<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1996
REGISTRATION NO. 333-00985
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------------
THE PEP BOYS -- MANNY, MOE & JACK
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0962915
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
---------------------------------
3111 West Allegheny Avenue
Philadelphia, Pennsylvania 19132
(215) 229-9000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------------------
Mitchell G. Leibovitz
Chairman of the Board,
President and Chief Executive Officer
The Pep Boys -- Manny, Moe & Jack
---------------------------------
3111 West Allegheny Avenue
Philadelphia, Pennsylvania 19132
(215) 229-9000
(Name, address, including zip code, and
telephone number,
including area code, of agent for service)
---------------------------------
with copies to:
Daniel D. Rubino, Esq. Norman D. Slonaker, Esq.
Willkie Farr & Gallagher Brown & Wood LLP
One Citicorp Center One World Trade Center
153 East 53rd Street New York, New York 10048
New York, New York 10022 (212) 839-5300
(212) 821-8000
(Counsel for Registrant) (Counsel for Underwriter)
---------------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
---------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================
Proposed
Maximum
Proposed Maximum Aggregate Amount of
Title of Each Class of Securities Amount to be Offering Price per Offering Registration
to be Registered Registered(1) Security(2) Price(2) Fee(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liquid Yield Option(TM) Notes due 2011 . $271,704,000 55.207% $149,999,628 $51,725
- ------------------------------------------------------------------------------------------------------------------
Common Stock, par value $1.00 per share
(including attached Common Stock
Purchase Rights (4) ................... (5) -- -- None
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(TM)Trademark of Merrill Lynch & Co., Inc.
(1) Includes $35,439,000 in principal amount of LYONs subject to the
Underwriter's over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Of which $39,656 has been previously paid and $12,069 is paid herewith.
(4) Prior to the occurrence of certain events, the Common Stock Purchase
Rights will not be evidenced separately from shares of the Common Stock.
Upon the occurrence of such events, separate Rights certificates will be
issued representing one Right for each share of Common Stock held.
(5) Represents such indeterminate number of shares of Common Stock as shall
be issuable upon conversion of the LYONs.
---------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
=============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 16, 1996
PROSPECTUS
LOGO
Liquid Yield Option(TM) Notes due 2011
(Zero Coupon -- Subordinated)
------
The issue price of each Liquid Yield Option(TM) Note ("LYON") to be issued
by The Pep Boys -- Manny, Moe & Jack (the "Company") will be $ ( % of
principal amount at maturity) (the "Issue Price"), and there will be no
periodic payments of interest. The LYONs will mature on September , 2011.
The Issue Price of each LYON represents a yield to maturity of % per annum
(computed on a semiannual bond equivalent basis) calculated from September ,
1996. The LYONs will be subordinated to all existing and future Senior
Indebtedness of the Company. As of August 3, 1996, there was approximately
$417.9 million of Senior Indebtedness outstanding. See "Description of LYONs
- -- Subordination of LYONs."
Each LYON will be convertible at the option of the Holder at any time on
or prior to maturity, unless previously redeemed or otherwise purchased, into
common stock, par value $1.00 per share, of the Company (the "Common Stock")
at a conversion rate of shares per LYON (the "Conversion Rate"). The
Conversion Rate will not be adjusted for accrued Original Issue Discount but
will be subject to adjustment upon the occurrence of certain events affecting
the Common Stock. Upon conversion, the Holder will not receive any cash
payment representing accrued Original Issue Discount; such accrued Original
Issue Discount will be deemed paid by the Common Stock received on
conversion. See "Description of LYONs -- Conversion Rights." On September 13,
1996, the last reported Sale Price of the Common Stock on the New York Stock
Exchange Composite Tape was $36 per share.
LYONs will be purchased by the Company, at the option of the Holder, on
September , 2001 and September , 2006 (each a "Purchase Date") for a
Purchase Price per LYON of $ and $ (Issue Price plus accrued Original
Issue Discount to each such date), respectively. The Company, at its option,
may elect to pay the Purchase Price on any Purchase Date in cash or shares of
Common Stock, or in any combination thereof. See "Description of LYONs --
Purchase of LYONs at the Option of the Holder." In addition, as of 35
business days after the occurrence of any Change in Control of the Company
occurring on or prior to September , 2001, LYONs will be purchased for cash
by the Company, at the option of the Holder, for a Change in Control Purchase
Price equal to the Issue Price plus accrued Original Issue Discount to the
date set for such purchase. In certain circumstances the Company's ability to
pay the Change in Control Purchase Price may be limited. See "Description of
LYONs -- Change in Control Permits Purchase of LYONs at the Option of the
Holder."
The LYONs are not redeemable by the Company prior to September , 2001. On
and after that date, the LYONs are redeemable for cash at any time at the
option of the Company, in whole or in part, at Redemption Prices equal to the
Issue Price plus accrued Original Issue Discount to the date of redemption.
See "Description of LYONs -- Redemption of LYONs at the Option of the
Company."
For a discussion of certain United States federal income tax consequences
for Holders of LYONs, see "Certain Tax Aspects."
Application has been made to list the LYONs on the New York Stock
Exchange.
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -----------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================
Principal Amount at Price to Underwriting Proceeds to
Maturity Public Discount(1) Company(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per LYON .... 100% % % %
- ------------------------------------------------------------------------------------------
Total(3) .... $ $ $ $
==========================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $275,000.
(3) The Company has granted to the Underwriter an option, exercisable within
30 days after the date of this Prospectus, to purchase up to an
additional $ aggregate principal amount at maturity of LYONs on the
same terms as set forth above to cover over-allotments, if any. If the
option is exercised in full, the total Principal Amount at Maturity,
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ , $ and $ , respectively. See "Underwriting."
------
The LYONs are offered by the Underwriter, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter, and subject to approval
of certain legal matters by counsel for the Underwriter and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the LYONs will be made in New York, New York on or about
September , 1996.
(TM) Trademark of Merrill Lynch & Co., Inc.
------
Merrill Lynch & Co.
------
The date of this Prospectus is September , 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE LYONS
OFFERED HEREBY OR THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED
ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information concerning the Company
may be inspected, and copies of such material may be obtained at prescribed
rates, at the Commission's Public Reference Section, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Commission's Regional
Offices at Seven World Trade Center, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60661-2511. In
addition, the Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission, such as the Company. The address of
the Commission's Web site is http:/www.sec.gov. The Company's Common Stock is
listed on the New York Stock Exchange (the "NYSE"). Reports, proxy statements
and other information concerning the Company may be inspected at the offices
of the NYSE at 20 Broad Street, New York, New York 10005.
This Prospectus contains forward-looking statements that involve risks and
uncertainties, including risks associated with the automotive aftermarket
retail and service industries and other risks detailed from time to time in
the Company's filings with the Commission.
This Prospectus constitutes part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus omits certain of the information contained in the Registration
Statement and the exhibits and schedules thereto, in accordance with the
rules and regulations of the Commission. For further information concerning
the Company and the LYONs offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed therewith, which
may be inspected without charge at the office of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and copies of which may be obtained from
the Commission at prescribed rates. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended February 3,
1996, the Company's Quarterly Reports on Form 10-Q for the quarters ended May
4, 1996 and August 3, 1996, the description of the Company's Common Stock set
forth in the Registration Statement on Form 8-A filed by the Company to
register such securities under Section 12 of the Exchange Act, and any
amendments or reports filed for the purpose of updating such description, and
the description of the Company's Common Stock Purchase Rights set forth in
the Registration Statement on Form 8-A, dated December 21, 1987, as amended
by the Company's Form 8, dated June 30, 1989, each as filed with the
Commission pursuant to the Exchange Act, are incorporated into this
Prospectus by reference.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of this offering shall be deemed
to be incorporated by reference herein and to be a part hereof from the date
of filing of such reports and documents. Any statement incorporated herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference
(other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such document). Requests for such documents
should be submitted in writing to Mr. Michael J. Holden, Executive Vice
President, Chief Financial Officer and Treasurer, The Pep Boys -- Manny, Moe
& Jack, 3111 West Allegheny Avenue, Philadelphia, Pennsylvania 19132,
telephone (215) 229-9000.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified by the detailed information and
financial statements included elsewhere or incorporated by reference in this
Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes that the Underwriter's over-allotment option is not exercised.
THE COMPANY
The Pep Boys -- Manny, Moe & Jack (together with its subsidiaries, the
"Pep Boys" or the "Company") is a leading automotive aftermarket retail and
service chain. The Company is engaged principally in the retail sale of
automotive parts and accessories, automotive maintenance and service and the
installation of parts. Pep Boys operates its business through its chain of
540 stores (as of August 3, 1996) located in 33 states, the District of
Columbia and Puerto Rico, of which 331 stores are owned and 209 stores are
leased. Pep Boys believes it is best positioned to gain market share and to
increase shareholder value by serving the "do-it-yourself," "do-it-for-me"
and "buy-for-resale" customer segments with the highest quality merchandise
and service at the best value.
The Company operates approximately 10,759,000 gross square feet of retail
space, including an aggregate of 4,906 service bays. A typical Pep Boys store
is a free-standing warehouse format Supercenter of approximately 22,000
square feet. The new prototype for Supercenter stores is approximately 19,500
square feet in size. Each new Supercenter will continue to have approximately
12 service bays along with a product offering of approximately 26,000
stock-keeping units ("SKUs") and will generally be located in an area with
high automotive traffic count and population density. Pep Boys believes that
the operation of service bays in its Supercenter stores differentiates it
from most of its competitors by providing its customers with the ability to
purchase parts and have them installed at the same location.
In fiscal 1994, the Company introduced a supplemental store format under
the name "PARTS USA" to operate in locations that the Company believes will
be better served by stores with an extensive selection of parts and
accessories but without tires or service bays. These locations consist of
certain urban areas and areas located between Supercenters. PARTS USA stores
average approximately 11,000 square feet and stock approximately 23,000 SKUs.
The new prototype for PARTS USA stores is approximately 7,800 square feet in
size. As compared to the Supercenters, PARTS USA stores have a higher
percentage of hard parts and accessories, the highest margin merchandise
categories, in the sales mix. By supplementing its Supercenter expansion with
PARTS USA stores, the Company seeks to increase its market penetration and
share over time.
The Company is positioning certain Supercenters and PARTS USA stores to
deliver high quality parts to the professional installer. This will
strengthen the Company's position in the "buy-for-resale" category by
allowing the Company to further penetrate its markets while providing a
valuable service to the busy, professional mechanic.
During fiscal years 1992, 1993 and 1994, Pep Boys added a net of 20, 29
and 49 stores, respectively, including the first PARTS USA store in fiscal
1994. In fiscal 1995, the Company added a net of 71 stores which includes 46
new warehouse format Supercenters and 29 PARTS USA stores, and closed four
older stores. Included in the Company's expansion were seven stores in Puerto
Rico -- its initial units outside of the continental United States. As of
August 3, 1996, the Company had 489 Supercenters and 51 PARTS USA stores.
Although the Company's competition varies by geographical area, the
Company believes that it generally has a favorable competitive position in
terms of price, depth and breadth of merchandise, quality of personnel and
customer service. The Company believes that it provides customers with among
the lowest prices in each of its markets. Pep Boys employs an
everyday-low-price strategy which it believes provides its customers better
value and consistency on a day-to-day basis and improves inventory
management. In addition, Pep Boys believes that it carries among the largest
selection of parts, accessories and chemicals in the automotive aftermarket
retail industry, with approximately 26,000 SKUs per Supercenter. The Com-
3
<PAGE>
pany also believes it provides a high level of customer service through its
well-trained and knowledgeable employees. The Company's advertising strategy
consists primarily of television advertising and multi-page catalogs,
supplemented with radio advertising and various in-store promotions.
The Company utilizes electronic parts catalogs, enabling employees to
reference and access parts instantly while noting price, related items and
in-stock position. In addition, the Company monitors product sales by SKU
through its point-of-sale system which utilizes bar code slot scanning. This
system enables the Company to monitor its gross margins and set minimum and
maximum inventory levels for each store. The Company's centralized buying
system and a perpetual inventory-automatic replenishment system orders
additional inventory from one of the Company's warehouses when a store's
inventory on hand falls below the minimum level set for each SKU.
The Pep Boys -- Manny, Moe & Jack, a Pennsylvania corporation, was
incorporated in 1925. The Company's executive offices are located at 3111
West Allegheny Avenue, Philadelphia, Pennsylvania 19132, telephone (215)
229-9000.
THE OFFERING
LYONs.......................... $ aggregate principal amount at maturity
(excluding $ aggregate principal amount at
maturity subject to the Underwriter's
over-allotment option) of LYONs due
September , 2011. There will be no periodic
interest payments on the LYONs. Each LYON
will have an Issue Price of $ and a
principal amount at maturity of $1,000.
Yield to Maturity of LYONs..... % per annum (computed on a semiannual bond
equivalent basis) calculated from September
, 1996.
Conversion Rights.............. Each LYON will be convertible, at the option
of the Holder, at any time on or prior to
maturity, unless previously redeemed or
otherwise purchased, into Common Stock at a
Conversion Rate of shares per LYON. The
Conversion Rate will not be adjusted for
accrued Original Issue Discount, but will be
subject to adjustment upon the occurrence of
certain events affecting the Common Stock.
Upon conversion, the Holder will not receive
any cash payment representing accrued
Original Issue Discount; such accrued
Original Issue Discount will be deemed paid
by the Common Stock received by the Holder
on conversion. See "Description of LYONs --
Conversion Rights."
Subordination.................. The LYONs will be subordinated in right of
payment to the prior payment in full of all
existing and future Senior Indebtedness of
the Company. As of August 3, 1996, there was
approximately $417.9 million of Senior
Indebtedness outstanding. See "Description
of LYONs -- Subordination of LYONs."
Original Issue Discount........ Each LYON is being offered at an Original
Issue Discount for United States federal
income tax purposes equal to the excess of
the principal amount at maturity of the LYON
over the amount of the Issue Price.
Prospective purchasers of LYONs should be
aware that, although there will be no
periodic payments of interest on the LYONs,
accrued Original Issue Discount will be
includible, periodically, in a Holder's
gross income for United States federal
income tax purposes prior to conversion,
redemption, other disposition or
4
<PAGE>
maturity of such Holder's LYONs, whether or
not such LYONs are ultimately converted,
redeemed, sold (to the Company or otherwise)
or paid at maturity. See "Certain Tax
Aspects -- Original Issue Discount."
Sinking Fund................... None.
Optional Redemption............ The LYONs will not be redeemable by the
Company prior to September , 2001. On and
after such date, the LYONs are redeemable
for cash at any time at the option of the
Company, in whole or in part, at Redemption
Prices equal to the Issue Price plus accrued
Original Issue Discount to the date of
redemption. See "Description of LYONs --
Redemption of LYONs at the Option of the
Company."
Purchase at the Option of the
Holder....................... The Company will purchase any LYON, at the
option of the Holder, on September , 2001
and September , 2006, for a Purchase Price
of $ and $ (Issue Price plus accrued
Original Issue Discount to each such date),
respectively, representing a % yield per
annum to the Holder on such date, computed
on a semiannual bond equivalent basis.
Subject to certain exceptions, the Company,
at its option, may elect to pay the Purchase
Price on any such Purchase Date in cash or
Common Stock, or any combination thereof. In
addition, as of 35 business days after the
occurrence of a Change in Control of the
Company occurring on or prior to September
, 2001, the Company will purchase for cash
any LYON, at the option of the Holder, for a
Change in Control Purchase Price equal to
the Issue Price plus accrued Original Issue
Discount to the Change in Control Purchase
Date. The Change in Control purchase feature
of the LYONs may in certain circumstances
have an anti-takeover effect. A "Change in
Control" is deemed to have occurred at such
time as (i) any person (other than the
Company, any subsidiary of the Company, or
any employee benefit plan of either the
Company or any such subsidiary) has become
the beneficial owner of 50% or more of the
Common Stock or other capital stock of the
Company into which such Common Stock may be
reclassified or changed, or (ii) a merger or
consolidation of the Company shall be
consummated (a) in which the Company is not
the continuing or surviving corporation or
(b) pursuant to which the Common Stock would
be converted into cash, securities or other
property, other than a merger or
consolidation of the Company in which the
holders of the Common Stock immediately
prior to the merger or consolidation have,
directly or indirectly, at least a majority
of the Common Stock of the continuing or
surviving corporation. If a Change in
Control were to occur, there can be no
assurance that the Company would have
sufficient funds to pay the Change in
Control Purchase Price required by Holders
seeking to exercise the purchase right,
since substantially all of the Senior
Indebtedness of the Company has
cross-default provisions that could be
triggered by a default under the change of
control provisions in certain Senior
Indebtedness. In such case, the Holders of
the LYONs would be subordinated to the prior
claims of the holders of Senior Indebted-
5
<PAGE>
ness. See "Description of LYONs -- Purchase
of LYONs at the Option of the Holder" and
"Description of LYONs -- Change in Control
Permits Purchase of LYONs at the Option of
the Holder" for a summary of these
provisions and the definition of "Change in
Control."
Use of Proceeds................ The net proceeds to the Company from the
sale of the LYONs will be used to repay the
Company's variable-rate bank debt and for
general corporate purposes. See "Use of
Proceeds."
Listing........................ Application has been made to list the LYONs
on the New York Stock Exchange.
6
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the LYONs offered hereby are estimated
to be approximately $ million ($ million if the Underwriter's
over-allotment option is exercised in full). The Company intends to use the
net proceeds to repay the Company's short-term variable-rate bank debt and
portions of the Company's long-term variable-rate bank debt, in each case
bearing interest at rates which range from 5.6% to 5.7%, and for general
corporate purposes. The short-term debt expected to be repaid was incurred
within one year of the date hereof to finance a portion of the capital
expenditures incurred in connection with the opening of new stores and for
working capital purposes. The long-term debt expected to be repaid matures in
March 2001. See "Capitalization." Pending use of the proceeds of the
Offering, the Company expects to invest such funds in short-term marketable
securities.
CAPITALIZATION
The following table sets forth the capitalization of the Company at August
3, 1996, and as adjusted to give effect to the sale of the LYONs offered
hereby and the use of proceeds thereof. See "Use of Proceeds."
<TABLE>
<CAPTION>
Actual As Adjusted
------------ -------------
(amounts in thousands)
<S> <C> <C>
Short-term debt ...................................................... $ 30,500 $
Current maturities of long-term debt ................................. 141
Long-term debt less current maturities:
Indebtedness to banks under revolving credit loan agreement ........ $ 115,000 $
Other lines of credit with banks ................................... 95,000
Mortgage notes ..................................................... 2,393 2,393
7% Notes due June 1, 2005 .......................................... 100,000 100,000
6 5/8 % Notes due May 15, 2003 ..................................... 75,000 75,000
4% Convertible subordinated notes due September 1, 1999 ............ 86,250 86,250
LYONs offered hereby ............................................... --
------------ -------------
$ 473,643 $
Less current maturities ........................................ 141 141
------------ -------------
Total long-term debt .............................................. $ 473,502 $
------------ -------------
Stockholders' equity:
Common Stock, par value $1.00 per share: Authorized 500,000,000
shares; 62,519,838 shares issued and outstanding ................ 62,520 62,520
Paid-in capital .................................................... 146,873 146,873
Retained earnings .................................................. 568,483 568,483
------------ -------------
777,876 777,876
Less:
Shares held in benefits trust, 2,232,500 shares at cost ......... 60,269 60,269
------------ -------------
Total stockholders' equity ..................................... 717,607 717,607
------------ -------------
Total long-term debt and stockholders' equity ........................ $1,191,109 $
============ =============
</TABLE>
7
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock of the Company is listed on the New York Stock Exchange
under the symbol "PBY". There were approximately 4,400 registered
shareholders as of August 3, 1996. The table below sets forth the high and
low sales prices of the Common Stock and the quarterly cash dividends
declared per share of Common Stock during the periods indicated.
<TABLE>
<CAPTION>
Cash
Price Range Dividends
------------------
Low High Declared
------- ------ -----------
<S> <C> <C> <C>
Fiscal Year ending February 1, 1997
First Quarter ........................ $ 27 7/8 $34 7/8 $.0525
Second Quarter ....................... 27 7/8 35 1/2 .0525
Third Quarter (through September 13,
1996) ............................. 30 5/8 36 1/2 .0525
Fiscal Year ending February 3, 1996
First Quarter ........................ $ 24 3/8 $34 3/4 $.0475
Second Quarter ....................... 25 1/8 32 1/4 .0475
Third Quarter ........................ 22 1/2 29 1/8 .0475
Fourth Quarter ....................... 21 7/8 29 1/2 .0475
Fiscal Year ending January 28, 1995
First Quarter ........................ $26 $31 $.0425
Second Quarter ....................... 29 1/4 33 3/4 .0425
Third Quarter ........................ 29 1/8 36 .0425
Fourth Quarter ....................... 28 1/2 36 7/8 .0425
</TABLE>
The last reported sales price for the Common Stock on the New York Stock
Exchange on September 13, 1996 was $36.
It is the present intention of the Company's Board of Directors to
continue to pay regular quarterly cash dividends; however, the declaration
and payment of future dividends will be determined by the Board of Directors
in its sole discretion and will depend upon the earnings, financial condition
and capital needs of the Company and other factors which the Board of
Directors deems relevant.
8
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data for the five years ended February 3, 1996
(except for "Number of retail outlets," "Ratio of earnings to fixed charges"
and "Total square footage") were derived from audited financial statements.
The financial statements for the three years ended February 3, 1996, which
have been audited by Deloitte & Touche LLP, independent auditors, are
incorporated by reference herein. The selected financial data for the 26-week
periods ended August 3, 1996 and July 29, 1995, respectively, have been
derived from unaudited financial statements and reflect, in the opinion of
the Company, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the information for such periods.
The results of operations in the 26-week period ended August 3, 1996 are not
necessarily indicative of the operating results for the full year. The
selected financial data should be read in conjunction with the financial
statements and other information contained in the Company's Annual Report on
Form 10-K for the year ended February 3, 1996, the Company's Quarterly Report
on Form 10-Q for the quarter ended August 3, 1996 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
26 Weeks Ended
---------------------------------------
Aug. 3, 1996 July 29, 1995
------------- --------------
(dollar amounts in thousands, except
per share amounts)
<S> <C> <C>
Earnings Statement Data
Merchandise sales ....... $ 769,974 $ 657,116
Service revenue ......... 135,313 114,931
------------- --------------
Total revenues .......... 905,287 772,047
Gross profit from
merchandise sales .... 234,610 197,030
Gross profit from service
revenue .............. 28,112 23,100
------------- --------------
Total gross profit ...... 262,722 220,130
Selling, general and
administrative
expenses ............. 167,795 139,558
Operating profit ........ 94,927 80,572
Nonoperating income ..... 947 1,148
Interest expense ........ 15,952 15,683
Earnings before income
taxes and change in
accounting principle . 79,922 66,037
Income taxes ............ 29,571 24,599
Earnings before change in
accounting principle . 50,351 41,438
Cumulative effect of
change in accounting
principle ............ -- --
Net earnings ............ 50,351 41,438
Earnings per share before
change in accounting
principle ............ .82 .68
Cumulative effect of
change in accounting
principle ............ -- --
Net earnings per share .. .82 .68
Balance Sheet Data
Working capital ......... $ 152,012 $ 78,357
Total assets ............ 1,535,880 1,363,628
Long-term debt .......... 473,502 359,612
Stockholders' equity .... 717,607 625,651
Other Statistics
Ratio of earnings to
fixed charges(1) ..... 4.7x 4.3x
Depreciation and
amortization ......... $ 31,395 $ 25,402
Capital expenditures .... $ 77,798 $ 86,074
Common shares outstanding 62,519,838 62,001,488
Number of retail outlets 540 453
Total square footage .... 10,759,000 9,273,000
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------------------
Feb. 3, 1996 Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
-------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Earnings Statement Data
Merchandise sales ....... $ 1,355,008 $ 1,211,536 $ 1,076,543 $ 1,008,191 $ 873,381
Service revenue ......... 239,332 195,449 164,590 147,403 128,127
-------------- --------------- --------------- --------------- --------------
Total revenues .......... 1,594,340 1,406,985 1,241,133 1,155,594 1,001,508
Gross profit from
merchandise sales .... 411,133 364,378 307,861 272,412 240,199
Gross profit from service
revenue .............. 44,390 32,417 27,457 24,528 19,726
-------------- --------------- --------------- --------------- --------------
Total gross profit ...... 455,523 396,795 335,318 296,940 259,925
Selling, general and
administrative
expenses ............. 296,089 247,872 214,710 194,160 176,275
Operating profit ........ 159,434 148,923 120,608 102,780 83,650
Nonoperating income ..... 2,090 3,490 3,601 3,015 1,933
Interest expense ........ 32,072 25,931 19,701 20,180 25,071
Earnings before income
taxes and change in
accounting principle . 129,452 126,482 104,508 85,615 60,512
Income taxes ............ 47,958 46,474 38,996 31,036 21,640
Earnings before change in
accounting principle . 81,494 80,008 65,512 54,579 38,872
Cumulative effect of
change in accounting
principle ............ -- (4,300) -- -- --
Net earnings ............ 81,494 75,708 65,512 54,579 38,872
Earnings per share before
change in accounting
principle ............ 1.34 1.32 1.06 .90 .69
Cumulative effect of
change in accounting
principle ............ -- (.07) -- -- --
Net earnings per share .. 1.34 1.25 1.06 .90 .69
Balance Sheet Data
Working capital ......... $ 39,868 $ 121,858 $ 92,518 $ 104,622 $ 81,935
Total assets ............ 1,500,008 1,291,019 1,078,518 967,813 856,925
Long-term debt .......... 367,043 380,787 253,000 209,347 279,250
Stockholders' equity .... 665,460 586,253 547,759 509,763 378,514
Other Statistics
Ratio of earnings to
fixed charges(1) ..... 4.1x 4.7x 4.9x 4.3x 3.1x
Depreciation and
amortization ......... $ 53,456 $ 44,402 $ 39,125 $ 36,674 $ 33,439
Capital expenditures .... $ 205,913 $ 185,072 $ 135,165 $ 78,025 $ 65,801
Common shares outstanding 62,084,021 61,501,679 61,060,055 60,669,102 55,773,813
Number of retail outlets 506 435 386 357 337
Total square footage .... 10,255,000 8,900,000 7,771,000 7,039,000 6,522,000
</TABLE>
- ------
(1) Computed by dividing earnings by fixed charges. "Earnings" consist of
earnings before income taxes and change in accounting principle plus
fixed charges (exclusive of capitalized interest costs). "Fixed charges"
consist of interest costs (including capitalized interest costs) plus
one-third of rental expense (which amount is considered representative of
the interest factor in rental expense).
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents for the periods indicated certain items in
the consolidated statements of earnings as a percentage of total revenues
(except as otherwise provided) and the percentage change in dollar amounts of
such items compared to the indicated prior period.
<TABLE>
<CAPTION>
Percentage of Total Revenues
--------------------------------------------------------------------------
26 Weeks Ended Fiscal Year Ended
--------------------------- ---------------------------------------------
Aug. 3, July 29,
1996 1995 Feb. 3, 1996 Jan. 28, 1995 Jan. 29, 1994
----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Merchandise sales ..... 85.1% 85.1% 85.0% 86.1% 86.7%
Service revenue(1) .... 14.9 14.9 15.0 13.9 13.3
----------- ------------ ------------ ------------- -------------
Total revenues ........ 100.0 100.0 100.0 100.0 100.0
Costs of merchandise
sales(2) ............. 69.5(3) 70.0(3) 69.7(3) 69.9(3) 71.4(3)
Costs of service
revenue(2) ........... 79.2(3) 79.9(3) 81.5(3) 83.4(3) 83.3(3)
----------- ------------ ------------ ------------- -------------
Total costs of revenues 71.0 71.5 71.4 71.8 73.0
Gross profit from
merchandise sales .... 30.5(3) 30.0(3) 30.3(3) 30.1(3) 28.6(3)
Gross profit from
service revenue ...... 20.8(3) 20.1(3) 18.5(3) 16.6(3) 16.7(3)
----------- ------------ ------------ ------------- -------------
Total gross profit .... 29.0 28.5 28.6 28.2 27.0
Selling, general and
administrative
expenses ............. 18.5 18.1 18.6 17.6 17.3
----------- ------------ ------------ ------------- -------------
Operating profit ...... 10.5 10.4 10.0 10.6 9.7
Nonoperating income ... .1 .1 .1 .2 .3
Interest expense ...... 1.8 2.0 2.0 1.8 1.6
----------- ------------ ------------ ------------- -------------
Earnings before income
taxes and cumulative
effect of change in
accounting principle . 8.8 8.5 8.1 9.0 8.4
Income taxes .......... 37.0(4) 37.3(4) 37.0(4) 36.7(4) 37.3(4)
----------- ------------ ------------ ------------- -------------
Earnings before
cumulative effect of
change in accounting
principle ............ 5.6 5.4 5.1 5.7 5.3
Cumulative effect of
change in accounting
principle ............ -- -- -- (.3) --
----------- ------------ ------------ ------------- -------------
Net earnings .......... 5.6 5.4 5.1 5.4 5.3
=========== ============ ============ ============= =============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Percentage Change
---------------------------------------------------
26 Weeks Ended
--------------
Aug. 3, 1996
vs.
26 Weeks Ended Fiscal 1995 vs. Fiscal 1994 vs.
July 29, 1995 Fiscal 1994 Fiscal 1993
-------------- --------------- ---------------
<S> <C> <C> <C>
Merchandise sales ..... 17.2% 11.8% 12.5%
Service revenue(1) .... 17.7 22.5 18.7
-------------- --------------- ---------------
Total revenues ........ 17.3 13.3 13.4
Costs of merchandise
sales(2) ............. 16.4 11.4 10.2
Costs of service
revenue(2) ........... 16.7 19.6 18.9
-------------- --------------- ---------------
Total costs of revenues 16.4 12.7 11.5
Gross profit from
merchandise sales .... 19.1 12.8 18.4
Gross profit from
service revenue ...... 21.7 36.9 18.1
-------------- --------------- ---------------
Total gross profit .... 19.3 14.8 18.3
Selling, general and
administrative
expenses ............. 20.2 19.5 15.4
-------------- --------------- ---------------
Operating profit ...... 17.8 7.1 23.5
Nonoperating income ... (17.5) (40.1) (3.1)
Interest expense ...... 1.7 23.7 31.6
-------------- --------------- ---------------
Earnings before income
taxes and cumulative
effect of change in
accounting principle . 21.0 2.3 21.0
Income taxes .......... 20.2 3.2 19.2
-------------- --------------- ---------------
Earnings before
cumulative effect of
change in accounting
principle ............ 21.5 1.9 22.1
Cumulative effect of
change in accounting
principle ............ -- -- --
Net earnings .......... 21.5 7.6 15.6
============== =============== ===============
</TABLE>
- ------
(1) Service revenue consists of the labor charge for installing merchandise
or maintaining or repairing vehicles, excluding the sale of any installed
parts or materials.
(2) Costs of merchandise sales include the cost of products sold, buying,
warehousing and store occupancy costs. Costs of service revenue include
service center payroll and related employee benefits and service center
occupancy costs. Occupancy costs include utilities, rents, real estate
and property taxes, repairs and maintenance and depreciation and
amortization expenses.
(3) As a percentage of related sales or revenue, as applicable.
(4) As a percentage of earnings before income taxes and cumulative effect of
change in accounting principle.
TWENTY-SIX WEEKS ENDED AUGUST 3, 1996 VS. TWENTY-SIX WEEKS ENDED JULY 29,
1995
Total revenues increased 17% due to a higher store count (540 at August 3,
1996 compared with 453 at July 29, 1995) coupled with a 4% increase in
comparable store revenues (revenues generated by stores in operation during
the same months of each period). Comparable store merchandise sales increased
4% while comparable service revenue increased 6%.
10
<PAGE>
Gross profit from merchandise sales increased, as a percentage of
merchandise sales, due primarily to higher merchandise margins, offset, in
part, by an increase in store occupancy costs.
Selling, general and administrative expenses increased, as a percentage of
total revenues, due primarily to increases in general office costs and store
expenses.
Interest expense decreased, as a percentage of total revenues, due mainly
to spreading such costs over higher sales volume.
Net earnings increased, as a percentage of total revenues, due to an
increase in comparable store sales coupled with an increase, as a percentage
of merchandise sales, in gross profit from merchandise sales and a decrease,
as a percentage of total revenues, in interest expense, offset, in part, by
an increase, as a percentage of total revenues, in selling, general and
administrative expenses.
FISCAL 1995 VS. FISCAL 1994
Total revenues for fiscal 1995, which included 53 weeks, increased 13%
over fiscal 1994 due to a higher store count (506 at February 3, 1996
compared with 435 at January 28, 1995). Comparable store revenues (revenues
generated by stores in operation during the same months of each period)
increased 1%. Total revenues for fiscal 1995, excluding the extra week,
increased 11% on an overall basis and were unchanged on a comparable store
basis. Comparable store merchandise sales decreased 1% while comparable store
service revenue increased 7% over fiscal 1994 on a 52 week basis.
The increase in gross profit from merchandise sales, as a percentage of
merchandise sales, was due primarily to higher merchandise margins, offset,
in part, by increases in store occupancy and warehousing costs.
The increase in gross profit from service revenue, as a percentage of
service revenue, was due primarily to decreases in service payroll and
service center occupancy costs.
The increase in selling, general and administrative expenses, as a
percentage of total revenues, was due primarily to increases in store,
general office and employee benefits expenses, offset, in part, by a decrease
in media costs.
The 24% increase in interest expense was due to higher debt levels
incurred during the year to fund the Company's store expansion program
coupled with higher interest rates.
The 2% increase in earnings before the cumulative effect of a change in
accounting principle in fiscal 1995, as compared with fiscal 1994, was due
primarily to an increase in total revenues due to a higher store count, and
increases in gross profit from merchandise sales, as a percentage of
merchandise sales, and gross profit from service revenue, as a percentage of
service revenue, mostly offset by increases in selling, general and
administrative expenses and interest expense, as a percentage of total
revenues.
FISCAL 1994 VS. FISCAL 1993
Total revenues for fiscal 1994 increased 13% over fiscal 1993 due to a
higher store count (435 at January 28, 1995 compared with 386 at January 29,
1994) coupled with a 5% increase in comparable store revenues (revenues
generated by stores in operation during the same months of each period).
Comparable store merchandise sales increased 5% while comparable store
service revenue increased 8% over fiscal 1993.
The increase in gross profit from merchandise sales, as a percentage of
merchandise sales, was due primarily to significantly higher merchandise
margins and a slight decrease in store occupancy costs.
The small decrease in gross profit from service revenue, as a percentage
of service revenue, was due primarily to an increase in service payroll
costs, offset, in part, by a decrease in service employee benefits costs.
The increase in selling, general and administrative expenses, as a
percentage of total revenues, was due primarily to an increase in store
expenses, offset, in part, by a decrease in employee benefits costs.
11
<PAGE>
The 32% increase in interest expense was due to higher debt levels
incurred to fund the Company's store expansion program coupled with higher
interest rates.
The 22% increase in earnings before cumulative effect of change in
accounting principle in fiscal 1994, as compared with fiscal 1993, was due to
increases in comparable store revenues and gross profit from merchandise
sales, as a percentage of merchandise sales, offset, in part, by increases in
selling, general and administrative expenses and interest expense, as a
percentage of total revenues.
EFFECTS OF INFLATION
The Company uses the LIFO method of inventory valuation. Thus, the cost of
merchandise sold approximates current cost. Although the Company cannot
accurately determine the precise effect of inflation on its operations, it
does not believe inflation has had a material effect on revenues or results
of operations in the periods presented.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements arise principally from the need to finance
the acquisition, construction and equipping of new stores and to purchase
inventory. The Company opened 75 stores in fiscal 1995, 51 stores in fiscal 1994
and 37 stores in fiscal 1993. In fiscal 1995, with an increase in cash from
operating activities, the Company decreased its debt by $22,507,000. In fiscal
1994, with increased levels of capital expenditures coupled with cash utilized
to purchase its stock for transfer to the Flexitrust, a flexible employee
benefits trust (established on April 29, 1994 to fund a portion of the Company's
obligations arising from various employee compensation and benefit plans and
holding 2,232,500 shares of Common Stock as of August 3, 1996), the Company
increased its debt by $182,859,000. In fiscal 1993, with increased levels of
capital expenditures coupled with cash utilized to purchase its stock for
transfer to the benefits trust, the Company increased its debt by $77,525,000.
The following table indicates the Company's principal cash requirements
beginning in fiscal 1993.
<TABLE>
<CAPTION>
26 Weeks Ended
Aug. 3, 1996 Fiscal 1995 Fiscal 1994 Fiscal 1993
--------------- ------------- ------------- -------------
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
Capital expenditures .................... $ 77,798 $205,913 $185,072 $135,165
Net inventory increase (decrease) (1) ... 45,143 (71,351) 87,248 26,487
--------------- ------------- ------------- -------------
Total cash requirements ................. $122,941 $134,562 $272,320 $161,652
=============== ============= ============= =============
Net cash provided by operating activities
(excluding net inventory) .............. $102,089 $159,968 $124,368 $111,704
</TABLE>
- ------
(1) Net inventory increase (decrease) is the change in inventory less the change
in accounts payable.
<PAGE>
Inventories have increased in the past three years as the Company added a
net of 149 stores while stock-keeping units per store rose during the period
from approximately 24,000 to approximately 26,000, many of which are higher
cost hard parts.
The Company opened 75 new stores in fiscal 1995 and currently plans to
open approximately 100 new stores in fiscal 1996, 34 of which have been
opened through the second quarter. Management estimates that the cost to open
all 100 stores, coupled with capital expenditures relating to existing
stores, warehouses and offices during fiscal 1996, will be approximately
$200,000,000. Funds required to finance the store expansion, including
related inventory requirements, are expected to come primarily from operating
activities with the remainder provided by unused lines of credit, which
totalled $178,500,000 at August 3, 1996, or from accessing traditional
lending sources which may include the public capital markets.
On August 25, 1994, the Company sold $86,250,000 of 4% convertible
subordinated notes due September 1, 1999. Proceeds were used to repay
portions of the Company's short-term variable rate debt.
On April 21, 1995, the Company amended and restated a revolving credit
agreement it had with several major banks to increase the amount of
borrowings provided from up to $100,000,000 to up to $200,000,000. At the
Company's option, the interest rate on any loan may be based on (i) the
higher of the Federal funds rate plus 1/4 % or the prime rate, (ii) LIBOR
plus up to .63% or (iii) a negotiated rate based upon market conditions.
12
<PAGE>
On June 12, 1995, the Company sold $100,000,000 of 7% Notes due June 1,
2005. Proceeds were used to repay portions of the Company's long-term
variable-rate bank debt, and for general corporate purposes.
The Company's working capital was $152,012,000 at August 3, 1996,
$39,868,000 at February 3, 1996 and $121,858,000 at January 28, 1995. The
Company's long-term debt, as a percentage of its total capitalization, was
40% at August 3, 1996, 36% at February 3, 1996 and 39% at January 28, 1995.
13
<PAGE>
DESCRIPTION OF LYONS
The LYONs are to be issued under an indenture to be dated as of September
, 1996 (the "Indenture"), among the Company and First Union National Bank,
as trustee (the "Trustee"). A copy of the form of Indenture is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summaries of certain provisions of the LYONs and the Indenture do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the LYONs and the
Indenture, including the definitions therein of certain terms which are not
otherwise defined in this Prospectus. Wherever particular provisions or
defined terms of the Indenture (or of the Form of LYON which is a part
thereof) are referred to, such provisions or defined terms are incorporated
herein by reference. References herein are to sections in the Indenture and
paragraphs in the Form of LYON.
GENERAL
The LYONS will be unsecured, subordinated obligations of the Company
limited to $___________ aggregate principal amount at maturity ($___________
aggregate principal amount at maturity if the Underwriter's over-allotment
option is exercised in full) and will mature on September , 2011. The
principal amount at maturity of each LYON is $l,000 and will be payable at
the office of the Paying Agent, which initially will be the Trustee, or an
office or agency maintained by the Company for such purpose in the Borough of
Manhattan, The City of New York. (Sections 2.03, 2.04 and 4.05 and Form of
LYON, paragraph 3)
The LYONs are being offered at a substantial discount from their principal
amount at maturity. See "Certain Tax Aspects -- Original Issue Discount."
There will be no periodic payments of interest. The calculation of the
accrual of Original Issue Discount (the difference between the Issue Price
and the principal amount at maturity of a LYON) in the period during which a
LYON remains outstanding will be on a semiannual bond equivalent basis using
a 360-day year composed of twelve 30-day months; such accrual will commence
on the issue date of the LYONs. (Form of LYON, paragraph 1) In the event of
the maturity, conversion, purchase by the Company at the option of a Holder
or redemption of a LYON, Original Issue Discount and interest, if any, will
cease to accrue on such LYON, under the terms and subject to the conditions
of the Indenture. (Section 2.08) The Company may not reissue a LYON that has
matured or been converted, purchased by the Company at the option of a
Holder, redeemed or otherwise cancelled (except for registration of transfer,
exchange or replacement thereof). (Section 2.10)
The LYONs will be issued only in fully registered form, without coupons,
in denominations of $1,000 of principal amount at maturity and integral
multiples thereof. (Form of LYON, paragraph 11) LYONs may be presented for
conversion at the office of the Conversion Agent and for exchange or
registration of transfer at the office of the Registrar. Each such agent
shall initially be the Trustee. (Section 2.03) No service charge will be made
for any registration of transfer or exchange of LYONs; however, the Company
may require payment by a Holder of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection therewith.
(Section 2.06)
Because certain of the operations of the Company are conducted through
wholly-owned Subsidiaries, the Company's cash flow and consequent ability to
meet its debt obligations are dependent in part upon the earnings of its
Subsidiaries and on dividends and other payments therefrom. Since the LYONs
are solely an obligation of the Company, the Company's Subsidiaries are not
obligated or required to pay any amounts due pursuant to the LYONs or to make
funds available therefor in the form of dividends or advances to the Company.
At August 3, 1996, under the provisions of the most restrictive of the
Company's debt agreements, approximately $172.1 million of the retained
earnings of the Company were available for payment of cash dividends with
respect to the Company's Common Stock.
SUBORDINATION OF LYONS
Indebtedness evidenced by the LYONs will be subordinated in right of
payment, as set forth in the Indenture, to the prior payment in full of all
existing and future Senior Indebtedness (as defined below). (Section 10.1) No
payment of the Principal Amount at Maturity, Issue Price, accrued Original
Issue Discount, Redemption Price, Change in Control Purchase Price or
interest, if any, with respect to any LYONs may be made by the
14
<PAGE>
Company, nor may the Company pay cash with respect to the Purchase Price of
any LYON (other than for fractional shares) or acquire any LYONs for cash or
property except as set forth in the Indenture if (i) any payment default on
any Senior Indebtedness has occurred and is continuing beyond any applicable
grace period or (ii) any default (other than a payment default) with respect
to Senior Indebtedness occurs and is continuing that permits the acceleration
of the maturity thereof and such default is either the subject of judicial
proceedings or the Company receives a written notice of such default (a
"Senior Indebtedness Default Notice"). Notwithstanding the foregoing,
payments with respect to the LYONs may resume and the Company may acquire
LYONs for cash when (a) the default with respect to the Senior Indebtedness
is cured or waived or (b) in the case of a default described in (ii) above,
179 or more days pass after notice of the default is received by the Company,
provided that the terms of the Indenture otherwise permit the payment or
acquisition of the LYONs at that time. If the Company receives a Senior
Indebtedness Default Notice, then a similar notice received within nine
months thereafter relating to the same default on the same issue of Senior
Indebtedness shall not be effective to prevent the payment or acquisition of
the LYONs as provided above. (Section 10.04) In addition, no payment may be
made on the LYONs if any LYONs are declared due and payable prior to their
Stated Maturity by reason of the occurrence of an Event of Default until the
earlier of (i) 120 days after the date of such acceleration or (ii) the
payment in full of all Senior Indebtedness, but only if such payment is then
otherwise permitted under the terms of the Indenture. (Section 10.03) Upon
any payment or distribution of assets of the Company to creditors upon any
dissolution, winding up, liquidation or reorganization of the Company,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership
or other similar proceedings, the holders of all Senior Indebtedness shall
first be entitled to receive payment in full of all amounts due or to become
due thereon, or payment of such amounts shall have been provided for, before
the holders of the LYONs shall be entitled to receive any payment or
distribution with respect to any LYONs. (Section 10.02)
By reason of the subordination described herein, in the event of
insolvency, upon any distribution of the assets of the Company, (i) the
Holders of the LYONs are required to pay over their share of such
distribution to the trustee in bankruptcy, receiver or other person
distributing the assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all
holders of Senior Indebtedness in full and (ii) unsecured creditors of the
Company who are not Holders of LYONs or holders of Senior Indebtedness of the
Company may recover less, ratably, than holders of Senior Indebtedness of the
Company and may recover more, ratably, than the Holders of LYONs. (Section
10.02)
The term "Senior Indebtedness" of the Company means, without duplication,
the principal, premium (if any) and unpaid interest on all present and future
(i) indebtedness of the Company for borrowed money, (ii) obligations of the
Company evidenced by bonds, debentures, notes or similar instruments, (iii)
indebtedness incurred, assumed or guaranteed by the Company in connection
with the acquisition by it or a Subsidiary of any business, properties or
assets (except purchase-money indebtedness classified as accounts payable
under generally accepted accounting principles), (iv) obligations of the
Company as lessee under leases required to be capitalized on the balance
sheet of the lessee under generally accepted accounting principles, (v)
reimbursement obligations of the Company in respect of letters of credit
relating to indebtedness or other obligations of the Company that qualify as
indebtedness or obligations of the kind referred to in clauses (i) through
(iv) above, and (vi) obligations of the Company under direct or indirect
guaranties in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor against loss
in respect of, indebtedness or obligations of others of the kinds referred to
in clauses (i) through (v) above, in each case unless the instrument creating
or evidencing the indebtedness or obligation or pursuant to which the same is
outstanding provides that such indebtedness or obligation is not superior in
right of payment to the LYONs. (Section 1.01)
As of August 3, 1996, there was approximately $417.9 million of Senior
Indebtedness outstanding. There is no restriction under the Indenture on the
creation of additional indebtedness, including Senior Indebtedness.
The LYONs are effectively subordinated to all existing and future
liabilities of the Company's Subsidiaries. Any right of the Company to
participate in any distribution of the assets of any of the Company's
Subsidiaries upon the liquidation, reorganization or insolvency of such
Subsidiary (and the consequent right of the Holders of the LYONs to
participate in those assets) will be subject to the claims of the creditors
(including trade credi-
15
<PAGE>
tors) of such Subsidiary, except to the extent that claims of the Company
itself as a creditor of such Subsidiary may be recognized, in which case the
claims of the Company would still be subordinate to any security interest in
the assets of such Subsidiary and any indebtedness of such Subsidiary senior
to that held by the Company.
CONVERSION RIGHTS
A Holder of a LYON may convert it into Common Stock at any time before the
close of business on September , 2011, provided, however, that if a LYON is
called for redemption, the Holder may convert it at any time before the close
of business on the Redemption Date. A LYON in respect of which a Holder has
delivered a Purchase Notice or a Change in Control Purchase Notice exercising
the option of such Holder to require the Company to purchase such LYON may be
converted only if such notice is withdrawn by a written notice of withdrawal
delivered by the Holder to the Paying Agent prior to the close of business on
the Purchase Date or the Change in Control Purchase Date, as the case may be,
in accordance with the terms of the Indenture. (Section 3.08, 3.09 and 3.10
and Form of LYON, paragraph 9)
The initial Conversion Rate for the LYONs is shares of Common Stock per
$1,000 principal amount at maturity, subject to adjustment upon the
occurrence of certain events described below. (Form of LYON, paragraph 9) See
"Price Range of Common Stock and Dividends." A Holder otherwise entitled to a
fractional share of Common Stock will receive cash equal to the market value
of such fractional share based on the closing Sale Price on the Trading Day
immediately preceding the Conversion Date. (Section 11.03 and Form of LYON,
paragraph 9) A Holder may convert a portion of such Holder's LYONs so long as
such portion is $1,000 principal amount at maturity or an integral multiple
thereof. (Section 11.01 and Form of LYON, paragraph 9)
To convert a LYON, a Holder must (i) complete and manually sign the
conversion notice on the back of the LYON (or complete and manually sign a
facsimile thereof) and deliver such notice to the Conversion Agent (initially
the Trustee) at the office maintained by the Conversion Agent for such
purpose, (ii) surrender the LYON to the Conversion Agent, (iii) if required,
furnish appropriate endorsements and transfer documents, and (iv) if
required, pay all transfer or similar taxes. Pursuant to the Indenture, the
date on which all of the foregoing requirements have been satisfied is the
Conversion Date. (Sections 11.02 and 11.04 and Form of LYON, paragraph 9)
Upon conversion of a LYON, a Holder will not receive any cash payment
representing accrued Original Issue Discount. The Company's delivery to the
Holder of the fixed number of shares of Common Stock into which the LYON is
convertible (together with the cash payment in lieu of any fractional shares)
will satisfy the Company's obligation to pay the principal amount at maturity
of the LYON, including the accrued Original Issue Discount attributable to
the period from the Issue Date to the Conversion Date. Thus, the accrued
Original Issue Discount will be deemed to be paid in full rather than
cancelled, extinguished or forfeited. The Conversion Rate will not be
adjusted at any time during the term of the LYONs for accrued Original Issue
Discount. A certificate for the number of full shares of Common Stock into
which any LYON is converted (and for cash in lieu of any fractional shares)
will be delivered through the Conversion Agent no later than the seventh
business day following the Conversion Date. (Sections 2.08 and 11.02) For a
discussion of the tax treatment of a Holder receiving Common Stock upon
conversion, see "Certain Tax Aspects -- Disposition or Conversion."
The Conversion Rate will be adjusted for dividends or distributions on
Common Stock payable in Common Stock or other capital stock of the Company;
certain subdivisions, combinations or reclassifications of Common Stock;
distributions to all holders of Common Stock of certain rights, warrants or
options to purchase Common Stock or securities convertible into Common Stock
for a period expiring within 60 days after the record date for such
distribution at a price per share less than the Sale Price at the time; and
distributions to all holders of Common Stock of assets or debt securities of
the Company or rights, warrants or options to purchase securities of the
Company (excluding cash dividends or other cash distributions from
consolidated current net earnings or earned surplus or dividends payable in
Common Stock but including Extraordinary Cash Dividends). However, no
adjustment need be made if Holders may participate in the transactions
otherwise giving rise to an adjustment on a basis and with notice that the
Board of Directors of the Company determines to be fair and appropriate, or
in certain other cases. In cases where the fair market value of the portion
of assets, debt securities or rights, warrants or options to purchase
securities of the Company applicable to one share of Common Stock distributed
to stockholders exceeds the Average Sale Price per share of Common Stock, or
such Average Sale Price
16
<PAGE>
exceeds such fair market value of such portion of assets, debt securities or
rights, warrants or options so distributed by less than $1.00, rather than
being entitled to an adjustment in the Conversion Rate, the Holder of a LYON
upon conversion thereof will be entitled to receive, in addition to the
shares of Common Stock into which such LYON is convertible, the kind and
amounts of assets, debt securities or rights, options or warrants comprising
the distribution that such Holder would have received if such Holder had
converted such LYON immediately prior to the record date for determining the
shareholders entitled to receive the distribution. The Indenture permits the
Company to increase the Conversion Rate from time to time. (Sections 11.06,
11.07, 11.08, 11.10, 11.12 and 11.14 and Form of LYON, paragraph 9)
If the Company is party to a consolidation, merger or binding share
exchange or a transfer of all or substantially all of its assets which is
otherwise permitted under the terms of the Indenture, the right to convert a
LYON into Common Stock may be changed into a right to convert it into the
kind and amount of securities, cash or other assets which the Holder would
have received if the Holder had converted such Holder's LYONs immediately
prior to the transaction. (Section 11.14)
In the event of a taxable distribution to holders of Common Stock which
results in an adjustment of the Conversion Rate (or in which Holders
otherwise participate) or in the event the Conversion Rate is increased at
the discretion of the Company, the Holders of the LYONs may, in certain
circumstances, be deemed to have received a distribution subject to United
States federal income tax as a dividend. See "Certain Tax Aspects --
Constructive Dividend."
REDEMPTION OF LYONS AT THE OPTION OF THE COMPANY
No sinking fund is provided for the LYONs. Prior to September , 2001, the
LYONs will not be redeemable at the option of the Company. On and after that
date, the Company may redeem the LYONs for cash as a whole at any time, or
from time to time in part, upon not less than 30 days' nor more than 60 days'
notice of redemption given by mail to Holders of LYONs (unless a shorter
notice shall be satisfactory to the Trustee). Any such redemption must be in
multiples of $1,000 principal amount at maturity. (Sections 3.01, 3.02 and
3.03 and Form of LYON, paragraphs 5 and 7)
The table below shows Redemption Prices of a LYON per $1,000 principal
amount at maturity on September , 2001, at each September thereafter prior
to maturity, and at maturity on September , 2011, which prices reflect the
accrued Original Issue Discount calculated to each such date. The Redemption
Price of a LYON redeemed between such dates would include an additional
amount reflecting the additional Original Issue Discount accrued since the
next preceding date in the table to, but excluding, the Redemption Date.
(Form of LYON, paragraph 5)
<TABLE>
<CAPTION>
(1) (2) (3)
Accrued Original Redemption
LYON Issue Discount Price
Redemption Date Issue Price at % (1) + (2)
----------------- ------------- ---------------- ------------
<S> <C> <C> <C>
September , 2001 $
September , 2002
September , 2003
September , 2004
September , 2005
September , 2006
September , 2007
September , 2008
September , 2009
September , 2010
At Maturity ..... 1,000.00
</TABLE>
If fewer than all of the LYONs are to be redeemed, the Trustee shall
select the LYONs to be redeemed in principal amounts at maturity of $1,000 or
integral multiples thereof by lot, pro rata or by another method the Trustee
considers fair and appropriate. If a portion of a Holder's LYONs is selected
for partial redemption and such Holder converts a portion of such LYONs prior
to such redemption, such converted portion shall be deemed, solely for
purposes of determining the aggregate Principal Amount of LYONs to be
redeemed by the Company, to be of the portion selected for redemption.
(Section 3.02)
17
<PAGE>
PURCHASE OF LYONS AT THE OPTION OF THE HOLDER
On September , 2001 and September , 2006 (each, a "Purchase Date"), the
Company will become obligated to purchase, at the option of the Holder
thereof, any outstanding LYON for which a written notice (a "Purchase
Notice") has been delivered by the Holder to the Paying Agent or an office or
agency maintained by the Company for such purpose in the Borough of
Manhattan, The City of New York, at any time from the opening of business on
the date that is 20 business days preceding such Purchase Date until the
close of business on such Purchase Date and for which such Purchase Notice
has not been withdrawn, subject to certain additional conditions set forth in
part in the following paragraphs. (Section 3.08 and Form of LYON, paragraph
6)
The table below shows the Purchase Prices of a LYON as of the specified
Purchase Dates:
<TABLE>
<CAPTION>
Purchase Date Purchase Price
-------------------- ------------------
<S> <C>
September , 2001 $
September , 2006 $
</TABLE>
The Company, at its option, may elect to pay such Purchase Price in cash
or Common Stock, or any combination thereof. (Section 3.08 and Form of LYON,
paragraph 6) For a discussion of the tax treatment of such a transaction, see
"Certain Tax Aspects -- Disposition or Conversion."
The Company will give notice (the "Company Notice") not less than 20
business days prior to each Purchase Date (the "Company Notice Date") to all
Holders at their addresses shown in the register of the Registrar (and to
beneficial owners as required by applicable law) stating, among other things,
(i) whether the Company will pay the Purchase Price of the LYONs in cash or
Common Stock, or any combination thereof, and (ii) the procedures that
Holders must follow to require the Company to purchase LYONs from such
Holders. (Section 3.08)
The Purchase Notice given by any Holder requiring the Company to purchase
LYONs shall state (i) the certificate numbers of the LYONs to be delivered by
such Holder for purchase by the Company; (ii) the portion of the principal
amount at maturity of LYONs to be purchased, which portion must be $1,000 or
an integral multiple thereof; (iii) that such LYONs are to be purchased by
the Company pursuant to the applicable provisions of the LYONs; and (iv) if
the Company elects, pursuant to the Company Notice, to pay a specified
percentage of the Purchase Price in Common Stock but such specified
percentage is ultimately to be paid in cash because any of the conditions to
payment of such specified percentage of the Purchase Price in Common Stock
contained in the Indenture is not satisfied prior to the close of business on
the Purchase Date, as described below, that such Holder elects (a) to
withdraw such Purchase Notice as to some or all of the LYONs to which it
relates (stating the principal amount at maturity and certificate numbers of
the LYONs as to which such withdrawal shall relate) or (b) to receive cash in
respect of the Purchase Price of all LYONs subject to such Purchase Notice.
If the Holder fails to indicate such Holder's choice with respect to the
election described in clause (iv) above in the Purchase Notice, such Holder
shall be deemed to have elected to receive cash for the specified percentage
of the Purchase Price that was to have been payable in Common Stock. (Section
3.08) See "Certain Tax Aspects -- Disposition or Conversion."
Any Purchase Notice may be withdrawn by the Holder by a written notice of
withdrawal delivered to the Paying Agent prior to the close of business on
the Purchase Date. The notice of withdrawal shall state the principal amount
at maturity and the certificate numbers of the LYONs as to which the
withdrawal notice relates and the principal amount at maturity, if any, which
remains subject to the Purchase Notice. (Section 3.10)
If the Company elects to pay the Purchase Price, in whole or in part, in
shares of Common Stock, the number of shares to be delivered in respect of
the specified percentage of the Purchase Price to be paid in Common Stock
shall be equal to the dollar amount of such specified percentage of the
Purchase Price divided by the Market Price (as defined below) of a share of
Common Stock. However, no fractional shares of Common Stock will be delivered
upon any purchase by the Company of LYONs in payment, in whole or in part, of
the Purchase Price. Instead, the Company will pay cash based on the Market
Price for all fractional shares of Common Stock. (Section 3.08) Each Holder
whose LYONs are purchased at the option of such Holder as of the Purchase
Date shall receive the same percentage of cash or Common Stock in payment of
the Purchase Price for such LYONs, except as described above with regard to
the payment of cash in lieu of fractional shares of Common Stock. See
"Certain Tax Aspects -- Disposition or Conversion."
18
<PAGE>
The "Market Price" means the average of the Sale Price of the Common Stock
for the five Trading Day period ending on the third Trading Day prior to the
applicable Purchase Date, appropriately adjusted to take into account the
actual occurrence, during the seven Trading Days preceding such Purchase
Date, of certain events that would result in an adjustment of the Conversion
Rate with respect to the Common Stock. (Section 3.08) The "Sale Price" on any
Trading Day means the closing per share sale price for the Common Stock (or,
if no closing sale price is reported, the average of the bid and ask prices
or, if more than one in either case the average of the average bid and
average ask prices) on such Trading Day as reported in the composite
transactions for the principal United States securities exchange on which the
Common Stock is traded or, if the Common Stock is not listed on a United
States national or regional securities exchange, as reported by the National
Association of Securities Dealers Automated Quotation System. A "Trading Day"
means each day on which the securities exchange or quotation system which is
used to determine the Sale Price is open for trading or quotation. (Section
1.01) Because the Market Price of the Common Stock is determined prior to the
Purchase Date, Holders of LYONs bear the market risk with respect to the
value of the Common Stock to be received from the date such Market Price is
determined to the Purchase Date. The Company may pay the Purchase Price, in
whole or in part, in Common Stock only if the information necessary to
calculate the Market Price is reported in The Wall Street Journal or another
daily newspaper of national circulation. (Section 3.08)
Upon determination of the actual number of shares of Common Stock issuable
in accordance with the foregoing provisions, the Company will publish such
determination in The Wall Street Journal or another daily newspaper of
national circulation. (Section 3.08)
The Company's right to purchase LYONs, in whole or in part, with shares of
Common Stock is subject to the Company's satisfying various conditions,
including the registration of the Common Stock under the Securities Act and
the Exchange Act, unless there exists an applicable exemption to registration
thereunder. If such conditions are not satisfied prior to the close of
business on the Purchase Date, the Company will pay the Purchase Price of the
LYONs in cash. (Section 3.08) The Company will comply with the provisions of
Rule 13e-4 and any other tender offer rules under the Exchange Act which may
then be applicable and will file Schedule 13E-4 or any other schedule
required thereunder in connection with any offer by the Company to purchase
LYONs at the option of the Holders thereof on a Purchase Date. (Section 3.13)
The Company may not change the form of consideration (or components or
percentages of components thereof) to be paid once the Company has given its
Company Notice to Holders of LYONs except as described in the second sentence
of this paragraph. (Section 3.08)
Payment of the Purchase Price for a LYON for which a Purchase Notice has
been delivered and not withdrawn is conditioned upon delivery of such LYON
(together with necessary endorsements) to the Paying Agent or an office or
agency maintained by the Company for such purpose in the Borough of
Manhattan, The City of New York, at any time (whether prior to, on or after
the Purchase Date) after delivery of such Purchase Notice. (Section 3.08)
Payment of the Purchase Price for such LYON will be made promptly following
the later of the business day following the Purchase Date and the time of
delivery of such LYON. (Section 3.10) If the Paying Agent holds, in
accordance with the terms of the Indenture, money or securities sufficient to
pay the Purchase Price of such LYON on the business day following the
Purchase Date, then, on and after the Purchase Date, such LYON will cease to
be outstanding and Original Issue Discount on such LYON will cease to accrue
and will be deemed paid, whether or not such LYON is delivered to the Paying
Agent, and all other rights of the Holder shall terminate (other than the
right to receive the Purchase Price upon delivery of such LYON). (Section
2.08)
The Company's ability to purchase LYONs with cash may be limited by the
terms of its then-existing borrowing agreements. No LYONs may be purchased
pursuant to the provisions described above if there has occurred and is
continuing an Event of Default described under "Events of Default; Notice and
Waiver" below (other than a default in the payment of the Purchase Price with
respect to such LYONs). (Section 3.10)
CHANGE IN CONTROL PERMITS PURCHASE OF LYONS AT THE OPTION OF THE HOLDER
In the event of any Change in Control (as defined below) of the Company
occurring on or prior to September , 2001, each Holder of LYONs will have
the right, at the Holder's option, subject to the terms and conditions of the
Indenture, to require the Company to purchase all or any part (provided that
the principal amount at maturity must be $1,000 or an integral multiple
thereof) of the Holder's LYONs on the date that is 35 busi-
19
<PAGE>
ness days after the occurrence of such Change in Control (the "Change in
Control Purchase Date") at a cash price equal to the Issue Price plus accrued
Original Issue Discount to the Change in Control Purchase Date (the "Change
in Control Purchase Price"). (Section 3.09 and Form of LYON, paragraph 6)
Holders will not have any right to require the Company to purchase LYONs in
the event of any Change in Control of the Company occurring after September
, 2001.
Within 15 business days after the Change in Control, the Company shall
mail to the Trustee and to each Holder (and to beneficial owners as required
by applicable law) a notice regarding the Change in Control, which notice
shall state, among other things: (i) the date of such Change in Control and,
briefly, the events causing such Change in Control, (ii) the date by which
the Change in Control Purchase Notice (as defined below) must be given, (iii)
the Change in Control Purchase Date, (iv) the Change in Control Purchase
Price, (v) the name and address of the Paying Agent and the Conversion Agent,
(vi) the Conversion Rate and any adjustments thereto, (vii) that LYONs with
respect to which a Change in Control Purchase Notice is given by the Holder
may be converted into shares of Common Stock only if the Change in Control
Purchase Notice has been withdrawn in accordance with the terms of the
Indenture, (viii) the procedures that Holders must follow to exercise these
rights, (ix) the procedures for withdrawing a Change in Control Purchase
Notice, (x) that Holders who want to convert LYONs must satisfy the
requirements set forth in paragraph 9 of the LYONs and (xi) briefly, the
conversion rights of Holders of LYONs. The Company will cause a copy of such
notice to be published in The Wall Street Journal or another daily newspaper
of national circulation. (Section 3.09)
To exercise the purchase right, the Holder must deliver written notice of
the exercise of such right (a "Change in Control Purchase Notice") to the
Paying Agent or an office or agency maintained by the Company for such
purpose in the Borough of Manhattan, The City of New York, prior to the close
of business on the Change in Control Purchase Date. The Change in Control
Purchase Notice shall state (i) the certificate numbers of the LYONs to be
delivered by the Holder thereof for purchase by the Company; (ii) the portion
of the principal amount at maturity of LYONs to be purchased, which portion
must be $1,000 or an integral multiple thereof; and (iii) that such LYONs are
to be purchased by the Company pursuant to the applicable provisions of the
LYONs. (Section 3.09)
Any Change in Control Purchase Notice may be withdrawn by the Holder by a
written notice of withdrawal delivered to the Paying Agent prior to the close
of business on the Change in Control Purchase Date. The notice of withdrawal
shall state the principal amount at maturity and the certificate numbers of
the LYONs as to which the withdrawal notice relates and the principal amount
at maturity, if any, which remains subject to a Change in Control Purchase
Notice. (Section 3.10)
Payment of the Change in Control Purchase Price for a LYON for which a
Change in Control Purchase Notice has been delivered and not withdrawn is
conditioned upon delivery of such LYON (together with necessary endorsements)
to the Paying Agent or an office or agency maintained by the Company for such
purpose in the Borough of Manhattan, The City of New York, at any time
(whether prior to, on or after the Change in Control Purchase Date) after the
delivery of such Change in Control Purchase Notice. (Section 3.09) Payment of
the Change in Control Purchase Price for such LYON will be made promptly
following the later of the business day following the Change in Control
Purchase Date and the time of delivery of such LYON. (Section 3.10). If the
Paying Agent holds, in accordance with the terms of the Indenture, money
sufficient to pay the Change in Control Purchase Price of such LYON on the
business day following the Change in Control Purchase Date, then, on and
after the Change in Control Purchase Date, such LYON will cease to be
outstanding and Original Issue Discount on such LYON will cease to accrue and
will be deemed paid, whether or not such LYON is delivered to the Paying
Agent, and all other rights of the Holder shall terminate (other than the
right to receive the Change in Control Purchase Price upon delivery of such
LYON). (Section 2.08)
Under the Indenture, a "Change in Control" of the Company is deemed to
have occurred at such time as (i) any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) other than the
Company, any Subsidiary of the Company, or any employee benefit plan of
either the Company or any Subsidiary of the Company, files a Schedule 13D or
14D-1 under the Exchange Act (or any successor schedule, form or report)
disclosing that such person has become the beneficial owner of 50% or more of
the Common Stock or other Capital Stock of the Company into which such Common
Stock is reclassified or changed, with certain exceptions, or (ii) there
shall be consummated any consolidation or merger of the Company (a) in which
20
<PAGE>
the Company is not the continuing or surviving corporation (other than any
consolidation or merger effected primarily to change the jurisdiction of
incorporation of the Company) or (b) pursuant to which the Common Stock would
be converted into cash, securities or other property, in each case, other
than a consolidation or merger of the Company in which the holders of Common
Stock immediately prior to the consolidation or merger have, directly or
indirectly, at least a majority of common stock of the continuing or
surviving corporation immediately after the consolidation or merger. The
Indenture does not permit the Board of Directors to waive the Company's
obligation to purchase LYONs at the option of a Holder in the event of a
Change in Control of the Company. (Section 3.09)
The Company will comply with the provisions of Rule 13e-4, Rule 14e-1 and
any other tender offer rules under the Exchange Act which may then be
applicable, and will file Schedule 13E-4 or any other schedule required
thereunder in connection with any offer by the Company to purchase LYONs at
the option of the Holders thereof upon a Change in Control. (Section 3.13)
The Change in Control purchase feature of the LYONs may in certain
circumstances make more difficult or discourage a takeover of the Company
and, thus, the removal of incumbent management. The Change in Control
purchase feature, however, is not the result of management's knowledge of any
specific effort to accumulate shares of Common Stock or to obtain control of
the Company by means of a merger, tender offer, solicitation or otherwise, or
part of a plan by management to adopt a series of anti-takeover provisions.
Instead, the Change in Control purchase feature is a standard term contained
in other LYONs offerings that have been marketed by the Underwriter, and the
terms of such feature result from negotiations between the Company and the
Underwriter.
If a Change in Control were to occur, there can be no assurance that the
Company would have funds sufficient to pay the Change in Control Purchase
Price for all of the LYONs that might be delivered by Holders seeking to
exercise the purchase right, since substantially all of the Senior
Indebtedness of the Company has cross-default provisions that could be
triggered by a default under the change of control provisions in certain
Senior Indebtedness. In such case, the Holders of the LYONs would be
subordinated to the prior claims of the holders of Senior Indebtedness. In
addition, the Company's ability to purchase LYONs with cash may be limited by
the terms of its then-existing borrowing agreements. No LYONs may be
purchased pursuant to the provisions described above if there has occurred
and is continuing an Event of Default described under "Events of Default;
Notice and Waiver" below (other than a default in the payment of the Change
in Control Purchase Price with respect to such LYONs). (Section 3.10)
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not merge or consolidate with or into any other
corporation or sell, lease, convey or otherwise dispose of all or
substantially all of its assets to any other person, unless the Company is
the continuing corporation or the successor (if other than the Company) is a
corporation, partnership or trust organized and existing under the laws of
the United States of America or a state thereof or the District of Columbia
and such person assumes by supplemental indenture all obligations of the
Company under the LYONs and the Indenture, and unless immediately after
giving effect to such transaction, no default under the Indenture shall have
occurred and be continuing. In case of any such merger, consolidation, sale,
conveyance or other disposition and upon any such assumption by the
successor, such successor will succeed to and be substituted for the Company,
with the same effect as if it had been named as a party to the Indenture.
(Section 5.01) Certain of the foregoing transactions, if they occur on or
prior to September , 2001, could constitute a Change in Control of the
Company permitting each Holder to require the Company to purchase the LYONs
of such Holder as described above. (Section 3.09)
EVENTS OF DEFAULT; NOTICE AND WAIVER
The Indenture provides that, if an Event of Default specified therein
shall have occurred and be continuing, either the Trustee or the Holders of
not less than 25% in aggregate principal amount at maturity of the LYONs then
outstanding may declare the Issue Price plus Original Issue Discount accrued
to the date of default (in the case of an Event of Default specified in (i)
or (ii) of the following paragraph) or to the date of such dec-
21
<PAGE>
laration (in the case of an Event of Default specified in (iii) or (iv) of
the following paragraph) on all the LYONs to be immediately due and payable.
In the case of certain events of bankruptcy or insolvency, the Issue Price of
the LYONs plus the Original Issue Discount accrued thereon to the occurrence
of such event shall automatically become and be immediately due and payable.
Upon any such acceleration, the subordination provisions of the Indenture
preclude any payment being made to Holders of LYONs until the earlier of (i)
120 days or more after the date of such acceleration and (ii) the payment in
full of all Senior Indebtedness, but only if such payment is then otherwise
permitted under the terms of the Indenture. See "Subordination of LYONs"
above. Under certain circumstances, the Holders of a majority in aggregate
principal amount at maturity of the outstanding LYONs may rescind any such
acceleration with respect to the LYONs and its consequences. (Sections 6.02
and 10.03) Interest shall accrue and be payable on demand upon a default in
the payment of principal amount at maturity, Issue Price, accrued Original
Issue Discount, Redemption Price, Purchase Price, Change in Control Purchase
Price or shares of Common Stock (or cash in lieu of fractional shares) to be
delivered on conversion of LYONs, in each case to the extent that the payment
of such interest shall be legally enforceable. (Section 6.01 and Form of
LYON, paragraph 1)
Under the Indenture, Events of Default include: (i) default in payment of
the principal amount at maturity, Issue Price, accrued Original Issue
Discount, Redemption Price, Purchase Price or Change in Control Purchase
Price with respect to any LYON, when the same becomes due and payable
(whether or not such payment is prohibited by the provisions of the
Indenture); (ii) failure by the Company to deliver shares of Common Stock (or
cash in lieu of fractional shares) when such Common Stock (or cash in lieu of
fractional shares) is required to be delivered following conversion of a LYON
and continuance of such default for 10 days; (iii) failure by the Company to
comply with any of its other agreements in the LYONs or the Indenture upon
the receipt by the Company of notice of such default from the Trustee or from
Holders of not less than 25% in aggregate principal amount at maturity of the
LYONs then outstanding and the Company's failure to cure such default within
60 days after receipt by the Company of such notice; (iv) default resulting
in acceleration of any indebtedness of the Company or any Consolidated
Subsidiary, where the aggregate amount so accelerated exceeds $10 million and
such acceleration is not rescinded or annulled within ten days after the
written notice thereof to the Company by the Trustee or to the Company and
the Trustee by the Holders of not less than 25% in aggregate principal amount
at maturity of the LYONs then outstanding, provided, however, that such Event
of Default will be cured or waived if the default that resulted in the
acceleration of such Senior Indebtedness is cured or waived; or (v) certain
events of bankruptcy or insolvency. (Section 6.01)
The Trustee shall, within 90 days after the occurrence of any default,
mail to all Holders of the LYONs notice of all defaults of which the Trustee
shall be aware, unless such defaults shall have been cured or waived before
the giving of such notice; provided, that the Trustee may withhold such
notice as to any default other than a payment default, if it determines in
good faith that withholding the notice is in the interests of the Holders.
(Section 6.12)
The Holders of a majority in aggregate principal amount at maturity of the
outstanding LYONs may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, provided that such direction shall not be in
conflict with any law or the Indenture and subject to certain other
limitations. (Section 6.05) The Trustee may refuse to perform any duty or
exercise any right or power or extend or risk its own funds or otherwise
incur any financial liability unless it receives indemnity satisfactory to it
against any loss, liability or expense. (Section 7.01) No Holder of any LYON
will have any right to pursue any remedy with respect to the Indenture or the
LYONs, unless (i) such Holder shall have previously given the Trustee written
notice of a continuing Event of Default; (ii) the Holders of at least 25% in
aggregate principal amount at maturity of the outstanding LYONs shall have
made a written request to the Trustee to pursue such remedy; (iii) such
Holder or Holders shall have offered to the Trustee reasonable security or
indemnity against any loss, liability or expense satisfactory to it; (iv) the
Trustee shall have failed to comply with the request within 60 days after
receipt of such notice, request and offer of security or indemnity; and (v)
the Holders of a majority in aggregate principal amount at maturity of the
outstanding LYONs shall not have given the Trustee a direction inconsistent
with such request within 60 days after receipt of such request. (Section
6.06)
The right of any Holder: (a) to receive payment of the principal amount at
maturity, Issue Price, accrued Original Issue Discount, Redemption Price,
Purchase Price, Change in Control Purchase Price or interest, if any,
22
<PAGE>
in respect of the LYONs held by such Holder on or after the respective due
dates expressed in the LYONs or as of any Redemption Date, (b) to convert
such LYONs, or (c) to bring suit for the enforcement of any such payment on
or after such respective dates or the right to convert, shall not be impaired
or adversely affected without such Holder's consent. (Section 6.07)
The Holders of a majority in aggregate principal amount at maturity of
LYONs at the time outstanding may waive any existing default and its
consequences except (i) any default in any payment on the LYONs, (ii) any
default with respect to the conversion rights of the LYONs, or (iii) any
default in respect of certain covenants or provisions in the Indenture which
may not be modified without the consent of the Holder of each LYON as
described in "Modification" below. When a default is waived, it is deemed
cured and shall cease to exist, but no such waiver shall extend to any
subsequent or other default or impair any consequent right. (Section 6.04)
The Company will be required to furnish to the Trustee annually a
statement as to any default by the Company in the performance and observance
of its obligations under the Indenture. In addition, the Company shall file
with the Trustee written notice of the occurrence of any default or Event of
Default within five Business Days of its becoming aware of such default or
Event of Default. (Section 4.03)
MODIFICATION
Modification and amendment of the Indenture or the LYONs may be effected
by the Company and the Trustee with the consent of the Holders of not less
than a majority in aggregate principal amount at maturity of the LYONs then
outstanding. However, without the consent of each Holder affected thereby, no
amendment may, among other things, (i) reduce the principal amount at
maturity, Issue Price, Purchase Price, Change in Control Purchase Price or
Redemption Price with respect to any LYON, or extend the stated maturity of
any LYON or alter the manner or rate of accrual of Original Issue Discount or
interest, or make any LYON payable in money or securities other than that
stated in the LYON; (ii) make any reduction in the principal amount at
maturity of LYONs whose Holders must consent to an amendment or any waiver
under the Indenture or modify the Indenture provisions relating to such
amendments or waivers; (iii) make any change that adversely affects the right
to convert any LYON or the right to require the Company to purchase a LYON;
(iv) modify the provisions of the Indenture relating to the subordination of
the LYONs in a manner adverse to the Holders of the LYONs; or (v) impair the
right to institute suit for the enforcement of any payment with respect to,
or conversion of, the LYONs. No change that adversely affects the rights of
any holder of Senior Indebtedness of the Company under the subordination
provisions of the Indenture may be made unless the requisite holders of
Senior Indebtedness consent to such change pursuant to the terms of such
Senior Indebtedness (Section 9.02).
Without the consent of any Holder of LYONs, the Company and the Trustee
may amend the Indenture to (i) cure any ambiguity, defect or inconsistency,
provided, however, that such amendment does not materially adversely affect
the rights of any Holder, (ii) provide for the assumption by a successor to
the Company of the obligations of the Company under the Indenture, (iii)
provide for uncertificated LYONs in addition to certificated LYONs, as long
as such uncertificated LYONs are in registered form for United States federal
income tax purposes, (iv) make any change that does not adversely affect the
rights of any Holder of LYONs, (v) make any change to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act of 1939, as amended, or (vi) add to
the covenants or obligations of the Company under the Indenture or surrender
any right, power or option conferred by the Indenture on the Company.
(Section 9.01)
DISCHARGE OF THE INDENTURE
The Company may satisfy and discharge its obligations under the Indenture
by delivering to the Trustee for cancellation all outstanding LYONs or by
depositing with the Trustee, the Paying Agent or the Conversion Agent, if
applicable, after the LYONs have become due and payable, whether at stated
maturity, or any Redemption Date, or any Purchase Date, or a Change of
Control Purchase Date, upon conversion or otherwise, cash or Common Stock (as
applicable under the terms of the Indenture) sufficient to pay all of the
outstanding LYONs and paying all other sums payable under the Indenture by
the Company. (Article 8)
23
<PAGE>
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of the Company, under
Title 11 of the United States Code, the claim of the Holder of a LYON may be
limited to the Issue Price of the LYON plus that portion of the Original
Issue Discount that is deemed to have accrued from the date of issue to the
commencement of the proceeding.
INFORMATION CONCERNING THE TRUSTEE
First Union National Bank is the Trustee, Registrar, Paying Agent and
Conversion Agent under the Indenture. The Trustee also acts as trustee under
the indentures in connection with the Company's 7% Notes due 2005 and 4%
Convertible Subordinated Notes due 1999. In the ordinary course of business,
the Company maintains deposits with the Trustee and the Trustee has also from
time to time provided other banking services to the Company.
CERTAIN TAX ASPECTS
The following summary of United States Federal income tax considerations is
based on current law, regulations and judicial and administrative
interpretations thereof, all of which are subject to change. The discussion
addresses only LYONs held as capital assets by initial Holders who acquired the
LYONs at their issue price and does not deal with special situations, such as
those of insurance companies, tax-exempt organizations, individual retirement
and other tax-deferred accounts, financial institutions, broker-dealers, foreign
corporations and individuals who are not citizens or residents of the United
States.
Persons considering the purchase, ownership, conversion or other
disposition of LYONs should consult their own tax advisors regarding the
Federal income tax consequences and the consequences arising under the laws
of any state, local or foreign taxing jurisdiction.
The Company has been advised by its counsel, Willkie Farr & Gallagher,
that in such counsel's opinion the LYONs will be treated as indebtedness for
United States Federal income tax purposes. Counsel has further advised the
Company that it is counsel's opinion that, while the following does not
purport to discuss all tax matters relating to the LYONs, based upon the
LYONs being treated as indebtedness, the following are the material Federal
income tax consequences of the LYONs, subject to the qualifications set forth
above.
ORIGINAL ISSUE DISCOUNT
The LYONs are being issued at a substantial discount from their principal
amount at maturity. For United States Federal income tax purposes, the
difference between the issue price (the initial price at which a substantial
number of the LYONs are sold for money) and the stated principal amount at
maturity of each LYON constitutes original issue discount ("Original Issue
Discount"). Holders of the LYONs will be required to include Original Issue
Discount in income periodically over the term of the LYONs before receipt of
the cash or other payment attributable to such income.
A Holder of a LYON must include in gross income for Federal income tax
purposes the sum of the daily portions of Original Issue Discount with
respect to the LYON for each day during the taxable year or portion of a
taxable year on which such Holder holds the LYON ("Accrued Original Issue
Discount"). The daily portion is determined by allocating to each day of the
accrual period a pro rata portion of an amount equal to the adjusted issue
price of the LYON at the beginning of the accrual period multiplied by the
yield to maturity of the LYON (determined by compounding at the close of each
accrual period and adjusted for the length of the accrual period). The
accrual period of a LYON may be of any length and may vary in length over the
term of the LYON, provided that each accrual period is no longer than one
year and each scheduled payment of principal or interest occurs at the end of
an accrual period or on the first day of an accrual period. The adjusted
issue price of the LYON at the start of any accrual period is the issue price
of the LYON increased by the Accrued Original Issue Discount for each prior
accrual period. Under these rules, Holders will have to include in gross
income increasingly greater amounts of Original Issue Discount in each
successive accrual period. Any amount included in income as Original Issue
Discount will increase a Holder's tax basis in the LYON.
24
<PAGE>
The Company will be required to furnish annually to the Internal Revenue
Service and to certain non-corporate Holders information regarding the
amount of the Original Issue Discount attributable to that year. For this
purpose, the Company will use a six-month accrual period which ends on the
day in each calendar year corresponding to the maturity day of the LYON or
the date six months before such maturity date.
DISPOSITION OR CONVERSION
Except as described below, gain or loss upon a sale or other disposition
of a LYON will generally be capital gain or loss (which will be long term if
the LYON is held for more than one year). Net capital gains of individuals
are, under certain circumstances, taxed at lower rates than items of ordinary
income.
A Holder's conversion of a LYON into Common Stock is generally not a
taxable event (except with respect to cash received in lieu of a fractional
share). The Holder's obligation to include in gross income the daily portions
of Original Issue Discount with respect to a LYON will terminate
prospectively on the date of conversion. The Holder's basis in the Common
Stock received on conversion of a LYON will be the same as the Holder's basis
in the LYON at the time of conversion (exclusive of any tax basis allocable
to a fractional share), and the holding period for the Common Stock received
on conversion will include the holding period of the LYON converted (assuming
each is held as a capital asset), except that the Holder's holding period for
Common Stock allocable to Accrued Original Issue Discount may commence on the
day following the date of conversion. Gain or loss upon a sale or other
disposition of the Common Stock received on conversion of a LYON will be
capital gain or loss if the Common Stock is a capital asset in the hands of
the Holder.
If the Holder elects to exercise his option to tender the LYON to the
Company on a Purchase Date and the Company issues Common Stock in
satisfaction of all or part of the Purchase Price, the exchange of the LYON
for Common Stock should qualify as a reorganization or an otherwise
nontaxable transaction for Federal income tax purposes. If the Purchase Price
is paid solely in Common Stock, neither gain nor loss would generally be
recognized by the Holder, except as described below with respect to a
fractional share. If the Purchase Price is paid in a combination of shares of
Common Stock and cash (other than cash received in lieu of a fractional
share), gain (but not loss) realized by the Holder would be recognized, but
only to the extent such gain does not exceed such cash. A Holder's tax basis
in the Common Stock received in the exchange will be the same as the Holder's
tax basis in the LYON tendered to the Company in exchange therefor (exclusive
of any tax basis allocable to a fractional share interest as described
below), decreased by the amount of cash (other than cash received in lieu of
a fractional share), if any, received in exchange and increased by the amount
of any gain recognized by the Holder on the exchange (other than gain with
respect to a fractional share). The holding period for Common Stock received
in the exchange will include the holding period for the LYON tendered to the
Company in exchange therefor (assuming each is held as a capital asset),
except that the holding period for Common Stock allocable to Accrued Original
Issue Discount may commence on the day following the Purchase Date.
Under the current advance ruling policy of the Internal Revenue Service,
cash received in lieu of a fractional share of Common Stock upon conversion
of a LYON or upon a put of a LYON to the Company on a Purchase Date should be
treated as a payment in exchange for such fractional share. Accordingly, if
such Common Stock is a capital asset in the hands of the Holder, the receipt
of cash in lieu of a fractional share of Common Stock should generally result
in capital gain or loss, if any, measured by the difference between the cash
received for the fractional share and the Holder's basis in the fractional
share.
If the Holder elects to exercise his option to tender the LYONs to the
Company on a Purchase Date or a Change in Control Purchase Date and the
Company delivers cash in satisfaction of the pre-maturity purchase price,
such an exchange would be a taxable sale. The Holder would recognize gain or
loss upon the sale, measured by the difference between the amount of cash
transferred by the Company to the Holder in satisfaction of the Purchase
Price or the Change in Control Purchase Price and the Holder's basis in the
tendered LYON. Gain or loss recognized by the Holder would be capital gain or
loss.
If a Holder sells a LYON in the market, it will be a taxable sale with the
same results as a tender to the Company with a payment in cash.
Gain or loss upon a sale or other disposition of the Common Stock received
upon conversion of a LYON or in satisfaction of the Purchase Price of a LYON
put to the Company generally will be capital gain or loss if the Common Stock
is held as a capital asset (which gain or loss will be long-term if the
holding period for such Common Stock is more than one year).
25
<PAGE>
CONSTRUCTIVE DIVIDEND
If at any time the Company makes a distribution of property to its
shareholders that would be taxable to such shareholders as a dividend for
United States Federal income tax purposes and, in accordance with the anti-
dilution provisions of the LYONs, the conversion rate of the LYONs is
increased, such increase may be deemed to be the payment of a taxable
dividend to Holders of the LYONs. For example, an increase in the conversion
rate in the event of distributions of evidences of indebtedness or assets of
the Company or an increase in the event of an Extraordinary Cash Dividend
will generally result in deemed dividend treatment to Holders of the LYONs,
but generally an increase in the event of stock dividends or the distribution
of rights to subscribe for Common Stock will not. See "Description of
LYONs--Conversion Rights."
26
<PAGE>
DESCRIPTION OF COMMON STOCK AND RELATED RIGHTS
The statements made under this caption include summaries of certain
provisions contained in the Company's Articles of Incorporation, Bylaws and
Shareholders Rights Plan (as amended, the "Plan"). These statements do not
purport to be complete and are qualified in their entirety by reference to
such documents.
The Company is authorized to issue 500,000,000 shares of Common Stock,
$1.00 par value, of which 62,519,838 shares were outstanding as of August 3,
1996. Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors out of funds legally available therefor.
See "Price Range of Common Stock and Dividends" for information as to
dividend policy. Holders of Common Stock have no preemptive right to purchase
additional shares. Each share of Common Stock is entitled to one vote with
respect to matters other than the election of directors. In the election of
directors, each holder of Common Stock is entitled to as many votes as is
equal to the number of shares held multiplied by the number of directors to
be elected, and each shareholder may cast all of such votes for a single
director or may distribute them among any number of directors to be voted
for. The Bylaws of the Company provide that the Board of Directors shall
consist of not more than 12 members divided into three classes, the precise
number of members to be fixed from time to time by the Board of Directors.
The Board is currently comprised of ten Directors. The Directors of the class
elected at each annual election hold office for a term of three years, with
the term of each class expiring at successive annual meetings of
shareholders.
On December 17, 1987, the Company adopted the Plan. Pursuant thereto, the
Board declared a dividend distribution of one Common Stock Purchase Right
("Right") for each share of the Company's Common Stock then outstanding and
authorized the issuance of one Right with respect to each share of Common
Stock to become outstanding thereafter, including the Common Stock issuable
upon the conversion of the LYONs offered hereby. Each Right ordinarily
entitles its holder to purchase one share of Common Stock at an exercise
price of $55 per share, subject to adjustment pursuant to certain
antidilution provisions. The Rights will become exercisable only if a person
or a group acquires beneficial ownership of 20% or more of the Company's
Common Stock (exclusive of holdings as of December 17, 1987) or announces a
tender offer, the consummation of which would result in ownership by a person
or a group of 30% or more of the Common Stock (exclusive of holdings as of
December 17, 1987). The Company, by action of its Board of Directors, is
entitled to redeem the Rights at $.02 per Right at any time before a person
or a group has crossed the 20% ownership threshold and, provided a majority
of the Company's independent directors approves such redemption, for 15 days
thereafter.
If the Company is involved in a merger or other business combination at
any time after the Rights become exercisable, each Right will entitle its
holder to buy a number of shares of common stock of the acquiring company
having a market value equal to twice the exercise price of each Right. In
addition, if a person or group acquires 20% or more of the Company's Common
Stock (exclusive of holdings as of December 17, 1987) or if a 20% or greater
shareholder (exclusive of shareholders as of December 17, 1987) acquires the
Company by means of a reverse merger or engages in certain self-dealing
transactions with the Company, each Right not owned by such party will
entitle its holder to purchase, at the Right's then current exercise price,
that number of shares of Common Stock having a market value at the time of
twice the exercise price of each right. The Plan authorizes the Company's
independent directors to waive or alter certain features of the Rights in
certain circumstances. The final expiration date of the Rights, even if they
never become exercisable, is December 31, 1997.
The foregoing provisions of the Bylaws and the Plan may have an effect of
delaying, deferring or preventing a change in control of the Company.
Although the Flexitrust is not intended to be an antitakeover mechanism, the
creation of the Flexitrust and the purchase of shares of Common Stock by the
Flexitrust may also have certain antitakeover effects. Because the trustee of
the Flexitrust votes the Common Stock held by it in the manner directed by
participants in certain of the Company's employee benefit plans, the transfer
of shares of Common Stock to the Flexitrust may make it more difficult for an
acquiror of Common Stock to obtain an affirmative vote for a proposed merger
without employee support. Additionally, an Interested Shareholder (as defined
in Section 2553 of the Pennsylvania Business Corporation Law of 1988, as
amended (the "BCL") would find it difficult to engage in a business
combination with the Company during the five-year period after becoming an
Interested Shareholder without the support of some employees.
27
<PAGE>
The Company's Common Stock is currently listed on the New York Stock
Exchange. The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer & Trust Company, New York, New York.
28
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has
agreed, subject to the terms and conditions of the Purchase Agreement, to
purchase $ aggregate principal amount at maturity of the LYONs from the
Company. The Underwriter has advised the Company that it proposes to offer
the LYONs directly to the public at the offering price set forth on the front
cover page of this Prospectus. After the initial public offering, the
offering price may be changed. The LYONs are offered subject to receipt and
acceptance by the Underwriter and to certain other conditions, including the
right to reject orders in whole or in part.
The Company has granted the Underwriter an option to purchase up to an
additional $ aggregate principal amount at maturity of the LYONs, at the
initial public offering price less the underwriting discount solely to cover
over-allotments, if any. Such option may be exercised at any time until 30
days after the date of this Prospectus.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriter may be required to make
in respect thereof.
The Company, its directors and executive officers each have agreed,
subject to certain exceptions, not to sell or otherwise dispose of shares of
Common Stock, sell or grant rights, options or warrants with respect to
Common Stock or securities convertible into Common Stock prior to the
expiration of 90 days from the date of this Prospectus, without the prior
written consent of the Underwriter, except with respect to 174,500 shares of
Common Stock underlying employee stock options held by Mitchell G. Leibovitz
which expire on December 8, 1996.
The Underwriter has previously marketed (and anticipates continuing to
market) securities of issuers under the trademark "LYONs". The LYONs offered
by the Company hereby contain certain terms and provisions which are
different from such other previously marketed LYONs, the terms and provisions
of which also vary. See "Description of LYONs".
LEGAL MATTERS
The validity of the authorization and issuance of the LYONs offered hereby
is being passed upon for the Company by Willkie Farr & Gallagher, New York,
New York, and for the Underwriter by Brown & Wood LLP, New York, New York.
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this Prospectus by reference from the Company's Annual Report
on Form 10-K for the year ended February 3, 1996 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which
is incorporated herein by reference, and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
29
<PAGE>
=============================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
in connection with the offering covered by this Prospectus. If given or made,
such information or representations must not be relied upon as having been
authorized by the Company or the Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the LYONs
in any jurisdiction where, or to any person to whom, it is unlawful to make
such offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has not been any change in the facts set forth in this Prospectus
or the affairs of the Company since the date hereof.
------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Available Information ..................... 2
Incorporation of Certain Documents by
Reference ................................ 2
Prospectus Summary ........................ 3
Use of Proceeds ........................... 7
Capitalization ............................ 7
Price Range of Common Stock
and Dividends ............................ 8
Selected Financial Data ................... 9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 10
Description of LYONs ...................... 14
Certain Tax Aspects ....................... 24
Description of Common Stock and
Related Rights ........................... 27
Underwriting .............................. 29
Legal Matters ............................. 29
Experts ................................... 29
</TABLE>
=============================================================================
<PAGE>
=============================================================================
LOGO
Liquid Yield Option(TM) Notes
due 2011
(Zero Coupon -- Subordinated)
------
PROSPECTUS
------
Merrill Lynch & Co.
September , 1996
(TM )Trademark of Merrill Lynch & Co., Inc.
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses (other than the underwriting
discounts and commissions) in connection with the sale and distribution of
the securities being registered, which will be paid solely by the Company.
All the amounts shown are estimates, except the Commission registration fee:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee ...................................... $ 39,656
Printing and Engraving Expenses ............................ 25,000
Legal Fees and Expenses ................................... 100,000
Accounting Fees and Expenses .............................. 20,000
Blue Sky Fees and Expenses ................................ 10,000
Trustee Fees .............................................. 10,000
Rating Agency Fees ........................................ 50,000
Miscellaneous Expenses .................................... 20,344
----------
Total .............................................. $275,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 1741 through 1750 of Subchapter D, Chapter 17, of the BCL contain
provisions for mandatory and discretionary indemnification of a corporation's
directors, officers and other personnel, and related matters.
Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors and officers under certain prescribed
circumstances against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with an action or proceeding, whether civil, criminal, administrative or
investigative (other than derivative actions), to which any of them is a
party or is threatened to be made a party by reason of his being a
representative of the corporation or serving at the request of the
corporation as a representative of another corporation, partnership, joint
venture, trust or other enterprise, if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful.
Section 1742 permits indemnification in derivative actions if the
appropriate standard of conduct is met, except in respect of any claim, issue
or matter as to which the person has been adjudged to be liable to the
corporation unless and only to the extent that the proper court determines
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for the expenses that the court deems proper.
Under Section 1743, indemnification is mandatory to the extent that the
officer or director has been successful on the merits or otherwise in defense
of any action or proceeding referred to in Section 1741 or 1742.
Section 1744 provides that, unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation only as
authorized in the specific case upon a determination that the representative
met the applicable standard of conduct and that such determination will be
made (i) by the board of directors by a majority vote of a quorum of
directors not parties to the action or proceeding; (ii) if a quorum is not
obtainable, or if obtainable and a majority of disinterested directors so
directs, by independent legal counsel; or (iii) by the shareholders.
Section 1745 provides that expenses incurred by an officer or director in
defending an action or proceeding may be paid by the corporation in advance
of the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation.
II-1
<PAGE>
Section 1746 provides generally that the indemnification and advancement
of expenses provided by Subchapter 17D of the BCL (i) will not be deemed
exclusive of any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding that
office, and (ii) may not be made in any case where the act or failure to act
giving rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness.
Section 1747 grants a corporation the power to purchase and maintain
insurance on behalf of any director or officer against any liability incurred
by him in his capacity as officer or director, whether or not the corporation
would have the power to indemnify him against that liability under Subchapter
17D of BCL.
Sections 1748 and 1749 extend the indemnification and advancement of
expenses provisions contained in Subchapter 17D of the BCL to successor
corporations in fundamental corporate changes and to representatives serving
as fiduciaries of employee benefit plans.
Section 1750 provides that the indemnification and advancement of expenses
provided by, or granted pursuant to, Subchapter 17D of the BCL shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs and personal representative of such person.
Article VII of the Company's Bylaws provides in general that the Company
shall indemnify its officers and directors to the fullest extent permitted by
law. The Bylaws further provide that any alteration, amendment, or repeal of
the indemnification provisions, if not approved by 80% of the Board of
Directors, requires the affirmative vote of shareholders owning at least 80%
of the outstanding shares entitled to vote.
The Company maintains liability insurance on behalf of its directors and
officers.
See Section 6 of the Purchase Agreement, filed as Exhibit 1 hereto,
pursuant to which the Underwriter agrees to indemnify the Company, its
directors, certain officers and controlling persons against certain
liabilities, including liabilities under the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description
----------- ----------------------------------------------------------------------------------------------------
<S> <C>
*1 Form of Purchase Agreement
*4.1 Form of Indenture between the Company and First Union National Bank, as Trustee, including form of LYON
*4.2 Rights Agreement, dated as of December 17, 1987, between the Company and The Philadelphia National Bank,
including form of Right Certificate and Summary of Rights to Purchase Common Stock (incorporated by reference
to Exhibit 1 to the Company's Current Report on Form 8-K dated December 17, 1987)
*4.3 Amendment to Rights Agreement, dated as of June 6, 1989, between the Company and The Philadelphia National
Bank (incorporated by reference to Exhibit 1 to the Company's Current Report on Form 8-K dated June 6,
1989)
5 Opinion of Willkie Farr & Gallagher
8 Opinion of Willkie Farr & Gallagher regarding tax matters
*12.1 Calculation of Ratio of Earnings to Fixed Charges (incorporated by reference to Exhibit 12 to the Company's
Annual Report on Form 10-K for the year ended February 3, 1996)
*12.2 Calculation of Ratio of Earnings to Fixed Charges for the 26 weeks ended August 3, 1996
23.1 Consent of Willkie Farr & Gallagher (included as part of Exhibit 5 and Exhibit 8)
23.2 Consent of Deloitte & Touche LLP
*24 Power of Attorney
*25 Form T-1, Statement of Eligibility under the Trust Indenture Act of 1939 of the Trustee
</TABLE>
- ------
*Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Commission, such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion
of counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by them is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that: (1) for purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the time
it was declared effective; and (2) for the purpose of determining any
liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Philadelphia, Commonwealth of
Pennsylvania, on September 16, 1996.
THE PEP BOYS - MANNY, MOE & JACK
By: /s/ MITCHELL G. LEIBOVITZ
-----------------------------------
Mitchell G. Leibovitz
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
----------------------------- ---------------------------------------- ---------------------
<S> <C> <C>
/s/ MITCHELL G. LEIBOVITZ Chairman of the Board, President and Chief September 16, 1996
---------------------------- Executive Officer and Director (Principal
Mitchell G. Leibovitz Executive Officer)
/s/ MICHAEL J. HOLDEN Executive Vice President, Chief Financial September 16, 1996
---------------------------- Officer and Treasurer (Principal Financial
Michael J. Holden and Accounting Officer)
* Director September 16, 1996
----------------------------
Lennox K. Black
* Director September 16, 1996
----------------------------
Pemberton Hutchinson
* Director September 16, 1996
----------------------------
Bernard J. Korman
* Director September 16, 1996
----------------------------
J. Richard Leaman, Jr.
* Director September 16, 1996
----------------------------
Malcolmn D. Pryor
* Director September 16, 1996
----------------------------
Lester Rosenfeld
* Director September 16, 1996
----------------------------
Benjamin Strauss
* Director September 16, 1996
----------------------------
Myles H. Tanenbaum
/s/ DAVID V. WACHS Director September 16, 1996
----------------------------
David V. Wachs
</TABLE>
*By: /s/ MICHAEL J. HOLDEN
- -------------------------------
Michael J. Holden
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
----------- -------------------------------------------------------------------------------
<S> <C>
*1 Form of Purchase Agreement
*4.1 Form of Indenture between the Company and First Union National Bank, as Trustee,
including form of LYON
*4.2 Rights Agreement, dated as of December 17, 1987, between the Company and The Philadelphia
National Bank, including form of Right Certificate and Summary of Rights to Purchase
Common Stock (incorporated by reference to Exhibit 1 to the Company's Current Report
on Form 8-K dated December 17, 1987)
*4.3 Amendment to Rights Agreement, dated as of June 6, 1989, between the Company and
The Philadelphia National Bank (incorporated by reference to Exhibit 1 to the Company's
Current Report on Form 8-K dated June 6, 1989)
5 Opinion of Willkie Farr & Gallagher
8 Opinion of Willkie Farr & Gallagher regarding tax matters
*12.1 Calculation of Ratio of Earnings to Fixed Charges (incorporated by reference to Exhibit
12 to the Company's Annual Report on Form 10-K for the year ended February 3, 1996)
*12.2 Calculation of Ratio of Earnings to Fixed Charges for the 26 weeks ended August 3,
1996
23.1 Consent of Willkie Farr & Gallagher (included as part of Exhibit 5 and Exhibit 8)
23.2 Consent of Deloitte & Touche LLP
*24 Power of Attorney
*25 Form T-1, Statement of Eligibility under the Trust Indenture Act of 1939 of the Trustee
</TABLE>
- ------
*Previously filed.
<PAGE>
Exhibit 5
[WILLKIE FARR & GALLAGHER LETTERHEAD]
September 16, 1996
The Pep Boys -- Manny, Moe & Jack
3111 West Allegheny Avenue
Philadelphia, Pennsylvania 19132
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
The Pep Boys -- Manny, Moe & Jack (the "Company") has requested our
opinion in connection with the Registration Statement on Form S-3 (File No.
333-00985) (the "Registration Statement") relating to the Liquid Yield
Option(TM) Notes due 2011 of the Company (the "LYONs"). The LYONs will be
issued under an Indenture (the "Indenture") to be entered into by the Company
and First Union National Bank, as Trustee (the "Trustee") and sold pursuant
to the terms of a purchase agreement to be executed by the Company and
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter").
We have examined copies of the Certificate of Incorporation and Bylaws of
the Company, the Registration Statement, all resolutions adopted by the
Company's Board of Directors and other records and documents that we have
deemed necessary, for the purpose of this opinion. We have also examined such
other documents, papers, statutes and authorities as we have deemed necessary
to form a basis for the opinion hereinafter expressed.
In our examination, we have assumed the genuineness of all signatures and
the conformity to original documents of all copies submitted to us. As to
various questions of fact material to our opinion, we have relied on
statements and certificates of officers and representatives of the Company
and public officials. In rendering this opinion, we have also assumed that
there will be no changes in applicable law or facts between the date hereof
and any date of issuance of LYONs and that the provisions of all applicable
federal and state securities laws have been complied with.
Based upon and subject to the foregoing, we are of the opinion that:
1. The LYONs have been duly authorized and, when duly executed,
authenticated and delivered by or on behalf of the Company, duly
authenticated by the Trustee and duly paid for by the Underwriter, will be
binding obligations of the Company and entitled to the benefits of the
Indenture; and
2. The shares of Common Stock of the Company issuable upon conversion of
the LYONs have been duly authorized and duly reserved for issuance upon
conversion of the LYONs and, when issued and delivered pursuant to the terms
of the Indenture, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the incorporation by reference of this opinion in
any abbreviated registration statement in connection with the LYONs pursuant
to Rule 462(b) under the Securities Act of 1933 and to the reference to our
firm under the caption "Legal Matters" in the Registration Statement.
Very truly yours,
---------------------------------
/s/ WILLKIE FARR & GALLAGHER
Willkie Farr & Gallagher
<PAGE>
EXHIBIT 8
[WILLKIE FARR & GALLAGHER LETTERHEAD]
September 11, 1996
The Pep Boys -- Manny, Moe & Jack
3111 West Allegheny Avenue
Philadelphia, Pennsylvania 19132
Re: Registration Statement on Form S-3, File No. 333-00985
Ladies and Gentlemen:
We are acting as your counsel in connection with the registration under
the Securities Act of 1933, as amended (the "Securities Act"), of $271,704,000
aggregate principal amount at maturity of Liquid Yield Option-TM-Notes due 2011
(the "LYONs") of The Pep Boys - Manny, Moe & Jack (the "Company"). In that
capacity, we have examined the Registration Statement on Form S-3, File No.
333-00985 (the "Registration Statement") filed by the Company with the
Securities and Exchange Commission in connection with the proposed public
offering of the LYONs.
We hereby confirm our opinion set forth in the Prospectus in the third
full paragraph under the caption "Certain Tax Aspects." Furthermore, we are of
the opinion that the section in the Registration Statement under the caption
"Certain Tax Aspects," while not purporting to discuss all tax matters relating
to the LYONs, sets forth the material United States federal income consequences
of the LYONs, subject to the qualifications set forth therein.
The foregoing is based on the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations (including proposed Treasury Regulations)
promulgated thereunder, rulings, official pronouncements and judicial decisions,
all as in effect on the date hereof and all of which are subject to change or
different interpretations by the Internal Revenue Service or the courts.
We consent to the use of this opinion as an exhibit to the Registration
Statement, to the incorporation by reference of this opinion in any abbreviated
registration statement in connection with the LYONs pursuant to Rule 462(b)
under the Securities Act and to the references to this firm in the Prospectus
included in the Registration Statement.
Very truly yours,
/s/ WILLKIE FARR & GALLAGHER
----------------------------------
Willkie Farr & Gallagher
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 3 to
Registration Statement No. 333-00985 of The Pep Boys -- Manny, Moe & Jack on
Form S-3 of our report dated March 20, 1996, appearing in the Annual Report
on Form 10-K of The Pep Boys -- Manny, Moe and Jack for the year ended
February 3, 1996 and to the reference to us under the headings "Selected
Financial Data" and "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
September 16, 1996
