Document:

Exhibit
10.3

 

AMENDMENT
NUMBER SIX TO LOAN AND

SECURITY AGREEMENT AND WAIVER

 

This Amendment Number Six to Loan and Security
Agreement and Waiver (“Sixth Amendment”) is entered into as of July 25,
2003, by and between WELLS FARGO FOOTHILL, INC., a California
corporation, f/k/a/ Foothill Capital Corporation (“Foothill”), and EVANS &
SUTHERLAND COMPUTER CORPORATION, a Utah corporation (“Borrower”), in
light of the following:

 

A.                                   Borrower
and Foothill have previously entered into that certain Loan and Security
Agreement, dated as of December 14, 2000 (“Agreement”);

 

B.                                     On
or about June 19, 2001, Borrower and Foothill entered into that certain
amending Letter Agreement, whereby certain terms and conditions of the
Agreement were temporarily amended;

 

C.                                     On
or about February 22, 2002, Borrower and Foothill entered into that certain
Amendment Number One to Loan and Security Agreement and Waiver whereby certain
terms and conditions of the Agreement were amended;

 

D.                                    On
or about August        , 2002, Borrower and
Foothill entered into that certain Amendment Number Two to Loan and Security
Agreement and Waiver whereby certain terms and conditions of the Agreement were
further amended

 

E.                                      On
or about December 11, 2002, Borrower and Foothill entered into that certain
Amendment Number Three to Loan and Security Agreement and Waiver whereby
certain terms and conditions of the Agreement were further;

 

F.                                      
On or about January 8, 2003, Borrower and Foothill entered into that certain
Amendment Number Four to Loan and Security Agreement and Waiver whereby certain
terms and conditions of the Agreement were further amended;

 

G.                                     On
or about March 14, 2003, Borrower and Foothill entered into that certain
amending Consent Letter, whereby certain terms and conditions of the Agreement
were temporarily amended;

 

H.                                    
On or about July 16, 2003, Borrower and Foothill entered into that certain
Amendment Number Five to Loan and Security Agreement and Waiver whereby certain
terms and conditions of the Agreement were further amended (the Agreement, as
amended by the letter agreement, the first amendment, the second amendment, the
third amendment, the fourth amendment, the consent letter, and the fifth
Amendment, all as referenced above, is hereinafter referred to as the “Loan
Agreement”); and

 

1

 

I.                                         Borrower
and Foothill desire to further amend the Loan Agreement as provided for and on
the conditions herein.

 

NOW,
THEREFORE, Borrower and Foothill hereby amend and supplement
the Loan Agreement as follows:

 

1.                                      DEFINITIONS.              All
initially capitalized terms used in this Sixth Amendment shall have the
meanings given to them in the Agreement unless specifically defined herein.

 

2.                                      AMENDMENTS.

 

(a)                                  There
is added a new definition to Section 1.1 of the Loan Agreement as follows:

 

““Sixth Amendment” means that certain Amendment Number Six to
Loan and Security Agreement dated as of July 25, 2003, entered into between
Borrower and Foothill.”

 

(b)                                 Section
7.17 of the Loan Agreement is deleted in its entirety, and the following
substituted in its place and stead:

 

“7.17  Financial Covenants.

 

Fail to maintain amounts equal to the sum of: (i) Cash Equivalents, and
(ii) Excess Availability of at least the required amounts set forth in the
following table as of the applicable dates set forth opposite thereto:

 

	
  Applicable Amount

  	
   

  	
  Applicable Date

  	
   

  
	
  $11,500,000

  	
   

  	
  6/27/03

  	
   

  
	
  $11,000,000

  	
   

  	
  9/26/03

  	
   

  
	
  $14,000,000

  	
   

  	
  12/31/03, and the last day of each fiscal quarter thereafter

  	
   

  

 

3.                                      REPRESENTATIONS
AND WARRANTIES.  Borrower hereby
affirms to Foothill that all of Borrower’s representations and warranties set
forth in the Agreement are true, complete and accurate in all respects as of
the date hereof.

 

4.                                      NO
DEFAULTS.  Borrower hereby
affirms to Foothill that, other than 
Events of Default having been expressly waived by Foothill in writing,
no Event of Default has occurred and is continuing as of the date hereof.

 

2

 

5.                                      CONDITION
PRECEDENT.  The effectiveness of
this Sixth Amendment is expressly conditioned upon the  receipt by Foothill of an executed copy of
this Sixth Amendment.

 

6.                                      COSTS
AND EXPENSES.  Borrower shall
pay to Foothill all of Foothill’s out-of-pocket costs and expenses (including,
without limitation, the fees and expenses of its counsel, which counsel may
include any local counsel deemed necessary, search fees, filing and recording
fees, documentation fees, appraisal fees, travel expenses, and other fees)
arising in connection with the preparation, execution, and delivery of this
Sixth Amendment and all related documents.

 

7.                                      LIMITED
EFFECT.  In the event of a
conflict between the terms and provisions of this Sixth Amendment and the terms
and provisions of the Agreement, the terms and provisions of this Sixth
Amendment shall govern.  In all other
respects, the Agreement, as amended and supplemented hereby, shall remain in
full force and effect.

 

8.                                      COUNTERPARTS;
EFFECTIVENESS.  This Sixth
Amendment may be executed in any number of counterparts and by different
parties on separate counterparts, each of which when so executed and delivered
shall be deemed to be an original.  All
such counterparts, taken together, shall constitute but one and the same Sixth
Amendment.  This Sixth Amendment shall
become effective upon the execution of a counterpart of this Sixth Amendment by
each of the parties hereto.

 

IN WITNESS WHEREOF, the parties hereto have executed
this Amendment Number Six to Loan and Security Agreement as of the date first
set forth above.

 

	
   

  	
  WELLS
  FARGO FOOTHILL, INC.,

  a California corporation, f/k/a Foothill Capital

  Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Larissa Megerdichian

  	
   

  
	
   

  	
   

  	
  Larissa Megerdichian, V.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EVANS &
  SUTHERLAND COMPUTER,

  a Utah corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ E. Thomas Atchison

  	
   

  
	
   

  	
   

  	
  Tom Atchison, CFO

  
						

 

3Exhibit 10.1

 

AGREEMENT

 

Whereas, Precision Auto Care, Inc. (“PACI”) issued to Board LLC a
Subordinated Debenture (the “Subordinated Debenture”) dated October 15, 1998 in
the original principal amount of $2,000,000, and

 

Whereas, the parties desire to cancel the Subordinated Debenture, as
amended from time to time, on the terms and conditions hereof.  Now, Therefore, in consideration of the
premises and for other good and valuable consideration, receipt and sufficiency
of which is hereby acknowledged by each of the parties hereto, the parties
agree this 17th day of July 2003 as follows:

 

Board LLC hereby surrenders and cancels the Subordinated Debenture and
all rights thereunder, and further agrees to deliver the original Subordinated
Debenture to PACI.

 

PACI agrees to pay Board LLC the sum of $250,000 as follows: $200,000
within 3 days after the date hereof, and the remaining balance of $50,000 in
ten monthly installments of $5,000 each, without interest, with the first
installment beginning one month after the date hereof and continuing on the
same day of each month thereafter until paid in full.  If an installment is not paid within 7 days after the respective
due date, interest shall accrue on the remaining balance at the rate of 10% per
annum.

 

PACI also issues to Board LLC a warrant to purchase 400,000 shares of
PACI Common Stock, exercisable at $0.44 per share, in the form attached hereto
as Exhibit A.

 

In the event of any dispute concerning this Agreement, the prevailing
party shall be entitled to all costs and expenses, including reasonable
attorney’s fees, incurred in connection with wit the enforcement of the
provisions hereof or for the defense of any unsuccessful action brought by the
other party.  The foregoing shall apply
whether or suit is filed and shall include legal fees incurred at the trial
level, and if applicable, at the appellate level(s).

 

In Witness Whereof, the parties have set their hands as of the date
above set forth.

PRECISION AUTO CARE, INC.

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:  Robert A. Falconi

  
	
   

  	
  Title:

  	
  Executive Vice President and Chief Operating Officer

  
				

 

BOARD LLC

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					

 

1

 

EXHIBIT
A

NEITHER THIS WARRANT NOR THE SHARES OF COMMON
STOCK TO BE ISSUED UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT (AS DEFINED BELOW) OR ANY STATE SECURITIES OR “BLUE SKY” LAWS,
AND THE HOLDER OF THIS WARRANT REPRESENTS AND WARRANTS THAT THIS WARRANT HAS
BEEN, AND THE SHARES OF COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE,
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RELEASE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF.  NO
SALE, ASSIGNMENT, TRANSFER, GIFT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF
SUCH WARRANT OR SHARES MAY BE MADE (i) EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
STATE LAWS AND (ii) UNLESS (A) SUCH WARRANT OR SHARES ARE COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (B) AN EXEMPTION
FROM SUCH A REGISTRATION IS AVAILABLE.

WARRANT TO PURCHASE SHARES

OF

COMMON STOCK

OF

PRECISION AUTO CARE, INC.

Warrant
No. 2003-01

THIS IS TO CERTIFY THAT, FOR VALUE RECEIVED, Board LLC is entitled,
subject to the terms set forth below, to purchase from Precision Auto Care,
Inc. (hereinafter with its successors called the “Company”), a Virginia corporation,
all or any part of the duly authorized, validly issued, fully paid and
non-assessable shares of the Company’s common stock, $0.01  par value (the “Common Stock”), as comprise
400,000 Units (as defined and adjusted below) at the Purchase Price as set
forth below.  A “Unit” shall consist
initially of one share of Common Stock of the Company as such stock is
constituted on the date of this Warrant, however, the number of shares of
Common Stock comprising a Unit shall be subject to adjustment from time to time
as set forth herein.

Issuance. 
This Warrant is issued to Board LLC, or registered assigns (the
“Holder”) by the Company.

Agreement. 
This Warrant is issued by the Company to Holder pursuant to that certain
Agreement dated July 17, 2003 (the “Agreement”).

Purchase Price; Number of Shares.  Subject to the terms and conditions
hereinafter set forth, the Holder is entitled upon surrender of this Warrant
with the subscription form annexed hereto duly executed, at the office of the
Company, or such other office as the Company shall notify the Holder of in
writing, to purchase at any time or from time to time from the Company at a
price per Unit of $0.44 (the “Purchase Price”) 400,000 Units.  Until such time as this Warrant is exercised
in full or expires, the Purchase Price and the securities issuable upon
exercise of this Warrant are subject to adjustment as provided in Sections 9
and 10 below.

Payment of Purchase Price.  The Purchase Price shall be paid by wire
transfer, in cash or by certified or cashier’s check.

Partial Exercise.  This Warrant may be exercised in part, but not for less than
10,000 Units at a time (or such lesser number of Units which may then
constitute the maximum number purchasable, such number being subject to
adjustment as provided in Sections 9 and 10 below), and the Holder shall be
entitled to receive a new warrant, which shall be dated as of the date of this
Warrant, covering the number of Units in respect of which this Warrant shall
not have been exercised.

Issuance; Issuance Date.  As soon as practicable after the exercise of
this Warrant in full or in part, and in any event within five (5) business days
thereafter, the Company at its expense will cause to be issued in the name of
and delivered to the Holder, or as such Holder may direct, a certificate or
certificates for the number of fully-paid and non-assessable shares of Common
Stock in respect of the applicable Units to which Holder shall be entitled on
such exercise, rounded to the nearest whole number.  The person or persons in whose name or names any certificate
representing shares of Common Stock is issued hereunder shall be deemed to have
become the holder of record of the shares represented thereby as at the close
of business on the date this Warrant is exercised with respect to such shares,
whether or not the transfer books of the Company shall be closed.

Expiration Date.  This Warrant shall expire at the close of business on June 30,
2008, and shall be void thereafter.

Valid Issuance.  The Company shall, at all times, reserve and keep available,
solely for issuance and delivery upon exercise of this Warrant, all shares of
Common Stock issuable upon exercise of this Warrant; provided, however, Holder
acknowledges that as of the date of this Warrant the number of authorized and
unissued shares of Common Stock will only permit the exercise of this Warrant
in part, and the Company will use its best efforts to effect the amendment of
its Articles of Incorporation contemplated by Section 5(a) of the Agreement and
thereafter reserve all required shares; provided further, that if this Warrant
is not exercisable in full, because of the Company’s failure to effect such
amendment, then Holder will have the additional rights set forth in Section
5(c) of the Agreement.  The Company
covenants that such shares as may be issued pursuant to the exercise of this
Warrant will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.

Adjustment of Number of Shares Issuable Pursuant to this Warrant.

A “Unit” shall consist initially of one share of Common Stock of the
Company as such stock is constituted on the date of this Warrant.  The number of shares of Common Stock
comprising a Unit shall be subject to adjustment from time to time as follows:

Effect of “Split-ups” and “Split-downs”; Stock Dividends.  If at any time or from time to time the
Company shall subdivide as a whole, by reclassification, by the issuance of a
stock dividend on the Common Stock payable in Common Stock, or otherwise, the
number of shares of Common Stock comprising a Unit that may be purchased
hereunder shall be increased proportionately as of the effective or record date
of such action.  The issuance of such a
stock dividend shall be treated as a subdivision of the whole number of shares
of Common Stock outstanding immediately before the record date for such
dividend into a number of shares equal to such whole number of shares so
outstanding plus the number of shares issued as a stock dividend.  In case at any time or from time to time the
Company shall combine as a whole, by reclassification or otherwise, the number
of shares of Common Stock then outstanding into a lesser

 

2

 

number of shares, then the number of shares of Common Stock comprising
a Unit which may be purchased hereunder shall be reduced proportionately as of
the effective date of such action.

Effect of Certain Dividends.  If on any date the Company makes a distribution
to holders of its Common Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of its indebtedness or assets, the number
of shares of Common Stock theretofore comprising a Unit shall be adjusted as of
the close of business on said date to a number determined by multiplying the
number of shares theretofore comprising a Unit by a fraction, the numerator of
which shall be the Current Price (as defined herein), and the denominator of
which shall be the Current Price minus the fair market value (as determined in
good faith by the Board of Directors of the Company) of the portion of the
assets or evidences of indebtedness so to be distributed to one share of Common
Stock.

Adjustment of Unit after a “Diluting Issue”.  If on any date on or after the date of this
Warrant, any additional shares of Common Stock (other than (a) shares issued
upon exercise of this Warrant or (b) Excluded Securities, as hereinafter defined)
shall be issued for a consideration per share (or, in the case of any
transactions contemplated in paragraphs (2) or (3) of this Section 9(c), shall
be deemed to be issued for a Presumed Consideration per share) less than the
Current Price on the date such Common Stock was issued or deemed to have been
issued, the number of shares of Common Stock theretofore comprising a Unit
shall be adjusted as at the close of business on such date to a number equal to
the product (computed to the nearest ten thousandth of a share) resulting from
the multiplication of (i) the total number of shares of Common Stock comprising
a Unit immediately before such adjustment by (ii) a fraction, the numerator of
which is (x) the total number of shares of Common Stock outstanding immediately
before such issue plus the number of additional shares being issued, and the
denominator of which is (y) the total number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock that the aggregate consideration received (or, without duplication, the
Presumed Consideration deemed to have been received) for the total number of
additional shares so issued would purchase at the Current Price on the date
such Common Stock was issued or deemed to have been issued, excluding from both
the numerator and denominator of such fraction shares of Common Stock issuable
pursuant to exercise of this Warrant and Excluded Securities.

For the purpose of this Section 9(c), the following provisions shall be
applicable with respect to the issuance of additional shares of Common Stock
and the computation set forth in the immediately preceding paragraph:

Stock Dividends, etc.  In case any additional shares of Common
Stock shall be issued as a dividend on Common Stock the number of shares of
Common Stock comprising a Unit shall be adjusted as provided in Section 9(a).

In case any additional shares of Common Stock shall be issued as a
dividend on any class of stock of the Company other than Common Stock, or in
case any obligations or stock convertible into or exchangeable for shares of
Common Stock (such convertible or exchangeable obligations or stock being
hereinafter called “Convertible Securities”) shall be issued as a dividend on
any class of stock of the Company, such shares of Common Stock or Convertible
Securities shall be deemed to have been issued without consideration on the day
next succeeding the date for the determination of stockholders entitled to such
dividend.

Rights or Options below Current Price.  In case the Company shall on or after the
date of this Warrant grant any rights or options (other than this Warrant or
any rights or options that are Excluded Securities) to subscribe for or to
purchase additional shares of Common Stock or Convertible Securities, and the
Presumed Consideration per share received and receivable by the Company for
such additional shares under such rights or options or pursuant to the terms of
such Convertible Securities shall be less than the Current Price in effect
immediately prior to the time of the granting of such rights or options, the
maximum number of additional shares of Common Stock issuable pursuant to such
rights or options or necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued as of the date of
the granting of such rights or options, and the Company shall be deemed to have
received the Presumed Consideration therefor. 
No adjustment (except as provided in paragraph (4) of this Section 9(c))
shall be made upon the actual issuance of Common Stock, upon the exercise of
rights or options referenced in this paragraph (2) or the conversion of
Convertible Securities referenced in this paragraph (2).

Securities Convertible below Current Price.  In case:

the Company shall issue any Convertible Securities (other than pursuant
to the exercise of rights or options therefor in respect of which an adjustment
shall have theretofore been made under the foregoing paragraph (2)), and

the Presumed Consideration per share for additional shares of Common
Stock issuable pursuant to the terms of such Convertible Securities shall be
less than the Current Price in effect immediately prior to the time of the
issuance of such Convertible Securities, then the issuance of such Convertible
Securities shall be deemed to be an issuance (as of the date of issuance of
such Convertible Securities) of the maximum number of additional shares of
Common Stock necessary to effect the conversion or exchange of all such
Convertible Securities, and the Company shall be deemed to have received the
Presumed Consideration therefor as of the date of issuance of such Convertible
Securities.  No further adjustment,
except as provided in paragraph (4) of this Section 9(c), shall be made upon
the actual issuance of Common Stock upon the conversion of Convertible
Securities.

Superseding Adjustment of Number of Shares of Common Stock Comprising a
Unit.  If, at
any time after any adjustment of the shares of Common Stock comprising a Unit
shall have been made on the basis of shares of Common Stock deemed to be issued
by reason of the provisions of the foregoing paragraphs (2) or (3) of this
Section 9(c) on the basis of the granting of certain rights or options or the
issuance of certain Convertible Securities, or after any new adjustments of the
shares of Common Stock comprising a Unit shall have been made on the basis of
shares of Common Stock deemed to be issued by reason of the provisions of this
paragraph (4), such rights or options or the right of conversion or exchange in
any such Convertible Securities (for which, or purchased pursuant to any rights
or options for which, such an adjustment shall previously have been made) shall
expire, and a portion of such rights or options, or the right of conversion or
exchange in respect of a portion of such Convertible Securities, as the case
may be, shall not have been exercised, then such previous adjustment shall be
rescinded and annulled and the shares of Common Stock that were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled, shall no longer be deemed

 

3

 

to have been issued by virtue of such computation.  Thereupon, a re-computation shall be made of
the effect of such rights or options or such Convertible Securities on the
basis of:

treating the number of additional shares of Common Stock, if any,
theretofore actually issued pursuant to the exercise of such expired rights or
options or such expired right of conversion or exchange, as having been issued
on the date or dates of such exercise for the consideration actually received
therefor (computed as provided in paragraph (6) of this Section 9(c), and

treating the maximum number of additional shares of Common Stock, if
any, thereafter issuable pursuant to the conversion or exchange of any
Convertible Securities actually issued or issuable pursuant to the previous
exercise of such rights or options as having been issued as of the date of the
granting of such rights or options and treating the Presumed Consideration
therefor as received as of such date;

and, on such basis, such new adjustment, if any, of the number of
shares of Common Stock comprising a Unit shall be made as may be required by
the first paragraph of this Section 9(c), which new adjustment shall supersede
the previous adjustment so rescinded and annulled for the Warrant exercised
after such new adjustment.

Effect of “Split-up or “Split-down” on “deemed issued” shares.  Upon the effective or record date for any
subdivision or combination of the Common Stock of the character described in
Section 9(a), including the issuance of a stock dividend which is treated as
such a subdivision under paragraph (1) of this Section 9(c), the number of the
shares of Common Stock which are at the time deemed to have been issued by
virtue of paragraphs (2), (3) or (4) of this Section 9(c), but have not
actually been issued, shall be deemed to be increased or decreased
proportionately.

Computation of Consideration and Presumed Consideration.  For the purposes of this Section 9:

The consideration received by the Company upon the actual issuance of
additional shares of Common Stock shall be deemed to be the sum of the amount
of cash and the fair value of property (as determined in good faith by
resolution of the Board of Directors of the Company as at the time of issue or
“deemed issue” in the case of the following paragraph (ii)) received or
receivable by the Company as the consideration or part of the consideration (v)
at the time of issuance of the Common Stock, (w) for the issuance of any rights
or options upon the exercise of which such Common Stock was issued, (x) for the
issuance of any rights or options to purchase Convertible Securities upon the
conversion of which such Common Stock was issued, (y) for the issuance of the
Convertible Securities upon conversion of which such Common Stock was issued,
and (z) at the time of the actual exercise of such rights, options or
conversion privileges upon the exercise of which such Common Stock was issued,
in each case without deduction for commissions and expenses incurred by the
Company for any underwriting of, or otherwise in connection with the issue or
sale of, such rights, options, Convertible Securities or Common Stock, but
after deduction of any sums paid by the Company in cash upon the exercise of,
and pursuant to, such rights, options or conversion privileges in respect of
fractional shares of Common Stock, except that the consideration received by
the Company upon the issuance of shares of Common Stock in connection with a
consolidation, merger, purchase of assets as a going business or purchase of at
least a majority of the voting stock of any corporation, shall be deemed to be
the Current Price then in effect;

The consideration deemed to have been received by the Company for
additional shares of Common Stock deemed to be issued pursuant to rights,
options and conversion privileges by reason of transactions of the character
described in paragraphs (2), (3) and (4)(ii) of this Section 9(c) (herein
called the “Presumed Consideration” therefor) shall be the consideration
(determined as provided in the foregoing paragraph (i)) that would be received
or receivable by the Company at or before the actual issue of such shares of
Common Stock so deemed to be issued, if all rights, options and conversion
privileges necessary to effect the actual issue of the number of shares deemed
to have been issued had been exercised (successively exercised in the case of
rights or options to purchase Convertible Securities), and the minimum
consideration received or receivable by the Company upon such exercise had been
received; all computed without regard to the possible future effect of
anti-dilution provisions on such rights, options and/or conversion privileges.

Statement of Adjustment of Unit and Current Price.  Whenever the number of shares of Common
Stock comprising a Unit is adjusted pursuant to any of the foregoing provisions
of this Section 9, the Company shall promptly prepare a written statement
signed by the President of the Company, setting forth the adjustment in the
number of shares comprising a Unit purchasable hereunder, determined as
provided in this Section, and the amount of the then effective Current Price,
and in reasonable detail the facts requiring such adjustment and the
calculation thereof.  Such statement
shall be filed among the permanent records of the Company and a copy thereof
shall be furnished to any holder of this Warrant without request and shall at all
reasonable times during business hours be open to inspection by such
holders.  The Company shall also
promptly cause a notice, stating that such an adjustment has been effected and
setting forth the increased or decreased number of shares purchasable and the
amount of the then effective Current Price, to be mailed, first-class postage
prepaid, to the holders of record of this Warrant.

Determination by the Board of Directors.  All determinations by the Board of Directors
of the Company under the provisions of this Section 9 shall be made in good
faith with due regard to the interests of the holder of this Warrant and the
other holders of securities of the Company and in accordance with good
financial practice, and all valuations made by the Board of Directors of the
Company under the terms of this Section 9 must be made with due regard to any
market quotations of securities involved in, or related to, the subject of such
valuation.

For all purposes of this Section 9 and this Warrant, unless the context
otherwise requires, the following terms have the following respective meanings:

“Common Stock”:  (i) the Company’s presently authorized Common Stock as such class
exists on the date of this Warrant, (ii) securities issued upon exercise of
this Warrant, and (iii) stock of the Company of any class thereafter authorized
that ranks, or is entitled to a participation, as to assets or dividends,
substantially on a parity with Common Stock.

 

4

 

“Company”: 
Precision Auto Care, Inc., a Virginia corporation, and any other
corporation assuming the Company’s obligations with respect to this Warrant
pursuant to this Section 9.

“Convertible Securities”:  the meaning specified in Section 9(c)(1).

“Current Price”:  per share of Common Stock, the amount equal to the quotient
resulting from dividing (i) $0.44 by (ii) the number of shares (including any
fractional share) of Common Stock comprising a Unit on such date.

“Excluded Securities”: 
warrants, stock options, convertible notes and other rights to acquire
Common Stock (i) issued or outstanding as of the date hereof, or (ii) issued as
of the date hereof pursuant to the employee stock option plan (or substantially
equivalent plan) approved by the Company’s Board of Directors or its delegate.

“Presumed Consideration”:  the meaning specified in Section
9(c)(6)(ii).

Conversion or Redemption of Common Stock.

Should all of the Company’s Common Stock be, or if outstanding would
be, at any time prior to the expiration of this Warrant or any portion thereof,
redeemed or converted into another class shares of the Company’s stock, then if
there shall be any reclassification, capital reorganization or change of the
Common Stock, or any consolidation of the Company with, or merger of the Company
into, another corporation or other business organization (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or change of the outstanding
Common Stock), or any sale or conveyance to another corporation or other
business organization of all or substantially all of the assets of the Company,
then, as a condition of such reclassification, reorganization, change,
consolidation, merger, sale or conveyance, lawful provisions shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall thereafter have the
right to purchase, at a total price not to exceed that payable upon the exercise
of this Warrant in full, the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, reorganization,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock which might have been purchased by the Holder
immediately prior to such reclassification, reorganization, change,
consolidation, merger, sale or conveyance (irrespective of any vesting dates
set forth herein), and in any such case appropriate provisions shall be made
with respect to the rights and interest of the Holder to the end that the
provisions hereof (including without limitation, provisions for the adjustment
of the Purchase Price and the number of shares issuable hereunder) shall
thereafter be applicable in relation to any shares of stock or other securities
and property thereafter deliverable upon exercise hereof.

Upon any reorganization, consolidation, merger or transfer (and any
dissolution following any transfer) referred to in this Section 10, this
Warrant shall continue in full force and effect, subject to expiration in
accordance with Section 7 hereof, and the terms hereof shall be applicable to
the shares of stock and other securities and property receivable on the
exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any such
stock or other securities, including in the case of any such transfer, the
person acquiring all or substantially all of the properties or assets of the
Company, whether or not such person shall have expressly assumed the terms of
this Warrant as provided in Section 16.

Grant, Issue or Sale of Options, Convertible Securities, or Rights.  If at any time or from time to time on or
after the date of issuance hereof, the Company shall grant, issue or sell any
options, Convertible Securities or rights to purchase property (the “Purchase
Rights”) pro rata to the record holders of any class of Common Stock and
such grants, issuances or sales do not result in an adjustment of the Units
hereunder, then the Holder shall be entitled to acquire (within thirty (30)
days after the receipt by such holder of the notice concerning Purchase Rights
to which such holder shall be entitled under Section 11) and upon the terms
applicable to such Purchase Rights either:

the aggregate Purchase Rights which the Holder could have acquired if
it had held the number of shares of Common Stock acquirable upon exercise of
this Warrant immediately before the grant, issuance or sale of such Purchase
Rights (irrespective of any vesting dates set forth herein); provided that if
any Purchase Rights were distributed to holders of Common Stock without the
payment of additional consideration by such holders, corresponding Purchase
Rights shall be distributed to the exercising Holder as soon as possible after
such exercise and it shall not be necessary for the Holder specifically to
request delivery of such rights; or

in the event that any such Purchase Rights shall have expired or shall
expire prior to the end of said thirty (30) day period, the number of shares of
Common Stock or the amount of property which the Holder could have acquired
upon such exercise at the time or times at which the Company granted, issued or
sold such expired Purchase Rights.

Fractional Shares.  In no event shall any fractional share of Common Stock be issued
upon any exercise of this Warrant.  If,
upon exercise of this Warrant as an entirety, the Holder would, except as
provided in this Section 12, be entitled to receive a fractional share of
Common Stock, then the Company shall issue the next higher number of full
shares of Common Stock, issuing a full share with respect to such fractional
share.

Notices of Record Date, Etc.

Whenever the Purchase Price or number of shares purchasable hereunder
shall be adjusted, the Company shall issue a certificate signed by its Chief
Financial Officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Purchase Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of
such certificate to be mailed (by first class mail, postage prepaid) to the
Holder of this Warrant.

In the event of: (1) any taking by the Company of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right;
(2) any reclassification or recapitalization of the capital stock of the
Company, capital reorganization of the Company, consolidation or merger
involving the

 

5

 

Company, or sale or conveyance of all or substantially all of its
assets; (3) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company; or (4) any proposed issue or grant by the Company of any shares
of stock of any class or any other securities, or any right or option to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities, then and in each such event the Company will mail or
cause to be mailed to the Holder a notice specifying (A) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, or (B) the date on which any such reclassification, reorganization,
consolidation, merger, sale or conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record shall be entitled to exchange their shares for securities
or other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up, and (C) the amount and character of any stock or other securities,
or rights or options with respect thereto, proposed to be issued or granted,
the date of the proposed issue or grant and the person or class of persons to
whom such proposed issue or grant is to be offered or made.  Such notice shall be mailed at least 20 days
prior to the date specified in such notice on which any such action is to be
taken.

Amendment. 
The terms of this Warrant may be amended, modified or waived only with
the written consent of the Company and the Holder hereof.

Warrant Register; Transfers, Etc.

The Company will maintain a register containing the names and addresses
of the registered holder or holders of the Warrant.  The Holder may change its address as shown on the warrant
register by written notice to the Company requesting such change.  Any notice or written communication required
or permitted to be given to the Holder may be given by certified mail or
delivered to the Holder at its address as shown on the warrant register.

Subject to compliance with applicable federal and state securities
laws, Holder may transfer all or part of this Warrant at any time without
notice to the Company.  Upon any such
transfer, the transferee shall be deemed to be a “Holder” for the purposes of
this Warrant.  Upon surrender of this
Warrant to the Company, together with the assignment hereof properly endorsed,
for transfer of this Warrant as an entirety by the Holder, the Company shall
issue a new warrant of the same denomination to the assignee.  Upon surrender of this Warrant to the
Company, together with the assignment hereof properly endorsed, by the Holder
for transfer with respect to a portion of the shares of Common Stock
purchasable hereunder, the Company shall issue a new warrant to the assignee,
in such denomination as shall be requested by the Holder hereof, and shall
issue to such Holder a new warrant covering the number of shares in respect of
which this Warrant shall not have been transferred.

In case this Warrant shall be mutilated, lost, stolen or destroyed, the
Company shall issue a new warrant of like tenor and denomination and deliver
the same (i) in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant
lost, stolen or destroyed, upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft or destruction of such Warrant (including a
reasonably detailed affidavit with respect to the circumstances of any loss,
theft or destruction) and of indemnity reasonably satisfactory to the Company.

No Impairment.  The Company will not, by amendment of its Articles of
Incorporation, as amended, or through any reclassification, capital
reorganization, consolidation, merger, sale or conveyance of assets,
dissolution, liquidation, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder.  Without limiting the generality of the
foregoing, the Company (a) subject to Section 8 of this Warrant, will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock on the
exercise of all Warrants from time to time outstanding, and (b) will not transfer
all or substantially all of its properties and assets to any other person
(corporate or otherwise), or consolidate with or merge into any other person or
permit any such person to consolidate with or merge into the Company (if the
Company is not the surviving person), unless such other person shall expressly
assume in writing and become bound by all the terms of the Warrants.  The Company stipulates that the remedies at
law of the holder of this Warrant in the event of default or threatened default
by the Company in the performance or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.

Holder’s Representations and Warranties.  By acceptance of this Warrant, Holder
represents and warrants to the Company as follows:

This Warrant and the shares of Common Stock to be issued upon exercise
hereof or conversion thereof are being acquired for Holder’s own account, for
investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Act, and the
Holder has no present intention of engaging in any public distribution thereof
pursuant to a registration or exemption.

Holder understands that the Warrant and the shares of Common Stock to
be issued upon exercise hereof or conversion thereof have not been registered
under the Act by reason of their issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Act pursuant to
Section 4(2) thereof, and that they must be held by Holder indefinitely, and
the Holder must therefore bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Act or is exempted from such registration. 
The Holder further understands that the Shares have not been qualified
under the securities laws of any state (“State Law”) by reason of their
issuance in a transaction exempt under State Law, which exemption depends upon,
among other things, the bona fide nature of the Holder’s investment intent
expressed above.

The Holder has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase
of this Warrant and the shares of Common Stock purchasable pursuant to the
terms of this Warrant and of protecting its interests in connection therewith.

 

6

 

The Holder is able to bear the economic risk of the purchase of the
shares of Common Stock pursuant to the terms of this Warrant.

Governing Law.  The provisions and terms of this Warrant shall be governed by and
construed in accordance with the internal laws of the Commonwealth of Virginia.

Successors and Assigns.  This Warrant shall be binding upon the
Company’s successors and assigns and shall inure to the benefit of the Holder’s
successors, legal representatives and permitted assigns.

Business Days.  If the last or appointed day for the taking of any action
required or the expiration of any right granted herein shall be a Saturday or
Sunday or a legal holiday in Washington, D.C., then such action may be taken or
right may be exercised on the next succeeding day which is not a Saturday or
Sunday or such a legal holiday.

Notices. 
All notices required to be delivered by the Company to Holder shall be
made as follows:

	
  If to the Company: Precision Auto Care,
  Inc.

  
	
   

  	
  P.O. Box
  5000

  
	
   

  	
  Leesburg,
  Virginia 20177

  
	
   

  	
  If to Holder:

  	
  Board LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Dated: 

  	
   

  	
   

  	 

								

 

	
  PRECISION AUTO CARE, INC.

  
	
  By:

  	
   

  	
   

  
	
  Name:  Louis M. Brown, Jr.,

  
	
  Title:

  	
  President and Chief Executive Officer

  
				

 

7

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