 - Earnings Per Share
The Company reports earnings per share ("EPS") in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which
specifies the methods of computation, presentation, and disclosure. SFAS No. 128
requires the presentation of basic EPS and diluted EPS. Basic EPS is calculated
by dividing net income (loss) available to common shareholders by the weighted
average number of shares outstanding during the period. Diluted EPS includes the
potentially dilutive effect, if any, which would occur if outstanding options to
purchase Common Stock were exercised. For the three and nine months ended March
31, 2000 and for the three and nine months ended March 31, 1999, diluted EPS is
equivalent to basic EPS as the inclusion of the effect of assumed exercises and
conversions was anti-dilutive.
The following table sets forth the computation of basic and diluted net (loss)
per share.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, 1999 March 31, 1999
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net Loss....................................... $(1,297,722) $(5,603,656) $(4,225,912) $(10,916,070)
Denominator:
Denominator for basic EPS-weighted-average
shares......................................... 6,258,006 6,120,543 6,192,920 6,120,543
Denominator for diluted EPS-weighted-average
shares......................................... 6,258,006 6,120,543 6,192,920 6,120,543
Basic net loss per share......................... $(0.21) $(0.92) $(0.48) $(0.87)
Diluted net loss per share....................... $(0.21) $(0.92) $(0.48) $(0.87)
</TABLE>
The 890,850 stock options and 97,500 shares of restricted stock were not
included in the 2000 diluted net loss per share calculation because their effect
would be anti-dilutive.
<PAGE>
Note 3 - Inventory
The components of inventory are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
--------- --------
<S> <C> <C>
Raw materials................................... $ 360,802 $1,222,762
Work-in-process................................. 935,669 98,587
Finished goods.................................. 1,041,963 2,153,288
Reserve for obsolete and unsaleable inventory... (390,000) (390,000)
---------- ----------
$1,948,434 $3,084,637
========== ==========
</TABLE>
Note 4 - Contingencies
The Company is involved in certain litigation and is subject to unasserted
claims arising in the ordinary course of business. In the opinion of counsel and
management, the ultimate liability, if any, arising from the settlement of these
cases with the exception of the pending litigation in Florida, will not have a
material adverse effect on the financial operations or position of the Company.
The Company is exercising its appellate remedies regarding an adverse judgment
in the state of Florda which in described in Item 1 of Part II.
Note 5 - Joint Venture
On November 10, 1999 the Company entered into a joint venture with Service
Champ, a national distributor of auto parts. The agreement is for three years
whereby the Company and the national distributor will promote the sale of auto
parts and supplies to Precision Tune Auto Care franchisees.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The following discussion and analysis of the consolidated financial condition
and results of operations of Precision Auto Care, Inc. (the "Company") should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto. Historical results and percentage relationships set forth herein are
not necessarily indicative of future operations.
Results of Operations
Comparison of the three months ended March 31, 2000 to the three months ended
March 31, 1999
Summary (in thousands)
2000 % 1999 %
---- --- ---- ---
Net revenue................... $7,387 100% $10,747 100%
Direct cost................... 5,876 80 8,880 83
General and administrative.... 1,597 22 3,117 29
Operating (loss).............. (907) (12) (2,059) (19)
Revenue
Revenue for the three months ending March 31, 2000 was $7.4 million, a decrease
of $3.4 million, or 31%, compared with revenue of $10.7 million for the
corresponding period of the prior year. The decrease was primarily the result of
decreases in retail sales from company centers, manufacturing and distribution
revenues of $499,000 and $3.1 million respectively. These decreases were
partially offset by an increase in royalty revenue of $257,000. The decrease
in revenue is primarily attributable to a joint venture with Service Champ by
which Service Champ would supply the franchisees with parts and equipment that
was previously sold by PAC, a wholly owned subsidiary of the Company. PAC was
wound down concurrent with the execution of the joint venture agreement.
National Auto Chemical (sold in the second quarter) and PAC accounted for $1.9
million of the total decrease in manufacturing and distribution revenues.
<PAGE>
Direct Cost
Direct costs for the three months ending March 31, 2000 totaled $5.9 million, a
decrease of $3.0 million or 34%, compared with $8.9 million for the quarter
ending March 31, 1999. This was largely as a result of the sale of National
Auto Chemical and the closing of PAC a former distribution center of parts and
equipment. These two businesses accounted for $1.8 million of the decrease.
General and Administrative Expense
General and administrative expense was $1.6 million for the three months ending
March 31, 2000, a decrease of $1.5 million or 49%, compared with $3.1 million
for the quarter ending March 31, 1999. These reductions are the result of cost
cutting measures that were implemented last year.
Operating (Loss)
The Company recorded an operating loss for the three months ending March 31,
2000 of $907,000, which represents a decrease in operating loss of $1.2 million
or 57% compared with an operating loss of $2.1 million for the corresponding
period of the prior year.
TABLE 1 - Components of Depreciation and Amortization Expense
The components of depreciation and amortization expense are summarized as
follows:
Three months ended March 31, 2000 1999
- ---------------------------- ---- ----
Depreciation $328,430 $282,765
Amortization 493,377 526,495
-------- --------
Total $821,807 $809,260
======== ========
TABLE 2 - Components of Interest Expense
The components of interest expense are summarized as follows:
Three months ended March 31, 2000 1999
- ---------------------------- ---- ----
Interest incurred $640,177 $944,981
======== ========
Results of Operations
Comparison of the nine months ended March 31, 2000 to the nine months ended
March 31, 1999
<TABLE>
<CAPTION>
Summary (in thousands)
2000 % 1999 %
---- --- ---- ---
<S> <C> <C> <C> <C>
Net revenue............................................................................... $ 26,260 100% $33,446 100%
Direct cost............................................................................... 21,005 80 28,813 86
General and administrative................................................................ 4,895 19 7,388 22
Operating (loss).......................................................................... (2,141) (8) (6,181) (18)
</TABLE>
Revenue
Revenue for the nine months ending March 31, 2000 was $26.3 million, a decrease
of $7.2 million, or 21%, compared with revenue of $33.4 million for the
corresponding period of the prior year. The decrease was primarily the result of
decreases in retail sales from company centers, manufacturing and distribution
revenues and franchise development of $1.6 million, $6.2 million and $250,000
respectively. These decreases were partially offset by an increase in royalty
revenue of $884,000. The reduction in retail sales is a result the Company
selling under performing company stores during the second half of fiscal year
1999. Manufacturing and distribution revenues were down $3.7 million at PAC as
a result of the joint venture with Service Champ and low inventory levels during
the first quarter of fiscal year 2000. National Auto Chemical revenues were
down $498,000 as a result its disposition. Distribution sales in Mexico and car
wash equipment sales were down $2.0 million.
<PAGE>
Direct Cost
Direct costs for the nine months ending March 31, 2000 totaled $21.0 million, a
decrease of $7.8 million or 27%, compared with $28.8 million for the nine months
ending March 31, 1999. The decrease is attributable to cost decreases in company
centers, manufacturing and distribution and franchise development of $1.4
million, $6.2 million and $396,000 respectively. This was partially offset by
an increase in royalty costs of $217,000.
General and Administrative Expense
General and administrative expense was $4.9 million for the nine months ending
March 31, 2000, a decrease of $2.5 million or 34%, compared with $7.4 million
for the nine months ending March 31, 1999. This is the result of cost cutting
measures implemented in 1999 and one time charges also in fiscal year 1999.
Operating (Loss)
The Company recorded an operating loss for the nine months ending March 31, 2000
of $2.1 million which represents an decrease in operating loss of $4.0 million
or 65% compared with an operating loss of $6.2 million for the corresponding
period of the prior year.
TABLE 3 - Components of Depreciation and Amortization Expense
The components of depreciation and amortization expense are summarized as
follows:
Nine months ended March 31, 2000 1999
- --------------------------- ---- ----
Depreciation $1,015,694 $1,149,716
Amortization 1,486,017 1,566,885
---------- ----------
Total $2,501,711 $2,716,601
========== ==========
TABLE 4 - Components of Interest Expense
The components of interest expense are summarized as follows:
Nine months ended March 31, 2000 1999
- --------------------------- ---- ----
Interest incurred $1,980,780 $2,058,973
========== ==========
Liquidity and Capital Resources
Sources and Uses of Cash
The following table sets forth selected information from the statement of cash
flows of Precision Auto Care, Inc.
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
2000 1999
---- ----
<S> <C> <C>
Net cash provided by (used in)
operating activities........................................ $ 1,194,101 $(1,782,944)
Net cash provided by (used in) investing activities.......... 2,095,109 (1,755,715)
Net cash (used in) provided by financing activities.......... (3,055,893) 1,546,180
----------- -----------
Change in cash and cash equivalents.......................... $ 233,317 $(1,992,479)
=========== ===========
</TABLE>
Cash at March 31, 2000 was $283,000 an increase of $233,000 from $50,000 at June
30, 1999. During the nine months ending March 31, 2000, cash provided by
operating activities was $1.2 million which is attributable to decreases in
inventory levels of $1.1 million, decrease in accounts receivable of $634,000
and a decrease in prepaid expenses and other assets of $1.3 million.
<PAGE>
Cash provided by investing activities for the nine months ended March 31, 2000
was $2.1 million. The capital expenditures consisted mainly of PIN systems
purchases and signage upgrades, and upgrades to the Company's internal computer
hardware and software systems. Dispositions of company owned car washes and the
chemical plant generated $2.4 million in gross proceeds.
Cash used in financing activities for the nine months ended March 31, 2000 was
$3.1 million. Financing activities during the period included repayments of the
Company's bank facility of $1.6 million and mortgage and notes payable of $1.8
million. The Company signed a note for $345,000 in connection with the transfer
of the Bay Area franchise territory. In addition, the Company sold four car
washes during the second and third quarter that were encumbered by mortgages.
From the net proceeds the Company repaid $1.0 million of principal to Heartland
Bank, holder of the mortgages.
Debt Transactions
The Company has a bank credit agreement with First Union National Bank, under
which the Bank has extended loans to the Company under both a general revolving
line of credit and an acquisition line of credit. The agreement was originally
executed on November 7, 1997 with Signet Bank (which was later acquired by First
Union).
Beginning in the summer of 1998, the Company has not always been able to remain
in compliance with certain financial covenants included in the agreement. As a
result, the agreement has been amended and modified several times including
amendments executed October 12, 1998 and February 22, 1999 (effective
retroactively to February 1, 1999). Prior reports include more detailed
descriptions of these earlier amendments and waivers of non-compliance issued by
the Bank.
In the latest amendment to the agreement (the "Second Amended and Restated Loan
and Security Agreement"), dated October 27, 1999 (effective retroactively to
October 14, 1999), the Bank extended the maturity date of the credit facilities
to October 5, 2000, subject to the satisfaction of certain conditions including
the execution of liens on all owned and unencumbered real property. The terms of
the extension require the Company to engage in a series of further asset sales
generating minimum net proceeds in the aggregate amount of $2,575,000. In
addition, the Company is required to: (a) reduce accounts payable by at least
$250,000 on a cumulative basis, by December 31, 1999, and each quarter
thereafter, (b) not suffer, for the quarter ending December 31, 1999, a negative
net earnings before taxes, depreciation and amortization, but after interest
(excluding accrued or noncash interest payable on the subordinated debt)
exceeding $500,000, excluding the gain (loss) resulting from the required asset
sales, and (c) achieve for each quarter beginning with the quarter ending March
31, 2000, a positive earnings before taxes, depreciation and amortization, but
after interest (excluding accrued or noncash interest payable on the
subordinated debt), exclusive of the required asset sales. In addition, the
Company is obligated to reduce bank debt by an additional $200,000 on or before
September 1, 2000, and must continue to make timely payments of principal and
interest. The Company is not permitted to make payment of any amount of
principal or interest on its subordinated debt in cash without the prior written
consent of the Bank. In addition to the above conditions and requirements to
dispose of certain businesses which have been satisfied, the Company was
required to complete the sale of (1) certain prefabricated lube buildings during
the quarters ended December 31, 1999, and March 31, 2000, and (2) the sale of
certain real property located in Marion, IN and Roscoe, IL, by certain dates.
The Company is currently not in compliance with certain financial covenants. As
of December 31, 1999, and March 31, 2000, the Company succeeded in reducing
accounts payable by the required amount of $250,000. It also achieved the
December 31, 1999, minimum earnings target of no less than $500,000 loss (as
defined above). The requirement of achieving a positive earnings (as defined
above) for the quarter ended March 31, 2000 was not achieved. The Company was
also not able to complete the remaining real property sales by the specified
dates. And there can be no assurances that the Company will be in a position to
satisfy its earnings requirements for the quarter ending June 30, 2000 or to
complete the required asset sales by that time. The Company did receive a
waiver from the Bank, dated February 8, 2000, concerning non-compliance with
certain covenants for the quarter ended December 31, 1999. As of the date of
this filing, the Bank had agreed to provide the Company with a waiver concerning
such non-compliance for the quarter ended March 31, 2000 in return for certain
changes being made to the Second Amended and Restated Loan and Security
Agreement. While the documentation has not yet been finalized, the changes
agreed to include: (1) reducing the availability under the line of credit by
$30,000 per week for eight weeks; and (2) increasing the interest rate for all
existing and future advances by 1%.
In addition to the Bank credit facility, the Company has entered into two
outstanding subordinated debenture transactions and has received mortgage
financing for certain Company-owned real estate. Under the terms of each
subordinated debenture, payments of principal and interest on the subordinated
debt may only be made by the Company if the Company has made all required
payments or is otherwise not in default under the Bank credit facility.
The first subordinated debenture in the amount of $2 million was executed in
October 1998 with an LLC composed of certain members of the Company's board of
directors. Originally due October 15, 1999, the term of the subordinated
debenture has been extended by agreement until September 30, 2000. The Company
has also agreed that default interest in the amount of $266,667 would be paid in
71,111 shares of Common Stock; shareholder approval of which was obtained at
the annual shareholders' meeting on April 12, 2000. 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. The
holder also waived certain existing events of default.
<PAGE>
The second subordinated debenture in the amount of $5 million was executed in
January 1999 directly with one member of the Company's board of directors. $1.4
million of the original principal amount has been repaid. Originally due May
25, 1999, the term of this subordinated debenture has been extended to April 15,
2001. The holder also waived certain existing events of default.
On March 8, 1999, the Company entered into a mortgage with Heartland Bank in the
principal amount of $1,035,000 with an annual interest rate of 8.75%, amortized
over a 20 year period and secured by four of the Company's car washes. This
mortgage was paid off from the sale of the respective secured properties, on
December 22, 1999, and January 28, 2000.
On May 17, 1999, the Company executed nineteen promissory notes totaling
$7,204,000, with FFCA Acquisition Corporation. Each note accrues interest at a
rate of 9.9% per annum and matures on June 1, 2014 with the exception of one
which matures on August 1, 2004. Principal and interest payments are due in
monthly installments commencing on July 1, 1999. Each note is secured by
mortgages on properties. In the event of default the interest rate shall
increase to 18%.
Although the foregoing transactions improved cash flow by converting short term
obligations into long term debt, they have not significantly contributed to
working capital. Accordingly, there can be no assurance that the Company will
not require additional working capital financing to conduct its operations.
From the time that the Company utilized substantially all of its credit facility
in August 1998, the Company's cash flow has been constrained. As a result, the
Company's ability to meet obligations to its suppliers in a timely manner has
been adversely affected, which in turn has adversely affected revenues and
profits of several of its businesses, particularly its distribution business in
the U.S. The Company expects that its businesses will continue to be adversely
affected until sufficient cash is available to meet ongoing supplier obligations
in a timely manner. In October 1998, a new Chief Executive Officer joined the
Company and under his direction the management of the Company has initiated a
program to improve its cash flow. Actions taken to date under this program
include: a reduction in staffing levels of 10% in the Company's field operations
and 15% at the Company's headquarters; reductions in expenses; improved
inventory management; and an acceleration in the collection of accounts
receivable. Future actions under this program are expected to include expanded
expense reductions, dispositions of selected assets, an assessment of the
strategic and financial performance of all aspects of the Company's operations
and the continued restructuring and reorganization of those operations of the
Company that are not meeting their strategic and financial objectives.
While Company management believes that this program will improve its cash flow
and ability to meet future bank covenants and vendor obligations in a timely
manner, there can be no assurance that such program will be effective in meeting
its objectives or that if such objectives are met, that the resulting
improvements in cash flow will be sufficient to avoid the need for additional
reductions in expenditures, sales of additional assets, or supplemental
financing. The Company's auditors have included an explanatory paragraph in
their report to the Company's consolidated financial statements for the fiscal
year ended June 30, 1999 that expresses substantial doubt as to the Company's
ability to continue as a going concern. The expression of this judgement by the
Company's auditors may make successful implementation of the Company's
restructuring program more difficult.
The Company is actively seeking new sources of financing, including financing
for the purpose of refinancing the Bank debt, but there can be no assurances
such financing can be arranged. The Company will be required to obtain such
financing by the October 5, 2000 maturity date, unless the Bank agrees to extend
that date. The Company's failure to obtain new sources of financing, including
financing to refinance the Bank debt, will have a material adverse affect on the
Company's business and the Company may not be able to continue as a going
concern.
Joint Ventures
On November 10, 1999 the Company entered into a joint venture with a national
distributor of auto parts. The agreement is for three years whereby the Company
and the national distributor will promote the sale of auto parts and supplies to
Precision Tune Auto Care franchisees. The Company expects the joint venture will
have a positive impact on cash flow by enabling it to discontinue its auto parts
distribution business.
On March 20, 2000 the Company signed a strategic alliance and co-branding
agreement with Getty Petroleum Marketing. Under the agreement, the Company will
sell franchises and equipment to Getty service stations.
<PAGE>
Seasonality and Quarterly Fluctuations
Seasonal changes may impact various sectors of the Company's business
differently and, accordingly, the Company's operations may be affected by
seasonal trends in certain periods. In particular, severe weather in winter
months can adversely affect the Company because such weather makes it difficult
for consumers in affected parts of the country to travel to Precision Auto Care,
Precision Lube Express, and Precision Auto Wash centers. Severe winter weather
and rainy conditions may also adversely impact the Company's sale and
installation of car wash equipment. Conversely, the Precision Auto Wash business
is favorably impacted by normal winter weather conditions as demand for the
Company's car wash service increases substantially in winter months.
Year 2000 (Y2K) Compliance
The Company replaced its computer system at its corporate headquarters with a
new management information system (MIS). The new MIS system is certified to be
Y2K compliant. The new MIS system is currently being integrated into the
Company's existing network while conversion of the Company's existing data into
the new system continues. Hardware and software costs were approximately
$330,000 in FY99. Additional programming costs are expected to reach $100,000
during FY00 representing 30% of the MIS budget. Potential risks of this
conversion include the lack of adequate internal personnel resources to perform
the conversion and unanticipated delays in software modifications specific to
managing franchise royalty accounting. In addition, the Company replaced its
phone system with a certified Y2K system during the quarter ended December 31,
1999 at a cost of approximately $60,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company's major market risk exposure is to changing interest rates. The
Company's policy is to manage interest rate risk through the use of a
combination of fixed and floating rate debt. The table below provides
information about the Company's debt obligations that are sensitive to changes
in interest rates.
Principal Payments and Interest Rate Detail by Contractual Maturity Dates
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Short-term debt: $275,000 $3,117,000
Term loan.................. $3,392,000
Variable rate.............. LIBOR + 4.75%
Line of credit............. 3,910,000 3,910,000
Variable rate.............. LIBOR + 4.75%
</TABLE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to routine litigation in the
ordinary course of business, including contract, franchise and employment-
related litigation. In the course of enforcing its rights under existing and
former franchise agreements, the Company is subject to complaints and letters
threatening litigation concerning the interpretation and application of these
agreements, particularly in the case of defaults and terminations. None of these
routine matters, individually or in the aggregate, are believed by the Company
to be material to its business or financial condition or results of operations.
In May 1998, a lawsuit was filed against the Company in a Florida state court by
a franchisee shortly after the Company issued him a notice of termination. In
his lawsuit, the franchisee sought a temporary injunction against the Company in
an attempt to prevent his franchise from being terminated and alleged additional
claims including breach of contract, tortuous interference with business
relationships, and slander. The Company filed counterclaims against the
franchisee and asserted various defenses to the franchisee's claims.
In November 1999, the plaintiff brought a motion for sanctions against the
Company for failure to fully comply with discovery instructions issued by the
judge. The motion was granted. Under the court's order, the Company was barred
from presenting its counterclaims and defenses at trial. As a result, the jury
was only permitted to consider evidence relating to the franchisee's alleged
damages, and was not presented with complete evidence respecting the
franchisee's claims or any evidence relating to the Company's claims or defense.
In March 2000, the jury decided to award the franchisee damages in the amount of
approximately $850,000.
The Company and its legal counsel believe that it has ample grounds for seeking
appellate remedies by which, if granted, would result in a new trial in which
all the relevant claims and evidence would be presented. The Company currently
has three pending motions awaiting hearing before the original trial judge,
including a motion for a new trial. The ultimate outcome of this case cannot be
predicted, and the Company cannot make any assurances about obtaining appellate
relief. In the event the judgment is not reversed or the amount of damages is
not significantly reduced on appeal, the award could have a material adverse
effect on the Company's financial position.
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 31, 2000, the Company issued 120,000 restricted shares of Common
Stock to a member of the Board of Directors to satisfy interest accrued on a
subordinated debenture.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The information concerning defaults with respect to the Company's indebtedness
contained in Note 3 to the Company's financial statements and appearing at
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" is incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1999 Annual Meeting of Shareholders was held on April 12, 2000, for: (1) the
election of three Class II directors; (2) issuance of 71,111 shares of Common
Stock in connection with the payment of interest on a subordinated debenture;
(3) adoption of the 2000 Outside Directors' Stock Plan; and (4) to ratify the
selection of Ernst & Young LLP as indepenent auditors for the Company for fiscal
year 2000. A total of 5,080,405 of the 6,284,673 votes entitled to be cast at
the meeting were present in person or by proxy. At the meeting, the
shareholders:
(1) Elected the following directors: Number of Shares
<TABLE>
<CAPTION>
Number of Shares
Number of Shares Authority
Director Voted For Withheld
-------- ---------------- ----------------
<S> <C> <C> <C>
Woodley A. Allen 5,027,936 52,469
Bassam N. Ibrahim 5,028,336 52,069
Arthur Kellar 5,009,536 70,869
</TABLE>
(2) Approved the issuance of 71,111 shares of Common Stock in connection with
the payment of interest on a $2 million subordinated debenture due September 30,
2000 by an affirmative vote of 3,039,156; votes against issuance were 90,777;
and abstentions were 33,711.
(3) Approved the adoption of the Precision Auto Care, Inc. 2000 Outside
Directors' Stock Plan and the reservation of 50,000 shares for issuance
thereunder by an affirmative vote of 3,859,467; votes against adoption were
1,199,338; and abstentions were 21,600
(4) Ratified the selection of Ernst & Young LLP as independent auditors for the
Company for fiscal year 2000 by an affirmative vote of 3,648,853 votes against
ratification were 685,044; and abstentions were 57,262. No other matters were
submitted to a vote of the shareholders at the meeting.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
10 Strategic Alliance and Service Agreement
(Confidential treatment requested)
27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on May 15, 2000.
Precision Auto Care, Inc.
By: /s/ Charles L. Dunlap
-------------------------------------
Charles L. Dunlap
President and Chief Executive Officer
(Duly Authorized Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Charles L. Dunlap President, Chief Executive May 15, 2000
- ------------------------ Officer and Director
Charles L. Dunlap (Principal Executive Officer)
/s/ Jerry L. Little Senior Vice President and Chief May 15, 2000
- ------------------------ Financial Officer (Principal
Jerry L. Little Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Number PAGE
------ ----
10 Strategic Alliance and Service Agreement
(Confidential treatment requested)
27 Financial Data Schedule
<PAGE>
STRATEGIC ALLIANCE
AND
SERVICE AGREEMENT
by and between
PRECISION AUTO CARE, INC.
and
PETRO USA INC.,
a subsidiary of Getty Petroleum Marketing, Inc.
<PAGE>
STRATEGIC ALLIANCE
------------------
AND
---
SERVICE AGREEMENT
-----------------
This Strategic Alliance and Service Agreement (the "Agreement") is made and
entered into as of March 20, 2000, by and between PRECISION AUTO CARE, INC.
("Precision"), a Virginia corporation having its principal place of business at
748 Miller Drive, S.E., Leesburg, Virginia 20175, and PETRO USA INC. ("PETRO"),
a New York corporation and a subsidiary of Getty Petroleum Marketing Inc.
("Getty"), a Maryland corporation having its principal place of business at 125
Jericho Turnpike, Jericho, New York 11753.
R E C I T A L S:
---------------
A. Precision as the result of the expenditure of time, skill, effort, and
money has developed and owns unique and distinctive systems ("Systems") for the
establishment and operation of an automotive service business;
B. The distinguishing characteristics of the Systems include, without
limitation, unique and specialized training, management, and marketing
techniques and materials; procedures and methods of operation; uniform
standards, specifications, and procedures for products, equipment and services;
distinctive appearance; and advertising and promotional programs, all of which
may be changed, improved, and further developed by Precision from time to time;
C. Precision identifies the System by means of certain trade names,
service marks, trademarks, logos, emblems, and indicia of origin ("Proprietary
Marks"), including but not limited to the name and marks "PRECISION TUNE AUTO
CARE", "PRECISION LUBE EXPRESS" and "PRECISION AUTO WASH" and such other names,
marks and indicia as may now or hereafter be designated by Precision in writing
for use in connection with the System;
D. Precision continues to develop, use, and control the use of the
Proprietary Marks in order to identify for the public the source of products and
services marketed under the Proprietary Marks and to represent the high
standards of quality associated with the Proprietary Marks;
E. The parties desire to co-brand their proprietary marks by offering to
certain Getty dealers the opportunity to become Precision Tune Auto Care(R),
Precision Lube Express(R), or Precision Auto Wash(R) franchises at the Getty(R)
service stations ("Precision Franchisees") which are leased by Getty to such
dealers ("Getty Co-Branding Program"); and
F. PETRO, acknowledging the importance of maintaining high and uniform
standards of quality in connection with the Systems and the Proprietary Marks,
desires to assist Precision in the support of Precision's franchisees at certain
Getty(R) locations throughout the Northeast and Mid-Atlantic states in
accordance with the terms and conditions of this Agreement by performing certain
services relating to the Getty Co-Branding Program.
1
<PAGE>
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual
undertakings and commitments set forth in this Agreement, Precision and PETRO
hereby agree as follows:
ARTICLE I. APPOINTMENT; TERMINATION
--------------------------------------
1.1 Precision hereby appoints PETRO to assist in the support of Precision
franchises (the "Precision Franchises") at certain locations at which Getty (or
its dealers) are operating Getty(R) gasoline stations and other branded services
and to relieve Precision from performing certain services at those locations.
PETRO hereby accepts and agrees to discharge its obligations as provided in this
Agreement.
1.2 During the term of this Agreement, PETRO acknowledges and agrees that
Precision may grant similar agreements to third parties to either promote the
sale of Precision Franchises to prospective franchisees and/or to provide
support services to such franchisees, subject only to any exclusive territory
rights under the Precision Franchise agreements (the "Franchise Agreements").
1.3 The term of this Agreement shall commence on the date first mentioned
above and continue in effect until the first to occur of (i) termination of all
Precision Franchises located at Getty(R) service stations; or (ii) ten (10)
years, unless earlier terminated or canceled as provided herein. PETRO may
become entitled to renew this Agreement for unlimited additional consecutive
terms of five (5) years subject to the following conditions:
1.3.1 PETRO shall have substantially complied with all of the material
terms and conditions of this Agreement throughout the initial term, or
renewal term, and at the time of renewal shall not be in default of any
material term or condition of this Agreement, any amendment hereof, or any
other agreement between PETRO and Precision, its subsidiaries, affiliates
or divisions;
1.3.2 PETRO shall give Precision written notice of its desire to renew not
less than six (6) months nor more than twelve (12) months prior to the
expiration of the then-current term;
1.3.3 PETRO shall comply with Precision's then-current qualification and
training requirements for PETRO and their employees;
1.3.4 The parties shall execute a mutual general release, in a form
mutually acceptable to both parties, of any and all claims, except for
indemnification for negligence claims and patent and trademark claims,
against one another and its subsidiaries, affiliates and divisions, and
their respective officers, directors, shareholders, employers and agents;
and
1.3.5 The parties shall execute an extension of this Agreement.
2
<PAGE>
1.4 This Agreement is not a license agreement and does not grant PETRO any
rights to use the Proprietary Marks except in its performance of its duties and
does not grant PETRO the right to grant franchises or subfranchises. PETRO's
rights to use the Proprietary Marks beyond its operations under this Agreement
are limited and governed by the terms of separate franchise or license
agreements, if any, between Precision and PETRO and / or Getty.
1.5 Nothing in this Agreement shall be deemed to require PETRO to purchase
or operate Precision Franchises. If PETRO desires to purchase or operate
Precision Franchises, PETRO may do so subject to the terms and conditions being
offered by Precision with regard to Precision Franchises.
ARTICLE II. DESCRIPTION OF STRATEGIC ALLIANCE AND
----------------------------------------------------
OBLIGATIONS OF PRECISION AND PETRO;
-----------------------------------
2.1 Petro agrees that it will from time to time present potential Getty
sites to Precision for consideration for a Precision Franchise. Upon
Precision's request, Petro will discuss a Precision Franchise with a mutually
selected Getty dealer and present to him the requisite Disclosure Documents.
Petro, with Precision's assistance, will complete the administration of the
requisite Contract Documents. (The Disclosure Documents and Contract Documents
are hereinafter collective referred to as "Documents".)
2.2 The parties have initially selected * potential Getty sites for which
Documents will be presented to the Getty dealers. The addresses of the * sites
are set forth on Schedule 1 hereto. The Documents shall also include the
Getty(R) Co-Branding Addendum, the Trial Franchise Addendum and the Amendments
to Getty Lease and to Getty Contract, the current forms of which are attached
hereto as Exhibits A, B, C and D. Franchise Agreements with Getty dealers who
lease sites not listed on Schedule 1 shall not have the Trial Franchise
Addendum.
2.3 In the event that a Franchise is terminated at the end of the one-year
trial period or at any time because of a Franchisee's default , Precision agrees
that the $* Initial Franchise Fee for the next Franchise Agreement entered
into with a Getty dealer at the same location will be reduced by Precision to
$* to cover the cost of training.
2.4 The parties hereto agree that if a dealer/Franchisee is in default
under the Getty Lease or Getty Contract, pursuant to the Franchise Agreement,
Petro shall have the right to advise Precision of the default and at Petro's
direction, Precision shall give notice of default to the dealer/Franchisee, and
take whatever action is necessary and proper as required by Petro (including
without limitation the commencement of legal proceedings) and by the cross-
default provisions in the applicable Contract Documents. In the event that
Petro wrongfully or incorrectly initiates the foregoing default procedure, Petro
agrees that it shall defend, indemnify and hold harmless Precision against any
cause of action, claim or counter-claim that may be asserted by the
dealer/Franchisee against Precision because of such wrongful or incorrect
default initiation. Otherwise, each party shall defend itself at its own
expense.
* Confidential portions omitted and filed separately with the Commission.
3
<PAGE>
2.5 In the event that Getty or Petro, in its sole judgment and discretion,
determines at the end of the one-year trial franchise period for the * Getty
sites (or such lesser number of sites which become Precision Franchise sites
with the Trial Franchise Addendum) that the Precision Franchises are not
suitable for Getty service stations, then such party, in addition to electing
not to continue such * or fewer Precision Franchises, shall have the right to
terminate this Agreement in its entirety. In such event there will be no refund
of Franchise Fees or Operating Fees and Getty and Petro will forego its right to
have Initial Franchise Fees reduced to $* for any new Precision Franchises,
Getty or its dealers may obtain in the future.
2.6 Development and Right of First Refusal
2.6.1 The parties agree to review the Getty(R) service stations and
mutually determine which, if any, of such locations are suitable for the
development and operation of a Precision Franchise. The development and
operation of a Precision Franchise shall only be commenced after the
execution of an appropriate franchise agreement substantially in the form
of Exhibit 1 (for a Precision Tune Auto Care Center), Exhibit 2 (for a
Precision Lube Express Center), or Exhibit 3 (for a Precision Auto Wash),
all of which forms are attached to this Agreement, including the Getty Co-
Branding Addendum.
2.6.2 Precision plans to continue the development of Precision
Franchises throughout the country. It is agreed therefore that upon PETRO
receiving notice from Precision of its intent to sell a particular
Precision Franchise within a * mile radius of any of the Getty(R) service
stations selected in paragraph 2.1.1 above for the development and
operation of a Precision Franchise, Getty or PETRO shall have the option to
purchase a similar Precision Franchise within 30 days of its receipt of
said notice and thereby preclude Precision's sale of said similar Precision
Franchise within such * mile radius for the term of this Agreement.
2.7 Getty shall be responsible for the following items relating to the
establishment of a Precision Franchise:
2.7.1 Pre-opening site review
2.7.2 Analysis of potential universe of sites
2.7.3 Construction management
2.7.4 Financing, if any, of the improvements and equipment
2.7.5 Coordination of signage conversion
2.8 It is understood that, in order for a site to qualify as a Precision
Lube Express(R), the center must have at least two service bays and in order for
a site to qualify as a Precision Tune Auto Care(R), the center must have at
least three service bays.
2.9 For each Precision Franchise opened and established, Precision shall
reimburse PETRO:
* Confidential portions omitted and filed separately with the Commission.
4
<PAGE>
2.9.1 * the actual cost of approved building wrap signage
up to a maximum reimbursement of *, and
2.9.2 * the actual cost of approved signage for the pole
can signs up to a maximum reimbursement of *.
ARTICLE III. FEES AND COMPENSATION
------------------------------------
3.1 In consideration of the undertaking of the support services undertaken
by PETRO hereunder, Precision shall pay to PETRO * of the initial franchise fees
and operating fees (as defined in the franchise agreements) which Precision
actually receives for each Precision Franchise. PETRO agrees that in
consideration of its portion of the initial franchise fee received on Precision
Franchises beginning with the first (1st) Precision Franchisee though the *,
Precision shall allocate from PETRO's portion, * to be applied as a credit
towards parts and supplies at Service Champ(R). PETRO also agrees that in
consideration of the initial franchise fee received on the first * Precision
Franchises, PETRO shall provide * for Grand Opening advertising in addition to
the amount required under each Precision Franchise. PETRO shall not be entitled
to discounts related to the initial franchise fee.
3.2 Precision shall make payments to PETRO as follows:
3.2.1 PETRO's portion of each initial franchise fee (as defined
in the franchise agreements) shall be paid within fifteen (15) days
after Precision has received both the initial franchise fee and a
signed original of a Precision Franchise Agreement and related
documents;
3.2.2 PETRO's portion of all operating fees (as defined in the
franchise agreements) paid to Precision shall be paid within two (2)
business days after receipt by Precision.
3.3 It is understood and agreed that PETRO shall collect these fees (as
defined in the franchise agreements) from the Precision Franchises according to
their franchise agreements and agreements Getty will enter into with its
dealers. Upon receipt of such fees, PETRO shall remit to Precision * of the
collected fees within two (2) business days. Precision shall be entitled, at
its option and from time to time, to offset its payments to PETRO by any amount
that may be currently due and payable by PETRO or any affiliated entity of PETRO
to Precision, its subsidiaries or affiliates. Precision shall provide PETRO
with an accounting at the time any such deduction or offset is made.
3.4 PETRO shall use reasonable and best efforts to collect fees due from
Precision Franchisees, however, neither PETRO nor Getty shall be responsible or
liable for fees which are uncollectible from Precision Franchisees. Upon
collection of such fees, PETRO is responsible
* Confidential portions omitted and filed separately with the Commission.
5
<PAGE>
for remitting to Precision such fees in a timely manner as prescribed by this
Agreement. Notwithstanding the aforementioned, in the event that it should
become necessary for Precision or PETRO, on behalf of Precision, to engage the
services of a lawyer in order to enforce on a Precision Franchisee the
obligations and duties imposed by any Franchise Agreement, or if Franchisor
files suit against any Precision Franchisee with respect to enforcing the
obligations and duties of any Franchise Agreement, then PETRO agrees to pay
Franchisor a portion of all fees, costs and expenses, including, but not limited
to, attorney's fees and court costs, incurred by Franchisor equal to that
portion of the operating fees to be received by PETRO.
3.5 The parties may, by mutual agreement, at any time, issue a refund of
all or any portion of the initial fee paid. For each such refund, PETRO shall
pay to Precision its pro rata share of the refund, based on the portion of the
initial fee originally received by PETRO, within ten (10) business days after
such agreement.
3.6 Precision has affiliated entities which sell certain parts, products,
and supplies, including equipment, through Service Champ(R), which may be
purchased for use at the Precision Franchises. Precision agrees to pay to Getty
the following amounts for any parts, products and supplies, including
equipment*, purchased and paid for from Service Champ or Precision Tune Auto
Care, Inc. from the Precision Franchisees located at the Getty(R) service
stations:
o * on sales up to * in each twelve month period beginning April 1,
2000; plus
o * on sales between * and * in each twelve month period
beginning April 1, 2000; plus
o * in excess of * in each twelve month period beginning April 1, 2000.
* Purchases of equipment from Service Champ(R) or Precision Tune Auto Care
shall count towards the sales levels required above; however, prior to
determining the monthly amount paid to Getty, equipment purchases shall be
deducted from sales figures. For example, purchases and payments received
total *, which includes sales of * on equipment. Getty would be entitled to
* of * plus * of * because the equipment sales of * were deducted from the
monthly sales figure.
Such payments shall be made monthly by the 15th of each month on amounts
collected (good funds) in payment for purchases made in the prior month.
ARTICLE IV. DUTIES OF PETRO; SERVICES PROVIDED
------------------------------------------------
4.1 Except as Precision may otherwise expressly permit in writing, PETRO
shall devote reasonable efforts to the promotion, service and support of the
Precision Franchises pursuant to this Agreement.
* Confidential portions omitted and filed separately with the Commission.
6
<PAGE>
4.2 Precision may require that the employees of PETRO who are actively
involved in the promotional, service and support operations of PETRO hereunder
attend and satisfactorily complete such training programs as Precision may
require.
4.3 PETRO shall be responsible for all expenses incurred by its employees
in connection with such training programs, including, without limitation, costs
and expenses of transportation, lodging, meals, and wages and employee benefits.
4.4 In conjunction with Precision marketing personnel, PETRO shall be
responsible for organizing and coordinating local advertising and promotional
activities for the Precision Franchises in accordance with the terms of the
Franchise Agreements.
4.5 PETRO shall comply with Precision's reasonable requirements for
customer satisfaction programs and quality control, including responding to
customer complaints and inquiries relating to the Precision Franchises,
mediating disputes with customers and providing periodic oral and written
reports to Precision on the results of such contacts.
4.6 Not less frequently than once a month, PETRO shall inspect each
Precision Franchise center and make a written report to Precision on the results
of its inspections using the forms provided by Precision for that purpose.
PETRO shall also submit to Precision upon request from time to time such other
forms, reports, records, statements, information, and data as Precision may
reasonably require, in the form and at the times and places specified by
Precision.
4.7 PETRO shall provide full assistance and information as reasonably
requested by Precision in connection with requiring compliance with all
Precision standards and procedures, including but not limited to their Franchise
Agreements and related agreements and Getty's agreements with its dealers and
submission of required reports and payments.
4.8 PETRO may purchase or lease all equipment, inventory, supplies, tools,
and other products and materials required for the performance of PETRO's
obligations hereunder solely from suppliers (including distributors,
manufacturers, and other sources) who demonstrate, to the continuing reasonable
satisfaction of Precision, the ability to meet Precision's reasonable standards
and specifications for such items; who possess adequate quality control and
capacity to meet PETRO's needs promptly and reliably; and who have been approved
in writing by Precision and not thereafter disapproved. If PETRO desires to
purchase any items from an unapproved supplier, PETRO or the supplier shall
submit to Precision a written request for approval. Precision's approval shall
not be unreasonably withheld. Precision reserves the right to require that its
representatives be permitted to inspect the supplier's facilities and that
samples from the supplier be delivered to Precision or its designee for testing.
Precision may impose a charge not to exceed the reasonable costs of inspection
and testing, which shall be paid by PETRO or the supplier. Precision reserves
the right from time to time to reinspect the facilities and products of any
previously approved supplier and to revoke its approval upon the supplier's
failure to continue to meet any of Precision's standards and specifications.
7
<PAGE>
4.9 If PETRO obtains services from third-party providers with respect to
the Precision businesses, Precision shall have the right to review the terms and
conditions of such arrangements and require additional information about the
business background and qualifications of the providers, including (at
Precision's option) personal interviews with individuals providing such
services. If, in providing services to PETRO, any third party may obtain access
to confidential information concerning Precision, the System and/or Precision
businesses, Precision may require, as a condition of approval of such provider,
the execution of covenants of non-disclosure and non-competition in a form
satisfactory to Precision. Precision may disapprove any provider who does not
demonstrate, to Precision's continuing satisfaction, an ability to comply with
the methods, procedures and standards established for the System and set forth
in the Manuals or otherwise in writing and to meet PETRO's needs promptly and
reliably.
4.10 Failure by PETRO, at any time after receipt of thirty (30) days
notice to cure, to provide any of the services required hereunder, shall
constitute a material default under this Agreement. Upon such default,
Precision, in its discretion, may provide services directly and charge PETRO for
Precision's out of pocket costs and expenses in doing so.
ARTICLE V. CONFIDENTIAL INFORMATION
-------------------------------------
5.1 The parties expressly understand and agree that a confidential
relationship is established between Precision and PETRO under this Agreement and
that, as a result thereof, the parties will be disclosing and transmitting to
one another certain confidential and proprietary information relating to their
respective businesses, the Systems and the development of Precision Franchises.
The parties hereby agree that:
5.1.1 they shall treat and maintain such information as
confidential during the term of this Agreement and thereafter;
5.1.2 they shall use such information only for its operations
under this Agreement;
5.1.3 they shall disclose such information only to its employees
or agents and not to anyone else;
5.1.4 they shall restrict disclosure of such information to only
those of their principals, employees or agents who are directly
connected with the performance of work requiring knowledge thereof and
shall disclose only as much information as is required to enable those
employees or agents to carry out their assigned duties;
5.1.5 they shall advise their principals, employees and agents
of the confidential nature of such information and the obligation not
to disclose it; and
8
<PAGE>
5.1.6 Upon request, the party receiving the information (the
"Receiving Party") shall obtain and deliver to the providing party
(the "Providing Party") signed confidentiality agreements (see Exhibit
1) from any or all principals, employees or agents who may have access
to confidential information. Such agreements shall be in a form
satisfactory to the Providing Party and shall identify the Receiving
Party as a third-party beneficiary with the independent right to
enforce them.
5.2 Any and all information, knowledge, techniques and know-how, including
any and all records thereof in any form, which the Providing Party designates as
confidential shall be deemed confidential for purposes of this Agreement, except
information which the Receiving Party can demonstrate came to its attention
prior to disclosure thereof, or which, at the time of disclosure was in the
public domain; or which, after the time of disclosure enters the public domain
through publication or lawful communication by persons other than the Receiving
Party, its principals, employees or agents.
5.3 Both parties acknowledge that any failure to comply with the
requirements of this Article will cause irreparable injury for which no adequate
remedy at law may be available. Accordingly, the parties consent to the issuance
of an order of specific performance, or an injunction against violation of the
terms of this Article.
ARTICLE VI. INSPECTIONS
------------------------
6.1 Subject to the rights of tenancy of the Getty dealers, PETRO shall
grant Precision and its agents the right to conduct inspections and to monitor
the operations at the locations of the Precision Franchisees. PETRO shall
cooperate fully in such inspections and, immediately upon notice from Precision,
shall make reasonable efforts to cause the non-complying Precision Franchisees
to correct any deficiencies.
ARTICLE VII. TRANSFER OF INTEREST
-----------------------------------
7.1 PETRO understands and acknowledges that the rights and duties of PETRO
set forth in this Agreement are personal to PETRO and that Precision has entered
into this Agreement in reliance on PETRO's business experience and financial
capacity. Accordingly, PETRO agrees that Precision's express prior written
consent shall be a necessary condition precedent to the sale, assignment,
transfer, conveyance, gift, pledge, mortgage, encumbrance, or hypothecation of
any direct or indirect interest in this Agreement or the rights granted
hereunder. Except as specifically provided in this Article, any purported
assignment or transfer, by operation of law or otherwise, not having the express
prior written consent of Precision shall be null and void; of no effect on
Precision, and shall constitute a material breach of this Agreement. PETRO
acknowledges and agrees that each condition required to be met by a proposed
transferee hereunder is necessary to assure the transferee's full performance of
its obligations hereunder.
9
<PAGE>
7.2 Notwithstanding the foregoing, PETRO shall be entitled to transfer, to
Getty or to another wholly-owned subsidiary of Getty, its interest in and rights
under this Agreement to an entity that is wholly-owned by PETRO provided that
PETRO shall provide its guaranty of the transferee.
7.3 Precision's consent to any proposed transfer shall not be deemed to
constitute a waiver of any claims Precision may have against any transferor, any
right to demand exact compliance with any terms of this Agreement by any
transferor or transferee, any future rights or options of Precision, or any
provision of this Agreement.
7.4 Precision shall have the right to transfer and assign all or any part
of its interest herein, including its rights of first refusal to any person or
legal entity.
7.5 In the case either party shall consolidate or merge into or with
another corporation, or in the case either party shall sell or convey to any
other person or persons fifty one percent (51%) of that party's outstanding
common stock, the other party shall have the right to terminate this Agreement
immediately upon the other party's action set forth herein this paragraph
provided only if the surviving entity has a net worth less than the net worth of
the acting party at the time this Agreement was entered into.
ARTICLE VIII. DEFAULT AND TERMINATION
--------------------------------------
8.1 Except as set forth in paragraph 7.5, either party shall have thirty
(30) days after receipt of a written Notice of Default within which to remedy
any default hereunder and provide evidence thereof. If any such default is not
cured within that time, this Agreement may be terminated by the non-defaulting
party upon written notice to the defaulting party. Notwithstanding the
foregoing language, the cure period for non-monetary defaults shall be extended
for additional time so long as the defaulting party is diligently pursuing a
cure of the default and the reason the default has not been cured is beyond the
control of the defaulting party. The defaulting party shall provide the non-
defaulting party written evidence of its efforts to cure any defaults. The
filing of the petition of bankruptcy which is not withdrawn within thirty (30)
days shall constitute an event of default for which the non-defaulting party may
terminate this Agreement.
ARTICLE IX. OBLIGATIONS UPON TERMINATION OR EXPIRATION
------------------------------------------------------
9.1 Upon the expiration of this Agreement, or its termination for any
reason, all of PETRO's rights hereunder shall terminate. In particular, and
without limiting the foregoing, PETRO shall immediately cease its activities
hereunder and shall:
9.1.1 Immediately deliver to Precision or its designee all
documents, records and materials in PETRO's possession or control
relating to its activities
10
<PAGE>
under this Agreement. PETRO agrees to sign an affidavit, if requested
by Precision, to verify its compliance with this subsection; and
9.1.2 Comply with all requirements under this Agreement which
expressly or by reasonable implication apply to PETRO's conduct after
termination or expiration.
9.2 In the event of any default under this Agreement, the defaulting party
shall pay the non-defaulting party all costs and expenses, including reasonable
out of pocket legal and accounting fees, incurred in connection with obtaining
damages or injunctive or other relief for the enforcement of any provisions of
this Agreement.
ARTICLE X. RESTRICTIVE COVENANTS
--------------------------------
10.1 During the term of this Agreement, PETRO covenants that it shall not,
either directly or indirectly, for itself, or through, on behalf of, or in
conjunction with any person, persons, or legal entity, divert or attempt to
divert any potential franchisee prospect or any other business, opportunity, or
customer of Precision to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act injurious or
prejudicial to the goodwill associated with the Proprietary Marks and the
System.
10.2 During the term of this Agreement and for a period of two (2) years
after its termination or expiration, PETRO covenants that it shall not, either
directly or indirectly, employ or seek to employ any person who is at that time
(or was within the previous six [6] months) employed by Precision or by any
Precision area representative, franchisee, or developer without the prior
express permission of such employer, or otherwise directly or indirectly induce
any such employee to leave his or her employment.
10.3 PETRO specifically acknowledges that, pursuant to this Agreement,
PETRO will receive valuable specialized training and confidential information,
including, without limitation, information concerning the operational, sales,
promotional, and marketing methods and techniques of Precision and the System.
PETRO covenants as follows:
10.3.1 During the term of this Agreement, except as otherwise approved in
writing by Precision, PETRO shall not, either directly or indirectly,
or for itself or through or on behalf of, or in conjunction with any
person, persons, or legal entity, own, maintain, operate, engage in,
be employed by, or have any interest in any business involving the
offer, sale or operational support of franchises or businesses similar
to the business being conducted by Precision franchises.
10.4 Section 10.3 shall not apply to ownership by PETRO of less than a
five percent (5%) beneficial interest in the outstanding equity securities of
any publicly held corporation or to
11
<PAGE>
the ownership or rental of real estate to any third party, including a Getty
dealer, upon which a business similar to the Precision franchised business is
located.
10.5 The parties agree that each of the foregoing covenants shall be
construed as independent of every other covenant or provision of this Agreement.
If all or any portion of a covenant in this Article is held unreasonable or
unenforceable by a court or tribunal having jurisdiction in an unappealable
final decision to which Precision is a party, PETRO expressly agrees to be bound
by any lesser covenant subsumed within the terms of such covenant that imposes
the maximum duty permitted by law, as if the resulting covenant were separately
stated in and made a part of this Article.
10.6 PETRO understands and acknowledges that Precision shall have the
right, in its sole discretion, to reduce the scope of any covenant set forth in
this Article which imposes an obligation on PETRO, or any portion thereof,
without PETRO's consent effective immediately upon receipt by PETRO of written
notice thereof and PETRO agrees to comply forthwith with any covenant as so
reduced, or, if PETRO does not agree, to terminate this Agreement.
Notwithstanding the foregoing, Precision shall not in any way reduce the scope
of any covenant if such reduction would in any way effect PETRO's rights
hereunder.
10.7 PETRO acknowledges that any material failure to comply with the
requirements of this Article will cause Precision irreparable injury for which
no adequate remedy at law may be available. Accordingly, upon notice and
receipt of proper service of process, PETRO consents to the issuance of an order
of specific performance, temporary restraining order, or preliminary or
permanent injunction against violation by PETRO of the terms of this Article.
10.8 Notwithstanding anything in this Article X, Precision acknowledges
and understands that Getty's dealers perform repair services, change oil, wash
cars and perform other services similar to Precision Franchises, and that such
dealers may continue to do so in the future.
ARTICLE XI. INDEPENDENT CONTRACTOR
------------------------------------
11.1 It is understood and agreed by the parties hereto that this Agreement
does not create a fiduciary relationship between them; that both parties shall
are independent contractors, and that nothing in this Agreement is intended to
constitute either party as an agent, legal representative, subsidiary, joint
venturer, partner, employee, or servant of the other for any purpose whatsoever.
11.2 During the term of this Agreement, each party shall hold itself out
to the public as an independent contractor operating pursuant to an arm's length
agreement. Each party agrees to take such action as may be necessary to do so.
11.3 It is understood and agreed that nothing in this Agreement authorizes
either party to make any contract, agreement, warranty, or representation on the
other's behalf, or to incur any
12
<PAGE>
debt or obligation in the other's name; and that neither party shall in any
event assume liability for, or be deemed liable hereunder as a result of any
such action; nor shall either party be liable by reason of any act or omission
of the other in the conduct of its business or for any claim or judgment arising
therefrom against PETRO or Precision.
ARTICLE XII. INDEMNIFICATION
------------------------------
12.1 As used in this Article XII, the phrase "losses and expenses" shall
include, without limitation, all losses, compensatory, exemplary or punitive
damages, fines, charges, costs, lost profits, reasonable attorneys' fees,
accountants' fees, expert witness fees, expenses, court costs, settlement
amounts, judgments, compensation for damages to reputation and goodwill, costs
of or resulting from delays, financing, cost of advertising material and media
time/space, and cost of changing, substituting or replacing the same, and any
and all expenses of recall, refunds, compensation, public notices and other such
amounts incurred in connection with the matters described.
12.2 Each party shall, at all times, indemnify and hold harmless to the
fullest extent permitted by law the other and its affiliates, successors and
assigns and respective directors, officers, employees, agents and their
representatives (collectively, the "Indemnitees") from all losses and expenses
incurred in connection with any action, suit, proceeding, claim, demand,
investigation or inquiry (formal or informal), or any settlement thereof
(whether or not a formal proceeding or action has been instituted) which arises
out of or is based upon any of the following:
12.2.1 a violation, breach or asserted violation or breach of
any contract, federal, state or local law, regulation, rule, order,
standard or directive, or of any industry standard;
12.2.2 libel, slander or any other form of defamation;
12.2.3 a violation or breach of any warranty, representation,
agreement or obligation in this Agreement;
12.2.4 acts, errors or omissions of a party or any of its
agents, servants, employees, contractors, partners, affiliates or
representatives; and
12.2.5 claims for patent or trademark misuse or infringement (in
the case of Getty only as to the Getty(R) trademarks).
12.3 Each party shall promptly notify the other of any action, suit,
proceeding, claim, demand, inquiry or investigation as described in Section
12.2. If a party is or may be named as a party in any such action, said may
elect (but under no circumstances will be obligated) to undertake the defense
and/or settlement thereof. No such understanding shall, in any manner or
13
<PAGE>
form, diminish one party's obligation to indemnify the other in respect thereof
and to hold it harmless.
12.4 With respect to any action suit, prosecution, claim demand, inquiry
or investigation either party may, at any time and without notice, in order to
protect persons or property or the reputation or goodwill of said party or
others, order, consent or agree to any settlement or take any remedial or
corrective action as said party deems expedient, if, in said party's sole
judgment, there are reasonable grounds to believe that:
12.4.1 any of the acts or circumstances enumerated in Section
12.2 have occurred; or
12.4.2 any act, error, or omission which may result directly or
indirectly in damage, injury or harm to any person or any property.
12.5 All losses and expenses incurred under this Article shall be
chargeable to and paid pursuant to the obligations of indemnity hereunder,
regardless of any actions, activity or defense undertaken or the subsequent
success or failure of such actions, activity or defense. A party may offset any
loss or expense for which it is required to indemnify hereunder against any
amount or sum payable.
12.6 Under no circumstances shall the Indemnitees be required or obligated
to seek recovery from third parties or otherwise mitigate their losses in order
to maintain a claim. The failure to pursue such recovery or mitigate loss will
in no way reduce the amounts recoverable by the Indemnitees.
12.7 The Indemnitees assume no liability whatsoever for any acts, errors,
or omissions of any persons with whom it may contract, regardless of the
purpose.
ARTICLE XIII. APPROVALS AND WAIVERS
-------------------------------------
13.1 Neither party makes any warranties or guarantees upon which the other
may rely, and assumes no liability or obligation to the other by providing any
waiver, approval, consent, or suggestion in connection with any consent, or by
reason of any neglect, delay, or denial of any request therefor.
13.2 No failure by a party to exercise any power reserved to it under this
Agreement, or to insist upon compliance with any obligation or condition in this
Agreement, and no custom or practice of the parties at variance with the terms
hereof, shall constitute a waiver of rights to demand exact compliance with any
of the terms of this Agreement. Waiver, express or otherwise, of any particular
default shall not affect or impair the rights with respect to any subsequent
default of the same or a different nature; nor shall any delay, forbearance, or
omission to exercise any power or right arising out of a breach or default of
any of the terms, provisions, or
14
<PAGE>
covenants of this Agreement affect or impair any rights; nor shall such
constitute a waiver of any rights hereunder or rights to declare any subsequent
breach or default.
ARTICLE XIV. NOTICES
---------------------
14.1 All notices hereunder shall be in writing and shall be personally
delivered, telecopied, or mailed by certified or registered mail, return receipt
requested, to the respective parties at the following addresses unless and until
a different address has been designated by written notice to the other party:
Notices to Precision: PRECISION AUTO CARE
Attn: Office of the General Counsel
748 Miller Drive, S.E.
Leesburg, Virginia 20175
Facsimile (703) 771-7108
Notices to PETRO: PETRO USA INC.
c/o GETTY PETROLEUM MARKETING INC.
Attn: Vincent J. DeLaurentis
125 Jericho Turnpike
Jericho, New York 11753
Facsimile (516) 338-6062
Notice shall be deemed received by the addressee on the earlier of actual
receipt or five (5) business days after transmission when transmitted in
compliance with this Section.
ARTICLE XV. ENTIRE AGREEMENT
------------------------------
15.1 This Agreement, the documents referred to herein and the attachments
hereto constitute the entire, full, and complete agreement between Precision and
PETRO concerning the subject matter hereof, and supersede all prior and
contemporaneous agreements, promises, representations and statements, oral or
written.
15.2 No amendment, change, or variance from this Agreement shall be
binding on either party unless mutually agreed to by the parties and executed by
their authorized officers or agents in writing.
ARTICLE XVI. SEVERABILITY AND CONSTRUCTION
--------------------------------------------
16.1 Except as expressly provided to the contrary herein each portion,
section, part, term and/or provision of this Agreement shall be considered
severable; and if, for any reason, a portion, section, part, term, and/or
provision herein is determined to be invalid and contrary to, or
15
<PAGE>
in conflict with, any existing or future law or regulation by a court or agency
having valid jurisdiction, such shall not impair the operation of, or have any
other effect upon, such other portions, sections, parts, terms, and/or
provisions of this Agreement as may remain otherwise intelligible; and the
latter shall continue to be given full force and effect and bind the parties
hereto; and said invalid portions, sections, parts, and/or provisions shall be
deemed not to be a part of this Agreement.
16.2 Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than PETRO, or Precision, and such of PETRO's and Precision's
respective successors and assigns as may be contemplated (and, as to PETRO,
permitted) by this Agreement, any rights or remedies under or by reason of this
Agreement.
16.3 PETRO and Precision expressly agree to be bound by any promise or
covenant imposing the maximum duty permitted by law which is subsumed within the
terms of any provision hereof, as though it were separately articulated in and
made a part of this Agreement, that may result from striking from any of the
provisions hereof any portion or portions which a court may hold to be
unreasonable and unenforceable in a final decision to which Precision is a
party, or from reducing the scope of any promise or covenant to the extent
required to comply with such a court order.
16.4 All captions in this Agreement are intended solely for the
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof.
16.5 All references herein to the masculine, neuter, or singular shall be
construed to include the masculine, feminine, neuter, or plural, where
applicable.
ARTICLE XVII. APPLICABLE LAW
-----------------------------
17.1 This Agreement shall be interpreted and construed under the laws of
New York, which laws shall prevail in the event of any conflict of law;
provided, however, that if any of the provisions of this Agreement would not be
enforceable under the laws of New York, then such provisions shall be
interpreted and construed under the laws of the state in which the principal
office of Precision is located.
17.2 The parties agree that any action brought by either party against the
other in any court, whether federal or state, shall be brought in the judicial
district in which either party has its principal place of business and do hereby
waive all questions of personal jurisdiction or venue for the purpose of
carrying out this provision.
17.3 No right or remedy conferred upon or reserved to Precision or PETRO
by this Agreement is intended to be, nor shall be deemed, exclusive of any other
right or remedy herein or by law or equity provided or permitted, but each shall
be cumulative of every other right or remedy.
16
<PAGE>
17.4 Nothing herein contained shall bar either party's right to obtain
injunctive relief against threatened conduct that will cause it loss or damages,
under the usual equity rules, including the applicable rules for obtaining
restraining orders and preliminary injunctions.
ARTICLE XVIII. ACKNOWLEDGMENTS
--------------------------------
18.1 PETRO acknowledges that it has read and understood this Agreement,
the Exhibits hereto, and any agreements relating hereto, and that Precision has
accorded PETRO ample time and opportunity to consult with advisers of PETRO's
own choosing about the potential risks and benefits of entering into this
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed, and
delivered this Agreement as noted below.
PETRO USA INC.
By:
----------------------------
Name: Vincent J. DeLaurentis
Its: President and COO
PRECISION AUTO CARE, INC.
By:
----------------------------
Name: Charles L. Dunlap
Its: President and CEO
GETTY PETROLEUM MARKETING INC.
(solely as a party for the guaranty of
PETRO USA INC's performance of the
obligations set forth herein)
By:
----------------------------
Name: Vincent J. DeLaurentis
Its: President and COO
17
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<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 283,484
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<RECEIVABLES> 7,300,890
<ALLOWANCES> (2,530,193)
<INVENTORY> 1,948,434
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0
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<COMMON> 62,846
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<CGS> 21,004,861
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<OTHER-EXPENSES> 109,541
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<INCOME-TAX> 47,503
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