Precision Auto Care Recapitalizes
6 August 2000
LEESBURG, Va. - Precision Auto Care, Inc. announced Friday that its board
of directors has approved and the Company has received commitments for a
significant recapitalization of the Company. Under the terms of a commitment
letter relating to the recapitalization, a newly-formed entity controlled by
Arthur Kellar and Mauricio Zambrano, two members of the Company's board of
directors, will refinance the Company's existing credit facility with First
Union National Bank (which has a current balance of approximately $7.3 million)
and providethe Company with approximately $3.95 million of additional senior
financing. The additional financing will be used for general working capital
purposes. All of the senior financing will bear interest at the rate of 12% per
annum and mature in three years. The senior financing will be secured by all
of the Company's assets which secure its existing senior credit facility with
First Union National Bank. The Company will be required to prepay the senior
indebtedness, without penalty, from any proceeds the Company realizes from the
sale of assets in connection with the disposition of portions of the Company's
business and assets outside of the ordinary course of business.
As part of the transaction, the Company will grant in the aggregate to
Messrs. Kellar and Zambrano, warrants to purchase 2,000,000 shares of the
Company's stock at an exercise price of $0.2750 per share. If the Company
determines that it will be advisable to secure shareholder approval of the
issuance of the warrants in order to comply with applicable Nasdaq requirements,
the Company may do so. In that event, the warrants will be issued once their
issuance has been approved by the Company's shareholders and they will vest
immediately and be exercisable for a period of five years from the date they
are issued. The terms of the commitment letter relating to the senior debt
provide that Messrs. Kellar and Zambrano will receive alternative consideration
of equal value in the event the Company seeks shareholder approval of the
issuance of the warrants and the Company's shareholders do not
approve the issuance of the Warrants.
The Company also announced that Lou Brown has been appointed to act as the
Company's Chief Executive Officer, effective immediately. Mr. Brown has also
been appointed to serve as a Class II member of the Company's board of
directors. In connection with his appointment, Mr. Brown has agreed to
purchase 1,700,000 shares of the Company's common stock for an aggregate
purchase price of $750,000. The Company will use the proceeds from the sale
of the shares of common stock for general working capital purposes.
Lou Brown is the founder and chairman of Micros Systems, Inc. which is
the premier worldwide supplier of systems and software to the hospitality
industry. Mr. Brown was also chairman of Autometric, Inc. which was recently
acquired by Boeing Corporation. Mr. Brown brings 30 years of experience in
founding, managing and growing corporations in a variety of marketplaces.
Charles L. Dunlap, the Company's former President and Chief Executive Officer,
will consult on special projects, including the Company's co-branding strategy,
and will play a key role in transitioning the Company's leadership to Mr. Brown.
In a separate transaction, the Company has concluded the sale of its car
wash business operated in the Denver, Colorado area. The net proceeds were
applied to reduce the Company's outstanding indebtedness to FFCA Acquisition
Corporation from approximately $6.8 million to approximately $2.6 million.
The Company continues to negotiate with identified purchasers for the sale of
the balance of its car wash business. The net proceeds of such additional
sales will be applied first to satisfy the Company's remaining indebtedness to
FFCA with the balance to be applied to prepay its senior financing.
Woodley A. Allen, the Company's Chairman commented, "The refinancing and
recapitalization provides the Company with significant working capital,
reduces the Company's monthly cash requirements in the near term, and extends
the maturity of the Company's senior credit facility by nearly three years.
In Lou Brown the Company obtains a highly seasoned professional and successful
businessman who brings over 30 years of executive experience to the Company.
The Company extends its heartfelt thanks to Chuck Dunlap for his wisdom and
guidance during the past 22 difficult months for the Company."
The Company also announced its preliminary results for its fourth fiscal
quarter and its fiscal year ended June 30, 2000. The Company expects that it
will report losses of approximately $6.0 million for the quarter ended June
30, 2000 and losses of approximately $10.3 million for the fiscal year ended
on that date. These amounts compare with losses of $10.1 million for the
quarter ended June 30, 1999 and losses of $21 million for the fiscal year
ended on that date. The Company's losses for the quarter ended June 30, 2000
reflect charges of approximately $800,000 related to the refinement of
estimates concerning accounts receivable, allowances for bad debts and
inventory. The quarterly results also included the recognition of
approximately $4.0 million of losses associated with the discontinuation of
the Company's car wash division.
The Company also stated that it was evaluating the book value of certain
assets (principally goodwill) associated with manufacturing operations which
the Company may divest or discontinue in connection with certain restructuring
activities the Company may undertake in the future. The Company expects that
this evaluation could result in a substantial non-cash charge to the Company's
earnings for the year ended June 30, 2000. The Company has not yet quantified
this amount and this charge will increase the losses for the quarter and year
ended June 30, 2000 discussed above.
Finally, the Company expects that as a result of the recent levels its
stock has been traded, and because the Company did not have time to seek
shareholder approval of the issuance of shares to Louis M. Brown prior to
their issuance (or to obtain an exemption from such requirements), the Nasdaq
may delist the Company's common stock from the Nasdaq Small Cap Market. The
Company intends to hold discussions with Nasdaq representatives concerning
this shortly. The Company expects that its shares would be quoted on the OTC
Bulletin Board if delisting from the Nasdaq Small Cap Market were to occur.