EXHIBIT 10.1
Arthur C. Kellar Desarollo Integrado, S.A. de C.V.
106 Ebbtide Drive Blvd. Diaz Ordaz #200
North Palm Beach, Florida 33408 Col. Santa Maria
Monterrey, N.L.
Mexico
CP 64650
August 3, 2000
Precision Auto Care, Inc.
748 Miller Drive, S.E.
Leesburg, Virginia 20175
Attn; Woodley A. Allen
Chairman of the Board of Directors
RE: $11,250,000 Credit Facilities to Precision Auto Care, Inc.
Dear Woody:
You have requested that Arthur Kellar and Desarrollo Integrado, S.A. de
C.V., each participating at 50% through an entity created, owned and controlled
by them (the "Lender"), consider a financing arrangement for Precision Auto
Care, Inc. ("PAC") to refinance existing debt and provide for the Borrower's
ongoing working capital needs. In connection therewith, and subject to and upon
the terms and conditions hereinafter set forth, we are pleased to inform you of
our commitment to make available to the Borrower to a total credit facility of
$11,250,000 ("Credit Facility") (it being understood that Arthur Kellar and
Desarrollo Integrado S.A. de C.V. shall each be responsible for making
$5,625,000 of the Credit Facility available through the Lender).
1. Borrower: Precision Auto Care, Inc., its US subsidiaries and its
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foreign subsidiaries, all jointly and severally, except to the extent
that the liability of the Borrower's Mexican subsidiaries would create
a deemed dividend to the Borrower for U.S. tax purposes, in which case
their liability will be appropriately limited.
2. Revolving Credit Facility: The Lender agrees to provide to the
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Borrower a three-year revolving credit facility with a minimum
capacity of United States Eleven Million Two Hundred and Fifty
Thousand Dollars (U.S. $11,250,000) at any one time outstanding (it
being understood that Arthur Kellar and Desarrollo Integrado S.A. de
C.V. shall each be responsible for making $5,625,000 of the Credit
Facility available through the Lender).
3. Use of Proceeds: The facility will be available to purchase the
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promissory note and related financing documents pursuant to which the
existing working capital and acquisition lines of credit were made
available to the Borrower by First Union National Bank ("First
Union"), which have an aggregate outstanding principal balance of
approximately $7,300,000 as of the date of this letter, plus accrued
interest. Following
Woodley A. Allen
August 3, 2000
Page 2
the refinancing, the entire amount of the Lender's Revolving Credit
Facility will be available to finance the Borrower's working capital
needs. Prior to refinancing the Borrower's outstanding lines of credit
with First Union, the Lender may make available to the Borrower up to
$2,500,000 to pay the Borrower's payroll, payroll taxes, debt service
obligations and other immediate needs (the "Bridge Loan").
4. Structure: The Lender's Revolving Credit Facility will be structured
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as an amendment and restatement of the First Union financing. Revised
terms will include: (a) an increase in the amount available under the
working capital line of credit; (b) the elimination of the acquisition
line of credit and the principal amortization requirements with
respect thereto, such that the entire principal balance of the
Lender's Revolving Credit Facility will be due and payable at
maturity, subject to the Mandatory Prepayment Terms described below;
(c) an increase in the applicable per annum interest rate from LIBOR
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plus 4.75% to an established fixed rate of 12% per annum; (d) the
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assignment of all collateral securing the First Union financing,
including a lien on all unencumbered real property owned by the
Borrower, a pledge of stock in PAC's subsidiaries and a security
interest in the Borrower's Accounts, Inventory, Chattel Paper,
Documents, General Intangibles, Instruments, Equipment, Securities and
Records pertaining to all of the above (as such terms are defined in
the Uniform Commercial Code); and (e) the elimination of all financial
covenants and appropriate modifications to certain negative covenants
as necessary or appropriate to reflect the Lender's status as a non-
institutional lender.
In the event a Bridge Loan is extended by the Lender prior to the time
the First Union financing has been amended and restated, the
obligation of the Borrower to repay the principal amount of the Bridge
Loan, plus interest thereon at 12% per annum, shall be evidenced by a
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Subordinated Debenture or Demand Note containing the subordination
language previously approved by First Union. Such note will be
cancelled at such time as all amounts due thereunder are included in
the balance due and outstanding under the Lender's Revolving Credit
Facility.
In no event shall amounts outstanding under the Lender's Revolving
Credit Facility and the Bridge Loan exceed the Lender's total
commitment of U.S. $11,250,000.
5. Maturity: The Lender's Revolving Credit Facility shall mature on
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September 1, 2003.
6. Optional Prepayment: The Borrower may, at its option, prepay the
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Lender's Revolving Credit Facility in whole or in part, at any time
without premium or penalty.
7. Mandatory Prepayment: The Borrower will be required to prepay the
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Lender's Revolving Credit Facility from the net cash proceeds
generated by any sale of the Company's businesses and assets unless
the Lender waives in writing the right to receive proceeds.
Woodley A. Allen
August 3, 2000
Page 3
8. Financing Fee: At the time of closing on the Lender's Revolving
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Credit Facility there shall be a financing fee payable by the Borrower
to the Lender in the form of warrants to purchase 2,000,000 shares of
PAC's common stock at a price per share equal to 125% of the closing
price for the PAC common stock reported at the close of business on
the day prior to the date on which this letter is executed and
delivered by the parties. The Lender understands that the issuance of
warrants may be subject to the approval of PAC's stockholders if PAC
determines it is advisable to seek such approval in order to comply
with applicable NASDAQ listing requirements. IF PAC determines to seek
their approval this will be requested as soon as practicable following
closing on the Lender's Revolving Credit Facility. In the event that
shareholder approval is sought and not obtained, the Lender and the
Borrower agree to negotiate some form of mutually acceptable
alternative compensation of equivalent value.
9. Conditions Precedent: The Lender's obligation to provide the
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Revolving Credit Facility shall be subject to the fulfillment of the
following conditions:
A. The execution and delivery, in form and substance acceptable to
the Lender and its counsel, of the documents necessary or
appropriate to accomplish the foregoing transactions.
B. The execution by Louis M. Brown of an Employment Agreement with
PAC pursuant to which he will agree to (i) serve as PAC's
president and chief executive officer beginning August ___, 2000,
and (ii) purchase up to 1,700,000 shares of PAC's common stock
for U.S. $750,000.
10. Miscellaneous:
A. This commitment may not be assigned or in any way transferred by
the Borrower without the prior written approval of the Lender.
B. This commitment shall be governed by and construed under the laws
of the Commonwealth of Virginia. The Revolving Credit Facility
shall be governed by and construed under the laws of the
Commonwealth of Virginia.
C. This letter supersedes in all respects any other written and oral
communications prior to the date hereof regarding the financing
transaction contemplated by this letter.
D. If the foregoing is satisfactory, kindly indicate your acceptance
by signing the enclosed copy of this letter and returning one
fully executed letter to the Lender, by the close of business on
the fifth business day following the date of its issuance. This
commitment shall expire on October 5, 2000 unless the Lender's
Revolving Credit Facility has closed before that date.
Yours truly,
Woodley A. Allen
August 3, 2000
Page 4
____________________________
Arthur C. Kellar
Desarrollo Integrado, S.A. de C.V.
By:_________________________
Name: Mauricio Zambrano
Title: Managing Director
The foregoing commitment is hereby accepted by the Borrower this ___ day of
August, 2000.
Precision Auto Care, Inc.
By:____________________________________
Name: Woodley A. Allen
Title: Chairman of the Board of Directors