Exhibit 10.2
EXCHANGE AGREEMENT
This Exchange Agreement (the "Agreement") is made and entered into as of
October 30, 2002, by and among Precision Funding, L.L.C., a Virginia limited
liability company ("Precision Funding"), Desarollo Integrado, S.A. de C.V.
("Desarollo"), Arthur C. Kellar, in his individual capacity ("Kellar" and,
together with Precision Funding and Desarollo, the "Transferors"), and Precision
Auto Care, Inc., a Virginia corporation (the "Company").
RECITALS
WHEREAS, on January 25, 1999, the Company issued a subordinated debenture
to Kellar with a principal amount of $5,000,000 plus a financing fee of $50,000
(the "Subordinated Debenture");
WHEREAS, the current amount outstanding under the Subordinated Debenture,
including accrued interest, is $5,269,892.54 and such amount is to mature on
[September 30, 2003];
WHEREAS, on October 1, 2000, Precision Funding entered into an agreement
with the Company pursuant to which Precision Funding made available to the
Company a credit facility of $11.25 million bearing interest at a fixed rate of
12% per annum with provision for higher rates in the event of default (the
"Credit Facility");
WHEREAS, on September 29, 2000, the Company issued a senior debenture in
the original principal amount of $11,250,000 (the "Senior Debenture" and,
together with the Subordinated Debenture, the "Debentures") to Precision Funding
pursuant to the terms of the Credit Facility;
WHEREAS, the current amount outstanding under the Senior Debenture,
including accrued interest, is $12,679,888.16 and such amount is to mature on
September 30, 2004;
WHEREAS, the current financial condition of the Company does not permit the
Company to make its scheduled payments under the terms of the Debentures;
WHEREAS, it is agreed that a restructuring of the amounts outstanding under
the Debentures will result in a significant financial benefit to the Company;
WHEREAS, in order to effect such restructuring of the amounts outstanding
under the Debentures, the Company desires, and each Transferor has agreed, to
exchange the Debentures for equity in the Company, and contemporaneously
therewith cause the termination of the Credit Facility, as set forth in this
Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto do hereby agree as follows:
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1. Contribution and Sale of the Debentures.
(a) Pursuant to the terms hereof, Kellar and Precision Funding hereby
agree to contribute the Debentures to the Company (the "Contribution") at the
Closing (defined below) free and clear of any and all restrictions on transfer
(other than restrictions under the Securities Act of 1933, as amended, and state
securities laws), taxes, mortgages, liens, encumbrances, charges, pledges,
impositions, security interests, options, warrants, purchase rights, rights of
first refusal, contracts, commitments, equities, claims and demands ("Liens").
(b) The Company hereby agrees to accept the Contribution of such
Debentures from Kellar and Precision Funding and, in consideration for such
Contribution, shall issue in accordance with this Section 1 to Kellar and
Precision Funding the following equity securities of the Company, in the amounts
described in Section Error! Reference source not found. below: (i) shares of
Series A Cumulative Redeemable Preferred Stock ("Preferred Stock"), the terms of
which are attached hereto as Exhibit A (the "Articles of Amendment"), (ii)
shares of common stock, par value $.01 per share ("Common Stock"), and (iii)
warrants to purchase Common Stock ("Warrants"), the form of which is attached
hereto as Exhibit B.
(c) The number of shares of Preferred Stock, the number of shares of
Common Stock and the number of Warrants issuable to Kellar and Precision Funding
in consideration for the Contribution of the Debentures are set forth on Exhibit
C hereto (the "Exchange Equity Consideration"); provided, however, that
Precision Funding hereby directs that the portion of the Exchange Equity
Consideration issuable to it be distributed in equal shares to its members,
Kellar and Desarollo.
(d) The equity securities of the Company, issued pursuant to this
Section 1, shall be issued at 12:01 a.m. on the next business day following the
Closing date.
2. Conditions Precedent to Contribution. The obligation of Kellar and
Precision Funding to make the Contribution is subject to the condition precedent
that, at the closing of the transactions contemplated hereby as of the date
hereof (the "Closing"), the Transferors shall have received from the Company, in
form and substance satisfactory to the Transferors and their counsel, the
following:
(a) this Agreement;
(b) certificates for the number of shares of Preferred Stock and
Common Stock issuable in connection with the Contribution;
(c) the Warrants;
(d) an Amended and Restated Registration Rights Agreement in the form
attached hereto as Exhibit D;
(e) a Voting Agreement in the form attached hereto as Exhibit E;
(f) a Side Letter Agreement regarding the termination of the Credit
Facility attached hereto as Exhibit F;
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(g) a certificate of the Secretary of the Company (i) attaching a
copy of the Company's Articles of Incorporation, as amended by the Articles of
Amendment (the "Charter"), Bylaws and applicable good standing certificates, and
(ii) with respect to the incumbency and resolutions authorizing the execution
and delivery of this Agreement and consummation of the transactions contemplated
hereby.
3. Transferors' Representations and Warranties. Each Transferor,
severally and not jointly, as applicable, hereby represents and warrants to the
Company, as of the date hereof, as follows:
(a) Absence of Liens. Precision Funding owns the Senior Debenture
free and clear of any and all Liens; Kellar owns the Subordinated Debenture free
and clear of any and all Liens.
(b) Necessary Authorization and Approval. Each Transferor has the
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All acts and other proceedings required to be
taken by or on the part of each Transferor to authorize it to carry out this
Agreement and the transactions contemplated hereby have been duly and properly
taken. This Agreement has been duly executed and delivered by each Transferor
and constitutes the legal, valid and binding obligation of each Transferor in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws now or hereafter
in effect relating to or affecting creditors' rights or remedies generally.
Neither the execution, delivery or performance of this Agreement nor the
consummation of the transactions contemplated hereby is prohibited by, or
requires either Transferor to obtain any consent, authorization, approval or
registration under, any law, rule or regulation, other than as contemplated
hereby, or any judgment, order, writ, injunction or decree, which is binding on
either Transferor or the terms of any contract to which either Transferor is a
party. Precision Funding is a limited liability company duly organized, validly
existing and in good standing under the laws of Commonwealth of Virginia and has
all requisite power and authority to carry on its business as now being
conducted.
(c) Securities Laws; Restricted Securities. Each Transferor has been
advised that the shares of Common Stock, shares of Preferred Stock and shares of
Common Stock underlying the Warrants (the "Restricted Shares") have not been
registered under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws. Each Transferor realizes that (i) the
Restricted Shares have not been registered under the Act, are characterized as
"restricted securities" under the Act and, therefore, cannot be sold or
transferred unless subsequently registered under the Act or an exemption from
such registration is available and (ii) there is presently no public market for
the Preferred Stock and the Transferors would most likely not be able to
liquidate its investment in the event of an emergency or pledge the Preferred
Stock as collateral security for loans. Each Transferor represents that it is
familiar with Rule 144 under the Act, as presently in effect, and understands
the resale limitations imposed thereby and by the Act.
(d) Purchase Entirely for Own Account. The Restricted Shares will be
acquired by each Transferor for investment for its own account, not as a nominee
or agent, and not with a view to reselling, granting any participation in or
otherwise distributing any of the Restricted Shares in a manner contrary to the
Act or any applicable federal or state securities
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law, and each Transferor has no contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person with respect to the Restricted Shares.
(e) Access to Information. Each Transferor has been given access to
information regarding the Company, including, in particular, the current
financial condition of the Company, and the risks associated therewith, and has
utilized such access to its satisfaction for the purpose of obtaining
information about the Company.
(f) Sophistication. Each Transferor is a sophisticated investor and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the prospective investment in the
Restricted Shares.
(g) Suitability. The investment in the Restricted Shares is suitable
for each Transferor based upon its investment objectives and financial needs,
and each Transferor has adequate net worth and means for providing for its
current financial needs and contingencies and has no need for liquidity of
investment with respect to the Restricted Shares. Each Transferor's overall
commitment to investments that are illiquid or not readily marketable is not
disproportionate to its net worth, and investment in the Restricted Shares will
not cause such overall commitment to become excessive.
(h) Ability to Bear Risk. Each Transferor is in a financial position
to purchase and hold the Restricted Shares and is able to bear the economic risk
and withstand a complete loss of its investment in the Restricted Shares.
(i) High Degree of Risk. EACH TRANSFEROR RECOGNIZES THAT AN
INVESTMENT IN THE RESTRICTED SHARES INVOLVES A HIGH DEGREE OF RISK. Each
Transferor recognizes that there can be no assurances that the Company will be
able to achieve its projected sales or profit goals.
(j) Legend. Each Transferor understands that the certificates
evidencing the Restricted Shares will bear a legend substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
(k) Accreditation. Each Transferor represents and warrants that it is
an "accredited investor," as defined in Rule 501 under the Act.
4. The Company's Representations and Warranties. As a material inducement
to cause the Transferors to enter into this Agreement, the Company hereby
represents and warrants to the Transferors, as of the date hereof, as follows:
(a) Necessary Authorization and Approval. The Company has the power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All acts and other proceedings required to be
taken by or on the part of the
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Company to authorize it to carry out this Agreement and the transactions
contemplated hereby have been duly and properly taken. This Agreement has been
duly executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company in accordance with its terms, subject to the
effects of bankruptcy, insolvency, reorganization, receivership, moratorium and
other similar laws now or hereafter in effect relating to or affecting
creditors' rights or remedies generally. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby is prohibited by, or requires the Company to obtain any
consent, authorization, approval or registration under, any law, rule or
regulation, other than as contemplated hereby, or any judgment, order, writ,
injunction or decree, which is binding on the Company or the terms of any
contract to which the Company is a party. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Commonwealth
of Virginia and has all requisite power and authority to carry on its business
as now being conducted.
(b) Reports Filed Under the 1934 Act. As of their respective dates,
all reports, schedules, forms, statements and other documents required to be
filed by the Company under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), since June 30, 2001, in each case as amended (the "Company
Reports"): (a) complied as to form in all material respects with the applicable
requirements of the 1934 Act and all other applicable federal, state and local
laws, rules and regulations, and (b) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No event or circumstance has
occurred which would require the Company to disclose such event or circumstance
in order to make the statements in the Company Reports not misleading as of the
Closing. Each of the consolidated balance sheets of the Company included in or
incorporated by reference into the Company Reports (as amended and including the
related notes and schedules) (i) complied as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the U.S. Securities Exchange Commission ("SEC") with respect thereto, (ii)
were prepared in all material respects in accordance with generally accepted
accounting principles ("GAAP"), and (iii) fairly presented in all material
respects the consolidated financial position of the Company and its wholly-owned
subsidiaries as of its date in conformity with GAAP. Each of the consolidated
statements of income, retained earnings and cash flows of the Company included
in or incorporated by reference into the Company Reports (as amended and
including any related notes and schedules) (A) complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, (B) were prepared in
accordance with GAAP, and (C) fairly presented the results of operations,
retained earnings or cash flows, as the case may be, of the Company and its
subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments that would not be
material in amount or effect) in conformity with GAAP.
(c) Subsidiaries. Other than as set forth on Schedule 4(c), the
Company has no material subsidiaries and no material interests or investments in
any partnership, trust or other entity or organization.
(d) Capitalization
(i) As of the date of the Closing, the authorized capital stock
of the Company consists of (A) 19,000,000 shares of Common Stock, and (B)
1,000,000 shares of
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Preferred Stock, all of which are designated as Series A Preferred Stock.
Immediately prior to the Closing, the issued and outstanding shares of capital
stock of the Company consist of 13,318,030 shares of Common Stock, and at the
Closing the issued and outstanding shares of capital stock of the Company will
be the same, except to the extent that additional shares of Common Stock and
Preferred Stock are issued to the Transferors pursuant to this Agreement.
(ii) All of the outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and non-assessable,
and were issued in accordance with the registration or qualification
requirements of the 1934 Act and any relevant state securities laws or pursuant
to valid exemptions therefrom. Upon issuance, sale and delivery as contemplated
by this Agreement, the Exchange Equity Consideration issued pursuant to this
Agreement will be duly authorized, validly issued, fully paid and non-assessable
securities of the Company, free of all preemptive or similar rights, and
entitled to the rights therein described. Upon their issuance in accordance with
the terms of the Warrants, the shares of Common Stock issuable upon exercise of
the Warrants will be duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock of the Company, free of all preemptive or
similar rights.
(iii) Except for the exercise rights that attach to the Warrants
and as otherwise set forth on Schedule 4(d), at the Closing there will be no
shares of Common Stock or any other equity security of the Company issuable upon
conversion or exchange of any security of the Company nor will there be any
rights, options or warrants outstanding or other agreements to acquire shares of
Common Stock nor will the Company be contractually obligated to purchase, redeem
or otherwise acquire any of its outstanding shares. No shareholder of the
Company is entitled to any preemptive or similar rights to subscribe for shares
of capital stock of the Company. Except as set forth on Schedule 4(d), there are
no other scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights exchangeable for or convertible
into, any shares of capital stock of the Company, or contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of capital stock of the Company or options, warrants,
scrip, rights to subscribe to, or commitments to purchase or acquire, any
shares, or securities or rights convertible or exchangeable into shares, of
capital stock of the Company. There are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Company.
(iv) Except as set forth on Schedule 4(d), there are no
outstanding securities issued by the Company that are directly or indirectly
convertible into, exercisable into, or exchangeable for, shares of Common Stock
of the Company, or that have anti-dilution or similar rights that would be
affected by the issuance of the securities of the Company in accordance with the
terms of this Agreement.
(v) As of the Closing, the designations, powers, preferences,
rights, qualifications, limitations and restrictions in respect of each class
and series of authorized capital stock of the Company are set forth in the
Charter as amended by the Articles of Designation, and all such designations,
powers, preferences, rights, qualifications, limitations and restrictions are
valid, binding and enforceable and in accordance with all applicable laws.
(e) Absence of Defaults, Conflicts, etc. The execution and delivery
of this Agreement and the other instruments and documents contemplated hereby,
and the fulfillment of the terms hereof and thereof by the Company, and the
issuance of the Exchange Equity
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Consideration (and the Common Stock issuable upon conversion or exercise of the
Warrants) will not result in a breach of any of the terms, conditions or
provisions of, or constitute a default under, or permit the acceleration of
rights under or termination of, any indenture, mortgage, deed of trust, credit
agreement, note or other evidence of indebtedness, or other material agreement
of the Company (collectively the "Key Agreements and Instruments"), or the
Charter or Bylaws of the Company, or any rule or regulation of any court or
federal, state or foreign regulatory board or body, or administrative agency
having jurisdiction over the Company or over its properties or businesses. No
event has occurred and no condition exists which, upon notice or the passage of
time (or both), would constitute a default under any such Key Agreements and
Instruments or under any license, permit or authorization to which the Company
is a party or by which it may be bound.
(f) Absence of Certain Developments. Except as set forth on Schedule
4(f), and except as disclosed in the Company Reports, since June 30, 2002 there
has been no (i) material adverse change in the condition, financial or
otherwise, of the Company or in its assets, liabilities, properties, business or
prospects, (ii) declaration, setting aside or payment of, or any agreement by
the Company to declare, set aside or pay, any dividend or other distribution
with respect to the capital stock of the Company (or repurchase or redemption of
any capital stock), (iii) issuance of, or any agreement by the Company to issue,
capital stock or options, warrants or rights to acquire capital stock (other
than the rights granted to the Transferors hereunder), (iv) material loss,
destruction or damage to any property of the Company, whether or not insured,
(v) acceleration or prepayment of any indebtedness for borrowed money or the
refunding of any such indebtedness, (vi) labor trouble involving the Company or
any material change in its personnel or the terms and conditions of employment,
(vii) waiver of any valuable right, (viii) increase in, or any agreement by the
Company to increase, salary and benefits of any officer or employee or loan or
extension of credit to any officer or employee of the Company except in the
ordinary course of business consistent with past practice, or (ix) acquisition
or disposition of any material assets (or any contract or arrangement therefor),
or any other material transaction by the Company otherwise than for fair value
in the ordinary course of business.
(g) Securities Law Issues.
(i) No General Solicitation. Neither the Company, nor any of
its affiliates, nor to its knowledge any person acting on its or their behalf,
has, directly or indirectly, engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the Act) in
connection with the offer or sale of the Exchange Equity Consideration.
(ii) No Integrated Offering. Neither the Company nor any of its
affiliates, nor to the Company's knowledge any person acting on its or their
behalf, has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of the Exchange Equity Consideration (or the underlying Common
Stock exercisable pursuant to the Warrants) under the 1934 Act. The issuance of
the Exchange Equity Consideration (or the underlying Common Stock exercisable
pursuant to the Warrants) to the Transferors will not be integrated with any
other issuance of the Company's securities (past, current or future) which will
require any shareholder approval under the rules of any public securities market
or over-the-counter exchange.
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(iii) Private Offering. Based upon the representations of the
Transferors set forth in Section 3 and assuming the accuracy thereof as of the
date of the issuance of the Equity Exchange Consideration, the offer, issuance
and sale of such securities and the shares of Common Stock issuable upon
exercise of the Warrants are and will be exempt from the registration and
prospectus delivery requirements of the 1934 Act, and have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
(h) Compliance with Law.
(i) The Company is in compliance with all laws, ordinances,
governmental rules or regulations to which it is subject, including without
limitation laws or regulations relating to the environment or to occupational
health and safety, except where the failure to be in compliance would not have a
material adverse effect on its operations or assets, and no material
expenditures are or will be required in order to cause its current operations or
properties to comply with any such law, ordinances, governmental rules or
regulations.
(ii) The Company has all licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its property or to the
conduct of its business, except where the failure to possess such licenses,
permits, franchises or authorizations would not have a material adverse effect
on its operations or assets. The Company has not finally been denied any
application for any such licenses, permits, franchises or other governmental
authorizations necessary to its business.
(i) Title to Tangible Assets. The Company has good title to its
properties and assets and a valid leasehold interest in all its leasehold
estates, in each case subject to no Lien, other than or resulting from taxes
which have not yet become delinquent and minor Liens and encumbrances which do
not in any case materially detract from the value of the property subject
thereto or materially impair the operations of the Company and which have not
arisen otherwise than in the ordinary course of business. The Company does not
own any real property.
(j) Insurance. The Company and its properties are insured in such
amounts, against such losses and with such insurers as the Company has
determined to be prudent based upon the nature of the properties and businesses
of the Company.
(k) Registration Rights. Except as provided by the Amended and
Restated Registration Rights Agreement, the Company will not, as of the Closing,
be under any obligation to register any of its securities under the 1934 Act.
(l) Material Facts. This Agreement, and the other agreements,
documents, certificates or written statements furnished or to be furnished to
the Transferors through the Closing by or on behalf of the Company in connection
with the transactions contemplated hereby, taken as a whole, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements contained therein or herein, in light of the
circumstances in which they were made, not misleading.
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5. Covenants of the Company. The Company hereby agrees as follows:
(a) Amendment of Articles of Incorporation. In order to permit full
exercise of the Warrants, at its next annual meeting of shareholders (the
"Meeting"), the Company agrees to submit and recommend for approval to its
shareholders an amendment to Article IV of its Articles of Incorporation (the
"Proposal") increasing the number of authorized but unissued shares of all
classes of stock of the Company from 20,000,000, consisting of 19,000,000 shares
of Common Stock and 1,000,000 shares of Preferred Stock, par value $.01 per
share, to 40,000,000, consisting of 39,000,000 shares of Common Stock and
1,000,000 shares of Preferred Stock, par value $.01 per share, which shall
consist of 1,000,000 shares of Series A Preferred Stock. In the event the
Proposal is not approved at the Meeting, the Company agrees to submit a similar
proposal to the shareholders at each subsequent annual shareholders' meeting
(each, a "Subsequent Meeting") that occurs prior to the second anniversary of
the date hereof until such proposal is approved.
(b) Proxy Solicitation. In connection with the Meeting and each
Subsequent Meeting, the Company agrees to engage a proxy solicitation firm to
aid it in the solicitation of proxies with respect to the Proposal or any
similar proposal.
(c) Remedy if Proposal Not Approved by Shareholders. In the event
that the shareholders of the Company fail to approve the Proposal or any similar
proposal at the Meeting and any Subsequent Meeting, the holders of the Warrants
at any time after the Meeting (and prior to approval) may exchange the Warrants
(or the portion thereof which is not exercisable based on the Company's failure
to reserve a sufficient number of shares of Common Stock) for an additional
number of shares of Preferred Stock, which number shall be determined in
accordance with Exhibit C hereto.
(d) Securities Compliance. The Company shall notify all applicable
securities markets and over-the-counter exchanges, if any, in accordance with
their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Exchange Equity Consideration hereunder, including, without
limitation, the preparation and filing with the SEC of a proxy statement for the
purposes of soliciting shareholder approval of the Proposal.
(e) Reservation of Stock Issuable upon Exercise of the Warrants.
Following the approval of the Proposal or any similar proposal by the Company's
shareholders, the Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the Warrants, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the exercise of all
outstanding Warrants. If at any time after approval of the Proposal or any
similar proposal of the Company's shareholders the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the exercise
of all the then outstanding Warrants, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose, including without limitation effecting a
combination/reverse split of shares or engaging in best efforts to obtain the
requisite shareholder approval for a Charter amendment.
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(f) Financial and Business Information. From and after the date
hereof and for as long as the Transferors, together with all of their
affiliates, shall own at least 25% of the Company's outstanding capital stock,
the Company shall deliver to the Transferors:
(i) Audit Reports. Promptly upon receipt thereof, one copy of
any other financial report and internal control letter submitted to the Company
by independent accountants in connection with any annual, interim or special
audit made by them of the books of the Company.
(ii) Requested Information. With reasonable promptness, such
other data and information as from time to time may be reasonably requested by
the Transferors, including but not limited to any financial statement, report,
notice or proxy statement sent by the Company to shareholders or filed by the
Company with the SEC.
(g) Inspection. The Company shall permit Transferors, or any nominee,
assignee, or representative thereof, to visit and inspect any of the properties
of the Company, to examine all its books of account, records, reports and other
papers not contractually required of the Company to be confidential or secret,
to make copies and extracts therefrom, and to discuss its affairs, finances and
accounts with its officers, directors, key employees and independent public
accountants or any of them (and by this provision the Company authorizes said
accountants to discuss with the Transferors, their nominees, assignees and
representatives the finances and affairs of the Company), all at such reasonable
times and as often as may be reasonably requested and all at the sole expense of
the requesting Transferor(s).
(h) Conduct of Business.
(i) The Company will continue to engage in business of the same
general type as now conducted by it, and preserve, renew and keep in full force
and effect its corporate existence and take all reasonable action to maintain
all rights, privileges and franchises necessary or desirable in the normal
conduct of its business.
(ii) The Company will comply in all material respects with all
applicable laws, rules, regulations and orders, except where the failure to
comply would not have a material adverse effect on its business or properties.
(iii) The Company will maintain insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by companies of similar size and credit standing
engaged in similar business and owning similar properties.
(iv) The Company will keep proper books of record and account,
in which full and correct entries shall be made of all financial transactions
and the assets and business of the Company in accordance with GAAP.
6. Indemnity. The Company shall indemnify the Transferors against any
loss, cost or damages (including reasonable attorneys' fees) (each, a "Loss"
and, collectively, "Losses") incurred by any Transferor (a) as a result of the
breach by the Company of any representation, warranty, covenant or agreement in
this Agreement or any other agreement, instrument or certificate delivered in
connection herewith, or (b) in connection with any lawsuits, claims,
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actions, suits, proceedings, or investigations relating to the transactions
contemplated by this Agreement by any person other than the Company, including,
without limitation, any shareholder suits brought by or on behalf of the
Company's shareholders.
7. Benefit. The rights and obligations of the parties hereto shall be
binding upon and shall inure to the benefit of such parties and their respective
heirs, executors, administrators, legal representatives, successors and assigns.
8. Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the subject matter hereof, and all prior
negotiations, understandings and agreements are merged herein. This Agreement
may not be modified or rescinded except pursuant to a written instrument signed
by the party against whom enforcement is sought.
9. Governing Law. This Agreement and the rights and obligations of the
parties hereto shall be governed by and construed in accordance with the laws of
the Commonwealth of Virginia, without regard to its conflicts of laws
provisions.
10. Further Assurances. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the transaction contemplated hereby.
11. Specific Performance. No failure or delay by a Transferor in
exercising any right, power or privilege under this Agreement shall operate as a
waiver of the right, power or privilege. A single or partial exercise of any
right, power or privilege shall not preclude any other or further exercise of
the right, power or privilege or the exercise of any other right, power or
privilege. The rights and remedies provided in this Agreement shall be
cumulative and not exclusive of any rights or remedies provided by law. In view
of the uniqueness of the agreements contained in this Agreement and the
transactions contemplated hereby and thereby and the fact that Transferors would
not have an adequate remedy at law for money damages in the event that any
obligation under this Agreement is not performed in accordance with its terms,
the Company therefore agrees that each Transferor shall be entitled to specific
enforcement of the terms of this Agreement (without the showing of special,
imminent or irreparable damages and without any obligation to post bond or other
security or surety) in addition to any other remedy to which such Transferor may
be entitled, at law or in equity, and if any Transferor shall institute any
action or proceeding to enforce the provisions hereof, the Company hereby waives
the claim or defense that such Transferor has an adequate remedy at law.
12. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties.
[SIGNATURE PAGE FOLLOWS]
-11-
IN WITNESS WHEREOF, the parties hereto have executed this Exchange
Agreement as of the day and year first above written.
THE COMPANY:
PRECISION AUTO CARE, INC., a Virginia
corporation
By: _________________________________
Name: _______________________________
Title: ______________________________
TRANSFERORS:
PRECISION FUNDING, L.L.C., a Virginia limited
liability company
By: _________________________________
Name: _______________________________
Title: ______________________________
DESAROLLO INTEGRADO, S.A. DE C.V.
By: _________________________________
Name: _______________________________
Title: ______________________________
_____________________________________
Arthur C. Kellar
-12-
EXHIBIT A
TERMS OF SERIES A PREFERRED STOCK
EXHIBIT B
FORM OF WARRANT
EXHIBIT C
TRANSFERORS AND EXCHANGE EQUITY CONSIDERATION
Number of Shares of
Preferred Stock to be
Received in the
Event that the
Shareholders Fail to
Approve the
Proposal or any
Number of similar proposal
Number of Number of Shares Issuable in accordance with
Debt to be Shares of Shares of Upon Exercise the terms of this
Transferors Surrendered Preferred Stock Common Stock of Warrant Agreement
- --------------------------------------------------------------------------------------------------------------------------
Precision Funding, L.L.C. $12,665,372.03
c/o Avenir Corporation outstanding under
1725 K Street, Suite 410 the Senior 352,800 1,764,000 8,094,671 256,582*
Washington, DC 20006 Debenture
Attn: Peter Keefe
Arthur C. Kellar $5,265,264.15
106 Ebbtide Drive outstanding under
North Palm Beach, the Subordinated 147,200 736,000 3,377,368 107,055*
Florida 33408 Debenture
*In the event that the shareholders fail to approve the Proposal or any similar
proposal in accordance with the terms of this Agreement, in lieu of receipt of
this number of shares of Preferred Stock, the Transferor may elect to exchange
that portion of the Warrant which is not exercisable based upon the number of
shares of Common Stock authorized for issuance for the number of shares of
Preferred Stock calculated based upon the following formula:
Number of Shares of Number of Shares of Common Stock Number of Shares of Preferred
Preferred Stock = (1- Available for Exercise under the )* Stock Issuable by the Company
Issuable By the Company Warrant at the Time of the Exchange in
-----------------------------------------
Total Number of Shares of Common Stock the Event that the Entire
Issuable under the Terms of the Warrant Warrant is Exchanged
C-1
EXHIBIT D
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
EXHIBIT E
VOTING AGREEMENT
EXHIBIT F
SIDE LETTER AGREEMENT
Schedule 4(c)
Subsidiaries
Hydro Spray Car Wash Equipment Co., Ltd.
Precision Auto Care, Inc.
Precision Franchising LLC
Precision Tune Auto Care, Inc.
WE JAC Corporation
Schedule 4(d)
Outstanding Derivative Securities
Option Shares
Granted Pursuant to
Stock Option Plans
------------------
Art Kellar ......................................... 37,500
Bernard Clineburg .................................. 32,500
Cliff Tidman ....................................... 2,500
Dave Yakaitis ...................................... 160,000
Doug Krueger ....................................... 15,000
Effie Eliopulos .................................... 9,000
Ernie Malas ........................................ 75,000
Eugene Deal ........................................ 4,500
George Bavelis ..................................... 4,500
George Pandazi ..................................... 4,500
Glyn Massingil ..................................... 25,000
James Barger ....................................... 23,125
Jeff Schultheis .................................... 10,000
Jerry Little ....................................... 35,000
Joel Burrows ....................................... 25,000
John Jacobs ........................................ 5,000
John Tarrant ....................................... 25,000
John Wiegand ....................................... 46,250
Karl Byrer ......................................... 45,000
Kelly Blackstock ................................... 10,000
Kent Oltman ........................................ 20,000
Keri Wirtz ......................................... 2,500
Kevin Bates ........................................ 25,000
Lee Adamantis ...................................... 2,500
Lou Brown .......................................... 500,000
Lynn Caruthers ..................................... 12,500
Mauricio Zambrano .................................. 450
Ralph DelAguila .................................... 2,500
Robert Falconi ..................................... 430,050
Ron McClaran ....................................... 5,000
Sam Ibrahim ........................................ 32,500
Steve Hamm ......................................... 17,500
Woodley Allen ...................................... 72,500
Schedule 4(f)
Certain Developments Since June 30, 2002
Salary Increases:
Effective January 1, 2003 Salary Bonus
- ------------------------- ------ -----
Robert R. Falconi $220,000/1/ $60,000/2/
Frederick F. Simmons $195,000/1/ $35,000/2/
Louis M. Brown, Jr./3/ $200,000 $50,000
____________________
/1/ This represents an increase of $10,000 from current levels.
/2/ This represents no increase from current levels.
/3/ Prior to this Mr. Brown received no compensation.
Effective January 1, 2004
All salaries and bonuses will increase by $10,000 as a minimum.
Effective January 1, 2005
All salaries and bonuses will increase by $10,000 as a minimum.