SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
- --------------------------------------------------------------------------------
(Mark One)
(x) Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended February 1, 1997
or
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (NO FEE REQUIRED)
For the transition period from to .
----- -----
Commission file number 1-3381
The Pep Boys - Manny, Moe & Jack
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0962915
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3111 West Allegheny Avenue, Philadelphia, PA 19132
-------------------------------------------- ------------
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code 215-229-9000
------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ----------------------------- -----------------------------------------
Common Stock, $1.00 par value New York Stock Exchange
4% Convertible Subordinated
Notes due September 1, 1999 New York Stock Exchange
Liquid Yield Option Notes
due September 20, 2011 New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
Index to Exhibits is on Page 42
1
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
Yes ___ No X
As of the close of business on April 11, 1997, the aggregate market value of the
voting stock held by nonaffiliates of the registrant was approximately
$1,636,141,244.
As of April 11, 1997, there were 63,194,492 shares of the registrant's common
stock outstanding.
2
<PAGE>
This Annual Report on Form 10-K contains forward looking statements made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that such forward looking statements
involve risks and uncertainties which could significantly affect expected
results in the future from those expressed in any such forward looking
statements made by, or on behalf of the Company.
3
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
PART III Portions of the registrant's definitive proxy statement, which will be
filed with the commission pursuant to Regulation 14A not later than
120 days after the end of the Company's fiscal year, for the Company's
Annual Meeting of Shareholders presently scheduled to be held on
June 4, 1997.
4
<PAGE>
This Annual Report on Form 10-K for the year ended February 1, 1997, at the
time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of
the Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities on or after the date of such filing, pursuant to any Registration
Statement or Prospectus filed pursuant to the Securities Act of 1933 which
incorporates by reference this Annual Report.
5
<PAGE>
PART I
ITEM 1 BUSINESS
GENERAL
The Pep Boys - Manny, Moe & Jack and Subsidiaries (the "Company") is engaged
principally in the retail sale of automotive parts and accessories, automotive
maintenance and service and the installation of parts sold by it through its
chain of 604 stores (as of February 1, 1997) which consists of 528 SUPERCENTERS,
having an aggregate of 5,398 service bays, and 76 PARTS USA stores. The Company
operates approximately 11,761,000 gross square feet of retail space, including
the service bays. The SUPERCENTERS average approximately 20,800 square feet
and the PARTS USA stores average approximately 10,300 square feet.
6
<PAGE>
As of February 1, 1997, the Company operated its stores in 33 states, the
District of Columbia and Puerto Rico. The following table indicates by state
the number of stores of the Company in operation at the end of fiscal 1993,
1994, 1995 and 1996 and the number of stores opened and closed by the Company
during each of the last three fiscal years:
<TABLE>
NUMBER OF STORES AT END OF FISCAL YEARS 1993
THROUGH 1996
<CAPTION>
1994 1995 1996
1993 ---------------------- ---------------------- ---------------------
State Year End Opened Closed Year End Opened Closed Year End Opened Closed Year End
- --------- -------- ------ ------ -------- ------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama 1 - - 1 - - 1 - - 1
Arizona 24 - - 24 - - 24 - 1 23
Arkansas 1 - - 1 - - 1 - - 1
California 93 11* 2 102 17 1 118 29 1 146
Colorado - 5 - 5 1 - 6 2 - 8
Connecticut - - - - 2 - 2 5 - 7
Delaware 5 - - 5 - - 5 - - 5
District of Columbia - - - - 2 - 2 1 - 3
Florida 33 1 - 34 4 - 38 4 - 42
Georgia 20 - - 20 2 - 22 3 - 25
Illinois 3 10 - 13 4 - 17 4 - 21
Indiana 1 - - 1 2 - 3 3 - 6
Kansas 1 1 - 2 - - 2 - - 2
Kentucky 1 2 - 3 1 - 4 - - 4
Louisiana 12 - - 12 - - 12 - - 12
Maryland 16 - - 16 3 1 18 2 - 20
Massachusetts 2 1 - 3 2 - 5 4 - 9
Michigan - 1 - 1 5 - 6 5 - 11
Missouri 1 - - 1 - - 1 - - 1
Nevada 8 - - 8 - - 8 - - 8
New Hampshire - 1 - 1 - - 1 1 - 2
New Jersey 14 2 1 15 3 - 18 8 - 26
New Mexico 8 - - 8 - - 8 - - 8
New York 9 2 - 11 3 - 14 13 - 27
North Carolina 11 - - 11 - - 11 - - 11
Ohio - 9 - 9 1 - 10 3 - 13
Oklahoma 6 - - 6 - - 6 - - 6
Pennsylvania 31 3 - 34 8 2 40 3 - 43
Puerto Rico - - - - 7 - 7 4 - 11
Rhode Island 1 - - 1 - - 1 2 - 3
South Carolina 6 - - 6 - - 6 - - 6
Tennessee 7 - - 7 - - 7 - - 7
Texas 52 3 - 55 8 - 63 2 - 65
Utah 6 - - 6 - - 6 - - 6
Virginia 13 - - 13 - - 13 2 - 15
--- --- --- --- --- --- --- --- --- ---
Total 386 52 3 435 75 4 506 100 2 604
=== === === === === === === === === ===
<FN>
* Included in this number is the Company's Santa Monica store which was
temporarily closed in fiscal 1993 and re-opened in fiscal 1994.
</TABLE>
7
<PAGE>
NEW STORES AND EXPANSION STRATEGY
During fiscal 1996, the Company opened 56 SUPERCENTERS, all of which
include service bays, and 44 PARTS USA stores. Two outmoded units were
closed, one of which was replaced by a SUPERCENTER.
The Company's typical SUPERCENTER is a free standing, "one-stop" shopping
automotive warehouse that features approximately 12 state-of-the-art service
bays. Each SUPERCENTER carries an average of approximately 27,000 stock-keeping
units and serves the automotive aftermarket needs of the "do-it-yourself", the
"do-it-for-me" and the "buy-for-resale" customer segments. Late in 1996, a new
SUPERCENTER prototype was introduced that averages approximately 18,200 square
feet. The Company intends to continue to utilize this new prototype in 1997.
While the overall size of the SUPERCENTER will be reduced, the number of
stock-keeping units offered will not decrease.
PARTS USA stores operate in locations that the Company believes will be
better served by stores with an extensive selection of parts and accessories
(an average of approximately 26,000 stock-keeping units per store) but without
tires or service bays. These stores are generally located in certain urban
areas and areas located between SUPERCENTERS. PARTS USA stores primairly serve
the automotive aftermarket needs of the "do-it-yourself" and the "buy-for-
resale" customer segments. New PARTS USA stores will average approximately
8,100 square feet. The Company believes the utilization of this supplemental
format will enable it to grow at a faster rate and achieve greater economies
of scale by providing more retail outlets as well as increase its market
penetration and share over time.
The Company expects to open approximately 120 new stores in 1997,
most of which are expected to be in existing markets. If all 120
stores are opened, the Company anticipates spending approximately
$188,000,000 in addition to the $14,194,000 it has already spent as of
February 1, 1997 in connection with certain of these locations. Funds
required to finance this expansion are expected to come primarily from
operating activities with the remainder provided by unused lines of
credit or from accessing traditional lending sources which may
include the public capital markets.
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 professional mechanic.
As of the end of 1996, the Company operated the Auto Parts Delivery program
in 57 of its stores.
The most important factors considered by the Company when deciding to open
new stores are vehicle and population demographics, competitive positioning and
site development costs. The most important factors considered by the Company
when deciding whether to close a store are profitability and whether the store
is outmoded by virtue of store size, location and surroundings, number of
service bays, number of other stores within the same market area and the
cost/benefit of establishing a replacement store rather than expanding or
otherwise upgrading an older store.
The Company's ability to meet its expansion goals will depend, in large
measure, upon the availability of suitable sites, prevailing economic
conditions, its success in completing negotiations to purchase or lease
properties, and its ability to obtain governmental approvals and meet
construction deadlines.
8
<PAGE>
MERCHANDISING
Each Pep Boys' SUPERCENTER and PARTS USA store carries the same
basic product line, with variations based on the number and type of cars
registered in the different markets. A full complement of a SUPERCENTER and a
PARTS USA stores' inventory currently includes an average of approximately
27,000 and 26,000 items, respectively. The Company's automotive product line
includes: tires (not included in PARTS USA stores); batteries; new and rebuilt
parts for domestic and imported cars, including suspension parts, ignition
parts, mufflers, engines and engine parts, oil and air filters, belts, hoses,
air conditioning parts, and brake parts; chemicals, including oil, antifreeze,
polishes, additives, cleansers and paints; mobile electronics, including sound
systems and alarms; car accessories, including seat covers, floor mats, gauges,
mirrors and booster cables; and a large selection of truck and van accessories.
In addition to offering a wide variety of high quality, branded products,
the Company sells an array of high quality products under the Pep Boys and
various other private label names. The Company sells oil, transmission fluid
and chemicals under the Pep Boys name. The Company also sells oil treatments
and lubricants under the name PROLINE(tm) and paints under the name VARSITY (R).
The Company sells starters and alternators under the name PROSTART(R), water
pumps under the name PROCOOL(R) and batteries under the names PRO-START(R),
MASTER START(tm) and RIGHT START(tm). Brakes are sold under the names
SHUR GRIP(R), PROSTOP(R) and ELITE (tm) and tires under the names CORNELL(R) and
FUTURA(R). The Company also sells shock absorbers under the name PRO RYDER(R),
and trunk and hatchback lift supports under the name PROLIFT(R). All products
sold by the Company under the Pep Boys and various other private label names
accounted for approximately 25% of the Company's merchandise sales in fiscal
1996. The remaining merchandise is sold under the brand names of others.
Except for revenues from maintaining or repairing automobiles and installing
products, which accounted for approximately 15.0%, 15.0% and 13.9% of the
Company's total revenues in fiscal years 1996, 1995 and 1994, respectively, no
class of products or services accounted for as much as 10% of the Company's
total revenues.
The Company has a point-of-sale system in all of its stores which gathers
sales and gross profit data by stock-keeping-unit from each store on a daily
basis. This information is then used by the Company to help formulate its
pricing, marketing and merchandising strategies.
The Company has an electronic work order system in all of its service
centers. This system creates a service history for each vehicle, provides
customers with a comprehensive, professional sales document and has enabled the
Company to establish a service customer database.
The Company uses an "Everyday Low Price" (EDLP) strategy in establishing
its selling prices. Management believes that EDLP provides better value to its
customers on a day-to-day basis, helps level customer demand and allows more
efficient management of inventories.
The Company uses various forms of advertising to promote its category
dominant product offering, its state-of-the-art automotive service and repair
capabilities and its commitment to customer service and satisfaction. The
Company's advertising vehicles include, but are not limited to, multipage
catalogs, television and radio commercials and in-store promotions. Most
of the gross cost of the advertising directed by the Company is customarily
borne by the suppliers of the products advertised.
9
<PAGE>
In fiscal 1996, approximately 66% of the Company's total revenues were cash
transactions (including personal checks), and the remainder were credit and
charge card sales.
The Company does not experience significant seasonal fluctuation in the
generation of its revenues.
STORE OPERATIONS AND MANAGEMENT
All Pep Boys' stores are open seven days a week. Each SUPERCENTER has a
manager, a service manager, a parts manager and two or more assistant managers.
Each PARTS USA store has a manager, a parts manager and two or more assistant
managers. A store manager's average length of service with the Company is
approximately six years.
The Company has service bays in 528 of its 604 locations. Each service
department can perform a variety of services which include: engine diagnosis and
tune-ups, wheel alignments, state inspections, air conditioning service, coolant
system service; the repair and installation of parts and accessories including
brake parts, suspension parts, exhaust systems, front end parts, ignition parts,
belts, hoses, clutches, filters, radios, alarms, sun roofs, cruise controls, and
various other merchandise sold in Pep Boys' stores; installation and balancing
of tires, and oil and lubrication services.
The Company coordinates the operation and merchandising of each store
through a network of district and regional managers. The regional managers
report to one of three divisional Vice Presidents - Store Operations and one
Vice President - Service Operations, who report to the Company's Senior Vice
President - Store Operations who reports to the Company's Executive Vice
President and Chief Operating Officer. Supervision and control over the
individual stores are facilitated by means of the Company's computer system,
operational handbooks and regular visits to the individual stores by the
district operations managers and loss prevention personnel.
All of the Company's advertising, accounting, management information
systems, purchasing and most administrative functions are conducted at its
corporate headquarters in Philadelphia, Pennsylvania. Certain administrative
functions for the Company's western, southwestern, southeastern, midwest and
Puerto Rico operations are performed at various regional offices of the
Company. See "Properties."
INVENTORY CONTROL AND DISTRIBUTION
Almost all of the Company's merchandise is distributed to its stores from
its warehouses by Company-owned or leased trucks. Target levels of inventory
for each product have been established for each of the Company's warehouses and
stores and are based upon prior shipment history, sales trends and seasonal
demand. Inventory on hand is compared to the target levels on a weekly basis at
each warehouse. If the inventory on hand at a warehouse is below the target
levels, the Company's buyers order merchandise from its suppliers.
10
<PAGE>
Each Pep Boys store has an automatic inventory replenishment system that
automatically orders additional inventory when a store's inventory on hand falls
below the target level. In addition, the Company's centralized buying system,
coupled with continued advancement in its warehouse and distribution systems has
greatly enhanced the Company's ability to control its inventory.
SUPPLIERS
During fiscal 1996, the Company's ten largest suppliers accounted for
approximately 38% of the merchandise purchased by the Company. No single
supplier accounted for more than 10% of the Company's purchases. The Company
has no long-term contracts for the purchase of merchandise. Management believes
that the relationships the Company has established with its suppliers are
generally good.
In the past, the Company has not experienced difficulty in obtaining
satisfactory sources of supply and believes that adequate alternative sources of
supply exist, at substantially similar cost, for virtually all types of
merchandise sold in its stores.
COMPETITION
The business of the Company is generally highly competitive. The Company
encounters competition from nationwide and regional chains and from local
independent merchants. Some of the Company's competitors are general, full
range, discount or traditional department stores which carry automotive parts
and accessories and/or have automotive service centers, and others, similar to
the Company, are specialized automotive service retailers. Certain of its
competitors are larger in terms of sales volume, store size, and/or number of
stores, have access to greater capital and management resources and have been
operating longer in particular geographic areas than the Company.
Although the Company's competition varies by geographical area, the Company
believes that it generally has a favorable competitive position in terms of
depth and breadth of product line, price, quality of personnel and customer
service.
In addition, the Company believes that its operation of service bays in its
SUPERCENTERS positively 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. The Company believes that the warranty policies
in connection with the higher priced items it sells, such as tires, batteries,
brake linings and other major automotive parts and accessories, are comparable
or superior to those of its competitors.
11
<PAGE>
EMPLOYEES
At February 1, 1997, the Company employed 20,489 persons as follows:
<TABLE>
<CAPTION>
Full-time Part-time Total
Description Numbers % Numbers % Numbers %
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Store Sales 6,793 43.8 3,664 73.5 10,457 51.0
Store Service 6,412 41.4 1,100 22.1 7,512 36.7
------ ----- ----- ----- ------ -----
STORE TOTAL 13,205 85.2 4,764 95.6 17,969 87.7
Warehouses 1,077 6.9 200 4.0 1,277 6.2
Offices 1,220 7.9 23 .4 1,243 6.1
------ ----- ----- ----- ------ -----
TOTAL EMPLOYEES 15,502 100.0 4,987 100.0 20,489 100.0
====== ===== ===== ===== ====== =====
</TABLE>
Of the 1,277 full-time and part-time warehouse employees referred to above,
340 employees at the Company's New Jersey warehouse facilities are members of a
union. The Company believes employee relations are generally good. At the end of
fiscal 1995, the Company employed approximately 13,186 full-time and 4,405
part-time employees and at the end of fiscal 1994, the Company employed
approximately 11,804 full-time and 4,070 part-time employees.
12
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table indicates the names, ages, years with the Company and
positions (together with the year of election to such positions) of the
executive officers of the Company:
Years with Position with the Company and
Name Age Company Date of Election to Position
- --------------------- --- ---------- -----------------------------
Mitchell G. Leibovitz 51 18 Chairman of the Board since
March 1994; Chief Executive
Officer since March 1990;
President since 1986
Wendel H. Province 49 7 Executive Vice President
since November 1994; Chief
Operating Officer since
March 1993
Michael J. Holden 45 17 Executive Vice President
since March 1996; Senior Vice
President & Chief Financial
Officer since March 1987
Frederick A. Stampone 41 14 Senior Vice President
since March 1987; Chief
Administrative Officer since
March 1993; Secretary since
December 1988
Mark L. Page 40 21 Senior Vice President - Store
Operations since March 1993
Messrs. Leibovitz, Province, Holden and Stampone have been executive officers of
the Company for more than the past five years. Mr. Page has been an executive
officer of the Company for less than the past five years. Mr. Page was a
regional manager for the Company from February 1987 until February 1991 when he
was elected Vice President - Western Store Operations. On March 14, 1993, Mr.
Page became Senior Vice President - Store Operations. Each of the officers
serves at the pleasure of the Board of Directors of the Company. There are no
arrangements or understandings pursuant to which any officer was elected to
office.
13
<PAGE>
ITEM 2 PROPERTIES
The Company's headquarters in Philadelphia, Pennsylvania, which also serves
as an administrative regional office for its eastern operations, occupies
a five-story structure owned by the Company with approximately 300,000 square
feet of floor space. The Company occupies approximately 30,000 square feet of a
60,000 square foot, three-story structure which the Company owns located in Los
Angeles, California which serves as an administrative regional office for its
western operations. The Company leases approximately 4,000 square feet of
office space in each of Decatur, Georgia; Richardson, Texas; and owns
approximately 4,000 square feet of office space in each of Melrose Park,
Chicago; and Bayamon, Puerto Rico, all of which serve as administrative regional
offices.
Of the 604 store locations operated by the Company at February 1, 1997, 346
are owned and 258 are leased. Of the 258 leased store locations, 114 are fully
leased and 144 are ground leases only.
14
<PAGE>
The following table sets forth certain information regarding the owned and
leased warehouse space utilized by the Company for its 604 store locations at
February 1, 1997.
<TABLE>
<CAPTION>
Warehouse Products Square Owned or Stores States
Location Warehoused Footage Leased Serviced Serviced
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Los Angeles, CA All except 216,000 Owned 149 AZ, CA, NV
tires
Los Angeles, CA Tires 73,000 Leased 124 AZ, CA, NV
Los Angeles, CA All except 137,000 Leased 149 AZ, CA, NV
tires
Phoenix, AZ All except 108,000 Owned 57 AZ, CO, NM,
tires and NV, TX, UT
chemicals
Phoenix, AZ Tires and 56,000 Leased 57 AZ, CO, NM,
chemicals NV, TX, UT
Bridgeport, NJ All except 195,000 Owned 171 CT, DE, DC,
tires MA, MD, MI,
NH, NJ, NY,
OH, PA, PR,
RI, VA
Bridgeport, NJ Tires and 273,000 Leased 171 CT, DE, DC,
chemicals MA, MD, MI,
NH, NJ, NY,
OH, PA, PR,
RI, VA
Atlanta, GA All 392,000 Owned 147 AL, FL, GA,
IL, IN, KY,
NC, OH, PR,
SC, TN, VA
Mesquite, TX All 244,000 Owned 80 AR, KS, LA,
MO, OK, TX
---------
Total 1,694,000
=========
</TABLE>
To meet its current expansion requirements the Company plans to open a
400,000 square foot, leased warehouse facility in Plainfield, Indiana in June
1997. Additionally, the Company plans to open a 240,000 square foot, leased
warehouse facility in Northern California in late 1997.
The Company anticipates that its existing and planned warehouse space will
accommodate inventory necessary to support store expansion and any increase
in stock-keeping units through the end of fiscal 1997.
The Company is subject to federal, state and local provisions relating to
the protection of the environment, including provisions with respect to the
disposal of oil at its store locations. Estimated capital expenditures relating
to compliance with such environmental provisions are not deemed material.
15
<PAGE>
ITEM 3 LEGAL PROCEEDINGS
The Company is a defendant in a purported class action entitled "Brian
Lee, Anthony Baxton, and Harry Schlein v. The Pep Boys - Manny, Moe & Jack,"
United States District Court for the Southern District of Alabama, Southern
Division. The action was originally filed on or about May 21, 1996 in the
Circuit Court of Mobile County, Alabama. The Company has since removed the case
to Federal Court, and the plaintiffs have filed a motion to remand the case back
to Alabama State Court. The Company has also moved to dismiss the case for
failure to state a claim. The plaintiffs' motion to remand and the Company's
motion to dismiss are pending before the Federal District Court. In their
complaint, the plaintiffs allege that the Company sold old or used automotive
batteries to consumers as if those batteries were new. The complaint purports
to state causes of action for fraud and deceit, negligent misrepresentation,
breach of contract and violation of state consumer protection statutes. The
plaintiffs are seeking compensatory and punitive damages, as well as injunctive
and equitable relief. The Company believes the claims are without merit and
intends to vigorously defend this action.
The Company is also party to various other lawsuits and claims arising in the
normal course of business. In the opinion of management, these lawsuits and
claims, including the case above, are not singularly or in the aggregate,
material to the Company's financial position or results of operations.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended February 1, 1997.
16
<PAGE>
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of The Pep Boys - Manny, Moe & Jack is listed on the New
York Stock Exchange under the symbol "PBY". There were 4,336 registered
shareholders as of February 1, 1997. The following table sets forth for the
periods listed, the high and low sale prices and the cash dividends paid on the
Company's common stock.
<TABLE>
MARKET PRICE PER SHARE
<CAPTION>
Market Price Per Share Cash Dividends
Fiscal year ended February 1, 1997 High Low Per Share
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter 34 7/8 27 7/8 $.0525
Second Quarter 35 1/2 28 .0525
Third Quarter 38 1/4 29 1/8 .0525
Fourth Quarter 38 27 7/8 .0525
Fiscal year ended February 3, 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter 34 3/4 24 3/8 $.0475
Second Quarter 32 1/4 25 1/8 .0475
Third Quarter 29 1/8 22 1/2 .0475
Fourth Quarter 29 1/2 21 7/8 .0475
</TABLE>
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.
17
<PAGE>
<TABLE>
ITEM 6 SELECTED FINANCIAL DATA
The following table sets forth the selected financial data for the Company and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included elsewhere herein.
SELECTED FINANCIAL DATA (UNAUDITED)
(dollar amounts in thousands, except per share amounts)
<CAPTION>
Year ended Feb. 1, 1997 Feb. 3, 1996 Jan. 28, 1995 Jan. 29,1994 Jan. 30, 1993
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Merchandise sales $1,554,757 $1,355,008 $1,211,536 $1,076,543 $1,008,191
Service revenue 273,782 239,332 195,449 164,590 147,403
Total revenues 1,828,539 1,594,340 1,406,985 1,241,133 1,155,594
Gross profit from merchandise sales 484,494 411,133 364,378 307,861 272,412
Gross profit from service revenue 53,025 44,390 32,417 27,457 24,528
Total gross profit 537,519 455,523 396,795 335,318 296,940
Selling, general and
administrative expenses 350,419 296,089 247,872 214,710 194,160
Operating profit 187,100 159,434 148,923 120,608 102,780
Nonoperating income 2,435 2,090 3,490 3,601 3,015
Interest expense 30,306 32,072 25,931 19,701 20,180
Earnings before income taxes
and cumulative effect of change
in accounting principle 159,229 129,452 126,482 104,508 85,615
Earnings before cumulative effect
of change in accounting principle 100,824 81,494 80,008 65,512 54,579
Cumulative effect of change in
accounting principle - - (4,300) - -
Net earnings 100,824 81,494 75,708 65,512 54,579
BALANCE SHEET DATA
Working capital $ 70,691 $ 39,868 $ 121,858 $ 92,518 $ 104,622
Current ratio 1.13 to 1 1.09 to 1 1.42 to 1 1.37 to 1 1.47 to 1
Merchandise inventories $ 520,082 $ 417,852 $ 366,843 $ 305,872 $ 295,179
Property and equipment-net 1,189,734 1,014,052 861,910 723,452 628,918
Total assets 1,818,365 1,500,008 1,291,019 1,078,518 967,813
Long-term debt (excludes
convertible debt) 217,178 280,793 294,537 253,000 209,347
Convertible debt 238,487 86,250 86,250 - -
Stockholders' equity 778,091 665,460 586,253 547,759 509,763
DATA PER COMMON SHARE
Earnings before cumulative effect
of change in accounting principle $ 1.62 $ 1.34 $ 1.32 $ 1.06 $ .90
Cumulative effect of change in
accounting principle - - (.07) - -
Net earnings 1.62 1.34 1.25 1.06 .90
Cash dividends .21 .19 .17 .15 .1375
Stockholders' equity 12.33 10.72 9.53 8.97 8.40
Common share price range:
high-low 38 1/4-27 7/8 34 3/4-21 7/8 36 7/8-26 27 1/2-20 1/2 27 3/8-17 1/8
OTHER STATISTICS
Return on average
stockholders' equity 14.0% 13.0% 13.4% 12.4% 12.3%
Common shares outstanding 63,119,491 62,084,021 61,501,679 61,060,055 60,669,102
Capital expenditures $ 245,246 $ 205,913 $ 185,072 $ 135,165 $ 78,025
Number of retail outlets 604 506 435 386 357
<FN>
</TABLE>
18
<PAGE>
<TABLE>
ITEM 7 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.
<CAPTION>
Percentage of Total Revenues Percentage Change
----------------------------------------- ---------------------------------
Feb. 1, 1997 Feb. 3, 1996 Jan. 28, 1995 Fiscal 1996 vs. Fiscal 1995 vs.
Year ended (Fiscal 1996) (Fiscal 1995) (Fiscal 1994) Fiscal 1995 Fiscal 1994
- ------------------------- ------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Merchandise Sales............ 85.0% 85.0% 86.1% 14.7% 11.8%
Service Revenue(1)........... 15.0 15.0 13.9 14.4 22.5
------------- ------------- ------------- --------------- ---------------
Total Revenues 100.0 100.0 100.0 14.7 13.3
Costs of Merchandise Sales(2) 68.8(3) 69.7(3) 69.9(3) 13.4 11.4
Costs of Service Revenue(2).. 80.6(3) 81.5(3) 83.4(3) 13.2 19.6
------------- ------------- ------------- --------------- ---------------
Total Costs of Revenues...... 70.6 71.4 71.8 13.4 12.7
Gross Profit from Merchandise Sales 31.2(3) 30.3(3) 30.1(3) 17.8 12.8
Gross Profit from Service Revenue. 19.4(3) 18.5(3) 16.6(3) 19.5 36.9
------------- ------------- ------------- --------------- ---------------
Total Gross Profit........... 29.4 28.6 28.2 18.0 14.8
Selling, General and
Administrative Expenses.... 19.2 18.6 17.6 18.3 19.5
------------- ------------- ------------- --------------- ---------------
Operating Profit............. 10.2 10.0 10.6 17.4 7.1
Nonoperating Income.......... .1 .1 .2 16.5 (40.1)
Interest Expense............. 1.6 2.0 1.8 (5.5) 23.7
------------- ------------- ------------- --------------- --------------
Earnings Before Income Taxes and
Cumulative Effect of Change in
Accounting Principle....... 8.7 8.1 9.0 23.0 2.3
Income Taxes................. 36.7(4) 37.0(4) 36.7(4) 21.8 3.2
------------- ------------- ------------- --------------- --------------
Earnings Before Cumulative Effect of
Change in Accounting Principle 5.5 5.1 5.7 23.7 1.9
Cumulative Effect of Change in
Accounting Principle....... - - (.3) - -
------------- ------------- -------------- -------------- -------------
Net Earnings 5.5 5.1 5.4 23.7 7.6
============= ============= ============== ============== =============
<FN>
(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.
</TABLE>
19
<PAGE>
FISCAL 1996 vs. FISCAL 1995
Total revenues for fiscal 1996, which included 52 weeks, increased 15% over
fiscal 1995, which included 53 weeks, due to a higher store count (604 at
February 1, 1997 compared with 506 at February 3, 1996) 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 store service revenue increased 6%.
The increase in gross profit from merchandise sales, as a percentage of
merchandise sales, was due primarily to significantly higher merchandise margins
and a decrease in warehousing costs, offset, in part, by an increase in store
occupancy costs.
The increase in gross profit from service revenue, as a percentage of service
revenue, was due primarily to a decrease in service center employee benefits
expense.
The increase in selling, general and administrative expenses, as a percentage
of total revenues, was due primarily to increases in store expenses and general
office costs.
Interest expense decreased, as a percentage of total revenues, due primarily
to lower interest rates, partially offset by higher debt levels incurred to fund
the Company's store expansion program.
The 24% increase in net earnings in fiscal 1996, as compared with fiscal
1995, was due primarily to increases in total and comparable store revenues, a
substantial increase in gross profit from merchandise sales, as a percentage of
merchandise sales, an increase in gross profit from service revenue, as a
percentage of service revenue and lower interest expense, as a percentage of
total revenues, offset, in part, by higher selling, general and administrative
expenses, as a percentage of total revenues.
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%.
Comparable store merchandise sales decreased 1% while comparable store service
revenue increased 7%.
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.
20
<PAGE>
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 net earnings before the cumulative effect of a change in
accounting principle in fiscal 1995, as compared with fiscal 1994, was due
primarily to 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, 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 during fiscal 1996, fiscal 1995 or fiscal 1994.
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 100 stores in fiscal 1996, 75 stores in fiscal
1995 and 51 stores in fiscal 1994. In fiscal 1996, with increased levels of
capital expenditures, the Company increased its debt by $43,550,000. 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 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 February 1, 1997), the Company increased its debt by $182,859,000.
21
<PAGE>
<TABLE>
The following table indicates the Company's principal cash requirements for
the past three years.
<CAPTION>
(dollar amounts Fiscal Fiscal Fiscal
in thousands) 1996 1995 1994 Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Requirements:
Capital expenditures $245,246 $205,913 $185,072 $636,231
Net inventory
(decrease) increase(1) (12,782) (71,351) 87,248 3,115
- ----------------------------------------------------------------------------
Total $232,464 $134,562 $272,320 $639,346
- ----------------------------------------------------------------------------
Net cash provided by
operating activities
(excluding the change
in net inventory) $169,811 $159,968 $124,368 $454,147
--------------------------------------------------------------------------
1 Net inventory (decrease) increase is the change in inventory less the
change in accounts payable.
</TABLE>
Inventories have increased in the past three years as the Company added a net
of 218 stores while the average number of stock-keeping units per store rose
during the period from approximately 24,000 to approximately 27,000, many of
which are higher cost hard parts.
The Company currently plans to open approximately 120 new stores in fiscal
1997. Management estimates that the cost to open all 120 stores, coupled with
capital expenditures relating to existing stores, warehouses and offices during
fiscal 1997, will be approximately $250,000,000. The 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 totaled $266,000,000 at February 1, 1997, 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 bank 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.
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.
22
<PAGE>
On September 20, 1996, the Company received net proceeds of $146,250,000 from
the sale of zero coupon subordinated Liquid Yield Option Notes due 2011 which
have an aggregate principal amount at maturity of $271,704,000. The notes were
issued at a discount representing a yield to maturity of 4%. Proceeds from the
notes were used to repay the Company's short-term variable-rate bank debt and
portions of the Company's long-term variable-rate bank debt and for general
corporate purposes.
The Company's working capital was $70,691,000 at February 1, 1997,
$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 37%
at February 1, 1997, 36% at February 3, 1996 and 39% at January 28, 1995.
FUTURE ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." This
new standard requires dual presentation of basic and diluted earnings per share
(EPS) on the face of the statement of earnings and requires reconciliation of
the numerators and denominators of the basic and diluted EPS calculations. This
statement will be effective for the fourth quarter of the Company's 1997 fiscal
year. Assuming the Company had adopted the provisions of SFAS No. 128, the pro
forma effect on the Company's EPS calculations for the last three fiscal years
are as follows: 1996 - as reported: $1.62, basic: $1.67; 1995 - as reported:
$1.34, basic: $1.37; and 1994 - as reported: $1.25, basic: $1.28. For the
fiscal year ended January 28, 1995, both as reported and pro forma basic EPS
information include a $.07 per share charge from the cumulative effect of an
accounting change for postemployment benefits. The Company's reported EPS
calculations are the same as pro forma diluted EPS.
23
<PAGE>
ITEM 8 FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
The Pep Boys - Manny, Moe & Jack
We have audited the accompanying consolidated balance sheets of The Pep
Boys - Manny, Moe & Jack and subsidiaries as of February 1, 1997 and
February 3, 1996, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the three years in the period
ended February 1, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14. These financial statements and the
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Pep Boys - Manny, Moe & Jack
and subsidiaries at February 1, 1997 and February 3, 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended February 1, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note A to the consolidated financial statements, in 1994 the
Company changed its method of accounting for postemployment benefits to conform
with Statement of Financial Accounting Standards No. 112.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 18, 1997
24
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands, except per share amounts)
<CAPTION>
February 1, February 3,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash ........................................... $ 2,589 $ 11,487
Accounts receivable, less allowance for
uncollectible accounts of $252 and $251....... 7,653 4,165
Merchandise inventories......................... 520,082 417,852
Prepaid expenses................................ 33,042 15,628
Deferred income taxes........................... 16,982 16,338
Other........................................... 24,570 1,003
---------- ----------
Total Current Assets........................ 604,918 466,473
Property and Equipment - at cost:
Land............................................ 278,345 243,738
Building and improvements....................... 794,244 695,029
Furniture, fixtures and equipment............... 448,425 356,605
Construction in progress........................ 22,528 12,431
---------- ----------
1,543,542 1,307,803
Less accumulated depreciation and amortization.. 353,808 293,751
---------- ----------
Total Property and Equipment................ 1,189,734 1,014,052
Other............................................. 23,713 19,483
---------- ----------
$1,818,365 $1,500,008
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................. $ 337,536 $ 222,524
Accrued expenses................................. 133,557 95,875
Short-term borrowings............................ 63,000 -
Current maturities of long-term debt............. 134 108,206
---------- ----------
Total Current Liabilities.................... 534,227 426,605
---------- ----------
Long-Term Debt, less current maturities............ 217,178 280,793
Deferred Income Taxes.............................. 50,382 40,900
Convertible Subordinated Notes..................... 86,250 86,250
Zero Coupon Convertible Subordinated Notes......... 152,237 -
Commitments and Contingencies
Stockholders' Equity:
Common Stock, par value $1 per share:
Authorized 500,000,000 shares;
Issued and outstanding 63,119,491
and 62,084,021............................. 63,119 62,084
Additional paid-in capital....................... 162,660 139,202
Retained earnings................................ 612,581 524,443
---------- ----------
838,360 725,729
Less cost of shares in benefits trust -
2,232,500 shares, at cost.................... 60,269 60,269
---------- ----------
Total Stockholders' Equity................... 778,091 665,460
---------- ----------
Total Stockholders' Equity.............. $1,818,365 $1,500,008
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
25
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollar amounts in thousands, except per share amounts)
<CAPTION>
February 1, February 3, January 28,
Year ended 1997 1996 1995
- ----------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Merchandise Sales.................. $1,554,757 $1,355,008 $1,211,536
Service Revenue.................... 273,782 239,332 195,449
---------- ---------- ----------
Total Revenues..................... 1,828,539 1,594,340 1,406,985
---------- ---------- ----------
Costs of Merchandise Sales......... 1,070,263 943,875 847,158
Costs of Service Revenue........... 220,757 194,942 163,032
---------- ---------- ----------
Total Costs of Revenues............ 1,291,020 1,138,817 1,010,190
---------- ---------- ----------
Gross Profit from Merchandise Sales 484,494 411,133 364,378
Gross Profit from Service Revenue.. 53,025 44,390 32,417
---------- ---------- ----------
Total Gross Profit................. 537,519 455,523 396,795
Selling, General and Administrative
Expenses......................... 350,419 296,089 247,872
---------- ---------- ----------
Operating Profit................... 187,100 159,434 148,923
Nonoperating Income................ 2,435 2,090 3,490
Interest Expense................... 30,306 32,072 25,931
---------- ---------- ----------
Earnings Before Income Taxes and
Cumulative Effect of Change in
Accounting Principle............. 159,229 129,452 126,482
Income Taxes....................... 58,405 47,958 46,474
---------- ---------- ----------
Earnings Before Cumulative Effect
of Change in Accounting Principle 100,824 81,494 80,008
Cumulative Effect of Change in
Accounting Principle............. - - (4,300)
---------- ---------- ---------
Net Earnings $ 100,824 $ 81,494 $ 75,708
========== ========== =========
Earnings per Share Before
Cumulative Effect of Change in
Accounting Principle............. $ 1.62 $ 1.34 $ 1.32
Cumulative Effect of Change in
Accounting Principle............. - - (.07)
---------- ---------- ---------
Net Earnings per Share $ 1.62 $ 1.34 $ 1.25
========== ========== =========
<FN>
See notes to consolidated financial statements.
</TABLE>
26
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollar amounts in thousands, except per share amounts)
<CAPTION>
Common Stock Additional Total
------------------- Paid-in Retained Treasury Benefits Stockholders'
Shares Amount Capital Earnings Stock Trust Equity
---------- ------- -------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 29, 1994 61,060,055 $61,060 $122,977 $388,653 $(24,931) $ - $547,759
Net earnings.................... 75,708 75,708
Cash dividends ($.17 per share). (10,073) (10,073)
Exercise of stock options
and related tax benefits...... 427,543 428 7,568 7,996
Dividend reinvestment plan...... 14,081 14 421 435
Acquisitions and transfers
of 75,000 shares to
employees' savings plan....... (122) 807 685
Acquisitions and transfers
of 2,232,500 shares
of treasury stock to
benefits trust................ (112) 24,124 (60,269) (36,257)
---------- ------- --------- -------- ------- --------- ----------
Balance, January 28, 1995...... 61,501,679 61,502 130,732 454,288 - (60,269) 586,253
Net earnings................... 81,494 81,494
Cash dividends ($.19 per share) (11,339) (11,339)
Exercise of stock options
and related tax benefits..... 555,471 555 7,829 8,384
Dividend reinvestment plan..... 26,871 27 662 689
Acquisitions and transfers
of 140,000 shares to
employees' savings plan...... (21) (21)
---------- ------- ---------- --------- --------- --------- ---------
Balance, February 3, 1996...... 62,084,021 62,084 139,202 524,443 - (60,269) 665,460
Net earnings................... 100,824 100,824
Cash dividends ($.21 per share) (12,686) (12,686)
Exercise of stock options
and related tax benefits..... 1,002,333 1,002 22,977 23,979
Dividend reinvestment plan..... 33,137 33 1,025 1,058
Acquisitions and transfers
of 150,500 shares to
employees' savings plan...... (544) (544)
---------- ------- --------- --------- --------- --------- ---------
Balance, February 1, 1997 63,119,491 $63,119 $162,660 $612,581 $ - $(60,269) $778,091
========== ======= ========= ========= ========= ========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
27
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
<CAPTION>
February 1, February 3, January 28,
Year ended 1997 1996 1995
- ------------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings.......................................... $ 100,824 $ 81,494 $ 75,708
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Depreciation and amortization......................... 65,757 53,456 44,402
Accretion of discount on zero coupon convertible
subordinated notes................................... 2,238 - -
Cumulative effect of accounting change................ - - 4,300
Increase in deferred income taxes..................... 8,838 2,034 5,611
Loss (gain) from sales of assets...................... (34) 201 (1,406)
Changes in operating assets and liabilities:
Increase in accounts receivable, prepaid expenses
and other........................................... (44,950) (2,445) (7,854)
Increase in merchandise inventories................... (102,230) (51,009) (60,971)
Increase (decrease) in accounts payable............... 115,012 122,360 (26,277)
Increase in accrued expenses.......................... 37,138 25,228 3,607
---------- ---------- ----------
Total Adjustments.................................. 81,769 149,825 (38,588)
---------- ---------- ----------
Net Cash Provided by Operating Activities.......... 182,593 231,319 37,120
---------- ---------- ----------
Cash Flows from Investing Activities:
Capital expenditures.................................. (245,246) (205,913) (183,872)
Proceeds from sales of assets......................... 3,841 114 3,437
Other, net............................................ - - 116
---------- ---------- ----------
Net Cash Used in Investing Activities.............. (241,405) (205,799) (180,319)
---------- ---------- ----------
Cash Flows from Financing Activities:
Net (payments) borrowings under line of credit
agreements.......................................... (1,500) (102,700) 117,700
Reduction of long-term debt........................... (107,187) (19,807) (22,291)
Dividends paid........................................ (12,686) (11,339) (10,073)
Net proceeds from issuance of notes................... 146,250 98,992 85,387
Acquisitions of treasury stock........................ - - (36,257)
Proceeds from exercise of stock options............... 23,979 8,384 7,996
Proceeds from dividend reinvestment plan.............. 1,058 689 435
---------- ---------- ----------
Net Cash Provided by (Used in) Financing Activities 49,914 (25,781) 142,897
---------- ---------- ----------
Net Decrease in Cash.................................... (8,898) (261) (302)
Cash at Beginning of Year............................... 11,487 11,748 12,050
---------- ---------- ----------
Cash at End of Year..................................... $ 2,589 $ 11,487 $ 11,748
========== ========== ==========
................................................................................................
Supplemental Disclosure of Cash Flow Information:
Income taxes paid..................................... $ 56,336 $ 40,251 $ 46,384
Interest paid, net of amounts capitalized............. 34,081 30,155 23,959
................................................................................................
Supplemental Disclosure of Noncash Financing Activities:
Mortgage note assumed in property acquisition.......... $ - $ - $ 1,200
................................................................................................
<FN>
See notes to consolidated financial statements.
</TABLE>
28
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended February 1, 1997, February 3, 1996 and January 28, 1995
(dollar amounts in thousands, except per share amounts)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS The Pep Boys - Manny, Moe & Jack and Subsidiaries (the "Company") is
engaged principally in the retail sale of automotive parts and accessories,
automotive maintenance and service and the installation of parts through a chain
of 604 stores at February 1, 1997. The Company currently operates stores in 33
states, Washington, D.C. and Puerto Rico.
FISCAL YEAR END The Company's fiscal year ends on the Saturday nearest to
January 31. Fiscal years 1996, 1995 and 1994 were comprised of 52 weeks, 53
weeks and 52 weeks, respectively.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated.
USE OF ESTIMATES The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
MERCHANDISE INVENTORIES Merchandise inventories are valued at the lower of cost
(last-in, first-out method) or market. If the first-in, first-out method of
valuing inventories had been used, inventories would have been approximately
$3,300 and $10,491 higher at February 1, 1997 and February 3, 1996,
respectively.
PROPERTY AND EQUIPMENT Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line method over
the following estimated useful lives: building and improvements, 5 1/2 to 40
years; furniture, fixtures and equipment, 3 to 10 years.
CAPITALIZED INTEREST Interest on borrowed funds is capitalized in connection
with the construction of certain long-term assets. Capitalized interest
amounted to
$1,575, $1,407 and $1,850 in fiscal years 1996, 1995 and 1994, respectively.
SERVICE REVENUE Service revenue consists of the labor charge for installing
merchandise or maintaining or repairing vehicles, excluding the sale of any
installed parts or materials.
COSTS OF REVENUES 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.
PENSION EXPENSE Annual pension expense is actuarially computed using the
"projected unit credit method" which attributes an equal portion of total
projected benefits to each year of employee service.
INCOME TAXES The Company uses the liability method of accounting for income
taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under
the liability method, deferred income taxes are determined based upon enacted
tax laws and rates applied to the differences between the financial statement
and tax bases of assets and liabilities.
ADVERTISING The Company expenses the production costs of advertising the first
time the advertising takes place. No advertising costs were reported as an
asset as of February 1, 1997. Net advertising expense for fiscal years 1996,
1995 and 1994 was $324, $973 and $2,999, respectively.
POSTEMPLOYMENT BENEFITS Effective January 30, 1994, the Company adopted SFAS
No. 112, "Employers' Accounting for Postemployment Benefits." This statement
establishes accrual accounting standards for employer-provided benefits which
cover former or inactive employees after employment, but before retirement. As a
result of adopting this standard, the Company recognized a charge to earnings in
fiscal 1994 of $4,300, net of income tax benefit of $2,552.
29
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS Effective February 4, 1996, the Company adopted
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This standard prescribes the method for
asset impairment evaluation for long-lived assets and certain identifiable
intangibles that are either held and used or to be disposed of. The
implementation of this standard did not have an effect on the Company's
financial position or results of operations.
ACCOUNTING FOR STOCK-BASED COMPENSATION The Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," on February 4, 1996. As permitted by
SFAS No. 123, the Company is accounting for employee stock-based compensation
plans in accordance with Accounting Principles Board (APB) opinion No. 25,
"Accounting for Stock Issued to Employees," and has provided disclosures
required by SFAS No. 123.
EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings per Share." This new standard requires dual
presentation of basic and diluted earnings per share (EPS) on the face of the
statement of earnings and requires reconciliation of the numerators and
denominators of the basic and diluted EPS calculations. This statement will be
effective for the fourth quarter of the Company's 1997 fiscal year. Assuming
the Company had adopted the provisions of SFAS No. 128, the pro forma effect on
the Company's EPS calculations for the last three fiscal years are as follows:
1996 - as reported: $1.62, basic: $1.67; 1995 - as reported: $1.34, basic:
$1.37; 1994 - as reported: $1.25, basic: $1.28. For the fiscal year ended
January 28, 1995, both as reported and pro forma basic EPS information include a
$.07 per share charge from the cumulative effect of an accounting change for
postemployment benefits. The Company's reported EPS calculations are the same
as pro forma diluted EPS.
RECLASSIFICATIONS Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the current year's presentation.
30
<PAGE>
NOTE B - DEBT
SHORT-TERM BORROWINGS The Company had short-term borrowings of $63,000 at
February 1, 1997. The Company had short-term lines of credit with several banks
totaling $159,000 at February 1, 1997. The interest rates on these lines were
negotiated based upon market conditions. The weighted average interest rate on
borrowings from these lines was 5.8% at February 1, 1997. The average and
maximum month end balances on these borrowings were $98,696 and $154,200 during
fiscal 1996. There were no borrowings classified as short-term at
February 3, 1996.
LONG-TERM DEBT
...............................................................................
Feb. 1, Feb. 3,
1997 1996
-------- --------
8 7/8% notes due April 15, 1996 (a)................. $ - $107,040
7% notes due June 1, 2005 .......................... 100,000 100,000
Indebtedness to banks under revolving
credit agreement dated
April 21, 1995 (b)............................... 40,000 80,000
6 5/8% notes due May 15, 2003 ...................... 75,000 75,000
Other revolving lines of credit (c)................. - 24,500
Mortgage notes payable at annual
interest rates ranging from 5.8%
to 8.0% (d)...................................... 2,312 2,459
-------- --------
217,312 388,999
Less current maturities.......................... 134 108,206
-------- --------
Total long-term debt................................ $217,178 $280,793
======== ========
.............................................................................
(a) The 8 7/8% notes were extinguished on April 15, 1996.
(b) The Company has a revolving credit agreement with ten major banks
providing for borrowings of up to $200,000. Funds may be drawn and
repaid anytime prior to March 30, 2001. Sixty days prior to each
anniversary date, the Company may request, and upon agreement of each
bank, extend the maturity of this facility an additional year. If one
of that banks fails to agree to this extension, the Company has the right
to replace the bank. 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. The weighted average interest rate was
5.7% at February 1, 1997 and 5.8% at February 3, 1996.
(c) The Company had short-term lines of credit with several banks totaling
$144,000 at February 3, 1996. Borrowings under these lines of credit at
February 3, 1996 totaling $24,500 were classified as long-term debt. The
weighted average interest rate on borrowings from these lines was 5.5% at
February 3, 1996. The interest rates on these lines were negotiated
based upon market conditions. The average and maximum month end balances
on these borrowings were $44,400 and $102,300 during fiscal 1995. The
Company has a revolving credit agreement with a bank which permits the
Company to borrow an aggregate of $10,000. Upon the bank's demand, this
line is due and payable in 13 months. There were no borrowings
outstanding under this agreement at February 1, 1997 and
February 3, 1996. The interest rate on this line, at the Company's
election, is based on the prime rate, a "CD-based" rate, a "LIBOR-based"
rate or a negotiated rate based upon market conditions.
(d) The weighted average interest rate on the mortgage notes payable was 6.9%
at February 1, 1997 and February 3, 1996. These notes, which mature at
various times through August 2016, are collateralized by land and
building with an aggregate carrying value of approximately $7,862 at
February 1, 1997.
31
<PAGE>
CONVERTIBLE SUBORDINATED NOTES On August 24, 1994 the Company sold $86,250 of 4%
convertible subordinated notes. These notes are convertible by the holders into
the common stock of the Company at any time on or before September 1, 1999 (the
maturity date) at a conversion price of $41 per share subject to adjustment in
certain events. The notes are redeemable, in whole or in part, at the option of
the Company at any time on or after September 15, 1997, at a redemption price of
101% of the principal amount and at par on or after September 1, 1998. The
notes are subordinated to all existing and future senior indebtedness of the
Company.
ZERO COUPON CONVERTIBLE SUBORDINATED NOTES On September 20, 1996, the Company
issued $271,704 principal amount (at maturity) of Liquid Yield Option Notes
(LYONs) with a price to the public of $150,000. The net proceeds to the Company
were $146,250. The issue price of each such LYON was $552.07 and there will be
no periodic payments of interest. The LYONs will mature on September 20, 2011,
at $1,000 per LYON, representing a yield to maturity of 4.0% per annum (computed
on a semiannual bond equivalent basis).
Each LYON is convertible at the option of the holder at any time on or prior
to maturity, unless previously redeemed or otherwise purchased, into common
stock of the Company at a conversion rate of 12.929 shares per LYON. The LYONs
are redeemable at the option of the holder on September 20, 2001 and
September 20, 2006 at the issue price plus accrued original issue discount.
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. No LYONs
were converted in 1996. In addition, on or prior to September 20, 2001, the
Company will purchase for cash any LYON, at the option of the holder, in the
event of change in control of the Company. The LYONs are subordinated to all
existing and future senior indebtedness of the Company.
Several of the Company's debt agreements require the maintenance of certain
financial ratios and covenants. Approximately $84,774 of the Company's net
worth was not restricted by these covenants at fiscal year end. The Company is
in compliance with all debt covenants at February 1, 1997.
The annual maturities of all long-term debt for the next five years are $134
in 1997, $157 in 1998, $86,420 in 1999, $183 in 2000 and $40,197 in 2001. Any
compensating balance requirements related to all revolving credit agreements and
debt were satisfied by balances available from normal business operations.
The Company was contingently liable for outstanding letters of credit in the
amount of approximately $29,097 at February 1, 1997.
NOTE C - LEASE COMMITMENTS
The Company leases certain property and equipment under operating leases
which contain renewal and escalation clauses. Aggregate minimum rental
commitments for leases having noncancelable lease terms of more than one year
are approximately: 1997 - $30,910; 1998 - $29,876; 1999 - $28,834; 2000 -
$28,474; 2001 - $28,817; thereafter - $320,560. Rental expenses incurred for
operating leases in 1996, 1995 and 1994 were $33,616, $22,302 and $18,474,
respectively.
NOTE D - STOCKHOLDERS' EQUITY
RIGHTS AGREEMENT On December 31, 1987, the Company distributed as a dividend one
common share purchase right on each of its common shares. The rights will not
be exercisable or transferable apart from the Company's common stock until a
person or group, as defined in the rights agreement (dated December 17, 1987 and
as amended on June 6, 1989), without the proper consent of the Company's Board
of Directors, acquires 20% or more, or makes an offer to acquire 30% or more of
the Company's outstanding stock, exclusive of stock holdings as of
December 17, 1987. When exercisable, the rights entitle the holder to purchase
one share of the Company's common stock for $55. Under certain circumstances,
including the acquisition of 20% of the Company's stock by a person or group,
the rights entitle the holder to purchase common stock of the Company or common
stock of an acquiring company having a market value of twice the exercise price
of the right. The rights do not have voting power and are subject to redemption
by the Company's Board of Directors for $.02 per right anytime before a 20%
position has been acquired and for 15 days thereafter, at which time the rights
become nonredeemable. The rights expire on December 31, 1997.
BENEFITS TRUST On April 29, 1994, the Company established a flexible employee
benefits trust with the intention of purchasing up to $75,000 worth of the
Company's common shares. The repurchased shares will be held in the trust and
will be used to fund the Company's existing benefit plan obligations including
healthcare programs, savings and retirement plans and other benefit obligations.
The trust will allocate or sell the repurchased shares over the next 15 years to
fund these benefit programs. As shares are released from the trust, the Company
will charge or credit additional paid-in capital for the difference between the
fair value of shares released and the original cost of the shares to the trust.
For financial reporting purposes, the trust is consolidated with the accounts of
the Company. All dividend and interest transactions between the trust and the
Company are eliminated.
32
<PAGE>
As of February 1, 1997, the Company has repurchased 2,232,500 shares of its
common stock at a cost of $60,269 which is shown as "Cost of shares in benefits
trust" on the Company's consolidated balance sheets.
NOTE E - PENSION AND SAVINGS PLANS
The Company has a pension plan covering substantially all of its full-time
employees hired on or before February 1, 1992. Normal retirement age is 65.
Pension benefits are based on salary and years of service. The Company's policy
is to fund amounts as are necessary on an actuarial basis to provide assets
sufficient to meet the benefits to be paid to plan members in accordance with
the requirements of ERISA.
The actuarial computations using the "projected unit credit method" assumed a
discount rate on benefit obligations of 7.5% in 1996 and 8.5% in 1995 and 7.8%
in 1994, and an expected long-term rate of return on plan assets of 8.5%. The
assumption for annual salary increases over the average remaining service lives
of employees under the plan was 4% in 1996, 1995 and 1994. Variances between
actual experience and assumptions for costs and returns on assets are amortized
over the remaining service lives of employees under the plan.
As of December 31,1996, the Company froze the accrued benefits under the plan
and active participants became fully vested. The plans' trustee will continue
to maintain and invest plan assets and will administer benefit payments. In
accordance with SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," a
curtailment gain of $1,554 was recognized in 1996.
33
<PAGE>
Pension expense includes the following:
Feb. 1, Feb. 3, Jan. 28,
Year Ended 1997 1996 1995
-------- -------- --------
Normal service costs................ $1,213 $ 968 $ 1,516
Interest cost on projected
benefit obligation................ 1,561 1,382 1,413
Actual return on plan assets........ (752) (720) (1,706)
Net amortization of transition
asset and unrecognized net gain... (214) (759) (214)
Prior service cost.................. 19 19 19
Asset (gain) loss deferred.......... (974) (1,013) 56
-------- -------- --------
Total pension expense (income)...... $ 853 $ (123) $ 1,084
======== ======== ========
Pension plan assets are stated at fair market value and are composed
primarily of money market funds, fixed income investments with maturities of
less than five years and the Company's common stock.
The following table sets forth the reconciliation of the plan's funded status
as of December 31 of each year. The actuarial present value of benefit
obligation assumed a discount rate of 7.5% at December 31, 1996 and at
December 31, 1995.
Dec. 31, Dec. 31,
1996 1995
---------- ----------
Actuarial present value of benefit
obligation:
Vested benefit obligation....................... $(22,076) $(18,532)
---------- ----------
Accumulated benefit obligation.................. $(22,076) $(19,389)
---------- ----------
Projected benefit obligation for
service rendered to date..................... $(22,076) $(21,931)
Plan assets at fair value....................... 20,815 20,501
---------- ----------
Assets less than projected benefit obligation... (1,261) (1,430)
Unrecognized net asset (at date of transition).. (1,071) (1,285)
Unrecognized net gain from past
experience different from previous
assumption................................... - (384)
Unrecognized prior service cost................. - 66
---------- ----------
Accrued pension expense
as of February 1, 1997 and
February 3, 1996, respectively............... $ (2,332) $ (3,033)
========== ==========
The Company has a 401(k) savings plan which covers all full-time employees
who are at least 21 years of age with one or more years of service. The Company
contributes the lesser of 50% of the first 6% of a participant's contributions
or 3% of the participant's compensation. The Company's savings plan
contribution expense was $3,685 in 1996, $3,150 in 1995 and $2,563 in 1994.
34
<PAGE>
NOTE F - INCOME TAXES
The provision for income taxes includes the following:
Feb. 1, Feb. 3, Jan. 28,
Year ended 1997 1996 1995
- -------------------------------- --------- --------- ---------
Current:
Federal...................... $45,831 $42,276 $39,210
State........................ 3,761 3,648 4,205
Deferred:
Federal...................... 8,225 1,905 2,865
State........................ 588 129 194
--------- --------- ---------
$58,405 $47,958 $46,474
========= ========= =========
A reconciliation of the statutory federal income tax rate to the effective
rate of the provision for income taxes follows:
Feb. 1, Feb. 3, Jan. 28,
Year ended 1997 1996 1995
- -------------------------------- --------- --------- ---------
Statutory tax rate.............. 35.0% 35.0% 35.0%
State income taxes,
net of federal
tax benefits................. 1.8 1.9 2.3
Other, net...................... (.1) .1 (.6)
--------- --------- ---------
36.7% 37.0% 36.7%
========= ========= =========
Deferred income taxes relate to the following temporary differences:
Feb. 1, Feb. 3, Jan. 28,
Year ended 1997 1996 1995
- -------------------------------- --------- --------- ---------
Depreciation.................... $ 9,330 $ 6,420 $ 4,594
Inventories..................... (1,593) (2,551) 257
Vacation accrual................ (593) (522) (259)
Pension accrual................. 263 47 (406)
Casualty gain................... - - 1,289
Insurance....................... 1,096 (1,143) (2,459)
All other....................... 310 (217) 43
--------- --------- ---------
$ 8,813 $ 2,034 $ 3,059
========= ========= =========
35
<PAGE>
The following are components of the net deferred tax accounts as of
February 1, 1997:
Federal State Total
------- ------ ------
Deferred tax assets:
Current...................... $26,426 $1,883 $28,309
Long-term.................... 18,720 1,337 20,057
Deferred tax liabilities:
Current...................... 10,572 755 11,327
Long-term.................... 65,748 4,691 70,439
The following are components of the net deferred tax accounts as of
February 3, 1996:
Federal State Total
------- ------ -------
Deferred tax assets:
Current....................... $22,191 $1,504 $23,695
Long-term..................... 15,171 1,028 16,199
Deferred tax liabilities:
Current....................... 6,890 467 7,357
Long-term..................... 53,475 3,624 57,099
Items that gave rise to significant portions of the deferred tax accounts are
as follows:
Feb. 1, Feb. 3,
Year ended 1997 1996
- -------------------------- --------- --------
Deferred tax assets:
Inventories................. $10,075 $ 8,911
Vacation accrual............ 3,600 2,999
Other....................... 3,250 4,428
--------- --------
$16,925 $16,338
========= ========
Deferred tax liabilities:
Depreciation................ $48,507 $38,998
Other....................... 1,794 1,902
--------- --------
$50,301 $40,900
========= ========
NOTE G - NET EARNINGS PER SHARE
Net earnings per share is computed by dividing net earnings (adjusted by
adding after-tax interest on convertible securities) by the weighted average
number of common shares outstanding after giving effect to dilutive stock
options and shares assumed to be issued upon conversion of the Company's
convertible securities, and after reduction for shares held in benefits trust.
Primary and fully diluted earnings per share are essentially the same. The
adjustments to net earnings were: $3,577 in 1996, $2,200 in 1995, and $897 in
1994. The weighted average number of shares and share equivalents used were:
64,605,000 in 1996, 62,588,000 in 1995 and 61,438,000 in 1994.
36
<PAGE>
NOTE H - STOCK OPTIONS PLANS
Options to purchase the Company's common stock have been granted to key
employees and certain members of the Board of Directors. The option prices are
at least 100% of the fair market value of the common stock on the grant date.
Under the terms of the Company's Incentive Stock Option Plan adopted in 1982,
options to purchase up to 3,600,000 shares of the Company's common stock were
authorized. Options granted prior to 1988 are exercisable from the date of
grant. Options granted in 1988 and thereafter are exercisable on the second
anniversary of the grant date. All options under this plan cannot be exercised
more than ten years from the grant date. As of May 21, 1990, no additional
options will be granted under this plan.
Under the terms of the Company's Nonqualified Stock Option Plans, adopted in
1984 and 1985, options to purchase up to 3,300,000 shares of the Company's
common stock were authorized. The options became exercisable over a five-year
period with one-fifth exercisable on the grant date and one-fifth on each
anniversary date for the four years following the grant date. Options granted
cannot be exercised more than ten and one-half years after the grant date. As
of May 21, 1990, no additional options will be granted under these plans.
On May 21, 1990, the stockholders approved the 1990 Stock Incentive Plan
which authorized the issuance of restricted stock and/or options to purchase up
to 1,000,000 shares of the Company's common stock. An additional 1,500,000
shares were authorized by stockholders on each of May 31, 1995 and June 1, 1993.
Under this plan, both incentive and nonqualified stock options may be granted to
eligible participants. Incentive stock options are exercisable on the second or
third anniversary of the grant date and nonqualified options become exercisable
over a five-year period with one-fifth exercisable on the grant date and one-
fifth on each anniversary date for the four years following the grant date.
Options cannot be exercised more than ten years after the grant date. As of
February 1, 1997, 732,257 shares remain available for grant.
Stock option transactions for the Company's stock option plans are summarized
as follows:
.............................................................................
Fiscal 1996 Fiscal 1995 Fiscal 1994
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------ ------------------ ------------------
Outstanding-
beginning of
year........ 4,031,329 $20.91 3,662,779 $16.24 3,713,705 $14.46
Granted........ 613,702 33.64 1,042,970 30.90 469,351 28.86
Exercised...... (988,605) 18.43 (582,470) 8.16 (425,802) 12.74
Canceled....... (156,390) 31.10 (91,950) 28.76 (94,475) 24.90
Outstanding-
end of year. 3,500,036 23.34 4,031,329 20.91 3,662,779 16.24
Options
exercisable
at year end. 2,227,917 18.53 2,724,607 16.77 2,844,931 13.64
Weighted
average
estimated
fair value
of options
granted..... 11.28 11.04
.............................................................................
37
<PAGE>
The following table summarizes information about stock options outstanding
at February 1, 1997:
.............................................................................
Options Outstanding Options Exercisable
---------------------------------- ---------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 2/1/97 Life Price at 2/1/97 Price
- --------------- ----------- ----------- -------- ----------- --------
$10.94 to $16.19 1,274,365 3 years $13.00 1,274,365 $13.00
$16.56 to $24.81 448,988 7 years 22.09 413,188 12.48
$25.94 to $37.38 1,776,683 9 years 31.22 540,364 13.94
- -------------------------------------------------------------------------------
$10.94 to $37.38 3,500,036 2,227,917
- -------------------------------------------------------------------------------
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for its stock option plans.
Accordingly, no compensation expense has been recognized for its stock option
plans. Had compensation cost for the Company's stock option plans for options
granted in fiscal 1995 and thereafter been determined based on the fair value at
the grant dates and recognized as compensation expense on a straight-line basis
over the vesting period of the grant consistent with the method of SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net earnings and net
earnings per share would have been reduced to the pro forma amounts indicated
below:
Fiscal 1996 Fiscal 1995
----------- -----------
Net earnings:
As reported $100,824 $ 81,494
Pro forma $ 98,185 $ 79,938
Net earnings per share:
As reported $ 1.62 $ 1.34
Pro forma $ 1.58 $ 1.32
- ------------------------------------------------------------------------------
The pro forma effect on net earnings for fiscal 1996 and fiscal 1995 are
not representative of the pro forma effect on net earnings in future
years because it does not take into consideration pro forma compensation
expense related to grants made prior to 1995.
The fair value of each option granted during fiscal 1996 and fiscal 1995 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions: (i) 0.7% dividend yield for all
years, (ii) expected volatility of 32% for all years, (iii) risk-free interest
rate ranges of 5.5% to 6.7% and 5.5% to 7.5%, respectively, and (iv) expected
lives ranges of 3 1/2 years to 6 years and 3 1/2 years to 5 years, respectively.
- --------------------------------------------------------------------------------
NOTE I - CONTINGENCIES
The Company is a defendant in a purported class action entitled "Brian Lee,
Anthony Baxton, and Harry Schlein v. The Pep Boys - Manny, Moe & Jack," United
States District Court for the Southern District of Alabama, Southern Division.
The action was originally filed on or about May 21, 1996 in the Circuit Court of
Mobile County, Alabama. The Company has since removed the case to Federal
Court, and the plaintiffs have filed a motion to remand the case back to Alabama
State Court. The Company has also moved to dismiss the case for failure to
state a claim. The plaintiffs' motion to remand and the Company's motion to
dismiss are pending before the Federal District Court. In their complaint, the
plaintiffs allege that the Company sold old or used automotive batteries to
consumers as if those batteries were new. The complaint purports to state
causes of action for fraud and deceit, negligent misrepresentation, breach of
contract and violation of state consumer protection statutes. The plaintiffs
are seeking compensatory and punitive damages, as well as injunctive and
equitable relief. The Company believes the claims are without merit and intends
to vigorously defend this action.
38
<PAGE>
The Company is also party to various other lawsuits and claims arising in the
normal course of business. In the opinion of management, these lawsuits and
claims, including the case above, are not singularly or in the aggregate,
material to the Company's financial position or results of operations.
NOTE J - FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments are as
follows:
February 1, 1997 February 3, 1996
-------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Assets:
Cash..................... $ 2,589 $ 2,589 $ 11,487 $11,487
Accounts receivable...... 7,653 7,653 4,165 4,165
Liabilities:
Accounts payable......... 337,536 337,536 222,524 222,524
Short-term borrowings.... 63,000 63,000 - -
Long-term debt including
current maturities...... 217,312 215,029 388,999 395,222
Convertible subordinated
notes................... 86,250 88,838 86,250 83,555
Zero coupon convertible
subordinated notes...... 152,237 146,041 - -
...............................................................................
CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND SHORT-TERM BORROWINGS
The carrying amounts approximate fair value because of the short maturity of
these items.
LONG-TERM DEBT INCLUDING CURRENT MATURITIES, CONVERTIBLE SUBORDINATED NOTES AND
ZERO COUPON CONVERTIBLE SUBORDINATED NOTES
Interest rates that are currently available to the Company for issuance of
debt with similar terms and remaining maturities are used to estimate fair value
for debt issues that are not quoted on an exchange.
The fair value estimates presented herein are based on pertinent information
available to management as of February 1, 1997 and February 3, 1996. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from amounts presented herein.
39
<PAGE>
<TABLE>
Quarterly Financial Data (Unaudited)
(dollar amounts in thousands, except per share amounts)
<CAPTION>
Net Cash Market Price
Year Ended Total Gross Operating Net Earnings Dividends Per Share
Feb. 1, 1997 Revenues Profit Profit Earnings Per Share Per Share High Low
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $428,614 $121,301 $39,594 $20,116 $.33 $.0525 34 7/8 27 7/8
2nd Quarter 476,673 141,421 55,333 30,235 .49 .0525 35 1/2 28
3rd Quarter 478,819 138,287 50,109 27,777 .44 .0525 38 1/4 29 1/8
4th Quarter 444,433 136,510 42,064 22,696 .36 .0525 38 27 7/8
- -----------------------------------------------------------------------------------------------------------
Year Ended
Feb. 3, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $361,209 $100,387 $33,332 $16,204 $.27 $.0475 34 3/4 24 3/8
2nd Quarter 410,838 119,743 47,240 25,234 .41 .0475 32 1/4 25 1/8
3rd Quarter 411,787 115,974 41,462 21,436 .35 .0475 29 1/8 22 1/2
4th Quarter 410,506 119,419 37,400 18,620 .31 .0475 29 1/2 21 7/8
- -----------------------------------------------------------------------------------------------------------
Under the Company's present accounting system, actual gross profit from
merchandise sales can be determined only at the time of physical inventory,
which is taken at the end of the fiscal year. Gross profit from merchandise
sales for the first, second and third quarters is estimated by the Company based
upon recent historical gross profit experience and other appropriate factors.
Any variation between estimated and actual gross profit from merchandise sales
for the first three quarters is reflected in the fourth quarter's results.
40
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The material contained in the registrant's definitive proxy statement, which
will be filed pursuant to Regulation 14A not later than 120 days after the
end of the Company's fiscal year (the "Proxy Statement"), under the caption
"Election of Directors" is hereby incorporated herein by reference. The
information regarding executive officers called for by Item 401 of Regulation
S-K is included in Part I, in accordance with General Instruction G(3) to Form
10-K.
ITEM 11 EXECUTIVE COMPENSATION
The material in the Proxy Statement under the caption "Executive Compensation"
other than the material under the caption "Executive Compensation - Report of
Compensation Committee of the Board of Directors on Executive Compensation" and
"Executive Compensation - Performance Graph" is hereby incorporated herein by
reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The material in the Proxy Statement under the caption "Share Ownership of
Certain Beneficial Owners and Management" is hereby incorporated herein by
reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The material in the Proxy Statement under the caption "Executive Compensation -
Certain Relationships and Related Transactions" is hereby incorporated herein by
reference.
41
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a). Page
----
1. The following consolidated financial statements
of The Pep Boys - Manny, Moe & Jack are included
in Item 8. -
Consolidated Balance Sheets - February 1, 1997
and February 3, 1996 25
Consolidated Statements of Earnings - Years
ended February 1, 1997, February 3, 1996 and
January 28, 1995 26
Consolidated Statements of Stockholders' Equity -
Years ended February 1, 1997, February 3, 1996 and
January 28, 1995 27
Consolidated Statements of Cash Flows - Years
ended February 1, 1997, February 3, 1996,
and January 29, 1994 28
Notes to Consolidated Financial Statements 29
Independent Auditors' Report 24
2. The following consolidated financial statement
schedule of The Pep Boys - Manny, Moe & Jack
is included.
Schedule II Valuation and Qualifying
Accounts and Reserves 49
All other schedules have been omitted because they are not applicable or not
required or the required information is included in the consolidated financial
statements or notes thereto.
3. Exhibits
(3.1) Articles of Incorporation, Incorporated by reference from
as amended the Company's Form 10-K for
the fiscal year ended
January 30, 1988.
(3.2) By-Laws, as amended Incorporated by reference from
the Registration Statement on
Form S-3 (File No. 33-39225).
(4.1) Indenture dated as of March 22, Incorporated by reference from
1991 between the Company and the Registration Statement on
Bank America Trust Company of Form S-3 (File No. 33-39225).
New York as Trustee, including
Form of Debt Security
42
<PAGE>
(4.2) Indenture, dated as of August Incorporated by reference from
31, 1994, between the Company the Registration Statement on
and First Fidelity Bank, Form S-3 (File No. 33-55115).
National Association as Trustee,
including Form of Debenture
(4.3) Indenture, dated as of June Incorporated by reference from
12, 1995, between the Company the Registration Statement on
and First Fidelity Bank, Form S-3 (File No. 33-59859).
National Association as Trustee,
including Form of Debenture
(4.4) Indenture, dated as of September Incorporated by reference from
20, 1996, between the Company and the Registration Statement on
the Trustee, providing for the Form S-3 (File No. 333-00985.
issuance of the LYONs
(10.1) Medical Reimbursement Plan of Incorporated by reference from
the Company the Company's Form 10-K for
the fiscal year ended
January 31, 1982.
(10.2)* 1982 Incentive Stock Option Plan Incorporated by reference from
of the Company the Company's Form 10-K for
the fiscal year ended
January 31, 1982.
(10.3)* 1984 Non-Qualified Stock Option Incorporated by reference from
Plan the Company's Form 10-K for
the fiscal year ended
February 2, 1985.
(10.4)* 1985 Non-Qualified Stock Option Incorporated by reference from
Plan the Company's Form 10-K for
the fiscal year ended
February 2, 1985.
(10.5) Rights Agreement dated as of Incorporated by reference from
December 17, 1987 between the Company's Form 8-K dated
Company and the Philadelphia December 17, 1987.
National Bank
(10.6)* Directors' Deferred Compensation Incorporated by reference from
Plan, as amended the Company's Form 10-K for
the fiscal year ended
January 30, 1988.
(10.7)* Form of Employment Agreement, as Incorporated by reference from
amended, dated as of December 12, the Company's Form 10-K for
1989 the fiscal year ended
February 3, 1990.
(10.8)* Amendment No. 1 to the 1985 Incorporated by reference from
Non-Qualified Stock Option Plan the Company's Form 10-K for
the fiscal year ended
January 28, 1989.
(10.9)* Amendment No. 1 to the 1982 Incorporated by reference from
Incentive Stock Option Plan the Company's Form 10-K for
the fiscal year ended
January 28, 1989.
43
<PAGE>
(10.10) Amendment dated June 6, 1989 Incorporated by reference from
to Rights Agreement dated as of the Company's Report on Form 8
December 17, 1987 between the filed July 6, 1989.
Company and the Philadelphia
National Bank
(10.11) Dividend Reinvestment and Stock Incorporated by reference from
Purchase Plan dated January 4, the Registration Statement on
1990 Form S-3 (File No. 33-32857).
(10.12)* 1990 Stock Incentive Plan Incorporated by reference from
the Company's Form 10-Q for
the quarter ended
November 3, 1990.
(10.13)* Amendment No. 1 to 1990 Stock Incorporated by reference from
Incentive Plan the Company's Form 10-K for
the fiscal year ended
February 1, 1992.
(10.14)* The Pep Boys - Manny, Moe & Incorporated by reference from
Jack Trust Agreement for the the Company's Form 10-K for
Executive Supplemental Pension the fiscal year ended
Plan and Certain Contingent February 1, 1992.
Compensation Arrangements,
dated as of February 13, 1992
(10.15)* Amendment to the Executive Incorporated by reference from
Supplemental Pension Plan the Company's Form 10-K for
(amended and restated effective the fiscal year ended
January 1, 1988), dated as of February 1, 1992.
February 13, 1992
(10.16)* Consulting and Retirement Incorporated by reference from
Agreement by and between the the Company's Form 10-K for
Company and Benjamin Strauss, the fiscal year ended
dated as of February 2, 1992 February 1, 1992.
(10.17)* Amendment No. 2 to the 1982 Incorporated by reference from
Incentive Stock Option Plan the Company's Form 10-Q for
the quarter ended
October 31, 1992.
(10.18)* Amendment No. 3 to the Non- Incorporated by reference from
Qualified Stock Option Plan the Company's Form 10-Q for
the quarter ended
October 31, 1992.
(10.19)* Amendment No. 2 to the 1990 Incorporated by reference from
Stock Incentive Plan the Company's Form 10-Q for
the quarter ended
October 31, 1992.
(10.20)* President's Merit Award Program Incorporated by reference from
of the Company, as amended, the Company's Form 10-K for
dated as of April 1, 1992 the year ended
January 30, 1993.
(10.21) Flexible Employee Benefits Trust Incorporated by reference from
the Company's Form 8-K dated
May 6, 1994.
44
<PAGE>
(10.22)* The Pep Boys- Manny, Moe & Jack Incorporated by reference from
Pension Plan, as amended, dated the Company's Form 10-K for
December 28, 1994 the year ended
January 28, 1995.
(10.23)* The Pep Boys Savings Plan, as Incorporated by reference from
amended, dated December 28, 1994 the Company's Form 10-K for
the year ended
January 28, 1995.
(10.24)* Executive Incentive Bonus Plan Incorporated by reference from
of the Company, as amended and the Company's Form 10-K for
restated as of March 30, 1994 the year ended
January 28, 1995.
(10.25) Credit Agreement dated as of Incorporated by reference from
April 21, 1995 between the the Company's Form 10-Q for
Company and the Chase Manhattan the quarter ended April 29,
Bank (Agent) 1995.
(10.26)* Amendments to The Pep Boys -
Manny, Moe & Jack Pension Plan
(10.27)* Amendment to The Pep Boys Savings
Plan
(10.28) Master Lease, as amended
(10.29) Transaction Agreement, as amended
(11) Computation of Earnings per Share
(12) Computation of Ratio of Earnings
to Fixed Charges
(21) Subsidiaries of the Company
(23) Independent Auditors' Consent
(27) Financial Data Schedule
(b) No Form 8-K was filed for the fourth quarter of the year end
February 1, 1997
*Management contract or compensatory plan or arrangement.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE PEP BOYS - MANNY, MOE & JACK
--------------------------------
(Registrant)
Dated: 5/1/97 by: /s/Michael J. Holden
--------------------------
Michael J. Holden
Executive Vice President and
Chief Financial Officer
46
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
- ----------------- -------- --------
/s/Mitchell G. Leibovitz Chairman of the Board, President 5/1/97
- --------------------------- and Chief Executive Officer --------
Mitchell G. Leibovitz (Principal Executive Officer)
/s/Michael J. Holden Executive Vice President - and 5/1/97
- --------------------------- Chief Financial Officer --------
Michael J. Holden (Principal Financial and
Accounting Officer)
/s/Lennox K. Black Director 4/29/97
- --------------------------- --------
Lennox K. Black
/s/Pemberton Hutchinson Director 4/29/97
- --------------------------- --------
Pemberton Hutchinson
/s/Bernard J. Korman Director 4/28/97
- --------------------------- --------
Bernard J. Korman
/s/J. Richard Leaman, Jr. Director 4/28/97
- --------------------------- --------
J. Richard Leaman, Jr.
/s/Malcolmn D. Pryor Director 4/29/97
- --------------------------- --------
Malcolmn D. Pryor
/s/Lester Rosenfeld Director 4/28/97
- --------------------------- --------
Lester Rosenfeld
/s/Benjamin Strauss Director 4/28/97
- --------------------------- --------
Benjamin Strauss
/s/Myles H. Tanenbaum Director 4/28/97
- --------------------------- --------
Myles H. Tanenbaum
/s/David V. Wachs Director 4/28/97
- --------------------------- --------
David V. Wachs
47
<PAGE>
FINANCIAL STATEMENT SCHEDULES FURNISHED PURSUANT TO THE REQUIREMENTS OF
FORM 10-K
48
<PAGE>
</TABLE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
<CAPTION>
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------------------------------
Additions Additions
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Descriptions Period Expenses Accounts Deductions* Period
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended February 1, 1997 $251 $317 $ - $316 $252
- --------------------------------------------------------------------------------------------------------------------
Year Ended February 3, 1996 $126 $140 $ - $15 $251
- ---------------------------------------------------------------------------------------------------------------------
Year Ended January 28, 1995 $50 $114 $ - $38 $126
- ---------------------------------------------------------------------------------------------------------------------
<FN>
*Uncollectible accounts written off.
</FN>
</TABLE>
49
<PAGE>
INDEX TO EXHIBITS
Index of Financial Statements, Financial Statement Schedule and Exhibits
Page
----
1. The following consolidated financial statements
of The Pep Boys - Manny, Moe & Jack are included
in Item 8. -
Consolidated Balance Sheets - February 1, 1997
and February 3, 1996 25
Consolidated Statements of Earnings - Years
ended February 1, 1997, February 3, 1996 and
January 28, 1995 26
Consolidated Statements of Stockholders' Equity -
Years ended February 1, 1997, February 3, 1996 and
January 28, 1995 27
Consolidated Statements of Cash Flows - Years
ended February 1, 1997, February 3, 1996,
and January 29, 1994 28
Notes to Consolidated Financial Statements 29
Independent Auditors' Report 24
2. The following consolidated financial statement
schedule of The Pep Boys - Manny, Moe & Jack
is included.
Schedule II Valuation and Qualifying
Accounts and Reserves 49
All other schedules have been omitted because they are not applicable or not
required or the required information is included in the consolidated financial
statements or notes thereto.
3. Exhibits
(10.26) Amendments to The Pep Boys - Manny, Moe & Jack Pension Plan
(10.27) Amendment to The Pep Boys Savings Plan
(10.28) Master Lease as amended
(10.29) Transaction Agreement as amended
(11) Computation of Earnings per Share
(12) Computation of Ratio of Earnings to Fixed Charges
(21) Subsidiaries of the Company
(23) Independent Auditors' Consent
(27) Financial Data Schedule
50
<PAGE>
[CAPTION]
Amendments to The Pep Boys Manny, Moe & Jack Pension Plan
1. Section 2.1 of the Plan is hereby amended to change paragraph (e)(4) of the
definition of "Highly Compensated Employee" to read:
For purposes of defining Highly Compensated Employee, compensation means
any permissible definition of compensation as defined in Section 415(c)
(3) of the Code, including elective contributions, as determined by the
Administrative Committee. The dollar limits are those for the
calendar year in which the determination or look-back year begins.
2. Section 2.1 of the Plan is hereby amended to add the following new
paragraph to the end of the definition of "Hours of Service" to read as
follows:
Eligible Employees shall be credited with any Hours of Service required to
be credited to them in accordance with the Family and Medical Leave Act
and The Uniformed Services Employment and Reemployment Rights Act of 1994.
3. Article XII of the Plan is hereby amended to substitute "Top-Heavy" or
"Super Top-Heavy" for "a Top-Heavy Plan" or "a Super Top-Heavy Plan"
respectively, each time it appears.
4. Section 12.2 of the Plan is hereby amended to substitute "Top-Heavy" for
"a Top-Heavy Group" in the second line.
5. Section 12.5(c) of the Plan is hereby amended to substitute "all" for
"or" in the fourth line and to insert, "and any other affiliated entities (as
provided in Section 414(o) of the Code)" immediately before "of which the
Employer is a part." in the last line.
6. Section 12.6(a) of the Plan is hereby amended to insert, "but limited in
amount under Section 401(a)(17) of the Code" immediately following "under
Section 415 of the Code and the regulations thereunder" in the fifth line.
7. Section 13.4 of the Plan is hereby amended to make the last two sentences
of the first paragraph a separate paragraph.
8. Section 13.4 of the Plan is further amended to move the last paragraph of
said Section immediately following the first paragraph.
9. Section 13.4 of the Plan is further amended to insert "only" immediately
following "(i)" in the fifth line.
[CAPTION]
Amendments to The Pep Boys Savings Plan
1. The Introduction to the Plan is hereby amended to substitute, "and its
Participating Employers", for "and certain of its Affiliates" in the third line.
2. The Introduction is further amended to change the second paragraph to read
as follows:
The Plan is intended to be a discretionary "profit sharing" plan as defined
in Section 401(a)(27) of the Code.
3. Section 2.1 of the Plan is hereby amended to substitute "Sections 414(b),
(c), (m) and (o)" for "the appropriate Sections" in the second-to-last line
of the definition of "Affiliate."
4. Section 2.1 of the Plan is hereby amended to delete "commencing after
December 31, 1988" in the first sentence and to delete the second sentence
in its entirety of the definition of "Annual Additions."
5. Section 2.1 of the Plan is hereby amended to change the definition of
"Beneficiary" to read as follows:
Beneficiary means a person or persons (natural or otherwise) designated
by a Participant in accordance with the provisions of Section 6.6 (or
deemed to have been designated) to receive any death benefit which shall
be payable under this Plan.
6. Section 2.1 of the Plan is hereby amended to change the last sentence of
the first paragraph of the definition of "Compensation" to read as follows:
For purposes of the preceding two sentences, a Participant who has
Compensation in excess of $200,000 or $150,000 respectively (in each case
as adjusted by the Secretary) may continue to participate under the terms
of the Plan after having received $200,000 or $150,000 of Compensation
during the Plan Year as long as the aggregate amount of Compensation taken
into account under the terms of the Plan for any Plan Year does not exceed
$200,000 or $150,000 (in each case as adjusted by the Secretary) as
applicable.
7. Section 2.1 of the Plan is hereby amended to delete the last sentence of
the definition of "Eligible Employee."
8. Section 2.1 of the Plan is hereby amended to insert ",effective January 1,
1993" immediately following "means" in the definition of "Entry Date."
9. Section 2.1 of the Plan is hereby amended to delete "Proposed" in the
definition of "Excess Aggregate Contributions."
10. Section 2.1 of the Plan is hereby amended to change subsection (d) of the
definition of "Highly Compensated Employee" to read as follows:
(d) Employees who are officers during the look-back year and who have
compensation in the look-back year greater than 50% of the dollar limit in
Section 415(b)(1)(A) of the Code;
11. Section 2.1 of the Plan is hereby amended to add "without United States
source income" at the end of the first sentence in subsection (e)(1) of the
definition of "Highly Compensated Employee."
12. Section 2.1 of the Plan is hereby amended to delete paragraph (c) of the
definition of "Hours of Service" and to redesignate the remaining paragraphs in
such definition accordingly.
13. Section 2.1 of the Plan is hereby amended to delete the definition of
"One-Year Break in Service or Break in Service."
14. Section 2.1 of the Plan is hereby amended to substitute "Company" for
Employer" in the last line of the definition of "Participating Employer."
15. Section 2.1 of the Plan is hereby amended to change the definition of "Year
of Eligibility Service" to read as follows:
Year of Eligibility Service means a 12 consecutive month period beginning
--------------------
on the date an Eligible Employee's employment commences (the "initial
eligibility computation period"), provided such Eligible Employee is
credited with at least 1,000 Hours of Service. If an Eligible Employee is
not credited with 1,000 Hours of Service in the initial eligibility
computation period, then the eligibility computation period shall be the
Plan Year, beginning with the Plan Year that includes the first anniversary
of the Eligible Employee's initial eligibility computation period.
16. Section 2.1 of the Plan is hereby amended to add the following new
paragraph to the end of the definition of "Hours of Service" to read as follows:
Eligible Employees shall be credited with any Hours of Service required to
be credited to them in accordance with the Family and Medical Leave Act and
The Uniformed Services Employment and Reemployment Rights Act of 1994.
17. Section 2.1 of the Plan is hereby amended to change the last sentence of
the definition of "Income "to read as follows:
In determining the Income of the Trust Fund for any period, assets shall
be valued on the basis of fair market value, except for any investment
that the Committee determines shall be valued on the basis of book or
contract value.
18. Section 3.3 of the Plan is hereby amended to substitute "retirement" for
"Retirement " in the second line.
19. Section 3.4 of the Plan is hereby amended to insert "Eligible" immediately
before "Employee's eligibility" in the second line.
20. Section 4.1(a) of the Plan is hereby amended to insert "Treas. Reg."
immediately before "1.402(g)- 1(b)," in the second to last paragraph.
21. Section 4.3 of the Plan is hereby amended to read as follows:
4.3 Conditions on Employer Contributions. To the extent permitted or
----------------------------------------
required by ERISA and the Code, contributions under this Plan are subject
to the following conditions:
(a) If the Employer makes a contribution, or any part thereof, by
mistake of fact, such contribution or part thereof, or its then
current value if less, shall be returned to the Employer within
one year after such contribution is made;
(b) Contributions to the Trust Fund are specifically conditioned on
the initial qualification of the Plan under the Code; in the event
the Plan is determined to be disqualified with the remedial
amendment period pursuant to a request for a determination letter
from the Internal Revenue Service, the current value of all
contributions made shall be returned to the Employer within one
year after the effective date of disqualification;
(c) Contributions to the Plan are specifically conditioned upon their
deductibility under the Code; to the extent a deduction is
disallowed for any such contribution, such amount, or its then
current value if less, shall be returned to the Employer within one
year after the disallowance of the deduction; and
(d) The amount of any Employer contribution shall be subject to the
limitations prescribed in Section 5.3.
22. Section 4.4 of the Plan is hereby amended to insert "or" between (i), and
(ii) in the first paragraph.
23. Section 4.6 of the Plan is hereby amended to insert "or" between (i), and
(ii) in the first paragraph.
24. Section 4.6 of the Plan is further amended to add "to the extent required
or permissible" immediately before "forfeited" each time it appears in said
Section.
25. Section 5.2(b) of the Plan is hereby amended to read as follows:
(b) Employer Contributions. The Employer's contribution for each Plan
----------------------
Year shall be allocated among the Pre-Tax Contribution Accounts,
Matching Contribution Accounts and Discretionary QNEC Accounts of
those eligible Participants as set forth below:
26. Section 5.3 of the Plan is hereby amended to insert the following phrase
immediately before, "after separation from service" in subsection (i)
immediately following "The compensation limitation referred to above shall not
apply to:".
to be paid to the Participant
27. Section 5.3 of the Plan is hereby amended to add the following new sentence
to the end of the next-to-last paragraph to read as follows:
Effective for Limitation Years beginning after December 31, 1995, any gains
attributable to such excess Pre-Tax Contributions that are so distributed,
that are not also distributed, shall be considered as an Employer
contribution for the Limitation Year in which the excess Pre-Tax
Contributions were made.
28. Section 6.4(c) of the Plan is hereby amended to substitute "6.1" for "6.3"
in the third line.
29. Section 6.4(f) of the Plan is hereby amended to change "Section 416(i)(B)
of the Code" in the sixth line to read, "Section 416(i)(1)(B) of the Code,."
30. Section 6.8(b) of the Plan is hereby amended to substitute "Income" for
Interest" in the third line.
31. Section 6.8(c)(3)(A) of the Plan is hereby amended to insert, "including
any associated taxes or penalties" immediately following "Participant;."
32. Effective August 15, 1991, Section 6.8(a)(2)(C) is hereby amended to read
as follows:
the payment of tuition, related educational fees, and room and board
expenses for the next 12 months of post-secondary education for the
employee, or the Participant's Spouse, children, or dependents (as
defined in Section 152 of the Code);
33. Section 6.9(h) of the Plan is hereby amended to add ,"except as otherwise
may be required by ERISA" at the very end of the paragraph.
34. Section 7.3(c) of the Plan is hereby amended to change the first sentence
to read as follows:
(c) The Trustee may acquire Company Stock from any source, including the
public market, in private transactions, the trustee of The Pep Boys -
Manny, Moe & Jack Flexitrust, or, if the Company agrees, from the Company
(from either treasury shares or authorized but unissued shares). If the
Trustee purchases Common Stock from the Company, the purchase price shall
be the mean between the highest and lowest quoted selling prices of the
Common Stock on the New York Stock Exchange on the date of purchase, except
as provided at subsection (e).
35. Section 7.3(d) of the Plan is hereby amended to add the following to the
end of the second sentence to read "(effective as of March 31, 1995, such
installments shall be liquidated in eight installments, each equal to one-eighth
of the number of shares of Company Stock allocated to his Matching Contribution
Account, as of eight quarterly Valuation Dates next following the Participant's
election)."
36. Section 8.12 of the Plan is hereby amended to insert "of Directors"
immediately following "Board" in the first line of the second paragraph.
37. Section 9.3 of the Plan is hereby amended to insert "or pursuant to a Plan
loan pursuant to Section 6.9" immediately following the word "Code" in the third
line.
38. Section 10.2 of the Plan is hereby amended to substitute the word
"provisions" for "schedule" in the second line.
39. Effective August 15, 1991, Section 12.1 of the Plan is hereby amended to
insert the following new sentence immediately following the first sentence to
read as follows:
A distribution may not be made from the Plan due to the termination of the
Plan if the Employer established or maintains a successor plan, as such
terms are defined in Treas. Reg. Section 1.401(k) -1(d)(3).
40. Article XIII of the Plan is hereby amended to substitute "Top-Heavy" or
"Super Top-Heavy" for "a Top-Heavy Plan" or "a Super Top-Heavy Plan"
respectively, each time it appears.
41. Section 13.2 of the Plan is hereby amended to substitute "Top-Heavy" for
"a Top-Heavy Group" in the second line.
42. Section 13.5(c) of the Plan is hereby amended to substitute "all" for "or"
in the fourth line, "Employer" for "Company" in the last line and to insert,
"and any other affiliated entities (as provided in Section 414(o) of the Code)
" immediately before "of which the Employer is a part." in the last line.
43. Section 13.7 of the Plan is hereby amended to insert, "but limited in
amount under Section 401(a)(17) of the Code" immediately following "Annual
Additions" at the end of the first paragraph.
44. Section 13.7(B) of the Plan is hereby amended to delete "This" immediately
following "(B)".
MASTER LEASE
Dated as of November 13, 1995
Between
STATE STREET BANK AND TRUST COMPANY
(NOT INDIVIDUALLY BUT SOLELY AS TRUSTEE)
Lessor
and
THE PEP BOYS - MANNY, MOE & JACK
and Certain Subsidiaries Thereof
Lessee
THIS LEASE HAS BEEN MANUALLY EXECUTED IN COUNTERPARTS NUMBERED
CONSECUTIVELY FROM 1 TO 6. TO THE EXTENT, IF ANY, THAT THIS LEASE
CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM
COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO
SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER
OR POSSESSION OF ANY COUNTERPART OF THIS LEASE OTHER THAN
COUNTERPART NO. 1.
This is Counterpart No. ______ TABLE OF CONTENTS
(Not a part of the Lease)
Section Page
1. Lease of Property; Title and Condition. . . . . . . . . . . . . . . 2
2. Use; Quiet Enjoyment; Environmental Matters . . . . . . . . . . . . 5
3. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. Net Lease; Non-Terminability. . . . . . . . . . . . . . . . . . . . 10
6. Taxes and Assessments; Compliance with Law; Certain Agreements. . . 12
7. Matters of Title; Assignability . . . . . . . . . . . . . . . . . . 15
8. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9. Maintenance and Repair. . . . . . . . . . . . . . . . . . . . . . . 19
10. Alterations; Additions. . . . . . . . . . . . . . . . . . . . . . . 19
11. Lessee's Right to Contest Real Property Taxes . . . . . . . . . . . 21
12. Condemnation and Casualty . . . . . . . . . . . . . . . . . . . . . 21
13. Early Termination Rights. . . . . . . . . . . . . . . . . . . . . . 25
14. Offer to Purchase . . . . . . . . . . . . . . . . . . . . . . . . . 26
15. Procedure Upon Purchase . . . . . . . . . . . . . . . . . . . . . . 28
16. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
17. Assignment; Subletting. . . . . . . . . . . . . . . . . . . . . . . 32
18. Permitted Contests. . . . . . . . . . . . . . . . . . . . . . . . . 33
19. Default Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 34
20. Additional Rights . . . . . . . . . . . . . . . . . . . . . . . . . 39
21. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
22. No Default Certificate. . . . . . . . . . . . . . . . . . . . . . . 42
23. Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
24. Separability; Binding Effect; Governing Law; Non-Recourse . . . . . 43
25. Headings and Table of Contents. . . . . . . . . . . . . . . . . . . 45
26. Waiver of Landlord's Lien . . . . . . . . . . . . . . . . . . . . . 45
2727. Lessee's Obligation at Expiration. . . . . . . . . . . . . . . 45
28. No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
29. Short Form Lease. . . . . . . . . . . . . . . . . . . . . . . . . . 47
30. Protection of Instrument Holders. . . . . . . . . . . . . . . . . . 47
31. Additional Lessees. . . . . . . . . . . . . . . . . . . . . . . . . 48
32. Certain Representations and Covenants of Lessee . . . . . . . . . . 48
33. Waiver Of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . 55
34. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
35. Special Local Provisions. . . . . . . . . . . . . . . . . . . . . . 55
ANNEX I - Approved Self-Insurance Program
EXHIBIT A - Net Rent; Additional Rent
EXHIBIT B - Form of Supplement for Addition of Parcels
EXHIBIT C - Construction Addendum
EXHIBIT D - Form of Construction Supplement
EXHIBIT E - Form of SNDA
EXHIBIT F - Form of Supplement for Additional Lessee(s)
Table of Defined Terms
(Not a part of the Lease)
Term Section Where Defined
Acquisition Price Exhibit A
Additional Improvements Section 10.(a)
Additional Lessee Section 31.(a)
Additional Rent Section 4.(b)
Adjustment Date Exhibit A
Advances Preliminary Statement
Agent Preliminary Statement
Applicable Rate Exhibit A
Applicable Spread Exhibit A
Appraised Value Section 27.(b)
Break Costs Exhibit A
Business Day Exhibit A
Casualty Section 12.(a)
Change of Control Section 32.(c)
CLI Preliminary Statement
Closing Costs Section 15.(b)
Closing Date Section 15.(a)
Code Section 32.(a)
Commencement Date Section 3.(a)
Condemnation Section 12.(a)
Construction Advance Section 1.(d)
Construction Failure Payment Exhibit C
Construction Failure Exhibit C
Construction Supplement Section 1.(d)
Contingent Rent Payment Exhibit A
Declaration of Trust Preamble
Default Rate Section 4.(c)
Early Termination Fee Section 13.(a)
Early Termination Notice Section 13.(b)
Environmental Event Section 2.(c)
Environmental Indemnity Agreement Section 8.(e)
Environmental Laws Section 2.(c)
ERISA Section 32.(a)
Event of Default Section 19.(a)
Excess Funds Section 12.(c)
Expiration Date Section 3.(a)
Facility Agreements Section 6.(b)
GAAP Section 32.(c)
Hazardous Materials Section 2.(c)
Impositions Section 6.(a)
Improvements Preliminary Statement
Incipient Default Section 8.(b)
Increased Costs Exhibit A
Indemnified Party Section 8.(a)
Instrument Holders Preliminary Statement
Instruments Preliminary Statement
Insurance Requirements Section 16
Law Section 5.(a)
Lease Preamble
Lease Guarantee Preliminary Statement
Lease Guarantor Preliminary Statement
Legal Requirements Section 6.(b)
Lessee Preamble
Lessee Parent Preamble
Lessee's Equipment Preliminary Statement
Lessor Preamble
LIBO Business Day Exhibit A
LIBO Rate Reserve Percentage Exhibit A
LIBO Rate Exhibit A
Lien Section 7.(a)
Losses Section 8.(a)
Material Improvements Section 10.(a)
Minimum Price Section 27.(b)
Net Proceeds Section 12.(a)
Net Rent Section 4.(a)
New Improvements Preliminary Statement
Nominal Appraised Value Section 27.(b)
Non-Disturbance Agreement Section 30
Notice Date Section 19.(a)(viii)
Offer Purchase Price Section 15.(b)
Offer to Purchase Section 14.(a)
Parcel(s) Preliminary Statement
Partial Termination Notice Section 13.(a)
Payment Dates Section 4.(a)
PBGC Section 32.(a)
Pep Boys - Delaware Preamble
Pep Boys - California Preamble
Permitted Encumbrances Section 7.(a)
Person Section 32.(c)
Plans Exhibit C
Proceeds Section 12.(a)
Proceeds Trustee Section 12.(a)
Property Preliminary Statement
Required Completion Date Exhibit C
Reserve Costs Exhibit A
SNDA Section 30.(b)
Special Incipient Default Section 8.(b)
Special LIBO Rate Exhibit A
Special Minimum Price Exhibit C
Subsidiary Section 32.(c)
Supplement Section 1.(b)
Tenant Mortgage Section 20.(d)
Term Section 3.(a)
Termination Notice Section 12.(b)
Transaction Agreement Preliminary Statement
Transaction Documents Preliminary Statement
Transaction Mortgage Section 30.(b)
MASTER LEASE
MASTER LEASE dated as of November 13, 1995 ("Lease"), between STATE STREET
BANK AND TRUST COMPANY, a Massachusetts trust company, not individually but
solely in its capacity as Trustee under that certain "Declaration of Trust"
(herein so called) dated of even date herewith (in such capacity, and not
individually, "Lessor"), having an address at Two International Place, Fourth
Floor, Boston, Massachusetts 02110, Attn: Corporate Trust Department, THE PEP
BOYS - MANNY, MOE & JACK, a Pennsylvania corporation ("Lessee Parent"), THE PEP
BOYS MANNY, MOE & JACK OF CALIFORNIA, a California corporation ("Pep Boys -
California"), and PEP BOYS - MANNY, MOE & JACK OF DELAWARE, INC., a Delaware
corporation ("Pep Boys - Delaware"). Lessee Parent, Pep Boys - California, Pep
Boys - Delaware, and such other Subsidiaries of the Lessee Parent as may become
"Additional Lessees" pursuant to Section 31 hereof are herein referred to,
either singly or collectively, as the context may require, as "Lessee". The
primary business address of Lessee for purposes of this Lease is at 3111
W. Allegheny Avenue, Philadelphia, Pennsylvania 19132.
Preliminary Statement
A. Simultaneously herewith Lessor, Lessee Parent, and Citicorp Leasing,
Inc., a Delaware corporation ("CLI") have entered into a certain Transaction
Agreement (herein so-called) pursuant to which Lessor will from time to time
purchase various parcels of real property (each a "Parcel") to be leased to one
of parties constituting the Lessee hereunder. In each case the term "Parcel"
will be deemed to include all agreements, easements, licenses, rights of way
or use, appurtenances, tenements, hereditaments, and other rights and benefits
belonging or pertaining to such parcels of property or any improvements thereon.
B. Any improvements from time to time located on the Parcels that are
subject to this Lease (including without limitation, New Improvements, as
hereinafter defined) are collectively referred to as the "Improvements", while
all Parcels and Improvements subject to this Lease at any relevant time are
collectively referred to as the "Property". It is acknowledged that for all
purposes of this Lease the term "Property" does not include any trade fixtures,
inventory, equipment, or other movable personal property owned or leased by
Lessee and used in the conduct of its business ("Lessee's Equipment"), but the
Property does include (and "Lessee's Equipment" does not include) all equipment
and fixtures that constitute a part of the plumbing, HVAC, or other operating
systems of the buildings and improvements themselves.
C. Lessor will acquire the Parcels from time to time using the proceeds
of Advances (as defined in the Transaction Agreement) under certain A-Notes,
B-Notes and Certificates (herein referred to as the "Advances") issued by Lessor
pursuant to the Transaction Agreement to CLI (as the initial "Purchaser") or to
such other financial institutions as may from time to time become "Purchasers"
under the Transaction Agreement.
D. Pursuant to the Transaction Agreement CLI has been appointed as the
initial administrative agent on behalf of itself and the other Instrument
Holders (as defined in the Transaction Agreement) and Purchasers for the
exercise of certain rights and privileges set out in the Transaction Agreement,
the Declaration of Trust, this Lease, and the other "Transaction Documents".
CLI, acting in such capacity, or any successor administrative agent hereafter
appointed by the Instrument Holders and the Purchasers pursuant to the
Transaction Agreement, is herein referred to as the "Agent".
E. The obligations of the Lessee under this Lease have been guaranteed by
Lessee Parent pursuant to that certain "Lease Guarantee" (herein so-called) of
even date herewith executed by Lessee Parent for the benefit of Lessor, Agent,
and the Instrument Holders. Lessee Parent, in its capacity as the guarantor of
the Lease under the Lease Guarantee, is sometimes herein referred to as the
"Lease Guarantor."
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree as follows:
1. Lease of Property; Title and Condition.
(a) In consideration of the rents and covenants herein stipulated to
be paid and performed by the Lessee and upon the terms and conditions herein
specified, the Lessor hereby leases the Property to Lessee, and the Lessee
hereby leases the Property from the Lessor.
(b) If at any time Lessee Parent desires Lessor to acquire a Parcel,
together with any Improvements located thereon, for lease to a Lessee hereunder,
Lessee Parent may request that such Parcels and/or Improvements be acquired by
Lessor and subjected to this Lease, thereby becoming a part of the "Property"
covered hereby. The process for the addition of a Parcel to the Property is as
set out in the Transaction Agreement, and no Parcel shall be added to the
Property until the requirements for the addition of such Parcel to the Property
pursuant to the Transaction Agreement have been satisfied and Lessor has
received Advances under the Instruments pursuant to the Transaction Agreement to
provide Lessor with the necessary funds for such purpose. The addition of a
Parcel to the Property shall be effected by a "Supplement" (herein so called)
to this Lease executed by Lessor, Lessee Parent (solely in its capacity as
Lease Guarantor, if the Lessee Parent is not also the Lessee of the Parcel in
question) and the Lessee that will lease such Parcel hereunder (including any
new Additional Lessee, if applicable) in substantially the form attached hereto
as Exhibit "B". The Supplement shall, among other items included therein,
specify the adjustments to the Net Rent and Contingent Rent Payment payable
hereunder as a result of the addition of such Parcel and Improvements to the
Property. Without limitation of the other applicable provisions of the
Transaction Agreement, Lessee acknowledges that after December 31, 1996, Agent
is not required to approve a Supplement that would add an additional Parcel to
the Property, nor any Advance under the Transaction Agreement to provide Lessor
sums necessary to acquire such Parcel, if the Debt Rating (as defined in the
Transaction Agreement) of Lessee Parent is below BBB- (as rated by Standard &
Poor's Corporation) or is below Baa3 (as rated by Moody's Investors Service) or,
if such Debt Rating is at BBB- or Baa3, as applicable, but the Lessee Parent is
listed on "credit-watch" by the applicable rating service.
(c) The Property is leased to the Lessee by Lessor subject to (a)
all applicable Legal Requirements (as defined below); and (b) all Permitted
Encumbrances (as defined below). The execution of a Supplement adding a
Parcel to the Property shall constitute conclusive evidence that the Lessee has
examined the Parcel in question (and any Improvements thereon), and the title
thereto, and has found the same satisfactory for all purposes of this Lease.
(d) If at any time Lessee desires to construct new improvements
("New Improvements") on any Parcel after such Parcel has been added to the
Property, and Lessee desires to receive a Construction Advance from Lessor to
reimburse Lessee for the costs of such construction, Lessee may do so upon
compliance with the provisions set out below. Any such New Improvements shall
be constructed by Lessee in accordance with the terms and conditions contained
in that certain Construction Addendum (herein so called) attached hereto as
Exhibit "C". Upon completion of any such New Improvements in accordance with
the terms and conditions of the Construction Addendum and satisfaction of all
requirements for the Lessor to receive an Advance (herein referred to as a
"Construction Advance") under the Transaction Agreement in the amount needed to
fund such Construction Advance, Lessor and Lessee shall execute a "Construction
Supplement" (herein so called) to this Lease in substantially the form attached
hereto as Exhibit "D". The Construction Supplement shall, among other items
included therein, specify the adjustments to the Net Rent and the Contingent
Rent Payment which result from the applicable Construction Advance. Lessor
shall have no obligation to (i) make a Construction Advance to Lessee in
respect of any New Improvements or (ii) execute the necessary Construction
Supplement with respect to such New Improvements, unless an Advance therefor
has been made to Lessor in accordance with Article I of the Transaction
Agreement. Any New Improvements which are constructed by Lessee, and for which
Lessee receives reimbursement from Lessor pursuant to the Construction Addendum,
shall not be treated as "Additional Improvements" (as defined in Section 10 of
this Lease) for purposes hereof; but rather the construction of such New
Improvements shall be governed by the Construction Addendum. In no event will
Lessee be entitled to receive any Construction Advance after December 31, 1997,
and further, in no event will Lessee be entitled to any such Construction
Advance after December 31, 1996, if, at the time such Construction Advance would
otherwise be made, the Debt Rating (as defined in the Transaction Agreement) of
Lessee Parent is not at least BBB- (as rated by Standard & Poor's Corporation)
and at least Baa3 (as rated by Moody's Investors Service).
(e) In connection with the construction of New Improvements on a
Parcel Lessee may demolish Improvements that were located on the Parcel in
question at the time such Parcel was acquired by Lessor so long as the value
of the Improvements to be demolished was not included in any appraised value
of the Parcel in question at the time such Parcel was acquired by Lessor and
the amount of the Advance made by the Purchaser(s) under the Transaction
Agreement in connection with such acquisition did not include any amount in
respect of the Improvements to be demolished. In the event Lessee is in doubt
as to whether the existing Improvements on any given Parcel are eligible for
demolition as aforesaid, Lessee may request confirmation thereof from Agent.
(f) THE LESSOR MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY OR ANY FIXTURE OR
OTHER ITEM CONSTITUTING A PORTION THEREOF, OR THE LOCATION, USE,
DESCRIPTION, DESIGN, MERCHANTABILITY, FITNESS FOR USE FOR ANY
PARTICULAR PURPOSE, CONDITION, OR DURABILITY THEREOF OR AS TO THE
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR AS TO THE
LESSOR'S TITLE THERETO OR OWNERSHIP THEREOF OR OTHERWISE, IT BEING
AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE SOLELY BY THE
LESSEE. IN THE EVENT OF ANY DEFECT OR DEFICIENCY OF ANY NATURE IN
THE PROPERTY OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION
THEREOF, WHETHER PATENT OR LATENT, THE LESSOR SHALL HAVE NO
RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO EXCEPT TO THE EXTENT
SET FORTH IN SECTION 8(a) BELOW. THE PROVISIONS OF THIS SUBSECTION 1(f)
HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION
AND NEGATION OF ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, BY THE
LESSOR WITH RESPECT TO THE PROPERTY OR ANY FIXTURE OR OTHER ITEM
CONSTITUTING A PORTION THEREOF, WHETHER ARISING PURSUANT TO THE
UNIFORM COMMERCIAL CODE OR ANY OTHER LAW, NOW OR HEREAFTER IN
EFFECT. NOTHING IN THIS SECTION 1(e) SHALL BE DEEMED TO LIMIT LESSEE'S
CONTRACTUAL RIGHTS AGAINST LESSOR IN THE EVENT LESSOR VIOLATES ITS
SPECIFIC COVENANTS AND OBLIGATIONS TO LESSEE PURSUANT TO THE
TRANSACTION AGREEMENT OR THIS LEASE, BUT NO SUCH VIOLATION OF THE
TRANSACTION AGREEMENT BY LESSOR SHALL AFFECT LESSEE'S OBLIGATIONS
UNDER THIS LEASE.
2. Use; Quiet Enjoyment; Environmental Matters.
(a) Subject to the other specific terms and provisions hereof, the
Lessee may use the Property for any lawful purpose provided that the value of
the Property is not diminished by any such use. It is expressly agreed that
use of the Property for the operation of automobile parts and/or service centers
is a permitted use, subject to compliance with the other terms and conditions
hereunder, and such use will not be deemed to diminish the value of the
Property. Lessee shall not commit or suffer to be committed upon the Property
any acts or conditions that constitute a nuisance under applicable Law. Lessee
hereby agrees not to engage in any activity, or store upon the Property any
goods and equipment, which would render the property coverage insurance
described in Section 16 hereof void. During the Term the Lessor covenants that,
unless an Event of Default (as defined below) has occurred and is continuing,
Lessor will not, and will not permit any party claiming by, through or under
the Lessor to, interfere with the peaceful and quiet possession and enjoyment
of the Property by the Lessee; provided, however, that the Lessor, the Agent,
or their respective successors, assigns and agents may, upon at least ten (10)
days prior written notice to the Lessee (unless an emergency exists, in which
case only such written notice as shall be reasonably practicable under the
circumstances shall be necessary), enter upon and examine the Property or any
part thereof. Lessee will always be permitted to have a representative of
Lessee accompany the representative or agent of Lessor or Agent in question in
any inspection if Lessee desires to do so. It is expressly acknowledged
that, as provided in Section 5 hereof, violation of the foregoing covenant shall
not permit Lessee to withhold rent or terminate this Lease.
(b) The Lessee shall, and it shall require and ensure that any and
all sublessees, employees, contractors, subcontractors, agents, representatives,
affiliates, consultants and any and all other Persons, use, employ, emit, store,
handle, transport, dispose of and/or arrange for the disposal of, any and all
Hazardous Materials (as defined below) in, on or, directly or indirectly,
related to or in connection with the Property in compliance with all
Environmental Laws (as defined below) applicable thereto. Without limitation of
the inspection rights as elsewhere set out herein, if Lessor or Agent at any
time believes that an Environmental Event may have occurred, Lessor or Agent
may, at Lessee's expense, conduct tests of the Property or portions thereof;
provided, however, that in connection therewith: (i) so long as no Event of
Default pursuant to Sections 19(a)(i), (vii), (x), (xi), (xii) or (xiv) hereof
exists, no Event of Default under Section 19(a)(iv) relating to the failure to
have required insurance coverage in place (as opposed to a failure to satisfy
any other Insurance Requirement) exists, and Lessor or Agent have not taken
remedial actions relating to the possession or ownership of such Parcel as a
result of any other Event of Default that may then exist, Lessor or Agent will
first notify Lessee of its desire for tests to be conducted and request that
Lessee perform such tests and provide the results thereof to Lessor, and so
long as Lessee promptly carries out such tests Lessor or Agent will not perform
such tests directly, and (ii) in the conduct of any tests that Lessor or Agent
may conduct directly Lessor or Agent will take reasonable steps to interfere as
little as reasonably practicable with the conduct of Lessee's business within
the Property. Any failure by the Lessor or Agent or such other Person to comply
with the foregoing provisions of this Section 2 shall not give the Lessee any
right to cancel or terminate this Lease, or to abate, reduce or make deduction
from or offset against any Net Rent, Additional Rent or other sum payable under
this Lease, or to fail to perform or observe any other covenant, agreement or
obligation hereunder, but shall permit Lessee to prohibit Lessor or Agent from
conducting such tests until such requirements are satisfied. Lessee's
obligations hereunder with respect to Hazardous Materials and Environmental Laws
are intended to extend to and cover all matters and conditions in, on, under,
beneath, with respect to, affecting, related to, in connection with or
involving the Property or any part thereof, without regard to whether Lessee
has actually caused or participated in the event or circumstance giving rise to
the matter in question, and without regard to whether the matter in question
arose prior to or during the Term (as hereinafter defined) of this Lease.
(c) For purposes of the foregoing provisions (or where such terms are
used elsewhere in this Lease), the following terms shall have the meanings
specified below:
(A) "Environmental Laws" means any and all federal, state and
local Laws, including without limitation any and all requirements to register
underground storage tanks, relating to: (i) emissions, discharges, spills,
releases or threatened releases of pollutants, contaminants, Hazardous Materials
(as hereinafter defined), or hazardous or toxic materials or wastes into ambient
air, surface water, groundwater, watercourses, publicly or privately owned
treatment works, drains, sewer systems, wetlands, septic systems or onto land;
(ii) the use, treatment, storage, disposal, handling, manufacturing,
transportation, or shipment of Hazardous Materials (as defined below), materials
containing Hazardous Materials or hazardous and/or toxic wastes, material,
products or by-products (or of equipment or apparatus containing Hazardous
Materials), or (iii) pollution or the protection of the environment.
(B) "Hazardous Materials" means (i) hazardous materials,
hazardous wastes, and hazardous substances as those terms are defined under any
Environmental Laws, including, but not limited to, the following: the Hazardous
Materials Transportation Act, 49 U.S.C. 1801 et seq., as amended from time to
time ("HMTA"), the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et
seq., as amended from time to time ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act, as amended by the Superfund
Amendments and Reauthorization Act, 42 U.S.C. 9601 et seq., and as further
amended from time to time ("CERCLA"), the Clean Water Act, 33 U.S.C. 1251
et seq., as amended from time to time ("CWA"), the Clean Air Act, 42 U.S.C.
7401 et seq., as amended from time to time ("CAA") and/or the Toxic
Substances Control Act, 15 U.S.C. 2601 et seq., as amended from time to time
("TSCA"); (ii) petroleum and petroleum products including crude oil and any
fractions thereof; (iii) natural gas, synthetic gas, and any mixtures thereof;
(iv) asbestos and/or any material which contains any hydrated mineral silicate,
including, but not limited to, chrysotile, amosite, crocidolite, tremolite,
anthophylite and/or actinolite, whether friable or non-friable; (v) PCBs, or
PCB- containing materials, or fluids; (vi) radon; (vii) any other hazardous or
radioactive substance, material, contaminant, pollutant, or waste; and (viii)
any substance with respect to which any federal, state or local Environmental
Law or governmental agency requires environmental investigation, monitoring or
remediation.
(C) "Environmental Event" shall mean any environmental event or
the discovery of any environmental condition in, on, beneath or involving the
Property or any portion thereof (including, but not limited to, the presence,
emission or release of Hazardous Materials and the violation of any applicable
Environmental Law) that in the sole but reasonable judgment of Agent, if not
properly mitigated or remediated, might have a material adverse effect on the
use, occupancy, possession, value or condition of the Property or any portion
thereof.
3. Term.
(a) Base Term. The term of this Lease ("Term") shall commence on the
date hereof ("Commencement Date") and continue until December 31, 2002 (the
"Expiration Date").
(b) Extension Provisions. (i) If Lessee desires to extend the Term
of this Lease for an additional three (3) years beyond the original Expiration
Date, Lessee shall have the right, during the period beginning fifteen (15)
months prior to the Expiration Date and ending fourteen (14) months prior to the
Expiration Date, to advise Lessor and Agent of its desire to so extend the Term.
If Lessee expresses such a desire then during the period ending twelve (12)
months prior to Expiration Date Lessor and Lessee shall negotiate in good faith
toward a mutually acceptable extension of the Term. All terms and conditions of
any such extension (other than the length of the extension), including, without
limitation, the Net Rent and other amounts to be paid by Lessee during such
extended term, shall be subject to negotiation and the mutual agreement of
Lessor and Lessee and approved by Agent on behalf of the Instrument Holders
(unless the Instruments are discharged in full prior to the contemplated
Expiration Date), it being acknowledged and agreed that neither Lessor nor any
Instrument Holder shall be obligated to approve any extension, and their
approval of any requested extension and/or the terms thereof shall be at the
sole discretion of Lessor and such Instrument Holders. If any extension of the
Term is agreed upon then the parties hereto shall execute an amendment to this
Lease setting out the new Expiration Date and all appropriate revisions to this
Lease applicable during such extended period.
(ii) Notwithstanding the foregoing, if Lessee and Agent desire
to extend the Term of the Lease but one or more Instrument Holders is unwilling
to approve such extension, Lessee and Agent shall make reasonable efforts to
find a replacement party willing to purchase the Instruments held by the
Instrument Holders that do not desire to extend the Term, and otherwise to
cooperate reasonably at Lessee's expense to effect the mutually desirable
extension.
(c) Keys and Locks. On the Expiration Date, Lessee shall surrender
to Lessor all keys to all doors of the Property, and give the Lessor or Agent
an explanation of the combination of all safes or safecabinets, if any, which
are to remain in the Property.
(d) Holdover Rent. Upon the termination of this Lease (whether by
the expiration of the Term of the Lease or otherwise) Lessee must immediately
vacate the Property. If Lessee fails to do so then at the option of Lessor,
but without the execution of a new lease by Lessor and Lessee, Lessee shall
immediately become a tenant from month-to-month of the Property, or any part
thereof, at a Net Rent (as hereinafter defined) equal to the greater of two
hundred percent (200%) of the Net Rent effective in the month immediately
preceding termination of this Lease or one hundred fifty percent (150%) of the
then applicable fair market rental value of the Property, and under all other
terms, conditions, provisions, and obligations of this Lease insofar as the
same are applicable to a tenancy from month-to-month.
4. Rent.
(a) Throughout the Term, Lessee shall pay to the Lessor as net rental
(the "Net Rent") the amounts determined in accordance with, and on the "Payment
Dates" (herein so called) described on Exhibit "A" attached hereto. During the
Term, Lessee shall also pay to Lessor the items of Additional Rent (as
hereinafter defined) set out on Exhibit "A". At such time as Improvements or
Parcels are added to the Property, or construction advances are made to Lessee
by Lessor in respect of New Improvements constructed by Lessee on any Parcel,
the Net Rent and Additional Rent payments shall be adjusted as contemplated on
Exhibit "A" and/or on the Supplement by which such Improvements or Parcels are
added to the Property, and/or the Construction Supplement evidencing the
construction advance in question, as applicable.
(b) All amounts that the Lessee is required to pay to the Lessor
pursuant to this Lease (other than Net Rent), including, but not limited to, any
and all amounts payable upon expiration of the Lease Term and/or upon transfer
or purchase of the Property, together with amounts specifically denominated as
such on Exhibit "A" as well as every fine, penalty, interest and cost that may
be added for non-payment or late payment thereof, shall constitute "Additional
Rent". Lessor shall give Lessee notice of any Additional Rent due hereunder
promptly after it has knowledge of such Additional Rent, and shall use its best
efforts to notify Lessee in advance of the due date and amount of such
Additional Rent; provided that failure to give such prompt notice shall not
relieve the Lessee of its obligation to pay such Additional Rent, subject to,
as applicable, the Lessee's rights, if any, under Section 18 hereof.
(c) The Lessee shall pay on demand to the Lessor interest at a rate
(the "Default Rate") equal to the lesser of (i) a rate that is 200 basis points
(2%) in excess of the rate quoted from time to time by Citibank, N.A., New York,
as its "prime" or "base reference" rate for short-term floating rate commercial
loans (whether or not such rate is actually charged in any particular instance),
adjusted daily, or (ii) the highest lawful rate, on all amounts payable by it
the Lessor hereunder from the due date thereof until paid in full, subject
to Section 4(g) below. Any such interest at the Default Rate shall be paid at
the same place and in the same manner as Net Rent (as hereinafter provided).
(d) All amounts payable by the Lessee hereunder shall be paid in
lawful money of the United States of America. All Net Rent payments shall be
made to Lessor by 11:00 A.M. (New York City Time) on the applicable Payment
Date. All Additional Rent or other sums due hereunder shall also be paid by
1:00 p.m. (New York City Time) on the applicable due date. All payments shall
be made by wire transfer or other immediately available funds. Unless and
until Lessee is otherwise notified in writing by Agent and Lessor, all payments
of Net Rent or Additional Rent hereunder shall be paid to Lessor as follows:
State Street Bank and Trust Company
c/o Citibank, N.A.
New York, New York
Account #40685147
ABA #021000089
Re: Pep Boys November/95
Operating Lease
Any payments of rental or other amounts hereunder by Lessee made other than in
accordance with the foregoing requirements shall be at Lessee's peril and shall
not be credited for the benefit of Lessee hereunder unless and until such funds
are actually received by Lessor. If any payment of Net Rent, Additional Rent,
or other sum due hereunder is timely made by Lessee but Lessor, as Trustee
under the Declaration, fails to make timely distribution of the amounts in
question to the Instrument Holder(s) entitled to receive such amounts, Lessee
shall have no responsibility for any late fees or other compensatory payments
due to the Instrument Holders in respect of such late payment by the Trustee,
nor subject to any other consequences arising therefrom.
(e) Agent shall endeavor to send to Lessee on a monthly basis an
invoice stating the amount of Net Rent due for the month in question. While
the delivery of such an invoice is not a condition precedent to Lessee's
obligation to pay the Net Rent due hereunder, if Agent fails to sent an invoice
Lessee shall not be deemed to be in default of its obligations to pay Net Rent
hereunder if, on the date the Net Rent is due hereunder Lessee (i) pays to
Lessor an amount equal to the amount of Net Rent that was due and payable for
the preceding month hereunder, (ii) delivers to Agent a written notice that
Lessee did not receive an invoice for the month in question and is therefore
unable to compute the exact amount due for the month in question, and (iii)
Lessee makes any reconciliation payments necessary such that Lessee pays the
correct amount of Net Rent hereunder for the month in question within five (5)
Business Days after Lessee receives a reconciliation invoice. If the amount
actually paid by Lessee is more than the Net Rent due for the month, Lessor
shall refund the overage to Lessee within five (5) Business Days after the
reconciliation invoice is produced by Agent. Any positive difference between
the amount of Net Rent due to Lessor and the actual amount paid by Lessee
pursuant to the foregoing provision shall bear interest at the Applicable Rate
for the period between the date the Net Rent payment is due hereunder and the
date such reconciliation payment is actually made by Lessee, and in the event
the actual payment of Net Rent made by Lessee as aforesaid is more than the
amount of Net Rent due for the month in question, any credit or refund to
Lessee shall likewise bear interest at the Applicable Rate from the date the
Net Rent was paid by Lessee until such refund payment is made.
(f) The Lessee shall perform all of its obligations under this Lease
at its sole cost and expense and shall pay, when due and without notice or
demand (except as otherwise provided in this Lease), all amounts due hereunder.
The Lessee agrees to pay on demand (i) all Impositions (as defined in Section 6)
(subject to Lessee's rights pursuant to paragraph 6) and (ii) all reasonable
fees and expenses of the counsel to each of Lessor and Agent, in connection
with the preparation, execution, delivery, modification and amendment of this
Lease and any other documents to be delivered in connection herewith or
therewith or in connection with or arising out of any refinancing or refunding
thereof requested or consented to by Lessee.
(g) In the event that Lessee shall fail to pay any portion of any
installment of Net Rent on the day on which such installment is due, to the
extent permitted by applicable law there shall be added to such unpaid amount a
late charge of two percent (2%) of the amount owed in order to compensate Lessor
and Agent for the extra administrative expenses incurred. Any such late charges
shall be paid by Lessee in the same manner as hereinabove provided for the
payment of Net Rent. The foregoing provision shall not be deemed to limit
Lessor's right to receive interest at the Default Rate with respect to such
payment as provided in subsection 4(c) above.
(h) Notwithstanding the foregoing Lessor shall waive any late charges
and/or any extra amounts due by Lessee as a result of the application of the
Default Rate to late payments made by Lessee hereunder on up to three (3)
occasions during the Term so long as the payment in question is made during the
applicable grace or cure period such that the late payment in question does not
become an Event of Default hereunder.
5. Net Lease; Non-Terminability.
(a) This Lease is a net lease and, except as otherwise expressly
provided in this Lease, any present or future Law (as defined below) to the
contrary notwithstanding, shall not terminate, nor shall the Lessee be entitled
to any abatement, reduction, set-off, counterclaim, defense or deduction with
respect to any Net Rent, Additional Rent or other sum payable hereunder.
Without limitation of the generality of the foregoing, except as otherwise
expressly provided in this Lease, the obligations of the Lessee shall not be
affected by reason of: (i) any damage to or destruction of the Property or
any part thereof by any cause whatsoever (including, without limitation, fire,
Casualty (as defined in Section 12) or act of God or enemy or any other force
majeure event); (ii) any Condemnation (as defined in Section 12), including,
without limitation, a temporary Condemnation of the Property or any part
thereof; (iii) any prohibition, limitation, restriction or prevention of the
Lessee's use, occupancy or enjoyment of the Property by any person; (iv) any
matter affecting title to the Property or any part thereof; (v) any eviction
of the Lessee from, or loss of possession by the Lessee of, the Property or any
part thereof, by reason of paramount title or otherwise; (vi) any default by the
Lessor hereunder or under any other agreement; (vii) the invalidity or
unenforceability of any provision hereof or the impossibility or illegality of
performance by the Lessor or the Lessee or both; (viii) any action of any
federal, state or local governmental authority; or (ix) any other cause or
occurrence whatsoever, whether similar or dissimilar to the foregoing. The
partiesintend that the obligations of the Lessee hereunder shall continue
unaffected unless such obligations shall have been modified or terminated
pursuant to an express provision of this Lease. For purposes hereof "Law" means
all statutes, laws, ordinances, rules, regulations, orders, writs, injunctions,
or decrees of any municipal, state, federal, foreign, or territorial government,
or any court, governmental body, subdivision, agency, department, commission,
board, bureau, or instrumentality thereof.
(b) The Lessee shall remain obligated under this Lease in accordance
with its terms and shall not take any action to terminate, rescind or avoid this
Lease notwithstanding any bankruptcy, insolvency, reorganization, liquidation,
dissolution or other proceeding affecting the Lessor or any action with respect
to this Lease which may be taken by any trustee, receiver or liquidator or by
any court. Except as expressly permitted in this Lease, the Lessee waives all
rights to terminate or surrender this Lease, or to any abatement or deferment of
Net Rent, Additional Rent or other sums payable hereunder. The Lessee shall
remain obliged under this Lease in accordance with its terms and the Lessee
hereby waives any and all rights now or hereafter conferred by Law or otherwise
to modify or to avoid strict compliance with its obligations under this Lease.
All payments made to the Lessor hereunder as required hereby shall be final and
the Lessee shall not seek recovery of, nor shall Lessee be entitled to recover,
any such payment or any part thereof for any reason whatsoever, absent manifest
error.
(c) Lessee shall be entitled to bring a separate action against
Lessor, Agent, or the Purchasers, as applicable, to enforce their respective
obligations to Lessee hereunder or under the other Transaction Documents, but
no such action (including any judgment received by Lessee in connection
therewith) shall ever permit or grant Lessee the right to terminate this
Lease or create any right of abatement, set-off, or other reduction or
suspension of the payments due by Lessee hereunder.
6. Taxes and Assessments; Compliance with Law; Certain Agreements.
(a) The Lessee shall pay or cause to be paid, subject to Section 18,
all Impositions before any fine, penalty, interest or cost may be added or any
default may be claimed or any termination or foreclosure or forfeiture
procedures for nonpayment may be commenced. If any Imposition may legally be
paid in installments, such Imposition may be so paid in installments provided
that the Lessee shall pay all such installments due and payable on or prior to
the Expiration Date or earlier termination of this Lease. "Impositions" means
(i) all taxes, assessments, levies, fees, water and sewer rents and charges,
inspection fees and other authorization fees and all other governmental charges,
general and special, ordinary and extraordinary, foreseen and unforeseen, of
every character (including all penalties or interest thereon) which, at any time
prior to or during the Term, may be imposed or levied upon or assessed against
or be a Lien (as defined in Section 7) upon (A) the Property or any part
thereof, or (B) this Lease or the leasehold estate hereby created, or which
arise in respect of the ownership, operation, occupancy, possession, use,
non-use or condition of the Property or any part thereof; (ii) all gross
receipts or similar taxes imposed or levied upon, assessed against or measured
by any Net Rent, Additional Rent or other sum payable hereunder; (iii) all
sales, value added, use and similar taxes at any time levied, assessed or
payable on account of the ownership, operation, occupancy, use, leasing, or
subleasing of the Property or any part thereof; (iv) all charges, levies, fees,
rents or assessments for or in respect of utilities, communications and other
services rendered or used on or about the Property or any part thereof; and
(v) payments in lieu of each of the foregoing. "Impositions" shall not be
deemed to include any taxes or charges imposed upon any sale or transfer of
ownership interests in the Lessor, nor any "Excluded Charges" (as defined in
the Transaction Agreement).
(b) Subject to Section 18, the Lessee shall comply with, and cause
the Property to comply with, all Legal Requirements. "Legal Requirements" means
(i) all Laws, foreseen or unforeseen, ordinary or extraordinary, or arising from
any restriction of record or otherwise, which now or at any time hereafter may
be applicable to the Lessor, as owner of the Property, the Lessee, as lessee
hereunder, or the Property or any part thereof, or any of the adjoining
sidewalks or vaults, if any, or the ownership, operation, occupancy, use,
non-use or condition of the Property or any part thereof and any other
governmental rules, orders and determinations now or hereafter enacted, made or
issued, and applicable to the Lessor, as owner of the Property, the Lessee, as
lessee hereunder, or the Property or any part thereof or the ownership,
construction, operation, mortgaging, occupancy, possession, use, non-use or
condition thereof whether or not presently contemplated; and (ii) all
agreements, permits, covenants, conditions, and restrictions applicable to the
Property or any part thereof or the ownership, operation, mortgaging, occupancy,
use, non-use, or condition thereof, including but not limited to, all Facility
Agreements (as defined below) and all such Laws (including, without limitation,
carrying out all necessary or appropriate remediation or other response to any
Environmental Event in accordance with all applicable Environmental Laws),
contracts, agreements, covenants, conditions and restrictions which require
structural, unforeseen or extraordinary changes in the Property or any part
thereof and all matters of public record. Without limitation, to the extent that
any portion of the Property currently is included in the same subdivision lot or
tax parcel with other property that is not included in the Property, Lessee
shall proceed to promptly cause such portions of the Property to be replatted
and/or to effect such other legal or administrative actions as may be required
to cause each portion of the Property to be in a legal subdivision lot and tax
parcel that does not include any property that is not a part of the Property;
provided, however, that in isolated cases Lessee may, in lieu of any such
replat or other proceedings, provide title insurance endorsements, bonds,
indemnification or other assurances satisfactory, in Agent's reasonable
discretion, to assure that neither Lessor nor any successor-in-title thereto
shall bear any risk of cost or loss as a result of any such subdivision lot or
tax lot discrepancy. For purposes hereof "Facility Agreements" mean all
contracts or agreements relating to or affecting the Property or the operation
thereof or any portion thereof, including, without limitation, any easements,
declarations, covenants, or restrictions affecting the Property, and any other
agreement or arrangement that constitutes a Permitted Encumbrance.
(c) The Lessee shall fully and promptly keep, observe, perform and
satisfy, on behalf of Lessor, any and all obligations, conditions, covenants
and restrictions of or on the Lessor under any and all Facility Agreements, or
contest any obligations or alleged obligations thereunder, so that there will
be no default thereunder (other than a default as to which remedial actions are
stayed or suspended pending a contest of the obligations in question pursuant to
Section 18 hereof) and so that the other parties thereunder shall be and remain
at all times obliged to perform their obligations thereunder. To the extent
within its control Lessee shall not permit to exist any condition, event or fact
that could allow or serve as a basis or justification for any such person to
avoid such performance or to impose or enforce a Lien on the Property or any
portion thereof as a result of the non-performance by Lessee under any Facility
Agreement. Lessor agrees that without Lessee's consent, which consent shall
not be unreasonably withheld, Lessor shall not terminate or modify any Facility
Agreement. Further, at the request and expense of Lessee, Lessor agrees to
reasonably cooperate with Lessee in connection with the creation of additional
Facility Agreements and/or with any amendment or modification of any existing
Facility Agreement that Lessee may deem desirable; provided, that no Facility
Agreement shall be created or amended without the prior written consent of
Agent, which consent shall not be unreasonably withheld. Lessor hereby further
authorizes Lessee to act on Lessor's behalf pursuant to the Facilities
Agreements in the ordinary course of business related to the routine daily
operation of the Property; provided, that (i) prompt written notice of any
material action taken or notice received by Lessee with respect to any Facility
Agreement shall be given by Lessee to Agent, (ii) no consent, approval,
modification, amendment, or waiver under any Facility Agreement nor any status
report, estoppel certificate, or similar statement or certification with respect
to any Facility Agreement may be given by Lessee on Lessor's behalf without the
prior written approval of Agent (which approval shall not be unreasonably
withheld) unless the Facility Agreement in question has been approved (or deemed
approved) by Agent and either the Facility Agreement in question or another
instrument approved by the Agent contains an express delegation to Lessee
(in its capacity as such) of the right to issue the item in question or of the
right to provide such consent or approval on behalf of Lessor.
(d) Lessee's execution of a Supplement adding any Parcel or
Improvements to the Property shall constitute Lessee's representation and
warranty to Lessor, Agent, and to each of the Instrument Holders that as of the
date of such Supplement, to Lessee's knowledge: (i) there is no default, or
event or circumstance which, with notice and/or the passage of time could result
in a default, by Lessee or, to Lessee's knowledge, any other party under any
Facility Agreement applicable to such Parcel or Improvements, (ii) Lessee has
paid all amounts currently due and payable with respect to the Property or any
portion thereof under the terms of any Facility Agreement, and (iii) Lessee has
received no notice of, nor does Lessee have any other knowledge of, any events,
circumstances, or facts that have resulted in, or could result in, the loss or
material reduction or interruption of any of the services, easements, rights-
of-way, or other benefits inuring to the applicable Parcel under any of the
Facility Agreements, and/or the imposition of any Lien or charge of any kind
upon the applicable Parcel or any portion thereof pursuant to any Facility
Agreement. Without limitation of any other indemnifications or other rights
granted for the benefit of Lessor, Agent, and/or the Instrument Holders herein,
Lessee expressly agrees to indemnify, save, and hold harmless Lessor, Agent,
each Instrument Holder, and their respective successors and assigns from and
against any breach of any of the representations, warranties, or covenants
regarding the Facility Agreements contained in this Section 6.
(e) If any Improvements situated on any Parcels at any time during
the Term shall encroach upon any property, street or right-of-way adjoining or
adjacent to such Parcel, or shall violate the agreements or conditions contained
in any Facility Agreements affecting such Parcel or any part thereof, or shall
impair the rights of others under or hinder or obstruct any easement or right-
of-way to which such Parcel is subject, then, promptly after the written
request of Lessor or Agent, or any person affected by any such encroachment,
violation, impairment, hindrance or obstruction, Lessee shall, at its expense,
either (i) contest such matter in accordance with Section 18, (ii) obtain
effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation, impairment, hindrance or
obstruction whether the same shall affect Lessor, Lessee or both, (iii) make
such changes in the Improvements and take such other action as shall be
necessary to remove such encroachments, hindrances or obstructions and to end
such violations or impairments, including, if necessary, the alteration or
removal of any Improvement (subject to Lessor's and Agent's consent if required
by Section 10(a) hereof), or (iv) provide to Lessor affirmative title insurance
endorsements, bonds, or other assurances satisfactory to Agent, in its
discretion, to assure that neither Lessor nor any successor-in-title thereto
shall bear any risk of cost or loss as a result of the existence of such
encroachment. Lessor and Agent will not make request for correction of any
minor encroachments or similar minor matters unless either (A) a governmental
entity or a person or entity having an interest (which need not be an ownership
interest) in the property affected by such matter requests correction thereof,
or (B) in Lessor's or Agent's good faith judgment the existence of such
encroachment has a materially adverse effect upon the ownership, marketability,
and/or financeability of the Parcel or portion of the Property to which such
encroachment or other matter relates.
(f) In those circumstances set out in this Section in which Lessee
is authorized or permitted to take an action only after the consent or approval
of the Agent or Lessor is authorized or permitted to execute Facility Agreements
or other agreements requested by Lessee only after the consent or approval of
Agent, Agent shall be deemed to have approved the action, or execution by Lessor
of the document, in question if no disapproval is given to Lessee by Agent
within ten (10) Business Days after Lessee's written request for approval where
such request for approval (A) contains a reasonably detailed description of the
actions which Lessee proposes to take if the request is approved (including
copies of documents proposed to be executed or delivered) and (B) contains a
specific notice to Agent that the request will be deemed approved if not
disapproved within such period. If Agent disapproves any request, Agent shall
state its reasons for disapproval (which may include lack of sufficient
information regarding the request or, in any appropriate case, insufficient time
to fully evaluate the request). If Agent fails to notify Lessee within such ten
(10) Business Day period that the information provided by Lessee regarding the
requested approval is inadequate for Agent's needs Agent shall be deemed to have
waived any right to refuse a requested approval on the basis of inadequate
information (but the foregoing shall not be deemed to limit any rights or claims
that the Lessor or Agent may have if the description or other information
provided by Lessee in connection with a requested approval is inaccurate,
misleading, or fraudulent). Agent shall deliver to Lessor written
authorizations or directions to evidence Agent's approval of actions or
documents that have been approved (or deemed approved) by Agent as aforesaid.
Following any such approval or deemed approval by Agent, and receipt by Lessor
of the aforesaid authorizations or directions, Lessor shall execute any approved
Facility Agreement or other approved agreements as requested by Lessee.
(g) Within five (5) Business Days after receipt thereof by Lessor,
unless it is apparent that such materials have independently been received by
Lessee or Agent, as applicable, Lessor shall deliver to Lessee, with a copy to
Agent, any tax bills, condemnation notices, mechanics' lien claims, legal
pleadings, notices relating to Facility Agreements or Permitted Encumbrances,
or other material communications relating to the Property.
7. Matters of Title; Assignability.
(a) Subject to Section 18, and except for the Permitted Encumbrances,
the Lessee shall not create or permit to exist, and shall promptly remove and
discharge, any mortgage, charge, lien, security interest, encumbrance, right or
claim (each, a "Lien") upon this Lease or the Property or any part thereof or
interest therein, or upon any Net Rent, Additional Rent or other sum payable
hereunder, which Lien arises for any reason, including, without limitation, any
and all Liens which arise out of the use, condition, occupancy, construction,
possession, repair or rebuilding of the Property or any part thereof (including,
without limitation, by reason of a default under any Facility Agreement) or by
reason of labor or materials furnished or claimed to have been furnished to the
Lessee or for the Property or any part thereof. "Permitted Encumbrances" means,
with respect to the Property but only to the extent applicable thereto (i)
rights reserved to or vested in any municipality or public authority by the
terms of any right, power, franchise, grant, license, permit or provision of
Law affecting the Property to (A) terminate such right, power, franchise, grant,
license or permit, provided that the exercise of such right would not materially
impair the use of the Property or materially and adversely affect the value
thereof, or (B) purchase, condemn, appropriate or recapture, or designate a
purchaser of, the Property; (ii) any liens thereon for Impositions and any liens
of mechanics, materialmen and laborers for work or services performed or
materials furnished in connection with the Property, which are not due and
payable or which are not delinquent to the extent that penalties for nonpayment
may be assessed (or with respect to which title insurance endorsements, bonds,
or other security and assurances reasonably satisfactory to Agent have been
provided); (iii) easements, rights-of-way, servitudes, restrictions and other
minor defects, encumbrances, and irregularities in the title to the Property
approved by Agent as of the date the Parcel in question is added to the
Property and described in the owner's policies of title insurance issued to
Lessor, as owner of the Parcels, in connection with Lessor's acquisition of
the Parcels; (iv) rights reserved to or vested in any municipality or public
authority to control or regulate use of the Property or to use the Property in
any manner; (v) this Lease; and (vi) any Transaction Documents.
(b) The Lessor shall not create any Lien upon this Lease, the
Property, or any part thereof except this Lease, the Liens securing the
obligations of Lessor and/or Lessee under the Transaction Documents, and any
Liens that may arise in respect of any action taken by the Lessor, Agent or
the Instrument Holders from time to time in connection with the enforcement
of any rights under this Lease or the Transaction Documents.
8. Indemnification.
(a) The Lessee shall pay, protect, indemnify and hold harmless each
Indemnified Party (as defined below) from and against, and shall defend all
actions against any Indemnified Party with respect to, any and all liabilities
(including, but not limited to, liability in tort (whether strict liability or
otherwise)), losses, damages, costs, expenses (including, but not limited to,
reasonable attorneys' fees and expenses), causes of action, suits, claims,
demands or judgments of any nature whatsoever (collectively, "Losses") arising
from (i) any injury to or death of any person, or damage to or loss of property,
or any other event or circumstance occurring on or resulting from activities on
the Property, or resulting from or in connection with the ownership, leasing,
subleasing, operation, occupancy, possession, use, non-use or condition of the
Property, (ii) any Environmental Event, Incipient Default or Event of Default
hereunder, (iii) any act or omission of the Lessee or its agents, contractors,
licensees, sublessees, invitees, representatives or any Person for whose
conduct the Lessee is legally responsible on or relating to or in connection
with the ownership, leasing, subleasing, operation, management,
maintenance, occupancy, possession, use, non-use or condition of the Property;
6iv) performance of any labor or services or furnishing of any materials or
other property in respect of the Property or any part thereof; (v) any permitted
contest referred to in Section 18, provided, that no Indemnified Party shall be
entitled to payment or indemnification with respect to any amounts voluntarily
paid by such Indemnified Party in respect of matters being properly contested by
Lessee under such Section 18; or (vi) any violation by the Lessee of any
contract or agreement to which the Lessee is a party or of any Legal
Requirement or Insurance Requirement, in each case affecting any Indemnified
Party or the Property, or any part thereof or the ownership, operation,
occupancy, possession, use, non-use or condition thereof and in each case
regardless of the acts, omissions or negligence of any Indemnified Party
(except as otherwise set forth in the following proviso); provided, however,
that the Lessee shall not be required to indemnify any Indemnified Party
hereunder against any such claims to the extent arising solely as a result
of the fraud, gross negligence or willful misconduct of the Indemnified Party
in question. IT IS THE EXPRESS INTENT AND UNDERSTANDING OF THE PARTIES THAT
THE FOREGOING PROVISION DOES CONSTITUTE AN INDEMNIFICATION BY THE LESSEE
OF THE INDEMNIFIED PARTIES OF AND FROM LOSSES ARISING OUT OF THE
NEGLIGENCE OF THE RESPECTIVE INDEMNIFIED PARTIES OR ANY OF THEM;
PROVIDED, HOWEVER, THAT THE PARTIES AGREE AND ACKNOWLEDGE THAT NO
INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER
FOR DAMAGES OR LOSSES TO THE EXTENT CAUSED BY THE FRAUD,GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY IN
QUESTION. In connection with any such defense by Lessee, Lessee may file
answers and pleadings in the name of and on behalf of the applicable Indemnified
Party(ies) where necessary. For purposes of this Section 8, "Indemnified Party"
means the Lessor (in both its capacity as Trustee under the Declaration of Trust
and in its individual capacity), each Instrument Holder, Agent (and any
successor agent), and any officer, director, employee or agent of any of the
above. "Incipient Default" means the occurrence of any event or the existence
of any circumstance that would entitle Agent or Lessor to send a notice
requiring remedial action by Lessee which, if not carried out by Lessee within
the applicable grace or cure period as provided in the applicable subsection of
Section 19(a) hereof, would result in the existence of an Event of Default
hereunder.
(b) The obligations of the Lessee under this Section 8 shall survive
the expiration or any termination of this Lease (whether by operation of Law or
otherwise) for all matters described in this Section 8 which occur or arise
prior to such expiration or termination or arise out of or result from facts,
events, claims, liabilities, actions or conditions occurring, arising or
existing on or before such expiration or termination; provided, that the
foregoing shall not be construed to extend or toll any applicable statute of
limitations with respect to the obligations of Lessee hereunder. In case any
action shall be brought against any Indemnified Party in respect of which
indemnity may be sought against the Lessee, such Indemnified Party shall
promptly notify the Lessee in writing, but failure to give such prompt notice
shall not relieve the Lessee from any liability hereunder except to the extent
Lessee is actually prejudiced by such failure to give prompt notice. So long
as no Event of Default exists, and no Incipient Default exists with respect to
the matters covered in Sections 19(a)(i), (iv), (vii), (x), (xi), or (xiv) (any
such Incipient Default being referred to as a "Special Incipient Default") has
occurred and is continuing hereunder, the Lessee, at its own expense, may defend
any action brought against an Indemnified Party, including the employment of
counsel reasonably satisfactory to such Indemnified Party and the payment of all
reasonable expenses thereof. Any Indemnified Party shall have the right to
employ separate counsel in any such action and to consult with the Lessee
regarding the defense thereof, provided that, except in the circumstances
described below any such separate counsel shall be employed at the sole cost
and expense of the Indemnified Party, and provided, further, that, except as
provided below, the Lessee shall at all times control such defense. If the
Lessee shall have failed to employ counsel reasonably satisfactory to such
Indemnified Party (or, upon notice from the Indemnified Party that the counsel
employed by Lessee is not satisfactory, if Lessee has failed to discharge
counsel previously employed and to retain new counsel that both Lessee and
the Indemnified Party agree upon), the fees and expenses of counsel to each
Indemnified Party shall be paid by the Lessee. Further Lessee shall pay all of
the Losses of such Indemnified Party incurred in respect of such defense if
either (i) the Lessee shall elect in writing not to assume the defense or,
having assumed such defense, shall thereafter fail to prosecute diligently such
defense thereof, or (ii) if any Special Incipient Default or Event of Default
has occurred and is continuing hereunder. Further, if any Indemnified Party
shall have been advised by counsel chosen by it that there may be one or more
legal defenses available to such Indemnified Party that are different from or
additional to those available to Lessee and the relief sought against the
Indemnified Party is other than payment of monetary damages, the Indemnified
Party may assume the defense of such loss or action once tendered and Lessee
will reimburse such Indemnified Party for the reasonable fees and expenses of
any counsel retained by the Indemnified Party. So long as Lessee is diligently
defending the claim in question as aforesaid or, if the Indemnified Party has
assumed defense thereof, so long as Lessee is paying the costs of such separate
defense in accordance herewith, the Lessee shall not be liable for any
settlement of any action without its consent. No settlement of any such action
may be made by the Lessee without the Indemnified Party's consent; provided,
however, such consent shall not be necessary if the settlement results in an
unconditional and final release of the Indemnified Party without the admission
by the Indemnified Party of guilt, complicity or culpability.
(c) Upon demand for payment by any Indemnified Party of any Losses
incurred by it for which indemnification is sought, along with a brief
description of the nature and extent of the Losses as well as the circumstances
under which indemnification is sought, Lessee shall pay when due and payable the
full amount of such Losses to the appropriate party, unless the Lessee shall
have assumed the defense of such Loss or action once tendered and is diligently
prosecuting the same and Lessee has taken all action as may be reasonably
necessary to prevent (i) the collection of such Losses from the Indemnified
Party; (ii) the sale, forfeiture or loss of the Property or any part thereof
during such defense of such action; and (iii) the imposition of any civil or
criminal liability for failure to pay such Losses when due and payable.
(d) Notwithstanding the foregoing, if a claim that is subject to the
indemnification provisions set out above is made seeking monetary damages only
and the maximum exposure of the Indemnified Party is less than $1,000,000.00,
then so long as the Lease Guarantor is in compliance with the financial
covenants set out in the Lease Guarantee, Lessee may defend or settle such
matter at its discretion and in the name of the Indemnified Party without
involvement of the Indemnified Party in the defense or settlement thereof.
(e) Lessee acknowledges the execution, of even date herewith, of the
"Environmental Indemnity Agreement" (herein so-called) wherein Lessee has
indemnified Lessor, Agent and the Instrument Holders for various matters
relating to Hazardous Substances and Environmental Laws relating to the
Property. The indemnification rights provided for herein are in addition to,
and not in lieu of, indemnification rights granted in the Environmental
Indemnity Agreement.
9. Maintenance and Repair. The Lessee, at its own expense, will manage
and maintain the Property in good repair and condition, subject to normal wear
and tear. Further, Lessee will take all action, and will make all changes and
repairs, structural and nonstructural, foreseen and unforeseen, ordinary and
extraordinary, to the Property from time to time as may be required to keep the
Property in compliance with any Legal Requirement or Insurance Requirement at
any time in effect. The Lessor shall not be required to, and Lessee hereby
waives any right to require the Lessor to, manage, maintain, repair or rebuild
the Property or any part thereof and the Lessee waives any and all rights it may
now or hereafter have to make any repairs at the expense of the Lessor pursuant
to any Legal Requirement, Insurance Requirement, or otherwise, at any time in
effect. All repairs, replacements and rebuilding by the Lessee hereunder shall
immediately become and shall remain part of the Property, subject to this Lease.
10. Alterations; Additions.
(a) At any time, so long as no Event of Default has occurred, and no
Special Incipient Default then exists, the Lessee may, at its own expense, make
Additional Improvements to the Property; provided, however, that (i) the fair
market value of the Property shall not be lessened thereby, and (ii) such work
shall be completed in a good and workmanlike manner free and clear of any Liens
for labor, services or materials (subject to Section 18 hereof) and in
compliance with all applicable Legal Requirements and Insurance Requirements,
(iii) the structural integrity of the Improvements shall not be impaired
thereby, and (iv) any "Material Improvements" (as defined below) shall have been
approved in writing by Agent prior to commencement thereof (which approval shall
not be unreasonably withheld or delayed). "Additional Improvements" means
additions or alterations of the Improvements made by or for the Lessee and\
"Material Improvements" means Additional Improvements which have a cost in
excess of $350,000.00 (for this purpose related segments of Additional
Improvements on any given Parcel (but not similar activities occurring on
separate Parcels) shall be aggregated). The installation or modification of
Lessee's Equipment inside any Improvements will not be treated as Additional
Improvements for purposes hereof. The Lessee shall be permitted, with the
consent of the Agent (which consent shall not be unreasonably withheld), at any
time during, or upon the expiration or termination of, the Term, and at its
sole cost and expense, to remove any such Additional Improvements to the
Property; provided, however, that, in the reasonable discretion of Agent, such
removal shall not impair the use or reduce the fair market value of the Property
below its fair market value on commencement of the Term and that such removal
shall not cause a violation of any Legal Requirement or Insurance Requirement.
Any damage to the Property or any part thereof caused by such removal shall
promptly be repaired by the Lessee and the Property or part thereof shall be
restored to its condition (or the reasonable equivalent thereof) as it existed
immediately prior to the construction of such Additional Improvements, at the
Lessee's sole cost and expense. The Lessee may place upon the Property or any
part thereof any inventory, fixtures, machinery, equipment or other property
belonging to the Lessee or third parties and remove the same at any time during
the Term and at the request of the Lessor or Agent shall remove the same at the
expiration or termination hereof unless the Lessee shall have purchased the
Property pursuant to the terms hereof; provided that any damage to the Property
or any part thereof caused by such removal shall promptly be repaired by the
Lessee and the Property or such part thereof shall be restored to its condition
(or the reasonable equivalent thereof) as it existed immediately prior to the
placement of any such property upon the Property, all at the Lessee's sole cost
and expense.
(b) If any request is made by Lessee for approval by Agent of the
construction of proposed Additional Improvement and/or the removal thereof by
Lessee where such approval is required, the request in question shall be
deemed approved if Agent has not given Lessee notice of disapproval within ten
(10) Business Days after Lessee's written request for approval where such
request for approval (A) contains a reasonably detailed description of the
action which Lessee proposes to take (including the Additional Improvements to
be constructed or demolished, and the effect thereof upon the value and utility
of the affected Parcel and the Improvements thereon), and (B) contains a
specific notice to Agent that the request will be deemed approved if not
disapproved within such period. If Agent disapproves any request, Agent shall
state its reasons for disapproval (which may include lack of sufficient
information regarding the request or, in an appropriate case, insufficient time
to fully evaluate the request). If Agent fails to notify Lessee within such ten
(10) Business Day period that the information provided by Lessee regarding the
requested approval is inadequate for Agent's needs Agent shall be deemed to
have waived any right to refuse a requested approval on the basis of inadequate
information (but the foregoing shall not be deemed to limit any rights or claims
that the Lessor or Agent may have if the description or other information
provided by Lessee in connection with a requested approval is inaccurate,
misleading, or fraudulent).
(c) All Additional Improvements shall become and remain part of the
Property and shall be subject to this Lease, unless and until removed by the
Lessee in accordance with subsection 10(a).
11. Lessee's Right to Contest Real Property Taxes. The Lessee, at its own
cost and expense, shall have the sole right, at any time, to seek a reduction in
the assessed valuation of the Property or to contest any real property taxes for
the Property as provided for in Section 18 hereof. If required by any
applicable Legal Requirement the proceeding or contest may be brought by Agent
in the name of Lessor as the owner of the Property but Lessee shall pay any
and all costs and expenses incurred by, or that become the obligation of, the
owner of the Property in connection therewith. Lessee, on final determination
of the proceeding or contest, shall, subject to Section 18 hereof, immediately
pay, discharge and satisfy any decision or judgment rendered, together with all
costs, interest, and penalties incidental to the decision or judgment. Any tax
refund or similar amount received by Lessor as a result of any such contest
by Lessee and attributable to periods when the tax in question was paid by
Lessee shall be received for the benefit of Lessee and promptly paid over to
Lessee by Lessor.
12. Condemnation and Casualty.
(a) General.
(i) Subject to the provisions of this Section 12 Lessee hereby
irrevocably assigns to the Lessor any award or compensation or insurance
payment to which the Lessee may become entitled (i) if the Property or any part
thereof is damaged or destroyed by fire or other casualty (such an occurrence
being herein called a "Casualty") or (ii) if the use, occupancy or title of the
Property or any part thereof is taken or requisitioned or sold in, or on
account of any actual or threatened condemnation or eminent domain proceedings,
or other action by any Person having the power of eminent domain (such an
occurrence being herein called a "Condemnation").
(ii) The Lessee shall promptly notify the Lessor in writing of
any Casualty or Condemnation and shall appear in any proceeding or action to
defend, negotiate, prosecute or adjust any claim for any award or compensation
or insurance payment on account thereof. The Lessee shall take all appropriate
action in connection therewith, including the employment of counsel reasonably
satisfactory to the Lessor and Agent. The Lessor and Agent shall have the
right to appear and participate and to employ separate counsel in any such
proceeding or action, and the fees and expenses of such counsel shall be paid
by the Lessee if the Lessee shall have failed to employ counsel reasonably
satisfactory to the Lessor and Agent (or, upon notice from Lessor or Lessee of
their dissatisfaction with the counsel employed by Lessee, Lessee shall have
failed to discharge counsel previously employed and to retain new counsel that
Lessee and the Agent and Lessor may agree upon). If the Lessee shall elect not
to enter an appearance in any such proceeding or action or shall fail to
prosecute any such proceeding or action diligently, or if any Special
Incipient Default or Event of Default has occurred and is continuing hereunder,
the Lessor and/or Agent may assume the prosecution thereof and the Lessee shall
pay all of the reasonable fees and expenses of Lessor's and/or Agent's counsel.
No settlement of any such proceeding or action shall be made by the Lessee
without the written consent of the Lessor and the Agent, which consent shall
not unreasonably be withheld.
(iii) All awards and proceeds attributable to Lessee's
Equipment, Lessee's moving and other expenses, and other losses incurred by
Lessee and all proceeds of Lessee's business interruption insurance shall be
paid to Lessee, and Lessor shall not have any rights therein, so long as the
award or insurance proceeds payable in respect of the Parcel and/or the
Improvements themselves are not reduced as a result of any such payments to
Lessee. In no event shall Lessee make any claim in any Condemnation proceeding
in respect of the loss or value of the leasehold estate in the Property created
hereby, and Lessee hereby assigns to Lessor any rights it may have to any award
based on the value of the leasehold estate; provided, however, that (i) the
foregoing shall not preclude Lessee from bringing a separate action for damage
to its leasehold estate if, and only if, the award to the Lessor is not reduced
as a result thereof, and further provided that (ii) if Lessee purchases the
Property (or applicable portion thereof) in connection with any such
Condemnation under any applicable provision of this Lease, Lessee shall be
entitled to any Net Proceeds arising therefrom and may prosecute or dispose of
any Condemnation action as it deems appropriate.
(iv) Except as otherwise set out below, any and all amounts
representing proceeds paid in connection with any such Condemnation or Casualty
(other than proceeds of rental loss insurance and proceeds attributable to
Lessee's personal property, Lessee's moving or other expenses, and business
interruption insurance), as the case may be (collectively, the "Proceeds"),
shall be paid over to the Proceeds Trustee (as defined below) to be held in
trust by such Proceeds Trustee and distributed pursuant to paragraph 12 or 15
of this Lease, as appropriate, (all such Proceeds, less the reasonable expenses
incurred by the Lessor and the Lessee in collecting such amounts, but including
any reimbursement by the Lessee for reasonable costs and expenses in connection
therewith to which the Lessor and the Agent are entitled pursuant to this Lease,
are the "Net Proceeds"). Except as otherwise provided below, any and all
Proceeds received by the Lessee in connection with any such proceeding or action
shall be received and held in trust for the benefit of the Lessor, shall be
segregated from other funds of the Lessee and shall be forthwith paid over to
the Proceeds Trustee. The Lessee and Lessor agree that this Lease shall control
the rights of the Lessor and the Lessee in any such Proceeds, and any present or
future Law to the contrary is hereby waived. Any and all reasonable charges,
fees and expenses of the Proceeds Trustee shall be paid from the Net Proceeds.
"Proceeds Trustee" shall mean Agent, if Agent elects to perform such functions
or, if Agent elects not to perform such functions, such title company or other
independent bank or trust company as may be designated by the Lessor with the
approval of Agent.
(v) Notwithstanding the foregoing, however, if the total amount
of Proceeds attributable to a Casualty or Condemnation is less than or equal to
$350,000.00 with respect to any one Parcel, and no Special Incipient Default and
no Event of Default of any kind then exists, then Lessee may settle the claim in
question on behalf of Lessee and any and all Proceeds received by Lessee in
connection with any such proceeding or action may be retained by Lessee (rather
than being paid over to the Proceeds Trustee), and this Lease shall continue
in full force and effect, and the Lessee shall, at its expense, promptly
commence and diligently pursue to completion the rebuilding, replacement or
repair of any damage to such portion of the Property caused by such event in
conformity with the requirements of Sections 9 or 10, as applicable, in order
to restore such portion of the Property (in the case of a Condemnation, as
nearly as practicable) to the condition and fair market value thereof
immediately prior to such event.
(b) Condemnation with Termination. (i) If a Condemnation shall in
the good faith opinion of an authorized officer of Lessee affect the
Improvements on a given Parcel in such manner as to render it unsuitable for
restoration or for continued use and occupancy by the Lessee, then the Lessee
may deliver, not later than sixty (60) days after such occurrence, or (ii) if
a Condemnation shall affect the entirety of a Parcel and the Improvements
thereon, then the Lessee shall be deemed to have delivered as of such
occurrence, to the Lessor a written notice (herein called a "Termination
Notice") containing (A) notice of the Lessee's intention to terminate this
Lease with respect to the affected Parcel and the Improvements thereon, and
(B) a certificate of an officer of the Lessee describing the Condemnation giving
rise to such termination and certifying as to clause (i) or (ii) above, as
appropriate. In such event this Lease shall remain in full force and effect as
to the Parcels (and the Improvements thereon) not affected by the Condemnation
in question, and as to the affected Parcel and Improvements the Lessee shall
have the same options available to it that would be available to Lessee at the
Expiration Date with respect to the entire Property. Accordingly, Lessee may
either purchase the remainder of the Parcel and Improvements in question, if
any, plus the Net Proceeds attributable thereto for the Offer Purchase Price as
provided for in Section 15 below, or terminate this Lease as to the Parcel and
Improvements in question upon payment of a Contingent Rent Payment in respect
of the Parcel and Improvements in question in an amount equal to 84% of the
amount that would be the applicable Offer Purchase Price for the Parcel and
Improvements in question pursuant to Section 15. (If Lessee pays the Contingent
Rent Payment in respect of a portion of the Property pursuant to this provision,
such amount shall be credited, without interest, against the Contingent Rent
Payment payable hereunder at the Expiration Date.) If Lessee fails to elect
which of the foregoing options it requests at the time of delivery of the
Termination Notice, it shall be deemed to have elected to purchase the affected
portion of the Property for the applicable Offer Purchase Price.
(c) Condemnation Without Termination; Casualty.
(i) If, after a Condemnation, the Lessee has not given a
Termination Notice in accordance with subsection 12(b) with respect to the
affected Parcel and the Improvements thereon, or in any event after a Casualty
(unless, in the case of Casualty, Lessee elects to proceed pursuant to Section
13 below, if applicable), then this Lease shall continue in full force and
effect with respect to the affected Parcel and the remainder of the Property,
and the Lessee shall, at its expense, promptly commence and diligently pursue
to completion the rebuilding, replacement or repair of any damage to such
portion of the Property caused by such event in conformity with the requirements
of Section 9 or 10, as applicable, in order to restore such portion of the
Property (in the case of a Condemnation, as nearly as practicable) to the
condition and fair market value thereof immediately prior to such event.
(ii) In circumstances where the Net Proceeds are to be
administered by the Proceeds Trustee, the Lessee shall be entitled to receive
payment from the Net Proceeds from time to time as such work of rebuilding,
replacement or repair progresses, but only after presentation of certificates
of a licensed architect chosen by the Lessee and subject to the approval of the
Agent (which approval shall not be unreasonably withheld or delayed), delivered
by the Lessee to the Proceeds Trustee (with a copy to the Agent) from time to
time as such work of rebuilding, replacement or repair progresses. Each such
architect's certificate shall describe the work for which the Lessee is
requesting permission to pay or requesting payment and the cost incurred by the
Lessee in connection therewith and shall state that such work has been
properly completed and that the Lessee has not theretofore received payment for
such work, and shall be accompanied by an officer's certificate of the Lessee
certifying that no Special Incipient Default or Event of Default has occurred
and is continuing and that the amounts held by the Proceeds Trustee are
adequate to complete such rebuilding, replacement or repair. The Proceeds
Trustee shall deliver, or cause to be delivered, payment within ten (10)
Business Days after its receipt of the certificates required above. Upon
receipt by the Proceeds Trustee (with a copy to the Agent) of an officer's
certificate from the Lessee to the effect that final payment has been made for
any such work and stating that the rebuilding, replacement or repair has been
completed, the remaining amount of such Net Proceeds shall be paid to the
Lessee. The Lessee shall be responsible for the cost of any such repair,
rebuilding or restoration in excess of such Net Proceeds, for which cost the
Lessee shall make adequate provision acceptable to the Lessor and Agent.
(d) Temporary Condemnation or Lease Termination. Notwithstanding
any other provision to the contrary contained in this Section 12, in the event
of any temporary Condemnation, this Lease shall remain in full force and effect,
and provided no Special Incipient Default or Event of Default has occurred and
is continuing, the Lessee shall be entitled to receive the Net Proceeds
allocable to such temporary Condemnation, except that if this Lease shall expire
or terminate during such temporary Condemnation, then Lessee shall only be
entitled to the Net Proceeds allocable to the period after the termination or
expiration of this Lease if it has purchased the Property pursuant to Section
14 hereof.
(e) Notwithstanding the foregoing provisions, in the event a material
Condemnation or Casualty with respect to a Parcel occurs during the last twelve
(12) months of the Term, Lessee may issue a Partial Termination Notice with
respect to the Parcel in question in the manner contemplated in Section 13(a)
hereof, but without satisfying the requirements set out in Section 13(a)(i)(3)
regarding the Parcel in question. No Early Termination Fee shall be
payable in the event Lessee exercises such option.
13. Early Termination Rights.
(a) Partial Termination.
(i) Subject to the provisions of subsections (a)(ii) and (a)
(iii) below, the Lessee may at any time deliver to the Lessor a written notice
signed by an authorized officer of the Lessee (herein called a "Partial
Termination Notice") containing (1) notice of the Lessee's intention to
terminate this Lease with respect to a specific Parcel and the Improvements
located thereon as of a Payment Date no earlier than thirty (30) days after
the delivery of such notice, (2) an Offer to Purchase with respect to such
Parcel and the Improvements located thereon pursuant to Section 14, and (3) a
certification of an authorized officer of Lessee to the effect that either (A)
the Parcel in question has become obsolete and is no longer needed by Lessee for
its operation; or (B) if an Event of Default, or any Incipient Default, exists
which in either case arises out of an Environmental Event relating solely to the
Parcel in question and Lessee elects to cure the Event of Default in question,
or to cure the Incipient Default before it becomes an Event of Default, by
purchasing the affected Parcel in lieu of taking the curative action required
by Lessor or Agent.
(ii) Specific Limitation. In no event shall Lessee have the
right to give a Partial Termination Notice with respect to any Parcel(s)
pursuant to subsection (a)(i)(A) above prior to the first anniversary of the
foregoing one (1) year limitation will not apply to the exercise of Lessee's
purchase option pursuant to subsection (a)(i)(B) above. It is acknowledged
that the option of the Lessee to give a Partial Termination Notice pursuant to
subsection (a)(i)(B) above is a right granted to Lessee that is separate from
the obligation of Lessee to purchase a Parcel at the option of Lessor if the
Environmental Event in question ripens into an Event of Default, as provided
in Section 14(a)(v).
(iii) In addition to any other amounts included within the
Offer Purchase Price, Lessee shall pay to Lessor an "Early Termination Fee"
(herein so-called) in an amount equal to one percent (1%) of the Acquisition
Price of the Parcel(s) in question, at the time the Lease is terminated as to
any Parcel(s) pursuant to this Section 13(a).
(b) Material Changes in Treatment of Transaction.
(i) The Lessee at any time may deliver to the Lessor a written
notice signed by an authorized officer of the Lessee (herein called an
"Early Termination Notice") upon the occurrence of any of the following:
(A) A ruling by the Internal Revenue Service which results
in the loss of MACRS (as defined in the Internal Revenue Code of 1986)
deductions relating to the Property by Lessee for federal income tax
purposes; or
(B) A change in GAAP or the interpretive rulings applicable
thereto which requires recharacterization of this Lease as a "capital
lease" rather than an "operating lease";
(C) Issuance of any rulings or requirements by the
Securities and Exchange Commission ("SEC") that would require that
this Lease be accounted for as a "capital lease" rather than as an
"operating lease" in any financial statements of Lessee used in any
public SEC filings.
The Early Termination Notice shall contain notice of the Lessee's intention
to terminate this Lease as of a Payment Date no earlier than thirty (30)
days after the delivery of such notice, and (ii) an Offer to Purchase all
of the Property pursuant to paragraph 14.
(ii) No Early Termination Fee shall be due in the event of a
purchase of the Property pursuant to this Section 13(b).
14. Offer to Purchase.
(a) Lessee shall have the right, or obligation, as applicable, to
deliver an "Offer to Purchase" (herein so-called) for the Property or an
applicable portion thereof from Lessor under the following circumstances:
(i) On the date that is six (6) months prior to the Expiration
Date (as extended, if applicable), Lessee shall be deemed to have delivered
to Lessor an Offer to Purchase the entire Property unless, on or before
such date, Lessee has given notice to Lessor of Lessee's election to pay
the Contingent Rent Payment pursuant to Section 27 hereof. Any such
purchase of the entire Property may be closed at any time during the last
six (6) months of the Term and no Early Termination Fee shall be applicable
thereto. The exercise by Lessee of its rights on one or more occasions
under Sections 12(b) or 13(a)(i) or 13(b) shall not limit or otherwise
affect Lessee's right to elect either to deliver an Offer to Purchase or
to pay the Contingent Rent Payment hereunder with respect to the portions
of the Property that remain subject to this Lease at the time the
provisions of Section 27 become applicable.
(ii) Simultaneously with the delivery of Partial Termination
Notice pursuant to Section 13(a)(i) above with respect to any applicable
portion of the Property, Lessee shall be obligated to deliver an Offer to
Purchase such portion of the Property and the delivery of such Offer to
Purchase shall be a condition precedent to the effectiveness of such
Partial Termination Notice.
(iii) Simultaneously with the delivery of any Early
Termination Notice pursuant to Section 13(b) above, Lessee shall be
obligated to deliver an Offer to Purchase the entire Property and the
delivery of such Offer to Purchase shall be a condition precedent to the
effectiveness of such Early Termination Notice.
(iv) Simultaneously with the delivery of any Termination Notice
with respect to an applicable portion of the Property pursuant to Section
12(b) hereof in connection with any Condemnation, Lessee shall be
obligated to deliver an Offer to Purchase such portion of the Property and
the delivery of such Offer to Purchase shall be a condition precedent to
the effectiveness of such Termination Notice.
(v) Upon the occurrence of an Event of Default, Lessee shall, at
the option of Lessor or Agent, be deemed to have delivered an Offer to
Purchase covering the entire Property (unless the Event of Default in
question is one that arises solely out of facts or conditions applicable to
one or more particular Parcel(c) [as opposed to the Property as a whole, or
the condition of Lessee or Lessee Parent] such that if the Parcel(s) in
question were not part of the Property the Event of Default in question
would not exist, in which case the Offer to Purchase shall be applicable
only to the Parcel(s) as to which such Event of Default relates) effective
as of the date on which such Event of Default is declared by Lessor or
Agent; provided, however, that in the case of any Event of Default as
defined in subsection 19(a)(xi) or 19(a)(xii), the Offer to Purchase
shall be deemed to have been given immediately upon the occurrence of the
Event of Default in question and without the necessity or requirement of
any notice or request from Lessor or Agent. An Early Termination Fee in
an amount equal to one percent (1%) of the applicable Acquisition Price
shall be due and payable with respect to any purchase of one or more
Parcel(s) pursuant to this subsection (v).
(vi) If a Construction Failure (as defined in Section 3 of the
Construction Addendum) shall occur with respect to the construction of New
Improvements on any one or more Parcel(s), then unless Lessee elects in
writing within fifteen (15) days thereafter to terminate the Lease with
respect to the Parcel as to which the Construction Failure has occurred
pursuant to Section 3.1 of the Construction Addendum, Lessee shall be
deemed to have delivered an Offer to Purchase the Parcel with respect to
which such Construction Failure has occurred upon the earlier of the
Required Completion Date (as defined in the Construction Addendum) or the
date on which such Construction Failure occurs for the New Improvements in
question. No Early Termination Fee shall be payable with respect to any
such purchase.
(b) Any Offer to Purchase delivered by the Lessee shall be
irrevocable, except as otherwise provided herein.
(c) The Lessor shall promptly accept any Offer to Purchase
delivered by Lessee in accordance with the foregoing provisions and the
procedure for the purchase of the Property or applicable portion thereof and
the purchase price therefor shall be governed by Section 15 hereof.
15. Procedure Upon Purchase.
(a) If the Lessee shall deliver (or is deemed to have delivered) an
Offer to Purchase under Section 14(a)(i), the closing of the Lessee's purchase
of the Property (the "Closing Date") shall be on the Expiration Date (or such
earlier date during the last six (6) months of the Term as may be designated by
Lessee). Otherwise, the Closing Date shall be: (1) in the case of an Offer to
Purchase covering all or a portion of the Property given pursuant to subsection
14(a)(ii), (iii), or (iv), on the Payment Date specified in the Partial
Termination Notice, Early Termination Notice, or Termination Notice, as
applicable; (2) in the case of an Offer to Purchase (covering either all of the
Property or an applicable portion thereof) delivered pursuant to subsection
14(a)(v) or (vi) on the first Payment Date that is at least thirty (30) days
after delivery (or deemed delivery) of the Offer to Purchase to Lessor by
Lessee. In any case the Closing Date may be on such other date as may be
mutually agreed upon by the Lessor and the Lessee. On the Closing Date, upon
receipt of the Offer Purchase Price, the Lessor shall convey, or cause to be
conveyed, the Property or applicable portion thereof (or, in the case of
Condemnation, the remaining portion thereof) to the Lessee or its designee by
an appropriate recordable limited or special warranty deed and other appropriate
conveyance documents containing no representation or warranty (expressed or
implied) except that the Property or applicable portion thereof is free and
clear of any conveyance, mortgage, lease, or Lien or other adverse interest of
any kind created or caused by the Lessor or any person claiming by, through
or under the Lessor but not otherwise (except as consented to by the Lessee).
(b) On the Closing Date, the Lessee shall pay, or cause to be paid,
to the Lessor the "Acquisition Price" for the Property or the portion(s) thereof
covered by the Offer to Purchase in question as defined in Exhibit "A", together
with all Net Rent, Additional Rent and other sums then due and payable hereunder
relating to the Property (including, in the case of a transfer of less than all
of the Property, all such sums attributable both to the portions of the Property
being transferred and the remaining portions of the Property) up to and
including such Closing Date, plus the Early Termination Fee (if applicable)
(such amounts, plus all amounts payable by Lessee pursuant to the following
sentence, are herein referred to as the "Offer Purchase Price"), and the Lessor
shall simultaneously (i) deliver to the Lessee or its designee the instruments
referred to in this Section 15 with respect to the Property or the applicable
portions thereof and any other instruments reasonably necessary to convey to
Lessee or its designee the Property or the applicable portions thereof and
assign any other property then required to be assigned pursuant hereto, and
(ii) convey, or cause to be conveyed, to the Lessee or its designee any Net
Proceeds and/or the right to receive the same attributable to the portions
of the Property being transferred that have not theretofore been disbursed.
The Transaction Mortgage granted by Lessor on the Property pursuant to the
Transaction Agreement shall be released from the Property (or applicable portion
thereof) purchased by Lessee, by the Agent, by appropriate recordable
instrument. The Lessee shall also pay, or cause to be paid, all charges
incident to such conveyance, including reasonable attorneys' fees of Lessor's
counsel and/or Agent's counsel, and escrow fees, recording fees, any fees,
costs or expenses incurred by the Lessor or Agent in connection with the same,
and all applicable transfer taxes which may be imposed by reason of such
conveyance and the delivery of said instruments (collectively, the "Closing
Costs"). Upon the completion of any purchase of the Property pursuant to this
Section 15, but not prior thereto, this Lease shall terminate with respect to
the Property or the applicable portions thereof affected by such transaction
except with respect to obligations and liabilities of the Lessee (actual or
contingent) (i) under Section 8 hereof, and (ii) which have arisen with respect
to the Property on or prior to such date of purchase, and except as elsewhere
provided herein.
(c) If less than all of the Property is purchased, this Lease shall
remain in full force and effect as to the remaining portions of the Property,
and the Net Rent shall be adjusted as provided for on Exhibit "A".
16. Insurance. Throughout the Term of the Lease (including any extension
thereof), Lessee shall comply with the following "Insurance Requirements"
(herein so-called):
(a) The Lessee will purchase and maintain, or cause to be purchased
and maintained, insurance with respect to the Property of the following types
and in the following amounts, or if greater, in sufficient amounts to prevent
the Lessor, the Lessee, the Agent and/or the Instrument Holders from becoming
co-insurers of any loss:
(i) Property Insurance: Insurance against physical damage to
the Property caused by "all risks" perils (subject to certain commercially
customary exclusions such as earthquake damage), as well as broad form
boiler and machinery coverage.
(ii) Commercial General Liability Insurance: Insurance (issued
on an "occurrence" rather than "claims made" basis) against claims for
bodily injury (including death) and property damage occurring on, in or
about the Property or resulting from activities on the Property, in the
minimum combined single limit amount of $50,000,000 in the aggregate and
and $25,000,000 for each occurrence for bodily injury (or death) and/or
property damage. Such coverage may be provided either by a primary policy
having such limits or by a primary policy with lower limits and one or
more secondary or "umbrella" policies, so long as in the aggregate the
required coverage is provided.
(iii) Other Insurance: Such other insurance, in such amounts
and against such risks, as is available from time to time and customarily
carried by companies owning, operating or leasing property or conducting
businesses similar and/or similarly situated to the Property and/or the
Lessee.
Such insurance shall be written by companies that are nationally recognized
(including Lloyd's of London or other recognized international insurers) and
primary insurance shall be written by companies with a Best's rating of at
least B+/VI for property insurance and B+/X or better for other insurance, and
in each case legally qualified to issue such insurance, selected by the Lessee
and shall name Lessor (in both its individual capacity and in its capacity as
Trustee under the Declaration of Trust, to the extent of its respective
interests under the Transaction Documents) and Agent (for the benefit of itself
and the Instrument Holders) as an additional insured and/or loss payee, as their
interests may appear. If the Property or any part thereof shall be damaged
or destroyed by fire or other insured peril, the Lessee shall promptly notify
the Lessor thereof and of the estimated cost of rebuilding, and of replacing
or repairing the same.
(b) The property insurance referred to in subsection 16(a)(i) for the
Property shall (i) at all times be in an amount at least equal to one hundred
percent (100%) of the replacement cost value (without depreciation), but
excluding the cost of footers, foundations, and site improvements not normally
insured, and (ii) include a lenders' loss payable endorsement in favor of the
Agent, as mortgagee under the Transaction Mortgage, and any loss or damage under
such property insurance policy other than proceeds representing compensation for
business interruption or damage to Lessee's personal property shall be paid to
the Proceeds Trustee (or, if received by any other party, shall be immediately
endorsed or paid over to the Proceeds Trustee) where required pursuant to
Section 12 of this Lease to be held and applied pursuant to the terms of this
Lease. Every policy required under Section 16(a) shall (i) expressly provide
that it will not be cancelled or terminated due to a lapse for non-payment of
premium or materially changed except upon fifteen (15) days' written notice to
the Lessor, Agent and the Lessee; (ii) provide that the interests of the Lessor
and the Agent shall be insured regardless of any breach or violation by the
Lessee of any warranties, declarations or conditions contained in such
insurance; (iii) provide that such insurance shall not be invalidated as to the
Lessor, the Agent, or any Instrument Holder by any act, omission or negligence
of the Lessee or any other of the Lessor, the Agent or any Instrument Holder,
nor by any foreclosure or other proceedings or notices thereof relating to the
Property or any part thereof, nor by legal title to, or ownership of the
Property or any part thereof becoming vested in the Agent or its agents, nor by
occupancy or use of the Property or any part thereof for purposes more hazardous
than permitted by such policy; (iv) provide that all insurance claims pertaining
to the Property or any part thereof shall be adjusted by the insurers thereunder
with the Lessee but that the Lessor and Agent must consent to any such adjusted
claim (which consent shall not be unreasonably withheld) except in those
circumstances where Lessee is authorized to adjust the insurance claim in
question pursuant to Section 12 hereof; and (v) include a waiver of all rights
of subrogation against the Lessor, the Agent and/or the Instrument Holders and
any recourse against the Lessor, the Agent and/or the Instrument Holders for
payment of any premiums or assessments under any policy. The Lessee shall
advise the Lessor promptly of any policy cancellation or any change adversely
affecting the coverage provided thereby.
(c) The Lessee shall deliver to the Lessor and Agent the certificates
of insurance in form and substance reasonably acceptable to Lessor and Agent
evidencing the existence of all insurance which is required to be maintained by
the Lessee hereunder including descriptions of the previously mentioned
Insurance Requirements not normally found in a standard insurance policy as well
as descriptions of the exclusions from coverage under such policies, such
delivery to be made (i) on or before the Commencement Date, (ii) within thirty
(30) days of the issuance of any additional policies or amendments or
supplements to any of such insurance, and (iii) on or before the expiration date
of any such insurance; provided, however, that Lessee may deliver the necessary
certificate for a renewal or replacement policy within five (5) days after the
expiration date of the policy being renewed or replaced so long as Lessee
provides Lessor and Agent with some reasonable evidence that the required
coverage is in fact in place on or before the expiration date of the expiring
policy. The Lessee shall not obtain or carry separate insurance concurrent in
form, or contributing in the event of loss, with that required by this Section
16 unless the Lessor, the Agent and/or the Instrument Holders, as applicable,
are named as additional insureds therein as their interests may appear, with
loss payable as provided in this Lease. The Lessee shall immediately notify
the Lessor and the Agent whenever any such separate insurance is obtained and
shall deliver to the Lessor and Agent the certificates of insurance evidencing
the same as is required hereunder. Any insurance required hereunder may be
provided under Lessee's blanket policies; provided that the coverage allocable
to the Property is not less than the coverage required by this Section 16 as
separately stated.
(d) The requirements of subsections (a) through (c) of this Section
16 shall not be construed to negate or modify the Lessee's obligations under
Section 8 hereof.
(e) From time to time Lessee may elect to satisfy all or certain of
the insurance requirements of this Section 16 through use of a self-insurance
program, subject to Lessor's and Agent's prior written reasonable approval of
the self-insurance program in question and after delivery to Lessor and Agent
of such assurances and undertakings as Lessor and Agent may reasonably require
to evidence that any loss or damage that would have been covered by third party
insurance policies hereunder in the absence of such a self-insurance program
will be paid or covered by Lessee pursuant to such self-insurance program. In
this regard Lessee's current self-insurance program (effective as of October
11, 1995) as described on Annex I attached hereto and made a part hereof for
all purposes is approved. Further, so long as no Event of Default exists
hereunder Lessee may from time to time increase the self-insurance retention
limits/deductibles for general liability, automobile liability, and/or property
damage losses, respectively, in its self-insurance program from the amounts set
out on such Annex I to amounts not in excess of $1,000,000.00 without the
consent of Lessor or Agent. Without limitations on any indemnification or other
obligations of Lessee hereunder Lessee hereby expressly acknowledges and agrees
that Lessee shall be fully responsible and liable to Lessor, Agent, and/or the
Instrument Holders, as applicable, from time to time for any loss or damage
that would have been covered by third party insurance policies hereunder in the
absence of such self-insurance program and any such loss or damage will be paid
or covered by Lessee on demand.
17. Assignment; Subletting.
(a) Sublease Requirements. The Lessee may sublet the Property or any
part thereof if, but only if, (i) at the time of execution of any such sublease,
no Event of Default shall have occurred and be continuing; (ii) any such
sublease shall by its terms be expressly made subject and subordinate to the
terms of this Lease and the Transaction Documents; and (iii) the Lessee shall
provide the Lessor, within ten (10) days prior to the effective date of such
sublease, with a conformed copy of the instrument creating such sublease.
Any sublease executed by Lessee and not in strict compliance with the foregoing
shall be null and void and of no force or effect.
(b) Assignment or Hypothecation. The Lessee shall not assign,
convey, or otherwise transfer, or mortgage, pledge or otherwise hypothecate or
encumber its interest in and to this Lease or in and to any sublease or the
rentals payable thereunder without the prior written consent of the Agent,
which consent may be conditioned or denied in Agent's sole discretion; Any
such assignment, conveyance, transfer, mortgage, pledge, hypothecation, or
encumbrance made without Agent's consent shall be null and void and of no force
or effect. The foregoing shall not prohibit Lessee from mortgaging or granting
a security interest in Lessee's Equipment. In addition, any Lessee may assign
its lease position with respect to a particular Parcel to any other Lessee
without the consent of the Agent, but in such instance the Lessees involved
shall notify Agent and Lessor of the assignment, which shall be effective upon
execution of a supplement to this Lease in form reasonably satisfactory to Agent
confirming the change of the Lessee applicable to the Parcel in question.
(c) Use By Affiliates. Notwithstanding anything herein to the
contrary, Lessee may from time to time during the Term permit Affiliates of the
Lessee to occupy portions of the Property and Lessor acknowledges and agrees to
the same.
(d) Lessee Remains Liable. No sublease pursuant to this Section 17
or any occupancy of the Property by any Affiliate of the Lessee, nor any
assignment or hypothecation that may be approved by Agent (but without implying
any obligation whatsoever on Agent to approve any proposed assignment or
hypothecation), shall modify or limit any right or power of the Lessor
hereunder or affect or reduce any obligation of the Lessee hereunder, and all
such obligations shall continue in full force and effect as obligations of a
principal and not of a guarantor or surety, as though no subletting, assignment,
or hypothecation had been made or occupancy permitted.
18. Permitted Contests.
(a) The Lessee shall not be required, nor shall the Lessor have the
right, to pay, discharge or remove any Imposition, to comply or cause the
Property or any part thereof to comply with any applicable Legal Requirement,
to pay any materialman's, laborer's or undischarged or unremoved Lien, to
perform any disputed obligations under any Facility Agreements, or to take
action to cure any alleged encroachment affecting a Parcel as long as no Special
Incipient Default, and no Event of Default of any kind, exists hereunder and so
long as the Lessee shall at its sole expense contest, or cause to be contested,
in good faith the existence, amount or validity thereof by appropriate
proceedings which shall (i) in the case of an unpaid Imposition or undischarged
or unremoved Lien, prevent the collection thereof from the Lessor, the Agent,
the Instrument Holders and/or against the Property, (ii) in all cases prevent
the sale, forfeiture, loss of the Property or any part thereof, and (iii) in
all cases not subject the Lessor, the Agent, and/or the Instrument Holders to
the risk of any civil or criminal liability for failure to comply therewith.
The Lessee shall give such security as may be reasonably demanded by the Lessor
or Agent to insure ultimate payment of such Imposition or the discharge or
removal of materialman's, laborer's or mechanic's Lien or to insure compliance
with such Legal Requirement or Facility Agreement and to prevent any sale or
forfeiture of the Property or any part thereof, or any interference with or
deductions from any Net Rent, Additional Rent or any other sum required to be
paid by the Lessee hereunder by reason of such non-payment, non-discharge,
non-removal or non-compliance; provided that no such security shall be required
so long as Lease Guarantor is in compliance with the financial covenants set
out in the Lease Guarantee.
(b) The Lessor shall cooperate with the Lessee in any contest and
shall allow the Lessee to conduct such contest (in the name of the Lessor, if
necessary) at the Lessee's sole cost and expense. The Lessee shall notify the
Lessor of each such proceeding within ten (10) days after the commencement
thereof, which notice shall describe such proceeding in reasonable detail.
(c) The Lessee shall, promptly after the final determination
(including appeals) of any contest brought by it pursuant to this Section 18,
pay and discharge all amounts which shall be determined to be payable therein
and shall be entitled to receive and retain for its own account all amounts
refunded and/or rebated as a result of any such contest and if the Lessor
receives any amount as a result of such contest to which it is not otherwise
entitled pursuant to this Lease, it shall promptly return such amount to the
Lessee.
19. Default Provisions.
(a) Any of the following occurrences or acts shall constitute an
event of default (each, an "Event of Default") under this Lease:
(i) if the Lessee shall fail to pay any Net Rent, Offer
Purchase Price or Contingent Rent Payment on the date on which payment is due;
provided, however, that with respect to Net Rent, Lessee shall be entitled to
notice of such non-payment and a five (5) Business Day cure period with respect
to the defaulted amount before such non-payment of Net Rent becomes an Event of
Default on up to two (2) occasions during any period of eighteen (18)
consecutive months during the Term (after such two (2) notices of non-payment of
Net Rent during any period of eighteen (18) consecutive months Lessee will not
be entitled to further notice of non-payment or grace or cure periods with
respect to Net Rent payments during the remainder of the eighteen (18)
month period in question (i.e. the period beginning with the first of such two
occasions) and an Event of Default shall exist if future Net Rent payments
during such period of eighteen (18) consecutive months are not made when due).
(ii) subject to the terms of Section 18 relating to permitted
contests, if the Lessee shall fail to pay any Imposition (including,
without limitation, any interest or penalties that may then be applicable
thereto) within five (5) Business Days after written demand by Lessor or
Agent.
(iii) if the Lessee shall fail to pay any Additional Rent or
other monetary payment due hereunder (other than the payment referred to
in subsections [i] or [ii] above) or due under the Transaction Agreement
or any Transaction Document on the date such payment is due and such
failure is not cured within five (5) Business Days after written notice of
such failure is given by either Lessor or Agent to Lessee;
(iv) if the Lessee shall fail to comply with any Insurance
Requirement (either by actual insurance or through the use of a
self-insurance program satisfying the requirements of Section 16(e) hereof)
and such failure is not cured within thirty (30) days after written notice
of such failure is given to Lessee (which cure period shall be ten (10)
days instead of thirty (30) days if the non-compliance in question is an
actual failure to have any required insurance in force); provided, that the
foregoing cure period shall not be deemed to limit Lessor's or Agent's
right to take action as deemed necessary to avoid lapse or termination of
coverage even during such cure period nor Lessee's obligations to
reimburse Lessor for any funds it may expend in connection therewith;
(v) if the Lessee shall voluntarily grant or create any Lien
(other than Permitted Encumbrances) upon the Property or any part thereof
interest therein or upon any Net Rent, Additional Rent or other sum
payable hereunder;
(vi) if Lessee shall fail to comply with any of the affirmative
or negative covenants set out in Section 32 hereof;
(vii) if any representation or warranty made by Lessee under
this Lease, any supplement hereto, the Transaction Agreement, or any other
Transaction Document proves to have been false or materially misleading at
the time made and the misrepresentation, in the reasonable judgment of
Lessor or Agent, as applicable, has a material adverse effect upon Lessor
or the Instrument Holders;
(viii) if the Lessee shall fail to observe or perform any
other provision hereof (except as provided in Section 18 hereof), or fail
to observe or perform Lessee's obligations under the Transaction Agreement
or any Transaction Document and, in either case, Lessee does not cure such
failure within thirty (30) days after receipt of written notice to the
Lessee of such failure;
(ix) if an Event of Default has occurred under the Environmental
Indemnity Agreement, or an Event of Default by Lessee has occurred under
the Transaction Agreement or any of the other Transaction Documents;
(x) Upon the occurrence of a payment default by Lessee with
respect to any other indebtedness in an amount in excess of $5 million
owed by Lessee to any person or entity as and when such payment is due,
which default continues beyond any grace or cure periods applicable
thereto under the terms of the instruments evidencing such indebtedness;
or
(xi) if a custodian, receiver, liquidator, or trustee of Lessee,
or of any of the property of Lessee, is appointed or takes possession, and
such appointment or possession remains in effect for more than sixty (60)
days; or Lessee generally fails to pay its debts as they become due or
admits in writing its inability to pay its debts as they mature; or Lessee
is adjudicated bankrupt or insolvent; or an order for relief is entered
under the Federal Bankruptcy Code against Lessee; or any of the property of
Lessee is sequestered by court order and the order remains in effect for
more than sixty (60) days; or a petition is filed against Lessee under the
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
subsequently in effect, and is not stayed or dismissed within sixty (60)
days after filing;
(xii) if Lessee files a petition in voluntary bankruptcy or
seeking relief under any provision of any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
law of any jurisdiction, whether now or subsequently in effect; or consents
to the filing of any petition against it under any such law; or consents
to the appointment of or taking possession by a custodian, receiver,
trustee or liquidator of Lessee or of all or any part of the property of
Lessee;
(xiii) if the Property or any material portion thereof shall
be left vacant or unattended and without proper maintenance for a period
of thirty (30) days after notice from Lessor requesting maintenance or
other appropriate action. Nothing in the foregoing provision shall be
deemed to prohibit Lessee from ceasing retail operations at any Parcel so
long as the Improvements as to which retail operations have ceased
continue to be properly secured, maintained, and insured as required by
the terms of this Lease; or
(xiv) if an Event of Default by the Lease Guarantor has
occurred under the Lease Guarantee.
To the extent any provision of this Lease requires payment and/or performance
of any matter after written request or demand by Lessor, and Lessor gives such
written request or demand for the action in question to Lessee, such written
request or demand to Lessee specifically requesting or demanding payment or
performance of the matter in question, and specifying that if payment or
performance is not made an Event of Default may be declared by Lessor or Agent,
shall constitute the notice required to be given by Lessor under this Section
19(a) for purposes of beginning any applicable grace or cure period, and if the
action requested or demanded is not taken by Lessee within the applicable grace
or cure period in question, an Event of Default shall arise hereunder without
the necessity of any further notice or demand by Lessor or Agent.
It is expressly agreed that in all circumstances where Lessee is entitled
to receive notice of non-performance from Lessor pursuant to this Section 19(a)
the notice in question may be given on behalf of Lessor by Agent, and Lessor
hereby appoints Agent as its agent for purposes of giving such notices to
Lessee.
If at any time there is more than one entity that is a Lessee under the
terms of this Lease, then (A) any Event of Default by any Lessee (including,
but without limitation, an Event of Default pursuant to subsections 19(a)(xi)
and/or (xii) as to such Lessee, shall constitute an Event of Default for
purposes of all parties constituting "Lessee," and (B) where Lessor or Agent is
required to give notice of any default, non-payment, or non-performance
hereunder, notice shall be given to the Lessee Parent which shall be effective
as to all Lessees regardless of which Lessee actually uses or occupies the
portions of the Property in question.
If an Event of Default occurs (including the expiration of applicable
grace or cure periods), then the subsequent performance of the defaulted
obligation shall not be deemed to "cure" the Event of Default unless Lessor
(with the consent of Agent) agrees to accept such cure in writing, and absent
such agreement the Event of Default in question shall be deemed to "continue"
for all purposes of this Lease. However, the purchase by Lessee of an affected
portion of the Property pursuant to subsection 13(a)(i), 14(a)(v) or 14(a)(vi)
where no Event of Default exists with respect to the remaining portions of the
Property shall be deemed to "cure" the Event of Default in question, the Lease
shall remain in effect as to the remainder of the Property, and the Lessor and
Lessee shall be automatically restored to their former rights and positions
hereunder.
(b) The Lessor may take all steps to protect and enforce the rights
of the Lessor or obligations of the Lessee hereunder, whether by action, suit
or proceeding at law or in equity (for the specific performance of any covenant,
condition or agreement contained in this Lease, or in aid of the execution of
any power herein granted, or for the enforcement of any other appropriate legal
or equitable remedy) or otherwise as the Lessor shall deem necessary or
advisable.
(c) If an Event of Default shall have occurred and be continuing,
then:
(i) By written notice by the Lessor to the Lessee, the Lessor
may terminate this Lease; provided, that no such termination shall be effective
unless approval of such termination is given in writing by Agent to both Lessor
and Lessee. This Lease and the estate hereby granted shall expire and terminate
on the date specified in such notice (or, if later, the date on which approval
of such notice is given by Agent) as fully and completely and with the same
effect as if such date were the Expiration Date herein fixed for the expiration
of the Term and all rights of the Lessee hereunder shall expire and terminate,
but the Lessee shall remain liable as hereinafter provided.
(ii) Should the Lessor elect not to terminate this Lease after
the occurrence of an Event of Default, this Lease shall continue in effect and
Lessor may enforce all Lessor's rights and remedies under this Lease including
the right to recover the rent as it becomes due under this Lease. For the
purposes hereof, the following do not constitute a termination of this Lease:
(A) Acts of maintenance or preservation of the Property or
any part thereof or efforts to relet the Property or any part thereof,
including, without limitation, termination of any sublease of the Property
and removal of such subtenant from the Property; and/or
(B) The appointment of a receiver upon initiative of the
Lessor to protect the Lessor's interest under this Lease.
(d) If an Event of Default shall have occurred and be continuing,
the Lessor shall have (i) the right, whether or not this Lease shall have been
terminated pursuant to subsection 19(c) hereof, to re-enter and repossess the
Property or any part thereof, as the Lessor may elect, by summary proceedings,
ejectment, any other legal action or in any other lawful manner the Lessor
determines to be necessary or desirable and (ii) the right to remove all persons
and property therefrom. The Lessor shall be under no liability by reason of any
such re-entry, repossession or removal. No such re-entry or repossession of the
Property or any part thereof shall be construed as an election by the Lessor to
terminate this Lease unless a notice of such termination is given to the Lessee
pursuant to subsection 19(c) hereof, or unless such termination is decreed by a
court or other governmental tribunal of competent jurisdiction. Should the
Lessor elect to re-enter the Property as herein provided or should the Lessor
take possession pursuant to legal proceedings or pursuant to any notice provided
for by Law or upon termination of this Lease pursuant to subsection 19(c) hereof
or otherwise as permitted by Law, the Lessee shall peaceably quit and surrender
the Property or any part thereof to the Lessor. In any such event, neither the
Lessee nor any person claiming through or under the Lessee, by virtue of any
Law, shall be entitled to possession or to remain in possession of the Property,
but shall forthwith quit and surrender the Property to the Lessor.
(e) At any time or from time to time after the re-entry or
repossession of the Property or any part thereof pursuant to subsection 19(d)
hereof, whether or not this Lease shall have been terminated pursuant to
subsection 19(c) hereof, the Lessor may (but, except as otherwise required by
applicable Law, shall be under no obligation to) relet the Property or any
part thereof, for the account of the Lessee, without notice to the Lessee, for
such term or terms and on such conditions and for such uses as the Lessor, in
its discretion, may determine. The Lessor may collect and receive any rents
payable by reason of such reletting. The Lessor shall not be liable for any
failure to relet the Property or any part thereof or for any failure to collect
any rent due upon any such reletting.
(f) No termination of this Lease pursuant to subsection 19(c) hereof,
or by operation of Law, and no re-entry or repossession of the Property or any
part thereof, pursuant to subsection 19(d) hereof, and no reletting of the
Property or any part thereof pursuant to subsection 19(e) hereof, shall relieve
the Lessee of its liabilities and obligations hereunder, all of which shall
survive such termination, re-entry, repossession or reletting.
(g) Upon the occurrence of an Event of Default, the Lessor, without
waiving any Event of Default or releasing Lessee from any obligation, may (but
shall be under no obligation to) make any required payment or perform any
required act for the account and at the expense of the Lessee, and may enter
upon the Property for such purpose and take all such action thereon as, in the
Lessor's sole discretion, may be necessary or appropriate therefor. No such
entry shall be deemed an eviction of the Lessee or a termination of this Lease.
All sums so paid by the Lessor and all costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses so incurred, together with
interest thereon to the extent permitted by Law) shall be paid by the Lessee to
the Lessor on demand as Additional Rent.
(h) In the event of any termination of this Lease or re-entry or
repossession of the Property or any part thereof by reason of the occurrence
of any Event of Default, the Lessee shall pay to the Lessor all Net Rent and
Additional Rent and other sums required to be paid to and including the date of
such termination, re-entry or repossession; and thereafter, until the end of
the Term, whether or not the Property or any part thereof shall have been relet,
the Lessee shall be liable to the Lessor for, and shall pay to the Lessor, on
the days on which such amounts would be payable under this Lease in the absence
of such termination, re-entry or repossession, as agreed current damages and
not as a penalty: all Net Rent, all Additional Rent and other sums which would
be payable under this Lease by the Lessee, in the absence of such termination,
re-entry or repossession, and all costs (including reasonable attorneys' fees
and expenses) incurred by the Lessor hereunder (payable on demand). At such
time after the termination or expiration of this Lease as the Lessee shall have
paid all amounts required to be paid by it under this Lease and the Lessor shall
have discharged any and all obligations to the Agent, then the Lessor shall pay
to the Lessee, within five (5) Business Days after its receipt thereof, the net
proceeds, if any, of any reletting effected for the account of the Lessee
pursuant to subsection 19(e), after deducting from such proceeds all the
Lessor's reasonable expenses in connection with such reletting (including,
but not limited to, all repossession costs, brokerage commissions, attorneys'
fees and expenses, employees' expenses, alteration costs and expenses of
preparation for such reletting), and the amounts to which Lessee may be entitled
hereunder shall be held by Lessor in trust for Lessee pending any such payment
to Lessee.
(i) Lessor may exercise its rights under this Section 19 either
directly or indirectly or through any agent (including, without limitation,
the Agent under the Transaction Agreement) as Lessor may from time to time
appoint to act on Lessor's behalf.
(j) It is acknowledged that if Lessee closes the purchase of the
Property pursuant to an Offer to Purchase properly given (or deemed given) by
Lessee hereunder and pays the Offer Purchase Price to Lessor therefor, this
Lease shall terminate as of the closing of such purchase and Lessor will have
no further remedial rights with respect to any then existing Event of Default,
but such purchase shall not extinguish any rights of indemnification or other
such rights of Lessor, Agent, or the Instrument Holders that, by the terms or
implications hereof, are intended to survive termination of this Lease.
20. Additional Rights.
(a) No right or remedy hereunder shall be exclusive of any other
right or remedy, but shall be cumulative and in addition to any other right or
remedy hereunder or now or hereafter existing by law or in equity and the
exercise by the Lessor of any one or more of such rights, powers or remedies
shall not preclude the simultaneous exercise of any or all of such other rights,
powers or remedies. Failure to insist upon the strict performance of any
provision hereof or to exercise any option, right, power or remedy contained
herein shall not constitute a waiver or relinquishment thereof for the future.
Receipt by the Lessor of any Net Rent, Additional Rent or other sum payable
hereunder with knowledge of the breach by Lessee of any provision hereof shall
not constitute waiver of such breach, and no waiver by the Lessor of any
provision hereof shall be deemed to have been made unless made in writing.
The Lessor shall be entitled to injunctive relief in case of the violation or
or threatened violation of any of the provisions hereof, a decree compelling
performance of any of the provisions hereof or any other remedy allowed to the
Lessor by law or in equity.
(b) The Lessee hereby waives and surrenders for itself and all those
claiming under it, including creditors of all kinds, any right and privilege
which they may have to redeem the Property or to have a continuance of this
Lease after termination of the Lessee's right of occupancy by Law or by any
legal process or writ, or under the terms of this Lease, or after the
termination of the term of this Lease as herein provided. Lessee also waives,
to the maximum extent permitted by law, any requirement that the Lessor re-let
the Property or otherwise mitigate or attempt to mitigate damages arising out
of any default by Lessee.
(c) If an Event of Default exists hereunder, the Lessee shall pay to
the Lessor on demand, all reasonable fees and expenses incurred by the Lessor
in enforcing its rights under this Lease, including reasonable attorneys' fees
and expenses, and expressly including any obligations or liabilities that
Lessor may incur to Agent or the Instrument Holders in respect of costs incurred
by Agent or the Instrument Holders as a result of such Event of Default.
(d) (i) Lessor and Lessee intend that this Lease be treated as an
operating lease. If, notwithstanding the intention of the parties, a court of
competent jurisdiction determines in a final judgment or order that the
transaction represented by this Lease will be treated as a financing transaction
under state law, then in such event it is the intention of the parties hereto
(1) that this Lease be treated as a mortgage and security agreement or other
similar instrument (the "Tenant Mortgage") from Lessee, as mortgagor, to Lessor,
as mortgagee, encumbering the Property, (2) that upon an Event of Default Lessor
shall have, as a result of such determination, all of the rights, powers and
remedies of a mortgagee available under applicable Law to take possession of
and sell (whether by foreclosure or otherwise) the Property, (3) that the
effective date of the Tenant Mortgage shall be the effective date of this
Lease, (4) that the recording of an instrument referencing this provision shall
be deemed to be the recording of the Tenant Mortgage, and (5) to conform
strictly to any applicable usury Laws (in such regard, if the Tenant Mortgage
would otherwise be usurious under applicable Law, then, notwithstanding anything
herein to the contrary, it is agreed as follows: (A) the aggregate of all
consideration that constitutes interest under applicable Law that is contracted
for, taken, reserved, charged or received shall under no circumstances exceed
the maximum amount allowed by such applicable Law, (B) in the event of
acceleration or any required or permitted prepayment, then such consideration
that constitutes interest under applicable Law may never include more than the
maximum amount allowed by such applicable Law, and (C) excess interest, if any,
provided for herein shall be cancelled automatically and if theretofore paid,
shall be credited to or refunded to Lessee. It is further agreed that sums
paid or agreed to be paid for the use, forbearance or detention of money
hereunder shall, to the extent permitted by applicable Law, be amortized,
prorated, allocated and spread throughout the full Term until payment in full
so that the rate or amount of interest does not exceed the applicable usury
ceiling, if any). Lessee hereby grants, bargains, sells, conveys, mortgages,
and hypothecates all of Lessee's right, title, and interest in the Property to
Lessor to the extent necessary to effect the foregoing provisions, and
appropriate words of conveyance shall be included in the recorded memorandum
of this Lease as necessary to give effect to such provisions under state law.
(ii) If this Lease is treated as a Mortgage then for purposes of
clause (i) above, the term "applicable Law" shall mean the Law of the State of
Pennsylvania (or the Law of any other jurisdiction whose Laws may be
mandatorily applicable notwithstanding other provisions of this Lease, or Law
of the United States of America applicable hereto which would permit the
parties to contract for, charge, take, reserve or receive a greater amount of
interest than under Pennsylvania (or such other jurisdiction's) Law.
(e) At all times during the Term of this Lease, and without regard
to the characterization of this Lease for state law or for financial accounting
purposes, the Lessor shall claim no depreciation deductions with respect to the
Property for federal income tax purposes. Further, to the extent Lessor is
required to file a tax return as a legal entity Lessor will treat all Net Rent
received as interest income for federal income tax purposes.
21. Notices. Any notice required to be delivered hereunder shall be
deemed delivered, whether actually received or not, one (1) Business Day after
deposit with a nationally recognized courier service for overnight delivery
addressed to the parties hereto or Agent, as applicable, at the respective
addresses specified below, or at such other address as they or the Agent may
have subsequently specified by written notice. The addresses for notices to
Lessor, Lessee, and Agent are as follows:
If to Lessor: State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Fourth Floor
Boston, MA 02110
Attention:Donald E. Smith
Vice-President
Fax No. 617/664-5371
with a copy to:Bingham, Dana & Gould
100 Pearl Street
Hartford, CT 06103
Attention: James G. Scantling, Esq.
Fax No. 860/527-5188
If to Lessee: The Pep Boys - Manny, Moe & Jack
(all Lessees shall 3111 W. Allegheny Avenue
be deemed notified Philadelphia, PA 19132
by notice to this Attention: Michael Holden
address) Senior Vice President-Finance
Fax No. 215/227-9533
with a copy to:The Pep Boys - Manny, Moe & Jack
3111 W. Allegheny Avenue
Philadelphia, PA 19132
Attention:Ronald M. Neifield
Real Estate Counsel
Fax No. 215/229-5076
If to Agent: Citicorp Leasing, Inc.
450 Mamaroneck Avenue
Harrison, NY 10528
Attention: EFL/CBL Credit Head
Fax No. 914/899-7308
with a copy to:Brown McCarroll & Oaks Hartline
300 Crescent Court, Suite 1400
Dallas, Texas 75201
Attention: Charles W. Morris, Esq.
Fax No. 214/999-6170
Notices sent by any other method (including regular or certified mail, hand
delivery, or facsimile transmission) shall be deemed delivered when actually
received by the addressee. Any notice of change of address shall be effective
only upon actual receipt, regardless of delivery method, and such new address
shall be effective as to notices given by the other parties commencing ten
(10) days after such change of address notice is received by such parties.
No party may establish an official address for notice outside the continental
United States.
22. No Default Certificate. Each party hereby shall, at the reasonable
request of the other party hereto, deliver to such other party a certificate
stating whether such other party has knowledge of, or has received notice from
any person of, any Environmental Event, Casualty, Condemnation, Incipient
Default or Event of Default.
23. Surrender. If upon the expiration or termination of the Term of this
Lease, or upon any partial termination of the Lease as to a Parcel pursuant to
Section 12(b), Lessee or its designee has not purchased the Property or
applicable Parcel as provided hereunder, the Lessee shall surrender the Property
or applicable Parcel to the Lessor in the condition in which the Property or
applicable Parcel was upon the addition of the Parcel to the Property or, in the
case of a Parcel on which New Improvements have been added, the condition in
which such Parcel existed at the time the Construction Advance in respect of
such New Improvements was made, except as repaired, rebuilt, altered or added
to as permitted or required hereby and except for ordinary wear and tear.
In addition, simultaneously with the surrender of the Property or applicable
Parcel to Lessor, Lessee shall deliver to Lessor and Agent a current "Phase I"
Environmental Assessment Report covering all portions of the Property or
applicable Parcel evidencing that the Property or applicable Parcel does not
appear, based on the visual review of same, to be in violation of Environmental
Laws or contaminated with any Hazardous Substances and that the consultant
issuing such report (which consultant must be acceptable to Agent) based on
such consultant's review of the Hazardous Substances handling practices of
Lessee and review of all documents and records with respect thereto does not
recommend any further testing or environmental remediation work on the Property
or any portion thereof. To the extent that the Property or applicable Parcel
is not in such condition upon such expiration or termination, the Lessee shall
pay to the Lessor such additional amounts as are reasonably required to place
it in such condition. The Lessee shall also surrender the Property or
applicable Parcel to the Lessor free and clear of all Liens, easements,
consents and restrictive covenants and agreements affecting the Property or
applicable Parcel which the Lessee is obliged hereunder to remove but Lessee
shall not be required to remove any Permitted Encumbrance or any other matter
specifically approved for such purpose in writing by Agent. Nothing contained
in this Section 23 shall relieve or discharge or in any way affect the
obligation of the Lessee to cure promptly pursuant to this Lease any violations
of Legal Requirements referred to in this Lease, or to pay and discharge any
Liens and Impositions against the Property or applicable Parcel, subject,
however, to the right of the Lessee to contest the same pursuant to the
provisions of Section 18. The Lessee, at its sole cost and expense, shall
remove from the Property or applicable Parcel on or prior to expiration or
termination all property situated thereon which is not owned by the Lessor and
shall repair any damage caused by such removal and shall restore the Property
or applicable Parcel to the condition (or reasonable equivalent thereof) in
which they existed immediately prior to the installation of such property,
except for ordinary wear and tear. Lessee shall indemnify and hold harmless
the Lessor against any loss, liability or claim arising out of the Lessee's
removal of such property from the Property or applicable Parcel. Property not
so removed shall be deemed abandoned by Lessee, shall become the property of
the Lessor, and the Lessor may cause such property to be removed from the
Property or applicable Parcel and disposed of, but the reasonable cost of any
such removal and disposition and of repairing any damage caused by such removal
and of the restoration of the Property or applicable Parcel to the condition
(or reasonable equivalent thereof) in which it existed immediately prior to
the installation of such property, ordinary wear and tear excepted, shall be
borne by the Lessee. The obligations of the Lessee under this Section 23 shall
survive the expiration or any termination of this Lease (whether by operation of
Law or otherwise) for all matters described in this Section 23 which occur or
arise prior to such expiration or termination or arise out of or result from
facts, events, claims, liabilities, actions or conditions occurring, arising or
existing on or before such expiration or termination.
24. Separability; Binding Effect; Governing Law; Non-Recourse.
(a) Except as expressly provided otherwise in this Lease, each
provision hereof shall be separate and independent and the breach of any such
provision by the Lessor shall not discharge or relieve the Lessee from its
obligations to perform each and every covenant to be performed by the Lessee
hereunder. If any provision hereof or the application thereof to any Person or
circumstance shall be invalid or unenforceable, the remaining provisions hereof,
or the application of such provision to persons or circumstances other than
those as to which it is invalid or unenforceable, shall not be affected thereby,
and each provision hereof shall be valid and shall be enforceable to the extent
permitted by Law. All provisions contained in this Lease shall be binding upon,
inure to the benefit of, and be enforceable by, the respective permitted
successors and assigns of the Lessor and the Lessee to the same extent as if
each successor and assignee were named as a party hereto. Further, all rights
of the Agent and/or Instrument Holders hereunder shall inure to the benefit of
each successor and assignee of Agent, in its capacity as such, or any successor
in writing by Agent. Any change, modification or discharge made otherwise than
as expressly permitted by this Section 24 shall be null and void. THIS LEASE
SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF PENNSYLVANIA, WITHOUT REGARD TO ITS CONFLICT OF LAWS PRINCIPLES;
PROVIDED THAT TO THE EXTENT THAT AT ANY TIME A PORTION OF THE
PROPERTY IS LOCATED IN A STATE OTHER THAN THE STATE OF PENNSYLVANIA
THE LAWS OF SUCH STATE SHALL GOVERN SUCH PROVISIONS, IF ANY, OF THIS
LEASE AS BY THEIR NATURE MUST BE INTERPRETED AND ENFORCED UNDER
THE LAWS OF SUCH OTHER STATE WITH RESPECT TO MATTERS OCCURRING IN
OR AFFECTING SUCH STATE. IT IS EXPRESSLY AGREED, HOWEVER, THAT IT IS
THE DESIRE AND INTENT OF THE PARTIES THAT THE LAW OF THE STATE OF
PENNSYLVANIA GOVERN ALL PORTIONS OF THIS LEASE TO THE EXTENT THAT
SUCH INTENT MAY BE HONORED WITHOUT VIOLATION OF THE LAW OR PUBLIC
POLICY OF THE STATE IN WHICH ANY PORTION OF THE PROPERTY IS LOCATED.
All references in this Lease to "applicable Law" or terms of similar import
shall be interpreted consistent with the foregoing. This Lease, when delivered,
shall constitute an original, fully enforceable counterpart for all purposes
except that only the counterpart stamped or marked "COUNTERPART NUMBER 1" shall
constitute, to the extent applicable, "chattel paper" or other "collateral"
within the meaning of the Uniform Commercial Code in effect in any
jurisdiction.
(b) No recourse shall be had against the Lessor, Agent, and/or any
Instrument Holder or their employees, agents or shareholders, for any claim
based on any failure by the Lessor in the performance or observance of any of
the agreements, covenants or provisions contained in this Lease and in the event
of any such failure, recourse shall be had solely against the Property.
(c) It is acknowledged that from time to time various Affiliates of
the Original Lessee may become a party to this Lease as an Additional Lessee as
provided in Section 31 hereof. Each entity that becomes a "Lessee" hereunder
shall be jointly and severally liable for the obligations of the "Lessee"
hereunder. It is acknowledged, however, that no employee, agent, director,
officer or shareholder of any Lessee or any Additional Lessee (except an agent
or shareholder that is itself a Lessee hereunder) shall be liable for the
obligations of Lessee.
25. Headings and Table of Contents. The table of contents and the
headings of the various Sections and Exhibits of this Lease are for convenience
only and shall not affect the meaning of the terms and conditions of this Lease.
26. Waiver of Landlord's Lien. Lessor hereby waives any right to distrain
Lessee's Equipment and any landlord's lien or similar lien upon, or security
interest in Lessee's Equipment, regardless of whether such lien is created by
statute or otherwise. Lessor agrees, at the request of Lessee, to execute a
waiver of any landlord's or similar lien for the benefit of any present or
future holder of a security interest in, or lessor of, any of Lessee's
Equipment, subject to the approval of the form and substance of such waiver by
Agent, which approval shall not be unreasonably withheld or delayed. Lessor
acknowledges, and agrees to acknowledge in the future (in a written form
reasonably satisfactory to Lessee and Agent), to such persons, at such times and
for such purposes as Lessee may reasonably request, that Lessee's Equipment
is Lessee's property and that Lessor has no right, title or interest in any of
Lessee's Equipment.
27. Lessee's Obligation at Expiration.
(a) In addition to its other rights and obligations under Section 14
hereof, Lessee shall, by notice given not less than six (6) months prior to the
Expiration Date, elect either to (i) purchase the Property as of the Expiration
Date (or such earlier date during the last six (6) months of the Term as may be
designated by Lessee) as provided for in Section 14(a)(i) for the applicable
Offer Purchase Price, in which case the transfer of the Property shall be
governed by the terms of Section 15; or (ii) terminate this Lease, abandon all
of the Property as of the Expiration Date and pay to the Lessor on the
Expiration Date, in addition to any Net Rent, Additional Rent or other sums that
may be then due and payable to the Lessor hereunder, a "Contingent Rent Payment"
in the amount determined at the applicable time as provided for on Exhibit "A"
(as amended from time to time). If Lessee fails to give the notice required in
this Section 27(a) on or before the date that is six (6) months prior to the
Expiration Date, then Lessee shall be irrevocably deemed to have elected the
option provided for in clause 27(a)(i) and on the Expiration Date (or such
earlier date during the six month period preceding the Expiration Date as Lessee
may designate by reasonable notice to Lessor and Agent) Lessee shall purchase
the Property for the Offer Purchase Price.
(b) If Lessee elects to terminate the Lease pursuant to Section
27(a)(ii) above, then Lessee, as agent for Lessor but at Lessee's sole cost and
expense, shall use its best efforts to sell the Property to a third party at the
maximum available market price not later than the date that is thirty (30) days
after the Expiration Date. Lessor shall join in any sale at or above the
Minimum Price and Agent's approval of such sale will not be required; however,
Lessee may not sell the Property without the consent of Agent, which consent may
be withheld at Agent's sole and absolute discretion, if the purchase price is
less than the Minimum Price. To the extent that the net sale proceeds of the
Property received by Lessor upon any such sale are more than the amounts
necessary to permit Lessor to discharge all amounts due to the Instrument
Holders and/or the Lessor under the Transaction Agreement and/or the
Transaction Documents (a sale price that will produce net sale proceeds, after
all transaction costs, in such amount being referred to as the "Minimum Price"),
then Lessor shall credit against the Contingent Rent Payment (or refund to
Lessee if the Contingent Rent Payment has theretofore been paid) all such
excess payments up to, but not in excess of, the full amount of the Contingent
Rent Payment. If Lessee has failed to cause the Property to be sold within such
period, Lessee's rights under this subsection (b) shall cease and Lessor shall
thereafter have the sole and exclusive right to sell or dispose of the Property
solely for the account of the Instrument Holders. If the net sale proceeds of
any such proposed sale arranged by Lessee are to be less than the Minimum Price
(or if Lessee does not propose a sale and Lessor or Agent is unable to sell the
Property prior to the Expiration Date for an amount to produce net sale proceeds
equal to or in excess of the Minimum Price), then Lessor or Agent may order an
MAI appraisal of the Property, at Lessee's sole cost and expense, prior to the
closing of any proposed sale by Lessee (or if Lessee does not propose such a
sale, after Lessor's or Agent's reasonable efforts to sell the Property for an
amount equal to or in excess of the Minimum Price) to determine the fair market
value of the Property at such time (the "Appraised Value") as well as what the
Appraised Value of the Property would have been if the Property has been
maintained in good repair and condition and otherwise in accordance with
Section 9 of this Lease, subject to normal wear and tear (the "Nominal Appraised
Value"). If such appraisal indicates a Nominal Appraised Value for the
Property that is greater than the price to be received in the sale proposed by
Lessee (or, if Lessee does not propose a sale, such appraisal indicates an
actual Appraised Value for the Property that is less than the Nominal Appraised
Value, or a Nominal Appraised Value that is greater than the price that would
have been received by Lessor or Agent had they accepted the best written bona
fide offer from a purchaser ready, willing and able to close), then Lessee shall
pay to Lessor a sum equal to the lesser of (A) the amount by which the actual
Appraised Value, or the proposed, actual or possible sale price, as applicable,
is less than the Minimum Price, or (B) the difference between the Nominal
Appraised Value and the proposed, actual or possible net sales proceeds or the
actual Appraised Value (whichever is applicable) as an additional "Contingent
Rent Payment" in order to compensate Lessor for extraordinary wear and tear on
the Property.
(c) If the mechanical provisions of Section 27(b) above are
applicable to a situation where the Lease has been terminated as to less than
the entire Property, then the "Minimum Price" for application of the foregoing
provisions shall be that amount which will produce net sale proceeds (after
applicable closing and transaction costs) sufficient to permit the Lessor
(or Agent on behalf of the Lessor) to pay to the applicable Instrument Holders
the amount that such Instrument Holders would have received if, in lieu of
terminating the Lease and making the Contingent Rent Payment, the Lessee had
purchased the Parcel(s) in question and paid the Offer Purchase Price therefor,
taking into account the additional interest or certificate yield, as applicable,
accrued on the Instruments in question with respect to the amount that would
have been paid on sale of the Property to Lessee at the Offer Purchase Price but
which remained unpaid on the date of such partial termination of the Lease as a
result of the Contingent Rent Payment being less than the Acquisition Price of
the Parcel(s) in question.
(d) Lessor shall reasonably cooperate in any sale of the Property by
Lessee (after approval of the sale by Agent, where required), but at Lessee's
sole cost and expense, such cooperation to include execution of contracts of
sale, closing documents, and related materials; provided that Lessor shall not
be required to incur any liability beyond its interest in the Property in
connection therewith.
28. No Merger. Unless and until execution of a written agreement to the
contrary by a single Person that at the time thereof holds all of the interests
of both Lessor and Lessee in the Property, and the full payment and discharge
of the Instruments and release of Transaction Mortgage held by Agent on the
Property, there shall be no merger of this Lease or of the leasehold estate
created by this Lease with the fee or any other estate or interest in or the
Property or any portion thereof by reason of the fact that the same person
owns or holds, directly or indirectly, all such estates and interests or
any combination thereof.
29. Short Form Lease. Lessee agrees not to record this Lease, but Lessor
and Lessee shall execute a memorandum or short-form of lease in form reasonably
satisfactory to Lessor and Lessee in each jurisdiction where any portion of the
Property is located. The memorandum of lease may be recorded by Lessee at any
time. Lessor agrees that it will not record a memorandum of this Lease if
requested not to do so by Lessee unless Lessor or Agent determines, based upon
written advice of counsel, that recordation of such memorandum of this Lease
is advisable for the protection of the interests of the Lessor or the
Instrument Holders.
30. Protection of Instrument Holders.
(a) Rights of Instrument Holders. Notwithstanding anything in this
Lease, so long as amounts owing under any of the Instruments, or any of the
Transaction Documents, remain unpaid, (i) Agent and each Purchaser and
Instrument Holder shall be third party beneficiaries of the provisions of
this Lease, including, without limitation, all provisions of this Section 30,
and Section 8 hereof, (ii) Lessor and Lessee acknowledge that each has been
sufficiently notified and apprised of the Purchasers and Instrument Holders, and
the mailing address of Agent, as the administrative agent acting on behalf of
and any other provision of this Lease, and (iii) this Lease shall not be
amended, modified or assigned (collaterally or directly), in any
respect without the prior written consent of Agent.
(b) Subordination and Non-Disturbance. Simultaneously with the
addition of a Parcel to the Property, Lessor will execute and record a mortgage
or deed of trust (as applicable, the "Transaction Mortgage") on the Property to
Agent for the benefit of the Noteholders as povided for in the Transaction
Agreement, and Lessor, Lessee, and Agent (on behalf of the Noteholders) shall
enter into a Subordination, Non-Disturbance, and Attornment Agreement (the
"SNDA") covering this Lease with respect to the Parcel in question and relating
to the Transaction Mortgage in substantially the form attached hereto as
Exhibit "E". In the event of any default by Lessor hereunder, Lessee shall
notify Agent of such default in accordance with Section 21 hereof. Agent, on
behalf of the Noteholders, shall thereafter have a reasonable opportunity
(but no obligation) to cure Lessor's default, including time to obtain
possession of the Property by power of sale or judicial foreclosure of the
Transaction Mortgage, if same should prove necessary to effect a cure, before
Lessee may take any action against Lessor. Lessee shall accept a cure of
Lessor's default from Agent in the event that Agent tenders such cure on
behalf of the Noteholders.
31. Additional Lessees.
(a) From time to time Lessee Parent may request that one or more
wholly-owned Subsidiaries of the Lessee Parent be approved by Agent to become
a Lessee under this Lease, which approval shall not be unreasonably withheld.
Any such Person approved by Agent shall be referred to as an "Additional
Lessee", and from and after the date of execution of a Supplement to this
Lease in substantially the form attached hereto as Exhibit "F" such
Additional Lessee shall be a party to this Lease in the same manner as if
such Additional Lessee had been an original Lessee hereunder.
(b) From and after the date on which an Additional Lessee becomes a
party hereto, such Additional Lessee shall be jointly and severally liable for
any and all obligations of the "Lessee" hereunder, whether accruing or arising
before or after the date such Additional Lessee becomes a party hereto. The
assumption of liability hereunder by any Additional Lessee shall not reduce or
limit the obligations of any other Person that is or becomes a party hereto
as a Lessee.
(c) Agent may, as a condition to its approval of the Supplement
making one of the Additional Lessees a party hereto, require legal opinions,
review of corporate authorizations and other corporate documents, and similar
matters comparable to those required by Lessor and Agent with respect to the
Lessee Parent and the other original Lessees in connection with the original
execution hereof.
32. Certain Representations and Covenants of Lessee. The terms of this
Section 32 shall, as of the date hereof, be binding upon each Lessee. At such
time as any Additional Lessee becomes a party to this Lease pursuant to Section
31 above, each such Additional Lessee will be required to make similar
representations and warranties and assume comparable obligations pursuant to
the instrument by which they become a party to this Lease.
(a) Representations and Warranties. The Lessees jointly and
severally represent and warrant to Lessor, Agent, and each Instrument Holder
that, as to each Lessee:
(i) Lessee (A) is duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of its
incorporation, (B) has full corporate power and authority to own and
operate its properties and to conduct its business as presently conducted,
and full corporate power, authority and legal right to execute, deliver
and perform its obligations under this Lease, (C) is duly qualified to do
business as a foreign corporation in good standing in each jurisdiction
in which its ownership or leasing of properties or the conduct of its
business requires such qualification.
(ii) This Lease has been duly authorized, executed and delivered
by Lessee and is a legal, valid and binding obligation of Lessee,
enforceable according to its terms (subject as to enforcement of remedies
to any applicable bankruptcy, reorganization, moratorium, or other Laws or
principles of equity affecting the enforcement of creditors' rights
generally).
(iii) The execution, delivery and performance by Lessee of
this Lease will not result in any violation of any term of the certificate
of incorporation or the by-laws of Lessee, does not require stockholder
approval or the approval or consent of any trustee or holders of debt of
Lessee except such as have been obtained prior to the date hereof, and
will not conflict with or result in a breach of any terms or provisions of,
or constitute a default under, or result in the creation or imposition of
any lien upon, any property or assets of Lessee under, any indenture,
mortgage or other agreement or instrument to which Lessee is a party or
by which it or any of its property is bound, or any existing applicable
law, rule, regulation, license, judgment, order or decree of any
government, governmental body or court having jurisdiction over
Lessee or any of its activities or properties, including, without
limitation, any rule or order of any public utility commission or other
governmental body.
(iv) There are no consents, licenses, orders, authorizations
or approvals of, or notices to or registrations with any governmental or
public body or authority which are required in connection with the valid
execution, delivery and performance of this Lease by Lessee that have not
been obtained or made, and any such consents, licenses, orders,
authorizations, approvals, notices and registrations that have been
obtained or made are in full force and effect.
(v) Except as disclosed in writing to Agent by Lessee
concurrently herewith or publicly disclosed in Lessee Parent's 10-Q
and/or 10-K filings with the Securities and Exchange Commission, if any,
(A) there is no action, suit, proceeding or investigation at law or in
equity by or before any court, governmental body, agency, commission or
other tribunal now pending or, to the best knowledge of Lessee after due
inquiry, threatened against or affecting Lessee or any property or rights
of Lessee as to which there is a significant possibility of an adverse
determination, and which if adversely determined, may have a material
adverse effect on the financial condition or business of Lessee or which,
if adversely determined could materially impair the ability of Lessee to
perform its obligations under this Lease, and (B) there is no action, suit,
proceeding or investigation at law or in equity by or before any court,
governmental body, agency, commission or other tribunal now pending or,
to the best knowledge of Lessee after due inquiry, threatened which
questions or would question the validity of this Lease.
(vi) Lessee is not in default under or with respect to any
agreement or other instrument to which it is party or by which it or
its assets may be bound which would have a material adverse effect on
the financial condition of Lessee or the ability of Lessee to perform its
obligations under this Lease. Lessee is not subject to or in default
under any order, award or decree of any court, arbitrator, or other
governmental authority binding upon or affecting it or by which any of its
assets may be bound or affected which would have a material adverse effect
on the ability of Lessee to carry on its business as presently conducted
or to perform its obligations under this Lease.
(vii) Lessee has filed or caused to be filed all tax returns
which to the knowledge of Lessee are required to be filed, and has paid
all taxes shown to be due and payable on said returns or on any assessments
made against it, except for (i) returns which have been appropriately
extended and (ii) taxes, fees, assessments or other charges, the amount
or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in conformity
with GAAP have been provided on the books of Lessee.
(viii) Lessee and each of its Subsidiaries are in compliance
in all material respects with the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") and the Internal Revenue Code of 1986, as
amended (the "Code"), and the rules and regulations thereunder insofar as
ERISA, the Code and such rules and regulations relate to any employee
benefit plan as defined in Section 3(3) of ERISA. No employee pension
benefit plan (as defined in Section 3[2] of ERISA) maintained by Lessee
or any of its Subsidiaries for its employees and covered by ERISA (a
"Plan") had an "accumulated funding deficiency", within the meaning of
said term under Section 302 of ERISA, as of the last day of the most
recent fiscal year of such Plan, and neither Lessee nor any of its
Subsidiaries has incurred with respect to any Plan any liability to the
Pension Benefit Guaranty Corporation ("PBGC") which is material to the
consolidated financial condition of Lessee or any of its Subsidiaries.
For the purpose of this subsection (viii), the term "Subsidiary" shall
include a Controlled Group of Corporations as that term is defined in
Section 1563 of the Code or Section 4.001 of ERISA.
(ix) The consolidated financial statements of Lessee Parent
furnished to Lessor and Agent on or before the date hereof have been
prepared in accordance with GAAP and fairly present the financial
condition of Lessee Parent as of the date thereof. Since the date of
such financial statements there has been no material adverse change in
the financial condition or business of Lessee Parent which would impair
the ability of Lessee Parent to perform its obligations hereunder.
(b) Affirmative Covenants. Lessee covenants and agrees with Lessor,
Agent and the Instrument olders that, so long as this Lease shall remain in
effect each Lessee will, unless Lessor and Agent shall otherwise consent in
writing:
(i) Compliance with Laws. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable Laws,
for which the failure to so comply could have a material adverse effect on
the operations of Lessee as a whole so as to adversely affect its capacity
to perform its obligations under this Lease, and such compliance shall
include, without limitation, paying before the same become delinquent all
taxes imposed upon it or its property, except to the extent contested
diligently and in good faith, and for which adequate reserves are
established.
(ii) Maintenance of Existence; Licenses and Franchises.
Maintain, and cause each of its Subsidiaries that is a Lessee or an
approved Additional Lessee to maintain, its existence, and preserve and
maintain, and shall cause each of its Subsidiaries that is a Lessee or an
approved Additional Lessee to preserve and maintain, all material licenses,
privileges, franchises, certificates, authorizations and other permits
and agreements necessary for the operation of its business in the
respective jurisdictions in which any Property leased by Lessee or such
Additional Lessee, as applicable, is located, and in its jurisdiction of
origin.
(iii) Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance policies with respect to its property
and business in such amounts and against such casualties and contingencies
as is customary in its industry; provided that nothing herein shall
prejudice the right of Lessee or any Subsidiary thereof to self-insure
for certain risks in accordance with customary procedures.
(iv) Additional Information. Lessee shall furnish to Agent: (1)
within sixty (60) days of the end of each quarterly fiscal period during
the Term, unaudited quarterly financial statements for Lessee Parent (and
its consolidated Subsidiaries) (including a balance sheet, income
statement, and such other reports as Agent may reasonably request); (2)
within one hundred twenty (120) days of the end of each fiscal year during
the Term, annual financial statements for Lessee Parent (and its
consolidated Subsidiaries) audited by a nationally recognized public
accounting firm (including a balance sheet, income statement and such
other material reports as Agent may reasonably request); (3) when issued
or filed, copies of the most recent 10-K for Lessee Parent, proxy
statements, financial statements and other reports filed by Lessee Parent
with the Securities and Exchange Commission or any national securities
exchange or market on which any of Lessee Parent's securities are traded
or quoted; (4) from time to time upon Agent's request, an Officer's
Certificate stating that there exists no Event of Default (or event or
circumstance which with notice and or the passage of time could mature
into an Event of Default) under this Lease or, if any such event or
circumstances does exist, specifying the nature and period of existence
thereof and what action Lessee proposes to take with respect thereto; and
(5) from time to time at the request of Agent, and in any event
simultaneously with delivery of the annual consolidated financial
statements of the Lessee Parent, a statement certified by a senior
financial officer of the Lessee Parent (A) certifying that the Lessee
Parent is in compliance with all of the financial covenants (both
affirmative and negative) contained in the Lease Guarantee and (ii)
certifying the Leverage Ratio, Tangible Net Worth, Current Ratio, and
NOP/Interest Charges Ratio (as such terms are defined in the Lease
Guarantee) of the Lessee Parent as of the end of the preceding quarter
or fiscal year, or for the preceding quarter or fiscal year, as applicable.
The fiscal year of the Lessee Parent is the approximately fifty-two (52)
week period ending on the Saturday falling nearest to January 31.
(v) Review of Records. Further, Lessee will permit the duly
authorized representatives of Agent at all reasonable times upon at least
ten (10) days prior written notice to examine the books and records of
Lessee and its Subsidiaries, and take memoranda and extracts therefrom;
provided, that information, including financial information, which is
non-public and confidential or proprietary in nature disclosed to Agent
(as a result of any examination of the books and records of Lessee and its
Subsidiaries or pursuant to Section 32(b)(iv) or otherwise) will be kept
confidential and will not, without the prior written consent of Lessee,
be disclosed in any manner whatsoever, in whole or in part, except that
shall be permitted to disclose such information (A) to the Instrument
Holders (who shall be bound by the same confidentiality requirements upon
receipt of such information), (B) to any regulatory agencies having
jurisdiction over Agent or any Instrument Holder in connection with their
regulatory functions, and (C) as required by Law or court order, or in
connection with any investigation or proceeding arising out of the
transactions contemplated by this Lease.
(vi) Taxes, Charges, Etc. Duly pay and discharge, or cause to
be paid and discharged, when due, all taxes, assessments and other
governmental charges imposed upon it or any Subsidiary that is an approved
Additional Lessee and its and their properties, or any part thereof or
upon the income or profits therefrom, as well as all claims for labor,
materials or supplies which if unpaid could have a materially adverse
effect on the operations of Lessee as a whole so as to adversely affect
Lessee's capacity to perform its obligations under this Lease, except such
items as are being in good faith appropriately contested by Lessee or any
applicable Subsidiary and for which adequate reserves are being maintained
in accordance with GAAP.
(c) Negative Covenants. Lessee covenants and agrees with Lessor and
Agent that, so long as this Lease shall remain in effect Lessee will not, unless
Agent shall otherwise consent in writing:
(i) The Lessee will not, nor will it permit any of its
Subsidiaries to, enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution). The Lessee will not make, and will not
permit any of its Subsidiaries to make, any acquisition (in one
transaction or a series of related transactions) in excess of $50,000,000.
The Lessee will not, and will not permit any of its Subsidiaries to,
convey, sell, lease, transfer or otherwise dispose of in one transaction
or a series of transactions, all or a substantial part of its business or
assets, whether now owned or hereafter acquired (including, without
limitation, receivables and leasehold interests, but excluding (i) any
inventory or other assets (including real property) sold or disposed of
in the ordinary course of business and (ii) obsolete or worn-out property,
tools or equipment no longer used or useful in its business).
Notwithstanding the foregoing provisions:
(1) any Subsidiary of the Lessee may be merged or consolidated
with or into: (i) the Lessee or another Lessee if the Lessee or another Lessee
shall be the continuing or surviving corporation or (ii) any other such
Subsidiary; provided that if any such transaction shall be between a Subsidiary
and a wholly-owned Subsidiary, the wholly-owned Subsidiary shall be the
continuing or surviving corporation;
(2) any such Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or otherwise) to
the Lessee or another Lessee or a wholly-owned Subsidiary of the Lessee or
another Lessee; and
(3) any Lessee may sell, lease, transfer or otherwise dispose of
all or any of its assets (upon voluntary liquidation or otherwise) to any other
Lessee.
(ii) Lines of Business. Engage or, in the case of Lessee Parent,
permit any of its Subsidiaries that are approved Additional Lessees to
engage, to any substantial extent in any line or lines of business
activity other than the business of owning and operating retail stores and
auto service centers (including functions that are directly related
thereto and supportive thereof).
(iii) Change of Control. Permit the occurrence of any Change
of Control with respect to Lessee Parent or any approved Additional Lessee;
provided, however, that a Change of Control as to the Lessee Parent shall
not constitute a violation of this Lease if, as of the date that such
Change of Control occurs, the senior unsecured debt of the Lessee Parent
is rated BBB or better by Standard & Poors and/or Baa2 or better by
Moody's Investors Services, and the Lessee Parent or its securities are
not in a "credit watch" status with either such rating service.
(iv) Judgments. Permit or acquiesce in the entry of any final
unappealable judgment or order for the payment of money in excess of
$1,000,000.00 against Lessee or any of its Subsidiaries; provided,
however, that any such judgment or order shall not be an Event of
Default if and for so long as (x) the entire amount of such judgment or
order is covered (subject to customary deductibles) by a valid and binding
policy of insurance between the defendant and the insurer covering payment
thereof and (y) such insurer, which shall be rated at least "B+/X" by A. M.
Best Company, has been notified of, and has not disputed the claim made
for payment of the amount of such judgment or order;
As used in this Section 32(c), the following terms have the meanings indicated
below:
"Change of Control" means, after the date hereof, (A) as to Lessee Parent, any
event or circumstance that results in a majority of the individuals comprising
the board of directors of the Lessee Parent as of any date to consist of
individuals that were not members of the board of directors of the Lessee
Parent twelve (12) months previous to such date (other than by reason of
death), or (B) as to any other Lessee, any event or circumstance that results
in such Lessee not being a wholly owned Subsidiary of the Lessee Parent.
"GAAP" shall mean generally accepted accounting principles that are (a)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to
time, and (b) consistently applied with past financial statements of any
Person adopting the same principles.
"Lien" shall mean, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset. For purposes of this Lease, Lessee or any of its Subsidiaries shall
be deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
asset.
"Person" shall mean any individual, corporation, company, voluntary association,
partnership, joint venture, trust, unincorporated organization or government
(or any agency, instrumentality or political subdivision thereof).
"Subsidiary" shall mean, as to any Person, any corporation of which at least a
majority (or in the case of a wholly-owned Subsidiary, 100%) of the outstanding
shares of stock having by the terms thereof ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned or controlled
by such Person or one or more of its Subsidiaries or by such Person and
one or more of its Subsidiaries.
33. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, AND FOR THE PURPOSE OF REDUCING THE TIME AND
EXPENSE OF LITIGATION, LESSOR AND LESSEE WAIVE TRIAL BY JURY IN ANY
ACTION BROUGHT ON, UNDER, OR BY VIRTUE OF THIS AGREEMENT.
34. Exhibits. The following Exhibits are attached hereto and made a part
hereof for all purposes.
Annex I - Approved Self-Insurance Program
Exhibit A - Net Rent; Additional Rent
Exhibit B - Form of Supplement for Addition of Parcels
Exhibit C - Construction Addendum
Exhibit D - Form of Construction Supplement
Exhibit E - Form of SNDA
Exhibit F - Form of Supplement for Additional Lessee(s)
35. Special Local Provisions. It is expressly agreed that this Lease may
be amended or supplemented, as necessary, with any special local provisions or
requirements deemed necessary by Lessor or Agent, which provisions shall be
included in the Supplement adding the portions of the Property to which such
special provisions shall be applicable to the coverage of this Lease.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto have caused this Lease to be duly executed on the attached signature
pages by their respective officers thereunto duly authorized, to be effective
as of the day and year first above written.
[SEE ATTACHED SIGNATURE PAGES]
SIGNATURE PAGE ATTACHED TO MASTER LEASE
Between
State Street Bank and Trust Company, Trustee, as Lessor
and
The Pep Boys - Manny, Moe & Jack, et. al. as Lessee
LESSOR:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company not in its individual
capacity but solely as Trustee under the Declaration
of Trust
By:
Name:
Title:
SIGNATURE PAGE ATTACHED TO MASTER LEASE
Between
State Street Bank and Trust Company, Trustee, as Lessor
and
The Pep Boys - Manny, Moe & Jack, et.al. as Lessee
LESSEE:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By:
Name:
Title:
THE PEP BOYS MANNY, MOE & JACK,
OF CALIFORNIA, a California corporation
By:
Name:
Title:
PEP BOYS - MANNY, MOE & JACK,
OF DELAWARE, a Delaware corporation
By:
Name:
Title:
ANNEX I
Approved Self-Insurance Program EXHIBIT "A"
Net Rent; Additional Rent and Related Definitions
Capitalized terms used herein and not defined herein shall have the
meanings assigned to them in the Lease to which this Exhibit "A" is
attached (including terms defined by reference in the Lease to other
instruments or documents).
A. Net Rent. Net Rent during the Term shall be due and payable monthly
in arrears on each Payment Date in an amount determined by multiplying (1) the
then applicable Acquisition Price for the Property times (2) the lesser of the
Applicable Rate for the LIBO Rate Period in which such month falls or the
Highest Lawful Rate times (3) a fraction, the numerator of which is the actual
number of days in the month in question, and the denominator of which is 360
(or if the Highest Lawful Rate is used in lieu of the Applicable Rate, 365
or 366, as applicable).
"Payment Date" means the first (1st) day of each calendar month to and
including the last day of the Term, as well as the last day of the Term itself;
provided, however, that if such Payment Date is not a Business Day, such
Payment Date shall be the next succeeding Business Day. It is acknowledged
that for the period between the date a Parcel is added to the Property or a
Construction Advance is made in respect of New Improvements and the next
Adjustment Date the Net Rent will be computed using multiple Applicable Rates
applied to the respective Acquisition Prices, as set forth in the next sentence,
and the payments shall be adjusted accordingly. In the event this Lease is
terminated as to a Parcel and the Improvements thereon pursuant to the terms
hereof, or a Parcel or Improvements thereon are added to the Property, or a
Construction Advance is made, the Net Rent shall be adjusted, as of the date
of such termination or addition, by eliminating from the aggregate Acquisition
Price (in the case of a partial termination) or adding to the aggregate
Acquisition Price (in the case of the addition of a Parcel and Improvements or
a Construction Advance in respect of New Improvements) the portion of the
aggregate Acquisition Price thereof attributable to the portion of the Property
so released or added.
If, at any time, the Applicable Rate then in effect shall exceed the
Highest Lawful Rate, then any subsequent reductions in the Applicable Rate
shall not reduce the Net Rent below the amount of Net Rent that would be
payable hereunder if the Applicable Rate were equal to the Highest Lawful Rate
until the total amount of Net Rent accrued hereunder equals the amount of Net
Rent that would have accrued hereunder if the Applicable Rate had at all times
been the Applicable Rate without the limitation of the Highest Lawful Rate.
In the event that at the Expiration Date (howsoever the Expiration Date
occurs) the total amount of Net Rent paid or accrued hereunder is less than
the total amount of Net Rent that would have accrued if the Applicable Rate had
at all times been in effect without the limitation of the Highest Lawful Rate,
then Lessee agrees, to the fullest extent permitted by Law, to pay to Lessor
on the Expiration Date an amount equal to the difference between (a) the lesser
of (i) the amount of Net Rent that would have accrued hereunder if the Highest
Lawful Rate had at all times been utilized to compute the Net Rent accruing
hereunder, or (ii) the amount of Net Rent that would have accrued hereunder if
the Applicable Rate had at all times been utilized to compute the Net Rent
without the limitation of the Highest Lawful Rate, and (b) the amount of Net
Rent otherwise accrued hereunder.
The parties agree to modify the Applicable Rate payable hereunder as
contemplated in the Transaction Agreement to provide to Lessee the financial
benefit of any interest or yield reductions on the Instruments.
B. Additional Rent. In addition to such Additional Rent as may otherwise
be payable under the Lease, Lessee shall pay, within thirty (30) days of a
demand therefor, as Additional Rent all Break Costs, Reserve Costs, Increased
Costs and/or all reasonable expenses as set forth elsewhere herein or in the
Transaction Documents of Lessor or Agent required to be paid by Lessee
pursuant to this Lease, the Transaction Agreement, or any Transaction Document.
C. Definitions. As used herein, the following terms have the following
meanings:
"Acquisition Price" means the amount attributable to the Property (in the
aggregate) or a particular Parcel, as applicable, as set out at the time in
question on the most recent Schedule "A-1" to the Lease. The Supplement by
which any Parcel is added to the Property and the Construction Supplement with
respect to the Construction Advance related to any Improvements shall designate
the increase in the Acquisition Price attributable thereto and any other agreed
adjustment to the Acquisition Price Schedule by the attachment of an updated
Schedule "A-1". At such time as this Lease is terminated as to any Parcel and
either the Offer Purchase Price, the Contingent Rent Payment, or the
Construction Failure Payment amount applicable thereto is paid under any
applicable provision of this Lease, the Parcel in question shall no longer be
part of the Property, the portion of the Acquisition Price previously
applicable to such Parcel shall no longer be a part of the Acquisition Price
of the Property for any purpose, and Schedule A-1 shall be adjusted to reflect
the exclusion of such Parcel from the Property.
"Adjustment Date" means the first day of each month throughout the Term.
"Applicable Rate" means, for any month, as applicable (A) the sum of (i) the
LIBO Rate for the LIBO Rate Period in which such month falls, plus (ii) the
Applicable Spread or (B) as to the portion of the Acquisition Price
attributable to a Parcel or a Construction Advance prior to the first
Adjustment Date after such Parcel is added to the Property or such Construction
Advance is made, the sum of the Special LIBO Rate applicable thereto plus the
Applicable Spread.
"Applicable Spread" means, as applicable, the amount based on the debt rating
most recently issued by Standard & Poor's for Lessee's senior unsecured debt
as of any Adjustment Date determined by reference to the following:
Lessee's Most
Recent Debt Rating Applicable Spread
BBB+ (or higher)
61.8 basis points (0.618%)
BBB
69 basis points (0.690%)
BBB-
81 basis points (0.810%)
less than BBB-
105 basis points (1.05%)
The Applicable Spread is subject to adjustment in connection with the Secondary
Transaction contemplated in the Transaction Agreement such that the amount of
Net Rent payable hereunder is at all times equal to the aggregate amounts of
interest and current yield, as applicable, payable under the Instruments.
"Break Costs" shall mean an amount equal to the amount (if any)
required to compensate any Instrument Holder for any additional losses
(including, without limitation, any loss, cost or expense incurred by reason
of the liquidation or reemployment of deposits or funds acquired by such
Instrument Holder to fund or maintain a Trust Instrument) it may reasonably
incur as a result of Lessee's payment of the Offer Purchase Price, or the
Contingent Rent Payment other than on an Adjustment Date or the Expiration Date.
"Business Day" means every day on which banks in the cities of New York, New
York, Boston, Massachusetts, and Philadelphia, Pennsylvania, are open for
business and not required to be closed.
"Contingent Rent Payment" means, as of any relevant time, an amount equal to
the lesser of (A) eighty-four percent (84%) of the aggregate of all Advances
theretofore made under the Transaction Agreement (less any amounts theretofore
paid by Lessee as Contingent Rent Payments or Construction Failure Payments),
or (B) 100% of the Acquisition Price of the Parcels remaining subject to this
Lease as of the date the Contingent Rent Payment is made. In the event that
any Parcel(s) are purchased by Lessee during the period ending on December 31,
1997, pursuant to any option or obligation of Lessee to make such purchase
hereunder, the Contingent Rent Payment computed under clause (A) above shall
be recomputed so as to equal eighty-four percent (84%) of the aggregate of all
Advances theretofore made under the Transaction Agreement excluding Advances
theretofore made in respect of the Parcel(s) purchased by Lessee during such
period. The parties acknowledge that the obligation for the payment of
Contingent Rent Payments is a rental obligation in consideration of the lease
of the Property to Lessee hereunder, and that Lessee has agreed to make the
Contingent Rent Payment when due hereunder in consideration of the Lessor's
agreement to accept Net Rent payments during the Term in a lower amount than
Lessor would otherwise be willing to accept.
"Increased Costs" means any additional amounts required to be paid to any
Instrument Holder by Lessor under the Transaction Agreement to compensate
such Instrument Holder for any increased costs of maintaining the Instruments
or the advances evidenced thereby (the effect of which was not included in the
applicable Instrument Holder's determination of such costs at the more recent
to occur of the original issuance of such Instrument or the date of adjustment
of the Note Rate or Certificate Rate applicable to such Instrument or applicable
interest therein in connection with the Secondary Transaction) as a result of
the implementation after the date hereof of any applicable Law regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by such Instrument Holder (or any office thereof) with any request
or directive regarding capital adequacy (whether or not having the force of
Law) of any such authority, central bank or comparable agency which has the
effect of increasing the amount of capital required or expected to be
maintained as a result of its maintaining the Instruments held by it.
"LIBO Business Day" means a day of the year on which dealings are carried on
in the London interbank market and banks are open for business in London and
not required or authorized to close in New York City.
"LIBO Rate" for the period commencing on the date hereof to the first Adjustment
Date and for each period commencing on any Adjustment Date to and until the next
succeeding Adjustment Date (each, a "LIBO Period") means an interest rate per
annum equal to the average (rounded, if necessary, to the next highest 1/16 of
1%) of the rates of interest per annum at which deposits in United States
dollars are offered to prime banks in the London interbank market at 11:00
a.m. (London time) two LIBO Business Days before the first day of such LIBO
Period (the "Interest Setting Date") for a period equal to such LIBO Period.
"LIBO Rate Reserve Percentage" for any LIBO Period means the reserve
percentage applicable to the Instrument Holders during such LIBO Period under
the regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or if more than one such percentage is so applicable,
the daily average for such percentages for those days in such LIBO Period
during which any such percentage shall be so applicable) for determining
the maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for the Instrument Holders
in respect of liabilities or assets consisting of or including Eurocurrency
Liabilities (as defined in Regulation D of the Board of Governors of Federal
Reserve System as in effect from time to time) having a term
equal to such LIBO Period.
"Reserve Costs" means, so long as any Instrument Holder hereafter shall be
required under regulations of the Board of Governors of the Federal Reserve
System to maintain reserves in excess of those maintained at the more recent
to occur of the original issuance of the applicable Instrument or the date of
adjustment of the Note Rate or Certificate Rate applicable to such Instrument
or applicable interest therein in connection with the Secondary Transaction
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities, additional amounts equal to the product of (1) the outstanding
balance of the Instruments held by such Instrument Holder, multiplied by (2)
an interest rate per annum equal at all times during the period in which such
reserves were assessed to the remainder obtained by subtracting (a) the LIBO
Rate for the applicable period from (b) the rate obtained by dividing such LIBO
Rate applicable during such period by a percentage equal to 100% minus the then
applicable LIBO Rate Reserve Percentage, payable on each Payment Date.
Promptly after Lessor receives notice from Agent or any Instrument
Holder of any Reserve Costs or Increased Costs to be payable as Additional
Rent Lessor shall notify the Lessee of the same; provided, however, that the
failure to provide such notice as to Increased Costs shall not affect the
Lessor's right to recover Additional Rent for the same. A certificate in
reasonable detail (i) setting forth the basis for and the amount of such
costs submitted by the Lessor to the Lessee and (ii) in the case of Increased
Costs, setting forth in reasonable detail the calculation of the same and that
the Instrument Holder has certified to the Lessor that such Increased Costs are
generally being charged by the Instrument Holder to other similarly situated
persons under similar arrangements, which notice shall be conclusive and
binding for all purposes, absent manifest error, unless such notice fails to
set forth the information required above as to the Increased Costs.
"Special LIBO Rate" means, for any period commencing on the date any Parcel
is added to the Property or a Construction Advance is made, as applicable,
through the next Adjustment Date, an interest rate per annum equal to the rate
of interest per annum at which deposits in United States dollars are offered to
prime banks in the London interbank market at 11:00 a.m. (London time) two LIBO
Business Days before the date such Parcel is added to the Property, or the
Construction Advance is made, for a period equal to the period between such
date and the next Adjustment Date. The Special LIBO Rate shall be used to
determine the Applicable Rate only for that portion of the Acquisition Price
attributable to the Parcel in question and/or the construction advance in
question, but only through the next Adjustment Date.
FORM OF
SCHEDULE "A-1"
Schedule of Acquisition Prices
Date of Schedule:__________________. _______
Applicable Portion of
Parcel Acquisition Price
$
Total Acquisition Price $__________
Contingent Rent Payment $__________ EXHIBIT "B"
Form of Supplement for Addition of Parcels
SUPPLEMENT NO. _____ TO MASTER LEASE
(______________________, ________) [Location of Parcel]
This Supplement ("Supplement") is hereby added, as of the _____ day of
_________, _____, to that certain Master Lease (as heretofore amended and
supplemented, the "Lease"), dated as of _____________, 1995, by and between
State Street Bank and Trust Company, a Massachusetts trust company, as
Trustee under that certain Declaration of Trust of even date with the Lease
(in such capacity, and not individually, "Lessor"), and, among other Lessees
therein named, ________________________, a _________ corporation ("Lessee").
Upon execution hereof by Lessor and Lessee, and approval hereof by CITICORP
LEASING, INC., a Delaware corporation (as administrative agent for the
"Purchasers" [as defined in the Lease]) ("Agent"), this Supplement shall be
included in and shall be a part of the Lease for all purposes. Terms used but
not otherwise defined herein shall have the meanings given to such terms in the
Lease.
The parties hereto, intending to be legally bound hereby, acknowledge and
agree to the following:
Lessee is one of the parties to the Lease as a "Lessee" thereunder. [IF
LESSEE IS AN "ADDITIONAL LESSEE" REFERENCE SUPPLEMENT PURSUANT TO WHICH SUCH
ADDITIONAL LESSEE BECAME A PARTY TO THE LEASE.]
The parcel of land (the "Parcel") more fully described on Exhibit "A"
attached hereto and the improvements, if any, located thereon
(the Improvements") are hereby added by this Supplement to this Lease and
shall hereafter constitute a part of the "Property" for all purposes
of the Lease. Lessor hereby leases the Parcel and Improvements to Lessee,
and Lessee hereby leases the Parcel and Improvements from Lessor pursuant to
the Lease.
The "Permitted Encumbrances" with respect to the Parcel shall consist
of those items listed on Exhibit "B" attached hereto, which shall hereafter
constitute the "Permitted Encumbrances" applicable to the Parcel for all
purposes of the Lease.
Effective as of the date hereof, the Schedule of Acquisition Prices
attached as Schedule A-1 of the Lease is hereby replaced by the Revised
Schedule A-1 attached hereto, and all references to the "Acquisition Price"
of all or any Parcel(s) for any purpose shall be deemed to refer to the
Acquisition Price(s) referred to on such Revised Schedule A-1. [ATTACH
REVISED SCHEDULE A-1] From and after the date hereof the aggregate
Acquisition Price under the Lease is increased to $___________________
[Should Match New Schedule A-1 Total], which amount shall be used for
the computation of Net Rent under the Lease until further adjusted.
The Contingent Rent Payment shall be increased by $____________
[INSERT AMOUNT EQUAL TO 84% OF THE ADVANCE FOR THE PARCEL] as a
result of the addition to the Lease of the Parcel and Improvements,
resulting in a new Contingent Rent Payment in the amount of $_____________ .
Lessee hereby confirms, as of the date hereof, that all representations
and warranties made in the Lease with respect to the Property heretofore
covered by the Lease remain true and correct in all material respects; that all
representations and warranties included in the Lease with respect to the
"Property" are, as of the date hereof, true and correct as to the Parcel and
the Improvements as if such Parcel and Improvements had been originally
included within the term "Property"; and that no Event of Default and, to the
best of Lessee's knowledge, no event which with notice and/or the passage of
time might ripen into an Event of Default exists under the Lease.
Without limitation, Lessee confirms that all representations and warranties
set out in Section 6(d) of the Lease are, as of the date hereof, true and
correct as to the Parcel and Improvements hereby added to the Property.
Lessee hereby acknowledges and confirms that as of the date hereof,
Lessee has no defense to the payment or prformance of the Lessee's
obligations under the Lease and that, to the best of Lessee's knowledge,
,no claims, counterclaims, affirmative defenses, or other such
rights exist against Lessor, Agent, or any Purchaser or Instrument
Holders under the Lease.
Lessee acknowledges and confirms hereby that it has examined the Parcel
and the Improvements and title thereto, and that it accepts and approves the
Parcel and the Improvements and all matters relating thereto as suitable and
satisfactory for inclusion in the Lease [except that the improvements located
on the Parcel on the date hereof may be demolished, in whole or in part, as
provided below -- DELETE THIS PROVISION IF NOT APPLICABLE.
Lease Guarantor, as "Indemnitor" under that certain Environmental
Indemnity Agreement (the "Environmental Indemnity") of even date with the
Lease, executed by Lease Guarantor for the benefit of Lessor, Agent and the
Instrument Holders, hereby acknowledges that said Environmental Indemnity and
each and every representation, warranty, covenant, obligation, indemnity, or
other term thereof applies to, and applies with respect to, the Parcel and the
Improvements added to the Lease hereby and that from and after the date hereof
such Parcel and Improvements shall constitute part of the "Property" for all
purposes of the Environmental Indemnity.
Further, Lease Guarantor, as "Guarantor" under that certain Lease
Guarantee (the "Lease Guarantee") of even date with the Lease, executed by
Lease Guarantor and Lessor, hereby acknowledges that said Lease Guarantee and
each and every representation, warranty, covenant, obligation, indemnity, or
other term thereof applies to, and with respect to, the Parcel(s) and the
Improvements added to the Lease hereby and that from and after the date hereof
such Parcel(s) and Improvements (including any Improvements hereafter
constructed by Lessee on the Parcel) shall be covered by the Lease Guarantee,
and that the Lease Guarantee remains in full force and effect and continues to
apply to the Lease, as supplemented hereby.
It is expressly acknowledged and agreed that Agent and the Purchasers and
Instrument Holders are intended to be beneficiaries of this Supplement to the
same extent as Agent and the Purchasers and Instrument Holders are
beneficiaries of the Lease and the Environmental Indemnity.
[INSERT HERE ANY ADDITIONAL PROVISIONS APPLICABLE TO THE NEW
PROPERTY]
[The Improvements existing on the Parcel as of the date hereof are
approved for demolition pursuant to Section 1(d) of the Lease -- DELETE
OR MODIFY BASED ON FACTS AND UNDERWRITING.]
[INSERT ONLY IF APPLICABLE AND MODIFY TO REFLECT APPLICABLE
UNDERWRITING CRITERIA]
The Parcel contains [describe excess land by legal description, size
and location, or other available information] (the "Excess Land") which is
not needed for Lessee's purposes. Lessee shall have the right to subdivide
the Excess Land from the remainder of the Parcel and dispose of the Excess
Land, subject to satisfaction of the following requirements:
(i) the Excess Land and the remainder of the Parcel must be separately
platted legal lots, have adequate legal and physical access to publicly
dedicated streets or rights of way, be separate tax parcels, and (except
pursuant to approved Facility Agreements) otherwise not be dependent upon
each other for any legal or functional purpose whatsoever, and the
disposition of the Excess Land must not cause the remainder of the Parcel
(including any Improvements thereon or New Improvements contemplated to be
developed thereon) to violate any parking requirements, set-back lines,
zoning requirements, floor-area ratio requirements, or other legal or
applicable private restrictions, requirements or development standards.
(ii) the surveys, Title Policies, appraisals, and other underwriting
reports and materials provided to Agent in connection with the addition
of the Parcel to the Property must show (or be supplemented, endorsed,
and updated, as applicable, to show) the remainder of the Parcel
(exclusive of the Excess Land), and must satisfy all underwriting
requirements set out in the Transaction Agreement such that the Parcel,
without regard to the Excess Land, would be eligible for inclusion as a
part of the Property (with the applicable Acquisition Price) if it did
not already constitute a part of the Property.
(iii) any utility, access, or other rights across the Excess Land
necessary for the use and operation of the remainder of the Parcel shall
be documented into formal easements that are not subject or subordinate
to any mortgage or other lien affecting the Excess Land.
(iv) the remainder of the Parcel shall have a separate approved site
plan, final development plan, development plat, infrastructure plan, or
other applicable legal filings and approvals as may be necessary in the
applicable jurisdiction such that the Parcel and Improvements thereon are
entirely legally separate from any other property (including, without
limitation, being covered by separate certificates of occupancy or local
equivalent).
(v) all costs or expenses of Agent or Lessor in connection with the
release of the Excess Land shall be paid by Lessee.
If the Excess Land and the remainder of the Parcel satisfy the foregoing
requirements the Excess Land may be transferred to Lessee or its designee and
excluded from the coverage of this Lease without requirement for payment of
any Acquisition Price (but otherwise at the sole cost and expense of Lessee).
In such event the Agent shall also release the Transaction Mortgage from
the Excess Land. The release of the Excess Land shall not reduce the
Acquisition Price for the Parcel.]
EXECUTED as of the date first written above.
[SEE ATTACHED SIGNATURE PAGES]
SIGNATURE PAGE ATTACHED TO SUPPLEMENT TO MASTER LEASE
LESSOR:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company, not in its individual
capacity but solely as Trustee under the Declaration
of Trust
By:
Name:
Title:
SIGNATURE PAGE ATTACHED TO SUPPLEMENT TO MASTER LEASE
"LESSEE":
[ONLY SPECIFIC LESSEE LEASING PARCEL NEED SIGN]
__________________________________,
a _____________________corporation
By:
Name:
Title:
The undersigned, in its capacity as Lessee Parent, Lease Guarantor, and
party to the Environmental Indemnity Agreement joins in this Supplement for
the purposes therein stated.
LESSEE PARENT AND LEASE GUARANTOR:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By:
Name:
Title:
SIGNATURE PAGE ATTACHED TO SUPPLEMENT TO MASTER LEASE
Approved and Accepted as of the date first above written.
AGENT:
CITICORP LEASING, INC.,
a Delaware corporation
(as administrative agent on behalf of the Purchasers)
By:
Name:
Title:
EXHIBIT "C"
Construction Addendum
If Lessee elects to construct New Improvements on any Parcel and receive a
Construction Advance in respect thereof the New Improvements in question must
be constructed on such Parcel in accordance with the requirements of this
Construction Addendum. Any such New Improvements constructed upon the
Property shall be the property of Lessor from the date such New Improvements
(or any portions thereof) are placed on the Property.
Section 1. Construction of New Improvements.
1.1 If Lessee desires to construct New Improvements on any Parcel in
respect of which Lessee intends to seek a Construction Advance upon completion
thereof, then prior to commencing construction of such New Improvements Lessee
shall notify Agent of its intention to construct such New Improvements and its
desire to receive a Construction Advance for the costs thereof upon completion.
Such notice shall include (i) a description of the Parcel on which such
construction is to occur, (ii) a general description of the work to be
performed (which, in the case of New Improvements that are substantially
consistent with a "prototype" store or service center previously approved by
Agent, may consist merely of an indication that the New Improvements in
question are to be of such prototype, and (iii) a good faith (but non-binding)
estimate of the amount of the Construction Advance Lessee expects to seek upon
completion of construction of the New Improvements.
1.2 Lessee shall enter into such contracts and agreements as it
shall deem necessary or appropriate in order to cause completion of the New
Improvements on the Parcel in question. Such contracts and agreements shall
be in Lessee's name only and the obligations to be performed by Lessee
thereunder shall be the sole responsibility of Lessee.
1.3 If requested by Agent, Lessee shall deliver to Agent (i) copies
of all contracts and agreements relating to construction of the New
Improvements, (ii) the plans and any related specifications, working drawings
and construction schedules for the New Improvements (the "Plans"), (iii) all
governmental permits and licenses relating to or necessary for completion of
the New Improvements, and (iv) any other Documents which Lessor or Agent may
reasonably require with respect thereto. Delivery of such materials shall not
be a condition precedent to the addition of the Parcel to the Property or the
commencement of construction of the New Improvements, but Agent shall have the
right to review such materials in connection with its approval of the
Construction Advance. Agent's review and approval of such materials
shall be from the perspective of permitting it to assure itself that any
Construction Advance is made with respect to New Improvements that are
constructed in accordance with applicable legal requirements and sound
construction and development practices. Agent's approval shall not be based
upon cost, value, or market analyses or similar matters (except to the extent
that such matters influence the amount of the appraisal of the Parcel and New
Improvements). If Agent has previously been provided with Plans for a
prototype of New Improvements Agent shall not request Plans for specific New
Improvements that Lessee represents to Agent have been or are to be constructed
substantially in accordance with the prototype Plans. If Lessee makes any
material change mormodification in any documents or materials delivered to
Agent pursuant to this Section 1.3 Lessee shall provide Agent with a copy
of the modified version of such documents or other materials.
1.4 Lessee shall effect or cause to be effected the completion
of the New Improvements in a good and workmanlike manner, free of any patent
or latent defects, in substantial accordance with the Plans, and in accordance
with all laws, rules, regulations and ordinances applicable thereto (including,
without limitation, all Environmental Laws). Any New Improvements shall be
completed on or before earlier of (i) December 31, 1997, or (ii) the first
anniversary of the date on which the Parcel in question was added to the
Property (as applicable, the "Required Completion Date").
1.5 Lessee shall be solely responsible for, and shall pay or cause to
be paid in a timely manner, all costs of completion of the New Improvements,
including, without limitation, (a) amounts paid or to be paid to contractors
and other persons for work and services actually performed (including employees
of Lessee) and fees of architects, engineers and other consultants and
professionals, (b) all premiums for builder's risk, public liability, worker's
compensation and other insurance premiums pursuant to insurance policies
required hereby or by the Lease, and (c) survey costs. Lessee agrees to hold
Lessor, Agent and each Instrument Holder harmless from the payment of all costs
of completion of the New Improvements. Lessee also agrees to pay directly to
the party to whom such amounts are owed within thirty (30) days after demand
all reasonable out-of-pocket costs, charges, reasonable fees and expenses of the
Lessor and its counsel and the Agent and its counsel, related to the
preparation, evaluation (including related diligence activities), and execution
of any supplements to the Lease in connection therewith.
1.6 During the period when any construction activities are being
carried out by Lessee with respect to any of the New Improvements, Lessee shall
cause to be carried and to be in full force and effect (either directly or
pursuant to the self-insurance program permitted under the Lease) (a)
non-reporting builder's risk or all-risk property insurance insuring the Parcel
and New Improvements in the amount of the full replacement value thereof (on an
"as-built" basis), (b) insurance covering all materials stored at the
construction site (or off the construction site) that are intended to
be incorporated into the New Improvements in an amount not less than the full
insurable value of such materials from time to time, and (c) such other
insurance coverage as Lessee may be required to carry under the Lease. All
of such insurance coverage shall be carried in accordance with all applicable
provisions of the Lease.
1.7 Upon completion of the New Improvements for any Parcel, and as a
condition precedent to Lessee's right to receive a Construction Advance in
respect thereof, Lessee shall cause to be delivered to Agent (a) complete
as-built plans and specifications for the New Improvements (or, if the New
Improvements are constructed pursuant to prototype Plans previously provided
to Agent, a certification that the New Improvements have been so constructed),
(b) an "as-built" survey of the Parcel (in form reasonably satisfactory to
Lessor and Agent) updated to show the location of the New Improvements and
all easements or other Permitted Encumbrances affecting the Parcel, (c) copies
of books and records reflecting the cost of the New Improvements in such
detail as may be sufficient to enable Agent to substantiate the cost of the
New Improvements in question, (d) such lien waivers and contractor's affidavits
as may reasonably be required by Agent, (e) an endorsement to the mortgagee
title policy showing no exceptions for mechanic's and materialman's liens and
otherwise in form and substance reasonably satisfactory to Agent, and (f) such
other instruments, documents and/or materials which may be reasonably requested
by the Agent to evidence the completion of such New Improvements, the payment
of the costs thereof, and the satisfaction of the conditions to a Construction
Advance pursuant to the Transaction Agreement. The delivery of any such
materials or documents to Agent shall constitute a representation by Lessee to
Lessor and Agent that such materials are correct and complete in all material
respects.
1.8 Provided that all conditions have been timely satisfied by
Lessee, Agent will proceed to obtain the funding of the Construction Advance
by the Purchasers as provided in the Transaction Agreement.
Section 2. Funding of Construction Advance. Immediately upon receipt
of any funding of an Advance in respect of the New Improvements under the
Transaction Agreement, Lessor shall pay to Lessee, as a Construction Advance
for the New Improvements, the amount of such funding in consideration of the
performance by Lessee of its obligations hereunder. In connection with such
funding Lessee and Lessor shall execute such instruments or documents
(including, without limitation, a Construction Supplement) and do such things
as may be required to fulfill the provisions of the Lease relating to the
construction of the New Improvements and the provisions of the Transaction
Agreement relating to the funding of a Construction Advance thereunder.
Section 3. Construction Failure.
3.1 If the New Improvements on any Parcel are not completed and/or
the requirements hereof necessary to permit Lessee to obtain a Construction
Advance under the Transaction Agreement in respect of such New Improvements
are not satisfied prior to the Required Completion Date for that Parcel
(a "Construction Failure"), then Lessee shall, at its option, either (i) make
an Offer to Purchase the Parcel with respect to which such Construction Failure
has occurred pursuant to Section 14 of the Lease, or (ii) elect to terminate
this Lease as to the Parcel with respect to which the Construction Failure has
occurred. If Lessee fails to elect option (ii) within fifteen (15) days after
the Construction Failure occurs then Lessee shall irrevocably be deemed to have
elected option (i). In either event neither Agent, the Instrument Holders,
nor Lessor shall have any further obligation (other than with respect to the
effect upon the computation of the Construction Failure Payment payable under
Section 3.1.2 below, if applicable) to Lessee for the cost of constructing the
New Improvements.
3.1.1 If Lessee elects (or is deemed to have elected) to purchase
the Parcel with respect to which the Construction Failure has occurred
pursuant to option (i) above then the Offer Purchase Price for such Parcel as
provided in Section 15 of the Lease (which Offer Purchase Price will include
the Acquisition Price for the Parcel in question, as such Acquisition Price
shall theretofore have been increased as a result of any construction
allowance attributable to such Parcel that may theretofore have been advanced)
and the closing of Lessee's purchase of such Parcel from Lessor shall
otherwise be in accordance with Section 15 of the Lease.
3.1.2 If Lessee elects to terminate this Lease as to an affected
Parcel pursuant to option (ii) above as a result of a Construction Failure then
Lessee shall, on the date that is (15) days after Construction Failure occurs,
pay to Lessor a special termination payment (the "Construction Failure
Payment") in an amount (not to exceed the Acquisition Price for the Parcel in
question) determined by the application of the following formula:
3.1.2.1 First, determine the sum of (A) the Acquisition Price for the
Parcel in question plus (B) the aggregate amount of costs and expenses
incurred and paid for by Lessee in connection with the construction of the
New Improvements on the Parcel in question, as substantiated to Agent's
reasonable satisfaction, that have not been reimbursed to Lessee through
a Construction Advance ("Unadvanced Costs").
3.1.2.2 Second, multiply the sum obtained in 3.1.2.1 above by
eighty-nine percent (89%).
3.1.2.3 Finally, subtract the amount of Unadvanced Costs from the
product obtained in 3.1.2.2 above.
The Construction Failure Payment shall be treated and disposed of by
Lessor in the same manner as a Contingent Rent Payment
(notwithstanding that the Construction Failure Payment is computed
as a different percentage of the Acquisition Price than is used to
compute the regular Contingent Rent Payment hereunder) for all
purposes of this Lease and the other Transaction Documents.
3.2 If Lessee elects to terminate the Lease as to a Parcel with
respect to which a Construction Failure has occurred and has paid the
Construction Failure Payment in respect thereof, then Lessee, as agent for
Lessor but at Lessee's sole cost and expense, shall use its best efforts to
sell the Parcel in question to a third party at the maximum available market
price not later than the date that is thirty (30) days after the effective
date of such termination. Lessor shall join in any sale at or above the
Special Minimum Price (defined below) and Agent's approval of such sale will
not be required; however, Lessee may not sell the Parcel in question without
the consent of Agent, which consent may be withheld at Agent's sole and
absolute discretion, if the purchase price is less than that price that will
produce net sale proceeds of the Parcel received by Lessor upon any such sale
(after applicable closing and transaction costs) sufficient, together with the
Construction Failure Payment itself, to permit the Lessor (or Agent on behalf
of Lessor) to pay to the applicable Instrument Holders the amount that such
Instrument Holders would have received if, in lieu of terminating the Lease
and making the Construction Failure Payment, the Lessee had purchased the
Parcel(s) in question and paid the Offer Purchase Price therefor, taking into
account the additional interest or certificate yield, as applicable, accrued
on the Instruments in question with respect to the amount that would have been
paid on sale of the Property to Lessee at the Offer Purchase Price but which
remained unpaid on the date of such partial termination of the Lease as a
result of the Construction Failure Payment being less than the Acquisition
Price of the Parcel(s) in question (a sale price that will produce net sale
proceeds, after all transaction costs, in such amount being referred to as
the "Special Minimum Price"). To the extent the net sale proceeds exceed the
Special Minimum Price Lessor shall refund all such excess to Lessee. If
Lessee has failed to cause the Parcel to be sold within such period, Lessee's
rights under this subsection 3.2 shall cease and Lessor shall thereafter have
the sole and exclusive right to sell or dispose of the Parcel in question
solely for the account of the Instrument Holders. Lessor shall reasonably
cooperate in any sale of the Parcel in question by Lessee (after approval of
the sale by Agent, where required), but at Lessee's sole cost and expense,
such cooperation to include execution of contracts of sale, closing documents,
and related materials; provided that Lessor shall not be required to incur any
liability beyond its interest in the Parcel in question in connection therewith.
Section 4. Representations and Warranties of Lessee. Lessee represents
and warrants to Lessor with respect to each Parcel and the New Improvements
thereon, as of the date of funding of the Construction Advance as follows:
4.1 No violation of any Laws exists with respect to the Parcel and
New Improvements. The intended use and operation of the Parcel and New
Improvements complies with all Legal Requirements, including, without
limitation, building codes, zoning, and private covenants.
4.2 All streets, easements, utilities and related services necessary
for the construction of the New Improvements and the operation and use thereof
for its intended purposes are available, dedicated, and fully operational to
the boundaries of the Parcel, including, without limitation, reciprocal use
easements, potable water, electric, gas and telephone facilities, garbage
removal, and sewer services.
4.3 The Plans are adequate for construction of the New Improvements,
comply with all applicable Laws, building codes, covenants, conditions, or
restrictions applicable to the Parcel and New Improvements, and were prepared
in accordance with good commercial construction practices, and the New
Improvements have been constructed in substantial accordance with the Plans.
4.4 Lessee has obtained or caused to be obtained all requisite
building permits, licenses and approvals required by any governmental authority
with respect to construction of the New Improvements.
To the extent any of the foregoing representations is inaccurate in
any respect with regard to a specific Parcel at the time a Construction Advance
is requested for such Parcel, Lessee shall set forth the accurate representation
in writing, together with the status of such matters and the protections to be
afforded to Lessor, Agent and the Instrument Holders and, so long as the effect
of the facts as they exist, giving effect to such protections as are provided to
address such matters, do not reduce the value of the Parcel and New Improvements
relative to the value set out in the appraisal received by Agent, and Agent is
otherwise satisfied that neither Lessor, Agent, nor any Instrument Holder is
materially adversely affected by the existing facts and conditions, such
variance shall not delay, condition or serve as the basis for a refusal of the
Construction Advance requested by Lessee.
Section 5. Nature of Relationship. Nothing contained herein shall
create the relationship of partnership or of joint venture or of any
association between Lessor and Lessee.
<PAGE>
EXHIBIT "D"
Form of Construction Supplement
CONSTRUCTION SUPPLEMENT TO MASTER LEASE
(_____________________, ___________) [Project Location]
This Construction Supplement ("Supplement") is hereby added, as of
the _____ day of _________, _____, to that certain Master Lease (as
heretofore amended or supplemented, the "Lease"), dated as of ________________,
1995 by and between State Street Bank and Trust Company, a Massachusetts trust
company, in its capacity as Trustee under that certain Declaration of Trust
dated of even date with the Lease (in such capacity, and not individually,
"Lessor"), and among other Lessees therein named, ________________________, a
________________ corporation ("Lessee"). Upon execution hereof by Lessor and
Lessee, and approval hereof by CITICORP LEASING, INC., a Delaware corporation
(as administrative agent for the Purchasers [as defined in the Lease])
("Agent"), this Supplement shall be included in and shall be a part of the
Lease for all purposes. Terms used but not otherwise defined herein
shall have the meanings given to such terms in the Lease.
The parties hereto, intending to be legally bound hereby, acknowledge
and agree to the following:
Lessee is one of the parties to the Lease as a "Lessee" thereunder.
[IF LESSEE IS AN "ADDITIONAL LESSEE" REFERENCE SUPPLEMENT PURSUANT TO
WHICH SUCH ADDITIONAL LESSEE BECAME A PARTY TO THE LEASE.]
The parcel of land (the "Parcel") more fully described on Exhibit "A"
attached hereto was added to the Lease by Supplement dated ______________,
and constitutes a part of the "Property" for all purposes of the Lease.
Lessee has elected to construct "New Improvements" (as defined in the Lease)
on the Parcel pursuant to Section 1(d) of the Lease and the Construction
Addendum attached thereto.
Lessee hereby represents and warrants to Lessor, Agent, and each Purchaser
and Instrument Holder that the construction of the New Improvements on the
Parcel has been completed in accordance with the terms and conditions of the
Construction Addendum. Based on such representation and warranty, Lessor and
Lessee desire to increase the Acquisition Price for the Parcel by the amount
of $__________, which amount is being simultaneously herewith advanced to
Lessee by Lessor as a Construction Advance in respect of the New Improvements.
Effective as of the date hereof, the Schedule of Acquisition Prices
attached as Schedule A-1 of the Lease is hereby replaced by the Revised
Schedule A-1 attached hereto, and all references to the "Acquisition Price" of
all or any Parcel(s) for any purpose shall be deemed to refer to the
Acquisition Price(s) referred to on such Revised Schedule A-1. [ATTACH
REVISED SCHEDULE A-1]
The Contingent Rent Payment is hereby increased by $____________ [insert
amount equal to 84% of the Construction Advance], resulting in a Contingent
Rent Payment in the amount of $_____________.
Lessee hereby confirms, as of the date hereof, that all representations and
warranties made in the Lease with respect to the Property heretofore covered by
the Lease remain true and correct in all material respects, that all
representations and warranties included in the Lease with respect to the
"Property" are, as of the date hereof, true and correct as to the Parcel
and the New Improvements; and that no Event of Default and, to the best of
Lessee's knowledge, no event which with notice and/or the passage of time
might ripen into an Event of Default, exists under the Lease.
Lessee hereby acknowledges and confirms that as of the date hereof,
Lessee has no defenses to the payment or performance of the Lessee's
obligations under the Lease and that, to the best of Lessee's knowledge, no
claims, counterclaims, affirmative defenses, or other such rights exist against
Lessor, Agent or any Purchaser or Instrument Holder under the Lease.
It is expressly acknowledged and agreed that Agent and the Purchasers
and Instrument Holders are intended to be beneficiaries of this Supplement to
the same extent as Agent and the Purchasers and Instrument Holders are
beneficiaries of the Lease and the Environmental Indemnity.
Lease Guarantor joins in the execution hereof for the purpose of
acknowledging the Construction Advance being made and the adjustments to the
Net Rent and Contingent Rent Payment to be affected thereby. Lease Guarantor
confirms that the Lease Guarantee dated as of even date with the Lease,
executed by Lease Guarantor remains in full force and effect and continues
to apply to the Lease, as supplemented hereby.
EXECUTED as of the date first written above.
[SEE ATTACHED SIGNATURE PAGES]
SIGNATURE PAGE ATTACHED TO CONSTRUCTION SUPPLEMENT
LESSOR:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company, not in its individual
capacity but solely as Trustee under the Declaration
of Trust
By:
Name:
Title:
SIGNATURE PAGE ATTACHED TO CONSTRUCTION SUPPLEMENT
"LESSEE":
[ONLY SPECIFIC LESSEE LEASING PARCEL NEED SIGN]
__________________________________,
a _____________________corporation
By:
Name:
Title:
The undersigned, in its capacity as Lessee Parent, Lease Guarantor, and
party to the Environmental Indemnity Agreement joins in this Supplement for
the purposes therein stated.
LESSEE PARENT AND LEASE GUARANTOR:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By:
Name:
Title:
SIGNATURE PAGE ATTACHED TO CONSTRUCTION SUPPLEMENT
Approved and Accepted as of the date first above written.
AGENT:
CITICORP LEASING, INC.,
a Delaware corporation
(as administrative agent for itself
and the Purchasers)
By:
Name:
Title:
EXHIBIT "E"
Form of SNDA
EXHIBIT "F"
Form of Supplement for Additional Lessee
SUPPLEMENT NO. _____ TO MASTER LEASE
This Supplement ("Supplement") is hereby added, as of the _____ day of
_________, _____, to that certain Master Lease (as heretofore amended and
supplemented, the "Lease"), dated as of _____________, 1995, by and between
State Street Bank and Trust Company, a Massachusetts trust company, as Trustee
under that certain Declaration of Trust of even date with the Lease (in such
capacity, and not individually, "Lessor"), and THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation, THE PEP BOYS MANNY, MOE & JACK OF CALIFORNIA,
a California corporation, and PEP BOYS - MANNY, MOE & JACK OF DELAWARE, INC.,
a Delaware corporation ("Lessee"). Upon execution hereof by Lessor,
Lessee Parent, and Additional Lessee, and approval hereof by CITICORP LEASING,
INC., a Delaware corporation (as administrative agent for the "Purchasers"
[as defined in the Lease]) ("Agent"), this Supplement shall be included in
and shall be a part of the Lease for all purposes. Terms used but not
otherwise defined herein shall have the meanings given to such terms in the
Lease.
The parties hereto, intending to be legally bound hereby, acknowledge
and agree to the following:
___________________________, a _________ corporation ("Additional Lessee")
and Lessee Parent desire for the Additional Lessee to become a party to the
Lease as a Lessee as provided for in Section 31 of the Lease.
To induce approval of the acceptance of Additional Lessee as a party to
the Lease Lessee Parent and Additional Lessee hereby represent and warrant to
Agent and Lessor that, as of the date hereof:
a. Additional Lessee is a wholly-owned Subsidiary of Lessee Parent.
b. All representations and warranties made in the Lease with
respect to the "Lessee" are true and correct in all material
respects as to the Additional Lessee as of the date hereof.
c. Giving effect to the approval of Additional Lessee as a party to
the Lease, all representations and warranties made in the Lease and
in the Lease Guarantee as to Lessee Parent remain true and correct
in all material respects.
Lease Guarantor, as "Indemnitor" under that certain Environmental
Indemnity Agreement (the "Environmental Indemnity") of even date with the
Lease, executed by Lease Guarantor for the benefit of Lessor, Agent and
the Instrument Holders, hereby acknowledges that said Environmental Indemnity
and each and every representation, warranty, covenant, obligation, indemnity,
or other term thereof applies to, and applies with respect to, the Additional
Lessee and any Parcel and the Improvements that may ever be leased by the
Additional Lessee pursuant to the Lease.
Further, Lease Guarantor, as "Guarantor" under that certain Lease Guarantee
(the "Lease Guarantee") of even date with the Lease, executed by Lease Guarantor
and Lessor, hereby acknowledges that said Lease Guarantee and each and every
representation, warranty, covenant, obligation, indemnity, or other term
thereof applies to, and with respect to, the Additional Lessee and any
Parcel(s) and the Improvements that may ever be leased by the Additional
Lessee pursuant to the Lease and that from and after the date hereof the
Additional Lessee shall be covered by the Lease Guarantee as if the Additional
Lessee had been an original Lessee, and that the Lease Guarantee remains in
full force and effect.
Additional Lessee hereby assumes, jointly and severally, all obligations
of the Lessee under the Lease, whether arising prior to, or subsequent to,
the date of this Supplement.
It is expressly acknowledged and agreed that Agent and the Purchasers and
Instrument Holders are intended to be beneficiaries of this Supplement to the
same extent as Agent and the Purchasers and Instrument Holders are
beneficiaries of the Lease and the Environmental Indemnity.
EXECUTED as of the date first written above.
[SEE ATTACHED SIGNATURE PAGES]
SIGNATURE PAGE ATTACHED TO SUPPLEMENT TO MASTER LEASE
LESSOR:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company, not in its individual
capacity but solely as Trustee under the Declaration
of Trust
By:
Name:
Title:
SIGNATURE PAGE ATTACHED TO SUPPLEMENT TO MASTER LEASE
"ADDITIONAL LESSEE":
__________________________________,
a _____________________corporation
By:
Name:
Title:
The undersigned, in its capacity as Lessee Parent, Lease Guarantor, and
party to the Environmental Indemnity Agreement joins in this Supplement for
the purposes therein stated.
LESSEE PARENT AND LEASE GUARANTOR:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By:
Name:
Title:
SIGNATURE PAGE ATTACHED TO SUPPLEMENT TO MASTER LEASE
Approved and Accepted as of the date first above written.
AGENT:
CITICORP LEASING, INC.,
a Delaware corporation
(as administrative agent on behalf of the
Purchasers)
By:
Name:
Title:
RECORDING REQUESTED
BY AND AFTER RECORDING
SHOULD BE RETURNED TO:
CHARLES W. MORRIS, ESQ.
BROWN MCCARROLL & OAKS HARTLINE
300 CRESCENT COURT
SUITE 1400
DALLAS, TEXAS 75201-6929
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
AGREEMENT, dated as of , 199 (this "Agreement"), by and among STATE
STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its primary
business address at Two International Place, Fourth Floor, Boston, Massachusetts
02110 (Attn: Corporate Trust Department), not in its individual capacity but
solely as the Trustee under a certain Declaration of Trust (the "Declaration
of Trust") dated November ___, 1995, ("Lessor"), _______________, a
_____________ corporation, ("Lessee"), having its primary business address at
3111 W. Allegheny Avenue, Philadelphia, Pennsylvania 19132
(Attn: Michael Holden, Senior Vice-President-Finance, and CITICORP
LEASING, INC., a Delaware corporation having an office at 450 Mamaroneck
Avenue, Harrison, New York 10528 (Attn: EFL/CBL Credit Head), in its capacity
as the administrative agent ("Agent") for the benefit of the Noteholders under
that certain Transaction Agreement dated November ___, 1995 among Lessor, Agent,
and [Lessee/the corporation of which Lessee is a wholly-owned subsidiary].
Citicorp Leasing, Inc. is the initial Noteholder, but the term "Noteholder"
shall also include any person who may from time to time hereafter hold any Note
issued pursuant to the Declaration of Trust.
W I T N E S S E T H:
WHEREAS, Lessor is the owner of that certain parcel of real property
described in Exhibit "A" attached hereto (the "Parcel"), together with any
buildings and improvements hereafter located thereon (the "Improvements");
WHEREAS, Lessor and Lessee (along with certain other lessees) have
entered into a certain Master Lease dated November ___, 1995 (as amended and
supplemented from time to time, the "Lease"), wherein Lessor has agreed to let
and demise to Lessee (and certain other lessees) various properties to be added
to the coverage of the Lease from time to time (collectively, the "Property").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings given to such terms in the Lease;
WHEREAS, pursuant to Supplement No. ___ to Master Lease of even date
herewith between Lessor and Lessee the Parcel and Improvements have been
added to the Property covered by the Lease, and are now leased to Lessee
under the Lease;
WHEREAS, Agent, for the benefit of the Noteholders, is or will become a
secured party under one or more deeds of trust, mortgages, or other security
instruments as applicable to the Property (collectivly, the "Transaction
Mortgage") executed by Lessor, encumbering Lessor's fee simple estate in the
Property as security for certain obligations owed to the Noteholders.
The Transaction Mortgage covering the portions of the Property now subject
to the Lease is intended to be recorded immediately prior to the recording of
this Agreement;
WHEREAS, the parties hereto desire to make certain provisions concerning
the Lease and the Transaction Mortgage as hereinafter set forth;
NOW, THEREFORE, in consideration of One Dollar ($1) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby covenant and agree as follows:
1. Agent agrees with Lessee that, so long as the Lease remains in effect
and no Event of Default (as defined in the Lease) has occurred and is
continuing:
(a) Neither Lessee, nor any person claiming through or under Lessee,
shall be named or joined as a party defendant in any action, suit or
proceeding which may be instituted or taken by Agent for the purpose of
enforcing or foreclosing the Transaction Mortgage by reason of any default
or event of default under the Transaction Agreement or other Transaction
Documents;
(b) Enforcement of any provisions of the Transaction Mortgage shall
not terminate the Lease or disturb Lessee in the possession and use of
the Property;
(c) Except as otherwise provided in this Agreement, Lessee's
possession of the Property and Lessee's rights and privileges under the
Lease, including without limitation, Lessee's rights to purchase the
Property or applicable portions thereof pursuant to the terms of the
Lease shall not be disturbed, diminished or interfered with by Agent;
and
(d) The leasehold estates created by and under the Lease shall not
be affected in any manner by any proceeding instituted or action taken
under or in connection with the Transaction Mortgage or in case Agent or
any other Person takes possession of the Property pursuant to any
provision of the Transaction Mortgage.
2. Agent and Lessee agree that if at any time the interest of the Lessor
is terminated and Agent succeeds to such interest (whether as a result of
foreclosure of the Transaction Mortgage or otherwise), and/or if the Property
or any part thereof is at any time owned by Agent or any successor thereto or
any other party by reason of a judicial or non-judicial foreclosure, private
trustee sale, deed in lieu of foreclosure, or otherwise in connection with an
exercise of rights or remedies pursuant to the terms of the Transaction
Mortgage, and so long as no Event of Default (as defined in the Lease) has
occurred and is continuing, then (i) the Lease shall continue in effect and
shall not terminate, (ii) Lessee shall attorn to and recognize Agent (or such
other party) as the successor to the rights of Lessor, upon the then executory
terms and conditions of the Lease, (iii) Agent (or such other party) shall
accept such attornment and recognize Lessee as Agent's (or such other party's)
lessee under the Lease, (iv) Agent (or such other party) shall assume and
thereafter fulfill the obligations by the "Lessor" under the Lease, and (v)
where applicable, Agent (or such other party) shall take all actions required
of the "Lessor" under the Lease to transfer the Property to Lessee upon
Lessee's exercise of any applicable purchase option and Lessee's payment of
the Offer Purchase Price therefor. Notwithstanding any such "assumption" by
Agent (or such other party), Agent (or such other party) shall have no
personal liability or obligation for the performance of the obligations of
Lessor, and shall further have no liability or obligation of any kind in
respect of any obligations of the Lessor under the Lease arising subsequent to
any sale or transfer of the Property to a third party that "assumes" the
obligations of Lessor under the Lease arising after such transfer, (which
"assumption" shall be subject to the same limitations as the "assumption"
by the Agent (or such other party) as aforesaid). The provisions of this
Paragraph shall be self-operative and no further instrument of attornment
shall be required. In confirmation of such attornment, however, each party
hereto shall, at the request of any other party hereto (or such other party),
promptly execute and deliver an instrument, in recordable form, which confirms
such attornment, non-disturbance, and recognition, provided, however, that the
failure to execute any further instrument shall not detract from the
effectiveness of the provisions of this Paragraph. Upon such attornment,
non-disturbance, and recognition, the Lease shall continue in full force
and effect as, or as if it were, a direct lease between Agent (or such other
party) and Lessee upon all of the then exeutory terms, conditions and other
covenants thereof. In such event, Lessee agrees that Agent (or such other
party) shall not be (a) liable for any act or omission of the prior
lessor (other than acts or omissions taken at the direction of Agent);
(b) subject to any offsets, claims, defenses or counterclaims which Lessee
might have against the prior lessor (except such as are based on the prior
lessor's acts or omissions taken at the direction of Agent); (c) bound
by any advance rent paid by Lessee not paid by Lessee in accordance with the
terms of the Lease; or (d) bound by any amendment or modification of the Lease
made without Agent's consent.
3. Lessee hereby certifies to Agent and the Noteholders that, as of the
date hereof:
i) The Lease is in full force and effect and has not been amended or
modified;
ii) Neither Lessee nor, to the best of Lessee's knowledge, the Lessor
is in default in observing or performing the terms, covenants, provisions
or conditions on their respective parts to be observed or performed under
the Lease and, to the best of Lessee's knowledge, no condition exists,
and no event has occurred, which, with or without the passage of time or
the giving of notice or both, would constitute such a default; and
iii) All rent currently due and owing by Lessee to Lessor under the
Lease has been paid in full.
It is acknowledged that the provisions of this Paragraph are to be relied upon
by Agent and the Noteholders in inducing the Noteholders to make, or to commit
to make, certain Advances under the Transaction Agreement. Lessee agrees that
from time to time at the request of Agent, it will execute, acknowledge and
deliver to Agent a statement confirming that the certifications made by it
above remain true and correct as of such time (or if not true, specifying the
respects in which such certifications have become untrue).
4. Lessee hereby consents to the Transaction Mortgage and to any
consolidations, renewals, modifications, replacements, refinancings,
substitutions and extensions thereof, but only to the extent expressly
permitted under the Transaction Documents.
5. Subject to the terms of Paragraphs 1 and 2 of this Agreement, the
Lease and any other interest of Lessee in the Property which Lessee may now
hold or hereafter acquire or be deemed to hold are hereby made, and shall at
all times continue to be, subject and subordinate in each and every respect
to the provisions of the Transaction Mortgage and to any and all renewals,
modifications, extensions, substitutions, replacements and/or consolidations
of the Transaction Mortgage unless and until the Transaction Mortgage has been
released in whole or in applicable part with respect to the Property or the
portion thereof in question.
6. Agent shall endeavor to give Lessee notice (in accordance with the
notice provisions of the Lease) prior to any foreclosure of the Transaction
Mortgage, acceptance by Agent of a deed in lieu of foreclosure, or other
similar event but any failure by Agent to give such prior notice to Lessee
shall not affect the validity or effectiveness of any such action taken
by Agent.
7. This Agreement shall survive any termination of the Lease, whether
by operation of law or otherwise.
8. This Agreement (and any substantially similar agreements executed from
time to time with respect to the Lease and other portions of the Property) and
the Lease collectively contain the entire agreement between the parties
regarding (i) the non-disturbance of Lessee's possession of the Property
under the Lease, (ii) attornment and recognition between Lessee and Agent, and
(iii) subordination of the Lease to the Transaction Mortgage.
9. This Agreement may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts taken together shall constitute but one and the same
instrument.
10. No waiver or modification by any party of any provision or covenant
of this Agreement shall be deemed to have been made unless such waiver is
expressed in writing and signed by the party against whom such waiver or
modification is charged.
11. This Agreement shall inure to the benefit of Lessor, Lessee, Agent,
and the Noteholders and be binding upon Lessor, Lessee, Agent, and the
Noteholders, and in each case their respective successors and assigns.
12. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF , WITHOUT
REGARD TO ITS CONFLICT OF LAWS PRINCIPLES.
13. Any notice, demand, consent, approval, direction, request, agreement
or other communication required or permitted hereunder shall be given in the
manner specified in the Lease.
14. If additional parcels or improvements are added to the Property, upon
request of any of the parties hereto the parties hereto shall execute and
record such supplements to this Agreement or other documents as may reasonably
be required to assure that the rights granted herein and the obligations of the
parties hereto are applicable to the additional parcels and improvements in
question; provided, however, that the execution and/or recordation of any such
supplement shall not be necessary for the effectiveness of this Agreement as
to the additional parcels and improvements.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties have
duly executed and delivered this Agreement on the attached Signature Pages as
of the date first above written.
[SEE ATTACHED SIGNATURE PAGES]
SIGNATURE PAGE FOR LESSOR
ON
SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT
"LESSOR":
STATE STREET BANK AND TRUST
COMPANY,
a Massachusetts trust company
(acting in its capacity as Trustee under the
Declaration of Trust and not in its individual
capacity)
By:
Name:
Title:
[ADD WITNESS SIGNATURES, ATTESTATION, SEALS, OR OTHER NECESSARY
FORMALITIES AND REVISE ACKNOWLEDGMENT FORMS AS REQUIRED UNDER
APPLICABLE STATE LAW]
STATE OF
SS.
COUNTY OF
This instrument was acknowledged before me on this ____ day of , 199 by
, of STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company in its capacity as Trustee as aforesaid.
My commission expires: Notary Public in and for
_____________________
Printed Name of Notary Public
[Notarial Seal]
SIGNATURE PAGE FOR LESSEE
ATTACHED TO
SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT
"LESSEE":
__________________________________
________, a ____________corporation
By:
Name:
Title:
[ADD WITNESS SIGNATURES, ATTESTATION, SEALS, OR OTHER NECESSARY
FORMALITIES AND REVISE ACKNOWLEDGMENT FORMS AS REQUIRED UNDER
APPLICABLE STATE LAW]
STATE OF
SS.
COUNTY OF
This instrument was acknowledged before me on this ____ day of , 199 by
, of ______________________________, a ___________________
corporation on behalf of said corporation.
My commission expires: Notary Public in and for
_____________________
Printed Name of Notary Public
[Notarial Seal]
SIGNATURE PAGE FOR AGENT
ATTACHED TO
SUBORDINATION, NON-DISTURBANCE, AND ATTORNMENT AGREEMENT
"AGENT":
CITICORP LEASING, INC.,
a Delaware corporation
(in its capacity as administrative agent for
itself and the other Noteholders)
By:
Name:
Title:
[ADD WITNESS SIGNATURES, ATTESTATION, SEALS, OR OTHER NECESSARY
FORMALITIES AND REVISE ACKNOWLEDGMENT FORMS AS REQUIRED UNDER
APPLICABLE STATE LAW]
STATE OF NEW YORK
SS.
COUNTY OF WESTCHESTER
This instrument was acknowledged before me on this ____ day of , 199 , by
the of Citicorp Leasing, Inc., a Delaware corporation,
on behalf of said corporation, in the foregoing capacity.
My commission expires: Notary Public in and for
_____________________ the State of New York
Printed Name of Notary Public
[Notarial Seal]
LEASE GUARANTEE
THIS LEASE GUARANTEE ("Guarantee") made and entered into as of this 13th
day of November, 1995, by and among THE PEP BOYS - MANNY, MOE & JACK, a
Pennsylvania corporation ("Guarantor"), STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company, in its individual capacity as its interest may
appear in the Transaction Documents, but otherwise not in its individual
capacity but solely in its capacity as Trustee under that certain Declaration
of Trust dated of even date herewith ("Lessor"), and CITICORP LEASING, INC.,
as administrative agent for itself and other Purchasers and Instrument Holders,
as defined in the Lease ("Agent");
W I T N E S S E T H:
A. Lessor has contemporaneously herewith entered into a certain Master
Lease (the "Lease") with Guarantor, The Pep Boys Manny, Moe & Jack of
California, a California corporation, and Pep Boys - Manny, Moe & Jack of
Delaware, Inc., a Delaware corporation (collectively, the "Lessee"), which
Lease is intended to cover certain real property to be added thereto from
time to time as provided for therein. As used in this Guarantee "Lessee"
means, collectively, the above-named parties that constitute the "Lessee" on
the date hereof as well as any Additional Lessees (as defined in the Lease)
that may hereafter become a party to the Lease.
B. The property to be covered by the Lease will be acquired by Lessor
with the proceeds of advances under certain A-Notes, B-Notes and Certificates
(herein referred to as the "Instruments") issued by Lessor to Purchasers
pursuant to the terms of a certain Transaction Agreement (herein so called)
of even date herewith by and among Lessor, Guarantor, and Agent, on behalf of
itself and such other financial institutions as may, from time to time, become
Purchasers or Instrument Holders thereunder.
C. In consideration of the execution and delivery of the Lease by Lessor
to Lessee, and in recognition that the favorable terms accruing to Lessee
through the rental terms of the Lease, all of which are contingent upon the
delivery of this Guarantee by Guarantor; and in recognition that Guarantor will
receive direct and material benefits from the delivery of the Lease and the
Transaction Agreement and the consummation of the transactions contemplated
thereby, Guarantor desires to deliver this Guarantee to Lessor.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, Lessor and Guarantor hereby agree as follows:
1. Guarantee. For value received, and in consideration of Lessor
entering into the Lease with Lessee and in further consideration of the
agreement of the Purchasers to make Advances from time to time under the
Transaction Agreement, Guarantor hereby unconditionally guarantees the full
payment and performance when due, whether at the stated due date, by
acceleration or otherwise, of any and all rent, monetary or non-monetary
obligations and other amounts of every kind, howsoever created, arising, or
evidenced, whether direct or indirect, absolute or contingent, now or hereafter
existing or owing to Lessor by Lessee pursuant to the Lease, including, but
without limitation, the payment of Net Rent, Contingent Rent Payments (including
Construction Failure Payments), Offer Purchase Price, other Additional Rent and
including any attorneys fees, court costs or other enforcement costs of any
kind or nature, including those incurred during pre-trial, trial or appellate
levels (all such monetary and non-monetary obligations being hereinafter
collectively called the "Obligations"). Guarantor hereby agrees that upon any
default by Lessee in the payment or performance of any of the Obligations when
and as due, Guarantor will forthwith pay and/or perform the same immediately
upon demand and without further notice.
Guarantor acknowledges that at such time(s) as Parcels and/or
Improvements are added to the Lease each and every payment and performance
obligation (including increased rent) of Lessee under the Lease is
automatically guaranteed hereunder without the need of any confirmation and
without any notice to Guarantor. Upon request by Lessor or Agent, Guarantor
agrees to confirm by supplement this Guarantee with respect to addition of
Parcels and/or advances in respect of New Improvements. Such a supplement
would be executed by the Guarantor and would contain a reaffirmation of
representations and warranties contained herein. A supplement, however, is
not required for this Guarantee to cover the obligations of Lessee in
respect of Parcels and Improvements when added to the Lease.
2. Gurantee Continuing, Absolute, Unlimited. This Guarantee is a
continuing, absolute and unlimited guarantee of payment and performance as
primary obligor and not as surety. This Guarantee shall apply to all
Obligations pursuant to the Lease without limitation as to either amount or
period of time. The Obligations shall be conclusively presumed to have been
created in reliance on this Guarantee. Lessor shall not be required to
proceed first against Lessee or any other person, firm or corporation or
against any property securing any of the Obligations before resorting to
Guarantor for payment. This Guarantee shall be construed as a guarantee
of payment and performance without regard to the validity, regularity, or
enforceability of any of the Obligations as to Lessee or the rejection of
the Lease in bankruptcy, and notwithstanding any claim, defense (other than
irrevocable payment by Guarantor or another Lessee) or right of set-off which
Lessee or Guarantor may have against Lessor, including any such claim, defense
or right of set-off based on any present or future law or order of any
government (de jure or de facto), or of any agency thereof or court of law
purporting to reduce, amend or otherwise affect any obligations of Lessee,
or any other obligor, or to vary any terms of payments, and without regard
to any other circumstances which might otherwise constitute a legal or
equitable discharge of a surety or a guarantor. Guarantor agrees that this
Guarantee shall continue to be effective or be reinstated, as the case may be,
if at any time payment to Lessor of the Obligations or any part thereof is
rescinded or must otherwise be returned by Lessor upon the insolvency,
bankruptcy or reorganization of Lessee, or otherwise, as though
such payment to Lessor had not been made.
3. Definitions. Unless otherwise indicated, capitalized terms used
herein and not defined below shall have the respective meanings given to them
in the Lease. In addition to the definitions provided in the Lease, the
following words and terms shall have the meanings indicated below:
(a) "Capital Lease Obligations" shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of
(or other agreement conveying the right to use) real and/or personal
property which obligations are required to be classified and accounted for
as a capital lease on a balance sheet of such Person under GAAP (including
Statement of Financial Accounting Standards No. 13 of the Financial
Accounting Standards Board) and, for purposes of this Lease, the amount of
such obligations shall be the capitalized amount thereof, determined in
according with GAAP (including such Statement No. 13).
(b) "Change of Control" means, as to Guarantor, any event or
circumstance that results in a majority of the individuals comprising the
board of directors of the Guarantor as of any date to consist of
individuals that were not members of the board of directors of the
Guarantor twelve (12) months previous to such date (other than by reason
of death).
(c) "Consolidated Subsidiary" shall mean, as to any Person, each
Subsidiary of such Person (whether now existing or hereafter created or
acquired) the financial statements of which shall be (or should have been)
consolidated with the financial statements of such Person in accordance
with GAAP.
(d) "GAAP" shall mean generally accepted accounting principles that
are (a) consistent with the principles promulgated or adopted by the
Financial Accounting Standards Board and its predecessors, as in effect
from time to time, and (b) consistently applied with past financial
statements of any Person adopting the same principles.
(e) "Guarantee" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance
of, or otherwise to be or become contingently liable under or with respect
to, the Indebtedness, other obligations, net worth, working capital or
earnings of any Person, or a guarantee of the payment of dividends or other
distributions upon the stock of any corporation, or an agreement to
purchase, sell or lease (as lessee or lessor) property, products,
materials, supplies or services primarily for the purpose of enabling a
debtor to make payment of his, her or its obligations or an agreement to
assure a creditor against loss, and including, without limitation, causing
a bank to open a letter of credit for the benefit of another Person, but
excluding endorsements for collection or deposit in the ordinary course of
business. The terms "Guarantee" and "Guaranteed" used as a verb shall
have a correlative meaning.
(f) "Indebtedness" shall mean, as to any Person: (i) indebtedness
created, issued or incurred by such Person for borrowed money (whether by
loan or the issuance and sale of debt securities); (ii) obligations of such
Person to pay the deferred purchase or acquisition price of property or
services, other than trade accounts payable (other than for borrowed money)
arising, and accrued expenses incurred, in the ordinary course of business
so long as such trade accounts payable are payable within 90 days of the
date the respective goods are delivered or respective services rendered;
(iii) Indebtedness of others secured by a Lien on the property of such
Person, whether or not the respective Indebtedness so secured has been
assumed by such Person; (iv) obligations of such Person in respect of
letters of credit or similar instruments issued or accepted by banks
and other institutions for the account of such Person; (v) Capital Lease
Obligations of such Person; and (vi) Indebtedness of others Guaranteed by
such Person.
(g) "Interest Expense" shall mean, for any period, the sum of the
following: (i) all interest in respect of Indebtedness accrued or
capitalized during such period (whether or not actually paid during such
period) plus (ii) the net amounts payable (or minus the net amounts
receivable) under interest rate protection agreements accrued during such
period (whether or not actually paid or received during such period).
Payments of Net Rent or other payments under the Lease will not be
treated as Interest Expense for purposes hereof.
(h) "Leverage Ratio" shall mean, at any time, the ratio of Total
Liabilities to Tangible Net Worth of Guarantor and its Consolidated
Subsidiaries at such time.
(i) "Lien" shall mean, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in
respect of such asset. For purposes of this Lease, Guarantor or any of
its Subsidiaries shall be deemed to own subject to a Lien any asset which
it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
(j) "Net Earnings" shall mean, for any period, the net earnings of
Guarantor and its Consolidated Subsidiaries determined in accordance with
GAAP for such period; provided that, if for any fiscal quarterly period
such net earnings shall be negative (i.e.,a loss), "Net Earnings" for
such period shall be deemed to be zero.
(k) "Net Operating Profit" shall mean, for any period, for Guarantor
and its Consolidated Subsidiaries (i) net sales minus (ii) total costs and
expenses (excluding costs of income taxes and Interest Expense), in each
case determined in accordance with GAAP for such period.
(l) "NOP/Interest Charges Ratio" shall mean, as at any date of
determination thereof, the ratio of (i) Net Operating Profit for the
period of four consecutive fiscal quarters of Guarantor ending on or most
ended prior to such date of determination to (ii) Interest Expense for
such period.
(m) "Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust, unincorporated
organization or government (or any agency, instrumentality or political
subdivision thereof).
(n) "Subsidiary" shall mean, as to any Person, any corporation of
which at least a majority of the outstanding shares of stock having by
the terms thereof ordinary voting power to elect a majority of the board
of directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned or controlled by such Person
or one or more of its Subsidiaries or by such Person and one or more of
its Subsidiaries.
(o) "Tangible Net Worth" shall mean, as at any date of determination
thereof, the sum of the following for any Person and its Consolidated
Subsidiaries determined (without duplication) in accordance with GAAP:
(i) the amount of capital stock, plus
(ii) the amount of surplus and retained earnings (or, in the
case of a surplus or retained earnings deficit, minus the amount of
such deficit), minus
(iii) the sum of the following: cost of treasury shares and
the book value of all assets of such Person and its Consolidated
Subsidiaries which should be classified as intangibles (without
duplication of deductions in respect of items already deducted in
arriving at surplus and retained earnings) but in any event including
goodwill, research and development costs, trademarks, trade names,
copyrights, patents and franchises, all reserves and any write-up in
the book value of assets resulting from a revaluation thereof
subsequent to January 28, 1989.
(p) "Total Liabilities" shall mean, as at any date of determination
thereof, the sum, for Guarantor and its Consolidated Subsidiaries
determined (without duplication) in accordance with GAAP, of all
Indebtedness of Guarantor and its Consolidated Subsidiaries (including
subordinated Indebtedness) and all other liabilities of Guarantor and its
Subsidiaries which should be classified as liabilities on a balance sheet
of Guarantor and its Consolidated Subsidiaries prepared in accordance
with GAAP and in any event including all reserves (other than general
contingency reserves) and all deferred taxes and other deferred items.
4. Guarantee Not Affected by Change in Security or Other Actions.
Lessor may, from time to time, without the consent of or notice to Guarantor,
take any or all of the following actions without impairing or affecting
Guarantor's obligations under this Guarantee or releasing or exonerating
Guarantor from any of its liabilities hereunder:
(a) retain or obtain a security interest in any property to secure
any of the Obligations or any obligation hereunder;
(b) retain or obtain the primary or secondary liability of any
party or parties, in addition to the Guarantor, with respect to any of
the Obligations;
(c) extend the time or change the manner, place or terms of payment
of, or renew or amend the Lease, or other instrument executed in
connection with or evidencing the Obligations or any part thereof, or
amend in any manner any agreement relating thereto;
(d) release or compromise, in whole or in part, or accept full or
partial payment for, any of the Obligations hereby guaranteed, or any
liability of any nature of any other party or parties with respect to the
Obligations or any security therefor;
(e) subordinate the payment of all or any part of the Obligations
to the payment of any liability of Lessee to creditors of Lessee other
than Lessor or Guarantor;
(f) enforce Lessor's security interest, if any, in all or any
properties securing any of the Obligations or any obligations hereunder
in order to obtain full or partial payment of the Obligations then
outstanding;
(g) release or fail to perfect, protect, or enforce Lessor's security
interest, if any, in all or any properties securing any of the Obligations
or any obligation hereunder, or permit any substitution or exchange for
any such property; and
(h) take or fail to take any other action of whatever kind or
character with respect to the Obligations, the Lease or any other
document or instrument, it being the intention of Guarantor that it shall
remain liable as primary obligor for the Obligations notwithstanding any
act, omission or thing which might, but for the provisions hereof,
otherwise operate as a legal or equitable discharge of any guarantor.
5. Waivers. Guarantor hereby expressly waives:
(a) notice of acceptance of this Guarantee;
(b) notice of the existence or incurrence of any or all of the
Obligations;
(c) presentment, demand, notice of dishonor, notice of intent to
accelerate, notice of acceleration, protest, and all other notices
whatsoever except as expressly provided herein;
(d) any requirement that proceedings first be instituted by Lessor
against Lessee;
(e) all diligence in collection or protection of or realization upon
the Obligations or any part thereof, or any obligation hereunder, or any
collateral for any of the foregoing;
(f) any rights or defenses based on Lessor's election of remedies,
including any defense to Lessor's action to recover any deficiency after
a non-judicial sale;
(g) the occurrence of every other condition precedent to which
Guarantor might otherwise be entitled; and
(h) any right to require Lessor to marshall assets.
6. Representations and Warranties of Guarantor. Guarantor represents
and warrants to Lessor that:
(a) Guarantor (i) is duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Pennsylvania,
(ii) has full corporate power and authority to own and operate its
properties and to conduct its business as presently conducted, and full
corporate power, authority and legal right to execute, deliver and perform
its obligations under this Guarantee, (iii) is duly qualified to do
business as a foreign corporation in good standing in each jurisdiction in
which its ownership or leasing of properties or the conduct of its business
requires such qualification, and (iv) all of the issued and outstanding
voting stock of Subsidiaries that are Lessees or are approved "Additional
Lessees" under the Lease is owned, directly or indirectly, by Guarantor.
(b) This Guarantee has been duly authorized, executed and delivered
by Guarantor and is a legal, valid and binding obligation of Guarantor,
enforceable according to its terms (subject as to enforcement of remedies
to any applicable bankruptcy, reorganization, moratorium, or other Laws or
principles of equity affecting the enforcement of creditors' rights
generally).
(c) The execution, delivery and performance by Guarantor of this
Guarantee will not result in any violation of any term of the articles of
incorporation or the by-laws of Guarantor, does not require stockholder
approval or the approval or consent of any trustee or holders of debt of
Guarantor except such as have been obtained prior to the date hereof, and
will not conflict with or result in a breach of any terms or provisions
of, or constitute a default under, or result in the creation or imposition
of any lien upon, any property or assets of Guarantor under, any indenture,
mortgage or other agreement or instrument to which Guarantor is a party or
by which it or any of its property is bound, or any existing applicable
law, rule, regulation, license, judgment, order or decree of any
government, governmental body or court having jurisdiction over Guarantor
or any of its activities or properties, including, without limitation, any
rule or order of any public utility commission or other governmental body.
(d) There are no consents, licenses, orders, authorizations or
approvals of, or notices to or registrations with any governmental or
public body or authority which are required in connection with the valid
execution, delivery and performance of, this Guarantee by Guarantor that
have not been obtained or made, and any such consents, licenses, orders,
authorizations, approvals, notices and registrations that have been
obtained or made are in full force and effect.
(e) Except as disclosed in writing to Agent by Guarantor
concurrently herewith or publicly disclosed in Guarantor's 10-Q and/or
10-K filings with the Securities and Exchange Commission, (i) there is
no action, suit, proceeding or investigation at law or in equity by or
before any court, governmental body, agency, commission or other tribunal
now pending or, to the best knowledge of Guarantor after due inquiry,
threatened against or affecting Guarantor or any property or rights of
Guarantor as to which there is a significant possibility of an adverse
determination, and which if adversely determined, may have a material
adverse effect on the financial condition or business of Guarantor or
which, if adversely determined could materially impair the ability of
Guarantor to perform its obligations under this Guarantee, and (ii)
there is no action, suit, proceeding or investigation at law or in equity
by or before any court, governmental body, agency, commission or other
tribunal now pending or, to the best knowledge of Guarantor after due
inquiry, threatened which questions or would question the validity of
this Guarantee.
(f) Guarantor is not in default under or with respect to any
agreement or other instrument to which it is party or by which it or its
assets may be bound which would have a material adverse effect on the
financial condition of Guarantor or the ability of Guarantor to perform
its obligations under this Guarantee. Guarantor is not subject to
or in default under any order, award or decree of any court, arbitrator,
or other governmental authority binding upon or affecting it or by which
any of its assets may be bound or affected which would have a material
adverse effect on the ability of Lessee to carry on its business as
presently conducted or to perform its obligations under this Guarantee.
(g) Guarantor has filed or caused to be filed all tax returns which
to the knowledge of Guarantor are required to be filed, and has paid all
taxes shown to be due and payable on said returns or on any assessments
made against it, except for (i) returns which have been appropriately
extended and (ii) taxes, fees, assessments or other charges, the amount
or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in conformity
with GAAP have been provided on the books of Guarantor.
(h) Guarantor and each of its Subsidiaries are in compliance in all
material respects with the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and the Internal Revenue Code of 1986, as amended
(the "Code"), and the rules and regulations thereunder insofar as ERISA,
the Code and such rules and regulations relate to any employee benefit
plan as defined in Section 3(3) of ERISA. No employee pension benefit plan
(as defined in Section 3[2] of ERISA) maintained by Guarantor or any of its
Subsidiaries for its employees and covered by ERISA (a "Plan") had an
"accumulated funding deficiency", within the meaning of said term under
Section 302 of ERISA, as of the last day of the most recent fiscal year
of such Plan, and neither Guarantor nor any of its Subsidiaries has
incurred with respect to any Plan any liability to the Pension Benefit
Guaranty Corporation ("PBGC") which is material to the consolidated
financial condition of Guarantor or any of its Subsidiaries. For the
purpose of this subsection (viii), the term "Subsidiary" shall include
a Controlled Group of Corporations as that term is defined in Section
1563 of the Code or Section 4.001 of ERISA.
(i) The financial statements of Guarantor furnished to Lessor and
Agent on or before the date hereof have been prepared in accordance with
GAAP and fairly present the financial condition of Guarantor as of the
date thereof. Since the date of such financial statements there has been
no material adverse change in the financial condition or business of
Guarantor which would impair the ability of Guarantor to perform its
obligations hereunder.
7. Affirmative Covenants. Guarantor covenants and agrees with Lessor,
Agent and the Instrument Holders that, so long as this Guarantee shall remain
in effect Lessee will, unless Lessor and Agent shall otherwise consent in
writing:
(a) Compliance with Laws. Comply, and cause each of its Subsidiaries
to comply, in all material respects with all applicable Laws, for which the
failure to so comply could have a material adverse effect on the operations
of Guarantor as a whole so as to adversely affect its capacity to perform
its obligations under this Guarantee, and such compliance shall include,
without limitation, paying before the same become delinquent all taxes
imposed upon it or its property, except to the extent contested diligently
and in good faith, and for which adequate reserves are established.
(b) Maintenance of Existence; Licenses and Franchises. Maintain its
existence, and preserve and maintain all material licenses, privileges,
franchises, certificates, authorizations and other permits and agreements
necessary for the operation of its business.
(c) Insurance. Maintain, and cause each of its Subsidiaries to
maintain, insurance policies with respect to its property and business in
such amounts and against such casualties and contingencies as is customary
in its industry; provided that nothing herein shall prejudice the right of
Guarantor or any Subsidiary thereof to self-insure for certain risks in
accordance with customary procedures.
(d) Additional Information. Guarantor shall furnish to Agent: (i)
within sixty (60) days of the end of each quarterly fiscal period during
the Term, unaudited quarterly financial statements for Guarantor
(including a balance sheet, income statement, and such other reports as
Agent may reasonably request); (ii) within one hundred twenty (120)
days of the end of each fiscal year during the Term, annual financial
statements for Guarantor (and its consolidated Subsidiaries) audited by a
nationally recognized public accounting firm (including a balance sheet,
income statement and such other reports as Agent may reasonably request);
(iii) when issued or filed, copies of the most recent 10-K for Guarantor,
proxy statements, financial statements and other reports filed by
Guarantor with the Securities and Exchange Commission or any national
securities exchange or market on which any of Guarantor's securities are
traded or quoted; (iv) from time to time upon Agent's request, an Officer's
Certificate stating that there exists no Event of Default (or event or
circumstance which with notice and or the passage of time could mature
into an Event of Default) under the Lease, this Guarantee, and/or the
Environmental Indemnity Agreement of even date herewith executed by
Guarantor or, if any such event or circumstances does exist, specifying
the nature and period of existence thereof and what action Guarantor
proposes to take with respect thereto; and (v) from time to time at the
request of Agent, and in any event simultaneously with delivery of the
annual financial statements of Guarantor, a statement certified by a
senior financial officer of Guarantor certifying (A) that Guarantor is in
compliance with all of the financial covenants (both affirmative and
negative) contained in this Guarantee, and (B) Leverage Ratio, Tangible
Net Worth, Current Ratio, and NOP/Interest Charges Ratio as of the end of
the preceding quarter or fiscal year, or for the preceding quarter or
fiscal year, as applicable. Guarantor's fiscal year is a period of
fifty-two (52) weeks ending on the Saturday falling nearest to
January 31.
(e) Review of Records. Further, Guarantor will permit the duly
authorized representatives of Agent at all reasonable times upon at
least ten (10) days notice to examine the books and records of Guarantor
and its Subsidiaries, and take memoranda and extracts therefrom; provided,
that information, including financial information, which is non-public and
confidential or proprietary in nature disclosed to Agent (as a result of
any examination of the books and records of Guarantor and its Subsidiaries
or pursuant to subsection (d) above or otherwise) will be kept
confidential and will not, without the prior written consent of Guarantor,
be disclosed in any manner whatsoever, in whole or in part, except that
Agent shall be permitted to disclose such information (i) to the
Instrument Holders (who shall be bound by the same confidentiality
requirements upon receipt of such information), (ii) to any regulatory
agencies having jurisdiction over Agent or any Instrument Holder in
connection with their regulatory functions, and (iii) as required by Law
or court order, or in connection with any investigation or proceeding
arising out of the transactions contemplated by this Guarantee.
(f) Taxes, Charges, Etc. Duly pay and discharge, or cause to be
paid and discharged, when due, all taxes, assessments and other
governmental charges imposed upon it or any Subsidiary that is an approved
Additional Lessee and its and their properties, or any part thereof or upon
the income or profits therefrom, as well as all claims for labor, materials
or supplies which if unpaid could have a material adverse effect of the
operations of Guarantor, as a whole, so as to adversely affect Guarantor's
capacity to perform its obligations under this Guarantee, except such items
as are being in good faith appropriately contested by Guarantor or any such
Subsidiary and for which adequate reserves are being maintained in
accordance with GAAP.
8. Negative Covenants. Guarantor covenants and agrees with Lessor and
Agent that, so long as this Guarantee shall remain in effect Guarantor will
not, unless Lessor and Agent shall otherwise consent in writing:
(a) The Guarantor will not, nor will it permit any of its
Subsidiaries to, enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution). The Guarantor will not make, and will not
permit any of its Subsidiaries to make, any acquisition (in one
transaction or a series of related transactions) in excess of $50,000,000.
The Guarantor will not, and will not permit any of its Subsidiaries to,
convey, sell, lease, transfer or otherwise dispose of (in one transaction
or a series of transactions), all or a substantial part of its business or
assets, whether now owned or hereafter acquired (including, without
limitation, receivables and leasehold interests, but excluding (i) any
inventory or other assets (including real property) sold or disposed of
in the ordinary course of business and (ii) obsolete or worn-out property,
tools or equipment no longer used or useful in its business).
Notwithstanding the foregoing provisions:
(1) any Subsidiary of the Guarantor may be merged or
consolidated with or into: (i) the Guarantor if the Guarantor shall
be the continuing or surviving corporation or (ii) any other such
Subsidiary; provided that if any such transaction shall be between a
Subsidiary and a wholly-owned Subsidiary, the wholly-owned Subsidiary
shall be the continuing or surviving corporation;
(2) any such Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to the Guarantor or a wholly-owned Subsidiary of the
Guarantor; and
(3) Guarantor may sell, lease, transfer or otherwise dispose of
all or any of its assets to another Lessee.
(b) Leverage Ratio. Permit the Leverage Ratio to exceed 1.5 to 1.0.
(c) Tangible Net Worth. Permit its Tangible Net Worth, on any date
of determination thereof, to be less than the sum of (x) $520,000,000.00
plus (y) 25% of the aggregate amount of Net Earnings for each quarterly
period occurring during the period commencing January 29, 1995, and ending
on the date that is the last day of Guarantor's fiscal quarter next
preceding such date of determination.
(d) Current Ratio. Permit the ratio of consolidated current assets
of Guarantor and its Consolidated Subsidiaries over consolidated current
liabilities of Guarantor and its Consolidated Subsidiaries to be at any
time less than 1 to 1. For purposes hereof, the terms "current assets"
and "current liabilities" shall have the respective meanings assigned to
them by GAAP.
(e) NOP/Interest Charges Ratio. At any time permit the NOP/Interest
Charges Ratio to be less than 2.5 to 1.0.
(f) Lines of Business. Engage, or permit any of its Subsidiaries
that is a Lessee or an approved Additional Lessee to engage, to any
substantial extent in any line or lines of business activity other than
the business of owning and operating retail stores and auto service
centers (including functions that are directly related thereto and
supportive thereof).
(g) Change of Control. Permit the occurrence of any Change of
Control with respect to Guarantor; provided that a Change of Control as
to Guarantor shall not be a default hereunder if, as of the date such
Change of Control occurs, the senior unsecured debt of Guarantor is rated
BBB or better by Standard & Poors Corporation and/or Baa2 or better by
Moody's Investors Services, and the Guarantor or its securities are not
in a "credit watch" status with either such rating service.
(h) Judgments. Permit or acquiesce in the entry of any final
unappealable judgment or order for the payment of money in excess of
$1,000,000.00 against Guarantor or any of its Subsidiaries; provided,
however, that any such judgment or order shall not be an Event of
Default if and for so long as (x) the entire amount of such judgment
or order is covered (subject to customary deductibles) by a valid and
binding policy of insurance between the defendant and the insurer
covering payment thereof and (y) such insurer, which shall be rated
at least "B+/X" by A. M. Best Company, has been notified of, and has
not disputed the claim made for payment of the amount of such
judgment or order;
9. Payments. Each payment by Guarantor to Lessor under this
Guarantee shall be made by transferring the amount thereof in immediately
available U.S. funds, without set-off or counterclaim, to Lessor in the
same manner as rent is payable by Lessee under the Lease.
10. Costs and Expenses. Guarantor hereby agrees to pay all reasonable
legal and other costs and expenses incurred by Lessor and Agent or any
Instrument Holder in seeking to protect or enforce any of Lessor's, Agent's
or such Instrument Holder's rights or remedies with respect to the Obligations
and this Guarantee.
11. Subrogation and Other Rights. Guarantor shall not assert, enforce,
or otherwise exercise (a) any right of subrogation to any of the rights or
liens of Lessor or any other beneficiary against Lessee or any other obligor
on all or any part of the Obligations, or (b) any right of recourse,
reimbursement, contribution, indemnification, or similar right against Lessee
or any other obligor on all or any part of the Obligations or any guarantor
thereof, and Guarantor hereby irrevocably waives any and all of the foregoing
rights it may have against the Lessee by reason of Guarantor's performance
under this Guarantee until all amounts due hereunder have been paid.
12. No Waiver. No delay on Lessor's or Agent's part in the exercise of
any right or remedy shall operate as a waiver thereof, and no single or partial
exercise by Lessor or Agent of any right or remedy shall preclude the other or
further exercise thereof or the exercise of any other right or remedy.
13. Parties; Successors and Assigns. This Guarantee shall inure to the
benefit of Lessor, Agent, the Purchasers and Instrument Holders, and their
respective successors, assigns and transferees, and shall be binding upon
Guarantor and its respective successors and assigns. Guarantor may not delegate
any of its duties under this Guarantee without the prior written consent of
Lessor and Agent or any Person to whom Lessor has assigned this Guarantee.
Lessor may assign Lessor's rights and benefits under this Guarantee to any
Person, including, without limitation, to any Instrument Holder, but only in
connection with an assignment of Lessor's rights under the Lease. Upon any
assignment by Lessor of this Guarantee, and upon any subsequent assignment
or assignments by Lessor's assignee or future assignees, such assignee or
future assignee shall succeed to all of the rights, benefits, remedies and
privileges of this Guarantee and shall for all purposes hereof be deemed to
be "Lessor" hereunder to the exclusion of the assigning Lessor. Upon a
request therefor, accompanied by copies of documentation evidencing such
assignee's entitlement thereto, Guarantor agrees to make such disclosures and
to take such action and execute such instruments as any such assignee or
future assignee may reasonably require to more fully protect, preserve and
assure to such assignee or future assignee all of the rights, benefits,
remedies and privileges provided hereby.
14. Defaults.
(a) If any one or more of the following events shall occur:
(i) If an Event of Default (as defined in the Lease) shall
occur under the Lease; or
(ii) If Guarantor shall fail to pay any part of the Obligations
within five (5) Business Days after demand is made therefor
under this Guarantee;
(iii) If any representations or warranties made by Guarantor
herein shall be false or misleading in any material respect on
the date when made;
(iv) If there shall be a default in the performance or observance
of any other term, covenant or condition contained in this Guarantee
(other than a default described in subparagraph (ii) above), which
default shall continue for more than thirty (30) days after there has
been given to Guarantor by the Lessor or Agent a written notice
pursuant to Section 15 of such default or breach which cure period
shall be extended for such reasonable period as may be required to
afford Guarantor the opportunities to complete its cure of the
default or breach in question so long as Guarantor commences its
curative efforts within such thirty (30) day period and thereafter
diligently pursues such curative efforts to completion;
(v) If a custodian, receiver, liquidator, or trustee of
Guarantor or any Subsidiary, or of any of the property of either, is
appointed or takes possession, and such appointment or possession
remains in effect for more than sixty (60) days; or Guarantor or
any Subsidiary generally fails to pay its debts as they become due or
admits in writing its inability to pay its debts as they mature; or
Guarantor or any Subsidiary is adjudicated bankrupt or insolvent; or
an order for relief is entered under the Federal Bankruptcy Code
against Guarantor or any Subsidiary; or any of the property of
either is sequestered by court order and the order remains in effect
for more than sixty (60) days; or a petition is filed against
Guarantor or any Subsidiary under the bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or subsequently in
effect, and is not stayed or dismissed within sixty (60) days after
filing;
(vi) If Guarantor or any Subsidiary files a petition in voluntary
bankruptcy or seeking relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
subsequently in effect; or consents to the filing of any petition
against it under any such law; or consents to the appointment of or
taking possession by a custodian, receiver, trustee or liquidator of
Guarantor, or a Subsidiary, or of all or any part of the property of
either;
(vii) The occurrence of an uncured event of default under
any instrument securing or evidencing any Indebtedness in excess of
$5,000,000 of the Guarantor or any of its Subsidiaries; then, a
"Default" shall be deemed to exist hereunder and an "Event of Default"
shall be deemed to exist under the Lease. In any such event, and in
addition to all other rights and remedies at law and in equity
available to Lessor as a result of such event, Guarantor shall
immediately pay or cause to be paid to Lessor, without notice or
demand, the amounts due and payable to Lessor by Lessee under the
Lease, either in respect of the Offer Purchase Price with respect
the "Property" covered thereby or as a Contingent Rent Payment.
It is understood that any payments made by Guarantor to Lessor under
this Guarantee shall not release or discharge Guarantor from its
obligations hereunder until all of the Obligations have been fully
and finally paid to Lessor. All amounts payable by Guarantor
hereunder shall be credited against corresponding amounts otherwise
payable by Lessee under the Lease for the remainder of its term if
the Lease remains in effect.
(b) Any payment made by Guarantor under this Section 14 shall be
deemed to be an agreed guarantee payment without regard to the status of
the Lease or Lessee's rights thereunder; and in no event and under no
circumstance shall any such payment be repayable or refundable to
Guarantor for any reason or under any circumstance exceptin the case of
duplicate payments.
(c) ALL AMOUNTS PAYABLE BY GUARANTOR UNDER THIS
GUARANTEE ARE PAYABLE WITHOUT OFFSET, COUNTERCLAIM OR
DEDUCTION OF WHATEVER KIND AND ARE NOT CONDITIONED UPON, AND
CANNOT BE AFFECTED IN ANY WAY BY, ANY FUTURE EVENT,
OCCURRENCE OR ACTION BY ANY PARTY, AND GUARANTOR
UNDERSTANDS AND AGREES THAT ALL SUCH AMOUNTS SHALL BE
PAYABLE NOTWITHSTANDING ANY FACT OR CIRCUMSTANCE (INCLUDING,
WITHOUT LIMITATION, THE BANKRUPTCY OF OR A SIMILAR EVENT
AFFECTING LESSEE) AT ANY TIME AFFECTING LESSEE OR THE LEASE,
WHETHER CAUSED OR CONTRIBUTED TO BY LESSEE, LESSOR OR ANY
OTHER PARTY.
15. Notices. Any notice required to be delivered hereunder shall be
deemed delivered, whether actually received or not, one (1) Business Day after
deposit with a nationally recognized, courier service for overnight delivery
addressed to the parties hereto at the respective addresses specified below,
or at such other address as they may have subsequently specified by written
notice. The addresses for notices to Guarantor, Lessor, and Agent are as
follows:
If to Lessor: State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Fourth Floor
Boston, MA 02110
Attention: Donald E. Smith
Vice-President
Fax No. (617) 664-5371
with a copy to: Bingham, Dana & Gould
100 Pearl Street
Hartford, CT 06103
Attention: James G. Scantling, Esq.
Fax No. (860) 527-5188
If to Guarantor: The Pep Boys - Manny, Moe & Jack
3111 W. Allegheny Avenue
Philadelphia, PA 19132
Attention:Michael Holden
Senior Vice-President - Finance
Fax No. (215) 227-9533
with a copy to: The Pep Boys-Manny, Moe & Jack
3111 W. Allegheny Avenue
Philadelphia, PA 19132
Attention:Ronald M. Neifield
Real Estate Counsel
Fax No. (215) 229-5076
If to Agent: Citicorp Leasing, Inc.
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: EFL/CBL Credit Head
Fax No. (914) 899-7308
with a copy to: Brown McCarroll & Oaks Hartline
300 Crescent Court, Suite 1400
Dallas, Texas 75201
Attention: Charles W. Morris, Esq.
Fax No. (214) 999-6170
Notices sent by any other method (including personal delivery, certified mail,
and facsimile transmission)shall be deemed delivered when actually received by
the addressee. Any notice of change of address shall be effective only upon
actual receipt, regardless of delivery method, and such new address shall be
effective as to notices given by the other parties commencing ten (10) days
after such change of address notice is received by such parties. No party may
establish an official address for notice outside the continental United States.
16. Term. This Guarantee is not limited to any particular period of time
but shall continue in full force and effect until all of the Obligations have
been fully and finally paid or have been otherwise discharged by Lessee, and
Guarantor shall not be released from any obligations or liability hereunder
until such full payment or discharge shall have occurred, whereupon this
Guarantee shall terminate and be of no further force or effect; provided,
however, that if, pursuant to any bankruptcy, insolvency or other debtor
relief law or any order or decision thereunder any payment is rescinded or
Lessor is required to restore any payment or part thereof received in
satisfaction of the Obligations or any part thereof, the term "Obligations" as
used herein includes such payment to the extent rescinded or restored, and, to
the extent of the payment rescinded or restored, any prior release or
discharge of this Guarantee or of Guarantor shall be without effect and this
Guarantee shall remain in full force and effect notwithstanding such release
or discharge.
17. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
PENNSYLVANIA WITHOUT REFERENCE TO ITS CONFLICT OF LAWS RULES.
18. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, AND FOR THE PURPOSE OF REDUCING THE TIME AND
EXPENSE OF LITIGATION, GUARANTOR AND LESSOR WAIVE TRIAL BY JURY IN
ANY ACTION BROUGHT ON, UNDER, OR BY VIRTUE OF THIS GUARANTEE.
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have
caused this Lease Guarantee to be executed by their respective officers
thereunder duly authorized, as of the date first written above.
[SEE ATTACHED SIGNATURE PAGES]
SIGNATURE PAGE ATTACHED TO LEASE GUARANTEE
GUARANTOR:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By:
Name:
Title:
SIGNATURE PAGE ATTACHED TO LEASE GUARANTEE
LESSOR:
STATE STREET BANK AND TRUST
COMPANY,
a Massachusetts trust company
(acting in its capacity as Trustee under the
Declaration of Trust and not in its individual
capacity)
By:
Name:
Title:
SIGNATURE PAGE ATTACHED TO LEASE GUARANTEE
AGENT:
CITICORP LEASING, INC.,
a Delaware corporation, as administrative
agent for the Purchasers and Instrument Holders
By:
Name:
Title:
SCHEDULE 1
FORM OF SOLVENCY CERTIFICATE
The undersigned, the of THE PEP BOYS -
MANNY, MOE & JACK, a Pennsylvania corporation (the "Guarantor"), hereby
certifies in his capacity as such officer and not personally, that he has
reviewed the Lease Guarantee dated as of November, 1995, among Guarantor,
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, as Trustee
and not individually, ("Lessor") and CITICORP LEASING, INC., a Delaware
corporation ("Agent"). The undersigned hereby further certifies to Lessor
and Agent (as defined in the Lease Guarantee) that:
1. There has been no material adverse change in the financial position
of the Guarantor since .
2. The Guarantor is solvent and able to pay its debts as they mature,
has capital sufficient to carry on its business and has assets having a
present fair saleable value greater than the amount of the Guarantor's total
liabilities (including known contingent liabilities).
3. The Guarantor does not contemplate filing a petition in bankruptcy
or for reorganization under the federal bankruptcy code, and there are (to
the knowledge of the undersigned) no bankruptcy or insolvency proceedings
threatened against the Guarantor.
IN WITNESS WHEREOF, the undersigned has executed this certificate
this _____ day of ____________, 19__.
Name:
Title:
ENVIRONMENTAL INDEMNITY AGREEMENT
THIS ENVIRONMENTAL INDEMNITY AGREEMENT ("Agreement"), made effective
as of the 13th day of November, 1995, by THE PEP BOYS - MANNY, MOE & JACK, a
Pennsylvania corporation, PEP BOYS - MANNY, MOE & JACK OF DELAWARE, INC., a
Delaware corporation, and THE PEP BOYS MANNY, MOE & JACK OF CALIFORNIA, a
California corporation (collectively, "Indemnitor") for the benefit of STATE
STREET BANK AND TRUST COMPANY, a Massachusetts trust company, not individually
but solely in its capacity as Trustee under that certain Declaration of Trust
(herein so called) dated of even date herewith, ("Trustee"), STATE STREET BANK
AND TRUST COMPANY, a Massachusetts trust company (in its individual capacity,
"Trust Company"), CITICORP LEASING, INC., a Delaware corporation ("Agent"), and
those persons (including, without limitation, Citicorp Leasing, Inc.) who are
the "Instrument Holders" and/or "Purchasers" from time to time under that
certain Transaction Agreement of even date herewith among Indemnitor, Trustee,
Agent and Citicorp Leasing, Inc., as the initial "Instrument Holder" and
initial "Purchaser." (Trustee, Trust Company, Agent, Purchasers and the
Instrument Holders being referred to herein collectively as the "Indemnitees").
The term "Indemnitees" shall also include any successor or assign of Trustee or
Agent and any other Person that may from time to time be included within
the meaning of the term "Instrument Holder" or "Purchaser" as defined in the
Transaction Agreement, together with the partners, shareholders, officers,
directors, agents, representatives, attorneys, successors and assigns of any of
the foregoing, and the term "Indemnitor" shall also include any successor or
assign of Indemnitor.
Contemporaneously herewith, Trustee, as lessor, and Indemnitor, as lessee,
have entered into a certain Master Lease (as amended, supplemented or otherwise
modified from time to time, the "Lease"), which Lease is intended to cover
various properties and facilities to be added to the coverage of the Lease by
supplements executed from time to time. The properties and facilities
affected by the Lease from time to time are herein referred to collectively as
the "Property").
NOW, THEREFORE, in consideration of the premises and the sum of One Dollar
($1.00) in hand paid by Indemnitees to Indemnitor, receipt whereof is hereby
acknowledged and in order to induce Trustee to enter into the Lease with
Indemnitor, and to induce Trustee, Agent and Instrument Holders and Purchasers
to enter into and incur their obligations under the Transaction Agreement and
the other Transaction Documents, Indemnitor, intending to be legally
bound, hereby agrees as follows:
1. Definitions. For purposes hereof, the following terms shall have
The following meanings:
"Environmental Laws" means any and all federal, state and local Laws,
including, without limitation, any and all requirements to register
underground storage tanks, relating to: (i) emissions, discharges,
spills, releases or threatened releases of pollutants, contaminants,
Hazardous Materials (as hereinafter defined), or hazardous or toxic
materials or wastes into ambient air, surface water, groundwater,
watercourses, publicly or privately owned treatment works, drains,
sewer systems, wetlands, septic systems or onto land; (ii) the use,
treatment, storage, disposal, handling, manufacturing, transportation,
or shipment of Hazardous Materials (as defined below), materials
containing Hazardous Materials or hazardous and/or toxic wastes,
material, products or by-products (or of equipment or apparatus
containing Hazardous Materials), or (iii) pollution or the protection of
the environment;
"Hazardous Materials" means (1) hazardous materials, hazardous wastes, and
hazardous substances as those terms are defined under any Environmental
Laws, including, but not limited to, the following: the Hazardous
Materials Transportation Act, 49 U.S.C. 1801 et seq., as amended from
time to time ("HMTA"), the Resource Conservation and Recovery Act, 42
U.S.C. 6901 et seq., as amended from time to time ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act,
as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C.
9601 et seq., and as further amended from time to time ("CERCLA"), the
Clean Water Act, 33 U.S.C. 1251 et seq., as amended from time to time
("CWA"), the Clean Air Act, 42 U.S.C. 7401 et seq., as amended from
time to time ("CAA") and/or the Toxic Substances Control Act, 15 U.S.C.
2601 et seq., as amended from time to time ("TSCA"); (2) petroleum and
petroleum products including crude oil and any fractions thereof;
(3) natural gas, synthetic gas, and any mixtures thereof; (4) asbestos
and/or any material which contains any hydrated mineral silicate,
including, but not limited to, chrysotile, amosite, crocidolite,
tremolite, anthophylite and/or actinolite, whether friable or non-friable;
(5) PCBs, or PCB-containing materials, or fluids; (6) radon; (7) any other
hazardous or radioactive substance, material, pollutant, contaminant, or
waste; and (8) any substance with respect to which any federal, state or
local Environmental Law or governmental agency requires environmental
investigation, monitoring or remediation.
"Event of Default" means any default, failure, or refusal by Indemnitor to
pay any amount and/or perform any obligation under this Agreement, which
default, failure, or refusal remains uncured (i) in the case of matters
that can be cured solely by the payment of money, five (5) Business Days
after written notice of such failure to pay is given to Indemnitor by one
or more of the Indemnitees, and (ii) in the case of any other matter,
thirty (30) days after written notice of such failure to perform is given
to Indemnitor by one or more Indemnitees; provided, that in the case of
matters covered by clause (ii) above such cure period will be extended,
so long as Indemnitor has commenced curative efforts within such thirty
(30) day period and is diligently pursuing such efforts, Indemnitor
delivers periodic progress reports on such curative efforts to the
Indemnitees, and Agent determines that the interests of the Indemnitees
will not be materially adversely affected by such extension.
"Environmental Event" shall mean any environmental event or the discovery
of any environmental condition in, on, beneath or involving the Property
or any portion thereof (including, but not limited to, the presence,
emission or release of Hazardous Materials and the violation of any
applicable Environmental Law) that in the sole but reasonable judgment of
Agent, if not properly mitigated or remediated, might have a material
adverse effect on the use, occupancy, possession, value or condition of
the Property or any portion thereof.
Any other capitalized terms used but not defined in this Agreement shall have
the meanings assigned thereto in the Transaction Agreement or the Lease, as
the case may be.
2. Basic Covenants.
(a) Indemnitor shall cause the Property and every portion thereof at
all times to be operated, used, and maintained in compliance with all applicable
Environmental Laws. Further, Indemnitor shall not conduct, permit, or authorize,
or permit to be conducted, permitted, or authorized, the manufacturing,
emission, generation, transportation, treatment, storage, or disposal on the
Property or any part thereof of any Hazardous Materials without the prior
written consent of Agent. Agent shall have the right to withhold consent
thereto for any reason, or without cause, in its discretion. The foregoing
provisions shall not, however, be deemed to prohibit, or to require Agent's
consent for, the storage, holding for sale, or use on the Property of Hazardous
Materials in the ordinary course of business of retail sales of automobile
parts and supplies, as well as the business of operating automotive service
centers, so long as such use is at all times carried out in conformity with
all Environmental Laws, but the indemnification obligations of Indemnitor
hereunder shall apply to all such materials.
(b) Indemnitor acknowledges and agrees that its obligations
hereunder with respect to Hazardous Materials and Environmental Laws are
intended to extend to and cover all matters and conditions in, on, under,
beneath, with respect to, affecting, related to, in connection with or
involving the Property or any part thereof, without regard to whether
Indemnitor has actually caused or participated in the event or circumstance
giving rise to the matter in question, and without regard to whether the matter
in question arose prior to or during the Term of the Lease; provided, however,
that the Indemnitor shall not be required to indemnify any Indemnitee hereunder
against any such claims to the extent arising solely as a result of the fraud,
gross negligence or willful misconduct of the Indemnitee in question. IT IS
THE EXPRESS INTENT AND UNDERSTANDING OF THE PARTIES THAT THE
FOREGOING PROVISION DOES CONSTITUTE AN INDEMNIFICATION BY THE
INDEMNITOR OF THE INDEMNITEES OF AND FROM LOSSES ARISING OUT OF
THE NEGLIGENCE OF THE RESPECTIVE INDEMNITEES OR ANY OF THEM;
PROVIDED, HOWEVER, THAT THE PARTIES AGREE AND ACKNOWLEDGE THAT
NO INDEMNITEE SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER FOR
DAMAGES OR LOSSES TO THE EXTENT CAUSED BY THE FRAUD, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNITEE IN QUESTION.
(c) Nothing in this Agreement shall be deemed to preclude
Indemnitor from contesting by appropriate proceedings, (i) the validity of any
order or directive issued by any governmental authority, (ii) the application of
any Environmental Law to a particular factual situation, or (iii) the accuracy
or validity of any allegation relating to the matters covered hereby; provided
that any such proceedings (A) prevent the sale, forfeiture, or the loss of the
Property or any part thereof during the pendency of such contest, (B) do not
subject any Indemnitee to the risk of civil or criminal liability for failure
to comply with the matter being contested during the pendency or such contest,
and (c) Indemnitor provides Indemnitees with such further information regarding
the matter being contested and/or assurances against loss, liability, or damage
as may be reasonably required by Indemnitees under the circumstances.
3. Indemnity. Indemnitor undertakes to protect, indemnify, and save
harmless each of the Indemnitees from any and all liability, loss, cost or
damage that Indemnitees or any of them may suffer as a result of claims,
demands, liabilities, costs or judgments against any or all of them (including,
without limitation, claims of contribution from any other person or entity
that has or might have joint and several liability therefor) as a result of a
claim, demand, liability, cost or judgment made against Indemnitees or any of
them by any third party, including, without limitation, a governmental
authority, arising from (i) any violation of any Environmental Law relating to
or affecting the Property or any part thereof, (ii) the depositing, storing,
disposing, transporting, emitting, burying, dumping, injecting, using, testing,
spilling, leaking or other placing or releasing in or on the Property or any
part thereof, or in or on any other property in the vicinity of the Property,
to the extent such actions on or in other property in the vicinity has an
adverse impact upon the Property itself or to the extent that any such
actions on or in the Property has an adverse impact upon other property in the
vicinity of the Property, of Hazardous Materials, and/or (iii) reasonable costs
incurred in connection with settlement or attempted settlement in lieu of
litigation or other proceedings with respect to any such matters (subject to
paragraph 7 below), including, but not limited to:
(a) Liability for costs of removal or remedial action, incurred by the
United States Government or any state or local government, or response
costs incurred by any other person, or damages from injury to, destruction
of, or loss of natural resources, including the reasonable costs of
assessing such injury, destruction or loss, incurred pursuant to the
CERCLA or any comparable federal, state, or local statute;
(b) Liability for cost and expenses of site assessment, testing,
laboratory fees, monitoring, abatement, correction or clean-up, fines,
damages, response costs or penalties which arise from the provisions of
any other Environmental Law, whether state, federal, local, or otherwise;
and
(c) Liability for personal injury or property damage arising under
any statutory or common-law theory, including damages assessed for the
maintenance of the public or private nuisance, response costs or for the
carrying on of an abnormally dangerous activity.
Nothing in this Agreement shall be deemed or construed as an admission by
Indemnitor of liability or responsibility hereunder for any violation or
alleged violations of Environmental Laws as between Indemnitor and any
governmental agency or other third party, notwithstanding that, as between
Indemnitor and the Indemnitees, Indemnitor has responsibility hereunder for
such matter and for indemnifying the Indemnitees from the consequences thereof.
4. Costs. Indemnitor's liability hereunder shall, without however
limiting the indemnity provide in the preceding paragraph, extend to and
include all reasonable costs, expenses and attorneys' fees incurred or
sustained by Indemnitees or their respective successors or assigns in making
any investigation on account of any such claim, demand, loss, liability,
cost, charge, suit, order, judgment or adjudication, in prosecuting or
defending any action brought in connection therewith, in obtaining or
seeking to obtain a release therefrom and in enforcing any of the agreements
herein contained.
5. Delivery of Information. Indemnitor shall promptly provide
Indemnitees with copies that it receives of all communications, permits or
agreements with any governmental authority or agency (federal, state or local)
or any private entity relating in any way to the presence, release, threat of
release, placement on or in the Property or any portion thereof or the
manufacturing, emission, generation, transportation, storage, treatment, or
disposal at the Property, of any Hazardous Materials and/or the violation,
alleged violation, or potential violation of any Environmental Law, except
for the presence and proper use of those Hazardous Materials specifically
permitted on the Property pursuant to Paragraph 2 hereof. Indemnitees shall
also use reasonable efforts to provide Indemnitor with copies of all
communications from any governmental authority or private entity with respect
to the Property and relating to Hazardous Materials or Environmental Laws
(unless it is apparent that Indemnitor or an affiliate thereof has
independently received such communication); provided that the failure of any
Indemnitee to do so shall not adversely effect Indemnitees' rights and
protections hereunder.
6. Test Results. Without limitation of the inspection rights as
elsewhere set out herein, if an Indemnitee at any time reasonably believes that
an Environmental Event may have occurred, the Indemnitee may, at Lessee's
expense, conduct tests of the Property or portions thereof; provided, however,
that in connection therewith: (i) so long as no Event of Default pursuant to
Sections 19(a)(i), (vii), (x), (xi), (xii) or (xiv) of the Lease exists, no
Event of Default under Secton 19(a)(iv) of the Lease relating to the failure
to have required insurance coverage in place (as opposed to a failure to
satisfy any other Insurance Requirement) exists, and Lessor or Agent have not
taken remedial actions relating to the possession or ownership of such
Parcel as a result of any other Event of Default that may then exist under the
Lease, the applicable Indemnitee will first notify Indemnitor of its desire for
tests to be conducted and request that Lessee perform such tests and provide
the results thereof to Indemnitees, and so long as Indemnitor promptly causes
such tests to be conducted, the Indemnitees will not perform such tests
directly, and (ii) in the conduct of any tests that any Indemnitee may conduct
directly such Indemnitee will take reasonable steps to interfere as little as
reasonably practicable with the conduct of Lessee's business within the
Property.
7. Procedural Matters. The procedural provisions of Sections 8(b)-(d)
of the Lease are incorporated herein by this reference, and shall govern the
obligations of the Indemnitor and Indemnitees with respect to matters of
notice of indemnified claims, defense of actions, appointment of counsel, and
similar matters. Such provisions shall remain applicable to this Agreement
whether or not the Lease is then in effect. For purposes thereof the term
"Indemnified Party" in such Section 8(b)-(d) shall be deemed to mean
"Indemnitee" hereunder and references to "Lessee" in such Section 8(b)-(d)
shall be deemed to mean "Indemnitor" hereunder.
8. Remediation.
(a) Indemnitees (or any of them) shall have the right, but not the
obligation, subsequent to any Event of Default by Indemnitor hereunder,
without in any manner limiting Indemnitees' other rights and remedies under
this Agreement, to enter onto the Property or to take such other actions as
Indemnitees deem necessary or advisable to clean up, remove, resolve or
minimize the impact of, or otherwise deal with, any Hazardous Materials or a
violation of Environmental Laws at the Property upon at least ten (10) days
prior written notice to the Lessee (unless an emergency exists, in which case
only such written notice as shall be reasonably practicable under the
circumstances shall be necessary). Lessee will always be permitted to have
a representative of Lessee accompany the representative or agent of the
Indemnitees in question in any inspection if Lessee desires to do so.
All reasonable costs and expenses paid or incurred by Indemnitees in the
exercise of any such rights shall be payable by Indemnitor thirty (30) days
after demand.
(b) In the event that Indemnitor is engaged in the remediation of
any violation of Environmental Laws and/or presence of Hazardous Materials at
the Property at the time an Event of Default occurs under the Transaction
Agreement, the Declaration of Trust, and/or the Lease, and the Event of
Default in question does not arise out of such violation of Environmental
Laws and/or presence of Hazardous Materials or the remediation actions or
inactions of Indemnitor with respect thereto, then Indemnitees agree that
Indemnitor shall be permitted to control the completion of such remediation
activities so long as Indemnitor diligently proceeds therewith in a manner
reasonably satisfactory to Indemnitees and Indemnitor keeps Indemnitees
reasonably informed as to the progress of such remediation efforts. In any
such event, however, this Agreement and the indemnification rights provided
for herein shall remain in full force and effect.
9. Independent Obligation. As to the Purchasers, Instrument Holders
and the Agent, this Agreement is given solely to protect such parties against
environmental matters, and not as additional security for, or as a means of
repayment of, the amounts owed to the Instrument Holders, and as to Lessor
this Agreement is given to protect Lessor against environmental matters and
not as security for Indemnitor's obligations under the Lease. The obligations
of the Indemnitor to Indemnities under this Agreement are independent of, and
shall not be measured or affected by (i) any amounts at any time owing under
the Transaction Documents, (ii) the sufficiency or insufficiency of any
collateral (including, without limitation, the Property) given to secure
repayment of the amounts due to the Instrument Holders, (iii) the consideration
given any party in order to acquire the Property, or any portion thereof,
in any foreclosure or other sale, (iv) the modification, expiration, release
or termination of the transactions contemplated by the Transaction Agreement
or any document or instrument relating thereto, (v) the discharge or repayment
in full of amounts due under the Transaction Agreement (including, without
limitation, by amounts paid or credit bid at a foreclosure sale or by discharge
in connection with a deed in lieu of foreclosure under the Transaction
Mortgage), or (vi) the expiration or termination of the Lease or the performance
by Indemnitor of its obligations thereunder. Notwithstanding anything herein to
the contrary, Indemnitor shall not be liable to Indemnitees hereunder in
respect of any Hazardous Materials that are first manufactured, emitted,
generated, treated, stored, or disposed of on the Property, or any violation of
Environmental Laws that first occurred on or with respect to the Property after
the date on which the Lease is terminated and Lessee surrenders possession of
the Property in accordance with the terms of the Lease (including, without
limitation, the obligation to deliver an acceptable environmental assessment
of the Property upon surrender) except to the extent such manufacture, emission,
generation, treatment, storage, disposal, or violation is actually caused by
Indemnitor or those for whose actions Indemnitor is legally responsible.
10. Payment on Demand. All obligations of the Indemnitor hereunder shall
be payable on demand, and any amount due and payable hereunder to Indemnitees
by Indemnitor which is not paid within thirty (30) days after written demand
therefor from Indemnitee with an explanation of the amounts demanded shall,
to the extent permitted by applicable law, bear interest from the date of such
demand at the Default Rate (as defined in the Lease).
11. Subrogation. If Indemnitor fails to perform its obligations under
this Agreement (after expiration of all applicable grace, notice, and/or cure
periods), Indemnitees shall be subrogated to, and Indemnitor hereby assigns to
Indemnitees any indemnification or contributions rights Indemnitor may have
from or against any present, future or former owners, tenants, or other
occupants or users of the Property (or any portion thereof), including,
without limitation, any subsidiary or affiliate of Indemnitor; provided,
that such assignment shall not be deemed to exclude Indemnitor from the
direct enforcement of such rights for its own benefit, either concurrently
with or separate from the enforcement thereof by Indemnitees.
12. Inspections Shall Not Affect Liability. Neither any environmental
audits nor assessments, nor any inspections conducted by Indemnitees or their
representatives, nor the consummation of the Lease and/or the related
transactions in light of the matters disclosed as a result of these
inspections, nor any other term or provision of this Agreement shall effect,
modify, or constitute a waiver of, the rights and obligations of the parties to
this Agreement under applicable Environmental Laws and the rights and remedies
of Indemnitees under this Agreement shall be cumulative of and not modify the
rights and remedies that Indemnitees would have in the absence of this
Agreement. Indemnitor hereby expressly releases any contribution or other
claims or rights it now or may hereafter have against Indemnitees under
applicable Environmental Laws, excepting only contribution rights or other
claims against any particular Indemnitee with respect to matters for which
such Indemnitee is not entitled to indemnification hereunder as a result of
the fraud, gross negligence or intentional misconduct of the particular
Indemnitee in question.
13. Survival. This Agreement shall survive the transfer of any or
all of the Property, including, but not limited to, any foreclosure sale or
deed in lieu of foreclosure transaction with respect to the Mortgage.
14. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, AND FOR THE PURPOSE OF REDUCING THE TIME AND
EXPENSE OF LITIGATION, INDEMNITOR AND INDEMNITEES WAIVE TRIAL BY
JURY IN ANY ACTION BROUGHT ON, UNDER OR BY VIRTUE OF THIS
AGREEMENT.
15. Specific Enforcement. Indemnitor acknowledges that it may be
impossible to measure accurately the damages to Indemnitees resulting from a
breach of Indemnitor's covenants under this Agreement, that such a breach will
cause irreparable injury to Indemnitees, and that Indemnitees may not have an
adequate remedy at law in respect of such breach. Therefore, such covenants
shall be specifically enforceable against Indemnitor. This clause shall not
prejudice Indemnitees' rights to assert any and all claims for damages incurred
as a result of Indemnitor's breach hereof or for equitable relief.
16. Joint and Several Liability. The liability of Indemnitor (if more
than one) is joint and several. A separate action or actions may be brought
and prosecuted against any Indemnitor, whether or not action is brought
against any other person or whether or not any other person is joined in
such action or actions.
17. Notice. All notices, demands, requests and other communications
required hereunder shall be in writing and shall be deemed to have been
properly given and received, whether actually received or not, one (1)
Business Day after deposit with a nationally recognized courier service for
overnight delivery addressed to the party for whom it is intended at its
address hereinafter set forth:
If to Indemnitor: The Pep Boys - Manny, Moe & Jack
3111 W. Allegheny Avenue
Philadelphia, PA 19132
Attention:Michael Holden
Senior Vice-President - Finance
Fax No. (215) 227-9533
with a copy to: The Pep Boys - Manny, Moe & Jack
3111 W. Allegheny Avenue
Philadelphia, PA 191332
Attention:Ronald M. Neifield
Real Estate Counsel
Fax No. (215) 229-5076
If to Agent: Citicorp Leasing, Inc.
450 Mamaroneck Avenue
Harrison, New York 10528
Attention:EFL/CBL Credit Head
Fax No. (914) 899-7308
with a copy to: Charles W. Morris, Esq.
Brown McCarroll & Oaks Hartline
300 Crescent Court
Suite 1400
Dallas, Texas 75201-6929
Fax No. (214) 999-6170
If to Trustee: State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Fourth Floor
Boston, MA 02110
Attention:Donald E. Smith
Vice-President
Fax No. (617) 664-5371
with a copy to: Bingham, Dana & Gould
100 Pearl Street
Hartford, CT 06103
Attention:James G. Scantling, Esq.
Fax No. (860) 527-5188
Notices sent by any other method (including regular or certified mail,
hand delivery, or facsimile transmission) shall be deemed delivered when
actually received by the addressee. Any notice of change of address shall
be effective only upon actual receipt, regardless of delivery method, and
such new address shall be effective as to notices given by the other parties
commencing ten (10) days after such change of address notice is received by
such parties. No party may establish an official address for notice outside
the continental United States.
18. Attorney's Fees. In the event any party files a suit in connection
with this Agreement or any provisions contained in this Agreement, then the
party which substantially prevails in such action shall be entitled to recover,
in addition to all other remedies or damages, reasonable attorney's fees and
costs of court incurred in such suit, including, without limitation, any such
fees and costs incurred in connection with any appellate proceedings.
19. No Third Party Beneficiaries. This Agreement is executed for the sole
use and benefit of the Indemnitor and Indemnitees, and no person or entity
other than the Indemnitor or Indemnitees is intended to be a beneficiary hereof
or otherwise to have any right to enforce the provisions hereof.
20. No Waiver. The failure of Indemnitees to insist upon strict
compliance with any of the terms hereof shall not be considered to be a waiver
of any of such terms nor shall it militate against the right of Indemnitees to
insist upon strict compliance herewith at any time thereafter.
21. Severability. If any provision of this Agreement shall be contrary
to the laws of the jurisdiction in which the same shall be sought to be
enforced, the illegality or unenforceability of any such provision shall not
affect the other terms, covenants or conditions thereof, and the same shall
be binding upon Indemnitor with the same force and effect as though such
illegal or unenforceable provision were not contained herein.
22. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
PENNSYLVANIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
[SEE ATTACHED SIGNATURE PAGE]<PAGE>
IN WITNESS WHEREOF, Indemnitor, intending
to be legally bound hereby, has caused this Agreement to be duly executed, to
be effective as of the day and year first above written.
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By:
Name:
Title:
THE PEP BOYS MANNY, MOE & JACK
OF CALIFORNIA, a California corporation
By:
Name:
Title:
PEP BOYS - MANNY, MOE & JACK
OF DELAWARE, INC., a Delaware corporation
By:
Name:
Title:
FIRST AMENDMENT TO MASTER LEASE
(Pep Boys Transaction)
THIS FIRST AMENDMENT TO MASTER LEASE dated as of July ___, 1996 (this
"Amendment") is entered into by and between STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company, not individually but solely in its
capacity as Trustee under that certain "Declaration of Trust" (herein so
called) dated November 13, 1995, (in such capacity, and not individually,
"Lessor"), having an address at Two International Place, Fourth Floor,
Boston, Massachusetts 02110, Attn: Corporate Trust Department, THE PEP
BOYS - MANNY, MOE & JACK, a Pennsylvania corporation ("Lessee Parent"),
THE PEP BOYS MANNY, MOE & JACK of CALIFORNIA, a California corporation
("Pep Boys - California"), and PEP BOYS - MANNY, MOE & JACK of DELAWARE,
INC. ("Pep Boys - Delaware"). Lessee Parent, Pep Boys - California, and
Pep Boys - Delaware are herein referred to, singly or collectively as the
context may require, as the "Lessee."
RECITALS
On or about November 13, 1995, Lessor and Lessee entered into a certain
Master Lease (the "Master Lease") relating to certain real property to be
leased from time to time by Lessor to Lessee. Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed to such terms in
the Master Lease.
The Master Lease was executed in furtherance of certain transactions
contemplated by a Transaction Agreement of even date therewith among Lessor,
Lessee Parent, and Citicorp Leasing, Inc. (in various capacities). Of even
date herewith the Transaction Agreement has been amended and such amendment
requires a corresponding amendment to the Master Lease to fully effect the
intents and purposes of the parties.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, the parties hereto have agreed to amend, and
do hereby amend, the Master Lease in the following respects.
AGREEMENTS
1. Interim Supplement Form. At such time as Lessee desires to obtain
an Interim Advance (as such term is defined in the First Amendment to
Transaction Agreement of even date herewith) Lessor and Lessee shall execute
and submit to Agent an Interim Supplement (herein so-called) in substantially
the form attached hereto as Exhibit "G", which Exhibit "G" is hereby made a
part of the Master Lease as if originally attached thereto. The Interim
Supplement shall, among other items included therein, specify the adjustments
to the Net Rent and the Contingent Rent Payment which result from the
applicable Interim Advance. Lessor shall have no obligation to (i) make an
Interim Advance to Lessee in respect of any New Improvements or (ii) execute
the necessary Interim Supplement with respect to such New Improvements, unless
Lessee has satisfied all conditions to an Interim Advance under, and an Interim
Advance has been made to Lessor in accordance with, the provisions of Article I
of the Transaction Agreement (as amended by the First Amendment thereto of even
date herewith).
2. Treatment of Interim Advance. It is expressly agreed that any amounts
advanced to Lessee by Lessor hereunder as an Interim Advance shall be treated
as a "Construction Advance" for all purposes of this Lease, including, but
without limitation, for purposes of computing the amount of the Construction
Failure Payment under the Construction Addendum, when applicable.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto have caused this Amendment to be duly executed on the attached Signature
Pages by their respective officers thereunto duly authorized, to be effective
as of the day and year first above written.
[SEE ATTACHED SIGNATURE PAGES]
SIGNATURE PAGE ATTACHED TO FIRST AMENDMENT TO MASTER LEASE
Between
State Street Bank and Trust Company, Trustee, as Lessor
and
The Pep Boys - Manny, Moe & Jack, et. al. as Lessee
LESSOR:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company not in its individual
capacity but solely as Trustee under the Declaration
of Trust
By:
Name:
Title:
SIGNATURE PAGE ATTACHED TO FIRST AMENDMENT TO MASTER LEASE
Between
State Street Bank and Trust Company, Trustee, as Lessor
and
The Pep Boys - Manny, Moe & Jack, et.al. as Lessee
LESSEE:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By:
Name:
Title:
THE PEP BOYS MANNY, MOE & JACK,
OF CALIFORNIA, a California corporation
By:
Name:
Title:
PEP BOYS - MANNY, MOE & JACK,
OF DELAWARE, INC., a Delaware corporation
By:
Name:
Title:
EXHIBIT "G"
FORM OF INTERIM SUPPLEMENT
INTERIM SUPPLEMENT
This Interim Supplement ("Supplement") is hereby added, as of the ____ day
of _____________, 199__, to that certain Master Lease (as amended, supplemented
or otherwise modified from time to time, the "Lease"), dated as of November 13,
1995, by and between STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust
company, as Trustee under that certain Declaration of Trust of even date with
the Lease (in such capacity, and not individually, "Lessor"), and among other
lessees named therein, [NAME OF APPLICABLE LESSEE] , a _____________ corporation
("Lessee"). Upon execution hereof by Lessor and Lessee and approval hereof by
CITICORP LEASING, INC., a Delaware corporation (as administrative agent for the
"Purchasers" [as defined in the Lease]) ("Agent"), this Supplement shall be
included in and shall be a part of the Lease for all purposes. Terms used but
not otherwise defined herein shall have the meanings given to such terms in the
Lease.
The parties hereto, intending to be legally bound hereby, acknowledge and
agree to the following:
Lessee hereby represents and warrants to Lessor and Lender that New
Improvements (as defined in the Lease), have been constructed (but are not yet
completed), in accordance with the terms and conditions of the Construction
Addendum, upon the Parcel located in ______________, more particularly
described on Exhibit "A" attached hereto (the "_______ Parcel"), and the New
Improvements, or the portion thereof so completed, constitute a part of
the "Property" for all purposes of the Lease. Based on such representation
and warranty and in consideration of the advance by Lessor of even date
herewith of a reimbursement for construction costs incurred to date, Lessor
and Lessee desire to increase the Acquisition Price for the _________ Parcel
by the amount of $___________ [IF MORE THAN ONE PARCEL INVOLVED-ALLOCATE AMONG
APPLICABLE PARCELS]. The aggregate amount to date that has been paid to
Lessee in reimbursement for the costs of constructing the New
Improvements on the __________ Parcel is $_______________. [MODIFY AS
APPROPRIATE IF MORE THAN ONE PARCEL INVOLVED-FULL AMOUNT MUST
BE ALLOCATED AMONG PARCELS]
Effective as of the date hereof, the Schedule of Acquisition Prices
attached as Schedule A-1 of the Lease is hereby replaced by the Revised
Schedule A-1 attached hereto, and all references to the "Acquisition Price"
of all or any Parcel(s) for any purpose shall be deemed to refer to the
Acquisition Price(s) referred to on such Revised Schedule A-1. [ATTACH
REVISED SCHEDULE A-1----ACQUISITION PRICE OF EACH AFFECTED PARCEL
TO BE INCREASED BY THE PORTION OF THE INTERIM ADVANCE ALLOCABLE
TO SUCH PARCEL--AGGREGATE ACQUISITION PRICE MUST BE INCREASED BY
TOTAL AMOUNT OF INTERIM ADVANCE AND SHOULD EQUAL AMOUNT OF
AGGREGATE ADVANCES TO DATE (LESS PURCHASE PRICE OF PARCELS
REPURCHASED, IF APPLICABLE)]
Lessor and Lessee hereby confirm, as of the date hereof, that all
representations and warranties made in the Lease with respect to the Property
remain true and correct in all material respects; and that to the best of
Lessee's knowledge no Event of Default or event which with notice and/or the
passage of time might ripen into a Event of Default exists under the Lease.
Lessee hereby acknowledges and confirms that as of the date hereof,
Lessee has no defense to the payment or performance of the Lessee's obligations
under the Lease and that, to the best of Lessee's knowledge, no claims,
counterclaims, affirmative defenses, or other such rights exist against
Lessor, Agent, or any Purchaser or Instrument Holders under the Lease.
It is expressly acknowledged and agreed that Agent and the Purchasers
and Instrument Holders are intended to be beneficiaries of this Supplement to
the same extent as Agent and the Purchasers and Instrument Holders are
beneficiaries of the Lease and the Environmental Indemnity.
EXECUTED as of the date first above written.
[SEE ATTACHED SIGNATURE PAGES]
SIGNATURE PAGE ATTACHED TO
INTERIM SUPPLEMENT TO MASTER LEASE
LESSOR:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company, not in its
individual capacity but solely as Trustee under
the Declaration of Trust
By:
Donald E. Smith, Vice President
SIGNATURE PAGE ATTACHED TO
INTERIM SUPPLEMENT TO MASTER LEASE
LESSEE:
____[MAY BE MULTIPLE LESSEES]_____
By:
Name:
Title:
The undersigned, in its capacity as Lessee Parent, Lease Guarantor,
and party to the Environmental Indemnity Agreement joins in this Supplement
or the purposes therein stated.
LESSEE PARENT AND LEASE GUARANTOR:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By:
Name:
Title:
SIGNATURE PAGE ATTACHED TO
INTERIM SUPPLEMENT TO MASTER LEASE
Approved and Accepted as of the date first above written.
AGENT:
CITICORP LEASING, INC.,
a Delaware corporation
(as administrative agent on behalf of
the Purchasers)
By:
Name:
Title:
TRANSACTION AGREEMENT
This TRANSACTION AGREEMENT dated as of November 13, 1995 (the
"Agreement"), is entered into by and among THE PEP BOYS - MANNY, MOE & JACK, a
Pennsylvania corporation ("Lessee"); STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, not in its individual capacity except as expressly
stated herein, but solely as Trustee under the Declaration of Trust, as
hereinafter defined (State Street Bank and Trust Company, when acting in its
respective capacities as such Trustee, together with any successor trustee
under the Declaration of Trust, is herein referred to as the "Trustee" and State
Street Bank and Trust Company, when acting in its individual capacity, is herein
referred to as "Trust Company"); CITICORP LEASING, INC., a Delaware corporation
("CLI"), on behalf of itself as the initial "Purchaser" and initial "Instrument
Holder" hereunder and on behalf of the other financial institutions that may,
from time to time, become "Purchasers" or "Instrument Holders" hereunder; and
CITICORP LEASING, INC., a Delaware corporation ("Agent"), in its capacity as
the initial administrative agent for the Instrument Holders hereunder.
Capitalized terms used but not otherwise defined in this Agreement shall have
the meanings set forth in Schedule 1 hereto.
Preliminary Statement
A. From time to time Trustee will acquire certain parcels of real
property (each such parcel, together with all agreements, easements, licenses,
rights of way or use, appurtenances, tenements, hereditaments and other rights
and benefits now or hereafter belonging to or pertaining to such parcel or the
improvements thereon, being referred to as a "Parcel").
B. Each Parcel and any improvements located or constructed thereon (the
"Improvements") will be leased to Lessee (and, where applicable, certain
Additional Lessees that are wholly-owned subsidiaries of Lessee) by Trustee
under that certain Master Lease (the "Lease") of even date herewith between
Trustee, as lessor, and Lessee, as lessee. All Parcels that, as of any relevant
time, have been included in the coverage of the Lease by supplements as provided
for therein, and all Improvements located on such Parcels from time to time, are
sometimes herein collectively called the "Property." It is acknowledged that
while various subsidiaries of Lessee may, under the terms of the Lease, become
"Additional Lessees" from time to time, references in this Agreement to "Lessee"
are intended to refer only to THE PEP BOYS - MANNY, MOE & JACK, a Pennsylvania
corporation.
C. To finance its acquisition of the Property, the Trustee shall issue
to CLI, as the initial Purchaser of the Instruments, (i) a Series A Trust Note
(the "A-Note") in the stated principal amount of up to $21,000,000.00 (such
amount being referred to as the "A-Note Commitment"), (ii) a Series B Trust Note
(the "B-Note") in the stated principal amount of up to $3,000,000.00 (such
amount being referred to as the "B-Note Commitment"), and (iii) a Series C
Certificate (the "Certificate") in the stated amount of up to $1,000,000.00
(such amount being referred to as the "Certificate Commitment"). The original
A-Note issued to CLI, and any other Series A promissory notes issued from time
to time pursuant to the terms hereof and of the Declaration of Trust are
collectively referred to as the "A-Notes"; the original B-Note issued to CLI,
and any other Series B promissory notes issued from time to time pursuant to the
terms hereof and of the Declaration of Trust are collectively referred to as the
"B-Notes." The original Certificate and any other Series C certificates issued
from time to time pursuant to the terms hereof and of the Declaration of Trust
are collectively referred to as the "Certificates." The A-Notes and the B-Notes
are herein collectively referred to as the "Notes." The Notes and the
Certificates are herein referred to collectively as the "Instruments."
D. The Instruments shall be issued, be dated, mature and be payable as
provided in this Agreement and in the Declaration of Trust and shall be entitled
to the benefit of the Trust Estate held by Trustee pursuant to the Declaration
of Trust. A copy of the Declaration of Trust has been provided to Lessee and
Agent.
NOW, THEREFORE, in consideration of the agreements herein and in the other
Transaction Documents and in reliance upon the representations and warranties
set forth herein and therein, the parties agree as follows:
ARTICLE I.
FUNDING
Section 1.01. Advances under Instruments.
(a) CLI, as the initial Purchaser of the Instruments, confirms that
its Certificate Commitment is $1,000,000.00, its A-Note Commitment is
$21,000,000.00, and its B-Note Commitment is $3,000,000.00, for a total
Commitment of $25,000,000.00. As of the date hereof, no Person other than CLI
is a "Purchaser" and no other Person has any Commitment hereunder.
(b) Advances under the Instruments representing the Commitment shall
be made by the Purchaser(s) at the request of the Lessee, in one or more
installments (each an "Advance" and collectively "Advances") subject to
satisfaction or waiver of all conditions and requirements with respect thereto
set forth herein. The Purchaser(s) shall fund each Advance by advancing funds
under A-Notes in the aggregate amount of 84% of such Advance, B-Notes in the
amount of 12% of such Advance, and Certificates in the amount of 4% of such
Advance. If, at any time after the date hereof, there is more than one
Purchaser with respect to the A-Notes, B-Notes or Certificates, each Purchaser
shall fund its pro rata share of each Advance by depositing with the Agent funds
in an amount equal to such Purchaser's Percentage of the portion of such
Advances to be made by Purchasers in respect of A-Notes, B-Notes or
Certificates, as the case may be. All such Advances shall be funded by the
Purchaser(s) by transfers of immediately available funds received prior to
11:00 a.m. (New York, New York time) in an account of the Trustee to be
established and maintained at Citibank, N.A., New York, New York. (Account No.
40685147-ABA No. 021000089) or to such other Person or account as Trustee may
direct.
(c) The proceeds of each Advance(s) shall be used by Trustee to
purchase Parcels and Improvements, if any, thereon, to make Construction
Advances (as hereinafter defined) to Lessee under the Lease in respect of New
Improvements, and for other Approved Purposes. Upon the execution by Trustee
and Lessee, and the approval thereof by Agent, on behalf of Purchaser(s), of a
supplement to the Lease adding a Parcel to the Lease, and the execution and
delivery of such other documents in connection therewith as Agent, on behalf of
Purchaser(s), may reasonably deem appropriate consistent with Section 1.04
below, such Parcel and Improvements shall thereafter be a part of the "Property"
covered by this Agreement and the Transaction Documents. In the case of
Advances made to permit Trustee to reimburse Lessee for the costs of New
Improvements located on Parcels already included in the Property (each, a
"Construction Advance" and collectively, "Construction Advances"), Lessee and
Trustee shall execute, and Agent, on behalf of the Purchaser(s), shall approve,
a Construction Supplement to the Lease in substantially the form attached to the
Lease (each, a "Construction Supplement" and collectively, "Construction
Supplements").
(d) From time to time other banks or financial institutions
satisfactory to Lessee, Trustee, Agent, and CLI may become additional
"Purchasers" for purposes of this Agreement. In such event such new Purchaser
shall execute such supplements or amendments to this Agreement and/or the other
Transaction Documents as the other parties hereto may deem appropriate to
evidence, among other matters (i) the amount of the Commitment of such new
Purchaser with respect to Instruments, (ii) whether the Commitment of the new
Purchaser represents an increase of the overall Commitment of the Purchasers
hereunder or a reduction of the Commitment of CLI hereunder, and (iii) the
assumption by such new Purchaser of the obligations of a "Purchaser" hereunder.
At the time any Person becomes a Purchaser Instruments reflecting the Commitment
of such Purchaser will be issued to such Purchaser and, if the unadvanced
Commitment of any existing Purchaser is reduced as a result thereof, the
Instruments then held by the existing Purchaser(s) shall be replaced by a
replacement Instrument of the same series issued by Trustee in the reduced
amount. It is expressly agreed that no Person may become a Purchaser hereunder
without the prior written consent of Lessee and Agent. It is further
acknowledged and agreed that any Person that becomes an Instrument Holder as a
result of an assignment thereto of Instruments previously issued to a Purchaser
hereunder shall not thereby become a "Purchaser". An Instrument Holder that is
not also a Purchaser shall have no obligation to fund Advances under the
Instruments and no right to approve Advances, which shall be approved by Agent
acting solely on behalf of Purchaser(s), subject to the terms and conditions
hereof.
(e) Agent shall keep current a Master Schedule reflecting the amount
of the Commitment of each Purchaser, the amount of Advances made in respect of
the outstanding Instruments, any payments made under or with respect to the
Instruments that reduce the outstanding balance thereof, and the amount of the
unfunded Commitment of each Purchaser. Upon request, the Agent will provide a
copy of the then current Master Schedule to any Purchaser, Instrument Holder,
the Trustee, or the Lessee. Such Master Schedule maintained by Agent shall be
conclusive and binding on the Purchaser(s), Instrument Holders, and the Trustee
in the absence of manifest error. The information reflected on the Master
Schedule shall have no effect upon the amounts payable by the Lessee under the
Lease, all of which payment obligations shall be governed by the Lease itself.
Section 1.02. Closing Date. The closing of first Advance shall take place
on such date (the "Closing Date") as the Lessee may request, subject to Lessee's
timely satisfaction of all conditions set forth in Section 1.03, as well as the
applicable portions of Section 1.04.
Section 1.03. Conditions for Initial Advance. In addition to satisfaction
of the requirements of Section 1.04 below (which are applicable to all
Advances), the first Advance shall not be made hereunder until all of the
following requirements have been satisfied.
(a) This Agreement, the Declaration of Trust, the Lease, the Lease
Guarantee, and the Environmental Indemnity have each been fully executed and
delivered by each of the parties thereto.
(b) Trustee, Purchaser, and Lessee have each received such evidence
of authority to act, legal opinions, and related matters as they may deem
reasonably necessary to confirm that all parties to the Transaction Documents
are bound thereby and such Transaction Documents are binding and enforceable
upon all parties thereto.
(c) All fees, costs, and expenses to be paid or reimbursed by Lessee
to the Trustee or Purchaser and/or their respective counsel and/or consultants
through the Closing Date as otherwise provided herein, or in the other
Transaction Documents, shall be paid in full. Trustee, Purchaser and their
respective counsel and consultants have agreed to defer payment of their various
fees and costs relating to the negotiation and execution of the Transaction
Documents as of the date of execution hereof, but such amounts shall be paid, or
provision for such payment shall have been made, by Lessee on or before the
earlier of December 15, 1995, or the Closing Date.
Section 1.04. Conditions Precedent to All Advances. In addition to the
requirements of Section 1.03 above, Purchasers will have no obligation to make
Advances hereunder (including, without limitation, the initial Advance) unless,
at the time such Advance is requested, each of the following conditions
precedent has been satisfied. At such time as the applicable conditions have
been satisfied, Purchaser shall make the requested Advance:
(a) If the Advance in question is in connection with the addition of
an unimproved Parcel (or a Parcel as to which any existing Improvements are
intended to be demolished in connection with the construction of New
Improvements) to the Property:
(i) Trustee has executed and delivered, and arrangements
reasonably satisfactory to the Agent have been made for the recordation of,
a Transaction Mortgage covering the Parcel in question.
(ii) Title Company shall have issued (or provided Agent with
evidence satisfactory to Agent that the Title Company is irrevocably
obligated to issue immediately after closing) the Owner's Title Policy to
Trustee and the Mortgagee Title Policy to the Agent with respect to the
Parcel(s) being added to the Property.
(iii) Agent has received original, fully-executed,
counterparts of a Supplement to the Lease adding the Parcel in question to
the "Property" covered by the Lease.
(iv) A memorandum of the Lease has been executed and delivered by
Trustee and Lessee and, except in those circumstances where no memorandum
of lease is to be recorded as provided for in the Lease, such memorandum of
the Lease has been recorded (or arrangements reasonably satisfactory to the
Agent have been made for the recordation) in all applicable jurisdictions
to provide public record notice of the existence of the Lease.
(v) Agent and Trustee have received such legal opinions as they
may reasonably require regarding the documentation executed to add the
Parcel in question to the Property, including, without limitation,
favorable opinions of local counsel satisfactory to Agent regarding the
enforceability of the Transaction Documents under local law to the extent
the law of the location of the Parcel is applicable thereto. Agent and
Trustee confirm that as a matter of regular practice they intend to
require opinions of local counsel only in respect of the first Parcel
located in a given state that is added to the Property; provided that
Trustee and Agent reserve the right to require opinions of local counsel
upon the addition of subsequent Parcels in such state where they determine
(in their sole but reasonable discretion) that a legitimate need for a
local counsel opinion exists.
(vi) Agent shall have received, reviewed, and approved an
appraisal of the Parcel and of the contemplated New Improvements to be
developed thereon in form and substance, and issued by an appraiser,
satisfactory to Agent. Such appraisal must indicate a current value of the
Parcel (in its unimproved state) of at least 50% of the amount of the
Advance for the Parcel itself, and a value for the Parcel and contemplated
New Improvements (on an "as if vacant" but completed basis) of at least 50%
of the aggregate amount that Lessee estimates ultimately will be Advanced
in respect of such Parcel and New Improvements. If the appraisal of the
vacant Parcel received by Agent does not adequately support the amount of
the requested Advance for the Parcel itself and Lessee elects to proceed
with such Parcel and cover any additional costs from Lessee's own funds,
the amount of the acquisition Advance will be reduced such that the
Acquisition Price of the Parcel in question, after giving effect to such
Advance, will be not more than twice the appraised value of the vacant
Parcel.
(vii) Agent shall have received, reviewed, and approved (A) a
survey of the Parcel in form and substance reasonably satisfactory to the
Agent and in any event sufficient for title insurance purposes, (B) an
environmental site assessment of the Parcel in question reasonably
acceptable to Agent, and (C) such other reports, studies, or information
regarding the Parcel in question as Agent may reasonably require.
(b) If the Advance in question is in connection with a Construction
Advance to be made by Trustee under the Lease in respect of New Improvements
constructed by Lessee on a Parcel :
(i) Agent has received and approved original executed
counterparts of a Construction Supplement to the Lease in respect of the
New Improvements in respect of which Construction Advance is to be made.
(ii) Agent has received and approved, where applicable, the
materials required to be supplied by Lessee pursuant to the Construction
Addendum to the Lease evidencing the completion of the New Improvements in
question, the payment of the costs therefor, and the performance of
Lessee's other obligations thereunder to support Lessee's entitlement to
the Construction Advance in question.
(iii) Agent shall have received, reviewed, and approved an
"as-built" survey of the Parcel in question dated subsequent to completion
of the New Improvements thereon in form and substance reasonably
satisfactory to Agent which shall show the location of all New Improvements
thereon and that the New Improvements are completely within the boundaries
of the Parcel, shall not indicate the violation of any Laws, the
encroachment across or on any easement (except as otherwise approved by
Agent), or the violation of any restrictive covenant or other restrictions,
and shall not reflect any other conditions not reasonably acceptable to
Agent.
(iv) The Title Company shall have issued (or provided Agent with
evidence satisfactory to Agent that the Title Company is irrevocably
obligated to issue immediately after funding of the Advance in question) an
endorsement to the Owner Title Policy and the Mortgagee Title Policy
covering the Parcel in question increasing the coverage to the aggregate
amount advanced in respect of the Parcel and Improvements thereon, without
exceptions unacceptable to Agent in its reasonable discretion. Any
Permitted Encumbrances approved by Agent in connection with the addition of
the applicable Parcel to the Property may not be disapproved by Agent in
connection with a subsequent Advance in respect of such Parcel so long as
the construction of the New Improvements has not created any encroachments
or other problems related thereto that did not exist when the Permitted
Encumbrance in question was originally approved.
(v) Agent shall have received, reviewed, and approved an
"as-built" appraisal of the Parcel and the completed Improvements thereon
in form and substance, and issued by an appraiser, satisfactory to Agent
indicating an "as if vacant" value of the Parcel and completed New
Improvements thereon of not less than 50% of the Acquisition Price (as
defined in the Lease) of the Parcel in question after giving effect to the
requested Advance. In the event the appraisal received by Agent does not
adequately support the amount of the requested Advance the amount of the
Advance shall be reduced such that the Acquisition Price of the Parcel in
question after giving effect to such Advance will be not more than twice
the appraised value of the Parcel.
(vi) The Lessee that leases the Parcel in question under the
Lease has received a certificate of occupancy (or local equivalent), if
any, required for lawful occupancy, and has opened for business in, the New
Improvements.
(c) Regardless of whether the Advance is in connection with the
addition of a Parcel or in connection with a Construction Advance under the
Lease:
(i) No Casualty or Condemnation (as those terms are defined in
the Lease) shall have occurred with respect to any portion of the Parcel to
which such Advance is being made.
(ii) No Event of Default has occurred and is continuing, and no
Special Incipient Default exists under the Lease.
(iii) All reasonable costs and expenses incurred by Agent or
Trustee in connection with the Advance in question, and all reasonable fees
or other payments due in respect of such Advance, have been paid (or
arrangements satisfactory to Agent and Trustee regarding the payment
thereof have been made). It is agreed that so long as no Event of Default
exists no overhead or other internal costs of the Agent shall be payable by
Lessee; provided that the foregoing limitation shall not be deemed to limit
or restrict amounts that are otherwise recoverable by Agent pursuant to any
Transaction Document if an Event of Default exists.
(iv) No material adverse change has occurred in the financial
condition or business of Lessee and its consolidated subsidiaries, taken as
a whole, as shown on or reflected in a consolidated balance sheet of
Lessee, or its consolidated statement of income or cash flow, other than
changes in the ordinary course of business that will not have any
materially adverse effect, either individually or in the aggregate, on the
business or financial condition of Lessee and its consolidated
subsidiaries.
(v) The amount of the Advance shall not exceed the costs of
acquiring the Parcel and/or the cost of the New Improvements, as reasonably
substantiated to Agent. Applicable transaction costs and "soft" costs
to the overall limitation that the value of the Parcel or Improvements in
question must support the amount of the Advance (based on the appraisal
requirements set out in subsection [b][v] above).
(d) The conditions set out in both subsections (a) and (b) shall
apply, subject to reasonably modifications under the circumstances, in the event
Lessee requests an Advance in respect of an improved Parcel where the
Improvements existing thereon are to be occupied under the Lease rather than
being entirely demolished, with or without renovation and/or construction of New
Improvements, and whether or not a subsequent "Construction Advance" is
anticipated.
(e) To the extent applicable the underwriting guidelines listed on
attached Schedule 2 shall be adhered to by the Agent in evaluating any requested
Advance. Any matters not specifically addressed in such guidelines shall be
subject to the approval of Agent in the exercise of its reasonable discretion.
(f) Anything to the contrary herein notwithstanding, from and after
December 31, 1996:
(A) Purchasers shall have no obligation to make any Advance
hereunder for the addition of a Parcel to the Property if, at the time
such Advance would otherwise be made, the Debt Rating of Lessee is
lower than BBB- (as rated by Standard & Poor's Corporation or Baa3 (as
rated by Moody's Investors Service), or the Debt Rating of Lessee is
BBB-/Baa3 and Lessee is then on "credit-watch" status with either
rating agency; and
(B) Purchasers shall have no obligation to make any Advance
hereunder as a Construction Advance in respect of a Parcel previously
added to the Property if, at the time such Advance would otherwise be
made, the Debt Rating of Lessee is BB+ or lower (as rated by Standard
& Poor's Corporation or Ba1 or lower (as rated by Moody's Investors
Service).
Section 1.05. Advance Process. The following procedures and limitations
shall be applicable to each Advance unless otherwise waived by Agent:
(a) Lessee shall notify Agent in writing not less than fifteen (15)
days prior to the date on which the Advance in question is desired (or, in the
case of the first Advance hereunder in respect of a Parcel located within a
given state, not less than thirty (30) days prior to the date on which the
Advance in question is desired). The requested Advance shall be funded by the
Purchaser(s) on or before the requested date if Lessee has satisfied all of the
conditions precedent to the requested Advance (other than the execution and
delivery of the necessary Supplements and related closing documents) at least
five (5) Business Days prior to the requested Advance date. Neither Agent nor
Trustee shall have any liability or obligation to Lessee if an Advance cannot be
completed at the time requested by Lessee if all required materials are not
supplied by Lessee in a timely manner.
(b) All materials that are to be reviewed and/or approved as a
condition to the requested Advance shall be submitted to Agent (and, in the case
of the environmental site assessment for a Parcel to be added to the Property,
to the Trustee) for review and approval simultaneously with Lessee's request for
Advance. Except for the environmental site assessment, Lessee shall not be
required to deliver materials directly to Trustee unless Lessee is specifically
requested to do so by Agent, it being the responsibility of Agent and its
counsel to coordinate the funding of each Advance (Agent will provide Trustee
with copies of all such materials approved by the Agent as needed). The parties
acknowledge that it may be necessary, in certain cases, for Agent to obtain
approval of one or more such items by one or more of the Purchasers to fulfill
Agent's obligation to such Purchasers, but Agent shall be responsible for
obtaining a timely response from any such Purchaser, and any Purchaser that does
not respond to Agent in a timely manner shall be deemed to have consented to or
approved the matter in question. Trustee and Lessee may rely upon any consent
or approval of any matter given by Agent without inquiry as to whether any
required approvals of any Purchasers have in fact been obtained by Agent.
(c) In connection with each Advance, Agent shall prepare the
necessary supplements to the Lease, and other documents, if any, reasonably
required in connection with such Advance and submit counterparts of the
necessary documents to all applicable parties for execution and delivery. Agent
shall submit to the Trustee all such supplements or other documents requiring
the Trustee's signature with instructions authorizing the Trustee's execution
and delivery of the same. Upon completion of the documents executed in
connection with any Advance, Agent shall deliver to Trustee a copy of the
document transcript for such Advance.
(d) Lessee and Agent, and Trustee (where necessary) shall make such
mutually satisfactory arrangements for the closing and funding of the Advance,
including, without limitation, escrow arrangements with a Title Company or
closing attorney where applicable, as may be necessary or appropriate under the
circumstances.
(e) In no event shall any Advance be available after December 31,
1997. On December 31, 1997, any unused Commitment of the Purchasers shall be
cancelled and of no further effect.
Section 1.06. Form of Documents. All instruments, documents, or materials
executed by or for the benefit of, or submitted to, Agent or Purchasers in
connection with this Agreement, including, without limitation, documents
submitted in connection with Advances, shall be in form and substance reasonably
acceptable to Agent and its counsel.
Section 1.07. Transaction Fees. Lessee shall pay from time to time the
following fees related to the transactions contemplated herein:
(a) Structuring Fee. Upon execution of this Agreement Lessee shall
pay to CLI or an Affiliate of CLI a structuring fee in the amount of $125,000
cash (i.e. 0.50% of the Commitment). Lessee shall be entitled to a credit
against such structuring fee in the amount of $25,000 in respect of a proposal
fee in such amount previously paid to CLI or an Affiliate thereof.
(b) Arranging Fee. In connection with the Secondary Transaction
(as defined in Section 4.01 hereof), Lessee shall pay to CLI or an Affiliate of
CLI an arranging fee in an amount equal to 0.50% of the outstanding principal
amount (of the Notes) and outstanding amount (of the Certificates), which fee
shall be payable both with respect to portions of the Instruments transferred to
other financial institutions and to Instruments that may be held by CLI or an
Affiliate thereof. In addition, Lessee shall pay any placement fees or other
fees or similar amounts charged by any financial institutions (other than CLI
and its Affiliates) that purchase instruments in connection with the Secondary
Transaction (but not otherwise). If the Secondary Transaction occurs in a
series of placements over time, the arrangement fee for such placement shall be
paid periodically on the amount of Instruments placed by CLI as they are placed,
and the arrangement fee on the Instruments, if any, that CLI elects to hold
shall be paid at the end of the Secondary Transaction period (or such earlier
time as CLI notifies Lessee that CLI elects to hold the Instruments in
question).
(c) Servicing Fee. On each December 15 (starting December 15, 1996)
throughout the term of this Agreement, Lessee shall pay to CLI or an Affiliate
of CLI a servicing fee in an amount equal to the greater of (i) $25,000.00, or
(ii) 0.125% of the then aggregate outstanding principal balance of the Notes and
the aggregate outstanding amount of the Certificates.
(d) Commitment Fee. On each March 15, June 15, September 15, and
December 15 through and including December 15, 1997, Lessee shall pay to CLI a
commitment fee (computed quarterly in arrears) in an amount equal to one-fourth
of the amount determined by multiplying the unused portion of the Commitment
(computed on a weighted average daily basis during the quarter) by the
applicable percentage provided for in the following chart:
Lessee's Debt Rating Commitment Fee Rate
BBB+ (or higher) 20 basis points
BBB 25 basis points
BBB- 31.50 basis points
lower than BBB- 37.50 basis points
The first payment due on March 15, 1996, shall also include an additional
prorated payment covering the period from the date hereof through December 15,
1995, and the last payment due December 15, 1997, shall also include an
additional prorated payment for the period December 15, 1997 to December 31,
1997. In the event the December 31, 1997, date (which date currently represents
the last day on which any Advance may be made hereunder) is extended, the
obligation to continue to pay a commitment fee on the unused portion of the
Commitment shall be likewise extended. In the event that Lessee desires to
terminate its right to obtain Advances hereunder prior to December 31, 1997,
Agent and Trustee agree to enter into an amendment to this Agreement and the
other Transaction Documents as necessary to terminate the obligation of the
Purchasers to advance the unused portion of the Commitment, and after such
termination no further commitment fees shall be due.
(e) Trustee Fees. From time to time the Lessee shall pay to the
Trustee the various fees and other payments provided for in the Declaration of
Trust and/or in the Fee Letter.
Section 1.08. Extension of Lease Term.
(a) Anything to the contrary in the Lease or any other Transaction
Document to the contrary notwithstanding, it is expressly agreed that
the Term of the Lease may not be extended without the unanimous approval
of the Instrument Holders, which approval may be withheld or conditioned
in such Instrument Holders' sole discretion. Neither Agent nor Trustee
shall have the authority to grant approval of any extension of the Term
of the Lease requested by Lessee unless all Instrument Holders have
approved the extension in question. Agent shall be responsible for
polling the Instrument Holders in the event Lessee requests an extension
of the Term of the Lease, and Lessee and Trustee shall be entitled to
rely on any statement or certificate issued by Agent confirming that all
Instrument Holders have approved the requested extension. In connection
with any such extension of the Term of the Lease, Lessee, Trustee,
Agent, and the Instrument Holders shall enter into such supplements and
amendments to all Transaction Documents (including, without limitation,
amendments or reissuance of the Instruments themselves), as any party
may reasonably require to reflect the agreements of the parties with
respect to such extension.
(b) In the event that Lessee and Agent desire to extend the term of
the Lease and one or more Instrument Holders are unwilling to approve such
extension, Lessee and Agent shall endeavor, as more fully described in the
Lease, but at Lessee's sole cost, to arrange for replacement of the Instrument
Holders that do not desire to extend the Lease.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
Section 2.01. Lessee's Representations and Warranties. The Lessee hereby
represents and warrants to the Trustee, Agent, Purchasers, and the Instrument
Holders that the following statements are true and correct as of the date
hereof:
(a) Organization and Authority. Lessee (i) is duly incorporated and
is validly existing as a corporation in good standing under the laws of the
State of Pennsylvania (ii) has full corporate power and authority to own and
operate its properties and to conduct its business as presently conducted, and
full corporate power, authority and legal right to execute, deliver and perform
its obligations under this Agreement and all other Transaction Documents to
which Lessee is a party, (iii) is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction in which its ownership or
leasing of properties or the conduct of its business requires such
qualification.
(b) Enforceability. This Agreement and all other Transaction
Documents to which Lessee is a party have been duly authorized, executed and
delivered by Lessee and each is a legal, valid and binding obligation of Lessee,
enforceable according to its terms (subject as to enforcement of remedies to any
applicable bankruptcy, reorganization, moratorium, or other Laws or principles
of equity affecting the enforcement of creditors' rights generally).
(c) No Conflict. The execution, delivery and performance by Lessee
of this Agreement and all other Transaction Documents to which Lessee is a party
will not result in any violation of any term of the certificate or articles of
incorporation or the by-laws of Lessee, does not require stockholder approval or
the approval or consent of any trustee or holders of debt of Lessee except such
as have been obtained prior to the date hereof, and will not conflict with or
result in a breach of any terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien upon, any property or assets
of Lessee under, any indenture, mortgage or other agreement or instrument to
which Lessee is a party or by which it or any of its property is bound, or to
Lessee's knowledge, any existing applicable law, rule, regulation, license,
judgment, order or decree of any government, governmental body or court having
jurisdiction over Lessee or any of its activities or properties, including,
without limitation, any rule or order of any public utility commission or other
governmental body.
(d) Consents and Approvals. There are no consents, licenses, orders,
authorizations or approvals of, or notices to or registrations with any
governmental or public body or authority which are required in connection with
the valid execution, delivery and performance of this Agreement and all other
Transaction Documents to which Lessee is a party by Lessee that have not been
obtained or made, and any such consents, licenses, orders, authorizations,
approvals, notices and registrations that have been obtained or made are in full
force and effect.
(e) Pending Matters. Except as disclosed in writing to Agent by
Lessee concurrently herewith, there is no action, suit, proceeding or
investigation at law or in equity by or before any court, governmental body,
agency, commission or other tribunal now pending or, to the best knowledge of
Lessee, threatened against or affecting Lessee or any property or rights of
Lessee as to which there is a significant possibility of an adverse
determination, and which if adversely determined, may have a material adverse
effect on the financial condition or business of Lessee or which, if adversely
determined could materially impair the ability of Lessee to perform its
obligations under the Lease or any Transaction Document to which Lessee is a
party, and there is no action, suit, proceeding or investigation at law or in
equity by or before any court, governmental body, agency, commission or other
tribunal now pending or, to the best knowledge of Lessee after due inquiry,
threatened against Lessee which questions or would question the validity of the
Lease or any Transaction Agreement.
(f) No Default. Lessee is not in default under or with respect to
any agreement or other instrument to which it is party or by which it or its
assets may be bound which would have a material adverse effect on the financial
condition of Lessee or the ability of Lessee to perform its obligations under
the Lease or any other Transaction Document to which Lessee is a party. Lessee
is not subject to or in default under any order, award or decree of any court,
arbitrator, or other governmental authority binding upon or affecting it or by
which any of its assets may be bound or affected which would have a material
adverse effect on the ability of Lessee to carry on its business as presently
conducted or to perform its obligations under this Agreement and all other
Transaction Documents to which Lessee is a party.
Section 2.02. Trust Company Representations. Trust Company, in its
individual capacity and not as Trustee (with the exception of paragraphs (d)(ii)
and (g)(ii), which representations are made solely in its trust capacity),
represents and warrants to the Lessee, to Agent, and the Instrument Holders that
the following statements are and shall be true and correct as of the Closing
Date:
(a) Organization and Authority. Trust Company is a trust company
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts, and Trust Company has all requisite
corporate power and authority to execute and deliver the Instruments, the
Declaration of Trust, and each Transaction Document to which it is a party
(regardless of the capacity in which it is a party thereto) and to comply
with the terms thereof and perform its obligations thereunder. The trust
created by the Trust Declaration is a trust formed by Trust Company for the
sole purpose of acquiring, financing, and leasing the Property.
(b) No Actions Pending. There is no action, suit, proceeding or
investigation at law or in equity by or before any court, governmental
body, agency, commission or other tribunal now pending or, to the knowledge
of the Trust Company, threatened, against or affecting the Trust Company,
(i) which questions the validity or enforceability of this Agreement or any
of the other Transaction Documents to which the Trust Company is a party
(regardless of its capacity therein), or (ii) the probable outcome of which
would impair the ability of the Trust Company to perform its obligations
under any Transaction Document to which it is or is to be a party.
(c) No Violation. The Trust Company's or the Trustee's respective
execution, delivery and performance of its obligations under each
Transaction Document to which it is or is to be a party (including, without
limitation, the execution, delivery, and performance by Trustee of the
Lease in its capacity as Lessor thereunder) will not violate such party's
charter or by-laws, will not contravene any federal or state law,
governmental rule or regulation (which representation shall be limited to
the laws of Massachusetts and United States federal law) pertaining to its
banking or trust powers, judgment or order applicable to such party or any
of its assets, and will not require the consent or approval of any
stockholders of the Trust Company or of any trustee or holder of any
material indebtedness of the Trust Company, will not conflict with or
result in a breach of any term or provision of, or constitute any default
under, indebtedness for the repayment of borrowed money or any other
material indenture, mortgage, contract, agreement or other instrument to
which it is a party or by which it or any of its assets is bound, will not
result in any violation of any Laws (which representation shall be limited
to the laws of Massachusetts and United States federal law pertaining to
its banking or trust powers), which violation of any such Law would
materially adversely affect the ability of such party to perform its
obligations under any Transaction Document to which it is or is to be a
party or question the validity or enforceability of the Transaction
Documents to which it is or is to be a party or require the consent or
approval of, the giving of notice to, the registration, qualification or
filing with, or the taking of any other action with respect to, any federal
or state governmental commission, authority, body or agency under any
existing law (which representation shall be limited to the laws of
Massachusetts and United States federal law) governing the banking or trust
or fiduciary powers of the Trust Company, except for filings, if any, made
pursuant to any periodic reporting requirements applicable to it.
(d) Authorization, Execution, Delivery and Enforceability of
Transaction Documents. Each of the Transaction Documents to which Trust
Company is or is to become a party, and any other agreement entered into in
connection with any transaction contemplated by any Transaction Document,
has been duly authorized by all necessary action on the part of Trust
Company, has been duly executed and delivered, and is the legal, valid and
binding obligation of Trust Company enforceable against Trust Company
in accordance with its terms, except as enforceability thereof may be
limited by the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and by general principles of equity. Each of the Transaction
Documents to which the Trustee (including, without limitation, in its
capacity as Lessor) is or is to become a party, and any other agreement
entered into in connection with any transaction contemplated by any
Transaction Document, (i) has been duly authorized by all necessary action
on the part of the Trustee, has been duly executed and delivered, and (ii)
is the legal, valid and binding obligation of Trustee (but not Trust
Company) enforceable against such party in accordance with its terms,
except as enforceability thereof may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally and by general principles of
equity.
(f) Authorizations and Consents. The nature of Trust Company, its
execution and delivery of each Transaction Document to which it is a party
(regardless of the capacity in which it is a party), its consummation of
the transactions contemplated thereby, its compliance with the terms
thereof or any circumstance in connection with the transactions
contemplated thereby does not require the consent of any Person or the
approval or authorization of, or filing, registration or qualification
with, any Massachusetts or federal governing authority governing the
banking or trust powers of Trust Company (other than such as have been
obtained) as a condition to such execution,
delivery and compliance. All authorizations, consents, licenses, orders,
approvals, waivers, extensions or variances of, or notices to or
registrations or filings with any governmental department, commission,
board, bureau, agency or instrumentality (which representation shall be
limited to the laws of Massachusetts and United States federal law
pertaining to its banking or trust powers) necessary to the valid
execution, delivery and performance by the Trust Company and the Trustee,
respectively, of the Declaration of Trust, this Agreement and the other
Transaction Documents to which such party is or is to be a party have been
obtained.
(g) Authorization, Execution, Delivery and Enforceability of
Instruments. Each of the Notes and the Certificates (i) has been duly
authorized by all necessary corporate action on the part of the Trust
Company, in its capacity as Trustee, has been duly executed and delivered
by the Trustee, and (ii) constitutes a legal, valid and binding obligation
of the Trustee (acting solely as Trustee under the Declaration of Trust,
and not in its individual capacity), enforceable against the Trustee in
accordance with their terms and the terms of the Declaration.
(h) Liens. Trust Company has not voluntarily created or granted any
Lien upon any portion of the Property other than in accordance with the
terms of the Transaction Documents.
(i) No Brokers. Trust Company has entered into no agreements,
arrangements or negotiations that would require the payment of any fees or
compensation to any brokers, finders, or similar persons in connection with
the transactions contemplated hereby except for such fees and expense
reimbursements to the parties hereto and their respective counsel as are
provided for in the Transaction Documents and, in the case of the Trustee,
the Fee Letter, and Trust Company (solely with respect to the above actions
taken by it in its individual capacity) agrees to indemnify, defend and
save harmless each other party hereto from and against any claims for fees
or commissions from any Person engaged by the Trust Company.
(j) Offer of Interests. Neither the Trust Company nor any Person
authorized to act on its behalf has directly or indirectly offered any
interest in the Trust Estate or under the Declaration of Trust or any
interests similar thereto or the Instruments or any similar security, or
offered any thereof for sale to, or solicited any offer to buy any thereof
from, or otherwise approached or negotiated with respect thereto with, any
Person, which offer or solicitation would require registration under the
Securities Act.
ARTICLE III.
TRUSTEE AND TRUST COMPANY COVENANTS
Until the Trustee's obligations hereunder, under the Declaration of Trust,
and all other Transaction Documents have been paid and performed in full, unless
Trustee receives from Agent a written statement specifying that the Majority
Holders do not object to a deviation, Trustee covenants and agrees with Lessee,
Agent, and each of the Instrument Holders as follows:
Section 3.01. Lien Claims. Trustee shall (a) promptly furnish to Agent
and Lessee a copy of any notice of claims sent to Trustee by any person claiming
or asserting any Lien on any portion of the Property, and (b) not create or
authorize any Liens (other than the Permitted Encumbrances) on the Property
arising by, through, or under Trustee.
Section 3.02. Inspection of Property. At all reasonable times, Trustee
shall permit Agent and/or its representatives to inspect the Property, provided
that such inspection rights are subject to all limitations and restrictions upon
the right of Trustee (as "lessor" under the Lease) to inspect the Property under
the Lease.
Section 3.03. Notice of Significant Matters.
(a) Trustee shall promptly supply to Agent and Lessee copies of any
tax or other bills, and any other notices or other material communications
received by Trustee from any Person (including, without limitation, Lessee,
Lease Guarantor, or any Tribunal) relating to the Property or any Transaction
Document unless it is evident that Agent or Lessee, as the case may be, shall
have independently received such communication. Without limitation, it is
expressly intended that the foregoing covenant shall require delivery to Agent
or Lessee of any notice or communication received by Trustee with respect to any
compliance or non-compliance of the Property with respect to Environmental Laws,
or the presence of Hazardous Materials on or emanating from the Property.
Notwithstanding the foregoing, however, Trustee shall have no obligation to
provide Lessee with copies of any instructions, communications, directions, or
authorizations received from Agent or any Instrument Holder with respect to or
relating to actions to be taken by the Trustee as a result of an Event of
Default or Incipient Default.
(b) Trustee shall give at least thirty (30) days prior written notice
to Agent, each Instrument Holder, and Lessee of any change in the place of
business of, or the change in the legal, trade or fictitious business names used
by Trustee and shall, upon Agent's or Lessee's request, execute any additional
certificates or instruments that Agent or Lessee may deem appropriate or
necessary in connection with any such change.
(c) Trustee shall also notify Agent and Lessee in writing within
five (5) Business Days after Trustee acquires knowledge of the occurrence of any
event or circumstance that would, with or without notice and or the passage of
time, be or become an "Event of Default," "Default" or "Environmental Event,"
under any of the Transaction Documents.
Section 3.04. Qualification; Business; Use of Advances. The Trustee
covenants and agrees (i) to appoint a Co-Trustee pursuant to Section 8.04 of the
Declaration of Trust, if required, to qualify in each state in which a Parcel is
located, (ii) to conduct no business other than in respect of the Property, and
(iii) to use the Advances solely to acquire the Parcels and Improvements, as the
Agent may direct, in accordance with the Transaction Documents.
Section 3.05. Encumbrances.
(a) Trustee shall not, directly or indirectly, (i) authorize any
materials, equipment, fixtures, or any other part of the Property to be
purchased or installed under any arrangement wherein a Lien (other than a
Permitted Encumbrance) on such property is retained or the right is reserved or
accrues to any Person to remove or repossess any such items or to consider such
as personal property, or permit any lease of any equipment or improvements
related to the operation of the Improvements, or (ii) otherwise create, incur,
or suffer or permit to be created or incurred or to exist any Lien upon any of
the Parcels or Improvements, except Permitted Encumbrances, or authorize any
financing agreement pertaining to the financing of any equipment or improvements
related to the Property and its operation; provided, however, that Trustee shall
not be in violation of this covenant if Lessee is making a valid contest to such
Lien in compliance with all applicable Laws and in accordance with the contest
provisions of the Lease.
(b) The foregoing limitations and restrictions shall not apply to
Lessee's Equipment, as to which Lessee, but not Trustee, may grant encumbrances
or take other actions as may be permitted under the terms of the Lease.
Section 3.06. Transaction Documents. (a) Trustee shall not (and shall not
purport to) enter into, amend, modify, permit an assignment or subletting with
respect to, terminate, surrender, take discretionary action with respect to, or
cancel any Transaction Documents, including, without limitation, the Declaration
of Trust, without the consent of the Majority Holders, which consent may be
withheld in such Holders' discretion except in those instances where the
Transaction Documents require that such approval be exercised reasonably, in
which event the Holders shall not unreasonably withhold or delay their approval
of the matter in question.
(b) Trustee shall not amend, supplement, modify, or terminate the
Declaration of Trust without the prior written consent of Lessee, which consent
shall not be unreasonably withheld so long as Lessee's rights and interests are
not materially adversely affected thereby. The Lessee shall be deemed to be a
third party beneficiary under the Declaration of Trust to the extent of the
rights (including, without limitation, rights relating to any monies, consents,
approvals and notices) given to the Lessee thereunder, and the Lessee shall have
a direct right to enforce all such rights. Notwithstanding the foregoing,
Lessee shall not be responsible for any costs or expenses incurred in connection
with any modifications to the Declaration of Trust that are not requested by
Lessee.
Section 3.07. Transactions with Affiliates. Trustee will not, directly or
indirectly, enter into any transaction with respect to the ownership (or, if at
any time the Trustee obtains possession of the Property as a result of the
expiration or termination of the Lease, the operation of the Property) the
Property with any of its Affiliates other than in the ordinary course of
business and upon fair and reasonable terms no less favorable than Trustee could
obtain or could become entitled to in an arm's-length transaction with a Person
which was not an Affiliate of Trustee. No transactions by Trustee (whether with
Affiliates of Trustee or otherwise) shall affect Lessee's rights with respect to
the Property pursuant to the Lease so long as no Event of Default exists.
Section 3.08. Transfer or Encumbrance of the Property. Except as a result
of the exercise by Lessee or a nominee of Lessee of any options to purchase the
Property or a portion thereof contained in the Lease, or at the request of Agent
or the Majority Holders after the occurrence of an Event of Default, Trustee
will not, directly or indirectly, voluntarily or by operation of Law, sell,
convey, transfer, assign, encumber, pledge, lease, rezone, or permit to be sold,
conveyed, transferred, assigned, encumbered, pledged, leased (except for the
Lease and any sublease permitted under the terms of the Lease) or rezoned, or
otherwise dispose of, any interest in all or any part of the Property without
Agent's prior written approval, which approval may be withheld for any reason in
the sole and absolute discretion of Agent. So long as the Lease remains in
effect, any transaction by Trustee with respect to the Property approved by
Agent shall be made expressly subject to the rights of Lessee under the Lease,
including Lessee's purchase options thereunder. Notwithstanding the foregoing,
Agent agrees to execute such instruments or documents as Lessee may request in
connection with the granting of easements or other such interests affecting the
Property under those circumstances where the Lessee is permitted to grant such
rights pursuant to the Lease and after Lessee has satisfied all requirements of
the Lease with respect to such matters. In no event shall Agent be obligated
to grant any recognition, non-disturbance or other rights to any subtenant of
Lessee under the Lease that would survive termination or expiration of the
Lease. The Trustee shall not voluntarily create or grant any Lien upon any
portion of the Property other than in accordance with the terms of the
Transaction Documents.
Section 3.09. Compliance with Laws and Documents. Trustee will not,
directly or indirectly, violate, or permit or authorize Lessee to violate, the
provisions of any Laws, any Transaction Document, or any of the instruments and
documents constituting or evidencing Permitted Encumbrances. Further, Trustee
will not change, or cause or seek a change (nor, to the extent within Trustee's
control, will Trustee permit Lessee or any third party to do so) in any Laws or
any private contracts or other agreements that may cause a material adverse
effect on the ownership, use, or operation of the Property without the prior
written consent of Agent; provided, however, that Trustee shall not be in
violation of the covenants in this Section if Lessee is making a valid contest
to such Lien in compliance with all applicable Laws and in accordance with the
contest provisions of the Lease.
Section 3.10. Assignment. Trustee will not, directly or indirectly,
assign or transfer, or attempt to do so, any of its Rights, duties, or
obligations under any of the Transaction Documents except to a successor trustee
appointed in accordance with Section 8.02 of the Declaration of Trust. Any
resignation by Trustee (whether permitted or not) of Trustee under the
Declaration of Trust shall not affect Lessee's rights with respect to the
Property under the Lease. If the Trustee is replaced by a successor trustee all
reasonable costs incurred by Agent, Trustee, or the successor trustee in
connection with the substitution of the Trustee, the assignment of the rights
and duties of the Trustee to the successor trustee, and the transfer of the
Trust Estate to the successor trustee shall be borne by Lessee.
Section 3.11. Other Tenant Leases. Other than the Lease, Trustee shall
not enter into any lease, tenancy, occupancy arrangement, or other similar
agreement with respect to the Property, or any portion thereof nor shall Trustee
consent to the entry by Lessee into any sublease of all or any portion of the
Property other than to subleases specifically approved or permitted pursuant to
Section 17 of the Lease, without Agent's prior written consent, which consent
may be withheld for any reason in Agent's sole discretion. Nothing in the
foregoing shall be deemed to prohibit or further condition assignments or
subleases by the Lessee, or the addition of Additional Lessees to the Lease
where permitted under the terms of the Lease.
Section 3.12. Agent's Approval of Settlements. Subject to the rights of
Lessee under the Lease unilaterally to settle certain claims, Trustee shall not
settle or compromise any claims relating to damage claims, insurance proceeds,
or condemnation awards relating to the Property without the prior written
consent of Agent, which shall not be unreasonably withheld so long as no Event
of Default exists.
Section 3.13. Notice of Actions; Prosecution. Promptly upon obtaining
actual knowledge of any condemnation or threatened condemnation, or any damage
or destruction, of any portion of the Property, Trustee shall notify Agent and
Lessee of such fact. Trustee shall then take such actions, including, without
limitation, exercise of rights provided for in the Lease arising out of such
condemnation, as may be directed by Agent to protect and/or defend the positions
and interests of Trustee and the Instrument Holders with respect to such matter,
but subject to the rights of Lessee under the Lease if the Lease then remains in
effect as to the affected Parcel(s). Agent, on behalf of the Instrument
Holders, shall be entitled to direct the exercise of Trustee's rights in respect
of, and control, such actions (except to the extent that Lessee has the
unilateral right to control such matters under the Lease), including being
represented by separate counsel at Lessee's expense if reasonably deemed
necessary by Agent, and Trustee shall deliver, or cause to be delivered, to
Agent such instruments as Agent may request from time to time to permit such
participation.
Section 3.14. Covenants of Trust Company.
(a) The Trust Company shall give at least thirty (30) days prior
written notice to Agent, each Instrument Holder and Lessee of any change in the
place of business of, or the change in the legal, trade or fictitious business
names used by Trust Company and shall, upon Agent's or Lessee's request, execute
any additional certificates or instruments that Agent may deem appropriate or
necessary in connection with any such change.
(b) The Trust Company shall not directly or indirectly create or
permit to be created or remain or leave undischarged any Lien attributable to
it, which is not related to the transactions contemplated by the Transaction
Documents, on any Parcel or Improvements thereon or any interest therein or in
the Trust Estate other than Permitted Encumbrances. The Trust Company agrees
that it will, at its own cost and expense, take such action as may be necessary
duly to discharge and satisfy in full, promptly after the same first becomes
known to the Trust Company, any Lien attributable to it unrelated to the
transactions contemplated by the Transaction Documents.
(c) The Trust Company shall not transfer any of the estates,
properties, rights, powers, duties or trusts of the Trustee to any successor
trustee or to any additional or separate trustee under the Declaration of Trust
without giving written notice thirty (30) days prior to such transfer to the
Agent and the Lessee (unless such transfer is effected pursuant to Section
8.02(d) of the Declaration of Trust, in which event, written notice thereof
shall be provided promptly following such transfer). The Trust Company
covenants and agrees that all such transfers to a successor trustee shall be
done in compliance with and pursuant to the terms and conditions of this
Agreement.
(d) Trust Company shall not amend, supplement, modify or terminate
the Declaration of Trust or any of the other Transaction Documents without the
prior written consent of Lessee, which consent shall not be unreasonably
withheld so long as Lessee's rights and interests are not materially adversely
affected thereby. The Lessee shall be deemed to be a third party beneficiary
under the Declaration of Trust to the extent of the rights (including, without
limitation, rights relating to any monies, consents, approvals and notices)
given to the Lessee thereunder, and the Lessee shall have a direct right to
enforce all such rights. Notwithstanding the foregoing, Lessee shall not be
responsible for any costs or expenses incurred in connection with any
modifications to the Declaration of Trust that are not requested by Lessee.
(e) Trust Company shall maintain its existence as a Massachusetts
trust company and preserve and keep in full force and effect its rights and
franchises as necessary to permit it to serve as Trustee hereunder so long as it
is the Trustee; provided, that the sole obligation of the Trust Company with
respect to a breach of this covenant shall be to resign as Trustee in accordance
with Section 8.02 of the Declaration of Trust.
ARTICLE IV.
THE NOTES AND THE CERTIFICATES
Section 4.01. Rates Applicable to Instruments; Secondary Transaction.
(a) Each of the Notes shall bear interest at the Note Rate applicable
to such Note, and each Certificate shall earn a yield at the Certificate Rate
applicable to such Certificate. All payments of principal, interest, yield and
stated amount on the Instruments that are not paid when due in accordance with
the terms of this Agreement and the applicable Instruments shall bear interest
at the Default Rate until paid. To the extent permitted by applicable Law,
interest on the unpaid principal balance of the Notes and yield on the
Certificates from time to time outstanding at the rates provided in this
Agreement shall be calculated on the basis of the actual number of days elapsed,
but computed as if each year consisted of three hundred and sixty (360) days.
However, any calculations of the Highest Lawful Rate shall be made on the basis
of a 365 (or 366, as applicable) day year. Acceptance by Trustee or any
Instrument Holder of any payment in an amount less than the amount then due
shall be deemed an acceptance on account only.
(b) At such time as the Commitment of the Purchasers has been
terminated (pursuant to Section 1.05), has otherwise expired by its own terms,
or, if earlier, has been fully satisfied (in either case, the "Completion Date")
the Purchasers will attempt, in good faith, to assign the Instruments
theretofore issued to such Purchasers, or interests or participations in such
Instruments, to other financial institutions, in minimum increments of
$5,000,000.00, such transaction being herein referred to as the "Secondary
Transaction". Purchasers and Lessee shall cooperate for a period of ninety (90)
days after the Completion Date to arrange for the sale and assignment of
Instruments by Purchasers to entities designated by, or approved by, Lessee;
provided, that any proposed assignee designated by Lessee must be a financial
institution having (or be an Affiliate of an institution having) a combined
capital and surplus (net worth) of at least $100,000,000.00 based on its latest
financial statements, must be eligible to purchase the Instruments (or interests
therein) in question without causing a violation or, or triggering a
registration requirement under, the Securities Act or applicable state or
federal securities laws, or a violation of ERISA or other applicable laws, and
otherwise must be an entity with which CLI is not precluded from dealing under
the policies and procedures then in effect at CLI and its Affiliates (any such
entity being referred to herein as an "Approved Instrument Holder"). After such
ninety (90) day period Purchasers shall be free to complete the Secondary
Transaction by placing the Instruments with financial institutions designated by
Purchasers.
(c) If, at the time of any transfer of an instrument or an interest
or participation therein in connection with the Secondary Transaction, the
number of basis points over the LIBO Rate required by the transferee of an
Instrument or interest therein (the "Required Spread") is different from the
Spread then used to calculate the applicable Note Rate or Certificate Rate on
such Instrument (which Required Spread shall be based on then applicable market
conditions), the Spread applicable to the Instrument or interest therein so
transferred (and to any replacement Instrument issued to any such transferee)
shall be adjusted to the Required Spread, the Note Rate or Certificate Rate
applicable to such Instrument or interest therein, as the case may be, shall be
recalculated as and when the Spread is adjusted, and the Applicable Rate (used
to compute the Net Rent payable under the Lease) shall be adjusted accordingly,
as provided for in the Lease. Such adjustments shall be automatic and
effective without the necessity of any amendment to this Agreement or any other
Transaction Document. In connection with the Secondary Transaction the Agent
shall notify the Trustee and the Lessee from time to time of the adjustments in
the Spread and the corresponding adjustments in each Note Rate, each Certificate
Rate and the Applicable Rate. The Agent shall furnish to the Lessee and, upon
request, the Trustee copies of the Agent's computations of any such adjustment,
which computations shall be in reasonable detail. It is acknowledged that the
Spread for the different series of Instruments (and for Instruments within the
same series) may vary, thus resulting in varying Note Rates and/or Certificate
Rates with respect to Instruments (or interests therein) within the same series.
Once any Instrument (or a particular interest in an Instrument, if applicable)
has been transferred in the Secondary Transaction and the Note Rate or
Certificate Rate applicable thereto has been adjusted, the Note Rate or
Certificate Rate applicable to such Instrument (or interest therein, as
applicable) shall not thereafter be affected by adjustments of the Note Rate or
Certificate Rate applicable to other Instruments (or other interests in the same
Instrument, if applicable).
(d) On the date that is six (6) months after the Completion Date
(unless extended by mutual agreement of Lessee and the Purchasers), the Note
Rate or Certificate Rate, as applicable, for any Instruments or interests
therein that continue to be held by the original Purchasers thereof (whether as
a result of an affirmative election by such Purchasers to continue to hold such
Instruments or interests therein or as a result of a failure to place the
Instruments or interests therein in the Secondary Transaction) shall be
adjusted, if necessary, on a one-time basis to equal the highest Note Rate or
Certificate Rate, as applicable, applicable to any Instrument or interest
therein of the same series that was transferred by Purchasers to others in
the Secondary Transaction. Any transfers of Instruments or interests therein
that occur subsequent to such date shall not be deemed to be part of the
Secondary Transaction and the Note Rate or Certificate Rate applicable thereto
shall not be adjusted in connection with such transfer.
(e) Purchasers shall have a right, but not the obligation, to place
Instruments or interests therein with other financial institutions acceptable to
Lessee prior to the Completion Date (i.e., prior to the Secondary Transaction)
if Purchasers desire to do so. In such event the Note Rates or Certificate
Rates applicable to such Instruments or interests therein shall be adjusted in
the same manner as contemplated in subsection (c) above in respect of the
Secondary Transaction (and the rental payable under the Lease shall be
correspondingly adjusted). No such early placement of an Instrument or an
interest therein shall affect the interest rates or rates of return applicable
to other Instruments, or interests in the same Instrument, that continue to be
held by the Purchasers after such early placement, nor the rates applicable to
the portion of Instruments representing further Advances thereunder by the
Purchasers.
(f) Any assignment of Instruments or interests therein in the
Secondary Transaction shall be carried out in the same manner as an assignment
of Instruments as contemplated in Section 4.02 below, subject to the foregoing
provisions relating to the change of Note Rates or Certificate Rates, as
applicable.
(g) Subsequent to the Secondary Transaction any Instrument Holder
shall continue to have the right to assign its Instruments or interests therein
as provided for in Section 4.02 below. However, no such assignment after the
Secondary Transaction shall result in a change in the Note Rate or Certificate
Rate applicable to the Instrument in question.
Section 4.02. Assignments and Participations.
(a) The Lessee may not assign its rights or delegate its obligations
under this Agreement without the prior written consent of all of the Instrument
Holders. The foregoing shall not, however, be deemed to limit Lessee's rights
under the Lease with respect to the Property, including the right to assign to
other parties that constitute "Lessee" under the Lease.
(b) Each Instrument Holder may assign all or a portion of the
Instruments then held by it and its rights and obligations under this Agreement
and the other Transaction Documents to another bank or financial institution
approved by Lessee, which approval shall not be unreasonably withheld or
delayed. The parties to each such assignment shall execute and deliver to the
Agent for its acceptance and recording in the Register (as defined in the
Declaration of Trust) an "Assignment Agreement" (herein so-called) in
substantially the form attached hereto as Exhibit "A". Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment Agreement (which effective date shall be at least five (5)
Business Days after the execution of such Assignment Agreement), (x) the
assignee thereunder (the "Assignee") shall, to the extent that rights and
obligations hereunder have been assigned to it, have the rights and obligations
of an Instrument Holder hereunder and a Holder under the Transaction Documents
arising subsequent to such assignment and (y) the assignor thereunder
(the "Assignor") shall, to the extent that rights and obligations hereunder
have been assigned by it relinquish its rights (other than any rights to
indemnification it may have hereunder under the Transaction Documents) under
this Agreement with respect to the Instruments (or interests therein) assigned.
No Assignee of an Instrument or an interest therein shall become a "Purchaser"
hereunder nor shall any Assignee have any Commitment for Advances hereunder as a
result of such assignment, and no Purchaser shall be released from any unfunded
Commitment hereunder as a result of an assignment of the Instruments then held
by such Purchaser. Any Advance made by a Purchaser against its Instruments
after the assignment of an interest in such Instrument to a third party shall be
deemed to have been made by such Purchaser against the portion of the Instrument
that is still held by the Purchaser in question. No Assignee of an Instrument
or an interest therein shall acquire any greater rights with respect to or
arising out of such Instrument therein than were available to the original
Holder thereof (or would be available to such original Holder if it were the
then Holder thereof). Lessee shall not be responsible for any costs, expenses
or other charges in connection with any assignment hereunder except for
assignments that constitute a part of the Secondary Transaction.
(c) By executing and delivering an Assignment Agreement, the
Assignor thereunder and the Assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) such Assignor makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement and the other Transaction Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
the other Transaction Documents or any other instrument or document furnished
pursuant hereto; (ii) such Assignor makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the Lessee
or the performance or observance by the Lessee of any of its obligations under
this Agreement or any other Transaction Document, any other instrument or
document furnished pursuant hereto; (iii) such Assignee confirms that it has
received a copy of this Agreement, together with such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision with respect to entering into such Assignment Agreement; and (iv) such
Assignee will, independently and without reliance upon the Lessee, the Agent,
the Trustee, such Assignor or any other Instrument Holder and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement.
(d) Each Instrument Holder may sell participations (as opposed to
assignments of Instruments or assignments of partial interests in Instruments)
in to one or more banks or other entities in or to all or a portion of the
Instruments then held by it and its rights and obligations under this Agreement
and the other Transaction Documents; provided, however, that (i) such Instrument
Holder shall remain the Holder of any such Instrument for all purposes under
this Agreement and the other Transaction Documents and the Lessee, the Trustee,
the Agent and the other Instrument Holders shall continue to deal solely and
directly with such Instrument Holder in connection with such Instrument Holder's
rights and obligations under this Agreement; (ii) no participant shall be
entitled to receive any greater payment than such Instrument Holder would have
been entitled to receive with respect to the rights participated except as a
result of circumstances arising after the date of such participation to the
extent that such circumstances affect other Instrument Holders and participants
generally; and (iii) no Instrument Holder shall grant a participation that
conveys to the participant the direct right to vote or receive notices under
this Agreement or other Transaction Documents in respect of the Instrument in
which such participant holds a participation. If any Purchaser sells a
participation in an Instrument during the period provided for in Section 4.01
above, such participation shall be treated as having been part of the Secondary
Transaction and the Note Rate or Certificate Rate, as applicable, with respect
to the portion of the Instrument participated by such Purchaser shall be
adjusted in the same manner and to the same extent as if the portion of the
Instrument so participated had been assigned to the participant.
(e) Any Instrument Holder may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
4.02, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Lessee furnished to such Instrument
Holder by or on behalf of the Lessee; provided, that, prior to any such
disclosure, the assignee or participant or proposed assignee or participant
shall agree to preserve the confidentiality of any confidential information
relating to the Lessee received by it from such Instrument Holder in a manner
consistent with that set forth in Section 6.17 hereof and any other provision of
the Transaction Documents relating to the preservation of confidentiality.
(f) Anything in this Section 4.02 to the contrary notwithstanding,
any Instrument Holder may assign and pledge all or any of the Instruments held
by it to any Federal Reserve Bank or the United States Treasury as collateral
security pursuant to applicable regulations of the Board of Governors of the
Federal Reserve System and any operating circular issued by such Federal Reserve
Bank; provided that any payment made by the Lessee to the Trustee for the
benefit of such assigning and/or pledging Instrument Holder in accordance with
the terms of the Transaction Documents shall satisfy the Lessee's obligations
under the Transaction Documents in respect thereof to the extent of such
payment.
(g) Except for an assignment of an Instrument or an interest therein
by the original Purchaser thereof in connection with the Secondary Transaction,
no assignment (including, without limitation, any assignment that occurs during
the Secondary Transaction period but is not made by the original Purchaser of
the Instrument or interest therein in question) shall result in a change in the
Note Rate or Certificate Rate applicable to the Instrument in question.
(h) Regardless of the number of Instrument Holders, at all times the
Instrument Holders shall designate a single "Agent" to interface with Lessee and
the Trustee, and the Lessee and Trustee shall be required to pay to or otherwise
deal only with the Agent and not the individual Instrument Holders. Wherever
the Transaction Documents grant rights or remedies to the Instrument Holders
(either in the aggregate or to a particular class of Instrument Holders) all
such rights and remedies shall be exercised through the Agent. Lessee and
Trustee shall be free to ignore directions or instructions delivered directly
by any Instrument Holder rather than by Agent on behalf of the Instrument
Holders (or applicable portion thereof).
Section 4.03. Taxes.
(a) Any and all payments by the Lessee or the Trustee hereunder or
under any of the Transaction Documents (including, without limitation, payments
of Net Rent, Contingent Rent Payments, Offer Purchase Price, and Additional Rent
(as such terms are defined in the Lease), interest, current yield, fees and
principal and stated amounts of the Instruments) shall be made free and clear of
and without deduction for any and all present or future Taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of payments made to each Instrument Holder or the Trustee
(as the case may be), (1) taxes imposed on the Trustee's or such Instrument
Holder's income, and franchise taxes imposed on it, by the jurisdiction under
the Laws of which such Instrument Holder or the Trustee (as the case may be) is
organized or any political subdivision thereof and, in the case of each
Instrument Holder, taxes imposed on its income, and franchise taxes imposed on
it, by the jurisdiction of such Instruments Holder's office where Instrument
Holder's interest in the Instruments is administered or any political
subdivision thereof and (2) any taxes imposed by the United States of America by
means of withholding at the source if and to the extent that such taxes shall be
in effect and shall be applicable, on the more recent to occur of (x) the
original issuance of the applicable Instrument, or (y) the date of adjustment of
the Note Rate or Certificate Rate applicable to such Instrument or applicable
interest therein in connection with the Secondary Transaction, to payments to be
made to such Instrument Holder or the Trustee, as the case may be (all such
non-excluded Taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Charges" and all such excluded
Taxes, levies, imposts, deductions, charges, withholdings, and liabilities being
hereinafter referred to as "Excluded Charges"). If the Lessee or the Trustee
shall be required by Law to deduct any Charges from or in respect of any sum
payable hereunder or under any of the Transaction Documents to the Trustee or
any Instrument Holder (i) the sum otherwise payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 4.03) the Trustee or
such Instrument Holder (as the case may be) receives an amount equal to the sum
it would have received had no such deductions been made, (ii) the Lessee or the
Trustee shall make such deductions, and (iii) the Lessee or the Trustee shall
pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable Law.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the Lessee and/or the Trustee, as applicable, shall be entitled, to
the extent it is required to do so by law, to deduct or withhold income or other
similar taxes imposed by the United States of America on Net Rent, Contingent
Rent Payments, Offer Purchase Price, and Additional Rent, interest, current
yield, fees, principal and stated amounts of the Instruments or other amounts
payable hereunder or under the other Transaction Documents for the account of
the Trustee or any Instrument Holder (without the payment of increased amounts
to such Instrument Holder or the Trustee pursuant to subsection (a) above in the
case of Excluded Charges) other than the Trustee (or any successor thereto) or
an Instrument Holder (i) that is a domestic corporation for Federal income tax
purposes or (ii) which has filed with the Lessee and/or the Trustee all
applicable forms, affidavits, or certificates for the applicable year to the
extent deduction or withholding of such taxes is not required as a result of the
filing. If the Lessee or the Trustee shall so deduct or withhold any such
taxes, it shall provide a statement to the Lessee, Trustee and Agent, as
applicable, setting forth the amount of such taxes so deducted or withheld, the
applicable rate and any other information or documentation which such Instrument
Holder or the Trustee may reasonably request for assisting such Instrument
Holder or the Trustee to obtain any allowable credits or deductions for the
taxes so deducted or withheld in the jurisdiction or jurisdictions in which
such Instrument Holder is subject to taxes.
(c) In addition, the Lessee agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Transaction
Documents or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any of the Transaction Documents (hereinafter
referred to as "Other Taxes").
(d) The Lessee will indemnify the Trustee and each Instrument Holder
for the full amount of any Charges and Other Taxes (including, without
limitation, any Other Taxes imposed by any jurisdiction on amounts payable under
this Section 4.03) paid by the Trustee or such Instrument Holder (as the case
may be) and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto except as a result of the negligence or
willful misconduct of such Instrument Holder or the Trustee, as the case may be,
whether or not such Charges or Other Taxes were correctly or legally asserted.
Payments under this indemnification shall be made within 30 days from the date
such Instrument Holder or the Trustee (as the case may be) makes written demand
therefor accompanied by reasonable substantiation of the requested payment.
Lessee shall not be responsible for any interest or penalties in connection
with such Charges or Other Taxes unless Lessee has been notified of such Charges
or Other Taxes as provided above at least thirty (30) days prior to the
imposition of any such interest or penalties (or, if later, within thirty (30)
days after the Trustee or Instrument Holder, as applicable, obtained actual
knowledge that a Charge or Other Tax for which Lessee has responsibility
hereunder has been imposed).
(e) Within 30 days after the date of the payment of Charges by or at
the direction of the Lessee, the Lessee will furnish to the Trustee the original
or a certified copy of a receipt evidencing payment thereof. Should any
Instrument Holder or the Trustee ever receive any refund, credit or deduction
from any taxing authority to which such Instrument Holder or the Trustee would
not be entitled but for the payment by the Lessee of Charges as required by
Section 4.03 (it being understood that the decision as to whether or not to
claim, and if claimed, as to the amount of any such refund, credit or deduction
shall be made by such Instrument Holder or the Trustee in its sole discretion),
such Instrument Holder or the Trustee thereupon shall repay to the Lessee an
amount with respect to such refund, credit or reduction equal to any net
reduction in taxes actually obtained by such Instrument Holder to the extent
attributable to such refund, credit or deduction.
(f) Without prejudice to the survival of any other agreement of the
Lessee hereunder, the agreements and obligations of the Lessee contained in this
Section 4.03 shall survive the payment in full of principal and stated amount of
and interest and current yield on the Instruments.
Section 4.04. Avoidance of Taxes, Other Charges and Increased Costs.
(a) Each Instrument Holder shall use reasonable efforts (consistent
with its internal policies and legal and regulatory restrictions) to select a
jurisdiction for its purchasing office or change the jurisdiction of its
purchasing office (or other office where its interest in the Instruments is
administered), as the case may be, so as to avoid the imposition of any
Increased Costs, Charges or Other Taxes or to eliminate any additional Increased
Costs, Charges or Other Taxes which may thereafter accrue; provided, that no
such selection or change of the jurisdiction for its purchasing or other office
shall be made if, in the reasonable judgment of such Instrument Holder, such
selection or change would be disadvantageous to such Instrument Holder.
(b) In the event that any Instrument Holder (other than CLI) shall
claim payment of any additional amounts pursuant to Section 4.03 or payment of
Increased Costs, the Lessee shall have the right, if no Incipient Default or
Event of Default exists, to replace such Instrument Holder with another Approved
Instrument Holder provided that such Approved Instrument Holder unconditionally
offers in writing (with a copy to the Trustee) to purchase, in accordance with
the provisions of Section 4.02, all of such Instrument Holder's rights hereunder
and under the Transaction Documents, including the Instruments held by such
Instrument Holder, without recourse, at the principal and stated amount of such
Instruments plus interest and current yield accrued thereon to the date of such
purchase on a date therein specified. If the Instrument Holder accepts such
purchase offer and such purchase is consummated, the Lessee shall be obliged to
pay, simultaneously with such purchase and sale, the additional amounts to
such Instrument Holder pursuant to Section 4.03 and the Increased Costs
attributable to such Instrument Holder in the manner provided in the Transaction
Documents to the date of such purchase as well as all other amounts due and
payable under the Transaction Documents to or for the benefit of such Instrument
Holder; provided, that (x) if a Instrument Holder accepts such an offer and such
bank or financial institution fails to purchase such rights and interest on such
specified date in accordance with the terms of such offer, the Lessee shall
continue to be obliged to pay the additional amounts to such Instrument Holder
pursuant to Section 4.03 and to pay the Increased Costs attributable to such
Instrument Holder in the manner provided in the Transaction Documents and (y) if
such Instrument Holder fails to accept such purchase offer, the Lessee shall not
be obliged to pay such Instrument Holder such additional amounts pursuant to
Section 4.03 or the Increased Costs attributable to such Instrument Holder from
and after the date of such purchase offer.
Section 4.05. Sharing of Payments, Etc. If any Instrument Holder shall
obtain any payment (whether voluntary or involuntary), on account of the
Instruments held by it (other than on account of Reserve Costs, Break Costs, or
Increased Costs and other than pursuant to Section 4.03 or any indemnification
provision of the Transaction Documents) in excess of its ratable share of
payments on account of the Instruments obtained by all the Instrument Holders,
such Instrument Holders (or Agent on behalf of the Instrument Holders) shall
forthwith make appropriate payments or distributions to other Instrument Holders
calculated so that each Instrument Holder receives the benefit of its ratable
share of each payment.
Section 4.06. Instrument Holders' Credit Decisions. By its acceptance of
its Instruments each Instrument Holder (whether it acquires such Instrument as a
Purchaser or as an Assignee) acknowledges that it has, independently and without
reliance upon the Trustee, Agent, or any other Instrument Holder and based on
such financial statements and/or other documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into
this Agreement or to acquire an Instrument. Each Instrument Holder also
acknowledges that it will, independently and without reliance upon the Trustee,
Agent, or any other Instrument Holder and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions with respect to this Agreement or any of the other Transaction
Documents. Without limitation, each Instrument Holder acknowledges that it has
not relied upon statements or representations of Lessee regarding its financial
condition other than the financial information provided by Lessee to Agent in
connection with the execution of this Agreement, the specific representations
contained in the Transaction Documents, and where applicable, the financial
reports and information supplied by Lessee to Agent during the Term of the Lease
pursuant to the Lease, the Lease Guarantee, or the other Transaction Documents.
ARTICLE V.
MISCELLANEOUS
Section 5.01. Survival. Except as otherwise expressly provided herein or
other applicable instrument or document, the parties' obligations under this
Agreement and in any certificate or other instrument delivered by any party or
on such party's behalf pursuant to this Agreement shall not survive payment in
full of all amounts due on the Notes and the Certificates and under any of the
Transaction Documents, the execution and delivery of any Transaction Document,
any issuance or disposition of any of the Instruments, any disposition of any
interest in the Property or the termination of any Transaction Document, and
shall continue in effect regardless of any investigation made by or on behalf of
any party hereto and notwithstanding that any party may waive compliance with
any other provision of any Transaction Document. However, it is expressly agreed
that all indemnification provisions for the benefit of Trustee, Agent,
Purchasers, and/or Instrument Holders provided herein or in any such other
instrument or document shall survive any such payments, whether or not expressly
so stated.
Section 5.02. Notices. Unless specifically otherwise provided, whenever
any of the Transaction Documents requires or permits any consent, approval,
notice, request, or demand from one party to another, the consent, approval,
notice, request, or demand must be in writing to be effective and shall be
deemed delivered one (1) Business Day after deposit with a nationally recognized
overnight courier service for overnight delivery addressed to the parties hereto
at the respective addresses specified below or at such other address as they may
specify by written notice. The address for each party for purposes hereof is as
follows:
HOLDERS, PURCHASER AND AGENT:
Citicorp Leasing, Inc.
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: EFL/CBL Credit Head
FAX No. 914/899-7308
with copies to:
Brown McCarroll & Oaks Hartline
300 Crescent Court
Suite 1400
Dallas, Texas 75201
Attention: Charles W. Morris, Esq.
FAX No. 214/999-6170
TRUSTEE:
State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Fourth Floor
Boston, Massachusetts 02110
Attention: Donald E. Smith,
Vice President
FAX No. 617/664-5371
with copies to:
Bingham, Dana & Gould
100 Pearl Street
Hartford, Connecticut 06103
Attention: James G. Scantling, Esq.
FAX No. 860/527-5188
and a courtesy copy to Agent at:
Citicorp Leasing, Inc.
450 Mamaroneck Avenue
Harrison, New York 10528
Attention: EFL/CBL Credit Head
FAX No. 914/899-7308
LESSEE:
The Pep Boys - Manny, Moe & Jack
3111 W. Allegheny Avenue
Philadelphia, PA 19132
Attention: Michael Holden
Senior Vice President-Finance
FAX No. 215/227-9533
with copies to:
The Pep Boys - Manny, Moe & Jack
3111 W. Allegheny Avenue
Philadelphia, PA 19132
Attention: Ronald M. Neifield
Real Estate Counsel
FAX No. 215/229-5076
Notices sent by any other method (including certified mail, personal delivery,
or facsimile transmission) shall be deemed delivered when actually received by
the addressee. Any notice of change of address shall be effective only upon
actual receipt, regardless of delivery method, and such new address shall be
effective as to notices given by the other parties commencing ten (10) days
after such change of address notice is received by such parties. No party may
establish an official address for notice outside the continental United States.
Section 5.03. Severability. If any provision hereof or the application
thereof to any Person or circumstance shall be invalid, illegal or
unenforceable, the remaining provisions or the application of such provision to
Persons or circumstances other than those as to which it is invalid or
enforceable, shall continue to be valid and enforceable.
Section 5.04. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by the Lessee therefrom, shall in
any event be effective unless the same shall be in writing and signed by Agent,
the Lessee and the Trustee, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given
unless otherwise provided in such written instrument.
Section 5.05. Headings. The table of contents and headings of the
Articles, Sections and subsections are for convenience only and shall not affect
the meaning of this Agreement.
Section 5.06. Definitions. Except as otherwise expressly provided,
capitalized terms used in this Agreement shall have the meanings given in
Schedule 1 hereto.
Section 5.07. Benefit. The parties hereto and their permitted successors
and assigns, but no others, shall be bound hereby and entitled to the benefit
hereof. Each registered assignee of a partial interest in an Instrument
(regardless of whether a New Instrument is issued to such assignee) shall be
treated as an Instrument Holder and shall be a beneficiary hereof; however,
no holder of a participation or other derivative interest in an Instrument shall
be a beneficiary hereof.
Section 5.08. Place of Payment. The Trustee will cause all amounts to be
paid by Trustee which become due and payable on the Instruments to be paid by
bank wire transfer of immediately available funds or, at the option of such
Instrument Holder, such Affiliate, bank or institutional investor, by check of
the Agent, duly mailed, delivered or made at the address or account provided in
writing by such Instrument Holder to the Trustee and Agent.
Section 5.09. Counterparts. The parties may sign this Agreement in any
number of counterparts and on separate counterparts, each of which shall be an
original but all of which together shall constitute one and the same instrument.
Section 5.10. Governing Law; Venue.
(a) THIS AGREEMENT AND ALL TRANSACTION DOCUMENTS SHALL
BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF PENNSYLVANIA, WITHOUT REGARD TO ITS CONFLICT OF LAWS
PRINCIPLES; PROVIDED THAT TO THE EXTENT THAT A PORTION OF THE
PROPERTY IS LOCATED IN A STATE OTHER THAN THE STATE OF PENNSYLVANIA
THE LAWS OF SUCH STATE SHALL GOVERN SUCH PROVISIONS, IF ANY, OF THIS
AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS, TO THE EXTENT THAT
THE STATE IN WHICH SUCH PORTION OF THE PROPERTY IS LOCATED REQUIRES
THAT THE LAWS OF SUCH STATE BE APPLIED THERETO, IN WHICH CASE AND TO
SUCH EXTENT THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS
SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF SUCH STATE, IT IS EXPRESSLY AGREED, HOWEVER, THAT IT IS THE DESIRE
AND INTENT OF THE PARTIES THAT THE LAW OF THE STATE OF PENNSYLVANIA
GOVERN ALL PORTIONS OF THIS AGREEMENT AND THE OTHER TRANSACTION
DOCUMENTS (UNLESS OTHERWISE EXPRESSED THEREIN) TO THE EXTENT THAT
SUCH INTENT MAY BE HONORED WITHOUT VIOLATION OF THE LAW OR PUBLIC
POLICY OF THE STATE IN WHICH ANY PORTION OF THE PROPERTY IS LOCATED.
All references in this Agreement or other Transaction Documents to "applicable
Law" or terms of similar import shall be interpreted consistent with the
foregoing.
(b) Each of the parties hereto hereby submits to personal
jurisdiction in the State of Pennsylvania for the enforcement of its obligations
hereunder and under any and all other of the Transaction Documents and waives
any and all rights to be sued elsewhere. Each of the parties hereto hereby
acknowledges and agrees that the courts of the State of Pennsylvania are an
appropriate venue for any action, litigation or lawsuit filed in connection with
this Agreement or any of the other Transaction Documents.
Section 5.11. Business Day. If the date scheduled for any payment or
action under any Transaction Document shall not be a Business Day, then (unless
such Transaction Document provides otherwise) such payment shall be made or such
action shall be taken on the next succeeding Business Day.
Section 5.12. The Trustee. Except for liability for the representations
and warranties made by Trust Company in its individual capacity in Section 2.02,
and for the gross negligence and willful misconduct of Trust Company, it is
expressly understood and agreed by the parties hereto that (a) this Agreement is
executed and delivered by Trust Company, not in its individual capacity but
solely as Trustee under the Declaration, in the exercise of the powers and
authority conferred and vested in it as the Trustee, (b) each of the
representations, undertakings and agreements herein made on the part of the
Trustee is made and intended not as personal representations, undertakings and
agreements by Trust Company, but is made and intended for the purpose of binding
only the Property created by the Declaration of Trust, (c) nothing herein
contained shall be construed as creating any liability on Trust Company,
individually or personally, to perform any covenant of the Trustee either
expressed or implied contained herein or in the Transaction Documents, all such
liability, if any, being expressly waived by the parties to this Agreement and
by any Person claiming by, through or under the parties to this Agreement and
(d) under no circumstances shall Trust Company be personally liable for the
payment of any indebtedness or expenses of the Trustee or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Trustee under this Agreement or the other Transaction
Documents.
Section 5.13. Estoppel Certificates. At any party's request each other
party hereto will execute, acknowledge, and deliver a written statement,
addressed to such Person as the party making the request may reasonably
designate, certifying that this Transaction Agreement or other applicable
Transaction Document is unmodified and in full force and effect (or, if there
have been modifications, that this Transaction Agreement or other applicable
Transaction Document is in full force and effect as modified, and identifying
such modifications), and certifying to such other matters concerning the
Transaction as may reasonably be requested. In the case of Trustee or Agent,
the certificate shall state (in the case of Trustee, after consultation
with Agent) the amount of outstanding principal and accrued interest or stated
amount and accrued certificate yield, as applicable, due under the Instruments
Section 5.14. Transaction Documents; Further Assurances. Each of the
parties hereto does hereby covenant and agree to perform and be governed and
restricted by the Transaction Documents to which it is a party and, subject to
the terms and conditions thereof, to take or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable in
connection therewith. The Lessee, the Trustee, Agent, and the Purchasers will,
at the expense of the Lessee, execute and deliver such further instruments and
do such further acts as may be necessary or proper to carry out more effectively
the purposes of the Transaction Documents and the transactions contemplated
thereby. The Lessee, Agent, the Trustee, and the Purchasers may at any time,
subject to the conditions and restrictions contained in the Transaction
Documents, enter into supplements which shall form a part hereof, when required
or permitted by any of the provisions of the Transaction Documents.
Section 5.15. Confidentiality. Each of the parties hereto, other than
CLI, agrees that, subject to Section 4.02, it will use its best efforts to
maintain the confidentiality of the general structure of this transaction.
Further, each of the parties hereto (and any Person that hereafter becomes an
Instrument Holder) agrees that unless otherwise required by Law or by any
governmental authority or body or consented to by the Lessee and CLI it will
maintain the confidentiality of all non-public information (i) regarding the
financial terms of this transaction or (ii) regarding the Lessee or the
Property which shall be furnished to it by the Lessee in connection with the
transactions contemplated by the Transaction Documents, in accordance with
the procedures it generally applies to confidential material. The parties
hereto agree not to publish tombstones or other public announcements in
connection with the transactions contemplated hereby without the consent of the
Lessee and the Agent.
Section 5.16. Interest. It is the intention of the parties hereto to
conform strictly to usury Laws applicable to each Instrument Holder and the
Transactions. Accordingly, if the Transactions would be usurious as to any
Instrument Holder under Applicable Law, then, notwithstanding anything to the
contrary in the Instruments, this Agreement or in any other Transaction Document
or agreement entered into in connection with the Transactions, it is agreed as
follows: (i) the aggregate of all consideration which constitutes interest or
current yield as to any Instrument Holder under Applicable Law that is
contracted for, taken, reserved, charged or received by any Instrument Holder
under the Instruments, this Agreement or under any of such other Transaction
Documents or agreements or otherwise in connection with the Transactions shall
under no circumstances exceed the maximum amount allowed by such Applicable Law,
(ii) in the event that the maturity of the Instruments is accelerated for any
reason, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest or current yield as to any Instrument
Holder under Applicable Law may never include more than the maximum amount
allowed by such Applicable Law, and (iii) interest or current yield, if any, in
excess of that permitted by Applicable Law provided for in this Agreement or
otherwise in connection with the Transactions shall be, subject to the following
provisions, canceled automatically and, if theretofore paid, shall be credited
by such Instrument Holder on the principal or stated amount of the Instruments
(or, to the extent that the principal or stated amount of the Instruments shall
have been or would thereby be paid in full, refunded by such Instrument Holder
to the party entitled thereto). If at any time the amount or rate of interest or
yield (as applicable) contractually called for in any Instrument or other
Transaction Document (as the same may vary from time to time pursuant to the
terms of such Instrument or other Transaction Document, the "Stated Rate")
exceeds the maximum amount of interest or yield allowed by Applicable Law in
respect of such Instrument or other Transaction Document, then the rate of
interest or yield to accrue on such Instrument or other Transaction Document
shall be limited to the maximum amount allowed by such Applicable Law, but any
subsequent reduction in the Stated Rate applicable to such Instrument or other
Transaction Document shall not reduce the interest or yield to accrue on such
Instrument or other Transaction Document below the maximum amount allowed by
such Applicable Law until the total amount of interest or yield on such
Instrument or other Transaction Document equals the amount of interest or
yield which would have accrued if the Stated Rate applicable to such
Instrument or other Transaction Document had at all times been in effect. If at
the maturity or final payment of any Instrument or other Transaction Document
the total amount of interest or yield paid or accrued on such Instrument or
other Transaction Document under the preceding sentence is less than the total
amount of interest or yield which would have accrued if the Stated Rate
applicable to such Instrument or other Transaction Document had at all times
been in effect, then to the fullest extent permitted by Applicable Law, there
shall be due and payable under, and to the Holders of, such Instrument or other
Transaction Document of an amount equal to the difference between (a) the lesser
of (x) the amount of interest or yield (as applicable) which would have accrued
on such Instrument or other Transaction Document if the maximum amount allowed
by Applicable Law had at all times been in effect and been chosen as the rate or
interest or yield to be applicable throughout the term of such Instrument or
other Transaction Document and (y) the amount of interest or yield (as
applicable) which would have accrued on such Instrument or other Transaction
Document if the Stated Rate applicable to such Instrument or other Transaction
Document had at all times been in effect, and (b) the amount of interest or
yield (as applicable) accrued in accordance with the provisions of such
Instrument or other Transaction Document after giving effect to the preceding
sentence. All sums paid or agreed to be paid to each Instrument Holder for the
use, forbearance or detention of sums included in the Instruments shall, to the
extent permitted by Applicable Law, be amortized, prorated, allocated and spread
throughout the full term of the Instruments until payment in full so that the
rate or amount of interest on account of the Instruments does not exceed the
applicable usury ceiling, if any.
Section 5.17. Money. Unless stipulated otherwise, all references in any
of the Transaction Documents to "dollars," "money," "payments," or other similar
financial or monetary terms, are references to currency of the United States of
America.
Section 5.18. Number and Gender of Words. Whenever in any Transaction
Document the singular number is used, the same shall include the plural where
appropriate, and vice versa; and other words of any gender in any Transaction
Document shall include each other gender where appropriate. The words "herein"
and "hereunder," and other words of similar import, refer to the relevant
Transaction Document as a whole and not to any particular part or subdivision
thereof.
Section 5.19. Articles, Sections, Exhibits, and Schedules. All references
to "Article," "Articles," "Section," "Sections," "Subsection," or "Subsections"
contained in this Agreement are, unless specifically indicated otherwise,
references to articles, sections, and subsections of this Agreement. All
references to "Exhibits" and "Schedules" contained in this Agreement are
references to exhibits and schedules attached to this Agreement, all of which
are made a part of this Agreement for all purposes, the same as if set forth in
this Agreement verbatim, it being understood that if any Exhibit, which is to be
executed and delivered, contains blanks, the same shall be completed correctly
and in accordance with the terms and provisions contained and as contemplated in
this Agreement prior to or at the time of, or after, the execution and delivery
thereof.
Section 5.20. Decisions of Parties. Except as expressly otherwise
provided herein, all opinions, approvals, decisions, and determinations are to
be in such party's discretion and need not be reasonable.
Section 5.21. Construction of Agreement. Should any provision of this
Agreement require interpretation or construction in any judicial,
administrative, or other proceeding or circumstance, it is agreed that the
parties hereto intend that the court, administrative body, or other entity
interpreting or construing the same shall not apply a presumption that the
provisions hereof shall be more strictly construed against one party by reason
of the rule of construction that a document is to be construed more strictly
against the party who itself or through its agents prepared the same, it being
agreed that the agents of both parties hereto have fully participated in the
preparation of all provisions of this Agreement and all of the Transaction
Documents.
THIS WRITTEN TRANSACTION AGREEMENT, TOGETHER
WITH THE OTHER TRANSACTION DOCUMENTS, REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO
THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
Section 5.22. Brokers. Except to the extent of fees or other payments
specifically provided to be paid by Lessee under the Transaction Documents, each
party hereto shall pay or cause to be paid any and all valid claims of any
brokers or agents with whom such party has dealt who claim a right to any fees
or other compensation in connection with arranging the financing of the Property
provided hereby and shall indemnify, defend and hold all other parties hereto
harmless from such claims, whether or not they are valid.
Section 5.23. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, AND FOR THE PURPOSE OF REDUCING THE TIME AND
EXPENSE OF LITIGATION, THE PARTIES HERETO EACH WAIVE TRIAL BY JURY
IN ANY ACTION BROUGHT ON, UNDER, OR BY VIRTUE OF THIS AGREEMENT,
ANY OF THE TRANSACTION DOCUMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED OR GOVERNED THEREBY.
ARTICLE VI.
THE AGENT
Section 6.01. Appointment.
(a) The Purchasers and the Instrument Holders hereby designate and
appoint CLI as the initial administrative agent (herein "Agent") on behalf of
the Purchasers and the Instrument Holders, as applicable, under this Agreement
and the Transaction Documents. By its execution hereof CLI authorizes, and by
its execution of an Assignment Agreement and/or by its execution of a
supplement hereto becoming a Purchaser hereunder, each such additional Purchaser
and each such Instrument Holder hereby irrevocably authorizes the Agent to
perform the rights and obligations of the "Agent" hereunder and under the other
Transaction Documents. The Agent shall serve without compensation, except as
otherwise agreed in writing by the Lessee and the Majority Holders, but the
Agent shall be entitled to payment or reimbursement of its out-of-pocket
expenses incurred in the performance of its duties as provided for in the
applicable provisions of the Transaction Documents. Without limitation, to the
extent that any Transaction Document provides for the payment or reimbursement
of expenses incurred by the Purchasers or Instrument Holders, or any of them,
any such expenses incurred by the Agent in connection with such matters shall
be deemed to have been incurred by the Instrument Holders or Purchasers, as
applicable, and the Agent shall be entitled to the same reimbursement rights.
(b) In performing its functions and duties under this Agreement, the
Agent shall act solely as agent of the Purchasers or Instrument Holders, as
applicable (or in certain
specified circumstances the Trustee), and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for Lessee.
Section 6.02. Nature of Duties.
(a) The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement or in the other Transaction Documents.
The Agent has a contractual obligation, as provided herein and in the
Transaction Documents, but shall not have by reason of this Agreement or any
other Transaction Document a trust or fiduciary relationship in respect of any
Instrument Holder. Nothing in this Agreement or any of the other Transaction
Documents, expressed or implied, is intended to or shall be construed to impose
upon the Agent any obligations in respect of this Agreement or any of the
Transaction Documents except as expressly set forth herein or therein.
(b) Each Purchaser and Instrument Holder shall make its own
independent investigation of the financial condition and affairs of Lessee in
connection with the Transactions contemplated hereunder and shall make its own
appraisal of the creditworthiness of Lessee, and the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Instrument Holder with any credit or other information with respect thereto,
whether coming into its possession before the Closing Date or at any time or
times thereafter. Each Purchaser and Instrument Holder acknowledges that
neither the Agent nor counsel to the Agent nor any other Instrument Holder is
providing any assurances, or shall have any responsibility, with respect to the
ownership of any Property or the absence of any Liens or defects of title, or
the authorization, execution, legality, sufficiency or effect of any Transaction
Document or any other document, or the validity, creation, perfection or
priority of any Right, or to investigate or not to investigate any of those
matters, and each Instrument Holder agrees to look solely to its rights as one
of the Instrument Holders with respect to any of the foregoing.
(c) The Agent may at any time request instructions from the
Instrument Holders or Purchasers, as applicable, with respect to any actions or
approvals which by the terms of this Agreement or of any of the other
Transaction Documents the Agent is permitted to take or to grant, and if such
instructions are promptly requested, the Agent shall be absolutely entitled to
refrain from taking any action or to withhold any approval and shall not be
under any liability whatsoever to any Person for refraining from any action or
withholding any approval under any of the Transaction Documents until it shall
have received such instructions from the Majority Holders or Majority
Purchasers, as applicable. Without limiting the foregoing, no Instrument
Holder shall have any right of action whatsoever against the Agent as a result
of the Agent acting or refraining from acting under this Agreement, the
Instruments, or any of the other Transaction Documents in accordance with the
instructions of the Majority Holders or Majority Purchasers, as applicable.
(d) If the Agent seeks the consent or approval of the Instrument
Holders or Purchasers (either collectively or with respect to any particular
series of Instruments) to the taking or refraining from taking any action
hereunder, the Agent shall send notice thereof to each Instrument Holder or
Purchaser, as the case may be (either collectively or as to the affected series,
as applicable) based on the most recent information known to Agent with respect
to such ownership as set forth in the Register maintained by the Agent. The
Agent shall promptly notify each Instrument Holder or Purchaser, as applicable,
at any time that the Majority Holders or Majority Purchasers, as applicable,
have instructed the Agent to act or refrain from acting in any particular
manner pursuant hereto. Upon request Agent shall supply a copy of the Register
to Lessee.
(e) Whenever this Agreement or any other Transaction Document
requires that the Agent take action at the direction of the Majority Holders of
the Instruments or any particular series of Instruments, or at the direction of
the Majority Purchasers, then prior to taking the action in question (including,
without limitation, prior to giving directions to the Trustee in connection
therewith), Agent shall seek direction from the Instrument Holders (or
applicable series thereof) or Purchasers, as applicable, and shall take actions
or give directions consistent with the desires of the Majority Holders (with
respect to the applicable series thereof) or the Majority Purchasers, as
applicable. Where this Agreement or the other Transaction Documents do not
require approval of the Majority Holders or Majority Purchasers with respect
to any particular action or direction, then Agent may, but need not, seek input
from the Instrument Holders or Purchasers as to the appropriate course of
action, but in the absence of any such direction Agent shall be free to take
such actions as Agent may deem appropriate and in the best interests of the
Instrument Holders (or the applicable series thereof) or Purchasers, as
applicable, as a whole. In the exercise of its powers and rights hereunder
Agent shall exercise the same care as it exercises with respect to similar
transactions entered into solely for its own account and shall otherwise have no
liability or responsibility to the Instrument Holders or Purchasers except for
actions taken by Agent in bad faith, actions which are grossly negligent, or
actions which constitute willful misconduct by the Agent.
(f) The Majority Holders (either of the Instruments as a whole, or of
the applicable series of Instruments) shall at any time have the right to direct
the Agent in the exercise of any rights or options that may then be available to
the Instrument Holders of the Instruments (or the applicable series thereof),
and upon receipt of any such direction Agent shall proceed in the manner
directed by the Majority Holders; provided, that in no event shall Agent
have any obligation to proceed in any manner that Agent in good faith believes
may expose Agent to any risk or obligation unless and until Agent has been
provided by the Instrument Holders with security satisfactory to Agent to
protect Agent with respect to the risk or obligation in question. Similarly,
the Majority Purchasers shall at any time have the right to direct the Agent in
the exercise of any rights or options that may then be available to the
Purchasers, and upon receipt of any such direction Agent shall proceed in the
manner directed by the Majority Purchasers; provided, that in no event shall
Agent have any obligation to proceed in any manner that Agent in good faith
believes may expose Agent to any risk or obligation unless and until Agent has
been provided by the Purchasers with security satisfactory to Agent to protect
Agent with respect to the risk or obligation in question.
(g) In its dealings with the Trustee, the Lessee, or the Instrument
Holders the Agent shall be protected in acting upon any written notice, request,
waiver, consent, certificate, receipt, authorization, power of attorney, or
other paper or document which Agent in good faith believes to be genuine and
what it purports to be.
(h) In the event of any good faith disagreement between any of the
parties to this Agreement resulting in adverse claims or demands being made upon
Agent, or if Agent, in good faith, is in doubt as to what action it should take
hereunder, Agent may, at its option, refuse to comply with any claims or demands
on it so long as such disagreement continues or such doubt exists, and in any
such event, Agent shall not be or become liable in any way or to any person for
its failure or refusal to act, and Agent shall be entitled to continue so to
refrain from acting until (A) the rights of all parties shall have been fully
and finally adjudicated by a court of competent jurisdiction or (B) all
differences shall have been adjusted and all doubt resolved by agreement among
all of the interested persons and Agent shall have been notified thereof in
writing signed by all such persons. The rights of Agent under this paragraph
are cumulative of all other rights which it may have under law or otherwise.
Section 6.03. Rights, Exculpation, etc. Neither the Agent nor any of its
Affiliates, officers, directors, employees, agents, attorneys or consultants
shall be liable to any Instrument Holder for any action taken or omitted by them
hereunder or under any of the Transaction Documents, or in connection herewith
or therewith, except that (i) the Agent shall be obligated on the terms set
forth herein for performance of its express obligations hereunder, and (ii)
Agent shall be liable to the Instrument Holders for damages caused by its gross
negligence in the discharge of its duties hereunder or its own willful
misconduct. The Agent shall not be responsible to any Instrument Holder for any
recitals, statements, representations or warranties herein or for the execution,
effectiveness, genuineness, validity, enforceability, collectability, or
sufficiency of this Agreement, or any of the other Transaction Documents, or any
of the transactions contemplated hereby and thereby, or for the financial
condition of Lessee. The Agent shall not be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement or any of the Transaction Documents or the
financial condition of Lessee, or the existence or possible existence of any
Incipient Default or Event of Default.
Section 6.04. Reliance. The Agent shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the Transaction Documents and its
duties hereunder or thereunder, upon advice of legal counsel, independent public
accountants and other experts selected by it. Lessee and Trustee shall be
entitled to rely upon any written notices, requests, waivers, consents,
receipts, authorizations, powers of attorney, statements, certificates, orders,
approvals, directions, or other documents or matters issued by or from Agent and
shall be entitled to give notices to, make requests of and otherwise deal solely
with Agent, as administrative agent for the Holders, the Purchasers and the
Trustee, as the case may be, except as expressly provided herein.
Section 6.05. Indemnification. To the extent that the Agent is not
reimbursed and indemnified by the Lessee in accordance with the express terms of
the Transaction Documents, or Lessee fails upon demand by the Agent to perform
its obligations to reimburse or indemnify the Agent, the Instrument Holders
will reimburse and indemnify the Agent for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Agent or in any way relating to or
arising out of this Agreement or any of the other Transaction Documents or any
action taken or omitted by the Agent under this Agreement or any of the other
Transaction Documents, in proportion to their respective proportions of the
principal amount of Notes and outstanding amounts of Certificates; provided
that no Instrument Holder shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's gross negligence or willful
misconduct. The obligations of the Instrument Holders under this Section shall
survive the discharge in full of the Instruments. If the Agent is or becomes a
Instrument Holder, the Agent shall have and may exercise the same rights and
powers hereunder and is subject to the same obligations and liabilities as and
to the extent set forth herein for any other Instrument Holder. The terms
"Instrument Holder" or "Majority Holder" or any similar terms shall, unless the
context clearly otherwise indicates, include the Agent in its individual
capacity as a Instrument Holder or one of the Majority Holders. The Agent and
its Affiliates may accept deposits from, lend money to, and generally engage in
any kind of banking, trust or other business with Lessee as if it were not
acting as Agent pursuant hereto.
Section 6.06. Successor Agent; Resignation of Agent.
(a) The Majority Holders may, at any time by written notice to
Lessee, Trustee, and the Agent then serving, designate a successor Agent, with
or without cause; provided, however, that so long as CLI has an outstanding
Commitment hereunder, the Agent shall not be removed without the approval of
CLI. Any such successor Agent shall have all rights, powers, and duties
assigned to the "Agent" hereunder from and after the effective date of its
appointment. Except in cases where the Agent is being replaced as a result of a
material default or dereliction of its duties by the existing Agent, the
effective date of the appointment of a successor Agent shall be not less than
thirty (30) days after the notice of appointment of the successor Agent is
given.
(b) The Agent may resign at any time upon written notice given to the
Lessee, the Trustee, and each Instrument Holder. The effective date of the
resignation shall be not less than sixty (60) days after the notice of
resignation is given. In the event of any such resignation by Agent, the
Majority Holders shall promptly appoint a successor agent and, if no successor
agent is so appointed within thirty (30) days thereafter the Agent shall be (A)
the Purchaser with the largest outstanding Commitment, or (B) if no Commitment
remains outstanding hereunder, the Instrument Holder that holds the largest
aggregate amount of Instruments (measured by dollar amount).
(c) In the event of the appointment of a successor Agent (whether as
a result of the resignation of the previous Agent or otherwise), the outgoing
Agent shall reasonably cooperate with the successor Agent, the Trustee, the
Purchasers, Lessee, and the Instrument Holders to provide for a smooth
transition of the function of the Agent hereunder. Any books and records of the
outgoing Agent relating to its service as Agent hereunder (but not books and
records relating to any Instruments that the outgoing Agent may hold for its own
account) shall be turned over to the successor Agent.
Section 6.07. Authorization to Act as Agent of Trustee. In addition,
the Trustee hereby appoints and authorizes the Agent to collect, disburse,
invest and otherwise administer on the Trustee's behalf all funds paid or
payable to the Trustee hereunder or under any of the Transaction Documents, in
each case, in accordance with the terms hereof and thereof, and the Trust
Company, in its individual capacity, shall not be liable for the actions or
inactions of the Agent in connection with the Agent's collection, disbursement,
investment and administration of such funds. As to any matters not expressly
provided for by this Agreement or the other Transaction Documents, the Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Majority
Purchasers or the Majority Holders, and such instructions shall be binding upon
all Purchasers or Holders, as applicable; provided, however, that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to this Agreement or applicable Law.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
have caused this Agreement to be duly executed on the attached Signature Pages
by their respective officers thereunto duly authorized as of the day and year
first above written.
[SEE ATTACHED SIGNATURE PAGES]
<PAGE>
SIGNATURE PAGE OF LESSEE PARENT
ATTACHED TO
TRANSACTION AGREEMENT
AMONG
THE PEP BOYS - MANNY, MOE & JACK, as LESSEE PARENT
STATE STREET BANK AND TRUST COMPANY, as TRUSTEE
AND
CITICORP LEASING, INC., as AGENT, INITIAL PURCHASER, and INITIAL HOLDER
LESSEE:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation,
By:
Name:
Title:
<PAGE>
SIGNATURE PAGE OF TRUSTEE AND TRUST COMPANY
ATTACHED TO
TRANSACTION AGREEMENT
AMONG
THE PEP BOYS - MANNY, MOE & JACK, as LESSEE PARENT
STATE STREET BANK AND TRUST COMPANY, as TRUSTEE
AND
CITICORP LEASING, INC., as AGENT, INITIAL PURCHASER, and INITIAL HOLDER
TRUSTEE:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company
(not in its individual capacity, but solely as
Trustee)
By:
Name:
Title:
TRUST COMPANY:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company
(in its individual capacity, but
only as expressly stated herein)
By:
Name:
Title:
<PAGE>
SIGNATURE PAGE OF AGENT AND INITIAL PURCHASER
ATTACHED TO
TRANSACTION AGREEMENT
AMONG
THE PEP BOYS - MANNY, MOE & JACK, as LESSEE PARENT
STATE STREET BANK AND TRUST COMPANY, as TRUSTEE
AND
CITICORP LEASING, INC., as AGENT, INITIAL PURCHASER, and INITIAL HOLDER
ADMINISTRATIVE AGENT,
INITIAL PURCHASER and INITIAL HOLDER:
CITICORP LEASING, INC.,
a Delaware corporation,
By:
Name:
Title:
J:\DOCS\PUBLIC\MORRISC\AGR\105543.9
citicorp\pep boys\ transaction agreement
<PAGE>
SCHEDULE 1
Certain Definitions
As used herein, the following terms have the meanings indicated:
"A-Note" means any of, and "A-Notes" means all of, the Series A Trust
Notes, due on the Maturity Date issued and, unless otherwise specified or
the context otherwise requires, outstanding under the Declaration of Trust.
"Acquisition Price" shall have the meaning provided therefor in
Exhibit A attached to the Lease.
"Advance" and "Advances" shall have the meaning provided therefor in
Section 1.01(b).
"Affiliate" means a Person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with
the Person in question. The term "control," as used in the immediately
preceding sentence, means, with respect to a Person that is a corporation,
the right to exercise, directly or indirectly, more than ten percent (10%)
of the voting rights attributable to the shares of the controlled
corporation and, with respect to a Person that is not a corporation, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the controlled Person.
"Agent" means the administrative agent for the Instrument Holders and
Purchasers appointed from time to time under this Agreement. CLI is the
initial Agent appointed under this Agreement.
"Agreement" means this Transaction Agreement, as it may be amended,
modified, supplemented, renewed, extended, and/or restated, from time to
time, it being acknowledged and agreed that the parties may elect, by
mutual agreement, to amend this Agreement to increase the amount of
Advances available to Trustee hereunder, but expressly acknowledging that
Purchasers have not agreed, and have no obligation whatsoever to do so
under any circumstances.
"Applicable Rate" shall have the meaning provided therefor in the
Lease.
"Approved Purposes" means (i) the purchase price paid by Trustee from
time to time to acquire portions of the Property, (ii) amounts advanced
from time to time by Trustee to Lessee in respect of Construction Advances
under the Lease, and (iii) reasonable costs and expenses incurred in
connection with the purchase of the Property and/or the closing of the
transactions contemplated hereby from time to time, all as properly
substantiated to, and approved by, Agent.
"B-Note" means any of, and "B-Notes" means all of, the Series B Trust
Notes, due on the Maturity Date, issued and, unless otherwise specified or
the context otherwise requires, outstanding under the Declaration of Trust.
"Bankruptcy Code" means Title 11 of the United States Code, as amended
from time to time.
"Break Costs" shall mean an amount equal to the amount (if any)
required to compensate any Instrument Holder for any additional losses
(including, without limitation, any loss (excluding loss of anticipated
profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or funds acquired by such Instrument Holder to
fund or maintain any Instrument) it may reasonably incur as a result of the
payment of the principal balance of a Note or the stated amount of a
Certificate, as applicable, on any date other than a Payment Date.
"Business Day" means every day on which banks in the Cities of New
York, New York, Boston, Massachusetts, and Philadelphia, Pennsylvania, are
open for business and are not required to be closed.
"Certificate" means any of, and "Certificates" means all of, the
Series C Trust Certificates, due on the date of the expiration or
termination (for any reason) of the Lease, issued, and unless
otherwise specified or the context otherwise requires, outstanding
under the Declaration of Trust.
"Certificate Holder" means any of, and "Certificate Holders" means
all of, the Holders from time to time of the Certificates.
"Certificate Rate" means, with respect to each Certificate or an
applicable portion thereof and with respect to each day during an Interest
Period, a rate per annum determined for such day equal to the LIBO Rate,
plus the Spread applicable to such Certificate or portion thereof.
"Commitment" means, with respect to a Purchaser, the amount of such
Purchaser's commitment to make Advances pursuant to Section 1.01 of this
Agreement. In the case of the original Purchaser the amount of the
Commitment is specified in subsection 1.01(a) hereof; in the case of any
subsequent Purchaser(s) the amount of its Commitment shall be specified
as provided for in subsections 1.01(d) and (e) hereof.
"Construction Advance" and "Construction Advances" shall have the
meanings provided therefor in Section 1.01(c) hereof.
"Construction Supplement" and "Construction Supplements" shall have
the meanings provided therefor in Section 1.01(c) hereof.
"Debt Rating" means, as of any Adjustment Date, the then current
rating issued by Standard & Poor's Corporation for Lessee's senior
unsecured debt, or if Lessee then has no senior unsecured debt rated by
Standard & Poor's Corporation, such other rating (including, without
limitation, a rating issued by another rating service if any such rating
is then available or a rating determined by the internal analysts of Agent
or an Affiliate of Agent) as Agent may deem most closely corresponds
thereto.
"Debtor Relief Laws" means the Bankruptcy Code and all other
applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of
payments, or similar debtor relief Laws from time to time in effect
affecting the Rights of creditors generally.
"Declaration" or "Declaration of Trust" means that certain Declaration
of Trust of even date herewith executed by Trustee with respect to the
Property and the Transactions contemplated hereby, as amended, restated,
supplemented, or otherwise modified from time to time.
"Default Rate" means the lesser rate per annum of (i) two percent (2%)
in excess of the effective prime interest rate quoted by Citibank, N.A.,
from time to time in effect as its base or reference rate for short-term
floating rate commercial loans (whether or not such rate is actually
charged in any particular instance), or (ii) the Maximum Rate.
"Environmental Indemnity Agreement" means collectively that certain
Environmental Indemnity Agreement of even date herewith executed by Lessee
(and the other lessees under the Lease) for the benefit of Trustee, Agent
and the Instrument Holders, as amended, restated, supplemented, or
otherwise modified from time to time.
"Event of Default" has the meaning given thereto in the Lease.
"Fee Letter" means that certain letter dated July 18, 1995, from Trust
Company to Lessee describing certain costs and charges to be paid to Trust
Company in connection herewith.
"Holder" has the same meaning as "Instrument Holder."
"Increased Costs" means any additional amounts required to be paid to
any Instrument Holder to compensate such Instrument Holder for any
increased costs of maintaining the Instrument (the effect of which is
not included in the applicable Instrument Holder's determination of
such costs at the more recent to occur of the original issuance of
such Instrument or the adjustment of the Note Rate or Certificate Rate
applicable to such Instrument or applicable interest therein in connection
with the Secondary Transaction (as defined in the Lease) as a result of the
implementation after the date hereof of any applicable Law regarding
capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by such Instrument Holder (or any
lending office thereof) with any request or directive regarding capital
adequacy (whether or not having the force of Law) of any such authority,
central bank or comparable agency which has the effect of increasing the
amount of capital required or expected to be maintained as a result of its
maintaining the Instrument.
"Instrument" means any of, and "Instruments" means all of,
collectively, the Notes and the Certificates.
"Instrument Holder" or "holder" when used with respect to any
Instrument(s), means the Person whose name appears on the Register as
the registered owner of such Instrument(s) or the registered assigns of a
portion of an Instrument, as applicable. It is acknowledged that each
Purchaser shall be an Instrument Holder for all purposes hereof (until
such time as it has disposed of all of its Instruments) and entitled to the
benefit of all provisions hereof respecting the Instrument Holders, in
addition to and not in lieu of, its rights as the Purchaser hereunder.
"Interest Period" means, as applicable to an Instrument, (i) the
period commencing on the date of the first Advance under such Instrument
through the day immediately preceding the first Payment Date, or (ii)
the period commencing on any Payment Date through the day immediately
preceding the next Payment Date.
"Law" or "Laws" means, either singularly or collectively, as
applicable, all applicable statutes, laws, ordinances, regulations, orders,
writs, injunctions, decisions, opinions or decrees of any governmental
authority or any Tribunal.
"Lease" means, collectively, that certain Master Lease of even date
herewith, executed by Trustee, as lessor, and Lessee, as lessee, covering
portions of the Property, together with such supplements or amendments
thereto as may be executed from time to time by Lessee (or any Additional
Lessees) and Trustee and approved by Agent, including, without limitation,
supplements thereto adding Parcels to the Property or "Additional Lessees"
as a party to the Lease.
"Lease Guarantee" means that certain Lease Guarantee of even date
herewith executed by Lease Guarantor with respect to the Lease, as amended,
restated, supplemented, or otherwise modified from time to time.
"Lease Guarantor" means The Pep Boys - Manny, Moe & Jack, a
Pennsylvania corporation.
"Lessee" means The Pep Boys - Manny, Moe & Jack, a Pennsylvania
corporation, its permitted successors and assigns. For purposes of this
Agreement any other Person that is a party to the Lease shall not be shall
not be treated as "Lessee" unless the context otherwise requires.
"Lessee's Equipment" shall have the meaning given to such term in the
Lease.
"LIBO Business Day" means a day of the year on which dealings are
carried on in the London interbank market and banks are open for business
in London and not required or authorized to close in New York City.
"LIBO Rate" for each Interest Period means an interest rate per annum
equal to the average (rounded, if necessary, to the next highest 1/16
of 1%) of the rates of interest per annum at which deposits in United
States dollars are offered to prime banks in the London interbank market at
11:00 a.m. (London time) two LIBO Business Days before the first day
of such Interest Period (the "LIBO Rate Setting Date") for a period equal
to such Interest Period.
"LIBO Rate Reserve Percentage" for any Interest Period means the
reserve percentage applicable to the Instrument Holders during such
Interest Period under the regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or if more than one such
percentage is so applicable, the daily average for such percentages for
those days in such Interest Period during which any such percentages shall
be so applicable) for determining the maximum reserve requirement
(including, without limitation, any emergency, supplemental to other
marginal reserve requirement) for Instrument Holders in respect of
liabilities or assets consisting of or including Eurocurrency Liabilities
(as defined in Regulation D of the Board of Governors of Federal Reserve
System as in effect from time to time) having a term equal to such Interest
Period.
"Lien" means any lien, mortgage, security interest, pledge, charge,
easement or encumbrance (excluding any transfer, assignment, or sublease
permitted under Section 17 of the Lease, or any lien on Lessee's Equipment)
of any kind, including, without limitation, a mechanic's lien, a
materialman's lien, the rights of a vendor, lessor, or similar party
under any conditional sales agreement or other title retention agreement or
lease substantially equivalent thereto, any production payment, and any
other right of or arrangement with any creditor to have his claim satisfied
out of any property or assets, or the proceeds therefrom, prior to the
general creditors of the owner thereof.
"Litigation" means any proceeding, claim, and/or lawsuit conducted by
or before any Tribunal.
"Majority Holders" means: (i) with respect to any series of
Instruments, the registered Holders of at least sixty-six and two-thirds
percent (66-2/3%) in aggregate principal or stated amount of such series of
Instruments then outstanding; and (ii) with respect to more than one series
of Instruments, the registered Holders of at least sixty-six and two-thirds
percent (66-2/3%) of the total aggregate principal and stated amounts of
such series of Instruments then outstanding.
"Majority Purchasers" means the Purchaser(s) whose aggregate
outstanding Commitment at any relevant time is at least sixty-six and
two-thirds percent (66-2/3%) of the aggregate outstanding Commitments of
all Purchasers.
"Master Schedule" shall have the meaning provided therefor in the
Declaration of Trust.
"Maturity Date" shall mean December 31, 2002.
"Maximum Rate" means the maximum nonusurious interest rate, if any,
that at any time or from time to time may be contracted for, taken,
reserved, charged or received on any Note, Certificate, or other applicable
obligation, as the case may be, under the Law of the State of Pennsylvania,
or, if Pennsylvania Law is pre-empted thereby, the Law of the United States
of America applicable to the Holders and the Transactions that would permit
Holders to lawfully contract for, charge, take, reserve or receive a
greater amount of interest than that permitted under Pennsylvania Law.
"New Improvements" shall have the meaning provided therefor in the
Lease.
"Note" means any of, and "Notes" means all of, collectively, the
A-Notes and the B-Notes outstanding under the Declaration of Trust.
"Note Rate" means, with respect to each Note or an applicable portion
thereof and with respect to each day during an Interest Period, a rate per
annum determined for such day equal to the LIBO Rate, plus the Spread
applicable to such Note or portion thereof.
"Noteholders" means, in the aggregate, the Holders at the time in
question of all of the Notes then outstanding (or, if applicable, the
series of Notes in question).
"Parcels" means any tracts or parcels of real property that may
hereafter be added to the Property, together with any and all structures,
buildings, fixtures, or other improvements from time to time located
thereon and any and all appurtenances thereto; provided, that such term
does not include Lessee's Equipment or any other trade fixtures, inventory,
or other items of personal property located on such parcels that are owned
by any other Person other than Borrower. Nothing in the foregoing
definition or applicable provisions of this Agreement shall be deemed to
limit or restrict Lessee's rights to demolish improvements located on
Parcels at the time such Parcel is added to the Property in connection
with the construction of New Improvements on the Parcel, to the extent
permitted by the express terms of the Lease.
"Payment Date" means the first day of each calendar month to and
including the month in which the Maturity Date falls, as well as the
Maturity Date itself; provided, however, that if such Payment Date is not a
Business Day, such Payment Date shall be the next succeeding Business Day.
"Percentage" means, relative to any Purchaser and any series of
Instruments, the percentage equal to the ratio of such Purchaser's
Commitment in respect of that series of Instruments to the total
Commitments of all Purchasers in respect of that series of Instruments.
"Permitted Encumbrances" shall have the meaning provided therefor in
the Lease.
"Person" means any individual, firm, corporation, association,
partnership, joint venture, other entity, or Tribunal.
"Property" shall have the meaning provided therefor in the Lease.
"Purchaser" means any Person having a Commitment hereunder.
"Reserve Costs" means, so long as Instrument Holders hereafter shall
be required under regulations of the Board of Governors of the Federal
Reserve System to maintain reserves in excess of those maintained at the
more recent to occur of the original issuance of the applicable Instrument
or the adjustment of the Note Rate or Certificate Rate applicable to such
Instrument or the applicable interest therein in connection with the
Secondary Transaction with respect to liabilities or assets consisting of
or including Eurocurrency Liabilities, additional amounts equal to the
product of (1) the outstanding balance of the Instruments, multiplied
by (2) an interest rate per annum equal, at all times during the period in
which such reserves were assessed, to the remainder obtained by subtracting
(a) the LIBO Rate for such Interest Period from (b) the rate obtained by
dividing such LIBO Rate applicable during such Interest Period by a
percentage equal to 100% minus the applicable LIBO Rate Reserve Percentage,
payable on each Payment Date.
"Rights" means rights, remedies, powers, and privileges.
"Secondary Transaction" means the transaction contemplated in Section
4.01 hereof, pursuant to which the Purchaser shall attempt to place the
Instruments or interest therein with other financial institutions, and
pursuant to which the Note Rates and Certificate Rate on the Instruments
are subject to adjustment based on then applicable market rates.
"Securities Act" means the Securities Act of 1933, as amended.
"Spread" shall be either (A) in the case of the Certificates, 225
basis points, or (B) in the case of the A-Notes and the B-Notes, the number
of basis points determined by reference to the following chart, based on
the Debt Rating of Lessee as of the beginning of the applicable Interest
Period:
Lessee Most Recent
Debt Rating Spread
BBB+ (or higher) 55 basis points (0.55%)
BBB 62.5 basis points (0.625%)
BBB- 75 basis points (0.75%)
less than BBB- 100 basis points (1.00%)
The "Spread" applicable to any Instrument or interest therein is subject
to adjustment in connection with the Secondary Transaction as provided in
Section 4.01 hereof.
"Taxes" means all taxes, assessments, fees, levies, impositions,
duties, deductions, withholdings, or other charges of any nature
whatsoever from time to time or at any time imposed by any Laws or by any
Tribunal as well as any other item included within the term "Impositions"
under the Lease.
"Term" shall have the meaning provided therefor in the Lease.
"Title Company" means one or more title insurance companies reasonably
acceptable to Agent which shall issue the Title Policies.
"Title Policies" means, collectively, (A) one or more Owners Title
Insurance Policies (collectively, the "Owner's Title Policy") issued to
Trustee by the Title Company, in the aggregate amount of the Advances
hereunder, insuring that Trustee owns fee simple title to the Property,
subject to no exceptions other than the Permitted Encumbrances, and
(B) one or more Mortgagee Title Insurance Policies (collectively, the
"Mortgagee Title Policy") issued to Agent (for the benefit of the
Noteholders) by the Title Company, in the aggregate amount of the Notes
issued hereunder, insuring that the Transaction Mortgage is a first
mortgage lien on fee simple title to the Property subject to no exceptions
other than the Permitted Encumbrances. Each of the Owners Title Policy and
the Mortgagee Title Policy shall provide such other coverages as Agent may
reasonably require and as may be available from time to time. The parties
acknowledge that the Title Policy will in fact be a series of separate
policies in the aggregate required amount, with such separate policies
providing coverage in the amount of the respective Acquisition Prices of
the respective Parcels of Property from time to time subject to this
Agreement. The term "Title Policy" shall include any endorsements to
previously issued title insurance policies that the Purchaser may deem
appropriate in connection with any Advance, and any endorsements that
Lessee may cause to be provided to insure over title problems that can not
be removed where Lessee is permitted to do so under the terms of the Lease
or this Agreement.
"Transaction Documents" means this Agreement, the Lease, the Lease
Guarantee, the Declaration of Trust, the Environmental Indemnity Agreement,
the Instruments and any and all other agreements, documents, and
instruments executed and delivered to or for the benefit of Trustee,
Purchasers, or Instrument Holders by pursuant to the terms of, or otherwise
in connection with, this Agreement, and any future amendments hereto or
restatements hereof, or pursuant to the terms of any of the other
Transaction Documents, together with any and all renewals, extensions, and
restatements of, and amendments and modifications to, any of the foregoing.
"Transaction Mortgage" means one or more mortgages, deeds of trust,
deeds to secure debt, or similar security instruments executed by Trustee
and granting to Agent, for the benefit of the Noteholders (but not the
Certificate Holders), a first mortgage lien on the Property and each Parcel
thereof. The Transaction Mortgage shall, as to each Parcel, be in form and
substance acceptable to Agent and shall be subject to no liens or
encumbrances other than the Permitted Encumbrances.
"Transactions" means the transactions provided for in and contemplated
by this Agreement and the other Transaction Documents.
"Tribunal" means court, department, commission, board, bureau, agency,
or instrumentality of any governmental authority.
"Trust Estate" shall have the meaning provided therefor in the
Declaration of Trust.
SCHEDULE 2
Underwriting Guidelines
1. TITLE MATTERS.
1.1 The title insurance required by Agent and Trustee for any Parcel
shall be that which is customary in the jurisdiction in which the Parcel is
located for institutional investors and lenders in large commercial
transactions. Agent and Trustee shall be reasonable in negotiating and
agreeing to title insurance coverage.
1.2 Reinsurance or coinsurance will not be required if (1) the
amount to be insured for the Parcel, following completion of all Improvements,
is less than $ 4,000,000.00 and (2) one of the following title insurance
companies is the title insurer: Chicago Title Insurance Corporation
(or one of its wholly owned affiliates, such as TICOR or Safeco), Commonwealth
Land Title Insurance Corporation, First American Title Insurance Corporation,
Lawyers Title Insurance Corporation, Old Republic/Minnesota or Stewart Title
(any of the foregoing being an "Acceptable Insurer"). Agent and/or Trustee
shall have the right to remove any title insurer from the above list at any
time hereafter with respect to closings on Parcels not then acquired, based
on its reasonable determination that such title insurer's financial rating has
been reduced to an unacceptably low level.
1.3 In the event that any mechanics' lien, suppliers' lien, or similar
lien is placed against any Parcel, Lessee shall have the right to satisfy Agent
and/or Trustee with respect to such lien by, among other means, providing Agent
and/or Trustee with affirmative title insurance coverage over such lien
delivered by an Acceptable Insurer which is insuring the Parcel in question.
2. ENVIRONMENTAL REPORTS.
2.1 Each environmental report shall be addressed to Agent, Trustee and
Lessee, as follows:
"To Citicorp Leasing, Inc. ("Agent"), for itself and in its capacity
as Agent for the Purchasers and Instrument Holders under the
Transaction Agreement dated November 13, 1995, among Agent,
Trustee (as defined below), The Pep Boys - Manny, Moe and Jack,
a Pennsylvania corporation (the "Transaction Agreement"), State
Street Bank and Trust Company, as Trustee under the Declaration of
Trust dated November 13, 1995 ("Trustee") and [insert proper Pep
Boys entity]"
2.2 A reference in an environmental report to the existence of asbestos,
PCBs, lead paint or other hazards located within a building or other structure
that is intended to be demolished or substantially renovated and improved,
shall not be regarded as an impediment to going forward with the transaction,
or to the acquisition of the Parcel by the Trustee, or the funding of any
Advance, so long as (1) prior to the acquisition of the Parcel in question,
Lessee demonstrates to the reasonable satisfaction of Agent and Trustee that
the plans for the demolition and/or improvement of the Parcel include
provisions satisfactory to Agent and Trustee for the removal, abatement and
proper disposal of such materials, in accordance with all applicable Laws, and
(2) prior to the Construction Advance for any such Parcel, Lessee provides
Agent and Trustee with evidence of such removal, abatement and disposal, and
for payment therefor.
2.3 Nothing in the foregoing shall require Agent or Trustee to accept a
Parcel with respect to which the environmental report shows evidence of
underground or soil hazards, such as underground tanks, soil or groundwater
contamination or other problems requiring remediation.
3. SURVEY.
3.1 The survey shall, at a minimum, satisfy the following requirements
unless otherwise approved by Agent:
3.1.1 The surveyor should perform all necessary field work,
field-stake the property, and supply a current plat of survey (the
"Survey") of the property.
3.1.2 Without limitation of other applicable requirements, the
Survey must:
(i) Set forth an accurate metes and bounds description of the
land, as well as a lot/block description if the property is
platted;
(ii) Locate all existing easements (setting forth recording
information with respect to recorded easements and locating
recorded easements per the legal description contained
therein), alleys, streets, and roads;
(iii)Show any encroachments on to the land from any adjacent
property, any encroachments from the land on to adjacent
property, and any encroachments into any easement or
restricted area within the boundaries of the land;
(iv) Locate all existing improvements (such as buildings, power
lines, fences, and the like);
(v) Locate all dedicated public streets or other roadways
to the land, including all curb cuts;
(vi) Locate all governmental or privately required setback lines
and similar restrictions affecting the land or any part
thereof and any violations of such restrictions; and
(vii)Set forth the gross square foot area of the land, together
with the net square foot area of the land which shall be
the gross square foot area of the land less any area of the
land located within (A) streets or roadways, or
(B) encroachments, overlaps, or strips, gores or other
areas affected by discrepancies in legal descriptions.
3.2 The Survey should contain a certification with regard to the matters
set forth thereon substantially as follows:
"The undersigned Registered Public Surveyor (the "Surveyor") hereby
certifies that (a) this plat of survey and the property description
set forth hereon are true and correct and prepared from an actual
on-the-ground survey of the real property (the "Property") shown
hereon; (b)such survey was conducted by the Surveyor, or under his
supervision;(c) all monuments shown hereon actually exist, and the
location, size and type of material thereof are correctly shown;
(d) except as shown hereon, there are no encroachments onto the
Property or protrusions therefrom, there are no improvements on the
Property, there are no visible easements or rights-of-way of the
Property and there are no visible discrepancies, conflicts, shortages
in area or boundary line conflicts; (e) the size, location and type
of improvements are as shown hereon (including, without limitation,
the parking lots and other parking areas indicating the number of
parking spaces within each), and, except as shown hereon, all are
located within the boundaries of the Property and set back from the
Property lines the distances indicated; (f) the distance from the
nearest intersecting street or road is as shown; (g) the Property has
access to and from a public roadway; (h) except as shown hereon all
recorded easements have been correctly platted hereon; (i) the
boundaries, dimensions and other details shown hereon are true and
correct; and (j) except as shown hereon the Property is not located
in a 100-Year Flood Plain or in an identified "flood prone area", as
defined by the U. S. Department of Housing and Urban Development,
pursuant to the Flood Disaster Protection Act of 1973, as amended.
"The undersigned does further certify that the survey was made in
accordance with the "Minimum Standard Detail Requirements of the
ALTA/ACSM Land Title Surveys, jointly established by ALTA and
ACSM in 1992, and includes items 1, 2, 3, 4, 6, 7(a), 8, 9, 10, and
13 of Table A thereof, and is prepared to the ALTA/ACSM accuracy
standards (as adopted and in effect on the date of this certification)
of an Urban Survey.
"The Surveyor expressly understands and agrees that
(a)("Title Company"), Citicorp Leasing, Inc. ("Agent"), for
itself and in its capacity as Agent for the Purchasers and Instrument
Holders under the Transaction Agreement dated November 13, 1995,
among Agent, Trustee (as defined below), The Pep Boys - Manny,
Moe and Jack, a Pennsylvania corporation (the "Transaction
Agreement"), State Street Bank and Trust Company, as Trustee
under the Declaration of Trust dated November 13, 1995 ("Trustee"),
and [insert proper Pep Boys entity] are entitled to rely on this plat
of survey as being true and accurate in all respects and this
Certificate as being true and accurate; and (b) the consideration paid
to the Surveyor for the preparation and certification of such survey
has been paid, in part, in anticipation of such reliance hereon.
EXECUTED this ____ day of _____________, 19__.
By:
Registered Public Surveyor No.
Address:
[S E A L]"
3.3 Specific matters reflected on a survey meeting the standards set
forth above shall be subject to Agent's reasonable review and approval, such
review and approval to be exercised in light of the effect of the specific
matters in question on the value (to the extent that the appraisal of the
Parcel in question does not specifically reflect the effect on value of the
matter in question), utility, and marketability of the Parcel in question.
4. APPRAISAL.
4.1 The Appraisal shall be addressed as set forth for the environmental
report described above in 2.1
4.2 The appraiser shall be satisfactory if he/she is an MAI appraiser
with at least five years of experience in appraising similar properties to the
Parcel in the geographic area of the Parcel.
Form of Assignment Agreement
Dated ,
Reference is made to the Transaction Agreement, dated as of
_________________, 1995, (as the same may hereafter be amended or otherwise
modified from time to time, being the "Transaction Agreement"), by and among
THE PEP BOYS - MANNY, MOE & JACK, a Pennsylvania corporation ("Lessee"),
CITICORP LEASING, INC., a Delaware corporation (as Agent, and as the initial
Purchaser and Instrument Holder), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company ("Trustee"), pursuant to the Declaration of
Trust ("Declaration of Trust") of even date with the Transaction Agreement
executed by Trustee. ________________________ , a ____________________
("Assignor") is the Holder of certain Instruments issued by the Trustee under
the Trust Declaration and desires to assign such Instruments to
____________________________, a _________________________ ("Assignee").
Certain terms defined in the Transaction Agreement are used herein with the
same meaning.
The Assignor and Assignee agree as follows:
(a) The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes from the
Assignor, without recourse to the Assignor, the Instruments listed
on Schedule 1 attached hereto (the "Assigned Instruments"),
together with all of Assignor's rights as an Instrument Holder
under the Transaction Agreement and the Transaction Documents as of the
Effective Date (as defined below) with respect to Assigned Instruments (the
Assigned Instruments, plus all of Assignor's rights with respect thereto being
referred to as the "Assigned Interest"). The effective date of this sale and
assignment shall be the date specified on Schedule 1 hereto (the "Effective
Date"). [IF LESS THAN WHOLE INSTRUMENT IS TO BE ASSIGNED, MODIFY ACCORDINGLY].
(b) It is expressly acknowledged that Assignor does not hereby assign
to Assignee, and Assignee does not hereby assume from Assignor, any of
Assignor's obligations as a "Purchaser" under the Transaction Documents to
purchase additional Instruments thereunder in connection with any Advance.
[DELETE IF THE ASSIGNOR IS NOT A PURCHASER UNDER THE TRANSACTION AGREEMENT.]
(c) On the Effective Date, the Assignee will pay to the Assignor, in
same day funds, at such address and account as the Assignor shall advise the
Assignee, the sum of $___________. From and after the Effective Date, the
Assignor agrees that the Assignee shall be entitled to all rights, powers and
privileges of the Assignor under the Transaction Agreement, the Transaction
Documents and the Instruments to the extent of the Assigned Interest, including
without limitation (i) the right to receive all payments in respect of the
Assigned Interest for the period from and after the Effective Date, whether on
account of principal or stated amount, interest or current yield, fees,
indemnities in respect of claims arising after the Effective Date, Increased
Costs, Break Costs, or otherwise; (ii) the right to vote and to instruct the
Agent and/or the Trustee under the Transaction Documents based on the Assigned
Interest; and (iii) the right to receive notices, requests, demands and other
communications. The Assignor agrees that it will promptly remit to the
Assignee any amount received by it in respect of the Assigned Interest (whether
from the Lessee, the Trustee, the Agent, or otherwise) in the same funds in
which such amount is received by the Assignor.
(d) The Assignor (i) represents and warrants that it is the legal
and beneficial owner of the Assigned Interest and that such interest is free
and clear of any adverse claim; (ii) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Transaction Agreement, the
Instruments or the Transaction Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Transaction Agreement,
the Instruments, the Transaction Documents or any other instrument or document
furnished pursuant thereto; (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the Lessee
or the performance or observance by the Lessee of any of its obligations under
the Transaction Agreement, the Instruments, the Transaction Documents or any
other instrument or document furnished pursuant thereto.
(e) Assignor hereby authorizes and requests that Trustee issue
New Notes or New Certificates, as applicable, pursuant to Section 3.08 of the
Declaration of Trust, in the name of Assignee (but at the expense of Assignee)
to replace the Assigned Instruments endorsed herewith in accordance with the
terms of the Declaration of Trust. Further, if the Assigned Interest
represents less than all of the indebtedness or equity evidenced by the
Instrument in question, Assignor also hereby requests that Trustee issue to
Assignor a New Note or New Certificate, as applicable, in the amount of
$ , representing the portion of the Instrument not assigned
herein by Assignor.
(f) The Assignee (i) acknowledges that it has received a copy of
the Transaction Agreement, together with such financial information or other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment; (ii) agrees that it will,
independently and without reliance upon the Trustee, the Assignor or any other
Instrument Holder and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Transaction Agreement, the Instruments and the
other Transaction Documents; (iii) assumes and agrees to perform in accordance
with their terms all of the obligations which by the terms of the Transaction
Agreement, the Instruments and the other Transaction Documents are required to
be performed by an Instrument Holder and which arise subsequent to the date
hereof; (iv) specifies as its administrative offices (and address for notices)
the offices set forth beneath its name on the signature pages hereof; (v)
represents and warrants to Lessee, Trustee and Agent that the representations
and warranties applicable to a "Holder" pursuant to Section 2.03 of the
Transaction Agreement are true and correct as to the Assignee as of the date
hereof; and (vi) attaches the forms prescribed by the Internal Revenue Service
of the United States of America certifying as to the Assignee's status for
purposes of determining exemption from United States withholding taxes with
respect to all payments to be made to the Assignee under the Transaction
Agreement (and the other Transaction Documents) or such other documents as are
necessary to indicate that all such payments are subject to such rates at a
rate reduced by an applicable tax treaty. Further, Assignee acknowledges that
it is not relying upon any statements of Lessee regarding its financial
condition or that of any of its subsidiaries except to the extent of
financial reports and related information provided by Lessee to Agent
pursuant to the Transaction Documents or in connection with the negotiation
and execution thereof.
(g) Following the execution of this Assignment, it will be delivered to
the Agent for acceptance and recording by the Agent in the Register. Upon
such acceptance and recording and receipt of any consent of the Lessee required
pursuant to the Transaction Documents, as of the Effective Date, (i) the
Assignee shall be a party to the Transaction Agreement and, to the extent
provided in this Transaction Assignment, have the rights and obligations of an
Instrument Holder thereunder and under the Instruments and the Transaction
Documents and (ii) the Assignor shall, to the extent provided in this
Assignment, relinquish its rights and be released from its obligations under
the Transaction Agreement, the Instruments and the Transaction Documents.
Nothing herein shall release Assignor from any remaining obligations that
Assignor may have as a Purchaser (if Assignor is a Purchaser) under the
Transaction Documents, nor shall this Assignment release Assignor from, nor
reduce Assignor's rights with respect to or relating to, any other Instruments
that Assignor may continue to hold or may hereafter acquire.
(h) Upon such acceptance, recording and consent, from and after the
Effective Date, Trustee shall make all payments under the Transaction Documents
in respect of the Assigned Interest (including, without limitation, all
payments of principal, interest or current yield) to the Assignee. The
Assignor and Assignee shall make all appropriate adjustments in payments under
the Transaction Documents for periods prior to the Effective Date directly
between themselves.
(i) By its execution hereof Assignee acknowledges that Citicorp Leasing,
Inc. is the currently appointed "Agent" for the Instrument Holders and
Purchasers under the terms of the Transaction Documents, and that Assignee is
acquiring the Instruments subject to the rights (and, where applicable) the
obligations of the Agent or any successor Agent that may hereafter be
appointed pursuant to the Transaction Agreement.
(j) This Assignment shall be governed by, and construed in
accordance with, the laws of the State of Massachusetts.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto have caused this Assignment to be executed by their respective officers
thereunto duly authorized on the attached Signature Pages, as of the date first
above written.
[See Attached Signature Pages] SIGNATURE PAGE
OF
ASSIGNOR
TO
ASSIGNMENT AGREEMENT
[Pep Boys Leased Property]
"Assignor"
a
By:
Name:
Title:
SIGNATURE PAGE
OF
ASSIGNEE
TO
ASSIGNMENT AGREEMENT
[Pep Boys Leased Property]
"Assignee"
a
By:
Name:
Title:
Address of Assignee:
<PAGE>
Schedule 1
to
Assignment Agreement
Effective Date __________________, 19___
[DESCRIBE THE NOTES/CERTIFICATES TO BE ASSIGNED BY DATE,
CERTIFICATE OR NOTE NUMBER, FACE AMOUNT, ETC.]
ACKNOWLEDGEMENT OF ASSIGNMENT
BY
TRUSTEE AND AGENT
TO
ASSIGNMENT AGREEMENT
[Pep Boys Leased Property]
"Trustee"
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company,
(not in its individual capacity,
but solely as Trustee)
By:
Name:
Title:
"Agent"
CITICORP LEASING, INC., a
Delaware corporation
By:
Name:
Title:
TRANSACTION AGREEMENT
Dated as of November 13, 1995
Among
THE PEP BOYS - MANNY, MOE & JACK
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company,
not in its individual capacity except as expressly stated herein, but solely
as Trustee,
and
CITICORP LEASING, INC.
as Administrative Agent, Initial Purchaser, and Initial Holder
[Pep Boys Leased Property]
TABLE OF CONTENTS
Page
Preliminary Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I. FUNDING. . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.01. Advances under Instruments . . . . . . . . . . . . . . 2
Section 1.02. Closing Date . . . . . . . . . . . . . . . . . . . . . 4
Section 1.03. Conditions for Initial Advance . . . . . . . . . . . . 4
Section 1.04. Conditions Precedent to All Advances . . . . . . . . . 4
Section 1.05. Advance Process. . . . . . . . . . . . . . . . . . . . 9
Section 1.06. Form of Documents. . . . . . . . . . . . . . . . . . . 10
Section 1.07. Transaction Fees . . . . . . . . . . . . . . . . . . . 10
Section 1.08. Extension of Lease Term. . . . . . . . . . . . . . . . 11
ARTICLE II. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 12
Section 2.01. Lessee's Representations and Warranties. . . . . . . . 12
Section 2.02. Trust Company Representations. . . . . . . . . . . . . 14
ARTICLE III. TRUSTEE AND TRUST COMPANY COVENANTS . . . . . . . . . . . . 17
Section 3.01. Lien Claims. . . . . . . . . . . . . . . . . . . . . . 17
Section 3.02. Inspection of Property . . . . . . . . . . . . . . . . 17
Section 3.03. Notice of Significant Matters. . . . . . . . . . . . . 17
Section 3.04. Qualification; Business; Use of Advances.. . . . . . . 18
Section 3.05. Encumbrances . . . . . . . . . . . . . . . . . . . . . 18
Section 3.06. Transaction Documents. . . . . . . . . . . . . . . . . 18
Section 3.07. Transactions with Affiliates . . . . . . . . . . . . . 19
Section 3.08. Transfer or Encumbrance of the Property. . . . . . . . 19
Section 3.09. Compliance with Laws and Documents . . . . . . . . . . 19
Section 3.10. Assignment . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.11. Other Tenant Leases. . . . . . . . . . . . . . . . . . 20
Section 3.12. Agent's Approval of Settlements. . . . . . . . . . . . 20
Section 3.13. Notice of Actions; Prosecution . . . . . . . . . . . . 20
Section 3.14. Covenants of Trust Company . . . . . . . . . . . . . . 21
ARTICLE IV. THE NOTES AND THE CERTIFICATES. . . . . . . . . . . . . . . 22
Section 4.01. Rates Applicable to Instruments; Secondary Transaction 22
Section 4.02. Assignments and Participations . . . . . . . . . . . . 24
Section 4.03. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.04. Avoidance of Taxes, Other Charges and Increased Costs. 29
Section 4.05. Sharing of Payments, Etc . . . . . . . . . . . . . . . 30
Section 4.06. Instrument Holders' Credit Decisions . . . . . . . . . 30
ARTICLE V. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.01. Survival . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.02. Notices. . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.03. Severability . . . . . . . . . . . . . . . . . . . . . 33
Section 5.04. Amendments, Etc. . . . . . . . . . . . . . . . . . . . 33
Section 5.05. Headings . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.06. Definitions. . . . . . . . . . . . . . . . . . . . . . 33
Section 5.07. Benefit. . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.08. Place of Payment . . . . . . . . . . . . . . . . . . . 33
Section 5.09. Counterparts . . . . . . . . . . . . . . . . . . . . . 34
Section 5.10. Governing Law; Venue . . . . . . . . . . . . . . . . . 34
Section 5.11. Business Day . . . . . . . . . . . . . . . . . . . . . 34
Section 5.12. The Trustee. . . . . . . . . . . . . . . . . . . . . . 35
Section 5.13. Estoppel Certificates. . . . . . . . . . . . . . . . . 35
Section 5.14. Transaction Documents; Further Assurances. . . . . . . 35
Section 5.15. Confidentiality. . . . . . . . . . . . . . . . . . . . 36
Section 5.16. Interest . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.17. Money. . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.18. Number and Gender of Words . . . . . . . . . . . . . . 37
Section 5.19. Articles, Sections, Exhibits, and Schedules. . . . . . 37
Section 5.20. Decisions of Parties . . . . . . . . . . . . . . . . . 38
Section 5.21. Construction of Agreement. . . . . . . . . . . . . . . 38
Section 5.22. Brokers. . . . . . . . . . . . . . . . . . . . . . . . 38
Section 5.23. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . 38
ARTICLE VI. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.01. Appointment. . . . . . . . . . . . . . . . . . . . . . 39
Section 6.02. Nature of Duties . . . . . . . . . . . . . . . . . . . 39
Section 6.03. Rights, Exculpation, etc.. . . . . . . . . . . . . . . 42
Section 6.04. Reliance . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.05. Indemnification. . . . . . . . . . . . . . . . . . . . 42
Section 6.06. Successor Agent; Resignation of Agent. . . . . . . . . 43
Section 6.07. Authorization to Act as Agent of Trustee . . . . . . . 43
FIRST AMENDMENT TO TRANSACTION AGREEMENT
(Pep Boys Transaction)
This First Amendment to Transaction Agreement (this "Amendment") is entered
into effective as of the ___ day of July, 1996, by and among THE PEP BOYS -
MANNY, MOE & JACK, a Pennsylvania corporation ("Lessee"); STATE STREET BANK AND
TRUST COMPANY, a Massachusetts trust company, not in its individual capacity
except as expressly stated herein, but solely as Trustee under the Declaration
of Trust (State Street Bank and Trust Company, when acting in its respective
capacities as such Trustee, together with any successor trustee under the
Declaration of Trust, is herein referred to as the "Trustee" and State Street
Bank and Trust Company, when acting in its individual capacity, is herein
referred to as "Trust Company"); CITICORP LEASING, INC., a Delaware corporation
("CLI"), on behalf of itself as the initial "Purchaser" and initial "Instrument
Holder" and on behalf of the other financial institutions that may, from time
to time, become "Purchasers" or "Instrument Holders"; and CITICORP LEASING,
INC., a Delaware corporation ("Agent"), in its capacity as the initial
administrative agent for the Instrument Holders.
RECITALS
Effective as of November 13, 1995, the parties hereto entered into a
certain Transaction Agreement (herein so-called) relating to the acquisition
and/or development of certain parcels of real property and the leasing of such
property to Lessee. Capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings given thereto in the Transaction
Agreement.
Lessee has requested that the Transaction Agreement be amended to permit
Lessee to obtain Construction Advances during the course of construction of
particular Improvements for costs incurred without the requirement that it
satisfy all of the requirements for Construction Advances currently provided
for in the Transaction Agreement.
Trustee, Purchaser, and Agent are willing to accommodate such request on
the basis set out herein, and the parties have entered into this Amendment to
memorialize their agreements on such matter.
NOW, THEREFORE, in consideration of the premises set out above and other
good and valuable consideration, the receipt and sufficiency of which is hereby
confirmed by the parties, the parties hereto have agreed, and do hereby agree,
to amend the Agreement in the following respects.
AGREEMENTS
1. A new section 1.09 is hereby added to the Transaction Agreement, to
read in its entirety as follows:
Section 1.09. Interim Advances.
(a) In addition to Lessee's right to obtain Construction
Advances upon completion of New Improvements on a Parcel
as provided for in subsection 1.04(b) above, Lessee may
obtain "Interim Advances" (herein so-called) to reimburse
Lessee for costs theretofore incurred in connection with
the construction of New Improvements that are not yet
completed and are therefore not yet eligible for Construction
Advances pursuant to subsection 1.04(b). Interim Advances
shall be treated as "Construction Advances" and "Advances"
for all purposes of the Transaction Agreement and the other
Transaction Documents, except as otherwise specifically
provided in this Section 1.09.
(b) Interim Advances may be obtained by Lessee not more than
six (6) times per annum. For administrative convenience of
the parties Lessee will use its best efforts to coordinate the
timing of Interim Advance requests with requests for other
Advances for which Lessee may be eligible. No Parcel for
which the Required Completion Date will occur within the next
two (2) months shall be eligible for inclusion in any Interim
Advance.
(c) The amount of each Interim Advance shall be not less than
$250,000.00. Costs associated with the New Improvements on more than one
Parcel may be aggregated to reach the required minimum size for the
Interim Advance, but costs for each Parcel shall be accounted for
separately. No more than 60% of the anticipated costs of construction
of the New Improvements on any particular Parcel shall be included in an
Interim Advance with respect to such Parcel, with all remaining costs
being funded only through a Construction Advance pursuant to Section
1.04(b) upon Lessee's satisfaction of all requirements applicable
thereto.
(d) Purchasers shall have no obligation to make any Interim
Advance hereunder if, at the time such Interim Advance would otherwise be
made, the Debt Rating of Lessee is lower than BBB (as rated by Standard &
Poor's Corporation) or lower than Baa2 (as rated by Moody's Investors
Service). However, if Lessee thereafter reattains the required Debt
Rating and is otherwise then eligible for an Interim Advance, Lessee may
reinstate its requests for Interim Advances that were not available to it
because of failure to satisfy the Debt Rating requirements. Such Debt
Rating requirements are applicable to Interim Advances only, and do not
affect the provisions of Section 1.04(b) relating to regular Construction
Advances.
(e) Costs related to the New Improvements on any particular
Parcel may be included in only one (1) Interim Advance. However, the
foregoing shall not preclude Lessee from obtaining an Advance for the
acquisition of such Parcel pursuant to subsection 1.04(a) and/or a final
Construction Advance in respect of the New Improvements on such Parcel
pursuant to subsection 1.04(b) upon satisfaction of the requirements of
such provisions.
(f) The amount of any Construction Advance available to Lessee
pursuant to subsection 1.04(b) in respect of a given Parcel shall be
reduced to the extent that costs that would otherwise have been included
in such Construction Advance have previously been funded through an
Interim Advance.
(g) The amount of the Interim Advance attributable to any
particular Parcel and the New Improvements thereon shall not exceed the
costs of acquiring the Parcel and/or the cost of construction of the New
Improvements theretofore constructed and in place on the Parcel (reduced
by the amount of any previous Advance in connection with acquisition of
the Parcel in question), as reasonably substantiated to Agent.
Applicable transaction costs and "soft" costs related to the addition of
the Parcels and/or the development of the New Improvements shall also be
eligible for inclusion in an Interim Advance.
(h) Each request for any Interim Advance must be accompanied
by a written certification by a senior financial officer of Lessee (i)
that the costs for which the Interim Advance in question has been
requested have been incurred by Lessee and the work for which such
Interim Advance is requested has been completed and is in place, all in
substantil accordance with the Plans for the work in question previously,
approved by Agent, (ii) that Lessee expects to complete construction of
the New Improvements to which the Interim Advance relates on or before the
applicable Required Completion Date, (iii) certifying the amount of costs
that are not covered in the Interim Advance that Lessee reasonably expects
to spend to complete the New Improvements in question ("Remaining Costs"),
(iv) that upon completion of the New Improvements the Lessee expects that
the "as-built" appraisal for such New Improvements will satisfy the
requirements of the Transaction Agreement for purposes of obtaining a
final Construction Advance covering all costs of construction and
development thereof in accordance with subsection 1.04(b)(v) of the
Transaction Agreement, and (v) that Lessee then satisfies all other
applicable requirements for obtaining the requested Interim Advance and
will continue to do so after giving effect to the Interim Advance in
question.
(i) As further conditions to any Interim Advance:
(i) Agent shall have received and approved original
executed counterparts of an Interim Construction Supplement to the
Lease in respect of the Interim Advance in question in substantially
the form attached to the First Amendment to the Lease of even date
herewith. Each Interim Construction Supplement shall be treated in
the same manner as, and shall be included as, a "Construction
Supplement" for all purposes of the Transaction Agreement and the
other Transaction Documents except to the extent this Amendment
otherwise requires.
(ii) Agent shall have received and approved, where
applicable, the materials required to be supplied by
Lessee pursuant to the Construction Addendum to the
Lease evidencing construction (to the extent that the
costs thereof are included in the Interim Advance request)
of the New Improvements in question, the payment of the
costs therefor, and the performance of Lessee's other
thereunder to support Lessee's entitlement to the Interim
Advance in question. In this regard the parties
acknowledge that the conditions set out in the Construction
Addendum shall be applicable only to the extent that
such conditions would be reasonably expected to have been
completed or satisfied in the course of construction in a
commercially prudent manner to the stage at which the
construction on the New Improvements in question is then
advanced, as reasonably determined by Agent.
(iii) The Title Company shall have issued (or provided
Agent with evidence satisfactory to Agent that the Title Company is
irrevocably obligated to issue immediately after funding of the
Interim Advance in question) an endorsement to the Owner Title Policy
and the Mortgagee Title Policy covering the Parcel(s) in question
increasing the coverage to the aggregate amount advanced in respect
of the Parcel(s) and Improvements thereon and/or down dating the
coverage date, without exceptions unacceptable to Agent in its
reasonable discretion.
(iv) Agent shall have received, reviewed, and approved
(either at the time the Parcel was added to the Property or in
connection with the Interim Advance in question) an "as-if-completed"
appraisal of the Parcel(s) and the completed Improvements to be
constructed thereon in form and substance, and issued by an appraiser,
satisfactory to Agent indicating, on an "as if vacant" basis, that the
Parcel and Improvements to be constructed thereon will have a value,
when completed, of not less than 50% of the sum of the Acquisition
Price (as defined in the Lease) of the Parcel in question after
giving effect to the requested Interim Advance and the amount of
Remaining Costs for such Parcel. In the event the appraisal received
by Agent does not adequately support the amount of the requested
Advance the amount of the Advance shall be reduced such that the sum
of the Acquisition Price of the Parcel in question after giving
effect to such Advance and the amount of Remaining Costs for such
Parcel will be not more than twice the appraised value of the Parcel.
2. In consideration of the execution of this Amendment Lessee hereby
represents, warrants, and covenants with Purchasers, Instrument Holders, Agent,
and Trustee, as follows:
(a) All of the various representations and warranties of Lessee
contained in Section 2.01 of the Transaction Agreement remain true and
accurate in all material respects as of the date of this Amendment.
(b) To the best of Lessee's knowledge, no Default, Event of Default,
or Incipient Default exists under the Lease, the Lease Guaranty, or the
Environmental Indemnity Agreement.
(c) Lessee hereby acknowledges and confirms that as of the date
hereof, Lessee has no defense to the payment or performance of the
Lessee's obligations under the Lease and that, to the best of Lessee's
knowledge, no claims, counterclaims, affirmative defenses, or other such
rights exist against Lessor, Agent, or any Purchaser or Instrument
Holders under the Lease.
3. Purchaser, Instrument Holder, and Agent hereby approve execution of
a First Amendment to Master Lease in the form attached hereto as Annex I.
4. Contemporaneously with the execution and delivery hereof, Lessee shall
pay, or cause to be paid, all costs and expenses incident to the preparation
hereof and the consummation of the transactions specified herein, including,
without limitation, the fees and expenses of the respective legal counsel to
Trustee and Agent.
5. This Amendment may be executed in any number of counterparts with the
same effect as if all parties hereto had signed the same document. All such
counterparts shall be construed together and shall constitute one instrument,
but in making proof hereof it shall only be necessary to produce one
counterpart hereof, executed by the party against whom this Amendment is
intended to be enforced.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties have
caused this Amendment to be duly executed on the attached Signature Pages by
their respective officers thereunto duly authorized as of the day and year
first above written.
[SEE ATTACHED SIGNATURE PAGES]
SIGNATURE PAGE OF LESSEE
ATTACHED TO
FIRST AMENDMENT TO TRANSACTION AGREEMENT
(Pep Boys Transaction)
LESSEE:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By:
Name:
Title:
SIGNATURE PAGE OF TRUSTEE AND TRUST COMPANY
ATTACHED TO
FIRST AMENDMENT TO TRANSACTION AGREEMENT
(Pep Boys Transaction)
TRUSTEE:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company
(not in its individual capacity,
but solely as Trustee)
By:
Name:
Title:
TRUST COMPANY:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company (in its individual
capacity,
but only as expressly stated in the Transaction
Agreement)
By:
Name:
Title:
SIGNATURE PAGE OF AGENT AND INITIAL PURCHASER
ATTACHED TO
FIRST AMENDMENT TO TRANSACTION AGREEMENT
(Pep Boys Transaction)
ADMINISTRATIVE AGENT,
INITIAL PURCHASER and INITIAL HOLDER:
CITICORP LEASING, INC.,
a Delaware corporation,
By:
Name:
Title: Annex I
Approved Form of First Amendment
to Master Lease
SECOND AMENDMENT TO TRANSACTION AGREEMENT
This SECOND AMENDMENT TO TRANSACTION AGREEMENT dated as of the
____ day of September, 1996 (the "Amendment"), is entered into by and among THE
PEP BOYS - MANNY, MOE & JACK, a Pennsylvania corporation ("Lessee" and "Lease
Guarantor"); STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust
company, not in its individual capacity except as expressly stated in the
Transaction Agreement, but solely as Trustee under the Declaration of Trust
(State Street Bank and Trust Company, when acting in its respective capacities
as such Trustee, together with any successor trustee under the Declaration of
Trust, is herein referred to as the "Trustee" and State Street Bank and
Trust Company, when acting in its individual capacity, is herein referred to
as "Trust Company"); CITICORP LEASING, INC., a Delaware corporation ("CLI"),
on behalf of itself as the initial Purchaser and initial Instrument Holder
under the Transaction Agreement and on behalf of the other financial
institutions that may, from time to time, become Purchasers or Instrument
Holders thereunder; and CITICORP LEASING, INC., a Delaware corporation
("Agent"), in its capacity as the initial administrative agent for the
Instrument Holders under the Transaction Agreement. Capitalized terms used
but not otherwise defined in this Amendment shall have the meanings set forth
in the Transaction Agreement.
RECITALS
A. Effective as of November 13, 1995, Lessee, Trustee and CLI, for
itself and as Agent, entered into that certain Transaction Agreement
(as heretofore amended, supplemented or otherwise modified from time to time,
the "Transaction Agreement") pursuant to the terms of which Trustee will
acquire or has acquired the Property. The Property will be or has been leased
to Lessee (and, where applicable, certain Additional Lessees that are
wholly-owned subsidiaries of Lessee) by Trustee (and in certain cases by a
co-trustee appointed pursuant to the terms of Section 8.04 of the Declaration
of Trust) under that certain Master Lease of even date with the Transaction
Agreement between Trustee, as lessor, and Lessee, as lessee (as heretofore
amended, supplemented or otherwise modified from time to time, the "Lease").
B. Pursuant to the terms and provisions of that certain Lease Guarantee
dated of even date with the Lease ("Lease Guarantee"), the Obligations (as
defined in the Lease Guarantee) of Lessee under the Lease have been guaranteed
by Lease Guarantor.
C. To finance its acquisition of the Property, the Trustee has issued to
CLI, as the initial Purchaser of the Instruments, (i) an A-Note in the stated
principal amount of up to $21,000,000.00, (ii) a B-Note in the stated principal
amount of up to $3,000,000.00, and (iii) a Certificate in the stated amount of
up to $1,000,000.00, pursuant to CLI's Commitment.
D. Trustee desires to increase the maximum amount of Advances available
to it under the terms of the Transaction Agreement, and CLI has agreed to
increase its Commitment thereunder.
NOW, THEREFORE, in consideration of the premises and agreements set forth
herein and therein, the parties agree as follows:
1. CLI, for itself and as Agent, and Lessee hereby approve the execution
by Trustee of that certain Amendment to Declaration of Trust of even date
herewith.
2. CLI and Trustee hereby agree that the maximum amount of Advances
available to Trustee under the Transaction Agreement is hereby increased
from $25,000,000.00 to $50,000,000.00, and CLI's Commitment is hereby
increased accordingly.
3. Simultaneously with the execution of this Amendment, Lessee, Trustee
and CLI shall execute and deliver such amendments to existing Transaction
Documents as the parties deem necessary or desirable in connection with the
increase in the maximum amount of Advances available to Trustee under the
Transaction Agreement, including, without limitation, amendments to, or
amendments and restatements of, the Notes, the Certificate, the Transaction
Mortgages and the Lease Guarantee. It is expressly agreed and acknowledged
that the stated principal amount of the A-Note shall be increased to
$42,000,000.00, the stated principal amount of the B-Note shall be increased
to $6,000,000.00, and the stated amount of the Certificate shall be increased
to $2,000,000.00.
4. Upon execution of this Amendment, Lessee shall pay to CLI or an
Affiliate of CLI an additional structuring fee in the amount of $93,750.00
(i.e., 0.375% of the increase in the Commitment). Lessee shall be entitled to
a credit against such structuring fee in the amount of $25,000.00 in respect
of a proposal fee in such amount previously paid to CLI or an Affiliate
thereof in connection with such increase.
5. Notwithstanding the provisions of Section 1.07(b) of the Transaction
Agreement, the arranging fee shall be equal to 0.50% of the first
$25,000,000.00 [principal or stated amount] of Instruments transferred by CLI
(or which CLI elects to hold) in the Secondary Transaction, and 0.375% of the
amounts of Instruments transferred by CLI (or which CLI elects
to hold) in the Secondary Transaction in excess of $25,000,000.00.
6. The Servicing Fee provided for in Section 1.07(c) of the
Transaction Agreement shall be increased to an amount equal to the greater of
(i) $50,000.00, or (ii) 0.125% of the aggregate outstanding principal balance
of the Notes and the aggregate outstanding balance of the Certificates.
7. Notwithstanding the provisions of Section 13(b)(i)(B) of the Lease,
in the event of the occurrence of a change in GAAP or the interpretive rulings
applicable thereunder which requires the recharacterization of the Lease as a
"capital lease" rather than an "operating lease", Lessee may request that the
transaction be restructured in a manner that will maintain the economic
interests of the parties and will permit Lessee to continue to have the Lease
treated as an "operating lease" for its financial accounting purposes. If
Lessee so requests, and Agent, CLI and the Majority Holders agree to such a
restructure, then the parties will proceed in good faith, but at Lessee's
expense, to negotiate such changes in the structure of the transaction and
the Transaction Documents as the parties may mutually determine to be
necessary to effect such intention. While the parties agree to cooperate in
good faith to negotiate modifications to the Transaction Documents to achieve
operating lease treatment for the Lessee, no party will be obligated to
accept a restructure of the transaction and/or any modification to any
Transaction Document that is, in such party's opinion, materially adverse to its
legal or financial interest. In the event that the parties are unable to accept
a restructuring or modification which is acceptable to Lessee, Lessee shall be
entitled to exercise the right set forth in Section 13(b) of the Lease in
accordance with the terms and conditions therein contained.
8. Except as amended hereby, the terms and provisions of the Transaction
Agreement shall be and remain in full force and effect and are hereby ratified
and affirmed.
9. By its execution hereof, Lease Guarantor hereby ratifies and affirms
each and every representation, warranty, covenant, obligation and indemnity
contained in the Lease Guarantee and acknowledges that the Lease Guarantee
remains in full force and effect.
10. By their execution hereof, Lessee, Pep Boys - Manny, Moe & Jack of
Delaware, Inc., a Delaware corporation ("Pep Boys-Delaware"), and The Pep
Boys Manny Moe & Jack of California, a California corporation ("Pep Boys-
California"), as Indemnitors, hereby ratify and affirm each and every
representation, warranty, covenant, obligation and indemnity contained in
that certain Environmental Indemnity Agreement dated of even date with the
Transaction Agreement and acknowledge that the Environmental Indemnity
Agreement remains in full force and effect.
11. By their execution hereof, Pep Boys-Delaware and Pep Boys-California,
in their capacity as Additional Lessees under the Lease, hereby ratify and
affirm the terms and provisions of the Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the date first above written.
[SEE ATTACHED SIGNATURE PAGES]
SIGNATURE PAGE OF LESSEE AND LEASE GUARANTOR
ATTACHED TO
SECOND AMENDMENT TO TRANSACTION AGREEMENT
LESSEE, LEASE GUARANTOR AND
INDEMNITOR:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By:
Name:
Title:
SIGNATURE PAGE OF TRUSTEE AND TRUST COMPANY
ATTACHED TO
SECOND AMENDMENT TO TRANSACTION AGREEMENT
TRUSTEE:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company
(not in its individual capacity,
but solely as Trustee)
By:
Name:
Title:
TRUST COMPANY:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company
(in its individual capacity, but
only as expressly stated herein)
By:
Name:
Title:
SIGNATURE PAGE OF AGENT, INITIAL PURCHASER, INITIAL HOLDER
ATTACHED TO
SECOND AMENDMENT TO TRANSACTION AGREEMENT
AGENT, INITIAL PURCHASER AND
INITIAL HOLDER:
CITICORP LEASING, INC.,
a Delaware corporation
By:
Name:
Title:
SIGNATURE PAGE OF ADDITIONAL LESSEES
ATTACHED TO
SECOND AMENDMENT TO TRANSACTION AGREEMENT
ADDITIONAL LESSEES AND INDEMNITORS:
PEP BOYS - MANNY, MOE & JACK OF
DELAWARE, INC., a Delaware corporation
By:
Name:
Title:
THE PEP BOYS MANNY, MOE & JACK OF
CALIFORNIA, a California corporation
By:
Name:
Title:
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 11 -
Computation of Earnings per Share
<CAPTION>
(in thousands, except per share data)
- -----------------------------------------------------------------------------------------------------------
Fiscal Year 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings before cumulative effect of change
in accounting principle............................ $100,824 $81,494 $80,008 $65,512 $54,579
Adjustment for interest on $86,250, 4%
convertible subordinated notes, net of income
tax effect......................................... 2,168 2,200 897 - -
Adjustments for interest on $271,704, 4%
zero coupon convertible subordinated notes, net of
income tax effect.................................. 1,409
- ------------------------------------------------------------------------------------------------------------
(a) Adjusted earnings before the cumulative effect of
change in accounting principle..................... 104,401 83,694 80,905 65,512 54,579
- ------------------------------------------------------------------------------------------------------------
(b) Cumulative effect of change in accounting principle. - - (4,300) - -
- -----------------------------------------------------------------------------------------------------------
(c) Adjusted net earnings $104,401 $ 83,694 $76,605 $65,512 $54,579
- ------------------------------------------------------------------------------------------------------------
Average number of common shares outstanding
during the year.................................... 60,305 59,581 59,252 60,805 59,297
Common shares assumed issued upon conversion of
4% convertible subordinated notes.................. 2,104 2,104 873 - -
Common shares assumed issued upon conversion of
4% zero coupon convertible subordinated notes...... 1,303 - - - -
Common shares assumed issued upon exercise
of dilutive stock options, net of assumed
repurchase, at the average market price,
using the treasury stock method (1)................ 893 903 1,313 1,086 1,339
- -----------------------------------------------------------------------------------------------------------
(d) Average number of common shares outstanding
during the year.................................... 64,605 62,588 61,438 61,891 60,636
- ------------------------------------------------------------------------------------------------------------
(e) Earnings per share before cumulative effect of
change in accounting principle (a/d)............... $1.62 $ 1.34 $ 1.32 $ 1.06 $ .90
- ------------------------------------------------------------------------------------------------------------
(f) Cumulative effect of change in accounting
principle (b/d).................................... - - (.07) - -
- ------------------------------------------------------------------------------------------------------------
(g)Net earnings per share (c/d)........................ $1.62 $ 1.34 $ 1.25 $ 1.06 $ .90
- ------------------------------------------------------------------------------------------------------------
<FN>
(1) The number of shares assumed issued upon exercise of dilutive stock options is essentially the same
for fully diluted earnings per share.
</TABLE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 12 - Statement Regarding Computation
of Ratios of Earnings to Fixed Charges
<CAPTION>(in thousands, except ratios)
- -----------------------------------------------------------------------------------------------------------
February 1, February 3, January 28, January 29, January 30,
Fiscal year 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest $30,306 $ 32,072 $ 25,931 $ 19,701 $20,180
Interest factor in rental expense 11,205 7,743 6,157 5,595 4,698
Capitalized interest 1,575 1,407 1,850 1,254 852
- ------------------------------------------------------------------------------------------------------------
(a) Fixed charges, as defined $43,086 $ 41,222 $ 33,938 $ 26,550 $ 25,730
Earnings before income taxes and
cumulative effect of change in
accounting principle $159,229 $129,452 $126,482 $104,508 $ 85,615
Fixed charges 43,086 41,222 33,938 26,550 25,730
Capitalized interest (1,575) (1,407) (1,850) (1,254) (852)
- ------------------------------------------------------------------------------------------------------------
(b) Earnings, as defined $200,740 $169,267 $158,570 $129,804 $110,493
- ------------------------------------------------------------------------------------------------------------
(c) Ratio of earnings to fixed
charges (b/a) 4.7X 4.1x 4.7x 4.9x 4.3x
- ------------------------------------------------------------------------------------------------------------
</TABLE>
[DESCRIPTION]SUBSIDIARIES OF THE COMPANY
Exhibit 21
SUBSIDIARIES OF THE COMPANY
WHERE % OF SHARES
NAME INCORPORATED OWNED
- -----------------------------------------------------------------------------
The Pep Boys-Manny, Moe & Jack
Jack of California
1122 W. Washington Blvd.
Los Angeles, CA 90015 California 100%
Pep Boys- Manny, Moe & Jack
of Delaware, Inc.
3111 W. Allegheny Avenue
Philadelphia, PA 19132 Delaware 100%
Pep Boys- Manny, Moe & Jack
of Puerto Rico, Inc.
3111 W. Allegheny Avenue
Philadelphia, PA 19132 Delaware 100%
Colchester Insurance Company
7 Burlington Square
Burlington, VT 05401 Vermont 100%
PBY Corporation
Suite 946
1105 North Market Street
Wilmington, DE 19899 Delaware 100%
MMJ Corporation
Suite 946
1105 North Market Street
Wilmington, DE 19899 Delaware 100%
Carrus Supply Corporation
1013 Centre Road
Wilmington, DE 19805 Delaware 100%
[DESCRIPTION]INDEPENDENT AUDITORS' CONSENT
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Numbers
2-81733, 33-3420, 33-31765, 33-64248, 33-35592, 33-61429 and 33-32857 of The
Pep Boys - Manny, Moe & Jack and subsidiaries on Forms S-8 of our report dated
March 18, 1997, appearing in the Annual Report on Form 10-K of The Pep Boys -
Manny, Moe & Jack and subsidiaries for the year ended February 1, 1997.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
May 1, 1997
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 1, 1997 AND THE CONSOLIDATED STATEMENT
OF EARNINGS FOR THE FIFTY-TWO WEEK PERIOD ENDED FEBRUARY 1, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-1-1997
<PERIOD-END> FEB-1-1997
<CASH> 2,589
<SECURITIES> 0
<RECEIVABLES> 7,905
<ALLOWANCES> 252
<INVENTORY> 520,082
<CURRENT-ASSETS> 604,918
<PP&E> 1,543,542
<DEPRECIATION> 353,808
<TOTAL-ASSETS> 1,818,365
<CURRENT-LIABILITIES> 534,227
<BONDS> 455,665
0
0
<COMMON> 63,119
<OTHER-SE> 714,972
<TOTAL-LIABILITY-AND-EQUITY> 1,818,365
<SALES> 1,554,757
<TOTAL-REVENUES> 1,828,539
<CGS> 1,070,263
<TOTAL-COSTS> 1,291,020
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,306
<INCOME-PRETAX> 159,229
<INCOME-TAX> 58,405
<INCOME-CONTINUING> 100,824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,824
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.62
</TABLE>
