SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
------------------------
THE PEP BOYS - MANNY, MOE & JACK
(NAME OF ISSUER)
THE PEP BOYS - MANNY, MOE & JACK
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS OF SECURITIES)
713278109
(CUSIP NUMBER OF CLASS OF SECURITIES)
MITCHELL G. LEIBOVITZ
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
THE PEP BOYS - MANNY, MOE & JACK
3111 WEST ALLEGHENY AVENUE
PHILADELPHIA, PENNSYLVANIA 19132
(215) 229-9000
(NAME, ADDRESS AND TELEPHONE NUMBER
OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
<PAGE>
ITEM 1. SECURITY AND ISSUER.
(a) The issuer of the securities to which this Schedule 13E-4 relates is
The Pep Boys - Manny, Moe & Jack, a Pennsylvania corporation (the
"Company"), and the address of its principal executive office is 3111
West Allegheny Avenue, Philadelphia, Pennsylvania 19132.
(b) This Schedule 13E-4 relates to the offer by the Company to purchase up
to 10,000,000 shares (or such lesser number of shares as are validly
tendered and not properly withdrawn) of its common stock, par value
$1.00 per share ("Common Stock") (shares of Common Stock, together with
associated common stock purchase rights issued pursuant to the Rights
Agreement, dated as of December 5, 1997, between the Company and First
Union National Bank, as Rights Agent, are hereinafter referred to as
"Shares"), at prices not greater than $16.00 nor less than $13.50 per
Share, net to the seller in cash, without interest thereon, upon the
terms and subject to the conditions set forth in the Offer to Purchase,
dated December 23, 1998 (the "Offer to Purchase"), and in the related
Letter of Transmittal, which, as amended or supplemented from time to
time, together constitute the "Offer", copies of which are attached as
Exhibit (a)(1) and (a)(2), respectively, to this Schedule 13E-4. The
Offer is conditioned upon, among other things, the Company having
obtained sufficient financing to fund the purchase of Shares tendered
pursuant to the Offer and to pay all related fees and expenses. As of
December 22, 1998, the Company had issued and outstanding 63,825,110
Shares. The Company has been advised that none of its directors or
executive officers intends to tender any Shares pursuant to the Offer.
The information set forth in "Introduction", "The Offer -- Section 1.
Number of Shares; Proration" and "The Offer -- Section 11. Interests of
Directors and Executive Officers; Transactions and Arrangements
Concerning Shares" of the Offer to Purchase is incorporated herein by
reference.
(c) The information set forth in "Introduction" and "The Offer -- Section 8.
Price Range of Shares; Dividends" of the Offer to Purchase is
incorporated herein by reference.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in "Introduction", "The Offer -- Section 2.
Purpose of the Offer; Certain Effects of the Offer" and "The Offer --
Section 9. Source and Amount of Funds" of the Offer to Purchase is
incorporated herein by reference.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
(a)-(j) The information set forth in "Introduction", "The Offer -- Section 2.
Purpose of the Offer; Certain Effects of the Offer", "The Offer --
Section 9. Source and Amount of Funds", "The Offer -- Section 11.
Interests of Directors and Executive Officers; Transactions and
Arrangements Concerning Shares" and "The Offer -- Section 12. Effects of
the Offer on the Market for Shares; Registration under the Exchange Act"
of the Offer to Purchase is incorporated herein by reference.
2
<PAGE>
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth in "The Offer -- Section 11. Interests of Directors
and Executive Officers; Transactions and Arrangements Concerning Shares" of the
Offer to Purchase is incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
The information set forth in "Introduction", "The Offer -- Section 2. Purpose of
the Offer; Certain Effects of the Offer" and "The Offer -- Section 11. Interests
of Directors and Executive Officers; Transactions and Arrangements Concerning
Shares" of the Offer to Purchase is incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in "Introduction" and "The Offer -- Section 16. Fees
and Expenses" of the Offer to Purchase is incorporated herein by reference.
ITEM 7. FINANCIAL INFORMATION.
(a)-(b) The information set forth in "The Offer -- Section 10. Certain
Information Concerning the Company" of the Offer to Purchase is
incorporated herein by reference and the information set forth on: (i)
pages 25 through 42 of the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998, filed as Exhibit (g)(1) hereto, and
(ii) pages 2 through 7 of the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 31, 1998, filed as Exhibit (g)(2)
hereto, in each case, is incorporated herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) The information set forth in "The Offer -- Section 13. Certain Legal
Matters; Regulatory Approvals" of the Offer to Purchase is incorporated
herein by reference.
(c) The information set forth in "The Offer -- Section 12. Effects of the
Offer on the Market for Shares; Registration under the Exchange Act" of
the Offer to Purchase is incorporated herein by reference.
(d) Not Applicable.
(e) The information set forth in the Offer to Purchase and Letter of
Transmittal, copies of which are attached hereto as Exhibit (a)(1) and
(a)(2), respectively, is incorporated herein by reference.
3
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Form of Offer to Purchase dated December 23, 1998.
(a)(2) Form of Letter of Transmittal (including Certification of Taxpayer
Identification Number on Substitute Form W-9).
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
(a)(5) Form of Letter to Clients for Use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(6) Form of Letter to Optionees for Use with respect to The Pep Boys -
Manny, Moe & Jack Flexitrust.
(a)(7) Form of Press Release issued by the Company dated December 22, 1998.
(a)(8) Form of Summary Advertisement dated December 23, 1998.
(a)(9) Form of Letter to Shareholders of the Company dated December 23, 1998,
from Mitchell G. Leibovitz, President and Chief Executive Officer.
(a)(10) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(b)(1) Amended and Restated Credit Agreement, dated as of April 21, 1995,
among the Company, the guarantors and banks registry thereto and
The Chase Manhattan Bank, as agent.
(b)(2) Amendment No. 1 to the Amended and Restated Credit Agreement, dated as
of March 18, 1998.
(b)(3) Amendment No. 2 to the Amended and Restated Credit Agreement, dated as
of July 31, 1998.
(b)(4) Amendment No. 3 to the Amended and Restated Credit Agreement, dated as
of October 31, 1998.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g)(1) Pages 25 through 42 of the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998.
(g)(2) Pages 2 through 7 of the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 1998.
4
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Schedule 13E-4 is true, complete and
correct.
THE PEP BOYS - MANNY, MOE & JACK
By: /s/ Mitchell G. Leibovitz
-----------------------------------------
Mitchell G. Leibovitz
Chairman of the Board,
Chief Executive Officer and President
Dated: December 23, 1998
5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
(a)(1) Form of Offer to Purchase dated December 23, 1998.
(a)(2) Form of Letter of Transmittal (including Certification of Taxpayer
Identification Number on Substitute Form W-9).
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
(a)(5) Form of Letter to Clients for Use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(6) Form of Letter to Optionees for Use with respect to The Pep Boys -
Manny, Moe & Jack Flexitrust.
(a)(7) Form of Press Release issued by the Company dated December 22, 1998.
(a)(8) Form of Summary Advertisement dated December 23, 1998.
(a)(9) Form of Letter to Shareholders of the Company dated December 23, 1998,
from Mitchell G. Leibovitz, President and Chief Executive Officer.
(a)(10) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(b)(1) Amended and Restated Credit Agreement, dated as of April 21, 1995,
among the Company, the guarantors and banks registry thereto and
The Chase Manhattan Bank, as agent.
(b)(2) Amendment No. 1 to the Amended and Restated Credit Agreement, dated as
of March 18, 1998.
(b)(3) Amendment No. 2 to the Amended and Restated Credit Agreement, dated as
of July 31, 1998.
(b)(4) Amendment No. 3 to the Amended and Restated Credit Agreement, dated as
of October 31, 1998.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g)(1) Pages 25 through 42 of the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1998.
(g)(2) Pages 2 through 7 of the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended October 31, 1998.
<PAGE>
PEP BOYS
[GRAPHIC OMITTED]
THE PEP BOYS -- MANNY, MOE & JACK
Offer To Purchase For Cash Up To
10,000,000 Shares Of Its Common Stock
At A Purchase Price Not Greater Than $16.00
Nor Less Than $13.50 Per Share
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED.
The Pep Boys -- Manny, Moe & Jack, a Pennsylvania corporation (the "Company"),
hereby invites its shareholders to tender up to 10,000,000 shares of its common
stock, par value $1.00 per share ("Common Stock") (shares of Common Stock,
together with associated common stock purchase rights issued pursuant to the
Rights Agreement, dated as of December 5, 1997, between the Company and First
Union National Bank, as Rights Agent, are hereinafter referred to as "Shares"),
to the Company at prices not greater than $16.00 nor less than $13.50 per
Share, net to the seller in cash, without interest thereon, as specified by
tendering shareholders, upon the terms and subject to the conditions set forth
herein and in the related Letter of Transmittal (which, as amended or
supplemented from time to time, together constitute the "Offer").
The Company will, upon the terms and subject to the conditions of the Offer,
determine the lowest single per Share price (not greater than $16.00 nor less
than $13.50 per Share), net to the seller in cash (the "Purchase Price"), that
will allow it to purchase 10,000,000 Shares (or such lesser number of Shares as
are validly tendered and not properly withdrawn) pursuant to the Offer. The
Company will pay the Purchase Price for all Shares validly tendered at prices
at or below the Purchase Price and not withdrawn, upon the terms and subject to
the conditions of the Offer, including, among other things, the financing
condition and the proration and conditional tender provisions referred to
herein. Certificates representing Shares tendered at prices in excess of the
Purchase Price and not properly withdrawn and Shares not purchased because of
proration will be returned at the Company's expense. The Company reserves the
right, in its sole discretion, to purchase more than 10,000,000 Shares pursuant
to the Offer. See Section 15, "Extension of Offer; Termination; Amendment".
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.
THE OFFER IS, HOWEVER, CONDITIONED UPON THE COMPANY HAVING OBTAINED SUFFICIENT
FINANCING TO FUND THE PURCHASE OF SHARES TENDERED IN THE OFFER AND PAY ALL
RELATED FEES AND EXPENSES. THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER
CONDITIONS. See Section 7, "Certain Conditions of The Offer".
The Shares are listed and traded on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "PBY". On December 22, 1998, the last full trading day
on the NYSE prior to the commencement of the Offer, the closing per Share sales
price as reported on the NYSE Composite Tape was $13.50. SHAREHOLDERS ARE URGED
TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. See Section 8, "Price Range
of Shares; Dividends".
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER, NEITHER
THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO SHAREHOLDERS
AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES. EACH
SHAREHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW
MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH SHARES SHOULD BE
TENDERED. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE
OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER.
The Dealer Manager for the Offer is:
[CREDIT SUISSE FIRST BOSTON LOGO]
December 23, 1998
<PAGE>
IMPORTANT
Any shareholder wishing to tender all or any part of his or her Shares
should either (a) complete and sign a Letter of Transmittal (or a manually
signed facsimile thereof) in accordance with the instructions in the Letter of
Transmittal and either mail or deliver it with any required signature guarantee
and any other required documents to American Stock Transfer and Trust Company
(the "Depositary"), and either mail or deliver the stock certificates for such
tendered Shares to the Depositary (with all such other documents), (b) tender
such Shares pursuant to the procedure for book-entry delivery set forth in
Section 3, or (c) request a broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for such shareholder. Shareholders
having Shares registered in the name of a broker, dealer, commercial bank,
trust company or other nominee must contact that broker, dealer, commercial
bank, trust company or other nominee if they desire to tender their Shares. Any
shareholder who desires to tender Shares and whose certificates for such Shares
cannot be delivered to the Depositary or who cannot comply with the procedure
for book-entry transfer or whose other required documents cannot be delivered
to the Depositary, in any case, by the expiration of the Offer must tender such
Shares pursuant to the guaranteed delivery procedure set forth in Section 3.
TO EFFECT A VALID TENDER OF SHARES, SHAREHOLDERS MUST VALIDLY COMPLETE THE
LETTER OF TRANSMITTAL, INCLUDING THE SECTION RELATING TO THE PRICE AT WHICH
THEY ARE TENDERING SHARES.
Additional copies of this Offer to Purchase, the Letter of Transmittal and
other tender offer materials may be obtained from MacKenzie Partners, Inc.,
which is acting as Information Agent (the "Information Agent"), or from Credit
Suisse First Boston Corporation, which is acting as Dealer Manager (the "Dealer
Manager"), and will be furnished at the Company's expense. Questions and
requests for assistance may be directed to the Information Agent or the Dealer
Manager at their respective addresses and telephone numbers set forth on the
back cover of this Offer to Purchase. Shareholders may also contact their local
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
THE COMPANY HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON
BEHALF OF THE COMPANY AS TO WHETHER SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM
TENDERING SHARES PURSUANT TO THE OFFER. THE COMPANY HAS NOT AUTHORIZED ANY
PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH
THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE RELATED LETTER OF
TRANSMITTAL. IF GIVEN OR MADE, ANY SUCH RECOMMENDATION OR ANY SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY.
2
<PAGE>
TABLE OF CONTENTS
PAGE
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SUMMARY ............................................................. 4
INTRODUCTION ........................................................ 6
THE OFFER ........................................................... 9
1. NUMBER OF SHARES; PRORATION ..................................... 9
2. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER .............. 11
3. PROCEDURES FOR TENDERING SHARES ................................. 14
4. WITHDRAWAL RIGHTS ............................................... 18
5. PURCHASE OF SHARES AND PAYMENT OF PURCHASE PRICE ................ 19
6. CONDITIONAL TENDER OF SHARES .................................... 20
7. CERTAIN CONDITIONS OF THE OFFER ................................. 20
8. PRICE RANGE OF SHARES; DIVIDENDS ................................ 22
9. SOURCE AND AMOUNT OF FUNDS ...................................... 22
10. CERTAIN INFORMATION CONCERNING THE COMPANY ..................... 23
11. INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS
AND ARRANGEMENTS CONCERNING SHARES .............................. 25
12. EFFECTS OF THE OFFER ON THE MARKET FOR SHARES; REGISTRATION
UNDER THE EXCHANGE ACT .......................................... 26
13. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS .................... 26
14. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES .......... 27
15. EXTENSION OF OFFER; TERMINATION; AMENDMENT ..................... 29
16. FEES AND EXPENSES .............................................. 30
17. MISCELLANEOUS .................................................. 30
3
<PAGE>
SUMMARY
This general summary is solely for the convenience of the Company's
shareholders and is qualified in its entirety by reference to the full text and
more specific details in this Offer to Purchase and the related Letter of
Transmittal.
<TABLE>
<S> <C>
Number of Shares to be Purchased ......... 10,000,000 Shares (or such lesser number of
as are validly tendered pursuant to the Offer
and not properly withdrawn).
Purchase Price ........................... The Company will, upon the terms and
subject to the conditions of the Offer, determine
the lowest single per Share price (not greater
than $16.00 nor less than $13.50 per Share)
net to the seller in cash, without interest
thereon, that will allow it to purchase
10,000,000 Shares (or such lesser number of
Shares as are validly tendered and not
properly withdrawn) pursuant to the Offer. The
Company will pay the Purchase Price for all
Shares validly tendered at prices at or below
the Purchase Price and not properly
withdrawn, upon the terms and subject to the
conditions of the Offer. Each shareholder desiring
to tender Shares must specify in the Letter of
Transmittal the minimum price (not greater
than $16.00 nor less than $13.50 per Share)
at which such shareholder is willing to have
his or her Shares purchased by the Company.
Conditions to the Offer .................. The Offer is conditioned upon the Company's
having obtained sufficient financing to fund
the purchase of Shares tendered in the Offer
and pay all related fees and expenses, as
described in Section 2. The Offer is also
subject to certain other conditions. See Section 7,
"Certain Conditions of the Offer".
How to Tender Shares ..................... See Section 3, "Procedures for Tendering
Shares". Call the Information Agent, the
Dealer Manager or your broker for assistance.
Brokerage Commissions .................... None for registered shareholders who tender
their Shares directly to the Depositary.
Shareholders holding Shares through brokers or
banks are urged to consult their brokers or
banks to determine whether transaction costs
are applicable if shareholders tender through
the brokers or banks and not directly to the
Depositary.
Stock Transfer Tax ....................... None, if payment is made to the registered
holder.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Expiration and Proration Dates ........... Friday, January 22, 1999 at 12:00 Midnight,
New York City time, unless the Offer is
extended by the Company (the "Expiration
Date").
Proration ................................ In the event that proration of tendered Shares
is required, proration for each shareholder
tendering Shares, other than Odd Lot Holders
(as defined below), shall be based on the ratio
of the number of Shares tendered by such
shareholder at or below the Purchase Price
(and not properly withdrawn prior to the
Expiration Date) to the total number of Shares
tendered by all shareholders, other than Odd Lot
Holders, at or below the Purchase Price (and
not properly withdrawn prior to the Expiration
Date).
Odd Lots ................................. There will be no proration of Shares tendered
by any shareholder owning beneficially fewer
than 100 Shares in the aggregate as of the
close of business on December 22, 1998 and
as of the Expiration Date, who tenders all
such Shares at or below the Purchase Price
prior to the Expiration Date and who checks
the "Odd Lots" box in the Letter of Transmittal,
and, if applicable, on the Notice of
Guaranteed Delivery (an "Odd Lot Holder"). See
Section 1, "Number of Shares; Proration".
Payment Date ............................. As soon as practicable after the Expiration
Date.
Position of the Company and its Directors. Neither the Company nor its Board of
Directors makes any recommendation to any
shareholder as to whether to tender or refrain
from tendering Shares. Shareholders must
make their own decisions whether to tender
Shares and, if so, how many Shares to tender
and the price or prices at which Shares should
be tendered. The Company has been advised
that none of its directors or executive officers
intends to tender any Shares pursuant to the
Offer.
Withdrawal Rights ........................ Tendered Shares may be withdrawn at any
time prior to the expiration of the Offer (12:00
Midnight, New York City time, on the
Expiration Date) and, unless previously purchased,
may also be withdrawn at any time after 12:00
Midnight, New York City time, on February 22,
1999. See Section 4, "Withdrawal Rights".
Further Developments Regarding the Offer . Call the Information Agent, the Dealer
Manager or your broker.
</TABLE>
5
<PAGE>
To the Holders of Shares of Common Stock of The Pep Boys -- Manny, Moe & Jack:
INTRODUCTION
The Pep Boys -- Manny, Moe & Jack, a Pennsylvania corporation (the
"Company"), hereby invites its shareholders to tender up to 10,000,000 shares
of its common stock, par value $1.00 per share ("Common Stock") (shares of
Common Stock, together with associated common stock purchase rights issued
pursuant to the Rights Agreement, dated as of December 5, 1997, between the
Company and First Union National Bank, as Rights Agent, are hereinafter
referred to as "Shares"), to the Company at prices not greater than $16.00 nor
less than $13.50 per Share, net to the seller in cash, without interest
thereon, as specified by tendering shareholders, upon the terms and subject to
the conditions set forth herein and in the related Letter of Transmittal
(which, as amended or supplemented from time to time, together constitute the
"Offer").
The Company will, upon the terms and subject to the conditions of the
Offer, determine the lowest single per Share price (not greater than $16.00 nor
less than $13.50 per Share), net to the seller in cash (the "Purchase Price"),
that will allow it to purchase 10,000,000 Shares (or such lesser number of
Shares as are validly tendered and not properly withdrawn) pursuant to the
Offer. The Company will pay the Purchase Price for all Shares validly tendered
at prices at or below the Purchase Price and not properly withdrawn, upon the
terms and subject to the conditions of the Offer, including the financing
condition and the proration and conditional tender provisions referred to
herein. Certificates representing Shares tendered at prices in excess of the
Purchase Price and not properly withdrawn and Shares not purchased because of
proration or conditional tender will be returned at the Company's expense. The
Company reserves the right, in its sole discretion, to purchase more than
10,000,000 Shares pursuant to the Offer. See Section 15, "Extension of Offer;
Termination; Amendment".
The Company's obligation to purchase Shares pursuant to the Offer is
conditioned upon, among other things, the Company's obtaining sufficient
financing to fund the purchase of Shares tendered pursuant to the Offer and to
pay all related fees and expenses. See Section 2, "Purpose of the Offer;
Certain Effects of the Offer" and Section 7, "Certain Conditions of the Offer".
As described in Section 2, the Company intends to undertake an issuance
and sale (the "Financing") of senior notes of the Company (the "Senior Notes").
The Financing may be structured as a private placement, or as a public offering
registered pursuant to the Securities Act of 1933, as amended (the "Securities
Act"). The Financing is expected to be committed to immediately prior to the
expiration of the Offer. See Section 2, "Purpose of the Offer; Certain Effects
of the Offer". If the Financing has not been committed to on or prior to the
initial Expiration Date, the Company intends to extend the Expiration Date from
time to time for a period not to extend beyond February 22, 1999 until such
Financing has been consummated and the other conditions to the Offer have been
satisfied or waived. To the extent necessary or desirable, the Company, at its
sole discretion, may supplement the proceeds of the Financing with cash on hand
and/or borrowings under the Credit Agreement (as defined herein). As of October
31, 1998, the Company had $97 million in cash and cash equivalents and $200
million of availability under the Credit Agreement.
THIS OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED IN THE OFFER. THE OFFER IS, HOWEVER, SUBJECT TO OTHER CONDITIONS. SEE
SECTION 7, "CERTAIN CONDITIONS OF THE OFFER".
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
SHAREHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES.
EACH SHAREHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO,
HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH SHARES SHOULD BE
TENDERED. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE
OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER.
6
<PAGE>
The Company's Board of Directors believes that the Offer is in the best
interests of the Company. The Offer affords to those shareholders who desire
liquidity an opportunity to sell all or a portion of their Shares without the
usual transaction costs associated with open market sales. The Company believes
that the Offer and the Financing will be accretive to earnings per share (on
both a basic and diluted basis) in the Company's fiscal year ending January 29,
2000, but there can be no assurance to that effect.
The Offer provides shareholders who are considering a sale of all or a
portion of their Shares the opportunity to determine the price or prices (not
greater than $16.00 nor less than $13.50 per Share) at which they are willing
to sell their Shares and, if any such Shares are purchased pursuant to the
Offer, to sell those Shares for cash to the Company. Shareholders who determine
not to accept the Offer will increase their proportionate interest in the
Company's equity, and thus in the Company's future earnings and assets, subject
to the Company's right to issue additional Shares and other equity securities
in the future.
Upon the terms and subject to the conditions of the Offer, if, at the
expiration of the Offer, more than 10,000,000 Shares (or such greater number of
Shares as the Company may elect to purchase) are validly tendered at prices at
or below the Purchase Price and not properly withdrawn, the Company will
purchase Shares validly tendered and not properly withdrawn first from all Odd
Lot Holders (as defined in Section 1) who validly tendered all their Shares at
or below the Purchase Price and who so certify in the appropriate place on the
Letter of Transmittal and, if applicable, on the Notice of Guaranteed Delivery,
and then, after the purchase of all of the foregoing Shares, all Shares
tendered at or below the Purchase Price and not properly withdrawn prior to the
Expiration Date, on a pro rata basis (with appropriate adjustments to avoid
purchase of fractional Shares). See Section 1, "Number of Shares; Proration".
All certificates representing Shares not purchased pursuant to the Offer,
including Shares tendered at prices greater than the Purchase Price and not
properly withdrawn and Shares not purchased because of proration, will be
returned at the Company's expense to the shareholders who tendered such Shares.
The Purchase Price will be paid net to the tendering shareholder in cash
for all Shares purchased. Tendering shareholders who have shares registered in
their own name and who tender directly to the Depositary will not be obligated
to pay brokerage commissions, solicitation fees or, subject to Instruction 7 of
the Letter of Transmittal, stock transfer taxes on the purchase of Shares by
the Company. Shareholders holding Shares through brokers or banks are urged to
consult such brokers or banks to determine whether transaction costs are
applicable if such Shareholders tender Shares through the brokers and banks and
not directly to the Depositary. HOWEVER, ANY TENDERING SHAREHOLDER OR OTHER
PAYEE WHO FAILS TO COMPLETE, SIGN AND RETURN TO THE DEPOSITARY THE SUBSTITUTE
FORM W-9 THAT IS INCLUDED WITH THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO
REQUIRED UNITED STATES FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE
GROSS PROCEEDS PAYABLE TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE
OFFER. SEE SECTION 3, "PROCEDURES FOR TENDERING SHARES". The Company will pay
all fees and expenses of Credit Suisse First Boston Corporation ("Credit Suisse
First Boston" or "CSFB"), who will act as dealer manager for the Offer (the
"Dealer Manager"), American Stock Transfer and Trust Company, who will act as
the depositary for the Offer (the "Depositary") and MacKenzie Partners, Inc.,
who will act as information agent for the Offer (the "Information Agent"),
incurred in connection with the Offer. See Section 16, "Fees and Expenses".
As of December 22, 1998, the Company had issued and outstanding 63,825,110
Shares and had reserved 10,263,790 Shares for issuance upon exercise of
outstanding stock options and convertible debt securities. The 10,000,000
Shares that the Company is offering to purchase pursuant to the Offer represent
approximately 15.7% of the issued and outstanding Shares. The Shares are listed
and traded on the New York Stock Exchange, Inc. (the "NYSE") under the symbol
"PBY". On December 22, 1998, the last full trading day on the NYSE prior to the
commencement of the Offer, the closing per Share sales price as reported on the
NYSE Composite Tape was $13.50. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE SHARES. SEE SECTION 8, "PRICE RANGE OF SHARES; DIVIDENDS".
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The Company maintains The Pep Boys -- Manny, Moe & Jack Flexitrust (the
"Flexitrust") for the benefit of certain of its employee benefit plans. Holders
of options to purchase Shares under such plans may instruct First Union
National Bank, the trustee under the Flexitrust, to tender all or a portion of
the Shares held in the Flexitrust by following the instructions set forth in
Section 3, "Procedures for Tendering Shares".
The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase
Plan (the "Dividend Reinvestment and Stock Purchase Plan") holds Shares for
participants thereunder. Participants may instruct American Stock Transfer and
Trust Company, the administrator of the Dividend Reinvestment Plan, to tender
all or a portion of the Shares attributable to a participant's individual
account by following the instructions set forth in Section 3, "Procedures for
Tendering Shares".
The decision as whether to tender Shares attributable to the accounts of
participants in each of The Pep Boys -- Manny, Moe & Jack Savings Plan and The
Pep Boys -- Manny, Moe & Jack Savings Plan -- Puerto Rico and the determination
as to the price at which such Shares will be tendered, if any, will be made by
the trustee of the applicable plan upon the direction of the administrative
committee of such plan.
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THE OFFER
1. NUMBER OF SHARES; PRORATION.
Upon the terms and subject to the conditions of the Offer, the Company
will purchase 10,000,000 Shares or such lesser number of Shares as are validly
tendered (and not properly withdrawn in accordance with Section 4) prior to the
Expiration Date (as defined below) at prices not greater than $16.00 nor less
than $13.50 per Share. The term "Expiration Date" means 12:00 Midnight, New
York City time, on Friday, January 22, 1999, unless and until the Company, in
its sole discretion, shall have extended the period of time during which the
Offer will remain open, in which event the term "Expiration Date" shall refer
to the latest time and date at which the Offer, as so extended by the Company,
shall expire. See Section 15, "Extension of Offer; Termination; Amendment", for
a description of the Company's right to extend, delay, terminate or amend the
Offer. The Company reserves the right, in its sole discretion, to purchase more
than 10,000,000 Shares pursuant to the Offer. In accordance with applicable
regulations of the Securities and Exchange Commission (the "Commission"), the
Company may purchase pursuant to the Offer an additional amount of Shares not
to exceed 2% of the outstanding Shares without amending or extending the Offer.
See Section 15, "Extension of Offer; Termination; Amendment". In the event of
an over-subscription of the Offer as described below, Shares tendered at or
below the Purchase Price prior to the Expiration Date will be eligible for
proration, except for Odd Lots (as defined below), as explained below. The
proration period also expires on the Expiration Date.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE COMPANY'S HAVING
OBTAINED SUFFICIENT FINANCING TO FUND THE PURCHASE OF SHARES TENDERED IN THE
OFFER AND TO PAY ALL RELATED FEES AND EXPENSES.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED IN THE OFFER. THE OFFER IS, HOWEVER, SUBJECT TO OTHER CONDITIONS. SEE
SECTION 7, "CERTAIN CONDITIONS OF THE OFFER".
In accordance with Instruction 5 of the Letter of Transmittal,
shareholders desiring to tender Shares must specify the price or prices (not
greater than $16.00 nor less than $13.50 per Share) at which they are willing
to sell their Shares to the Company. As promptly as practicable following the
Expiration Date, the Company will, in its sole discretion, determine the
Purchase Price that will allow it to purchase 10,000,000 Shares (or such lesser
number of Shares as are validly tendered and not properly withdrawn) pursuant
to the Offer. The Company will pay the Purchase Price, even if such Shares were
tendered below the Purchase Price, for all Shares validly tendered prior to the
Expiration Date at or below the Purchase Price and not properly withdrawn, upon
the terms and subject to the conditions of the Offer, including the financing
condition and the proration and conditional tender provisions referred to
herein. All Shares tendered and not purchased pursuant to the Offer, including
Shares tendered at prices in excess of the Purchase Price and not properly
withdrawn and Shares not purchased because of proration or conditional tender,
will be returned to the tendering shareholders at the Company's expense as
promptly as practicable following the Expiration Date. The Company reserves the
right, in its sole discretion, to purchase more than 10,000,000 Shares pursuant
to the Offer. See Section 15, "Extension of Offer; Termination; Amendment".
Priority of Purchases. Upon the terms and subject to the conditions of the
Offer, if more than 10,000,000 Shares (or such greater number of Shares as the
Company may elect to purchase pursuant to the Offer) have been validly tendered
at prices at or below the Purchase Price and not properly withdrawn, the
Company will purchase Shares validly tendered and not properly withdrawn on the
basis set forth below:
(i) all Shares tendered and not withdrawn prior to the Expiration Date
by any Odd Lot Holder (as defined below) who:
(a) tenders all Shares beneficially owned by such Odd Lot Holder at a
price at or below the Purchase Price (tenders of fewer than all Shares
owned by such shareholder will not qualify for this preference); and
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(b) completes the box captioned "Odd Lots" on the Letter of
Transmittal and, if applicable, on the Notice of Guaranteed Delivery;
(ii) after purchase of all of the foregoing Shares, all Shares
conditionally tendered in accordance with Section 6 for which the condition
was satisfied, and all Shares tendered unconditionally at prices at or
below the Purchase Price and not withdrawn prior to the Expiration Date, on
a pro rata basis (with appropriate adjustments to avoid purchases of
fractional Shares) as described below; and
(iii) if necessary, Shares conditionally tendered for which the
condition was not satisfied, at or below the Purchase Price and not
withdrawn prior to the Expiration Date, selected by random lot in
accordance with Section 6.
Odd Lots. For purposes of the Offer, the term "Odd Lots" shall mean all
Shares validly tendered prior to the Expiration Date at prices at or below the
Purchase Price and not properly withdrawn by any person who owned beneficially
as of the close of business on December 22, 1998, and continues to own
beneficially as of the Expiration Date, an aggregate of fewer than 100 Shares
(and so certified in the appropriate place on the Letter of Transmittal and, if
applicable, on the Notice of Guaranteed Delivery) (an "Odd Lot Holder"). As set
forth above, Odd Lots will be accepted for payment before proration, if any, of
the purchase of other tendered Shares. In order to qualify for this preference,
an Odd Lot Holder must tender all such Shares in accordance with the procedures
described in Section 3. This preference is not available to partial tenders or
to beneficial holders of an aggregate of 100 or more Shares, even if such
holders have separate accounts or certificates representing fewer than 100
Shares. By accepting the Offer, an Odd Lot Holder who has Shares registered in
his or her name and who tenders directly to the Depositary would not only avoid
the payment of brokerage commissions but also would avoid any applicable odd
lot discounts in a sale of such holder's Shares. Any Odd Lot Holder wishing to
tender all of such shareholder's Shares should complete the box captioned "Odd
Lots" on the Letter of Transmittal and, if applicable, on the Notice of
Guaranteed Delivery.
The Company also reserves the right, but will not be obligated, to
purchase all Shares validly tendered and not properly withdrawn by any
shareholder who tendered all Shares owned beneficially at or below the Purchase
Price and who, as a result of proration, would then own, beneficially an
aggregate of fewer than 100 Shares. If the Company exercises this right, it
will increase the number of Shares that it is offering to purchase by the
number of Shares purchased through the exercise of such right.
Proration. In the event that proration of tendered Shares is required, the
Company will determine the proration factor as soon as practicable following
the Expiration Date. Proration for each shareholder tendering Shares, other
than Odd Lot Holders, shall be based on the ratio of the number of Shares
tendered by such shareholder at or below the Purchase Price (and not withdrawn)
to the total number of Shares tendered by all shareholders, other than Odd Lot
Holders, at or below the Purchase Price (and not withdrawn), subject to the
conditional tender provisions in Section 6. Because of the difficulty in
determining the number of Shares validly tendered (including Shares tendered by
guaranteed delivery procedures, as described in Section 3) and not properly
withdrawn, and because of the odd lot procedure, the Company does not expect
that it will be able to announce the final proration factor or commence payment
for any Shares purchased pursuant to the Offer until approximately seven NYSE
trading days after the Expiration Date. The preliminary results of any
proration will be announced by press release as promptly as practicable after
the Expiration Date. Shareholders may obtain such preliminary information from
the Information Agent and may be able to obtain such information from their
brokers.
The Letter of Transmittal affords each tendering shareholder the
opportunity to designate the order of priority in which Shares tendered are to
be purchased in the event of proration. The order of purchase may have an
effect on the United States federal income tax classification of any gain or
loss on the Shares purchased. In addition, the number of Shares that the
Company will purchase from a shareholder may affect the United States federal
income tax consequences to the shareholder of such purchase and therefore may
be relevant to a shareholder's decision whether to tender Shares and whether to
tender Shares on the condition that a specified minimum number, if any, is
purchased. See Section 6, "Conditional Tender of Shares" and Section 14,
"Certain United States Federal Income Tax Consequences".
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This Offer to Purchase and the related Letter of Transmittal was mailed to
record holders of Shares on December 23, 1998 and will be furnished to brokers,
banks and similar persons whose names, or the names of whose nominees, appear
on the Company's shareholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Shares.
2. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER.
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS DUE TO FACTORS
BEYOND THE CONTROL OF THE COMPANY, INCLUDING THE STRENGTH OF THE NATIONAL AND
REGIONAL ECONOMIES AND CONSUMERS' ABILITY TO SPEND, THE HEALTH OF VARIOUS
SEGMENTS OF THE MARKET THAT THE COMPANY SERVES, THE WEATHER IN GEOGRAPHICAL
REGIONS WITH A HIGH CONCENTRATION OF THE COMPANY'S STORES, COMPETITIVE PRICING,
LOCATION AND NUMBER OF COMPETITORS' STORES, PRODUCT COSTS, THE ABILITY TO
ATTRACT AND RETAIN QUALIFIED PERSONNEL, THE ABILITY TO ACQUIRE REAL ESTATE,
FACILITIES AND EQUIPMENT, THE ABILITY TO ESTABLISH A SUCCESSFUL COMMERCIAL
DELIVERY PROGRAM AND THE ABILITY TO CONTINUE TO REDUCE INVENTORY LEVELS.
FURTHER FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED
TO, THE MATTERS DISCUSSED BELOW AS WELL AS THE FACTORS DESCRIBED IN THE
COMPANY'S FILINGS WITH THE COMMISSION.
The Offer
The Offer provides shareholders who are considering a sale of all or a
portion of their Shares with the opportunity to determine the price or prices
(not greater than $16.00 nor less than $13.50 per Share) at which they are
willing to sell their Shares and, subject to the terms and conditions of the
Offer, to sell those Shares for cash without the usual transaction costs
associated with market sales. In addition, shareholders owning fewer than 100
Shares whose Shares are registered in their own name and who tender directly to
the Depositary and whose Shares are purchased pursuant to the Offer not only
will avoid the payment of brokerage commissions but also will avoid any
applicable odd lot discounts payable on a sale of their Shares. The Offer also
allows shareholders to sell a portion of their Shares while retaining a
continuing equity interest in the Company.
The Company's Board of Directors believes that the Offer is in the best
interests of the Company. The Offer affords to those shareholders who desire
liquidity an opportunity to sell all or a portion of their Shares without the
usual transaction costs associated with open market sales. The Company believes
that the Offer and the Financing will be accretive to earnings per share (on
both a basic and a diluted basis) in the Company's fiscal year ending January
29, 2000, but there can be no assurance to that effect.
Shareholders who determine not to accept the Offer will increase their
proportionate interest in the Company's equity, and thus in the Company's
future earnings and assets, subject to the Company's right to issue additional
Shares and other equity securities in the future.
In April 1998, the Company engaged CSFB as its financial advisor to assist
the Company in reviewing its business operations, financial condition and
prospects, including, strategic alternatives. The Company in recent years has
been negatively impacted by difficult conditions in the "do-it-yourself"
customer segment of the automotive aftermarket. In response to these
conditions, the Company has adopted strategic initiatives which it believes may
mitigate the negative impact on the Company. For example, in October 1998, in
order to decrease its exposure to the "do-it-yourself" segment, the Company
closed 109 of its non-service/non-tire format Pep Boys Express stores and sold
the real estate assets related to 100 of such stores. This initiative will
allow the Company to place a greater focus on its more profitable Supercenter
format stores. The Company also completed the introduction of its
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commercial parts delivery program in July 1998, which is designed to target the
"buy-for-resale" customer segment. In addition, the Company has decreased its
rate of new store expansion, which will result in significantly lower capital
expenditures than in past years.
As a result of these initiatives, the Company believes that it is in a
better position to achieve an operational turnaround. There are, however, many
uncertainties associated with realizing such a turnaround, and no assurances
can be given that the Company's efforts will succeed.
The Board of Directors has determined that the Company's financial
condition and outlook and current market conditions, including recent trading
prices of the Shares, make this an attractive time to repurchase a significant
portion of the outstanding Shares. In the view of the Board of Directors, the
Offer represents an attractive investment for the Company and use of the
Company's cash generation abilities that should benefit the Company and its
shareholders over the long term.
In deciding to approve the Offer, the Board of Directors took into account
the expected financial impact of the Offer, including the increased interest
expense and financial and operating constraints associated with the financing
required to fund the Offer. The Company's credit ratings may decrease as a
result of the Offer and the related financing. The Company believes that its
cash, short-term investments and access to credit facilities following the
completion of the Offer, together with its anticipated cash flow from
operations, are adequate for its needs in the foreseeable future.
The magnitude of the purchase of Shares in the Offer is substantial. The
Board of Directors took into account that, if the Offer were fully subscribed
and the purchase of Shares were made at the maximum per Share price, the Offer
would have the effect of reducing the outstanding Shares by approximately 15.7%
at an aggregate cost of approximately $163.2 million and reducing the Company's
stockholders' equity from $837.3 million at October 31, 1998 to $676.2 million,
on a pro forma basis. This expenditure by the Company will be financed as
described in Section 2.
From time to time, the Company has had discussions with, and has been
approached by, third parties expressing varying degrees of interest in a
possible acquisition of, investment in or a combination with the Company. These
discussions were preliminary in nature and did not result in any proposals
being recommended to the Board of Directors. In reviewing the Offer, the Board
of Directors reviewed the Company's strategic business plans and was made aware
of such discussions.
Shares that the Company acquires pursuant to the Offer will become
authorized Shares held in treasury and will be available for reissuance by the
Company without further shareholder action (except as may be required by
applicable law or the rules of any securities exchange on which the Shares are
listed). Subject to applicable state laws and NYSE rules, such Shares could be
issued without shareholder approval for, among other things, acquisitions, the
raising of additional capital for use in the Company's business, repayment in
shares of certain outstanding indebtedness, share dividends or in connection
with stock option plans and other plans, or a combination thereof.
The Company may in the future purchase additional Shares on the open
market, in private transactions, through tender offers or otherwise. Any such
purchases may be on the same terms as, or on terms that are more or less
favorable to shareholders than, the terms of the Offer. However, Rule 13e-4
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), generally prohibits the Company and its affiliates from
purchasing any Shares, other than pursuant to the Offer, until at least ten
business days after the expiration or termination of the Offer. Any possible
future purchases by the Company will depend on several factors including,
without limitation, the ability of the Company to make such purchases under its
financing agreements in effect at the time, the market price of the Shares, the
results of the Offer, the Company's business and financial position and general
economic and market conditions.
The Financing
The amount required to fund the purchase of Shares tendered in the Offer
(assuming a purchase price of $16.00 per Share) and to pay related fees and
expenses of such transactions is estimated to be approximately $163.2 million.
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The Company intends to finance the purchase of Shares tendered pursuant to
the Offer, and to pay related fees and expenses, principally by the proceeds of
the Financing. The Financing is expected to be committed to immediately prior
to the expiration of the Offer. To the extent necessary or desirable, the
Company may supplement the proceeds of the Financing with cash on hand and/or
with borrowings under the Amended and Restated Credit Agreement, dated as of
April 21, 1995, as amended from time to time (the "Credit Agreement"), among
the Company, the guarantors and banks signatory thereto and The Chase Manhattan
Bank , as agent. As of October 31, 1998, the Company had $97 million in cash
and cash equivalents and $200 million of availability under the Credit
Agreement. The Company anticipates that the Senior Notes and such borrowings,
if any, would be repaid with internally generated funds and from other sources,
which may include the proceeds of future refinancings.
The Offer is conditioned upon the closing of the Financing and upon the
Company's obtaining waivers under or amendments to certain of its existing
credit facilities to permit the Offer and the Financing. If the Financing has
not been committed to, or such waivers or amendments have not been obtained, on
or prior to the initial Expiration Date, the Company intends to extend the
Expiration Date from time to time for a period not to extend beyond February
22, 1999 until the Financing has been consummated and the other conditions to
the Offer have been satisfied or waived.
Senior Notes. The Company intends to issue and sell Senior Notes to
finance the Offer, which may be structured as a private placement or as a
public offering registered pursuant to the Securities Act.
The interest rate on the Senior Notes, and the other terms of the Senior
Notes, will depend upon the credit rating of the Company's debt securities and
the prevailing interest rates and market conditions at the time the Senior
Notes are issued. Such credit ratings may decrease as a result of the Offer and
the Financing. The Senior Notes will contain affirmative and negative covenants
that are customary for similar financings of companies with similar credit
ratings as the Company's. The Senior Notes will also provide for customary
events of default.
No assurances can be given that the sale of the Senior Notes will be
consummated.
Credit Agreement. The following is a summary of the principal terms of the
Credit Agreement. This summary is qualified in its entirety by reference to the
Credit Agreement, which is filed as Exhibit (b)(1) to the Company's Issuer
Tender Offer Statement on Schedule 13E-4 and is incorporated herein by
reference.
The Credit Agreement provides for revolving loans up to the aggregate
principal amount of $200 million. At the Company's option, the amounts borrowed
pursuant to the Credit Agreement bear interest at (i) the higher of the agent
bank's prime commercial lending rate or the federal funds rate plus 0.25%, (ii)
LIBOR plus a margin of up to 0.63% or (iii) a negotiated rate based upon market
conditions. The Company pays to each bank a quarterly commitment fee on the
daily average unused amount of such bank's commitment ranging from 0% to 0.05%
and to the agent a quarterly facility fee on account of each bank based on the
daily average amount of such bank's commitment ranging from 0.18% to 0.30%,
based on the Company's Debt to Capital Ratio (as defined in the Credit
Agreement). At October 31, 1998, no loans were outstanding under the Credit
Agreement.
The Credit Agreement is guaranteed by the wholly owned subsidiaries of the
Company. The Company may borrow, repay and reborrow under the Credit Agreement
the amount of the aggregate commitments of the banks, subject to certain
restrictions. The Credit Agreement contains representations and warranties,
covenants (including financial covenants), events of default and other
provisions customary for such financings. Certain financial covenants are
required to be amended to permit the Offer and the Financing, in connection
with which the provisions and amount of commitments may change.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
SHAREHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES.
EACH SHAREHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES
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AND, IF SO, HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH SHARES
SHOULD BE TENDERED. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR
EXECUTIVE OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER.
Except as disclosed in this Offer to Purchase, the Company currently has
no plans or proposals which relate to or would result in: (a) the acquisition
by any person of additional securities of the Company or the disposition of
securities of the Company; (b) an extraordinary corporate transaction, such as
a merger, reorganization or liquidation, involving the Company or any of its
subsidiaries; (c) a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries; (d) any change in the present Board of
Directors or management of the Company; (e) any material change in the present
dividend rate or policy, or indebtedness or capitalization of the Company; (f)
any other material change in the Company's corporate structure or business; (g)
any change in the Company's charter or bylaws or other actions which may impede
the acquisition of control of the Company by any person; (h) a class of equity
security of the Company being delisted from a national securities exchange or
ceasing to be authorized for quotation in an inter-dealer quotation system of a
registered national securities association; (i) a class of equity security of
the Company becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Exchange Act; or (j) the suspension of the Company's
obligation to file reports pursuant to Section 15(d) of the Exchange Act.
3. PROCEDURES FOR TENDERING SHARES.
Proper Tender of Shares. For Shares to be validly tendered pursuant to the
Offer, (a) the certificates for such Shares (or confirmation of receipt of such
Shares pursuant to the procedures for book-entry transfer set forth below),
together with a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) including any required signature guarantees
(or an Agent's Message (as defined below) in the case of a book-entry transfer)
and any other documents required by the Letter of Transmittal, must be received
prior to 12:00 Midnight, New York City time, on the Expiration Date by the
Depositary at its address set forth on the back cover of this Offer to
Purchase, or (b) the tendering shareholder must comply with the guaranteed
delivery procedure set forth below. IN ACCORDANCE WITH INSTRUCTION 5 OF THE
LETTER OF TRANSMITTAL, SHAREHOLDERS DESIRING TO TENDER SHARES PURSUANT TO THE
OFFER MUST PROPERLY INDICATE IN THE SECTION CAPTIONED "PRICE (IN DOLLARS) PER
SHARE AT WHICH SHARES ARE BEING TENDERED" ON THE LETTER OF TRANSMITTAL THE
PRICE (IN INCREMENTS OF $.125) AT WHICH THEIR SHARES ARE BEING TENDERED.
Shareholders who desire to tender Shares at more than one price must complete a
separate Letter of Transmittal for each price at which Shares are tendered,
provided that the same Shares cannot be tendered (unless properly withdrawn
previously in accordance with the terms of the Offer) at more than one price.
IN ORDER TO VALIDLY TENDER SHARES, ONE AND ONLY ONE PRICE BOX MUST BE CHECKED
IN THE APPROPRIATE SECTION ON EACH LETTER OF TRANSMITTAL.
In addition, Odd Lot Holders who tender all such Shares must complete the
box captioned "Odd Lots" on the Letter of Transmittal and, if applicable, on
the Notice of Guaranteed Delivery, in order to qualify for the preferential
treatment available to Odd Lot Holders as set forth in Section 1.
Signature Guarantees and Method of Delivery. No signature guarantee is
required if (a) the Letter of Transmittal is signed by the registered holder(s)
of the Shares (which term, for purposes of this Section 3, shall include any
participant in The Depository Trust Company (the "Book-Entry Transfer
Facility") whose name appears on a security position listing as the owner of
the Shares) tendered therewith and such holder(s) have not completed either the
box entitled "Special Delivery Instructions" or the box entitled "Special
Payment Instructions" on the Letter of Transmittal, or (b) Shares are tendered
for the account of a bank, broker, dealer, credit union, savings association or
other entity which is a member in good standing of the Securities Transfer
Agents Medallion Program or a bank, broker, dealer, credit union, savings
association or other entity which is an "eligible guarantor institution," as
such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934,
as amended (each such entity being hereinafter referred to as an "Eligible
Institution"). See Instruction 1 of the Letter of
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Transmittal. In all other cases, all signatures on the Letter of Transmittal
must be guaranteed by an Eligible Institution. If a certificate for Shares is
registered in the name of a person other than the person executing a Letter of
Transmittal, or if payment is to be made, or Shares not purchased or tendered
are to be issued, to a person other than the registered holder, then the
certificate must be endorsed or accompanied by an appropriate stock power, in
either case, signed exactly as the name of the registered holder appears on the
certificate or stock power and guaranteed by an Eligible Institution.
In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of certificates for such Shares (or a timely confirmation of a book-entry
transfer of such Shares into the Depositary's account at the Book-Entry
Transfer Facility as described above), a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof) and any other
documents required by the Letter of Transmittal.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR
SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE
ELECTION AND RISK OF THE TENDERING SHAREHOLDER, IF DELIVERY IS BY MAIL, THEN
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED.
Book-Entry Delivery. The Depositary will establish an account with respect
to the Shares for purposes of the Offer at the Book-Entry Transfer Facility
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of the Shares by causing such
Facility to transfer Shares into the Depositary's account in accordance with
the Book-Entry Transfer Facility's procedures for transfer. Although delivery
of Shares may be effected through a book-entry transfer into the Depositary's
account at the Book-Entry Transfer Facility, either: (a) a properly completed
and duly executed Letter of Transmittal (or a manually signed facsimile
thereof) with any required signature guarantees, or an Agent's Message, and any
other required documents must, in any case, be transmitted to and received by
the Depositary at its address set forth on the back cover of this Offer to
Purchase prior to the Expiration Date, or (b) the guaranteed delivery procedure
described below must be followed. The confirmation of a book-entry transfer of
Shares into the Depositary's account at the Book-Entry Transfer Facility as
described above is referred to herein as "confirmation of a book-entry
transfer". DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
confirmation of a book-entry transfer which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the participant in the
Book-Entry Transfer Facility tendering the Shares that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that the Company may enforce such agreement against the participant.
Guaranteed Delivery. Shareholders wishing to tender all or any part of
their Shares but whose Share certificates are not immediately available, who
cannot deliver their Shares and all other required documents to the Depositary
or who cannot complete the procedure for delivery by book-entry transfer prior
to the Expiration Date must tender their Shares pursuant to the guaranteed
delivery procedure set forth in this Section 3. Pursuant to such procedure: (i)
such tender must be made by or through an Eligible Institution; (ii) a properly
completed and duly executed Notice of Guaranteed Delivery substantially in the
form provided by the Company (with any required signature guarantees) must be
received by the Depositary prior to the Expiration Date; and (iii) the
certificates for all physically delivered Shares in proper form for transfer by
delivery, or a confirmation of a book-entry transfer into the Depositary's
account at the Book-Entry Transfer Facility of all Shares delivered
electronically, in each case together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), or an Agent's Message,
and any other documents required by this Letter of Transmittal, must be
received by the Depositary within three NYSE trading days after the date the
Depositary receives such Notice of Guaranteed Delivery.
15
<PAGE>
United States Federal Income Tax Backup Withholding. Under the United
States federal income tax backup withholding rules, unless an exemption applies
under the applicable law and regulations, 31% of the gross proceeds payable to
a shareholder or other payee pursuant to the Offer must be withheld and
remitted to the United States Treasury, unless the shareholder or other payee
provides its taxpayer identification number (employer identification number or
social security number) to the Depositary and certifies that such number is
correct. Therefore, each tendering shareholder must complete and sign the
Substitute Form W-9 included as part of the Letter of Transmittal so as to
provide the information and certification necessary to avoid backup
withholding, unless such shareholder otherwise establishes to the satisfaction
of the Depositary that it is not subject to backup withholding. Certain
shareholders (including, among others, all corporations and certain foreign
shareholders) are not subject to these backup withholding requirements. To
prevent possible erroneous backup withholding, an exempt holder must enter its
correct taxpayer identification number in Part 1 of Substitute Form W-9, write
"Exempt" in Part 2 of such form, and sign and date the form. See the Guidelines
for Certification of Taxpayer Identification Number of Substitute Form W-9
enclosed with Letter of Transmittal for additional instructions. In order for a
foreign shareholder to qualify as an exempt recipient, a foreign shareholder
must submit an Internal Revenue Service ("IRS") Form W-8 or a Substitute Form
W-8, signed under penalties of perjury, attesting to that shareholder's exempt
status. Such statements may be obtained from the Depositary. See Instruction 11
of the Letter of Transmittal. Shareholders are urged
to consult their own tax advisors regarding the application of United States
federal income tax withholding.
TO PREVENT UNITED STATES FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO
31% OF THE GROSS PAYMENTS MADE TO SHAREHOLDERS FOR SHARES PURCHASED PURSUANT TO
THE OFFER, EACH SHAREHOLDER WHO DOES NOT OTHERWISE ESTABLISH AN EXEMPTION FROM
SUCH WITHHOLDING MUST PROVIDE THE DEPOSITARY WITH THE SHAREHOLDER'S CORRECT
TAXPAYER IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY
COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED WITH THE LETTER OF TRANSMITTAL.
For a discussion of certain United States federal income tax consequences
to tendering shareholders, see Section 14, "Certain United States Federal
Income Tax Consequences".
Withholding For Foreign Shareholders. Even if a foreign shareholder has
provided the required certification to avoid backup withholding, the Depositary
will withhold United States federal income taxes equal to 30% of the gross
payments payable to a foreign shareholder or its agent unless (a) the
Depositary determines that a reduced rate of withholding is available pursuant
to a tax treaty or that an exemption from withholding is applicable because
such gross proceeds are effectively connected with the conduct of a trade or
business within the United States or (b) the foreign shareholder establishes to
the satisfaction of the Company and the Depositary that the sale of Shares by
such foreign shareholder pursuant to the Offer will qualify as a "sale or
exchange," rather than as a distribution taxable as a dividend, for United
States federal income tax purposes (see Section 14, "Certain United States
Federal Income Tax Consequences"). For this purpose, a foreign shareholder is
any shareholder that is not: (i) a citizen or resident of the United States;
(ii) a corporation, partnership, or other entity created or organized in or
under the laws of the United States, any State or any political subdivision
thereof; (iii) an estate the income of which is subject to United States
federal income taxation regardless of the source of such income; or (iv) a
trust the administration of which a court within the United States is able to
exercise primary supervision and all substantial decisions of which one or more
United States persons have the authority to control. In order to obtain a
reduced rate of withholding pursuant to a tax treaty, a foreign shareholder
must deliver to the Depositary before the payment a properly completed and
executed IRS Form 1001. In order to obtain an exemption from withholding on the
grounds that the gross proceeds paid pursuant to the Offer are effectively
connected with the conduct of a trade or business within the United States, a
foreign shareholder must deliver to the Depositary a properly completed and
executed IRS Form 4224. The Depositary will determine a shareholder's status as
a foreign shareholder and eligibility for a reduced rate of, or exemption from,
withholding by reference to any outstanding certificates or statements
concerning eligibility for a reduced rate of, or
16
<PAGE>
exemption from, withholding (e.g., IRS Form 1001 or IRS Form 4224) unless facts
and circumstances indicate that such reliance is not warranted. A foreign
shareholder may be eligible to obtain a refund of all or a portion of any tax
withheld if such shareholder meets the "complete redemption," "substantially
disproportionate" or "not essentially equivalent to a dividend" test described
in Section 14 or is otherwise able to establish that no tax or a reduced amount
of tax is due. Each foreign shareholder is urged to consult its tax advisor
regarding the application of United States federal income tax withholding,
including eligibility for a withholding tax reduction or exemption, and the
refund procedure. See Instruction 12 of the Letter of Transmittal.
Flexitrust. As of December 22, 1998, the Flexitrust held 2,232,500 Shares.
Pursuant to the terms of the Flexitrust, each holder of a then outstanding and
unexercised option under any of the Company's stock option plans (each, an
"Optionee") will receive a copy of the tender offer materials. Each Optionee
will also receive an instruction form upon which such Optionee may instruct
First Union National Bank, the trustee under the Flexitrust (the "Flexitrust
Trustee"), with respect to the tendering of Shares held in the Flexitrust
pursuant to the Offer. The Flexitrust Trustee will tender that number of Shares
held in the Flexitrust equal to the total number of Shares held in the
Flexitrust multiplied by a fraction, the numerator of which is the number of
Optionees who affirmatively direct the Flexitrust Trustee to tender, and the
denominator of which is the total number of Optionees (including Optionees who
provide no instructions). The price at which such Shares are tendered will also
be prorated by the Flexitrust Trustee, based upon the prices indicated by the
Optionees.
Dividend Reinvestment and Stock Purchase Plan. As of December 22, 1998,
the Dividend Reinvestment and Stock Purchase Plan held 147,684 shares, all of
which were attributable to the individual accounts of the participants
thereunder ("DRIP Participants"). Such Shares will be tendered (or not
tendered) by American Stock Transfer and Trust Company, as administrator of the
Dividend Reinvestment and Stock Purchase Plan (in such capacity, the
"Administrator"), in accordance with the instructions of DRIP Participants
provided to the Administrator. Shares for which the Administrator has not
received timely instructions from the DRIP Participants will not be tendered.
The Administrator will make available to the DRIP Participants all documents
furnished to shareholders generally in connection with the Offer. Because the
Depositary also acts as the Administrator, DRIP Participants may use the Letter
of Transmittal to instruct the Administrator regarding the Offer by completing
the section entitled "Dividend Reinvestment and Stock Purchase Plan Shares."
Each DRIP Participant may direct that all, some or none of the Shares
attributable to such DRIP Participant's account under the Dividend Reinvestment
and Stock Purchase Plan (including fractional Shares, if any) be tendered and
the price at which such Shares are to be tendered. If a DRIP Participant
tenders all Shares owned by such DRIP Participant, and all such Shares are
purchased by the Company, such DRIP Participant's participation in the Dividend
Reinvestment and Stock Purchase Plan shall terminate and any accrued and unpaid
dividends to which such person is entitled shall be paid in cash. DRIP
Participants are urged to read the Letter of Transmittal and related materials
carefully.
Savings Plans. The decision as whether to tender Shares attributable to
the accounts of participants in each of The Pep Boys -- Manny, Moe & Jack
Savings Plan and The Pep Boys -- Manny, Moe & Jack Savings Plan - Puerto Rico
and the determination as to the price at which such Shares will be tendered, if
any, will be made by the trustee of the applicable plan upon the direction of
the administrative committee of such plan.
Determination of Validity; Rejection of Shares; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the number of Shares
to be accepted, the price to be paid for Shares to be accepted and the
validity, form, eligibility (including time of receipt) and acceptance of any
tender of Shares will be determined by the Company, in its sole discretion, and
its determination shall be final and binding on all parties. The Company
reserves the absolute right to reject any or all tenders of any Shares that it
determines are not in appropriate form or the acceptance for payment of or
payments for which may be unlawful. The Company also reserves the absolute
right to waive any of the conditions of the Offer or any defect or irregularity
in any tender with respect to any particular Shares or any particular
shareholder. No tender of Shares will be deemed to have been properly made
until all
17
<PAGE>
defects or irregularities have been cured by the tendering shareholder or
waived by the Company. None of the Company, the Dealer Manager, the Depositary,
the Information Agent or any other person shall be obligated to give notice of
any defects or irregularities in tenders, nor shall any of them incur any
liability for failure to give any such notice.
Tendering Shareholder's Representation and Warranty; Company's Acceptance
Constitutes an Agreement. A tender of Shares pursuant to any of the procedures
described above will constitute the tendering shareholder's acceptance of the
terms and conditions of the Offer, as well as the tendering shareholder's
representation and warranty to the Company that (a) such shareholder has a net
long position in the Shares being tendered within the meaning of Rule 14e-4
promulgated by the Commission under the Exchange Act, and (b) the tender of
such Shares complies with Rule 14e-4. It is a violation of Rule 14e-4 for a
person, directly or indirectly, to tender Shares for such person's own account
unless, at the time of tender and at the end of the proration period or period
during which Shares are accepted by lot (including any extensions thereof), the
person so tendering (i) has a net long position equal to or greater than the
amount of (x) Shares tendered or (y) other securities convertible into or
exchangeable or exercisable for the Shares tendered and will acquire such
Shares for tender by conversion, exchange or exercise, and (ii) will deliver or
cause to be delivered such Shares in accordance with the terms of the Offer.
Rule 14e-4 provides a similar restriction applicable to the tender orguarantee
of a tender on behalf of another person. The Company's acceptance for payment
of Shares tendered pursuant to the Offer will constitute a binding agreement
between the tendering shareholder and the Company upon the terms and conditions
of the Offer.
CERTIFICATES FOR SHARES, TOGETHER WITH A PROPERLY COMPLETED LETTER OF
TRANSMITTAL AND ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL, MUST
BE DELIVERED TO THE DEPOSITARY AND NOT TO THE COMPANY OR THE DEALER MANAGER.
ANY SUCH DOCUMENTS DELIVERED TO THE COMPANY OR THE DEALER MANAGER WILL NOT BE
FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT BE DEEMED TO BE VALIDLY
TENDERED.
4. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 4, tenders of Shares pursuant
to the Offer are irrevocable. Shares tendered pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date and, unless theretofore
accepted for payment by the Company pursuant to the Offer, may also be
withdrawn at any time after 12:00 Midnight, New York City time, on February 22,
1999.
For a withdrawal to be effective, a notice of withdrawal must be in
written, telegraphic or facsimile transmission form and must be received in a
timely manner by the Depositary at its address set forth on the back cover of
this Offer to Purchase. Any such notice of withdrawal must specify the name of
the tendering shareholder, the name of the registered holder (if different from
that of the person who tendered such Shares), the number of Shares tendered and
the number of Shares to be withdrawn. If the certificates for Shares to be
withdrawn have been delivered or otherwise identified to the Depositary, then,
prior to the release of such certificates, the tendering shareholder must also
submit the serial numbers shown on the particular certificates for Shares to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by
an Eligible Institution (except in the case of Shares tendered by an Eligible
Institution). If Shares have been tendered pursuant to the procedure for
book-entry transfer set forth in Section 3, the notice of withdrawal also must
specify the name and the number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Shares and otherwise comply with the
procedures of such facility. All questions as to the form and validity
(including time of receipt) of notices of withdrawal will be determined by the
Company, in its sole discretion, which determination shall be final and
binding. None of the Company, the Dealer Manager, the Depositary, the
Information Agent or any other person shall be obligated to give notice of any
defects or irregularities in any notice of withdrawal nor shall any of them
incur liability for failure to give any such notice.
Withdrawals may not be rescinded and any Shares withdrawn will thereafter
be deemed not tendered for purposes of the Offer unless such withdrawn Shares
are validly re-tendered prior to the Expiration Date by again following one of
the procedures described in Section 3.
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<PAGE>
If the Company extends the Offer, is delayed in its purchase of Shares or
is unable to purchase Shares pursuant to the Offer for any reason, then,
without prejudice to the Company's rights under the Offer, the Depositary may,
subject to applicable law, retain tendered Shares on behalf of the Company, and
such Shares may not be withdrawn except to the extent tendering shareholders
are entitled to withdrawal rights as described in this Section 4.
5. PURCHASE OF SHARES AND PAYMENT OF PURCHASE PRICE.
Upon the terms and subject to the conditions of the Offer, as promptly as
practicable following the Expiration Date, the Company will: (i) determine the
lowest single Purchase Price that will allow it to purchase 10,000,000 Shares
(or such lesser number of Shares as are validly tendered and not properly
withdrawn prior to the Expiration Date), taking into account the number of
Shares so tendered and the prices specified by tendering shareholders; and (ii)
accept for payment and pay for (and thereby purchase) Shares validly tendered
at prices at or below the Purchase Price and not properly withdrawn prior to
the Expiration Date. For purposes of the Offer, the Company will be deemed to
have accepted for payment (and therefore purchased) Shares that are validly
tendered at or below the Purchase Price and not properly withdrawn (subject to
the proration and conditional tender provisions of the Offer) only when, as and
if it gives oral or written notice to the Depositary of its acceptance of such
Shares for payment pursuant to the Offer. In accordance with applicable
regulations of the Commission, the Company may purchase pursuant to the Offer
an additional amount of Shares not to exceed 2% of the outstanding Shares
without amending or extending the Offer. If (i) the Company increases or
decreases the price to be paid for the Shares, the Company increases the number
of Shares being sought and such increase in the number of Shares being sought
exceeds 2% of the outstanding Shares, or the Company decreases the number of
Shares being sought; and (ii) the Offering is scheduled to expire at any time
earlier than the expiration of a period ending on the tenth business day from,
and including, the date that notice of such increase or decrease is first
published, sent or given in the manner specified in Section 15, the Offer will
be extended until the expiration of such period of ten business days.
Upon the terms and subject to the conditions of the Offer, the Company
will purchase and pay a single per Share Purchase Price for all of the Shares
accepted for payment pursuant to the Offer as soon as practicable after the
Expiration Date. In all cases, payment for Shares validly tendered and accepted
for payment pursuant to the Offer will be made promptly (subject to possible
delay in the event of proration) but only after timely receipt by the
Depositary of certificates for Shares (or of a timely confirmation of a
book-entry transfer of such Shares into the Depositary's account at the
Book-Entry Transfer Facility), a properly completed and duly executed Letter of
Transmittal (or manually signed facsimile thereof), or an Agent's Message, and
any other required documents.
The Company will pay for Shares purchased pursuant to the Offer by
depositing the aggregate Purchase Price therefor with the Depositary, which
will act as agent for tendering shareholders for the purpose of receiving
payment from the Company and transmitting payment to the tendering
shareholders.
In the event of proration, the Company will determine the proration factor
and pay for those tendered Shares accepted for payment as soon as practicable
after the Expiration Date; however, the Company does not expect to be able to
announce the final results of any proration and commence payment for Shares
purchased until approximately seven NYSE trading days after the Expiration
Date. Certificates for all Shares tendered and not purchased, including all
Shares tendered at prices in excess of the Purchase Price and Shares not
purchased due to proration or conditional tender, will be returned (or, in the
case of Shares tendered by book-entry transfer, such Shares will be credited to
the account maintained with the Book-Entry Transfer Facility by the participant
therein who so delivered such Shares) to the tendering shareholder as promptly
as practicable after the Expiration Date without expense to the tendering
shareholders. Under no circumstances will interest on the Purchase Price be
paid by the Company by reason of any delay in making payment. In addition, if
certain events occur, the Company may not be obligated to purchase Shares
pursuant to the Offer. See Section 7, "Certain Conditions of the Offer".
19
<PAGE>
The Company will pay or cause to be paid all stock transfer taxes, if any,
payable on the transfer to it of Shares purchased pursuant to the Offer. If,
however, payment of the Purchase Price is to be made to, or (in the
circumstances permitted by the Offer) if unpurchased Shares are to be
registered in the name of, any person other than the registered holder(s), or
if tendered certificates are registered in the name of any person other than
the person(s) signing the Letter of Transmittal, the amount of all stock
transfer taxes, if any (whether imposed on the registered holder(s) or such
other person or otherwise), payable on account of the transfer to such person
will be deducted from the Purchase Price unless satisfactory evidence of the
payment of the stock transfer taxes, or exemption therefrom, is submitted. See
Instruction 7 of the Letter of Transmittal.
ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY, SIGN
AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9 INCLUDED WITH THE LETTER
OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED UNITED STATES FEDERAL INCOME TAX
BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAID TO SUCH SHAREHOLDER OR
OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTION 3, "PROCEDURES FOR TENDERING
SHARES" AND SECTION 14, "CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES"
REGARDING UNITED STATES FEDERAL INCOME TAX CONSEQUENCES FOR FOREIGN
SHAREHOLDERS.
6. CONDITIONAL TENDER OF SHARES.
Under certain circumstances set forth in Section 1, the Company may
prorate the number of Shares purchased pursuant to the Offer. As discussed in
Section 14, the number of Shares to be purchased from a particular shareholder
might affect the tax consequences to such shareholder of such purchase and such
shareholder's decision whether to tender. Accordingly, a shareholder may tender
Shares subject to the condition that a specified minimum number, if any, must
be purchased, and any shareholder wishing to make such a conditional tender
should so indicate in the box captioned "Conditional Tender" on the Letter of
Transmittal and, if applicable, on the Notice of Guaranteed Delivery. IT IS THE
TENDERING SHAREHOLDER'S RESPONSIBILITY TO CALCULATE SUCH MINIMUM NUMBER OF
SHARES AND EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR. If
the effect of accepting tenders on a pro rata basis is to reduce the number of
Shares to be purchased from any shareholder below the minimum number so
specified, such tender will automatically be deemed withdrawn, except as
provided in the next paragraph, and Shares tendered by such shareholder will be
returned as soon as practicable after the Expiration Date.
However, if so many conditional tenders would be deemed withdrawn that the
total number of Shares to be purchased falls below 10,000,000 Shares, then, to
the extent feasible, the Company will select enough of such conditional
tenders, which would otherwise have been deemed withdrawn, to purchase such
desired number of Shares. In selecting among such conditional tenders, the
Company will select by random lot and will limit its purchase in each case to
the designated minimum number of Shares to be purchased. Conditional tenders
will be selected by lot only from shareholders who tender all of their Shares.
IN THE EVENT OF PRORATION, ANY SHARES TENDERED PURSUANT TO A CONDITIONAL
TENDER FOR WHICH THE MINIMUM REQUIREMENTS ARE NOT SATISFIED MAY NOT BE ACCEPTED
AND WILL THEREBY BE DEEMED WITHDRAWN.
7. CERTAIN CONDITIONS OF THE OFFER.
The Offer is conditioned upon the consummation of the Financing and the
Company's having obtained waivers under or amendments to certain of its
existing credit facilities to permit the Offer and the Financing. See Section
2, "Purpose of the Offer; Certain Effects of the Offer". In addition,
notwithstanding any other provision of the Offer, the Company shall not be
required to accept for payment, purchase or pay for any Shares tendered, and
may terminate or amend the Offer or may postpone the acceptance for payment of,
or the purchase of and the payment for Shares tendered, subject to Rule
13e-4(f) under the Exchange Act, if at any time on or after December 23, 1998
and prior to the time of
20
<PAGE>
payment for any such Shares (whether any Shares have theretofore been accepted
for payment, purchased or paid for pursuant to the Offer) any of the following
events shall have occurred (or shall have been determined by the Company to
have occurred) that, in the Company's judgment (regardless of the circumstances
giving rise thereto, including any action or omission to act by the Company),
makes it inadvisable to proceed with the Offer or with such acceptance for
payment or payment:
(a) there shall have been threatened, instituted or pending any action
or proceeding by any government or governmental, regulatory or
administrative agency, authority or tribunal or any other person, domestic
or foreign, before any court, authority, agency or tribunal that directly
or indirectly: (i) challenges the making of the Offer, the acquisition of
some or all of the Shares pursuant to the Offer or otherwise relates in
any manner to the Offer; or (ii) in the Company's sole judgment, could
materially adversely affect the business, condition (financial or other),
income, operations or prospects of the Company and its subsidiaries, or
otherwise materially impair in any way the contemplated future conduct of
the business of the Company or any of its subsidiaries or materially
impair the contemplated benefits of the Offer to the Company;
(b) there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Offer or the Company
or any of its subsidiaries, by any court or any authority, agency or
tribunal that, in the Company's sole judgment, would or might directly or
indirectly: (i) make the acceptance for payment of, or payment for, some
or all of the Shares illegal or otherwise restrict or prohibit
consummation of the Offer or otherwise relates in any manner to the Offer;
(ii) delay or restrict the ability of the Company, or render the Company
unable, to accept for payment or pay for some or all of the Shares; (iii)
materially impair the contemplated benefits of the Offer to the Company;
or (iv) materially adversely affect the business, condition (financial or
other), income, operations or prospects of the Company and its
subsidiaries, taken as a whole, or otherwise materially impair in any way
the contemplated future conduct of the business of the Company or any of
its subsidiaries;
(c) there shall have occurred: (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market; (ii) the declaration of any
banking moratorium or any suspension of payments in respect of banks in
the United States (whether or not mandatory); (iii) the commencement of a
war, armed hostilities or other international or national crisis directly
or indirectly involving the United States; (iv) any limitation (whether or
not mandatory) by any governmental, regulatory or administrative agency or
authority on, or any event that, in the Company's sole judgment, might
affect, the extension of credit by banks or other lending institutions in
the United States; (v) any significant decrease in the market price of the
Shares or in the market prices of equity securities generally or any
change in the general political, market, economic or financial conditions
in the United States or abroad that could, in the sole judgment of the
Company, have a material adverse effect on the business, condition
(financial or otherwise), income, operations or prospects of the Company
and its subsidiaries, taken as a whole, or on the trading in the Shares or
on the proposed financing for the Offer; (vi) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a
material acceleration or worsening thereof; or (vii) any decline in either
the Dow Jones Industrial Average or the Standard and Poor's Index of 500
Industrial Companies by an amount in excess of 10% measured from the close
of business on December 22, 1998;
(d) a tender or exchange offer with respect to some or all of the Shares
(other than the Offer), or a merger or acquisition proposal for the
Company, shall have been proposed, announced or made by another person or
shall have been publicly disclosed, or any person or group shall have
filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 reflecting an intent to acquire the Company or
any of the Shares, or the Company shall have learned that any person or
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) shall
have acquired or proposed to acquire beneficial ownership of more than 5%
of the outstanding Shares, or any new group shall have been formed that
beneficially owns more than 5% of the outstanding Shares; or
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<PAGE>
(e) any change or changes shall have occurred, be pending or threatened
or be proposed, which have affected or could affect the business, scope,
condition (financial or otherwise), assets, income, level of indebtedness,
operations, prospects, stock ownership or capital structure of the Company
or its subsidiaries which, in the Company's sole judgment, is or may be
material to the Company or its subsidiaries.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances (including any
action or inaction by the Company) giving rise to any such condition, and may
be waived by the Company, in whole or in part, at any time and from time to
time in its sole discretion. The Company's failure at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time. Any determination by the Company concerning the events
described above will be final and binding on all parties.
8. PRICE RANGE OF SHARES; DIVIDENDS.
The Shares are listed and traded on the NYSE. The following table sets
forth, for the periods indicated, the high and low closing per Share sales
prices as reported on the NYSE Composite Tape:
<TABLE>
<CAPTION>
High Low Dividends
------------ ----------- ------------
<S> <C> <C> <C>
FISCAL 1996:
1st Quarter ..................................... $34 7/8 $27 7/8 $0.0525
2nd Quarter ..................................... 35 1/2 28 0.0525
3rd Quarter ..................................... 38 1/4 30 3/4 0.0525
4th Quarter ..................................... 38 27 7/8 0.0525
FISCAL 1997:
1st Quarter ..................................... 35 29 3/8 0.0600
2nd Quarter ..................................... 35 5/8 30 0.0600
3rd Quarter ..................................... 34 7/8 23 5/8 0.0600
4th Quarter ..................................... 26 3/16 21 9/16 0.0600
FISCAL 1998: .....................................
1st Quarter ..................................... 26 11/16 21 5/16 0.0650
2nd Quarter ..................................... 23 3/4 16 3/4 0.0650
3rd Quarter ..................................... 17 7/8 12 3/8 0.0650
4th Quarter (through December 22, 1998) ......... 17 12 7/8 0.0650
</TABLE>
On December 22, 1998, the last full trading day on the NYSE prior to the
commencement of the Offer, the closing per Share sales price as reported on the
NYSE Composite Tape was $13.50. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE SHARES.
The record date for the fourth quarter 1998 dividend of $0.065 per Share
is January 11, 1999. Any person who owns Shares on the close of business on
such date will be entitled to receive such dividend even if such Shares have
been previously tendered pursuant to the Offer.
9. SOURCE AND AMOUNT OF FUNDS.
Assuming that the Company purchases 10,000,000 Shares pursuant to the
Offer at a purchase price of $16.00 per Share, the Company expects the maximum
amount required to finance the Offer and the payment of related fees and
expenses will be approximately $163.2 million. The Company
22
<PAGE>
expects to finance such transactions as described in Section 2. The Offer is
conditioned upon, among other things, the Financing and the Company's having
obtained waivers under or amendments to certain of its existing credit
facilities to permit the Offer and the Financing.
10. CERTAIN INFORMATION CONCERNING THE COMPANY.
The Company is a leading automotive aftermarket retail and service chain.
The Company is engaged principally in the retail sale of automotive parts and
accessories, automotive maintenance and service and the installation of parts.
As of December 22, 1998, the Company operated 635 stores located in 37 states,
the District of Columbia and Puerto Rico, of which 344 stores are owned and 291
stores are leased.
The Company was incorporated under the laws of the Commonwealth of
Pennsylvania in 1925. Its executive offices are located at 3111 West Allegheny
Avenue, Philadelphia, Pennsylvania 19132, telephone (215) 229-9000.
Summary Historical Consolidated Financial Information
Set forth below is certain summary historical consolidated financial
information of the Company and its subsidiaries. The historical financial
information has been derived from the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended January
31, 1998 and from the unaudited consolidated financial statements included in
the Company's Quarterly Reports on Form 10-Q for the 39-week periods ended
October 31, 1998 and November 1, 1997, respectively, which have been prepared
on a basis substantially consistent with the audited financial statements, and
reflect, in the opinion of management, all adjustments necessary to a fair
presentation of the financial position and results of operations for such
periods. The results for the 39 weeks ended October 31, 1998 are not
necessarily indicative of the results for the full year. The information
presented below should be read in conjunction with the Company's consolidated
financial statements and notes thereto. More comprehensive financial
information is included in such financial statements, and the financial
information which follows is qualified in its entirety by reference to such
financial statements, related notes and the audit report contained therein,
copies of which may be obtained as set forth below under the caption "--
Additional Information".
<TABLE>
<CAPTION>
39 Weeks Ended Fiscal Year Ended
--------------------------------- --------------------------------
January 31, February 1,
October 31, November 1, 1998(2) 1997
1998(1) 1997 (Fiscal 1997) (Fiscal 1996)
--------------- --------------- --------------- --------------
(in thousands except share and per share data)
<S> <C> <C> <C> <C>
Statement of Earnings Data
Total Revenues $1,835,492 $1,554,140 $2,056,520 $1,828,539
Net Earnings 23,841 77,354 49,611 100,824
Basic Earnings per Share 0.39 1.27 0.81 1.67
Diluted Earnings per Share 0.39 1.22 0.80 1.62
Ratio of Earnings to
Fixed Charges(3) 1.7x 4.0x 2.3x 4.7x
Balance Sheet Data
Cash and Cash Equivalents $ 97,470 $ 3,587 $ 10,811 $ 2,589
Total Assets 2,055,463 2,009,189 2,161,360 1,818,365
Working Capital 272,808 197,613 151,340 70,691
Total Debt 776,428 746,095 693,798 518,799
Stockholders' Equity 837,347 850,195 822,635 778,091
Book Value per Share(4) 13.12 13.39 12.92 12.33
(footnotes appear on following page)
</TABLE>
23
<PAGE>
- ------------
(1) Financial data for the thirty-nine weeks ended October 31, 1998 includes
charges ($16,160 after-tax or $0.26 per share--basic and diluted) related to
the closure of 109 Pep Boys Express stores and sale of real estate relating
to 100 such stores.
(2) Financial data for fiscal 1997 includes charges ($18,418 after-tax or $0.30
per share--basic and diluted) associated with closing nine stores, certain
store format changes, equipment write-offs, costs associated with reducing
the store expansion program and other related expenses.
(3) Computed by dividing earnings by fixed charges. "Earnings" consist of
earnings before income taxes and cumulative effect of change in accounting
principle plus fixed charges (exclusive of capitalized interest costs).
"Fixed charges" consist of interest costs (including capitalized interest
costs) plus one-third of rental expense (which amount is considered
representative of the interest factor in rental expense).
(4) Book value per Share is calculated as total stockholders' equity divided by
the number of Shares outstanding at the end of the period.
Summary Unaudited Consolidated Pro Forma Financial Information
The following summary unaudited consolidated pro forma financial
information gives effect to the purchase of Shares pursuant to the Offer, the
Financing and the payment of related fees and expenses, based on the
assumptions described in the Notes to Summary Unaudited Consolidated Pro Forma
Financial Information below, as if such transactions had occurred on the first
day of each of the periods presented, with respect to statement of earnings
data, and on October 31, 1998 and January 31, 1998, with respect to balance
sheet data. The summary unaudited consolidated pro forma financial information
should be read in conjunction with the Summary Historical Consolidated
Financial Information set forth above and does not purport to be indicative of
the results that would actually have been obtained, or results that may be
obtained in the future, or the financial condition that would have resulted, if
the purchase of the Shares pursuant to the Offer, the Financing and the payment
of related fees and expenses had been completed at the dates indicated.
<TABLE>
<CAPTION>
39 Weeks Ended Fiscal Year Ended
October 31, 1998(1) January 31, 1998(2)
----------------------------------------------- -------------------------------------------------
Pro Forma(3)(4) Pro Forma(3)(4)
$13.50 $16.00 $13.50 $16.00
Historical Per Share Per Share Historical Per Share Per Share
--------------- --------------- ------------- --------------- --------------- ---------------
(in thousands except share and per share data) (in thousands except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Earnings Data
Total Revenues $ 1,835,492 $ 1,835,492 $ 1,835,492 $ 2,056,520 $ 2,056,520 $ 2,056,520
Net Earnings 23,841 18,494 17,714 49,611 42,506 41,438
Basic Earnings per Share 0.39 0.36 0.34 0.81 0.83 0.81
Diluted Earnings per Share 0.39 0.36 0.34 0.80 0.82 0.80
Ratio of Earnings to
Fixed Charges(5) 1.7x 1.3x 1.3x 2.3x 1.8x 1.7x
Balance Sheet Data
Cash and Cash Equivalents $ 97,470 $ 84,303 $ 59,303 $ 10,811 $ 10,811 $ 10,811
Total Assets 2,055,463 2,044,313 2,019,313 2,161,360 2,161,360 2,161,360
Working Capital 272,808 259,641 234,641 151,340 151,340 151,340
Total Debt 776,428 901,428 901,428 693,798 831,650 856,650
Stockholders' Equity 837,347 701,197 676,197 822,635 686,485 661,485
Book Value per Share(6) 13.12 13.03 12.56 12.92 12.79 12.33
</TABLE>
- ------------
(1) Financial data for the thirty-nine weeks ended October 31, 1998 includes
charges ($16,160 after-tax or $0.26 per share--basic and diluted) related to
the closure of 109 Pep Boys Express stores and sale of real estate assets
relating to 100 such stores.
(2) Financial data for fiscal 1997 includes charges ($18,418 after-tax or $0.30
per share--basic and diluted) associated with closing nine stores, certain
store format changes, equipment write-offs, costs associated with reducing
the store expansion program and other related expenses.
24
<PAGE>
(3) The pro forma information assumes 10,000,000 Shares to be purchased at
$13.50 per Share and $16.00 per Share. For the thirty-nine weeks ended
October 31, 1998, the purchase is assumed to be financed through the
proceeds of an issuance of $125,000 aggregate principal amount of Senior
Notes and the balance from available cash. For the fiscal year ended
January 31, 1998, the purchase is assumed to be financed through the
proceeds of an issuance of $125,000 aggregate principal amount of Senior
Notes and the balance from borrowings under the Credit Agreement. Interest
per annum on the Senior Notes and under the Credit Agreement is assumed to
be 7.5% and 6.5%, respectively. Assuming the purchase of 10,000,000 Shares
at $16.00 per Share, each 1/4% increase or decrease in the cost of
financing would impact net earnings and basic and diluted earnings per
share for the thirty-nine weeks ended October 31, 1998 by $196 and $.004,
respectively, and for the fiscal year ended January 31, 1998 by $268 and
$.005, respectively.
(4) The pro forma information assumes expenses directly related to the Offer
and related financing expenses of approximately $3.2 million and $2.9
million in the aggregate for the thirty-nine weeks ended October 31, 1998
and the fiscal year ended January 31, 1998, respectively.
(5) Computed by dividing earnings by fixed charges. "Earnings" consist of
earnings before income taxes and cumulative effect of change in accounting
principle plus fixed charges (exclusive of capitalized interest costs).
"Fixed charges" consist of interest costs (including capitalized interest
costs) plus one-third of rental expense (which amount is considered
representative of the interest factor in rental expense).
(6) Book value per Share is calculated as total stockholders' equity divided by
the number of Shares outstanding at the end of the period.
Additional Information
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is obligated to file reports and
other information with the Commission relating to its business, financial
condition and other matters. Information, as of particular dates, concerning
the Company's directors and officers, their remuneration, options granted to
them, the principal holders of the Company's securities and any material
interest of such persons in transactions with the Company is required to be
disclosed in proxy statements distributed to the Company's shareholders and
filed with the Commission. Such reports, proxy statements and other information
can be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Room 2120, Washington, D.C. 20549, at
its regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and 7 World Trade Center, New York, New York 10048. Copies
of such material may also be obtained by mail, upon payment of the Commission's
customary charges, from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
also maintains a Web site on the World Wide Web at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
11. INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS AND
ARRANGEMENTS CONCERNING SHARES.
As of December 22, 1998, the Company had issued and outstanding 63,825,110
Shares and had reserved for issuance upon exercise of outstanding stock options
and convertible debt securities 10,263,790 Shares. The 10,000,000 Shares that
the Company is offering to purchase represent approximately 15.7% of the Shares
then issued and outstanding. As of December 22, 1998, the Company's directors
and executive officers as a group (11 persons) beneficially owned an aggregate
of 6,275,431 Shares representing approximately 9.6% of the issued and
outstanding Shares, assuming the exercise of options exercisable within 60
days. Each of the Company's directors and executive officers has advised the
Company that he does not intend to tender any Shares pursuant to the Offer. If
the Company purchases 10,000,000 Shares pursuant to the Offer, the Company's
executive officers and directors as a group would own beneficially
approximately 11.4% of the issued and outstanding Shares immediately after the
Offer, assuming exercise of options exercisable within 60 days.
25
<PAGE>
Neither the Company, nor any subsidiary of the Company nor, to the best of
the Company's knowledge, any of the Company's directors or executive officers,
nor any affiliates of any of the foregoing, had any transactions involving the
Shares during the 40 business days prior to the date hereof.
Except for outstanding options to purchase Shares granted from time to
time to certain employees (including executive officers) of the Company
pursuant to the Company's stock option plans and except as otherwise described
herein, neither the Company nor, to the best of the Company's knowledge, any of
its affiliates, directors or executive officers, is a party to any contract,
arrangement, understanding or relationship with any other person relating,
directly or indirectly, to the Offer with respect to any securities of the
Company including, but not limited to, any contract, arrangement, understanding
or relationship concerning the transfer or the voting of any such securities,
joint ventures, loan or option arrangements, puts or calls, guaranties of
loans, guaranties against loss or the giving or withholding of proxies,
consents or authorizations.
12. EFFECTS OF THE OFFER ON THE MARKET FOR SHARES; REGISTRATION UNDER THE
EXCHANGE ACT.
The Company's purchase of Shares pursuant to the Offer will reduce the
number of Shares that might otherwise be traded publicly and may reduce the
number of shareholders. However, there will be a sufficient number of Shares
outstanding and publicly traded following consummation of the Offer to ensure a
continued trading market for the Shares and the continued listing of the
Company's securities on the NYSE.
The Shares are currently "margin securities" under the rules of the
Federal Reserve Board. This has the effect, among other things, of allowing
brokers to extend credit to their customers using such Shares as collateral.
The Company believes that, following the purchase of Shares pursuant to the
Offer, Shares will continue to be "margin securities" for purposes of the
Federal Reserve Board's margin regulations.
Shares the Company acquires pursuant to the Offer will be retained as
treasury stock by the Company (unless and until the Company determines to
retire such Shares) and will be available for the Company to issue without
further shareholder action (except as required by applicable law or, if
retired, the rules of any securities exchange on which Shares are listed).
Subject to applicable state laws and NYSE rules, such Shares could be issued
without shareholder approval for, among other things, acquisitions, the raising
of additional capital for use in the Company's business, repayment in shares of
certain outstanding indebtedness, share dividends or in connection with stock
option plans and other plans, or a combination thereof. The Company has no
current plans for issuance of the Shares repurchased pursuant to the Offer.
The Shares are registered under the Exchange Act, which requires, among
other things, that the Company furnish certain information to its shareholders
and the Commission and comply with the Commission's proxy rules in connection
with meetings of the Company's shareholders. The Company believes that its
purchase of Shares pursuant to the Offer will not result in the Shares becoming
eligible for deregistration under the Exchange Act.
13. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS.
The Company is not aware of any license or regulatory permit that appears
to be material to the Company's business that might be adversely affected by
the Company's acquisition of Shares as contemplated herein or of any approval
or other action by any government or governmental, administrative or regulatory
authority or agency, domestic or foreign, that would be required for the
acquisition or ownership of Shares by the Company as contemplated herein.
Should any such approval or other action be required, the Company presently
contemplates that such approval or other action will be sought. The Company is
unable to predict whether it may determine that it is required to delay the
acceptance for payment of or payment for Shares tendered pursuant to the
Offering pending the outcome of any such matter. There can be no assurance that
any such approval or other action, if needed,
26
<PAGE>
would be obtained or would be obtained without substantial conditions or that
the failure to obtain any such approval or other action might not result in
adverse consequences to the Company's business. The Company's obligations under
the Offer to accept for payment and pay for Shares is subject to certain
conditions. See Section 7, "Certain Conditions of the Offer".
14. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
The following summary describes certain United States federal income tax
consequences relevant to the Offer. The discussion contained in this summary is
based upon the Internal Revenue Code of 1986, as amended to the date hereof
(the "Code"), existing and proposed United States Treasury regulations
promulgated thereunder, administrative pronouncements and judicial decisions,
changes to which could materially affect the tax consequences described herein
and could be made on a retroactive basis.
This summary discusses only Shares held as capital assets, within the
meaning of Section 1221 of the Code, and does not address all of the tax
consequences that may be relevant to particular shareholders in light of their
personal circumstances, or to certain types of shareholders (such as certain
financial institutions, dealers in securities or commodities, insurance
companies, tax-exempt organizations or persons who hold Shares as a position in
a "straddle" or as part of a "hedging" or "conversion" or "constructive sale"
transaction for United States federal income tax purposes). In particular, the
discussion of the consequences of an exchange of Shares for cash pursuant to
the Offer applies only to a United States shareholder (herein, a "Holder"). For
purposes of this summary, a "United States shareholder" is a beneficial owner
of the Shares who is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States, any State or any political subdivision thereof,
(iii) an estate the income of which is subject to United States federal income
taxation regardless of source, or (iv) a trust the administration of which a
court within the United States is able to exercise primary supervision and all
substantial decisions of which one or more United States persons have the
authority to control. This discussion does not address the tax consequences to
foreign shareholders who will be subject to United States federal income tax on
a net basis on the proceeds of their exchange of Shares pursuant to the Offer
because such income is effectively connected with the conduct of a trade or
business within the United States. Such shareholders are generally subject to
tax in a manner similar to United States shareholders; however, certain special
rules apply. Foreign shareholders who are not subject to United States federal
income tax on a net basis should see Section 3, "Procedures for Tendering
Shares" for a discussion of the applicable United States withholding tax rules
and the potential for obtaining a refund of all or a portion of the tax
withheld. ANY SUCH SHAREHOLDER IS STRONGLY ADVISED TO CONSULT HIS OR HER OWN
TAX ADVISOR. This summary may not be applicable with respect to Shares acquired
as compensation (including Shares acquired upon the exercise of options or
which were or are subject to forfeiture restrictions). This summary also does
not address the state, local or foreign tax consequences of participating in
the Offer. EACH HOLDER OF SHARES SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR AS TO
THE PARTICULAR CONSEQUENCES TO HIM OR HER OF PARTICIPATION IN THE OFFER.
Consequences to Tendering Holders of Exchange of Shares for Cash Pursuant
to the Offer. An exchange of Shares for cash pursuant to the Offer by a Holder
will be a taxable transaction for United States federal income tax purposes. As
a consequence of the exchange, the Holder will, depending on such Holder's
particular circumstances, be treated either as recognizing gain or loss from
the disposition of the Shares or as receiving a dividend distribution from the
Company.
Under Section 302 of the Code, a Holder will recognize gain or loss on an
exchange of Shares for cash if the exchange (i) results in a "complete
termination" of all such Holder's equity interest in the Company, (ii) results
in a "substantially disproportionate" redemption with respect to such Holder or
(iii) is "not essentially equivalent to a dividend" with respect to the Holder.
In applying each of the Section 302 tests, a Holder is in general deemed to own
constructively the Shares actually owned by certain related individuals and
entitles.
27
<PAGE>
A Holder that exchanges all Shares actually or constructively owned by
such Holder for cash pursuant to the Offer will be regarded as having
completely terminated such Holder's equity interest in the Company. An exchange
of Shares for cash will be a "substantially disproportionate" redemption with
respect to a Holder if the percentage of the then outstanding Shares owned by
such Holder immediately after the exchange is less than 80% of the percentage
of the Shares owned by such Holder immediately before the exchange. If an
exchange of Shares for cash fails to satisfy the "substantially
disproportionate" test, the Holder may nonetheless satisfy the "not essentially
equivalent to a dividend" test. A Holder who wishes to satisfy the "not
essentially equivalent to a dividend" test is urged to consult such Holder's
tax advisor because this test will be met only if the reduction in such
Holder's proportionate interest in the Company constitutes a "meaningful
reduction" given such Holder's particular facts and circumstances. The IRS has
indicated in published rulings that any reduction in the percentage interest of
a shareholder whose relative stock interest in a publicly held corporation is
minimal (an interest of less than 1% should satisfy this requirement) and who
exercises no control over corporate affairs should constitute such a
"meaningful reduction". If a Holder sells Shares to persons other than the
Company at or about the time such Holder also sells Shares to the Company
pursuant to the Offer, and the various sales effected by the Holder are part of
an overall plan to reduce or terminate such Holder's proportionate interest in
the Company, then the sales to persons other than the Company may, for United
States federal income tax purposes, be integrated with the Holder's sale of
Shares pursuant to the Offer and, if integrated, may be taken into account in
determining whether the Holder satisfies any of the three tests described
above. A Holder should consult his tax advisor regarding the treatment of other
exchanges of Shares for cash which may be integrated with such Holder's sale of
Shares to the Company pursuant to the Offer.
If a Holder is treated as recognizing gain or loss from the disposition of
Shares for cash, such gain or loss will be equal to the difference between the
amount of cash received and such Holder's tax basis in the Shares exchanged
therefor. Any such gain or loss will be capital gain or loss and will be long-
term capital gain or loss if the Holder's holding period of the Shares exceeds
one year as of the date of the exchange. Any long-term capital gain recognized
by Holders that are individuals, estates or trusts will be taxable at a maximum
rate of 20%. However, any short-term capital gain recognized by Holders that
are individuals, estates or trusts and any long-term or short-term capital gain
recognized by Holders that are corporations will be taxable at regular income
tax rates.
If a Holder is not treated under the Section 302 tests as recognizing gain
or loss on an exchange of Shares for cash, the entire amount of cash received
by such Holder in such exchange will be treated as a dividend to the extent of
the Company's current earnings and profits for its base year, and accumulated
earnings and profits, as determined for United States federal income tax
purposes. Such a dividend will be includible in the Holder's gross income as
ordinary income in its entirety, without reduction for the Holder's tax basis
of the Shares exchanged, and no loss will be recognized. The Holder's tax basis
in the Shares exchanged, however, will be added to such Holder's tax basis in
the remaining Shares that it owns. To the extent that cash received in exchange
for Shares is treated as a dividend to a corporate Holder, (i) it will be
eligible for a dividends-received deduction (subject to applicable limitations)
and (ii) it will be subject to the "extraordinary dividend" provisions of the
Code. A corporate Holder should consult its tax advisor concerning the
availability of the dividends-received deduction and the application of the
"extraordinary dividend" provisions of the Code.
The Company cannot predict whether or the extent to which the Offer will
be oversubscribed. If the Offer is oversubscribed, proration of tenders
pursuant to the Offer will cause the Company to accept fewer Shares than are
tendered. Therefore, a Holder can be given no assurance that a sufficient
number of such Holder's Shares will be purchased pursuant to the Offer to
ensure that such purchase will be treated as a sale or exchange, rather than as
a dividend, for United States federal income tax purposes pursuant to the rules
discussed above. However, see Section 6, "Conditional Tender of Shares"
regarding a shareholder's right to tender Shares subject to the condition that
a specified minimum number of such Shares must be purchased (if any are
purchased).
28
<PAGE>
Consequences to Shareholders who do not Tender Pursuant to the
Offer. Shareholders who do not accept the Company's Offer to tender their
Shares will not incur any tax liability as a result of the consummation of the
Offer.
See Section 3, "Procedures for Tendering Shares" with respect to the
application of United States federal income tax withholding to payments made to
foreign shareholders and backup withholding.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. EACH SHAREHOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE OFFER, INCLUDING
THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
15. EXTENSION OF OFFER; TERMINATION; AMENDMENT.
The Company expressly reserves the right, in its sole discretion, at any
time and from time to time, and regardless of whether or not any of the events
set forth in Section 7 shall have occurred or shall be deemed by the Company to
have occurred, to extend the period of time during which the Offer is open and
thereby delay acceptance for payment of, and payment for, any Shares by giving
oral or written notice of such extension to the Depositary and making a public
announcement thereof. The Company also expressly reserves the right, in its
sole discretion, to terminate the Offer and not accept for payment or pay for
any Shares not theretofore accepted for payment or paid for or, subject to
applicable law, to postpone payment for Shares upon the occurrence of any of
the conditions specified in Section 7 hereof by giving oral or written notice
of such termination or postponement to the Depositary and making a public
announcement thereof. The Company's reservation of the right to delay payment
for Shares which it has accepted for payment is limited by Rule 13e-4(f)(5)
promulgated under the Exchange Act, which requires that the Company must pay
the consideration offered or return the Shares tendered promptly after
termination or withdrawal of a tender offer. Subject to compliance with
applicable law, the Company further reserves the right, in its sole discretion,
and regardless of whether any of the events set forth in Section 7 shall have
occurred or shall be deemed by the Company to have occurred, to amend the Offer
in any respect (including, without limitation, by decreasing or increasing the
consideration offered in the Offer to holders of Shares or by decreasing or
increasing the number of Shares being sought in the Offer). Amendments to the
Offer may be made at any time and from time to time effected by public
announcement thereof, such announcement, in the case of an extension, to be
issued no later than 9:00 A.M., New York City time, on the next business day
after the last previously scheduled or announced Expiration Date. Any public
announcement made pursuant to the Offer will be disseminated promptly to
shareholders in a manner reasonably designated to inform shareholders of such
change. Without limiting the manner in which the Company may choose to make a
public announcement, except as required by applicable law, the Company shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by making a release to the Dow Jones News
Service.
If the Company materially changes the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, the Company will disseminate additional information and extend the Offer
to the extent required by Rules 13e-4(d)(2), 13e-4(e)(2) and 14e-4(f)(1)
promulgated under the Exchange Act. These rules require that the minimum period
during which an offer must remain open following material changes in the terms
of the Offer or information concerning the Offer (other than a change in price
or a change in percentage of securities sought) will depend on the facts and
circumstances, including the relative materiality of such terms or information.
If: (i) the Company increases or decreases the price to be paid for Shares, the
number of Shares being sought in the Offer or the Dealer Manager's soliciting
fees and, in the event of an increase in the number of Shares being sought,
such increase exceeds 2% of the outstanding Shares; and (ii) the Offer ends on
the tenth business day from, and including, the date that such notice of an
increase or decrease is first published, sent or given in the manner specified
in this Section 15, the Offer will then be extended until the expiration of
such period of ten business days.
29
<PAGE>
16. FEES AND EXPENSES.
CSFB is acting as Dealer Manager in connection with the Offer, for which
services CSFB will receive customary compensation. The Company also has agreed
to reimburse CSFB for its out-of-pocket expenses, including the fees and
expenses of legal counsel and other advisors, incurred in connection with its
engagement, and to indemnify CSFB and certain related persons against certain
liabilities and expenses in connection with its engagement, including certain
liabilities under the federal securities laws. In the ordinary course of
business, CSFB and its affiliates may actively trade the debt and equity
securities of the Company for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
The Company has retained American Stock Transfer and Trust Company to act
as Depositary and MacKenzie Partners, Inc. to act as Information Agent in
connection with the Offer. The Information Agent may contact shareholders by
mail, telephone, telegraph and personal interviews and may request brokers,
dealers and other nominee shareholders to forward materials relating to the
Offer to beneficial owners. The Depositary and the Information Agent will each
receive reasonable and customary compensation for their respective services as
Depositary and Information Agent, will be reimbursed by the Company for certain
reasonable out-of-pocket expenses and will be indemnified against certain
liabilities in connection with the Offer, including certain liabilities under
the federal securities laws.
No fees or commissions will be payable to brokers, dealers or other
persons (other than to the Dealer Manager, the Depositary or the Information
Agent as described above) for soliciting tenders of Shares pursuant to the
Offer. The Company, however, upon request, will reimburse brokers, dealers and
commercial banks for customary mailing and handling expenses incurred by such
persons in forwarding the Offer and related materials to the beneficial owners
of Shares held by any such person as a nominee or in a fiduciary capacity. No
broker, dealer, commercial bank or trust company has been authorized to act as
the agent of the Company for purposes of the Offer (except for the Dealer
Manager).
The Company will pay or cause to be paid all stock transfer taxes, if any,
on its purchase of Shares except as otherwise provided in Instruction 7 in the
Letter of Transmittal.
17. MISCELLANEOUS.
The Company is not aware of any jurisdiction where the making of the Offer
is not in compliance with applicable law. If the Company becomes aware of any
jurisdiction where the making of the Offer is not in compliance with any valid
applicable law, the Company will make a good faith effort to comply with such
law. If, after such good faith effort, the Company cannot comply with such law,
the Offer will not be made to (nor will tenders be accepted from or on behalf
of) the holders of Shares residing in such jurisdiction. In any jurisdiction
the securities or blue sky laws of which require the Offer to be made by a
licensed broker or dealer, the Offer is being made on the Company's behalf by
the Dealer Manager or one or more registered brokers or dealers licenses under
the laws of such jurisdiction.
Pursuant to Rule 13e-4 of the General Rules and Regulations under the
Exchange Act, the Company has filed with the Commission an Issuer Tender Offer
Statement on Schedule 13E-4 which contains additional information with respect
to the Offer. Such Schedule 13E-4, including the exhibits and any amendments
thereto, may be examined, and copies may be obtained, at the same places and in
the same manner as is set forth in Section 10 with respect to information
concerning the Company.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE COMPANY OR THE DEALER MANAGER IN CONNECTION
WITH THE OFFER OTHER THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE
RELATED LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE DEALER MANAGER.
THE PEP BOYS -- MANNY, MOE & JACK
December 23, 1998
30
<PAGE>
Manually signed facsimile copies of the Letter of Transmittal will be
accepted from Eligible Institutions. The Letter of Transmittal and certificates
for Shares and any other required documents should be sent or delivered by each
shareholder or his or her broker, dealer, commercial bank, trust company or
other nominee to the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
<TABLE>
<S> <C> <C> <C>
By Mail: By Hand: By Overnight Delivery: By Facsimile:
American Stock Transfer and American Stock Transfer and American Stock Transfer and American Stock Transfer and
Trust Company Trust Company Trust Company Trust Company
40 Wall Street 40 Wall Street 40 Wall Street (for Eligible Institutions
New York, New York 46th Floor 46th Floor only)
10005 New York, New York New York, New York (718) 234-5001
10005 10005
Confirm by Telephone: (718) 921-8200
</TABLE>
Any questions or requests for assistance or additional copies of the Offer
to Purchase, the Letter of Transmittal or other tender offer materials may be
directed to the Information Agent or the Dealer Manager as set forth below.
Shareholders may also contact their local broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Offer.
The Information Agent for the Offer is:
[MACKENZIE PARTNERS LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll Free: (800) 322-2885
The Dealer Manager for the Offer is:
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010-3629
Call Toll Free: (800) 881-8320
<PAGE>
LETTER OF TRANSMITTAL
To Tender Shares of Common Stock
of
THE PEP BOYS -- MANNY, MOE & JACK
Pursuant to the Offer to Purchase Dated December 23, 1998
- --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
The Depositary for the Offer is:
American Stock Transfer and Trust Company
By Mail: By Hand:
40 Wall Street 40 Wall Street
New York, New York 10005 46th Floor
New York, New York 10005
By Overnight Delivery:
40 Wall Street
46th Floor
New York, New York 10005
By Facsimile Transmission: Confirm Receipt of Facsimile by Telephone:
for Eligible Institutions only) (718) 921-8200
(718) 234-5001
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE ACCOMPANYING
INSTRUCTIONS, CAREFULLY BEFORE CHECKING ANY BOX BELOW.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
(See Instructions 3 and 4)
- ----------------------------------------------------------------------------------------------
NAMES(S) AND ADDRESSES OF REGISTERED HOLDER(S)
(Please fill in exactly as name(s) appear(s) SHARES TENDERED
on Share certificate(s) (Attach Additional Signed List, if Necessary)
- ----------------------------------------------------------------------------------------------
Total Number
of Shares
Share Represented Number of
Certificate by Share Shares
Numbers(1) Certificate(s) Tendered(2)
<S> <C> <C> <C>
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
Total Shares
---------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Indicate in this box the order (by certificate number) in which Shares are to
be purchased in the event of pro ration.(3) (Attach additional signed list if
necessary.)
See Instruction 15.
1st: 2nd: 3rd: 4th: 5th:
<PAGE>
- --------------------------------------------------------------------------------
/ / Check here if any of the Share certificates that you own have been lost,
stolen or destroyed. See Instruction 16. Number of Shares represented by
lost, stolen or destroyed Share certificates: __________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Need not be completed by shareholders tendering Shares by book-entry
transfer.
(2) Unless otherwise indicated, it will be assumed that all Shares
represented by each Share certificate delivered to the Depositary are
being tendered hereby. See Instruction 4.
(3) If you do not designate an order, then in the event less than all Shares
tendered are purchased due to proration, Shares will be selected for
purchase by the Depositary. See Instruction 15.
- --------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS SET
FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY.
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. DELIVERIES TO THE COMPANY OR THE
DEALER MANAGER WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT
CONSTITUTE VALID DELIVERY. DELIVERIES TO THE BOOK-ENTRY TRANSFER FACILITY WILL
NOT CONSTITUTE VALID DELIVERY TO THE DEPOSITARY.
This Letter of Transmittal is to be used only if certificates are to be
forwarded herewith or if delivery of Shares (as defined below) is to be made by
book-entry transfer to the Depositary's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedures set forth in
Section 3 of the Offer to Purchase (as defined below).
Shareholders whose Share certificates are not immediately available, who
cannot deliver certificates and any other documents required to the Depositary
by the Expiration Date (as defined in the Offer to Purchase), or who cannot
complete the procedure for book-entry transfer prior to the Expiration Date,
must tender their Shares using the guaranteed delivery procedure set forth in
Section 3 of the Offer to Purchase. See Instruction 2.
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
/ / CHECK HERE IF TENDERED SHARES ARE ENCLOSED HEREWITH.
- --------------------------------------------------------------------------------
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:___________________________________
Account No.______________________________________________________
Transaction Code No._____________________________________________
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s)__________________________________
Date of Execution of Notice of Guaranteed Delivery_______________
Name of Institution that Guaranteed Delivery_____________________
If delivery is by book-entry transfer:
Name of Tendering Institution:___________________________________
Account No.______________________________________________________
Transaction Code No._____________________________________________
- --------------------------------------------------------------------------------
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to The Pep Boys -- Manny, Moe & Jack, a
Pennsylvania corporation (the "Company"), the above-described shares of its
common stock, par value $1.00 per share ("Common Stock") (shares of Common
Stock, together with associated common stock purchase rights issued pursuant to
the Rights Agreement, dated as of December 5, 1997, between the Company and
First Union National Bank, as Rights Agent, are referred to herein as
"Shares"), at the price per Share indicated in this Letter of Transmittal, net
to the seller in cash, without interest thereon, upon the terms and subject to
the conditions set forth in the Offer to Purchase dated December 23, 1998 (the
"Offer to Purchase"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which, as amended or supplemented from time to time,
together constitute the "Offer").
Subject to, and effective upon, acceptance for payment of and payment for
the Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the undersigned
hereby sells, assigns and transfers to or upon the order of the Company all
right, title and interest in and to all the Shares that are being tendered
hereby or orders the registration of such Shares tendered by book-entry
transfer that are purchased pursuant to the Offer to or upon the order of the
Company and hereby irrevocably constitutes and appoints the Depositary the true
and lawful agent and attorney-in-fact of the undersigned with respect to such
Shares, with full power of substitution (such power of attorney being deemed to
be an irrevocable power coupled with an interest), to:
(i) deliver certificates for such Shares, or transfer ownership of such
Shares on the account books maintained by the Book-Entry Transfer
Facility, together, in any such case, with all accompanying evidences of
transfer and authenticity, to or upon the order of the Company upon
receipt by the Depositary, as the undersigned's agent, of the Purchase
Price (as defined below) with respect to such Shares;
(ii) present certificates for such Shares for cancellation and transfer
on the books of the Company; and
(iii) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Shares, all in accordance with the terms of the Offer.
The undersigned hereby represents and warrants to the Company that the
undersigned has full power and authority to tender, sell, assign and transfer
the Shares tendered hereby and that, when and to the extent the same are
accepted for payment by the Company, the Company will acquire good, marketable
and unencumbered title thereto, free and clear of all liens, restrictions,
charges, encumbrances, conditional sales agreements or other obligations
relating to the sale or transfer thereof, and the same will not be subject to
any adverse claims. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Depositary or the Company to be necessary or
desirable to complete the sale, assignment and transfer of the Shares tendered
hereby.
The undersigned represents and warrants to the Company that the
undersigned has read and agrees to all of the terms of the Offer. All authority
herein conferred or agreed to be conferred shall not be affected by and shall
survive the death or incapacity of the undersigned, and any obligation of the
undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Except as stated in
the Offer, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
Instructions of this Letter of Transmittal will constitute the undersigned's
acceptance of the terms and conditions of the Offer, as well as the
undersigned's representation and warranty to the Company that: (i) the
undersigned has a net long position in the Shares or equivalent securities
being tendered within the meaning of Rule 14e-4 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and (ii) the
tender of such Shares complies with Rule 14e-4 of the Exchange Act. The
Company's acceptance for payment of Shares tendered pursuant to the Offer will
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Offer.
<PAGE>
The names and addresses of the registered holders should be printed, if
they are not already printed above, exactly as they appear on the certificates
representing Shares tendered hereby. The certificate numbers, the number of
Shares represented by such certificates, the number of Shares that the
undersigned wishes to tender and the purchase price at which such Shares are
being tendered should be indicated in the appropriate boxes on this Letter of
Transmittal.
The undersigned understands that the Company will, upon the terms and
subject to the conditions of the Offer, determine the lowest single per Share
price (not greater than $16.00 nor less than $13.50 per Share), net to the
seller in cash, without interest thereon (the "Purchase Price"), that will
allow it to purchase 10,000,000 Shares (or such lesser number of Shares as are
validly tendered and not withdrawn) pursuant to the Offer. The undersigned
understands that the Company will pay the Purchase Price for all Shares validly
tendered at prices at or below the Purchase Price and not withdrawn, upon the
terms and subject to the conditions of the Offer, including the financing
condition described in Section 2 of the Offer to Purchase and the proration and
conditional tender provisions. Certificates representing Shares tendered at
prices greater than the Purchase Price and not withdrawn and Shares not
purchased because of proration or conditional tender will be returned at the
Company's expense. See Section 1 of the Offer to Purchase.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase, the Company may terminate or amend the Offer or may
postpone the acceptance for payment of, or the payment for, Shares tendered or
may not be required to purchase any of the Shares tendered hereby or may accept
for payment fewer than all of the Shares tendered hereby.
Unless otherwise indicated herein under "Special Payment Instructions",
please issue the check for the Purchase Price of any Shares purchased, and/or
return any Shares not tendered or not purchased, in the name(s) of the
undersigned (and, in the case of Shares tendered by book-entry transfer, by
credit to the account at the Book-Entry Transfer Facility). Similarly, unless
otherwise indicated under "Special Delivery Instructions", please mail the
check for the Purchase Price of any Shares purchased and/or any certificates
for Shares not tendered or not purchased (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Payment Instructions" and
"Special Delivery Instructions" are completed, please issue the check for the
Purchase Price of any Shares purchased and/or return any Shares not tendered or
not purchased in the name(s) of, and mail such check and/or any certificates
to, the person(s) so indicated. The undersigned recognizes that the Company has
no obligation, pursuant to the "Special Payment Instructions", to transfer any
Shares from the name of the registered holder(s) thereof if the Company does
not accept for payment any of the Shares so tendered.
The undersigned understands that acceptance of Shares by the Company for
payment will constitute a binding agreement between the undersigned and the
Company upon the terms and subject to the conditions of the Offer.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED.
(See Instruction 5)
IF SHARES ARE BEING TENDERED AT MORE THAN ONE PRICE, A SEPARATE
LETTER OF TRANSMITTAL FOR EACH PRICE SPECIFIED MUST BE USED.
- --------------------------------------------------------------------------------
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF
NO BOX IS CHECKED (EXCEPT AS PROVIDED IN THE ODD LOTS
BOX AND INSTRUCTIONS BELOW), THERE IS NO VALID TENDER OF SHARES.
- --------------------------------------------------------------------------------
/ / $13.500 / / $14.250 / / $15.000 / / $15.625
/ / $13.625 / / $14.375 / / $15.125 / / $15.750
/ / $13.750 / / $14.500 / / $15.250 / / $15.875
/ / $13.875 / / $14.625 / / $15.375 / / $16.000
/ / $14.000 / / $14.750 / / $15.500
/ / $14.125 / / $14.875
- --------------------------------------------------------------------------------
ODD LOTS
(See Instruction 9)
This section is to be completed ONLY if Shares are being tendered by or on
behalf of a person who owns beneficially as of the close of business on
December 22, 1998, and who continues to own beneficially as of the Expiration
Date, an aggregate of fewer than 100 Shares.
The undersigned either (check one box):
/ / owned beneficially as of the close of business on December 22, 1998, and
continues to own beneficially as of the Expiration Date, an aggregate
of fewer than 100 Shares, all of which are being tendered, or
/ / is a broker, dealer, commercial bank, trust company or other nominee that
(i) is tendering, for the beneficial owners thereof, Shares with
respect to which it is the record owner, and (ii) believes, based upon
representations made to it by each such beneficial owner, that such
beneficial owner owned beneficially as of the close of business on
December 22, 1998, and continues to own beneficially as of the
Expiration Date, an aggregate of fewer than 100 Shares and is tendering
all of such Shares.
If you do not wish to specify a purchase price, check the following box,
in which case you will be deemed to have tendered at the Purchase Price
determined by the Company in accordance with the terms of the Offer (persons
checking this box need not indicate the price per Share in the box entitled
"Price (In Dollars) Per Share At Which Shares are Being Tendered" in this
Letter of Transmittal). / /
ODD LOT SHARES CANNOT BE CONDITIONALLY TENDERED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDITIONAL TENDERS
(See Instruction 10)
/ / Check here if tender of Shares is conditional on the Company purchasing
all or a minimum number of the tendered Shares and complete the following:
Minimum Number of Shares to be Sold:______________________
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 1, 6, 7 and 8)
To be completed ONLY if the check for the aggregate Purchase Price of Shares
purchased and/or certificates for Shares not tendered or not purchased are to be
issued in the name of someone other than the undersigned.
Issue / / check and/or / / certificate(s) to:
Name:___________________________________________________________________________
(Please Print
Address:________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Book-Entry Facility Account No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 6 and 8)
To be completed ONLY if the check for the Purchase Price of Shares purchased
and/or certificates for Shares not tendered or not purchased are to be mailed to
someone other than undersigned or to the undersigned at an address other than
that shown below the under signed's signature(s).
Issue / / check and/or / / certificate(s) to:
Name:___________________________________________________________________________
(Please Print
Address:________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Tax Identification or Social Security No.)
Book-Entry Facility Account No.
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN SHARES
(See Instruction 17)
To be completed ONLY if Shares held in The Pep Boys -- Manny, Moe & Jack
Dividend Reinvestment and Stock Purchase Plan are to be tendered.
/ / By checking this box, the undersigned represents that the undersigned is
a participant in The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment
and Stock Purchase Plan and hereby instructs the Depositary to tender on
behalf of the undersigned the following number of Shares (including
fractional Shares, if any) credited to The Pep Boys -- Manny, Moe & Jack
Dividend Reinvestment and Stock Purchase Plan account of the undersigned
at the Purchase Price per Share indicated above under the item PRICE (IN
DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED:
___________________Shares(1)
(1) The undersigned understands and agrees that all Shares held in The Pep
Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan
account(s) of the undersigned will be tendered if the above box is
checked and the above space is left blank.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(to be completed by all shareholders)
Signature(s) of Owner(s)
Dated: _________________________,199__
Name(s)______________________________________________________________________
(Please Print)
Capacity (Full
(Title)______________________________________________________________________
Address______________________________________________________________________
_____________________________________________________________________________
(Include Zip Code)
Area Code and Telephone No.
_____________________________________________________________________________
(Must be signed by registered holder(s) exactly as name(s) appear(s) on Share
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please set forth full title and see Instruction 6.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 6)
Firm Name:___________________________________________________________________
(Please Print)
Authorized Signature:________________________________________________________
Title:_______________________________________________________________________
Address:_____________________________________________________________________
_____________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number:______________________________________________
Dated:______________________, 199___
- --------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm that is a
recognized member of an Eligible Institution (as defined below), unless: (i)
this Letter of Transmittal is signed by the registered holder(s) of the Shares
(which term, for purposes of this document, shall include any participant in a
Book-Entry Transfer Facility whose name appears on a security position listing
as the owner of Shares) tendered herewith and such holder(s) have not completed
the box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal; or (ii) such Shares are
tendered for the account of a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of the
Securities Transfer Agents Medallion Program or a bank, broker, dealer, credit
union, savings association or other entity which is an "eligible guarantor
institution," as such term is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (each such entity, an "Eligible Institution").
See Instruction 6.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be used either if Share
certificates are to be forwarded herewith or if delivery of Shares is to be
made by book-entry transfer pursuant to the procedures set forth in Section 3
of the Offer to Purchase. Certificates for all physically delivered Shares, or
a confirmation of a book-entry transfer into the Depositary's account at the
Book-Entry Transfer Facility of all Shares delivered electronically, as well as
a properly completed and duly executed Letter of Transmittal (or manually
signed facsimile thereof), or an Agent's Message (as defined below), and any
other documents required by this Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the front page of this Letter
of Transmittal prior to the Expiration Date. If certificates are forwarded to
the Depositary in multiple deliveries, a properly completed and duly executed
Letter of Transmittal must accompany each such delivery.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming part of a
confirmation of a book-entry transfer which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the participant in the
Book-Entry Transfer Facility tendering the Shares that such participant has
received and agrees to be bound by the terms of this Letter of Transmittal and
that the Company may enforce such agreement against the participant.
Shareholders whose Share certificates are not immediately available, who
cannot deliver their Shares and all other required documents to the Depositary
or who cannot complete the procedure for delivery by book-entry transfer prior
to the Expiration Date must tender their Shares pursuant to the guaranteed
delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to
such procedure: (i) such tender must be made by or through an Eligible
Institution; (ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Company (with any required
signature guarantees) must be received by the Depositary prior to the
Expiration Date; and (iii) the certificates for all physically delivered Shares
in proper form for transfer by delivery, or a confirmation of a book-entry
transfer into the Depositary's account at the Book-Entry Transfer Facility of
all Shares delivered electronically, in each case together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), or an
Agent's Message, and any other documents required by this Letter of
Transmittal, must be received by the Depositary within three New York Stock
Exchange trading days after the date the Depositary receives such Notice of
Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase.
The method of delivery of all documents, including Share certificates, the
Letter of Transmittal and any other required documents, is at the election and
risk of the tendering shareholder, and the delivery will be deemed made only
when actually received by the Depositary. If delivery is by mail, registered
mail with return receipt requested, properly insured, is recommended. In all
cases, sufficient time should be allowed to ensure timely delivery.
The Company will not accept any alternative, conditional or contingent
tenders, nor will it purchase any fractional Shares, except as expressly
provided in the Offer to Purchase. By executing this Letter of Transmittal (or
facsimile thereof), the tendering shareholder waives any right to receive any
notice of the acceptance for payment of the Shares.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
signed schedule and attached to this Letter of Transmittal.
<PAGE>
4. PARTIAL TENDERS (NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY
BOOK-ENTRY TRANSFER). If fewer than all the Shares represented by any
certificate delivered to the Depositary are to be tendered, fill in the number
of Shares that are to be tendered in the box entitled "Number of Shares
Tendered." In such case, a new certificate for the remainder of the Shares
represented by the old certificate will be sent to the person(s) signing this
Letter of Transmittal, unless otherwise provided in the "Special Payment
Instructions" or "Special Delivery Instructions" boxes on this Letter of
Transmittal, as promptly as practicable following the expiration or termination
of the Offer. All Shares represented by certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
5. INDICATION OF PRICE AT WHICH SHARES ARE BEING TENDERED. For Shares to
be validly tendered, the shareholder must check the box indicating the price
per Share at which such shareholder is tendering Shares under "Price (In
Dollars) Per Share At Which Shares Are Being Tendered" in this Letter of
Transmittal, except that Odd Lot Owners (as defined in Section 1 of the Offer
to Purchase) may check the box above in the section entitled "Odd Lots"
indicating that such shareholder is tendering all Shares at the Purchase Price
determined by the Company. Only one box may be checked. If more than one box is
checked or (other than as described above for Odd Lot Owners) if no box is
checked, there is not valid tender of shares. A shareholder wishing to tender
portions of such shareholder's Share holdings at different prices must complete
a separate Letter of Transmittal for each price at which such shareholder
wishes to tender each such portion of such shareholder's Shares. The same
Shares cannot be tendered (unless previously validly withdrawn as provided in
Section 4 of the Offer to Purchase) at more than one price.
6. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signatures(s) must correspond with the name(s) as written
on the face of the certificates without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby are held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal (or facsimiles thereof) as there are
different registrations of certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock
powers are required unless payment of the purchase price is to be made to, or
Shares not tendered or not purchased are to be registered in the name of, any
person other than the registered holder(s), in which case the certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such certificates. Signatures on any such
certificates or stock powers must be guaranteed by an Eligible Institution. See
Instruction 1.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, certificates evidencing the
Shares tendered hereby must be endorsed or accompanied by appropriate stock
powers, in either case, signed exactly as the name(s) of the registered
holder(s) appear(s) on such certificate(s). Signature(s) on any such
certificates or stock powers must be guaranteed by an Eligible Institution. See
Instruction 1.
If this Letter of Transmittal or any certificate or stock power is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory
to the Company of the authority of such person so to act must be submitted.
7. STOCK TRANSFER TAXES. The Company will pay or cause to be paid any
stock transfer taxes with respect to the sale and transfer of any Shares to it
or its order pursuant to the Offer. If, however, payment of the aggregate
Purchase Price is to be made to, or Shares not tendered or not purchased are to
be registered in the name of, any person other than the registered holder(s),
or if tendered Shares are registered in the name of any person other than the
person(s) signing this Letter of Transmittal, the amount of any stock transfer
taxes (whether
<PAGE>
imposed on the registered holder(s), such other person or otherwise) payable on
account of the transfer to such person will be deducted from the purchase price
unless satisfactory evidence of the payment of such taxes, or exemption
therefrom, is submitted. See Section 5 of the Offer to Purchase. Except as
provided in this Instruction 7, it will not be necessary to affix transfer tax
stamps to the certificates representing Shares tendered hereby.
8. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the Purchase
Price of any Shares tendered hereby is to be issued in the name of, and/or any
Shares not tendered or not purchased are to be returned to, a person other than
the person(s) signing this Letter of Transmittal, or if the check and/or any
certificates for Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to an
address other than that shown above in the box captioned "Description of Shares
Tendered", then the boxes captioned "Special Payment Instructions" and/or
"Special Delivery Instructions" on this Letter of Transmittal should be
completed. Shareholders tendering Shares by book-entry transfer will have any
Shares not accepted for payment returned by crediting the account maintained by
such shareholder at the Book-Entry Transfer Facility from which such transfer
was made.
9. ODD LOTS. As described in Section 1 of the Offer to Purchase, if fewer
than all Shares validly tendered at or below the Purchase Price and not
properly withdrawn prior to the Expiration Date are to be purchased, the Shares
purchased first will consist of all Shares tendered by any shareholder who
owned beneficially, as of the close of business on December 22, 1998, and
continues to own beneficially as of the Expiration Date, an aggregate of fewer
than 100 Shares and who validly tendered all such Shares at or below the
Purchase Price (including by not designating a purchase price as described
above). Partial tenders of Shares will not qualify for this preference and this
preference will not be available unless the box captioned "Odd Lots" in this
Letter of Transmittal and the Notice of Guaranteed Delivery, if any, is
completed.
10. CONDITIONAL TENDERS. As described in Sections 1 and 6 of the Offer to
Purchase, shareholders may condition their tender on all or a minimum number of
their tendered Shares being purchased ("Conditional Tenders"). If the Company
is to purchase less than all Shares tendered before the Expiration Date and not
withdrawn, the Depositary will perform a preliminary proration, and any Shares
tendered at or below the Purchase Price pursuant to a Conditional Tender for
which the condition was not satisfied shall be deemed withdrawn, subject to
reinstatement if such Conditionally Tendered Shares are subsequently selected
by random lot for purchase subject to Sections 1 and 6 of the Offer to
Purchase. Conditional Tenders will be selected by lot only from shareholders
who tender all of their Shares. All tendered Shares shall be deemed
unconditionally tendered unless the "Conditional Tender" box is completed. The
Conditional Tender alternative is made available so that a shareholder may
assure that the purchase of Shares from the shareholder pursuant to the Offer
will be treated as a sale of such Shares by the shareholder, rather than the
payment of a dividend to the shareholder, for federal income tax purposes. Odd
Lot Shares, which will not be subject to proration, cannot be conditionally
tendered. It is the tendering shareholder's responsibility to calculate the
minimum number of Shares that must be purchased from the shareholder in order
for the shareholder to qualify for sale (rather than dividend) treatment, and
each shareholder is urged to consult his or her own tax advisor.
In the event of proration, any Shares tendered pursuant to a conditional
tender for which the minimum requirements are not satisfied may not be accepted
and thereby deemed withdrawn.
11. SUBSTITUTE FORM W-9 AND FORM W-8. Under the United States federal
income tax backup withholding rules, unless an exemption applies under the
applicable law and regulations, 31% of the gross proceeds payable to a
shareholder or other payee pursuant to the Offer must be withheld and remitted
to the United States Treasury, unless the shareholder or other payee provides
such person's taxpayer identification number (employer identification number or
social security number) to the Depositary and certifies that such number is
correct. Therefore, each tendering shareholder must complete and sign the
Substitute Form W-9 included as part of this Letter of Transmittal so as to
provide the information and certification necessary to avoid backup
withholding, unless such shareholder otherwise establishes to the satisfaction
of the Depositary that it is not subject to backup withholding. Certain
shareholders (including, among others, all corporations and certain foreign
shareholders) are not subject to these backup withholding requirements. To
prevent possible erroneous backup withholding, an exempt holder must enter its
correct taxpayer identification number in Part 1 of Substitute Form W-9, write
"Exempt" in
<PAGE>
Part 2 of such form, and sign and date the form. See the enclosed Guidelines
for Certification of Taxpayer Identification Number or Substitute Form W-9 for
additional instructions. In order for a foreign shareholder to qualify as an
exempt recipient, a foreign shareholder must submit an Internal Revenue Service
("IRS") Form W-8 or a Substitute Form W-8, signed under penalties of perjury,
attesting to that shareholder's exempt status. Form W-8 may be obtained from
the Depositary.
12. WITHHOLDING ON FOREIGN SHAREHOLDERS. Even if a foreign shareholder has
provided the required certification to avoid backup withholding, the Depositary
will withhold United States federal income taxes equal to 30% of the gross
payments payable to a foreign shareholder or its agent unless (a) the
Depositary determines that a reduced rate of withholding is available pursuant
to a tax treaty or that an exemption from withholding is applicable because
such gross proceeds are effectively connected with the conduct of a trade or
business in the United States or (b) the foreign shareholder establishes to the
satisfaction of the Company and the Depositary that the sale of Shares by such
foreign shareholder pursuant to the Offer will qualify as a "sale or exchange,"
rather than as a distribution taxable as a dividend, for United States federal
income tax purposes (see Section 14 of the Offer to Purchase). For this
purpose, a foreign shareholder is any shareholder that is not: (i) a citizen or
resident of the United States; (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States, any State or
any political subdivision thereof; (iii) an estate, the income of which is
subject to United States federal income taxation regardless of the source of
such income; or (iv) a trust the administration of which a court within the
United States is able to exercise primary supervision and all substantial
decisions of which one or more United States persons have the authority to
control. In order to obtain a reduced rate of withholding pursuant to a tax
treaty, a foreign shareholder must deliver to the Depositary a properly
completed IRS Form 1001. In order to obtain an exemption from withholding on
the grounds that the gross proceeds paid pursuant to the Offer are effectively
connected with the conduct of a trade or business within the United States, a
foreign shareholder must deliver to the Depositary a properly completed IRS
Form 4224. The Depositary will determine a shareholder's status as a foreign
shareholder and eligibility for a reduced rate of, or an exemption from,
withholding by reference to outstanding certificates or statements concerning
eligibility for a reduced rate of, or exemption from, withholding (e.g., IRS
Form 1001 or IRS Form 4224) unless facts and circumstances indicate that such
reliance is not warranted. A foreign shareholder may be eligible to obtain a
refund of all or a portion of any tax withheld if such shareholder meets the
"complete redemption," "substantially disproportionate" or "not essentially
equivalent to a dividend" test described in Section 14 of the Offer to Purchase
or is otherwise able to establish that no tax or a reduced amount of tax is
due. Each foreign shareholder is urged to consult its tax advisor regarding the
application of United States federal income tax withholding, including
eligibility for a withholding tax reduction or exemption and refund procedure.
13. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
and requests for assistance may be directed to, or additional copies of the
Offer to Purchase, the Notice of Guaranteed Delivery and this Letter of
Transmittal may be obtained from, the Information Agent or the Dealer Manager
at their respective addresses and telephone numbers set forth at the end of
this Letter of Transmittal. Such materials may alternatively be obtained from
your broker, dealer, commercial bank or trust company.
14. IRREGULARITIES. All questions as to the number of Shares to be
accepted, the price to be paid therefor and the validity, form, eligibility
(including time of receipt) and acceptance for payment of any tender of Shares
will be determined by the Company, in its sole discretion, which determination
shall be final and binding on all parties. The Company reserves the absolute
right to reject any or all tenders it determines not to be in proper form or
the acceptance of or payment for which may, in the opinion of the Company's
counsel, be unlawful. The Company also reserves the absolute right to waive any
of the conditions of the Offer and any defect or irregularity in the tender of
any particular Shares or any particular shareholder. No tender of Shares will
be deemed to be validly made until all defects or irregularities have been
cured or waived. None of the Company, the Dealer Manager, the Depositary, the
Information Agent or any other person is or will be obligated to give notice of
any defects or irregularities in tenders, and none of them will incur any
liability for failure to give any such notice.
15. ORDER OF PURCHASE IN EVENT OF PRORATION. As described in Section 1 of
the Offer to Purchase, shareholders may designate the order in which their
Shares are to be purchased in the event of proration. The order of purchase may
have an effect on the United States federal income tax classification of any
gain or loss on the Shares purchased. See Sections 1 and 14 of the Offer to
Purchase.
<PAGE>
16. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. If any Share
certificate(s) have been lost, destroyed or stolen, the shareholder should
promptly notify the Depositary by checking the box provided in the box
captioned "Description of Shares Tendered" and indicating the number of Shares
so lost, destroyed or stolen. The shareholder will then be instructed by the
Depositary as to the steps that must be taken in order to replace such Share
certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedure for replacing lost, destroyed or stolen Share
certificate(s) has been followed. To expedite replacement, call from outside
New York toll free: (800)937-5449, or from inside New York: (718) 921-8200.
17. THE PEP BOYS -- MANNY, MOE & JACK DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN. If a shareholder desires to tender Shares (including fractional
Shares, if any) credited to the shareholder's account under The Pep
Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock Purchase Plan, the
box captioned "Dividend Reinvestment and Stock Purchase Plan Shares" should be
completed. A participant in The Pep Boys -- Manny, Moe & Jack Dividend
Reinvestment and Stock Purchase Plan may complete such box on only one Letter
of Transmittal submitted by such participant. If a participant submits more
than one Letter of Transmittal and completes such box on more than one Letter
of Transmittal, the participant will be deemed to have elected to tender all
Shares (including fractional Shares, if any) credited to the shareholder's
account under The Pep Boys -- Manny, Moe & Jack Dividend Reinvestment and Stock
Purchase Plan at the lowest price specified in such Letters of Transmittal.
If a shareholder tenders Shares held in The Pep Boys -- Manny, Moe & Jack
Dividend Reinvestment and Stock Purchase Plan, all such Shares held in such
shareholder's account(s), including fractional Shares, will be tendered, unless
otherwise specified above under the box captioned "Dividend Reinvestment and
Stock Purchase Plan Shares". In the event that the box captioned "Dividend
Reinvestment and Stock Purchase Plan Shares" is not completed, no Shares held
in the tendering shareholder's account will be tendered.
If a participant in The Pep Boys -- Manny, Moe & Jack Dividend
Reinvestment and Stock Purchase Plan tenders all Shares owned by such
participant, and all such Shares are purchased by the Company, such
participant's participation in The Pep Boys -- Manny, Moe & Jack Dividend
Reinvestment and Stock Purchase Plan shall terminate and any accrued and unpaid
dividends to which such participant is entitled shall be paid in cash.
IMPORTANT: This Letter of Transmittal (or a facsimile thereof) together with
Share certificates or an Agent's Message together with confirmation of
book-entry transfer and all other required documents must be received by the
Depositary, or the Notice of Guaranteed Delivery must be received by the
Depositary, prior to the Expiration Date. Shareholders are encouraged to return
a completed substitute Form W-9 with their Letter of Transmittal.
<PAGE>
TO BE COMPLETED BY ALL TENDERING REGISTERED
HOLDERS OF SECURITIES
Payer's Name: AMERICAN STOCK TRANSFER AND TRUST COMPANY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE FORM W-9 Part 1: PLEASE PROVIDE YOUR TIN _____________________________________
IN THE APPROPRIATE BOX AT RIGHT Social Security Number
AND CERTIFY BY SIGNING AND DAT-
ING BELOW. or Employer
DEPARTMENT OF THE _______________________________________ Identification Number
TREASURY INTERNAL NAME (if a joint account or you changed ______________________________________
REVENUE SERVICE your name, see Guidelines) Part-2--For Payees exempt from
_______________________________________ backup withholding, see the Important
CHECK APPROPRIATE BOX: Tax Information above and Guidelines
/ / Individual/Sole Proprietor for Certification of Taxpayer-
/ / Corporation / / Partnership Identification Number on Substitute
/ / Other Form W-9 enclosed herewith and com-
plete as instructed herein.
_______________________________________
BUSINESS NAME, if different from above
(See Guidelines):
Payer's Request for
Taxpayer Identification ________________________________________
Number ("TIN") ADDRESS
and Certification
________________________________________
CITY STATE ZIP CODE
</TABLE>
- --------------------------------------------------------------------------------
Part 3--CERTIFICATION--Under penalties of perjury, I certify that (i) the
number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me and (ii) I am not subject to backup
withholding because: (a) I am exempt from backup withholding; or (b) I have not
been notified by the IRS that I am subject to backup withholding as a result of
a failure to report all interest or dividends; or (c) the IRS has notified me
that I am no longer subject to backup withholding.
SIGNATURE__________________________ DATE____________
CERTIFICATION INSTRUCTIONS--You must cross out Item (ii) above if you have been
notified by the IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return. If you are
exempt from backup withholding, check the box in Part 5 below.
- --------------------------------------------------------------------------------
Part 4--AWAITING TIN / / Part 5--EXEMPT TIN / /
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY CASH PAYMENTS. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 4 OF THE SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and that I mailed or delivered an application to
receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail
or deliver an application in the near future). I understand that if I do not
provide a taxpayer identification number to the payer within 60 days, the
payer is required to withhold 31% of all reportable payments made to me
thereafter until I provide a number.
___________________________________________________________________________
Signature Date
- --------------------------------------------------------------------------------
<PAGE>
The Information Agent for the Offer is:
[MACKENZIE PARTNERS LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll Free: (800) 322-2885
The Dealer Manager for the Offer is:
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010-3629
Call Toll Free: (800) 881-8320
<PAGE>
Notice of Guaranteed Delivery
for
Tender of Shares of Common Stock
of
THE PEP BOYS -- MANNY, MOE & JACK
This form, or a form substantially equivalent to this form, must be used
to accept the Offer (as defined below) if certificates for the shares of common
stock, par value $1.00 per share ("Common Stock") of The Pep Boys -- Manny, Moe
& Jack, a Pennsylvania corporation (the "Company"), are not immediately
available, if the procedure for book-entry transfer cannot be completed on a
timely basis, or if time will not permit all other documents required by the
Letter of Transmittal to be delivered to the Depositary (as defined below)
prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase
defined below). Such form may be delivered by hand or transmitted by mail or
overnight courier, or (for Eligible Institutions only) by facsimile
transmission, to the Depositary. See Section 3 of the Offer to Purchase.
The Depositary for the Offer is:
American Stock Transfer and Trust Company
By Mail: By Hand:
40 Wall Street 40 Wall Street
New York, New York 10005 46th Floor
New York, New York 10005
By Overnight Delivery:
40 Wall Street
46th Floor
New York, New York 10005
By Facsimile Transmission: Confirm Receipt of Facsimile by Telephone:
(for Eligible Institutions only) (718) 921-8200
(718) 234-5001
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. DELIVERIES TO THE COMPANY WILL NOT
BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT CONSTITUTE A VALID
DELIVERY. DELIVERIES TO THE BOOK-ENTRY TRANSFER FACILITY WILL NOT CONSTITUTE A
VALID DELIVERY TO THE DEPOSITARY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
(as defined below) under the instructions thereto, such signature guarantee
must appear in the applicable space provided in the signature box on the Letter
of Transmittal.
The Eligible Institution which completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal or an
Agent's Message and certificates for Shares to the Depositary within the time
shown herein. Failure to do so could result in a financial loss to such
Eligible Institution.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Offer to Purchase dated December 23, 1998
(the "Offer to Purchase"), and the related Letter of Transmittal (which, as
amended or supplemented from time to time, together constitute the "Offer"),
receipt of which is hereby acknowledged, the number of shares of Common Stock
(together with associated common stock purchase rights issued pursuant to the
Rights Agreement, dated as of December 5, 1997, between the Company and First
Union National Bank, as Rights Agent, "Shares"), of the Company listed below,
pursuant to the guaranteed delivery procedure set forth in Section 3 of the
Offer to Purchase.
--------------------------------
Number of Shares
--------------------------------
Certificate Nos.: (if available)
--------------------------------
Name(s)
--------------------------------
Address
--------------------------------
Area Code/Telephone Number
--------------------------------
Signature(s)
Dated:
----------------------------------------
If shares will be tendered by book-entry
transfer:
--------------------------------
Name of Tendering Institution
--------------------------------
Account No. at The Depository
Trust Company
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a bank, broker, dealer, credit union, savings association
or other entity which is a member in good standing of the Securities Transfer
Agents Medallion Program or a bank, broker, dealer, credit union, savings
association or other entity which is an "eligible guarantor institution," as
such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934,
as amended (each of the foregoing constituting an "Eligible Institution"),
guarantees the delivery to the Depositary of the Shares tendered hereby, in
proper form for transfer, or a confirmation that the Shares tendered hereby
have been delivered pursuant to the procedure for book-entry transfer set forth
in the Offer to Purchase into the Depositary's account at the Book-Entry
Transfer Facility, together with a properly completed and duly executed Letter
of Transmittal (or a manually signed facsimile thereof) and any other required
documents, all within three (3) New York Stock Exchange, Inc. trading days of
the date hereof.
Name of Firm
-----------------------------------
Address
-----------------------------------
-----------------------------------
City, State, Zip Code
Area Code
and Telephone Number
----------------
---------------------------------
Authorized Signature
---------------------------------
Name (Please Print)
Title
---------------------------------
Dated:
---------------------------------
3
<PAGE>
DO NOT SEND SHARE CERTIFICATES WITH THIS FORM. YOUR SHARE CERTIFICATES
MUST BE SENT WITH THE LETTER OF TRANSMITTAL.
PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED.
IF SHARES ARE BEING TENDERED AT MORE THAN ONE PRICE, A SEPARATE NOTICE OF
GUARANTEED DELIVERY FOR EACH PRICE SPECIFIED MUST BE USED.
- --------------------------------------------------------------------------------
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO BOX IS
CHECKED (EXCEPT AS PROVIDED IN THE ODD LOTS BOX AND INSTRUCTIONS
BELOW), THERE IS NO VALID TENDER OF SHARES.
- --------------------------------------------------------------------------------
/ / $13.500 / / $14.375 / / $15.250
/ / $13.625 / / $14.500 / / $15.375
/ / $13.750 / / $14.625 / / $15.500
/ / $13.875 / / $14.750 / / $15.625
/ / $14.000 / / $14.875 / / $15.750
/ / $14.125 / / $15.000 / / $15.875
/ / $14.250 / / $15.125 / / $16.000
- --------------------------------------------------------------------------------
ODD LOTS
This section is to be completed ONLY if Shares are being tendered by or on
behalf of a person who owns beneficially as of the close of business on
December 22, 1998, and who continues to own beneficially as of the Expiration
Date, an aggregate of fewer than 100 Shares.
The undersigned either (check one box):
/ / owned beneficially as of the close of business on December 22, 1998, and
continues to own beneficially as of the Expiration Date, an aggregate of
fewer than 100 Shares, all of which are being tendered, or
/ / is a broker, dealer, commercial bank, trust company or other nominee that
(i) is tendering, for the beneficial owners thereof, Shares with respect
to which it is the record owner, and (ii) believes, based upon
representations made to it by each such beneficial owner, that such
beneficial owner owned beneficially as of the close of business on
December 22, 1998, and continues to own beneficially as of the Expiration
Date, an aggregate of fewer than 100 Shares and is tendering all of such
Shares.
If you do not wish to specify a purchase price, check the following box, in
which case you will be deemed to have tendered at the Purchase Price
determined by the Company in accordance with the terms of the Offer (persons
checking this box need not indicate the price per Share in the box entitled
"Price (In Dollars) Per Share At Which Shares are Being Tendered" in this
Notice of Guaranteed Delivery)./ /
ODD LOT SHARES CANNOT BE CONDITIONALLY TENDERED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDITIONAL TENDERS
/ / Check here if tender of Shares is conditional on the Company purchasing
all or a minimum number of the tendered Shares and complete the following:
Minimum Number of Shares to be Sold:
-------------------------
- --------------------------------------------------------------------------------
4
<PAGE>
CREDIT SUISSE FIRST BOSTON CORPORATION
[CREDIT SUISSE FIRST BOSTON LOGO]
Eleven Madison Avenue Telephone: 212 325 2000
New York, NY 10010-3629
THE PEP BOYS -- MANNY, MOE & JACK
Offer To Purchase For Cash
Up To 10,000,000 Shares Of Its Common Stock
At a Purchase Price Not Greater Than
$16.00 Nor Less Than $13.50 Per Share
- --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
December 23, 1998
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
In our capacity as Dealer Manager, we are enclosing the material listed
below relating to the offer of The Pep Boys -- Manny, Moe & Jack, a
Pennsylvania corporation (the "Company"), to purchase up to 10,000,000 shares
of its common stock, par value $1.00 per share (together with associated common
stock purchase rights issued pursuant to the Rights Agreement, dated as of
December 5, 1997, between the Company and First Union National Bank, as Rights
Agent, "Shares"), at prices not greater than $16.00 nor less than $13.50 per
Share, net to the seller in cash, without interest thereon, specified by
tendering shareholders, upon the terms and subject to the conditions set forth
in the Offer to Purchase dated December 23, 1998 (the "Offer to Purchase"), and
in the related Letter of Transmittal (which, as amended or supplemented from
time to time, together constitute the "Offer").
The Company will, upon the terms and subject to the conditions of the
Offer, determine the lowest single per Share price (not greater than $16.00 nor
less than $13.50 per Share), net to the seller in cash (the "Purchase Price"),
that will allow it to purchase 10,000,000 Shares (or such lesser number of
Shares as are validly tendered and not properly withdrawn) pursuant to the
Offer. The Company will pay the Purchase Price for all Shares validly tendered
at prices at or below the Purchase Price and not properly withdrawn, upon the
terms and subject to the conditions of the Offer, including the financing
condition and proration and conditional tender provisions referred to below.
Certificates representing Shares tendered at prices in excess of the Purchase
Price and not properly withdrawn and Shares not purchased because of proration
will be returned at the Company's expense. The Company reserves the right, in
its sole discretion, to purchase more than 10,000,000 Shares pursuant to the
Offer.
THIS OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS CONDITIONED UPON THE COMPANY'S HAVING OBTAINED
SUFFICIENT FINANCING TO FUND THE PURCHASE OF SHARES TENDERED IN THE OFFER AND
PAY ALL RELATED FEES AND EXPENSES. THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER
CONDITIONS. SEE SECTION 6 OF THE OFFER TO PURCHASE.
We are asking you to contact your clients for whom you hold Shares
registered in your name (or in the name of your nominee) or who hold Shares
registered in their own names. Please bring the Offer to their attention as
promptly as possible.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, we are enclosing
the following documents:
1. The Offer to Purchase, dated December 23, 1998.
2. The Letter of Transmittal for your use and for the information of your
clients. Facsimile copies of the Letter of Transmittal may be used to
tender Shares.
<PAGE>
3. A letter to shareholders of the Company from Mitchell G. Leibovitz,
Chairman of the Board and Chief Executive Officer.
4. The Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents cannot be delivered to the
Depositary by the Expiration Date (each as defined in the Offer to
Purchase).
5. A letter that may be sent to your clients for whose accounts you hold
Shares registered in your name or in the name of your nominee, with space
for obtaining such clients' instructions with regard to the Offer.
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 providing information relating to United States
federal income tax backup withholding.
7. A return envelope addressed to American Stock Transfer and Trust
Company, the Depositary.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER, PRORATION PERIOD AND
WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY,
JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED.
The Company will not pay any fees or commissions to any broker, dealer or
other person for soliciting tenders of Shares pursuant to the Offer (other than
fees paid to the Dealer Manager). The Company will, upon request, reimburse you
for reasonable and customary handling and mailing expenses incurred by you in
forwarding materials relating to the Offer to your customers. The Company will
pay all stock transfer taxes applicable to its purchase of Shares pursuant to
the Offer, subject to Instruction 7 of the Letter of Transmittal.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal and any other required documents should be sent
to the Depositary with either certificate(s) representing the tendered Shares
or confirmation of their book-entry transfer, all in accordance with the
instructions set forth in the Letter of Transmittal and the Offer to Purchase.
As described in the Offer to Purchase, if more than 10,000,000 Shares (or
such greater number of Shares as the Company may elect to purchase pursuant to
the Offer) have been validly tendered at prices at or below the Purchase Price
and not properly withdrawn prior to the Expiration Date (as defined in Section
1 of the Offer to Purchase), the Company will purchase Shares validly tendered
and not properly withdrawn on the following basis: (i) all Shares tendered and
not withdrawn prior to the Expiration Date by any shareholder who owned
beneficially as of the close of business on December 22, 1998, and who
continues to own beneficially as of the Expiration Date, an aggregate of fewer
than 100 Shares and who validly tenders all of such Shares at or below the
Purchase Price (partial tenders will not qualify for this preference) and
completes the box captioned "Odd Lots" on the Letter of Transmittal and, if
applicable, on the Notice of Guaranteed Delivery; and (ii) after purchase of
all the foregoing Shares, all Shares conditionally tendered in accordance with
Section 6 of the Offer to Purchase, for which the condition was satisfied, and
all other Shares tendered unconditionally, at prices at or below the Purchase
Price and not withdrawn prior to the Expiration Date, on a pro rata basis (with
appropriate adjustments to avoid purchase of fractional Shares); and (iii) if
necessary, Shares conditionally tendered for which the condition was not
satisfied, at or below the Purchase Price and not withdrawn prior to the
Expiration Date, selected by random lot in accordance with Section 6 of the
Offer to Purchase.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
SHAREHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES.
EACH SHAREHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO,
HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH SHARES SHOULD BE
TENDERED. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE
OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER.
2
<PAGE>
Any questions or requests for assistance may be directed to the
Information Agent or the Dealer Manager at their respective addresses and
telephone numbers set forth on the back cover of the enclosed Offer to
Purchase. Additional copies of the enclosed materials may be requested from the
Information Agent or the Dealer Manager.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON AS THE AGENT OF THE COMPANY, THE DEALER MANAGER, THE
INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO
USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION
WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
3
<PAGE>
THE PEP BOYS -- MANNY, MOE & JACK
Offer to Purchase for Cash
up to 10,000,000 Shares of its Common Stock
At a Purchase Price Not Greater Than
$16.00 Nor Less Than $13.50 Per Share
- --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
December 23, 1998
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated December
23, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal
(which, as amended or supplemented from time to time, together constitute the
"Offer") setting forth an offer by The Pep Boys -- Manny, Moe & Jack, a
Pennsylvania corporation (the "Company"), to purchase up to 10,000,000 shares
of its common stock, par value $1.00 per share (together with associated common
stock purchase rights issued pursuant to the Rights Agreement, dated as of
December 5, 1997, between the Company and First Union National Bank, as Rights
Agent, "Shares"), at prices not greater than $16.00 nor less than $13.50 per
Share, net to the seller in cash, without interest thereon, specified by
tendering shareholders, upon the terms and subject to the conditions of the
Offer. Also enclosed herewith is certain other material related to the Offer.
The Company will, upon the terms and subject to the conditions of the
Offer, determine the lowest single per Share price (not greater than $16.00 nor
less than $13.50 per Share), net to the seller in cash, without interest
thereon (the "Purchase Price"), that will allow it to purchase 10,000,000
Shares (or such lesser number of Shares as are validly tendered and not
properly withdrawn) pursuant to the Offer. The Company will pay the Purchase
Price for all Shares validly tendered at prices at or below the Purchase Price
and not properly withdrawn, upon the terms and subject to the conditions of the
Offer, including the financing condition and proration and conditional tender
provisions referred to below. Certificates representing Shares tendered at
prices in excess of the Purchase Price and not properly withdrawn and Shares
not purchased because of proration will be returned at the Company's expense.
The Company reserves the right, in its sole discretion, to purchase more than
10,000,000 Shares pursuant to the Offer. See Section 1 of the Offer to
Purchase.
We are the holder of record of Shares held for your account. As such, a
tender of such Shares can be made only by us as the holder of record and
pursuant to your instructions. The Letter of Transmittal is furnished to you
for your information only and cannot be used by you to tender Shares held by us
for your account.
We request instructions as to whether you wish us to tender any or all of
the Shares held by us for your account, upon the terms and subject to the
conditions set forth in the Offer to Purchase and the Letter of Transmittal.
Your attention is invited to the following:
1. You may tender Shares at prices (in increments of $.125), which
cannot be greater than $16.00 nor less than $13.50 per Share, as indicated
in the attached Instruction Form, net to you in cash, without interest
thereon.
2. The Offer is for a maximum of 10,000,000 Shares, constituting
approximately 15.7% of the total Shares outstanding as of December 22,
1998. The Offer is conditioned upon the Company's having obtained
sufficient financing to fund the Offer and pay all related taxes, fees and
expenses. The Offer is subject to certain other conditions set forth in
Section 7 of the Offer to Purchase.
3. The Offer, proration period and withdrawal rights will expire at
12:00 Midnight, New York City time, on Friday, January 22, 1999, unless the
Offer is extended. Your instructions to us should be forwarded to us in
ample time to permit us to submit a tender on your behalf.
<PAGE>
4. As described in the Offer to Purchase, if at the expiration of the
Offer, more than 10,000,000 Shares (or such greater number of Shares as the
Company may elect to purchase pursuant to the Offer) have been validly
tendered at prices at or below the Purchase Price and not properly
withdrawn, the Company will purchase Shares in the following order of
priority:
(i) all Shares validly tendered at or below the Purchase Price and
not withdrawn prior to the Expiration Date by any shareholder who owned
beneficially as of the close of business on December 22, 1998, and who
continues to own beneficially as of the Expiration Date, an aggregate
of fewer than 100 Shares and who validly tenders all of such Shares
(partial tenders will not qualify for this preference) and completes
the box captioned "Odd Lots" in the Letter of Transmittal and, if
applicable, the Notice of Guaranteed Delivery;
(ii) after purchase of all the foregoing Shares, all Shares
conditionally tendered in accordance with Section 6 of the Offer to
Purchase, for which the condition was satisfied, and all other shares
tendered unconditionally, at prices or below the Purchase Price and not
withdrawn prior to the Expiration Date, on a pro rata basis (with
appropriate adjustments to avoid purchase of fractional Shares); and
(iii) if necessary, Shares conditionally tendered for which the
condition was not satisfied, at or below the Purchase Price and not
withdrawn prior to the Expiration Date, selected by random lot in
accordance with Section 6 of the Offer to Purchase. See Section 1 of
the Offer to Purchase for a discussion of proration.
5. Tendering shareholders will not be obligated to pay any brokerage
commissions or solicitation fees on the Company's purchase of Shares in the
Offer to the Dealer Manager, the Information Agent or the Depositary (each
as defined in the Offer to Purchase). Any stock transfer taxes applicable
to the purchase of Shares by the Company pursuant to the Offer will be paid
by the Company, except as otherwise provided in Instruction 7 of the Letter
of Transmittal.
6. If you wish to tender portions of your Shares at different prices,
you must complete a separate Instruction Form for each price at which you
wish to tender each portion of your Shares. We must submit separate Letters
of Transmittal on your behalf for each price you will accept.
7. If you owned beneficially as of the close of business on December 22,
1998, and continue to own beneficially as of the Expiration Date, an
aggregate of fewer than 100 Shares and you instruct us to tender at or
below the Purchase Price on your behalf all such Shares prior to the
Expiration Date and check the box captioned "Odd Lots" in the Instruction
Form, all such Shares will be accepted for purchase before proration, if
any, of the other tendered Shares.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
SHAREHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES.
EACH SHAREHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO,
HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH SHARES SHOULD BE
TENDERED. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS DIRECTORS OR EXECUTIVE
OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE OFFER.
If you wish to have us tender any or all of your Shares held by us for
your account upon the terms and subject to the conditions set forth in the
Offer to Purchase, please so instruct us by completing, executing and returning
to us the attached Instruction Form. An envelope to return your instructions to
us is enclosed. If you authorize tender of your Shares, all such Shares will be
tendered unless otherwise specified on the Instruction Form. Your instructions
should be forwarded to us in ample time to permit us to submit a tender on your
behalf by the expiration date of the Offer.
The Offer is being made to all holders of Shares. The Company is not aware
of any jurisdiction where the making of the Offer is not in compliance with
applicable law. If the Company becomes aware of any jurisdiction where the
making of the Offer is not in compliance with any valid applicable law, the
2
<PAGE>
Company will make a good faith effort to comply with such law. If, after such
good faith effort, the Company cannot comply with such law, the Offer will not
be made to (nor will tenders be accepted from or on behalf of) the holders of
Shares residing in such jurisdiction. In any jurisdiction the securities or
blue sky laws of which require the Offer to be made by a licensed broker or
dealer, the Offer is being made on the Company's behalf by the Dealer Manager,
or one or more registered brokers or dealers licensed under the laws of such
jurisdiction.
3
<PAGE>
INSTRUCTION FORM
With Respect To Offer To Purchase For Cash
Up To 10,000,000 Shares Of Common Stock
Of
THE PEP BOYS -- MANNY, MOE & JACK
At A Purchase Price Not Greater Than
$16.00 Nor Less Than $13.50 Per Share
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase dated December 23, 1998, and the related Letter of
Transmittal (which, as amended or supplemented from time to time, together
constitute the "Offer"), in connection with the Offer by The Pep Boys -- Manny,
Moe & Jack (the "Company") to purchase up to 10,000,000 shares of its common
stock, par value $1.00 per share (together with associated common stock
purchase rights issued pursuant to the Rights Agreement, dated as of December
5, 1997, between the Company and First Union National Bank, as Rights Agent,
"Shares"), at prices not greater than $16.00 nor less than $13.50 per Share,
net to the undersigned in cash, without interest thereon, specified by the
undersigned, upon the terms and subject to the terms and conditions of the
Offer.
This will instruct you to tender to the Company the number of Shares
indicated below (or, if no number is indicated below, all Shares) that are held
by you for the account of the undersigned, at the price per Share indicated
below, upon the terms and subject to the conditions of the Offer.
- --------------------------------------------------------------------------------
SHARES TENDERED
/ / By checking this box, the undersigned hereby instructs us to tender the
following number of Shares held by us for the account of the undersigned,
at the Purchase Price per Share indicated in the box entitled "Price (In
Dollars) Per Share At Which Shares Are Being Tendered":
____________ Shares*
------------
* The undersigned understands and agrees that all Shares held by us for the
account of the undersigned will be tendered if the above box is checked and
the space above is left blank.
- --------------------------------------------------------------------------------
4
<PAGE>
PRICE (IN DOLLARS) PER SHARE
AT WHICH SHARES ARE BEING TENDERED.
IF SHARES ARE BEING TENDERED AT MORE THAN ONE PRICE,
A SEPARATE INSTRUCTION FORM FOR EACH
PRICE SPECIFIED MUST BE USED.
- --------------------------------------------------------------------------------
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO
BOX IS CHECKED (EXCEPT AS PROVIDED IN THE ODD LOTS BOX AND
INSTRUCTIONS BELOW), THERE IS NO VALID TENDER OF SHARES.
- --------------------------------------------------------------------------------
/ /$13.500 / /$14.125 / /$14.750 / /$15.375 / /$16.00
/ /$13.625 / /$14.250 / /$14.875 / /$15.500
/ /$13.750 / /$14.375 / /$15.000 / /$15.625
/ /$13.875 / /$14.500 / /$15.125 / /$15.750
/ /$14.000 / /$14.625 / /$15.250 / /$15.875
- --------------------------------------------------------------------------------
ODD LOTS
/ / By checking this box, the undersigned represents that the undersigned
owned beneficially, as of the close of business on December 22, 1998 and
continues to own beneficially as of the Expiration Date, an aggregate of
fewer than 100 Shares and is tendering all of such Shares.
If you do not wish to specify a purchase price, check the following box, in
which case you will be deemed to have tendered at the Purchase Price determined
by the Company in accordance with the terms of the Offer (persons checking this
box need not indicate the price per Share in the box entitled "Price (In
Dollars) Per Share At Which Shares Are Being Tendered" above). / /
- --------------------------------------------------------------------------------
THE METHOD OF DELIVERY OF THIS DOCUMENT IS AT THE ELECTION AND RISK OF THE
TENDERING SHAREHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY.
- --------------------------------------------------------------------------------
SIGN HERE:
----------------------------------------
Signature(s)
Date: ---------------------------- Name -----------------------------------
Address --------------------------------
----------------------------------------
----------------------------------------
Social Security or Taxpayer ID No.
- --------------------------------------------------------------------------------
5
<PAGE>
[PEP BOYS LOGO]
Dear Stock Option Holder:
Many of you may recall that stock option holders are entitled to vote on
the proposals at our annual shareholders' meetings. In addition, as stock
option holders, you also have certain rights to respond to tender offers for
the Company's common stock.
On December 6, 1993, the Company established a flexible employee trust
(the "Flexitrust") which holds shares of Pep Boys common stock. The shares will
be used to finance various existing employee compensation and benefit plans,
including healthcare programs, savings and retirement plans and other benefit
obligations. The Flexitrust will sell the repurchased stock to fund future
employee benefit obligations at current stock prices. As of December 22, 1998,
there were 2,232,500 shares held in the trust.
As you may have heard, the Company has launched an issuer tender offer in
which the Company has offered to purchase from shareholders approximately 15.7%
of its outstanding common stock, as described in the enclosed materials. Each
active employee who has outstanding stock options is entitled to direct the
trustee of the Flexitrust as to how to respond to the Company's tender offer.
Shares held in the Flexitrust will be sold into the tender offer in proportion
to the instructions received from all option holders.
By filling in the blanks in the attached Instruction Form and returning it
to the trustee, you will be notifying the trustee as to whether the shares held
in the Flexitrust should be sold into the tender offer and, if so, at what
price. It is important for you to review these materials, fill in the blanks in
the Instruction Form and mail your response in the envelope provided so that it
is received by the trustee by January 18, 1999 (or, in the event the Offer is
extended, four business days prior to the scheduled expiration date of the
tender offer). Your prompt attention to this matter is greatly appreciated.
Thank you,
Frederick A. Stampone
Secretary
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK
Offer to Purchase for Cash
up to 10,000,000 Shares of its Common Stock
at a Purchase Price not Greater than
$16.00 nor less than $13.50 per Share
- --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
December 23, 1998
To All Pep Boys Stock Option Holders:
Enclosed for your consideration are the Offer to Purchase dated December
23, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal
(which, as amended or supplemented from time to time, together constitute the
"Offer"), setting forth an offer by The Pep Boys - Manny, Moe & Jack, a
Pennsylvania corporation (the "Company"), to purchase up to 10,000,000 shares
of its common stock, par value $1.00 per share (together with associated common
stock purchase rights issued pursuant to the Rights Agreement, dated as of
December 5, 1997, between the Company and First Union National Bank, as Rights
Agent, the "Shares"), at prices not greater than $16.00 nor less than $13.50
per Share, net to the seller in cash, without interest thereon, specified by
tendering shareholders, upon the terms and subject to the conditions of the
Offer. Also enclosed herewith is certain other material related to the Offer.
The Company will, upon the terms and subject to the conditions of the
Offer, determine the lowest single per Share price (not greater than $16.00 nor
less than $13.50 per Share), net to the seller in cash (the "Purchase Price"),
that will allow it to purchase 10,000,000 Shares (or such lesser number of
Shares as are validly tendered and not withdrawn) pursuant to the Offer. The
Company will pay the Purchase Price for all Shares validly tendered at prices
at or below the Purchase Price and not withdrawn, upon the terms and subject to
the conditions of the Offer, including the financing condition and proration
and conditional tender provisions referred to below. Certificates representing
Shares tendered at prices in excess of the Purchase Price and not withdrawn and
Shares not purchased because of proration will be returned at the Company's
expense. The Company reserves the right, in its sole discretion, to purchase
more than 10,000,000 Shares pursuant to the Offer. See Section 1 of the Offer
to Purchase.
THIS OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS CONDITIONED UPON THE COMPANY'S HAVING OBTAINED
SUFFICIENT FINANCING TO FUND THE PURCHASE OF SHARES TENDERED IN THE OFFER AND
PAY ALL RELATED FEES AND EXPENSES. THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER
CONDITIONS. SEE SECTION 7 OF THE OFFER TO PURCHASE.
FIRST UNION NATIONAL BANK (THE "TRUSTEE") IS THE HOLDER OF RECORD OF
SHARES HELD IN THE PEP BOYS - MANNY, MOE & JACK FLEXITRUST (THE "FLEXITRUST").
AS SUCH, A TENDER OF SUCH SHARES CAN BE MADE ONLY BY THE TRUSTEE AS THE HOLDER
OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER
SHARES HELD BY THE TRUSTEE.
The Trustee requires instructions as to whether you wish the Trustee to
tender the Shares held by the Flexitrust and, if so, at what price, upon the
terms and subject to the conditions set forth in the Offer to Purchase and the
Letter of Transmittal.
Your attention is invited to the following:
1. You may instruct the Trustee to tender Shares at a price (in
increments of $.125), which cannot be greater than $16.00 nor less than
$13.50 per Share, as indicated in the attached Instruction Form, net to the
Flexitrust in cash.
<PAGE>
2. The Offer is for a maximum of 10,000,000 Shares, constituting
approximately 0% of the total Shares outstanding as of December 22, 1998. The
Offer is conditioned upon the Company's having obtained sufficient financing to
fund the Offer and pay all related fees and expenses. The Offer is subject to
certain other conditions set forth in Section 7 of the Offer to Purchase.
3. The Offer, proration period and withdrawal rights will expire at 12:00
Midnight, New York City time, on Friday, January 22, 1999, unless the Offer is
extended. Your instructions must be received by the Trustee by January 18, 1999
(or, in the event the Offer is extended, four business days prior to the
scheduled expiration date) to permit the Trustee to submit a tender on the
Flexitrust's behalf.
4. As described in the Offer to Purchase, if at the expiration of the
Offer, more than 10,000,000 Shares (or such greater number of Shares as the
Company may elect to purchase pursuant to the Offer) have been validly tendered
at prices at or below the Purchase Price and not withdrawn, the Company will
purchase Shares in the following order of priority:
(i) all Shares validly tendered at or below the Purchase Price and
not withdrawn prior to the Expiration Date by any shareholder who owned
beneficially as of the close of business on December 22, 1998, and who
continues to own beneficially as of the Expiration Date, an aggregate of
fewer than 100 Shares and who validly tenders all of such Shares
(partial tenders will not qualify for this preference) and completes the
box captioned "Odd Lots" in the Letter of Transmittal and, if
applicable, the Notice of Guaranteed Delivery;
(ii) after purchase of all the foregoing Shares, all Shares
conditionally tendered in accordance with Section 6 of the Offer to
Purchase, for which the condition was satisfied, and all other shares
tendered unconditionally, at prices or below the Purchase Price and not
withdrawn prior to the Expiration Date, on a pro rata basis (with
appropriate adjustments to avoid purchase of fractional shares); and
(iii) if necessary, Shares conditionally tendered for which the
condition was not satisfied, at or below the Purchase Price and not
withdrawn prior to the Expiration Date, selected by random lot in
accordance with Section 6 of the Offer to Purchase. See Section 1 of the
Offer to Purchase for a discussion of proration.
However, neither the "Odd Lot" purchase rule nor the conditional tender
feature applies to Shares held by the Flexitrust.
5. Tendering shareholders will not be obligated to pay any brokerage
commissions or solicitation fees on the Company's purchase of Shares in the
Offer if payment is made to the registered holder.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE OFFER. HOWEVER,
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
SHAREHOLDERS, OR TO OPTION HOLDERS WITH RESPECT TO THE SHARES HELD IN THE
FLEXITRUST, AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING SHARES. EACH
SHAREHOLDER, OR OPTION HOLDER WITH RESPECT TO SHARES HELD IN THE FLEXITRUST,
MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND THE PRICE OR PRICES AT
WHICH SHARES SHOULD BE TENDERED. THE COMPANY HAS BEEN ADVISED THAT NONE OF ITS
DIRECTORS OR EXECUTIVE OFFICERS INTENDS TO TENDER ANY SHARES PURSUANT TO THE
OFFER.
If you wish to have the Trustee tender the Shares held in the Flexitrust
upon the terms and subject to the conditions set forth in the Offer to
Purchase, please so instruct the Trustee by completing, executing and returning
to the Trustee the instructions below. An envelope to return your instructions
to the Trustee is enclosed. You will have only one vote as to whether the
Trustee should tender the Shares held in the Flexitrust. You will also have one
vote as to what price the Trustee should sell the Shares into the Offer. The
Trustee will tender that number of Shares held in the Flexitrust equal to the
total number of such Shares multiplied by a fraction, the numerator of which is
the number of Company Option Holders who affirmatively direct the Trustee to
tender, and the denominator of which is the total
2
<PAGE>
number of Company Option Holders (including Option Holders who provide no
instructions). With respect to the Shares to be tendered by the Trustee, the
Trustee will select the prices at which the Shares will be tendered in
proportion to the pricing instructions received from the Option Holders.
YOUR INSTRUCTIONS MUST BE FORWARDED TO THE TRUSTEE IN AMPLE TIME TO PERMIT
THE TRUSTEE TO SUBMIT A TENDER ON BEHALF OF THE FLEXITRUST BY THE EXPIRATION
DATE OF THE OFFER.
In any jurisdiction the securities or blue sky laws of which require the
Offer to be made by a licensed broker or dealer, the Offer is being made on the
Company's behalf by Credit Suisse First Boston Corporation, the Dealer Manager,
or one or more registered brokers or dealers licensed under the laws of such
jurisdiction.
3
<PAGE>
INSTRUCTION FORM
WITH RESPECT TO OFFER TO PURCHASE FOR CASH
UP TO 10,000,000 SHARES OF COMMON STOCK
OF THE PEP BOYS - MANNY, MOE & JACK
AT A PURCHASE PRICE NOT GREATER THAN
$16.00 NOR LESS THAN $13.50 PER SHARE
The undersigned acknowledge(s) receipt of the enclosed Offer to Purchase
dated December 23, 1998, and the related Letter of Transmittal (which, as
amended from time to time, together constitute the "Offer"), in connection with
the Offer by The Pep Boys - Manny, Moe & Jack (the "Company") to purchase up to
10,000,000 shares of its common stock, par value $1.00 per share (together with
associated common stock purchase rights issued pursuant to the Rights
Agreement, dated as of December 5, 1997, between the Company and First Union
National Bank, as Rights Agent, the "Shares"), at prices not greater than
$16.00 nor less than $13.50 per Share, net to The Pep Boys - Manny, Moe & Jack
Flexitrust (the "Flexitrust"), net to the seller in cash, without interest
thereon, upon the terms and subject to the terms and conditions of the Offer.
This will instruct the Trustee as to whether or not to tender to the
Company the Shares held in the Flexitrust at the price per Share indicated
below, upon the terms and subject to the conditions of the Offer.
/ / By checking this box, the undersigned instructs the Trustee to tender the
Shares held in the Flexitrust.
/ / By checking this box, the undersigned instructs the Trustee NOT to tender
the Shares held in the Flexitrust.
4
<PAGE>
PRICE (IN DOLLARS) PER SHARE AT WHICH SHARES ARE BEING TENDERED.
- --------------------------------------------------------------------------------
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR IF NO
BOX IS CHECKED (EXCEPT AS PROVIDED IN THE ODD LOTS BOX AND
INSTRUCTIONS BELOW), THERE IS NO VALID INSTRUCTION GIVEN.
- --------------------------------------------------------------------------------
/ / $13.500 / / $14.125 / / $14.750 / / $15.375 / / $16.000
/ / $13.625 / / $14.250 / / $14.875 / / $15.500
/ / $13.750 / / $14.375 / / $15.000 / / $15.625
/ / $13.875 / / $14.500 / / $15.125 / / $15.750
/ / $14.000 / / $14.625 / / $15.250 / / $15.875
THE METHOD OF DELIVERY OF THIS DOCUMENT IS AT THE ELECTION AND RISK OF THE
OPTION HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY.
SIGN HERE:
Date:---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Name(s)
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No.
- --------------------------------------------------------------------------------
Taxpayer Identification or Social Security No.
- --------------------------------------------------------------------------------
5
<PAGE>
[PEP BOYS LOGO]
- --------------------------------------------------------------------------------
Press Release New York Stock Exchange "PBY"
For Immediate Release
- --------------------------------------------------------------------------------
December 22, 1998
Pep Boys to Commence Tender Offer
For Up To 10,000,000 Shares Of Its Common Stock
The Pep Boys -- Manny, Moe & Jack (NYSE: "PBY") announced today that it will
commence a "Dutch Auction" issuer tender offer to purchase for cash up to
10,000,000 shares of its issued and outstanding common stock, par value $1.00
per share. The tender offer will begin Wednesday, December 23, 1998, and will
expire, unless extended, at 12:00 midnight, New York City time, on Friday,
January 22, 1999.
Terms of the tender offer, which are described more fully in the Offer to
Purchase and the Letter of Transmittal, invite the Company's shareholders to
tender up to 10,000,000 shares of the Company's common stock to the Company at
prices not greater than $16.00 nor less than $13.50 per share, as specified by
the tendering shareholders. The offer is subject to certain conditions,
including the Company's having obtained sufficient financing to fund the
purchase of shares tendered in the offer and pay all related fees and expenses.
The Company will determine the lowest single per share price (not greater than
$16.00 nor less than $13.50 per share) net to the seller in cash that will
allow it to purchase 10,000,000 shares (or such lesser number of shares as are
validly tendered and not withdrawn) pursuant to the offer. Such lowest single
per share price will be the purchase price the Company will pay for all shares
validly tendered at prices at or below such purchase price and not withdrawn.
If more than 10,000,000 shares are tendered, there will be a proration. Shares
tendered at prices in excess of the purchase price and shares not purchased
because of proration will be returned at the Company's expense. The Company
reserves the right, in its sole discretion, to purchase more than 10,000,000
shares pursuant to the offer.
The Offer to Purchase, the Letter of Transmittal and related documents will be
mailed to shareholders of record of the Company's common stock and will also be
made available for distribution to beneficial owners of such common stock.
Neither the Company nor its Board of Directors makes any recommendation to
shareholders as to whether to tender or refrain from tendering their shares.
On December 22, 1998, the closing price of the Company's common stock was
$13.50 per share.
Credit Suisse First Boston Corporation will serve as the dealer manager for the
tender offer. MacKenzie Partners, Inc. will serve as the information agent. Any
questions or requests for copies of tender offer materials may be directed to
Credit Suisse First Boston Corporation at 800-881-8320 or Mackenzie Partners,
Inc. at 800-322-2885.
- --------------------------------------------------------------------------------
Contact: Nancy R. Kyle, Director of Investor Relations
3111 West Allegheny Avenue, Philadelphia, PA 19132
Phone: 215-430-9720 Fax: 215-223-5267
E-mail address: [email protected]
Internet: http://www.pepboys.com
<PAGE>
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares. The Offer is made solely by the Offer to Purchase dated
December 23, 1998 and the related Letter of Transmittal and any amendments or
supplements thereto, and is being made to all holders of Shares. Capitalized
terms not defined in this announcement have the respective meanings ascribed
to such terms in the Offer to Purchase. The Offer is not being made to, nor
will the Company accept tenders from or on behalf of, holders of Shares in any
jurisdiction in which the making of the Offer or its acceptance would not
be in compliance with the laws of such jurisdiction. In jurisdictions
whose laws require that the Offer be made by a licensed broker or dealer, the
Offer shall be deemed to be made on the Company's behalf by Credit Suisse
First Boston Corporation ("Credit Suisse First Boston") or by one or more
registered brokers or dealers licensed under to laws of such jurisdiction.
Notice of Offer to Purchase for Cash
by
[PEP BOYS LOGO]
Up To 10,000,000 Shares Of Its Common Stock
At A Purchase Price Not Greater Than
$16.00 Nor Less Than $13.50 Per Share
The Pep Boys - Manny, Moe & Jack, a Pennsylvania corporation (the
"Company"), invites its shareholders to tender up to 10,000,000 shares of its
common stock, par value $1.00 per share (together with the associated common
stock purchase rights issued pursuant to the Rights Agreement, dated as of
December 5, 1997, between the Company and First Union National Bank, as Rights
Agent, the "Shares"), to the Company at prices not greater than $16.00 nor less
than $13.50 per Share, net to the seller in cash, without interest, as specified
by tendering shareholders, upon the terms and subject to the conditions set
forth in the Offer to Purchase dated December 23, 1998 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which, as amended or
supplemented from time to time, together constitute the "Offer").
- --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FRIDAY, JANUARY 22, 1999, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
The Offer is not conditioned upon any minimum number of Shares being
tendered. The Offer is, however, subject to certain other conditions, including
the Company's having obtained sufficient financing to fund the purchase of
Shares tendered in the Offer and pay all related fees and expenses,
The Board of Directors of the Company has approved the Offer. However,
neither the Company nor its Board of Directors makes any recommendation to
shareholders as to whether to tender or refrain from tendering their Shares.
Each shareholder must make the decision whether to tender Shares and, if so, how
many Shares to tender and the price or prices at which Shares should be
tendered. The Company has been advised that none of its directors or executive
officers intends to tender any Shares pursuant to the Offer.
The Company will, upon the terms and subject to the conditions of the
Offer, determine the lowest single per Share price (not greater than $16.00 nor
less than $13.50 per share), net to the seller in cash (the "Purchase Price"),
that will allow it to purchase 10,000,000 Shares (or such lesser number of
Shares as are validly tendered and not properly withdrawn) pursuant to the
Offer. All Shares validly tendered at prices at or below the Purchase Price and
not properly withdrawn will be purchased at the Purchase Price, upon the terms
and subject to the conditions of the Offer, including the financing condition
and proration and conditional tender provisions described in the Offer to
Purchase. The term "Expiration Date" means 12:00 Midnight, New York City time,
on Friday, January 22, 1999, unless and until the Company in its sole discretion
shall have extended the period of time during which the Offer is open, in which
event the term "Expiration Date" shall refer to the latest time and date at
which the Offer, as so extended by the Company, shall expire. The Company
reserves the right, in its sole discretion, to purchase more than 10,000,000
Shares pursuant to the Offer. For purposes of the Offer, the Company will be
deemed to have accepted for payment (and therefore purchased), subject to the
proration and conditional tender provisions of the Offer, Shares that are
validly tendered at or below the Purchase Price and not properly withdrawn only
when, as and if the Company gives oral or written notice to American Stock
Transfer and Trust Company (in such capacity, the "Depositary") of its
acceptance of such Shares for payment pursuant to the Offer. In all cases,
payment for Shares tendered and accepted for payment pursuant to the Offer will
be made promptly (subject to possible delay in the event of proration) but only
after timely receipt by the Depositary of certificates for such Shares (or a
timely confirmation of a book-entry transfer of such Shares into the
Depositary's account at the Book-Entry Transfer Facility), a properly completed
and duly executed Letter of Transmittal (or manually signed facsimile thereof)
or an Agent's Message (as defined in Section 3 of the Offer to Purchase) and any
other required documents.
<PAGE>
The Board of Directors has determined that the Company's financial
condition and outlook and current market conditions, including recent trading
prices of the Shares, makes this an attractive time to repurchase a significant
portion of the outstanding Shares. In the view of the Board of Directors, the
Offer represents an attractive investment for the Company and use of the
Company's cash generation abilities that should benefit the Company and its
shareholders over the long term. Accordingly, the Company is providing
shareholders with the opportunity to determine the price (not greater than
$16.00 nor less $13.50 per Share) at which they are willing to sell their
Shares, subject to the terms and conditions of the Offer, and without the usual
transaction costs associated with open market sales. The Offer also allows
shareholders to sell a portion of their Shares while retaining a continuing
equity position in the Company if they so desire.
Upon the terms and subject to the conditions of the Offer, if at the
expiration of the Offer, more than 10,000,000 Shares (or such greater number of
Shares as the Company may elect to purchase pursuant to the Offer) have been
validly tendered at prices at or below the Purchase Price and not properly
withdrawn, the Company will purchase Shares validly tendered and not properly
withdrawn on the following basis: (i) all Shares tendered and not properly
withdrawn prior to the Expiration Date by any Odd Lot Holder who: (a) tenders
all Shares beneficially owned by such Odd Lot Holder at a price at or below the
Purchase Price (tenders of fewer than all Shares owned by such shareholder will
not qualify for this preference); and (b) completes the box captioned "Odd Lots"
on the Letter of Transmittal and, if applicable, on the Notice of Guaranteed
Delivery; (ii) after purchase of all of the foregoing Shares, all Shares
conditionally tendered, for which the condition was satisfied, and all Shares
tendered unconditionally at prices at or below the Purchase Price and not
properly withdrawn prior to the Expiration Date, on a pro rata basis (with
appropriate adjustments to avoid purchases of fractional Shares); and (iii) if
necessary, Shares conditionally tendered for which the condition was not
satisfied, at or below the Purchase Price and not properly withdrawn prior to
the Expiration Date, selected by random lot.
The Company expressly reserves the right at any time or from time to time,
in its sole discretion, to extend the period of time during which the Offer is
open by giving notice of such extension to the Depositary and making a public
announcement thereof. Subject to certain conditions set forth in the Offer to
Purchase, the Company also expressly reserves the right, in its sole discretion,
to terminate the Offer and not accept for payment or pay for any Shares not
theretofore accepted for payment or paid for or, subject to applicable law, to
postpone payment for Shares upon certain conditions specified in the Offer to
Purchase.
Shares tendered pursuant to the Offer may be withdrawn at any time prior
to the Expiration Date and, unless accepted for payment by the Company as
provided in the Offer to Purchase, may also be withdrawn after 12:00 Midnight,
New York City time, on Monday, February 22, 1999. For a withdrawal to be
effective, the Depositary must receive a notice of withdrawal in written or
facsimile transmission form in a timely manner at one of its addresses set forth
on the back cover of the Offer to Purchase. Such notice of withdrawal must
specify the name of the person who tendered the Shares to be withdrawn, the name
of the registered holder (if different from that of the person who tendered the
Shares), the number of Shares tendered and the number of Shares to be withdrawn.
If the certificates for Shares to be withdrawn have been delivered or otherwise
identified to the Depositary, then, prior to the release of such certificates,
the tendering shareholder must also submit the serial numbers shown on the
particular certificates evidencing the Shares and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution (except in the case of
Shares tendered by an Eligible Institution). If Shares have been tendered
pursuant to the procedure for book-entry transfer, the notice of withdrawal must
specify the name and the number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Shares and otherwise comply with the
procedures of such facility.
<PAGE>
The information required to be disclosed by Rule 13e-4(d)(1) under the
Securities Exchange Act of 1934, as amended, is contained in the Offer to
Purchase and is incorporated by reference herein.
These materials are being mailed to record holders of Shares whose names
appear on the Company's shareholder list and will be furnished to brokers, banks
and similar persons whose names, or the names of whose nominees, appear on the
Company's shareholder list or, if applicable, who are listed as participants in
a clearing agency's security position listing for transmittal to beneficial
owners of Shares.
The Offer to Purchase and the Letter of Transmittal contain important
information which should be read carefully before shareholders decide whether to
accept or reject the Offer and, if accepted, at which price or prices to tender
their Shares.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager as set forth below. Additional copies of the Offer
to Purchase, the Letter of Transmittal and other tender offer materials may be
obtained from the Information Agent or the Dealer Manager and will be furnished
at the Company's expense. The Company will not pay any fees or commissions to
any broker or dealer or any other person (other than the Information Agent and
the Dealer Manager) for soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
[MACKENZIE PARTNERS LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll Free (800) 322-2885
The Dealer Manager for the Offer is:
[CREDIT SUISSE FIRST BOSTON LOGO]
Eleven Madison Avenue
New York, New York 10010-3629
Call Toll Free (800) 881-8320
December 23,1998
<PAGE>
[PEP BOYS LOGO]
Mitchell G. Leibovitz
Chairman of the Board
Chief Executive Officer
December 23, 1998
Dear Shareholder:
The Pep Boys -- Manny, Moe & Jack (the "Company") is offering to purchase
up to 10,000,000 shares of its common stock at a price not greater than $16.00
nor less than $13.50 per share (the "Offer"). The Company is conducting the
Offer through a procedure commonly referred to as a "Dutch Auction." This
procedure allows you to select the price within the specified price range at
which you are willing to sell all or a portion of your shares to the Company.
The Offer is explained in detail in the enclosed Offer to Purchase and
Letter of Transmittal. If you wish to tender your shares, instructions on how
to tender shares are provided in the enclosed materials. I encourage you to
read these materials carefully before making any decision with respect to the
Offer. Neither the Company nor its Board of Directors makes any recommendation
to any shareholder whether to tender any or all shares.
Please note that the Offer is scheduled to expire at 12:00 Midnight, New
York City time, on Friday, January 22, 1999, unless extended by the Company.
Questions regarding the Offer should be directed to MacKenzie Partners, Inc.,
the Information Agent for the Offer, at (800) 322-2885 or Credit Suisse First
Boston Corporation, the Dealer Manager for the Offer, at (800) 881-8320.
Sincerely,
/s/ Mitchell G. Leibovitz
-------------------------------------------------
Mitchell G. Leibovitz
Chairman of the Board and Chief Executive Officer
3111 West Allegheny Avenue o Philadelphia, Pennsylvania 19132 o (215) 227-9215
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Name and Identification Number to Give the
Payor.--The taxpayer identification number for an individual is the individual's
social security number. Social security numbers have nine digits separated by
two hyphens: i.e., 000-00-0000. The taxpayer identification number for an entity
is the entity's employer identification number. Employer identification numbers
have nine digits separated by only one hyphen: i.e., 00-0000000. The table below
will help determine the number to give the payor.
<TABLE>
<CAPTION>
- ---------------------------------------------------------- ---------------------------------------------------------
<S> <C>
For this type of account: Give the Name and Taxpayer Identification number of --
- ---------------------------------------------------------- ---------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint account) The actual owner of the account or, if combined funds,
any one of the individuals(1)
3. Husband and wife (joint account) The actual owner of the account or, if joint funds,
either person(1)
4. Custodian account of a minor (Uniform Gift to The minor(2)
Minors Act)
5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the
minor(1)
6. Account in the name of guardian or committee The ward, minor, or incompetent person(3)
for a designated ward, minor, or incompetent
person
7. a. The usual revocable savings trust account The grantor-trustee(1)
(grantor is also trustee)
b. So-called trust account that is not a legal The actual owner(1)
or valid trust under State law
8. Sole proprietorship account The owner(4)
9. A valid trust, estate or pension trust The legal entity (Do not furnish the identifying number
of the personal representative or trustee unless the
legal entity itself is not designated in the account
title.)(5)
10. Corporate account The corporation
11. Association, club, religious, charitable, The organization
educational or other tax-exempt
organization account
12. Partnership account The partnership
13. A broker or registered nominee The broker or nominee
14. Account with the Department of Agriculture in the The public entity
name of a public entity (such as a State or local
government, school district, or prison) that
receives agricultural program payments
- ---------------------------------------------------------- ---------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Obtaining a Number
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Card, or Form SS-4,
Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service (the "IRS") and
apply for a number.
To complete the Substitute Form W-9, if you do not have a taxpayer
identification number, write "Applied For" in the space for the taxpayer
identification number in Part 1, sign and date the Form, and give it to the
requester. Generally, you will then have 60 days to obtain a taxpayer
identification number and furnish it to the requester. If the requester does not
receive your taxpayer identification number within 60 days, backup withholding,
if applicable, will begin and will continue until you furnish your taxpayer
identification number to the requester.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL broker transactions
and interest and dividend payments include the following:
o A corporation.
o A financial institution.
o An organization exempt from tax under section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual retirement
plan or a custodial account under Section 403(b)(7).
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
o An international organization or any agency or instrumentality thereof.
o A dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a) of the Code. o
An entity registered at all times under the Investment Company Act of 1940.
o A foreign central bank of issue.
<PAGE>
Payments of dividends and patronage dividends not generally subject to
backup withholding including the following:
o Payments to non-resident aliens subject to withholding under section 1441.
o Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one non-resident alien partner.
o Payments of patronage dividends not paid in money.
o Payments made by certain foreign organizations.
o Payments made to a nominee. Payments of interest not generally subject to
backup withholding include the following:
o Payments of interest on obligations issued by individuals.
o Payments of tax-exempt interest (including exempt-interest dividends under
section 852 of the Code).
o Payments described in Code section 6049(b)(5) to non-resident aliens.
o Payments on tax-free covenant bonds under section 1451 of the Code.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. ENTER YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON
THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Privacy
Act Notice.--Section 6109 requires most recipients of dividend, interest, or
other payments to give taxpayer identification numbers to payers who must report
the payments to the IRS. The IRS uses the numbers for identification purposes
and to help verify the accuracy of your tax return. Payers must be given the
numbers whether or not recipients are required to file tax returns. Payers must
generally withhold 31% of taxable interest, dividend, and certain other payments
to a payee who does not furnish a taxpayer identification number to a payer.
Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect. (2) Civil Penalty for False Information With
Respect to Withholding.--If you make a false statement with no reasonable basis
which results in no imposition of backup withholding, you are subject to a
penalty of $500. (3) Criminal Penalty for Falsifying Information.--Willfully
falsifying certifications or affirmations may subject you to criminal penalties
including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT
OR THE INTERNAL REVENUE SERVICE.
<PAGE>
***********************************************************
THE PEP BOYS -
MANNY, MOE & JACK
- ------------------
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of April 21, 1995
- ------------------
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
as Agent
***********************************************************
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 21, 1995 between:
THE PEP BOYS - MANNY, MOE & JACK, a corporation duly organized and validly
existing under the laws of the State of Pennsylvania (the "Company"); each of
the guarantors that is a signatory hereto (individually, a "Guarantor" and
collectively, the "Guarantors"); each of the banks that is a signatory hereto
(such banks, except the Terminating Banks, individually, a "Bank" and,
collectively, the "Banks"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),
as agent for the Banks (in such capacity, together with its successors in such
capacity, the "Agent").
R E C I T A L S
WHEREAS, the Company and the Guarantors are party to that certain Credit
Agreement dated as of June 16, 1989 with the Agent and the banks signatory
thereto, as amended (the "Existing Credit Agreement");
WHEREAS, the Company has requested that the Existing Credit Agreement be
amended to, among other things, extend the Commitment Termination Date, increase
the aggregate amount of the Commitments, terminate the Commitments of the
Terminating Banks and add First Fidelity Bank, N.A., NatWest Bank, N.A., PNC
Bank, N.A.,Union Bank and Credit Suisse as Banks party to this Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants contained herein, the Company, the Agent, the
Guarantors, the Banks and the Terminating Banks agree that the Existing Credit
Agreement is hereby amended and restated as follows:
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the following terms shall have
the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
"Acquisition" shall mean the purchase of (i) all or substantially all of
the assets of any Person or (ii) the stock or other ownership interest in any
Person such that, by such purchase, (x) such Person becomes an Affiliate of the
Company or any Subsidiary thereof or (y) the aggregate stock or other ownership
interest in such Person increases, through such purchases or by aggregating such
purchase with previous purchases during any relevant period, to at least 5% of
the outstanding stock or other ownership interest of such Person.
<PAGE>
"Affiliate" shall mean, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise), provided
that, in any event, any Person which owns directly or indirectly 5% or more of
the securities having ordinary voting power for the election of directors or
other governing body of a corporation or 5% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of such
other Person) will be deemed to control such corporation or other Person.
Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate
of a corporation solely by reason of his or her being an officer or director of
such corporation and a Person and its Subsidiaries shall not be deemed to be
Affiliates of each other.
"Applicable Lending Office" shall mean, for each Bank and for each type of
Loan, the Lending Office of such Bank (or of an affiliate of such Bank)
designated for such type of Loan on the signature pages hereof or such other
office of such Bank (or of an affiliate of such Bank) as such Bank may from time
to time specify to the Agent and the Company as the office by which its Loans of
such type are to be made and maintained.
"Applicable Margin" shall mean with respect to a Eurodollar Loan, a rate
per annum determined in accordance with the Pricing Schedule.
"Base Rate" shall mean, with respect to any Base Rate Loan, for any day,
the higher of (a) the Federal Funds Rate for such day plus 1/4 of 1% per annum
or (b) the Prime Rate for such day. Each change in any interest rate provided
for herein based upon the Base Rate resulting from a change in the Base Rate
shall take effect at the time of such change in the Base Rate.
"Base Rate Loans" shall mean Syndicated Loans which bear interest at rates
based upon the Base Rate.
"Business Day" shall mean any day on which commercial banks are not
authorized or required to close in New York City and, if such day relates to the
giving of notices or quotes in connection with a LIBOR Auction or to a borrowing
of, a payment or prepayment of principal of or interest on, or the Interest
Period for, a Eurodollar Loan or a LIBOR Market Loan or a notice by the Company
with respect to any such borrowing, payment, prepayment or Interest Period,
which is also a day on which dealings in Dollar deposits are carried out in the
London interbank market.
"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 State of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board) and, for purposes
of this Agreement, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance with GAAP (including such Statement No.
13).
"Chase" shall mean The Chase Manhattan Bank (National Association).
"Closing Date" shall mean the date this Agreement has been executed by the
Company and the Guarantors.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
<PAGE>
"Commitment" shall mean, as to each Bank, the obligation of such Bank to
make Syndicated Loans pursuant to Section 2.01 hereof in an aggregate amount at
any one time outstanding up to but not exceeding the amount set opposite such
Bank's name on the signature pages hereof under the caption "Commitment" (as the
same may be reduced at any time or from time to time pursuant to Section 2.04
hereof).
"Commitment Termination Date" shall mean the Quarterly Date falling on or
nearest to the later of April 21, 2000 and the date to which the initial
Commitment Termination Date is extended pursuant to Section 2.10 hereof.
"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.
"Debt to Capital Ratio" shall mean, at any time, the ratio of (a) Senior
Funded Debt at such time to (b) Senior Funded Debt, plus Tangible Net Worth at
such time.
"Default" shall mean an Event of Default or an event which with notice or
lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States of America.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company.
"Eurodollar Loans" shall mean Syndicated Loans the interest rates on which
are determined on the basis of the rate referred to in the definition of "Fixed
Base Rate" in this Section 1.01.
"Event of Default" shall have the meaning assigned to such term in Section
10 hereof.
"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day, provided that (i) if the day for which such rate is to be determined is not
a Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the next
succeeding Business Day, and (ii) if such rate is not so published for any day,
the Federal Funds Rate for such day shall be the average rate charged to Chase
on such day on such transactions as determined by the Agent.
"Fixed Base Rate" shall mean, with respect to any Fixed Rate Loan, the
arithmetic mean, as determined by the Agent, of the rate per annum (rounded
upwards, if necessary, to the nearest 1/16 of 1%) quoted by each Reference Bank
at approximately 11:00 a.m. London time (or as soon thereafter as practicable)
on the date two Business Days prior to the first day of the Interest Period for
such Loan for the offering by such Reference Bank to leading banks in the London
interbank market of Dollar deposits having a term comparable to such Interest
Period and in an amount comparable to the principal amount of the Eurodollar
Loan or LIBOR Market Loan to be made by such Reference Bank for such Interest
Period.
<PAGE>
If any Reference Bank is not participating in any Fixed Rate Loan, the Fixed
Base Rate for such Loan shall be determined by reference to the amount of the
Loan which such Reference Bank would have made had it been participating in such
Loan; provided that in the case of any LIBOR Market Loan, the Fixed Base Rate
for such Loan shall be determined with reference to deposits of $25,000,000. If
any Reference Bank does not timely furnish such information for determination of
any Fixed Base Rate, the Agent shall determine such Fixed Base Rate on the basis
of information timely furnished by the remaining Reference Banks.
"Fixed Rate" shall mean, for any Fixed Rate Loan, a rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be
equal to the Fixed Base Rate for such Loan for the Interest Period for such Loan
divided by 1 minus the Reserve Requirement for such Loan for such Interest
Period.
"Fixed Rate Loans" shall mean Eurodollar Loans and, for the purposes of the
definition of "Fixed Base Rate" herein and Section 5 hereof, LIBOR Market Loans.
"GAAP" shall mean generally accepted accounting principles applied on a
basis consistent with those which, in accordance with the last sentence of
Section 1.02(a) hereof, are to be used in making the calculations for purposes
of determining compliance with the terms of this Agreement.
"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 deposits in the ordinary
course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall
have a correlative meaning.
"Guarantor" shall have the meaning assigned to it in the preamble of this
Agreement.
<PAGE>
"Indebtedness" shall mean, as to any Person: (a) indebtedness created,
issued or incurred by such Person for borrowed money (whether by loan or the
issuance and sale of debt securities); (b) 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; (c) 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; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for the account of such Person; (e)
Capital Lease Obligations of such Person; and (f) Indebtedness of others
Guaranteed by such Person.
"Interest Expense" shall mean, for any period, the sum of the following:
(a) all interest in respect of Indebtedness accrued or capitalized during such
period (whether or not actually paid during such period) plus (b) 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).
"Interest Period" shall mean:
(a) With respect to any Eurodollar Loan, the period commencing on the date
such Eurodollar Loan is made and ending on the numerically corresponding day in
the first, second, third or sixth calendar month thereafter, as the Company may
select as provided in Section 2.02 hereof, except that each Interest Period
which commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate subsequent
calendar month;
(b) With respect to any Base Rate Loan, the period commencing on the date
such Base Rate Loan is made and ending on the date 30 days thereafter;
(c) With respect to any Set Rate Loan, the period commencing on the date
such Set Rate Loan is made and ending on any Business Day up to 180 days
thereafter, as the Company may select as provided in Section 2.03(b) hereof; and
(d) With respect to any LIBOR Market Loan, the period commencing on the
date such LIBOR Market Loan is made and ending on the numerically corresponding
day in the first, second, third or sixth calendar month thereafter, as the
Company may select as provided in Section 2.03(b) hereof, except that each
Interest Period which commences on the last Business Day of a calendar month (or
any day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may commence before and
end after the Commitment Termination Date; (ii) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, in the case of an Interest Period for Eurodollar
Loans or LIBOR Market Loans, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day); and (iii)
notwithstanding clause (i) above, no Interest Period for any Fixed Rate Loans or
LIBOR Market Loans shall have a duration of less than one month and, if the
Interest Period for any Fixed Rate Loans would otherwise be a shorter period,
such Loans shall not be available hereunder.
"Leverage Ratio" shall mean, at any time, the ratio of Total Liabilities to
Tangible Net Worth of the Company and its Consolidated Subsidiaries at such
time.
<PAGE>
"LIBO Rate" shall mean, for any LIBOR Market Loan, a rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the
Agent to be equal to the rate of interest specified in the definition of "Fixed
Base Rate" in this Section 1.01 for the Interest Period for such Loan divided by
1 minus the Reserve Requirement for such Loan for such Interest Period.
"LIBOR Auction" shall mean a solicitation of Money Market Quotes setting
forth Money Market Margins based on the LIBO Rate pursuant to Section 2.03
hereof.
"LIBOR Market Loans" shall mean Money Market Loans the interest rates on
which are determined on the basis of LIBO Rates pursuant to a LIBOR Auction.
"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 Agreement, the Company 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.
"Loans" shall mean Money Market Loans and Syndicated Loans.
"Majority Banks" shall mean Banks having at least 66-2/3% of the aggregate
amount of the Commitments; provided that, if the Commitments shall have
terminated, Majority Banks shall mean Banks holding at least 66-2/3% of the
aggregate unpaid principal amount of the Loans.
"Margin Stock" shall mean margin stock within the meaning of Regulations U
and X.
"Money Market Borrowing" shall have the meaning assigned to such term in
Section 2.03(b) hereof.
"Money Market Loans" shall mean the loans provided for by Section 2.03
hereof.
"Money Market Margin" shall have the meaning assigned to such term in
Section 2.03(c)(ii)(C) hereof.
"Money Market Quotes" shall mean the quotes requested pursuant to a Money
Market Quote Request.
"Money Market Quote Request" shall have the meaning assigned to such term
in Section 2.03(b) hereof.
"Money Market Rate" shall have the meaning assigned to such term in Section
2.03(c)(ii)(D) hereof.
"Multiemployer Plan" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Company or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"Net Earnings" shall mean, for any period, the net earnings of the Company
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.
<PAGE>
"Net Operating Profit" shall mean, for any period for the Company 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.
"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 the Company ending on or most recently ended
prior to such date of determination to (ii) Interest Expense for such period.
"Notes" shall mean the promissory notes provided for by Section 2.08
hereof.
"Obligor" shall mean collectively the Company, the Guarantors and any
Subsidiary of the Company which pursuant to Section 9.13 hereof shall hereafter
become a Guarantor.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"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).
"Plan" shall mean an employee benefit or other plan established or
maintained by the Company or any ERISA Affiliate and which is covered by Title
IV of ERISA, other than a Multiemployer Plan.
"Post-Default Rate" shall mean, in respect of any principal of any Loan or
any other amount payable by the Company under this Agreement or any Note that is
not paid when due (whether at stated maturity, by acceleration or otherwise), a
rate per annum during the period from and including the due date to but
excluding the date on which such amount is paid in full equal to 2% above the
Base Rate as in effect from time to time (provided that, if the amount so in
default is principal of a Fixed Rate Loan or a Money Market Loan and the due
date thereof is a day other than the last day of the Interest Period therefor,
the "Post-Default Rate" for such principal shall be, for the period from and
including the due date to but excluding the last day of the Interest Period
therefor, 2% above the interest rate for such Loan as provided in Section 3.02
hereof and, thereafter, the rate provided for above in this definition).
"Pricing Schedule" shall mean the Schedule attached hereto identified as
such.
"Prime Rate" shall mean the rate of interest from time to time announced by
Chase at the Principal Office as its prime commercial lending rate.
"Principal Office" shall mean the principal office of the Agent and Chase,
presently located at 1 Chase Manhattan Plaza, New York, New York 10081.
"Quarterly Dates" shall mean the last Business Day of each March, June,
September and December in each year, the first of which shall be the first such
day after the date of this Agreement.
<PAGE>
"Reference Banks" shall mean Chase, CoreStates Bank and Bank of America
National Trust and Savings Association (or their Applicable Lending Offices, as
the case may be).
"Regulations D, U and X" shall mean, respectively, Regulations D, U and X
of the Board of Governors of the Federal Reserve System (or any successor), as
the same may be amended or supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any change after
the date of this Agreement in United States Federal, state or foreign law or
regulations (including, without limitation, Regulation D) or the adoption or
making after such date of any interpretation, directive or request applying to a
class of banks including such Bank of or under any United States Federal, state
or foreign law or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Reserve Requirement" shall mean, for any Interest Period for any Fixed
Rate Loan or LIBOR Market Loan, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are required to be
maintained during such Interest Period under Regulation D by member banks of the
Federal Reserve System in New York City with deposits exceeding one billion
Dollars against "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
include any other reserves required to be maintained by such member banks by
reason of any Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which the Fixed Base Rate for Eurodollar Loans
or LIBOR Market Loans (as the case may be) is to be determined as provided in
the definition of "Fixed Base Rate" or "LIBO Rate" in this Section 1.01 or (ii)
any category of extensions of credit or other assets which includes either type
of Fixed Rate Loan or LIBOR Market Loan.
"Senior Funded Debt" shall mean , as to any Person, Indebtedness of such
Person described in clause (a) of the definition of "Indebtedness", which is not
subordinated by its terms to the payment of any other Indebtedness of such
Person.
"Set Rate Auction" shall mean a solicitation of Money Market Quotes setting
forth Money Market Rates pursuant to Section 2.03 hereof.
"Set Rate Loans" shall mean Money Market Loans the interest rates on which
are determined on the basis of Money Market Rates pursuant to a Set Rate
Auction.
"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. "Wholly- Owned Subsidiary" shall
mean any such corporation of which all of such shares, other than directors'
qualifying shares, are so owned or controlled.
"Syndicated Loans" shall mean the loans provided for by Section 2.01
hereof.
"Syndicated Notes" shall mean the promissory notes provided for by Section
2.08(a) hereof.
"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:
(a) the amount of capital stock, plus
(b) 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
(c) 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 good-will, research and development costs, trade-marks, 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.
"Terminating Banks" shall mean The Fuji Bank, Ltd., First Interstate Bank
of Arizona, N.A. and Bank of America National Trust and Savings Association.
"Total Liabilities" shall mean, as at any date of determination thereof,
the sum, for the Company and its Consolidated Subsidiaries determined (without
duplication) in accordance with GAAP, of all Indebtedness of the Company and its
Consolidated Subsidiaries (including subordinated Indebtedness) and all other
liabilities of the Company and its Subsidiaries which should be classified as
liabilities on a balance sheet of the Company 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.
<PAGE>
1.02 Accounting Terms and Determinations.
(a) Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Banks
hereunder shall (unless otherwise disclosed to the Bank in writing at the time
of delivery thereof in the manner described in subsection (b) below) be
prepared, in accordance with generally accepted accounting principles applied on
a basis consistent with those used in the preparation of the latest financial
statements furnished to the Bank hereunder after the date hereof. All
calculations made for the purposes of determining compliance with the terms of
this Agreement shall (except as otherwise expressly provided herein) be made by
application of generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the annual or quarterly
financial statements furnished to the Banks pursuant to Section 9.01 hereof
unless (i) the Company shall have objected to determining such compliance on
such basis at the time of delivery of such financial statements or (ii) the
Majority Banks shall so object in writing within 30 days after delivery of such
financial statements, in either of which events such calculations shall be made
on a basis consistent with those used in the preparation of the latest financial
statements as to which such objection shall not have been made (which, if
objection is made in respect of the first financial statements delivered under
Section 9.01 hereof, shall mean the financial statements referred to in Section
8.02 hereof)
(b) The Company shall deliver to the Banks at the same time as the delivery
of any annual or quarterly financial statement under Section 9.01 hereof a
description in reasonable detail of any material variation between the
application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements as to
which no objection has been made in accordance with the last sentence of
subsection (a) above, and reasonable estimates of the difference between such
statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance with the
covenants set forth in Section 9 hereof, the Company will not change the last
day of its fiscal year from the Saturday in each year falling closest to January
31 of such year (the "Fiscal Date"), or the last day of the first three fiscal
quarters in each of its fiscal years from the thirteenth Saturday of the year
following the Fiscal Date, the twenty-sixth Saturday of the year following the
Fiscal Date and the thirty-ninth Saturday of the year following the Fiscal Date,
respectively.
Section 2. Commitments.
2.01 Syndicated Loans. Each Bank severally agrees, on the terms of this
Agreement, to make loans to the Company in Dollars during the period from and
including the date hereof to but not including the Commitment Termination Date
in an aggregate principal amount at any one time outstanding up to but not
exceeding the amount of such Bank's Commitment as then in effect. Subject to the
terms of this Agreement, during such period the Company may borrow, repay and
reborrow the amount of the Commitments; provided that the aggregate principal
amount of all Money Market Loans, together with the aggregate principal amount
of all Syndicated Loans, at any one time outstanding shall not exceed the
aggregate amount of the Commitments at such time; and provided, further, that
there may be no more than fifteen different Interest Periods for both Syndicated
Loans and Money Market Loans outstanding at the same time (for which purpose
each Interest Period described in a different lettered clause of the definition
of the term "Interest Period" shall be deemed to be a different Interest Period
even if it is coterminous with another Interest Period). The Syndicated Loans
may be Base Rate Loans or Eurodollar Loans (each a "type" of Syndicated Loan).
2.02 Borrowings of Syndicated Loans. The Company shall give the Agent
(which shall promptly notify the Banks) notice of each borrowing hereunder of
Syndicated Loans, which notice shall be irrevocable and effective only upon
receipt by the Agent, shall specify with respect to the Syndicated Loans to be
borrowed (i) the aggregate amount (which shall be at least $10,000,000, and
incremental multiples of $1,000,000, in the case of Eurodollar Loans and at
least $250,000 and incremental multiples of $100,000 in the case of Base Rate
Loans), (ii) the type and date (which shall be a Business Day) and (iii) (in the
case of Fixed Rate Loans) the duration of the Interest Period therefor and shall
be given not later than 10:30 a.m. New York time (in the case of Base Rate
Loans) and 11:00 a.m. New York time (in the case of all Eurodollar Loans) on the
day which is not less than the number of Business Days prior to the date of such
borrowing specified below opposite the type of such Loans:
<PAGE>
Type Number of Business Days
Base Rate Loans same day
Eurodollar Loans 3
Not later than 1:00 p.m. New York time on the date specified for each borrowing
of Syndicated Loans hereunder, each Bank shall make available the amount of the
Syndicated Loan to be made by it on such date to the Agent, at account number
NYAO-DI-900-9-000002 maintained by the Agent with Chase at the Principal Office,
in immediately available funds, for account of the Company. The amount so
received by the Agent shall, subject to the terms and conditions of this
Agreement, be made available to the Company by depositing the same, in
immediately available funds, in an account of the Company maintained with Chase
at the Principal Office designated by the Company.
2.03 Money Market Loans.
(a) In addition to borrowings of Syndicated Loans, the Company may, prior
to the Commitment Termination Date and as set forth in this Section 2.03,
request the Banks to make offers to make Money Market Loans to the Company in
Dollars. The Banks may, but shall have no obligation to, make such offers and
the Company may, but shall have no obligation to, accept any such offers in the
manner set forth in this Section 2.03. Money Market Loans may be LIBOR Market
Loans or Set Rate Loans (each a "type" of Money Market Loan), provided that:
(i) there may be no more than fifteen different Interest Periods for both
Syndicated Loans and Money Market Loans outstanding at the same time (for which
purpose each Interest Period described in a different lettered clause of the
definition of the term "Interest Period" shall be deemed to be a different
Interest Period even if it is coterminous with another Interest Period); and
(ii) the aggregate principal amount of all Money Market Loans, together
with the aggregate principal amount of all Syndicated Loans, at any one time
outstanding shall not exceed the aggregate amount of the Commitments at such
time.
(b) When the Company wishes to request offers to make Money Market Loans,
it shall give the Agent (which shall promptly notify the Banks) notice (a "Money
Market Quote Request") so as to be received no later than 11:00 a.m. New York
time on (x) the fifth Business Day prior to the date of borrowing proposed
therein, in the case of a LIBOR Auction or (y) the Business Day next preceding
the date of borrowing proposed therein, in the case of a Set Rate Auction (or,
in any such case, such other time and date as the Company and the Agent, with
the consent of the Majority Banks, may agree). The Company may request offers to
make Money Market Loans for up to three different Interest Periods in a single
notice (for which purpose each Interest Period in a different lettered clause of
the definition of the term "Interest Period" shall be deemed to be a different
Interest Period even if it is coterminous with another Interest Period);
provided that the request for each separate Interest Period shall be deemed to
be a separate Money Market Quote Request for a separate borrowing ("Money Market
Borrowing"). Each such notice shall be substantially in the form of Exhibit C
hereto and shall specify as to each Money Market Borrowing:
(i) the proposed date of such borrowing, which shall be a Business Day;
(ii) the aggregate amount of such Money Market Borrowing, which shall be at
least $10,000,000 (or in larger multiples of $1,000,000) but shall not cause the
limits specified in Section 2.03(a) hereof to be violated;
(iii) the duration of the Interest Period applicable thereto;
(iv) whether the Money Market Quotes requested are to set forth a Money
Market Margin or a Money Market Rate; and
(v) if the Money Market Quotes requested are to set forth a Money Market
Rate, the date on which the Money Market Quotes are to be submitted if it is
before the proposed date of borrowing (the date of which such Money Market
Quotes are to be submitted is called the "Quotation Date"). Except as otherwise
provided in this Section 2.03(b), no Money Market Quote Request shall be given
within five Business Days (or such other number of days as the Company and the
Agent, with the consent of the Majority Banks, may agree) of any other Money
Market Quote Request.
<PAGE>
(c) (i) Each Bank (or its Applicable Lending Office) may submit one or more
Money Market Quotes, each containing an offer to make a Money Market Loan in
response to any Money Market Quote Request; provided that, if the Company's
request under Section 2.03(b) hereof specified more than one Interest Period,
such Bank (or its Applicable Lending Office) may make a single submission
containing one or more Money Market Quotes for each such Interest Period. Each
Money Market Quote must be submitted to the Agent not later than (x) 2:00 p.m.
New York time on the fourth Business Day prior to the proposed date of
borrowing, in the case of a LIBOR Auction or (y) 10:00 a.m. New York time on the
Quotation Date, in the case of a Set Rate Auction (or, in any such case, such
other time and date as the Company and the Agent, with the consent of the
Majority Banks, may agree); provided that any Money Market Quote submitted by
Chase (or its Applicable Lending Office) may be submitted, and may only be
submitted, if Chase (or such Applicable Lending Office) notifies the Company of
the terms of the offer contained therein not later than (x) 1:00 p.m. New York
time on the fourth Business Day prior to the proposed date of borrowing, in the
case of a LIBOR Auction or (y) 9:45 a.m. New York time on the Quotation Date, in
the case of a Set Rate Auction. Subject to Sections 5.02(b), 5.03, 7.02 and 10
hereof, any Money Market Quote so made shall be irrevocable except with the
written consent of the Agent given on the instructions of the Company.
(ii) Each Money Market Quote shall be substantially in the form of Exhibit
D hereto and shall specify:
(A) the proposed date of borrowing and the Interest Period therefor;
(B) the principal amount of the Money Market Loan for which each such offer
is being made, which principal amount shall be at least $5,000,000 or a larger
multiple of $1,000,000; provided that the aggregate principal amount of all
Money Market Loans for which a Bank submits Money Market Quotes (x) may be
greater or less than the Commitment of such Bank but (y) may not exceed the
principal amount of the Money Market Borrowing for which offers were requested;
(C) in the case of a LIBOR Auction, the margin above or below the
applicable LIBO Rate (the "Money Market Margin") offered for each such Money
Market Loan, expressed as a percentage (rounded upwards, if necessary, to the
nearest 1/10,000th of 1%) to be added to or subtracted from the applicable LIBO
Rate;
(D) in the case of a Set Rate Auction, the rate of interest per annum
(rounded upwards, if necessary, to the nearest 1/10,000th of 1%) offered for
each such Money Market Loans (the "Money Market Rate"); and
(E) the identity of the quoting Bank.
Unless otherwise agreed by the Agent and the Company, no Money Market Quote
shall contain qualifying, conditional or similar language or propose terms other
than or in addition to those set forth in the applicable Money Market Quote
Request and, in particular, no Money Market Quote may be conditioned upon
acceptance by the Company of all (or some specified minimum) of the principal
amount of the Money Market Loan for which such Money Market Quote is being made.
<PAGE>
(d) The Agent shall (x) in the case of a Set Rate Auction, as promptly as
practicable after the Money Market Quote is submitted (but in any event not
later than 10:15 a.m. New York time) or (y) in the case of a LIBOR Auction, by
4:00 p.m. New York time on the day a Money Market Quote is submitted, notify the
Company of the terms (i) of any Money Market Quote submitted by a Bank that is
in accordance with Section 2.03(c) hereof and (ii) of any Money Market Quote
that amends, modifies or is otherwise inconsistent with a previous Money Market
Quote submitted by such Bank with respect to the same Money Market Quote
Request. Any such subsequent Money Market Quote Request shall be disregarded by
the Agent unless such subsequent Money Market Quote is submitted solely to
correct a manifest error in such former Money Market Quote. The Agent's notice
to the Company shall specify (A) the aggregate principal amount of the Money
Market Borrowing for which offers have been received and (B) the respective
principal amounts and Money Market Margins or Money Market Rates, as the case
may be, so offered by each Bank (identifying the Bank that made each Money
Market Quote).
(e) Not later than 11:00 a.m. New York time on (x) the third Business Day
prior to the proposed date of borrowing, in the case of a LIBOR Auction or (y)
the Quotation Date, in the case of a Set Rate Auction (or, in any such case,
such other time and date as the Company and the Agent, with the consent of the
Majority Banks, may agree), the Company shall notify the Agent of its acceptance
or nonacceptance of the offers so notified to it pursuant to Section 2.03(d)
hereof (and the failure of the Company to give such notice by such time shall
constitute non-acceptance) and the Agent shall promptly notify each affected
Bank. In the case of acceptance, such notice shall specify the aggregate
principal amount of offers for each Interest Period that are accepted. The
Company may accept any Money Market Quote in whole or in part (provided that any
Money Market Quote accepted in part shall be at least $5,000,000 or in larger
multiples of $1,000,000); provided that:
(i) the aggregate principal amount of each Money Market Borrowing may not
exceed the applicable amount set forth in the related Money Market Quote
Request;
(ii) the aggregate principal amount of each Money Market Borrowing shall be
at least $10,000,000 (or in larger multiples of $1,000,000) but shall not cause
the limits specified in Section 2.03(a) hereof to be violated;
(iii) acceptance of offers may be made only in ascending order of Money
Market Margins or Money Market Rates, as the case may be; and
(iv) the Company may not accept any offer where the Agent has advised the
Company that such offer fails to comply with Section 2.03(c)(ii) hereof or
otherwise fails to comply with the requirements of this Agreement (including,
without limitation, Section 2.03(a) hereof).
If offers are made by two or more Banks with the same Money Market Margins or
Money Market Rates, as the case may be, for a greater aggregate principal amount
than the amount in respect of which offers are accepted for the related Interest
Period, the principal amount of Money Market Loans in respect of which such
offers are accepted shall be allocated by the Company among such Banks as nearly
as possible (in multiples of $1,000,000) in proportion to the aggregate
principal amount of such offers. Determinations by the Company of the amounts of
Money Market Loans shall be conclusive in the absence of manifest error.
(f) Any Bank whose offer to make any Money Market Loan has been accepted
shall, not later than 1:00 p.m. New York time on the date specified for the
making of such Loan, make the amount of such Loan available to the Agent at
account number NYAO-DI-900-9-000002 maintained by the Agent with Chase at the
Principal Office in immediately available funds, for account of the Company. The
amount so received by the Agent shall, subject to the terms and conditions of
this Agreement, be made available to the Company on such date by depositing the
same, in immediately available funds, in an account of the Company maintained
with Chase at the Principal Office designated by the Company.
<PAGE>
(g) Except for the purpose and to the extent expressly stated in Section
2.05(a) hereof, the amount of any Money Market Loan made by any Bank shall not
constitute a utilization of such Bank's Commitment and except for the purpose
and to the extent expressly stated in Section 4.05(b) hereof, the amount of any
payment made on account of any Money Market Loan made by any Bank shall be for
account of such Bank.
2.04 Changes of Commitments.
(a) The aggregate amount of the Commitments shall be automatically reduced
to zero on the Commitment Termination Date.
(b) The Company shall have the right to terminate or reduce the aggregate
unused amount of the Commitments at any time or from time to time upon not less
than three Business Days' prior notice to the Agent (which shall promptly notify
the Banks) of each such termination or reduction, which notice shall specify the
effective date thereof and the amount of any such reduction (which shall be at
least $10,000,000 or any larger multiple of $1,000,000) and shall be irrevocable
and effective only upon receipt by the Agent.
(c) The Commitments once terminated or reduced may not be reinstated.
2.05 Commitment Fee and Facility Fee. (a) The Company shall pay to the
Agent for account of each Bank a commitment fee on the daily average unused
amount of such Bank's Commitment (solely for which purpose the amount of any
Money Market Borrowing shall be deemed to be a pro rata (based on the
Commitments) utilization of each Bank's Commitment) for the period from and
including the date of this Agreement to but not including the earlier of the
date such Commitment is terminated or the Commitment Termination Date, at a rate
per annum in accordance with the Pricing Schedule.
(b) The Company shall pay to the Agent for account of each Bank a facility
fee on the daily average (whether used or unused) amount of such Bank's
Commitment for the period from and including the date of this Agreement to but
not including the earlier of the date the Commitments are terminated or the
Commitment Termination Date, at a rate per annum in accordance with the Pricing
Schedule.
(c) Accrued commitment fee and facility fee shall be payable on each
Quarterly Date and on the earlier of the date the Commitments are terminated or
the Commitment Termination Date.
2.06 Lending Offices. The Loans of each type made by each Bank shall be
made and maintained at such Bank's Applicable Lending Office for Loans of such
type.
2.07 Several Obligations; Remedies Independent. The failure of any Bank to
make any Loan to be made by it on the date specified therefor shall not relieve
any other Bank of its obligation to make its Loan on such date, but neither any
Bank nor the Agent shall be responsible for the failure of any other Bank to
make a Loan to be made by such other Bank. The amounts payable by the Company at
any time hereunder and under the Notes to each Bank shall be a separate and
independent debt and each Bank shall be entitled to protect and enforce its
rights arising out of this Agreement and the Notes and it shall not be necessary
for any other Bank or the Agent to consent to, or be joined as an additional
party in, any proceedings for such purposes.
<PAGE>
2.08 Notes.
(a) The Syndicated Loans made by each Bank shall be evidenced by a single
promissory note of the Company in substantially in the form of Exhibit A-1
hereto, dated the date of the delivery of such Note to the Agent under this
Agreement, payable to such Bank in a principal amount equal to the amount of its
Commitment as originally in effect and otherwise duly completed. The date,
amount, type, interest rate and maturity date of each Syndicated Loan made by
each Bank to the Company, and each payment made on account of the principal
thereof, shall be recorded by such Bank on its books and, prior to any transfer
of such Note held by it, endorsed by such Bank on the schedule attached to such
Note or any continuation thereof.
(b) The Money Market Loans made by any Bank shall be evidenced by a single
promissory note of the Company in substantially the form of Exhibit A- 2 hereto,
dated the date of the delivery of such Note to the Agent under this Agreement,
payable to such Bank and otherwise duly completed. The date, amount, type,
interest rate and maturity date of each Money Market Loan made by each Bank to
the Company, and each payment made on account of the principal thereof, shall be
recorded by such Bank on its books and, prior to any transfer of such Note held
by it, endorsed by such Bank on the schedule attached to such Note or any
continuation thereof.
(c) No Bank shall be entitled to have its Note subdivided, by exchange for
promissory notes of lesser denominations or otherwise, except in connection with
a permitted assignment of all or any portion of such Bank's Commitment, Loans
and Notes pursuant to Section 12.06(b) hereof.
2.09 Prepayments.
(a) The Company may prepay Base Rate Loans upon not less than three
Business Days' prior notice to the Agent (which shall promptly notify the
Banks), which notice shall specify the prepayment date (which shall be a
Business Day) and the amount of the prepayment (which shall be at least (x)
$10,000,000 and in larger multiples of $1,000,000 or (y) the outstanding
principal amount of the Loan) and shall be irrevocable and effective only upon
receipt by the Agent, provided that interest on the principal prepaid, accrued
to the prepayment date, shall be paid on the prepayment date. The Company may
not prepay any Fixed Rate Loans or Money Market Loans (provided that this
sentence shall not affect the Company's obligation to prepay Loans pursuant to
paragraph (b) of this Section 2.09 or the obligations of the Company pursuant to
Section 10 hereof).
(b) If, after giving effect to any termination or reduction of the
Commitments pursuant to Section 2.04 hereof, the outstanding aggregate principal
amount of the Loans exceeds the aggregate amount of the Commitments, the Company
shall pay or prepay the Loans on the date of such termination or reduction in an
aggregate principal amount equal to the excess, together with interest thereon
accrued to the date of such payment or prepayment and any amounts payable
hereunder to Section 5.05 hereof in connection therewith.
2.10 Extension of Commitment Termination Date. (a) At least 60 days but not
more than 90 days prior to each anniversary date of the Closing Date, the
Company and the Guarantors may request, by written notice to the Agent in the
form of Exhibit E hereto, that the Commitment Termination Date be extended for
an additional year from the then current Commitment Termination Date. The Agent
shall promptly notify the Banks of such request for an extension and each Bank
shall notify the Agent of its decision to consent or not to consent to the
request within 30 days from the date of its receipt of the Agent's notice. The
Agent shall promptly notify the Company of the decisions of the Banks.
<PAGE>
(b) If the Agent and all the Banks consent to the request, the Commitment
Termination Date shall thereupon be extended for an additional year from the
then current Commitment Termination Date; provided that if any Bank shall not
consent to the requested extension (each such Bank a "Non- Consenting Bank"),
the Company may, with the consent of the Agent, designate another bank
(including a Bank) (each such bank a "Replacement Bank") to replace, and assume
the Commitment of, such Non-Consenting Bank. Each Non- Consenting Bank shall
thereupon assign all its Commitment and interests hereunder pursuant to the
procedure set forth in Section 12.06 hereof to the Replacement Bank designated
by the Company for such Non-Consenting Bank. If the Company has replaced each
Non-Consenting Bank with a Replacement Bank, then the Commitment Termination
Date shall thereupon be extended as requested by the Company and consented to by
the Banks (other than the Non-Consenting Banks) pursuant to Section 2.10(a)
hereof.
2.11 Terminating Banks. The parties hereto hereby agree that,
simultaneously with the execution and delivery hereof, the Company shall pay to
each Terminating Bank all amounts then due and unpaid to such Terminating Bank
under the Existing Credit Agreement and the respective Commitment of each
Terminating Bank under the Existing Credit Agreement shall thereupon be
terminated and the Terminating Banks shall cease to be parties to this
Agreement. The parties hereto hereby further agree that First Fidelity Bank,
N.A., NatWest Bank, N.A., Union Bank, Credit Suisse and PNC Bank, N.A. shall
each become party to this Agreement, each as a "Bank", with a respective
Commitment as set forth opposite its name on the signature pages hereof under
the caption, "Commitment".
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans. The Company will pay to the Agent for account of
each Bank the principal of each Loan made by such Bank, and each Loan shall
mature, on the last day of the Interest Period therefor.
3.02 Interest. The Company will pay to the Agent for account of each Bank
interest on the unpaid principal amount of each Loan made by such Bank for the
period from and including the date of such Loan to but excluding the date such
Loan shall be paid in full, at the following rates per annum:
(a) if such Loan is a Base Rate Loan, the Base Rate (as in effect from time
to time);
(b) if such Loan is a Fixed Rate Loan, the Fixed Rate for such Loan for the
Interest Period therefor plus the Applicable Margin;
(c) if such Loan is a LIBOR Market Loan, the LIBO Rate for such Loan for
the Interest Period therefor plus (or minus) the Money Market Margin quoted by
the Bank making such Loan in accordance with Section 2.03 hereof; and
(d) if such Loan is a Set Rate Loan, the Money Market Rate for such Loan
for the Interest Period therefor quoted by the Bank making such Loan in
accordance with Section 2.03 hereof.
Notwithstanding the foregoing, the Company will pay to the Agent for account of
each Bank interest at the applicable Post-Default Rate on any principal of any
Loan made by such Bank, and (to the fullest extent permitted by law) on any
other amount payable by the Company hereunder or under the Note held by such
Bank to or for account of such Bank, which shall not be paid in full when due
(whether at stated maturity, by acceleration or otherwise), for the period from
and including the due date thereof to but excluding the date the same is paid in
full. Accrued interest on each Loan shall be payable on the last day of the
Interest Period therefor and, if such Interest Period is longer than three
months, at three-month intervals following the first day of such Interest
Period, except that interest payable at the Post-Default Rate shall be payable
from time to time on demand and interest on any Eurodollar Loan that is
converted into a Base Rate Loan (pursuant to Section 5.04 hereof) shall be
payable on the date of conversion (but only to the extent so converted).
Promptly after the determination of any interest rate provided for herein or any
change therein, the Agent shall give notice to the Banks to which such interest
is payable and the Company.
<PAGE>
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
4.01 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Company under this
Agreement and the Notes shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Agent at account
number NYAO-DI-900-9-000002 maintained by the Agent with Chase at the Principal
Office, not later than 1:00 p.m. New York time on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day), provided that, if
a new Loan is to be made by any Bank on a date the Company is to repay any
principal of an outstanding Loan of such Bank, such Bank shall apply the
proceeds of such new Loan to the payment of the principal to be repaid and only
an amount equal to the excess of the principal to be borrowed over the principal
to be repaid shall be made available by such Bank to the Agent as provided in
Section 2.02 hereof or paid by the Company to the Agent pursuant to this Section
4.01, as the case may be.
(b) Any Bank for whose account any such payment is to be made, may (but
shall not be obligated to) debit the amount of any such payment which is not
made by such time to any ordinary deposit account of the Company with such Bank
(with notice to the Company).
(c) The Company shall, at the time of making each payment under this
Agreement or any Note, specify to the Agent the Loans or other amounts payable
by the Company hereunder to which such payment is to be applied (and in the
event that it fails to so specify, or if an Event of Default has occurred and is
continuing, the Agent may distribute such payment to the Banks in such manner as
it or the Majority Banks may determine to be appropriate, subject to Section
4.02 hereof).
(d) Each payment received by the Agent under this Agreement or any Note for
account of a Bank shall be paid promptly to such Bank, in immediately available
funds, for account of such Bank's Applicable Lending Office for the Loan in
respect of which such payment is made.
(e) If the due date of any payment under this Agreement or any Note would
otherwise fall on a day which is not a Business Day such date shall be extended
to the next succeeding Business Day and interest shall be payable for any
principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent otherwise provided herein:
(a) each borrowing from the Banks under Section 2.01 hereof shall be made from
the Banks, each payment of commitment fee and facility fee under Section 2.05
hereof shall be made for account of the Banks, and each termination or reduction
of the amount of the Commitments under Section 2.04 hereof shall be applied to
the Commitments of the Banks, pro rata according to the amounts of their
respective Commitments; (b) each payment of principal of Syndicated Loans by the
Company shall be made for account of the Banks pro rata in accordance with the
respective unpaid principal amounts of the Syndicated Loans held by the Banks;
and (c) each payment of interest on Syndicated Loans by the Company shall be
made for account of the Banks pro rata in accordance with the amounts of
interest on Syndicated Loans due and payable to the respective Banks.
4.03 Computations. Interest on Money Market Loans, Fixed Rate Loans,
commitment fee and facility fee shall be computed on the basis of a year of 360
days and actual days elapsed (including the first day but excluding the last
day) occurring in the period for which payable and interest on Base Rate Loans
shall be computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable.
<PAGE>
4.04 Non-Receipt of Funds by the Agent. Unless the Agent shall have been
notified by a Bank or the Company (the "Payor") prior to the date on which the
Payor is to make payment to the Agent of (in the case of a Bank) the proceeds of
a Loan to be made by it hereunder or (in the case of the Company) a payment to
the Agent for account of one or more of the Banks hereunder (such payment being
herein called the "Required Payment"), which notice shall be effective upon
receipt, that the Payor does not intend to make the Required Payment to the
Agent, the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient(s) on such date and, if the Payor
has not in fact made the Required Payment to the Agent, the recipient(s) of such
payment shall, on demand, repay to the Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date such amount was so made available by the Agent until the
date the Agent recovers such amount at a rate per annum equal to the Federal
Funds Rate for such day and, if such recipient(s) shall fail promptly to make
such payment, the Agent shall be entitled to recover such amount, on demand,
from the Payor, together with interest as aforesaid.
4.05 Sharing of Payments, Etc.
(a) The Company agrees that, in addition to (and without limitation of) any
right of set-off, bankers' lien or counterclaim a Bank may otherwise have, each
Bank shall be entitled, at its option, to offset balances held by it for account
of the Company at any of its offices, in Dollars or in any other currency,
against any principal of or interest on any of such Bank's Loans, or any other
amount payable to such Bank hereunder, upon the occurrence of an Event of
Default (regardless of whether such balances are then due to the Company), in
which case it shall promptly notify the Company and the Agent thereof, provided
that such Bank's failure to give such notice shall not affect the validity
thereof.
(b) If any Bank shall obtain payment of any principal of or interest on any
Loan made by it to the Company under this Agreement through the exercise of any
right of set-off, banker's lien or counterclaim or similar right or otherwise,
and, as a result of such payment, such Bank shall have received a greater
percentage of the principal or interest then due hereunder by the Company to
such Bank in respect of Loans than the percentage received by any other Banks,
it shall promptly purchase from such other Banks participations in (or, if and
to the extent specified by such Bank, direct interests in) the Loans made by
such other Banks (or in interest due thereon, as the case may be) in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Banks shall share the benefit of such excess
payment (net of any expenses which may be incurred by such Bank in obtaining or
preserving such excess payment) pro rata in accordance with the unpaid principal
and/or interest on the Loans held by each of the Banks. To such end all the
Banks shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored.
(c) The Company agrees that any Bank so purchasing a participation (or
direct interest) in the Loans made by other Banks (or in interest due thereon,
as the case may be) may exercise all rights of set-off, bankers' lien,
counterclaim or similar rights with respect to such participation as fully as if
such Bank were a direct holder of Loans in the amount of such participation.
(d) Nothing contained herein shall require any Bank to exercise any such
right or shall affect the right of any Bank to exercise, and retain the benefits
of exercising, any such right with respect to any other indebtedness or
obligation of the Company.
<PAGE>
(e) If, under any applicable bankruptcy, insolvency or other similar law,
any Bank receives a secured claim in lieu of a set-off to which this Section
4.05 applies, such Bank shall, to the extent practicable, exercise its rights in
respect of such secured claim in a manner consistent with the rights of the
Banks entitled under this Section 4.05 to share in the benefits of any recovery
on such secured claim.
Section 5. Yield Protection and Illegality.
Section 5.01 Additional Costs.
(a) The Company shall pay directly to each Bank from time to time such
amounts as such Bank may determine to be necessary to compensate it for any
costs which such Bank determines are attributable to its making or maintaining
of any Fixed Rate Loans or its obligation to make any Fixed Rate Loans
hereunder, or any reduction in any amount receivable by such Bank hereunder in
respect of any of such Loans or such obligation (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"),
resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to such Bank under
this Agreement or its Notes in respect of any of such Loans (other than taxes
imposed on or measured by the overall net income of such Bank or of its
Applicable Lending Office for any of such Loans by the jurisdiction in which
such Bank has its principal office or such Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements (other than the Reserve Requirement utilized in the determination
of the Fixed Rate or LIBO Rate for such Loan) relating to any extensions of
credit or other assets of, or any deposits with or other liabilities of, such
Bank (including any of such Loans or any deposits referred to in the definition
of "Fixed Base Rate" in Section 1.01 hereof), or any commitment of such Bank
(including the Commitment of such Bank hereunder); or
(iii) imposes any other condition affecting this Agreement or its Note (or
any of such extensions of credit or liabilities) or Commitment. If any Bank
requests compensation from the Company under this Section 5.01(a), the Company
may, by notice to such Bank (with a copy to the Agent), suspend the obligation
of such Bank to make additional Loans of the type with respect to which such
compensation is requested until the Regulatory Change giving rise to such
request ceases to be in effect (in which case the provisions of Section 5.04
hereof shall be applicable).
(b) Without limiting the effect of the provisions of Section 5.01(a)
hereof, in the event that, by reason of any Regulatory Change, any Bank either
(i) incurs Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of such Bank
which includes deposits by reference to which the interest rate on Eurodollar
Loans is determined as provided in this Agreement or a category of extensions of
credit or other assets of such Bank which includes Eurodollar Loans or (ii)
becomes subject to restrictions on the amount of such a category of liabilities
or assets which it may hold, then, if such Bank so elects by notice to the
Company (with a copy to the Agent), the obligation of such Bank to make
additional Loans of such type hereunder shall be suspended until such Regulatory
Change ceases to be in effect (in which case the provisions of Section 5.04
hereof shall be applicable).
<PAGE>
(c) Without limiting the effect of the foregoing provisions of this Section
5.01 (but without duplication), the Company shall pay directly to each Bank from
time to time on request such amounts as such Bank may determine to be necessary
to compensate such Bank for any costs which it determines are attributable to
the maintenance by such Bank (or any Applicable Lending Office), pursuant to any
law or regulation or any interpretation, directive or request (whether or not
having the force of law) of any court or governmental or monetary authority
following any Regulatory Change, or pursuant to any risk-based capital guideline
or other requirement (whether or not having the force of law and whether or not
the failure to comply therewith would be unlawful) heretofore or hereafter
issued by any government or governmental or supervisory authority, including any
implementing at the national level the Basle Accord (including without
limitation, the Final Risk-Based Capital Guidelines of the Board of Governors of
the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225,
Appendix A) and the Final Risk-Based Capital Guidelines of the Office of the
Comptroller of the Currency (12 CFR Part 3, Appendix A), of capital in respect
of its Commitment or Loans (such compensation to include, without limitation, an
amount equal to any reduction of the rate of return on assets or equity of such
Bank (or any Applicable Lending Office) to a level below that which such Bank
(or any Applicable Lending Office) could have achieved but for such law,
regulation, interpretation, directive or request). For the purposes of this
Section 5.01(c), "Basle Accord" shall mean the proposals for a risk-based
capital framework described by the Basle Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time.
(d) Each Bank will notify the Company of any event occurring after the date
of this Agreement that will entitle such Bank to compensation under paragraph
(a) or (c) of this Section 5.01 as promptly as practicable, but in any event
within 45 days, after such Bank obtains actual knowledge thereof; provided,
however, that if any Bank fails to give such notice within 45 days after it
obtains actual knowledge of such an event, such Bank shall, with respect to
compensation payable pursuant to this Section 5.01 in respect of any costs
resulting from such event, only be entitled to payment under this Section 5.01
for costs incurred from and after the date 45 days prior to the date that such
Bank does give such notice; and provided, further, that each Bank will designate
a different Applicable Lending Office for the Loans of such Bank affected by
such event if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the sole opinion of such Bank, be
disadvantageous to such Bank, except that such Bank shall have no obligation to
designate an Applicable Lending Office located in the United States of America.
Each Bank will furnish to the Company a certificate setting forth the basis and
amount of each request by such Bank for compensation under paragraph (a) or (c)
of this Section 5.01. Determinations and allocations by any Bank for purposes of
this Section 5.01(a) or (b) hereof, or of the effect of capital maintained
pursuant to Section 5.01(c) hereof, on its costs or rate of return of
maintaining Loans or its obligation to make Loans, or on amounts receivable by
it in respect of Loans, and of the amounts required to compensate such Bank
under this Section 5.01, shall be conclusive, provided that such determinations
and allocations are made on a reasonable basis.
5.02 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any Fixed Base Rate for
any Interest Period:
(a) the Agent determines (which determination shall be conclusive) that
quotations of interest rates for the relevant deposits referred to in the
definition of "Fixed Base Rate" in Section 1.01 hereof are not being provided in
the relevant amounts or for the relevant maturities for purposes of determining
rates of interest for any type of Fixed Rate Loans as provided herein; or
<PAGE>
(b) the Majority Banks determine (or any Bank that has outstanding a Money
Market Quote with respect to a LIBOR Market Loan determines), which
determination shall be conclusive, and notify (or notifies, as the case may be)
the Agent that the relevant rates of interest referred to in the definition of
"Fixed Base Rate" in Section 1.01 hereof upon the basis of which the rate of
interest for Eurodollar Loans (or LIBOR Market Loans, as the case may be) for
such Interest Period is to be determined are not likely adequate to cover the
cost to such Banks (or to such quoting Bank) of making or maintaining such type
of Loans;
then the Agent shall give the Company and each Bank prompt notice thereof, and
so long as such condition remains in effect, the Banks (or such quoting Bank)
shall be under no obligation to make additional Loans of such type.
5.03 Illegality. Notwithstanding any other provision of this Agreement, in
the event that it becomes unlawful for any Bank or its Applicable Lending Office
to honor its obligation to make or maintain Eurodollar Loans or LIBOR Market
Loans hereunder, then such Bank shall promptly notify the Company thereof (with
a copy to the Agent) and such Bank's obligation to make Eurodollar Loans shall
be suspended until such time as such Bank may again make and maintain Eurodollar
Loans (in which case the provisions of Section 5.04 hereof shall be applicable),
and such Bank shall no longer be obligated to make any LIBOR Market Loan that it
has offered to make.
5.04 Treatment of Affected Loans. If the obligation of any Bank to make
either type of Fixed Rate Loans shall be suspended pursuant to Section 5.01 or
5.03 hereof (Loans of such type being herein called "Affected Loans" and such
type being herein called the "Affected Type"), all Loans (other than Money
Market Loans) which would otherwise be made by such Bank as Loans of the
Affected Type shall be made instead as Base Rate Loans and, if an event referred
to in Section 5.01(b) or 5.03 hereof has occurred and such Bank so requests by
notice to the Company with a copy to the Agent, all Affected Loans of such Bank
then outstanding shall be automatically converted into Base Rate Loans on the
date specified by such Bank in such notice and, to the extent that Affected
Loans are so made (or converted), all payments of principal which would
otherwise be applied to such Bank's Affected Loans shall be applied instead to
such Loans.
5.05 Compensation. The Company shall pay to the Agent for account of each
Bank, upon the request of such Bank through the Agent, such amount or amounts as
shall be sufficient (in the reasonable opinion of such Bank) to compensate it
for any loss, cost or expense which such Bank determines is attributable to:
(a) any payment or conversion of a Fixed Rate Loan or a Set Rate Loan made
by such Bank for any reason (including, without limitation, the acceleration of
the Loans pursuant to Section 10 hereof) on a date other than the last day of
the Interest Period for such Loan; or
(b) any failure by the Company for any reason (including, without
limitation, the failure of any of the conditions precedent specified in Section
7 hereof to be satisfied) to borrow a Fixed Rate Loan or a Set Rate Loan (with
respect to which, in the case of a Money Market Loan, the Company has accepted a
Money Market Quote) from such Bank on the date for such borrowing specified in
the relevant notice of borrowing given pursuant to Section 2.02 or 2.03(b)
hereof.
<PAGE>
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid or converted
or not borrowed for the period from the date of such payment, conversion or
failure to borrow to the last day of the Interest Period for such Loan (or, in
the case of a failure to borrow, the Interest Period for such Loan which would
have commenced on the date specified for such borrowing) at the applicable rate
of interest for such Loan provided for herein over (ii) the interest component
of the amount such Bank would have bid in the London interbank market (if such
Loan is a Eurodollar Loan or a LIBOR Market Loan) or the United States secondary
certificate of deposit market (if such Loan is a Set Rate Loan) for Dollar
deposits of leading banks in amounts comparable to such principal amount and
with maturities comparable to such period (as reasonably determined by such
Bank).
Section 6. Guarantee.
6.01 Guarantee. Each Guarantor hereby jointly and severally guarantees to
each Bank and the Agent and their respective successors and assigns the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the principal of and interest on the Loans made by the Banks to,
and the Note held by each Bank of, the Company and all other amounts from time
to time owing to the Banks or the Agent by the Company under this Agreement and
under the Notes, in each case strictly in accordance with the terms hereof and
thereof (such obligations being herein collectively called the "Guaranteed
Obligations"). Each Guarantor hereby further jointly and severally agrees that
if the Company shall fail to pay in full when due (whether at stated maturity,
by acceleration or otherwise) any of the Guaranteed Obligations, such Guarantor
will promptly pay the same, without any demand or notice whatsoever, and that in
the case of any extension of time of payment or renewal of any of the Guaranteed
Obligations, the same will be promptly paid in full when due (whether at
extended maturity, by acceleration or otherwise) in accordance with the terms of
such extension or renewal.
6.02 Obligations Unconditional. The obligations of each Guarantor under
Section 6.01 hereof are absolute and unconditional, joint and several,
irrespective of the value, genuineness, validity, regularity or enforceability
of the obligations of the Company under this Agreement, the Notes or any other
agreement or instrument referred to herein or therein, or any substitution,
release or exchange of any other guarantee of or security for any of the
Guaranteed Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section 6.02 that the obligations of each Guarantor
hereunder shall be absolute and unconditional, joint and several, under any and
all circumstances. Without limiting the generality of the foregoing, it is
agreed that the occurrence of any one or more of the following shall not affect
the liability of any Guarantor hereunder:
(i) at any time or from time to time, without notice to such Guarantor, the
time for any performance of or compliance with any of the Guaranteed Obligations
shall be extended, or such performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this Agreement
or the Notes or any other agreement or instrument referred to herein or therein
shall be done or omitted;
<PAGE>
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in this respect, or any right under this Agreement or
the Notes or any other agreement or instrument referred to herein or therein
shall be waived or any other guarantee of any of the Guaranteed Obligations or
any security therefor shall be released or exchanged in whole or in part or
otherwise dealt with; or
(iv) any lien or security interest granted to, or in favor of, the Agent or
any Bank or Banks as security for any of the Guaranteed Obligations shall fail
to be perfected.
Each Guarantor hereby expressly waives diligence, presentment, demand of
payment, protest and all notices whatsoever, and any requirement that the Agent
or any Bank exhaust any right, power or remedy or proceed against the Company
under this Agreement or the Notes or any other agreement or instrument referred
to herein or therein, or against any other Person under any other guarantee of,
or security for, any of the Guaranteed Obligations.
6.03 Reinstatement. The obligations of each Guarantor under this Section 6
shall be automatically reinstated if and to the extent that for any reason any
payment by or on behalf of the Company in respect of the Guaranteed Obligations
is rescinded or must be otherwise restored by any holder of any of the
Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise and the Guarantors jointly and severally agree that
they will indemnify the Agent and each Bank on demand for all reasonable costs
and expenses (including, without limitation, fees of counsel) incurred by the
Agent or such Bank in connection with such rescission or restoration.
6.04 Subrogation. The Guarantors hereby agree that until the payment and
satisfaction in full of all Guaranteed Obligations and the expiration and
termination of the Commitments of the Banks under this Agreement they shall not
exercise any right or remedy arising by reason of any performance by them of
their guarantee in Section 6.01 hereof, whether by subrogation or otherwise,
against the Company or any other guarantor of any of the Guaranteed Obligations
or any security for any of the Guaranteed Obligations.
6.05 Remedies. The Guarantors jointly and severally agree that, as between
the Guarantors and the Banks, the obligations of the Company under this
Agreement and the Notes may be declared to be forthwith due and payable as
provided in Section 10 hereof (and shall be deemed to have become automatically
due and payable in the circumstances provided in said Section 10) for purposes
of Section 6.01 hereof notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming automatically due
and payable) as against the Company and that, in the event of such declaration
(or such obligations being deemed to have become automatically due and payable),
such obligations (whether or not due and payable by the Company) shall forthwith
become due and payable by such Guarantor for purposes of said Section 6.01.
Section 6.06 Continuing Guarantee. The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
<PAGE>
Section 6.07 Rights of Contribution. The Guarantors hereby agree, as
between themselves, that if any Guarantor (an "Excess Funding Guarantor") shall
pay Guaranteed Obligations in excess of the Excess Funding Guarantor's Pro Rata
Share (as hereinafter defined) of such Guaranteed Obligations, the other
Guarantors shall, on demand (but subject to the next sentence hereof), pay to
the Excess Funding Guarantor an amount equal to their respective relative Pro
Rata Shares of such Excess Funding Guarantor's payment. The payment obligation
of any Guarantor to any Excess Funding Guarantor under this Section 6.07 shall
be subordinate and subject in right of payment to the prior payment in full of
the obligations of such Guarantor under the other provisions of this Section 6
and such Excess Funding Guarantor shall not exercise any right or remedy with
respect to such excess until payment and satisfaction in full of all of such
obligations. For the purposes hereof, "Pro Rata Share" shall mean, for any
Guarantor, a percentage equal to the percentage that such Guarantor's Tangible
Net Worth as at January 28, 1995 is of the aggregate Tangible Net Worth of all
of the Guarantors as at such date.
Section 7. Conditions Precedent.
7.01 Conditions to Effectiveness. The effectiveness of this Agreement is
subject to the receipt by the Agent of the following documents, each of which
shall be satisfactory to the Agent in form and substance:
(a) Corporate Action. A certificate of each Obligor dated the Closing Date
attesting to all corporate action taken by each Obligor approving this Agreement
and, in the case of the Company, the Notes and borrowings hereunder (including,
without limitation, a certificate setting forth the resolutions of the Board of
Directors of each Obligor adopted in respect of the transactions contemplated
hereby).
(b) Incumbency. A certificate of each Obligor dated the Closing Date in
respect of each of the officers (i) who is authorized to sign on its behalf this
Agreement or the Notes, as the case may be, and (ii) who will, until replaced by
another officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices and
other communications in connection with this Agreement and the transactions
contemplated hereby (and the Agent and each Bank may conclusively rely on such
certificate until it receives notice in writing from the Company to the
contrary).
(c) Officer's Certificate. A certificate of a senior officer of the Company
to the effect set forth in the first sentence of Section 7.02 hereof.
(d) Opinion of Counsel to the Obligors. An opinion of Willkie Farr &
Gallagher, counsel to the Obligors, substantially in the form of Exhibit B
hereto.
(e) Notes. The Notes, duly completed and executed.
(f) Other Documents. Such other documents relating to the transactions
contemplated hereby as the Agent or any Bank or special New York counsel to the
Banks may reasonably request.
7.02 Initial and Subsequent Loans. The obligation of any Bank to make any
Loan (including any Money Market Loan and such Bank's initial Syndicated Loan)
to the Company upon the occasion of each borrowing hereunder is subject to the
further conditions precedent that, both immediately prior to such Loan and also
after giving effect thereto: (a) no Event of Default and, if such borrowing is a
Money Market Loan or will increase the outstanding principal amount of the
Syndicated Loans, no Default shall have occurred and be continuing; and (b) the
representations and warranties made by the Company in Section 8 hereof (other
than, if such borrowing is not a Money Market Loan and will not increase the
outstanding amount of the Syndicated Loans, the last sentence of Section 8.02
hereof and Section 8.03 hereof) shall be true and correct in all material
respects on and as of the date of the making of such Loan with the same force
and effect as if made on and as of such date. Each notice of borrowing by the
Company hereunder shall constitute a certification by the Company to the effect
set forth in the preceding sentence (both as of the date of such notice and,
unless the Company otherwise notifies the Agent prior to the date of such
borrowing, as of the date of such borrowing).
<PAGE>
Section 8. Representations and Warranties. The Company represents and
warrants to the Banks that:
8.01 Corporate Existence. Each of the Company and its Subsidiaries: (a) is
a corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation; (b) has all requisite corporate power, and
has all material governmental licenses, authorizations, consents and approvals
necessary to own its assets and carry on its business as now being or as
proposed to be conducted; and (c) is qualified to do business in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify would have a material
adverse effect on the consolidated financial condition, operations, business or
prospects taken as a whole of the Company and its Consolidated Subsidiaries.
8.02 Financial Condition. The consolidated balance sheet of the Company and
its Consolidated Subsidiaries as at January 28, 1995 and the related
consolidated statements of income, stockholders' equity and cash flows of the
Company and its Consolidated Subsidiaries for the fiscal year ended on said
date, with the opinion thereon of Deloitte & Touche LLP., heretofore furnished
to each of the Banks, are complete and correct and fairly present the
consolidated financial condition of the Company and its Consolidated
Subsidiaries as at said date and the consolidated results of their operations
for the fiscal year ended on said date, all in accordance with generally
accepted accounting principles and practices applied on a consistent basis.
Neither the Company nor any of its Subsidiaries had on said date any material
contingent liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said balance
sheet as at said date. Since January 28, 1995, there has been no material
adverse change in the consolidated financial condition, operations, business or
prospects taken as a whole of the Company and its Consolidated Subsidiaries from
that set forth in said financial statements as at said date.
8.03 Litigation. Except as disclosed to the Banks in writing prior to the
date of this Agreement, there are no legal or arbitral proceedings or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge of the Company) threatened against the Company or
any of its Subsidiaries which, if adversely determined, could reasonably be
expected to have a material adverse effect on the consolidated financial
condition, operations, business or prospects taken as a whole of the Company and
its Consolidated Subsidiaries.
8.04 No Breach. None of the execution and delivery of this Agreement and
the Notes, the consummation of the transactions herein contemplated and
compliance with the terms and provisions hereof will conflict with or result in
a breach of, or require any consent under, the charter or by-laws of any
Obligor, or any applicable law or regulation, or any order, writ, injunction or
decree of any court or governmental authority or agency, or any agreement or
instrument to which any Obligor is a party or by which any of them is bound or
to which any of them is subject, or constitute a default under any such
agreement or instrument, or result in the creation or imposition of any Lien
upon any of the revenues or assets of any of them pursuant to the terms of any
such agreement or instrument, except in each case for such conflicts, breaches,
consents, defaults or Liens which would not have a material adverse effect on
the consolidated financial condition, operations, business or prospects taken as
a whole of the Company and its Consolidated Subsidiaries.
8.05 Corporate Action. Each Obligor has all necessary corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and, in the case of the Company, the Notes; the execution delivery and
performance by each Obligor of this Agreement and, in the case of the Company,
the Notes have been duly authorized by all necessary corporate action on its
part; and this Agreement has been duly and validly executed and delivered by
each Obligor and constitutes, and each of the Notes when executed and delivered
for value by the Company will constitute, its legal, valid and binding
obligation, enforceable against such Obligor in accordance with its terms.
<PAGE>
8.06 Approvals. No authorizations, approvals or consents of, and no filings
or registrations with, any governmental or regulatory authority or agency are
necessary for the execution, deliver or performance by any Obligor of this
Agreement or, in the case of the Company, the Notes or for the validity or
enforceability thereof.
8.07 Use of Loans. Neither the Company nor any of its Subsidiaries is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose, whether immediate, incidental or ultimate, of
buying or carrying Margin Stock and no part of the proceeds of any Loan
hereunder will be used to buy or carry any margin Stock.
8.08 ERISA. The Company and the ERISA Affiliates have fulfilled their
respective obligations under the minimum funding standards of ERISA and the Code
with respect to each Plan and are in compliance in all material respects with
the presently applicable provisions of ERISA and the Code, and have not incurred
any liability to the PBGC or any Plan or Multiemployer Plan (other than to make
contributions in the ordinary course of business).
8.09 Taxes. United States Federal income tax returns of the Company and its
Subsidiaries have been closed through the fiscal year of the Company ended
February 2, 1991. The Company and its Subsidiaries have filed all United States
Federal income tax returns and all other material tax returns which are required
to be filed by them and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by the Company or any of its Subsidiaries,
except for taxes contested in good faith by appropriate proceedings. The
charges, accruals and reserves on the books of the Company and its Subsidiaries
in respect of taxes and other governmental charges are, in the opinion of the
Company, adequate.
8.10 Investment Company Act. The Company is not an "investment company" or
a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
8.11 Credit Agreements and Liens. Schedule I hereto is a complete and
correct list, as of the date of this Agreement, of each credit agreement, loan
agreement, indenture, purchase agreement, guarantee or other arrangement
providing for or otherwise relating to any Indebtedness or any extension of
credit (or commitment for any extension of credit) to, or guarantee by, the
Company or any of its Subsidiaries the aggregate principal or face amount of
which equals or exceeds (or may equal or exceed) $500,000 and (i) the aggregate
principal or face amount outstanding or which may become outstanding under each
such arrangement and (ii) the asset(s), if any, securing such Indebtedness or
extensions of credit, is correctly described in said Schedule I. The aggregate
carrying value (computed in accordance with GAAP) of the assets of the Company
and its Subsidiaries subject to a Lien on the date hereof does not exceed
$25,000,000.
8.12 Subsidiaries. Set forth in Schedule II hereto is a complete and
correct list, as of the date of this Agreement, of all Subsidiaries of the
Company (and this respective jurisdiction or incorporation of each such
Subsidiary) and the percentage of ownership by the Company (or any Subsidiary
thereof) of each of the same. Except as disclosed in said Schedule II, the
Company owns, free and clear of Liens, all outstanding shares of such
Subsidiaries (and each such Subsidiary owns, free and clear of Liens, all
outstanding shares of its Subsidiaries) and all such shares are validly issued,
fully paid and non-assessable. Each Subsidiary of the Company is a Guarantor.
<PAGE>
Section 9. Covenants of the Company. The Company agrees that, so long as
any of the Commitments are in effect and until payment in full of all Loans
hereunder, all interest thereon and all other amounts payable by the Company
hereunder:
9.01 Financial Statements. The Company shall deliver to each of the Banks:
(a) as soon as available and in any event within 60 days after the end of
each of the first three quarterly fiscal periods of each fiscal year of the
Company, consolidated statements of income, stockholders' equity and cash flows
of the Company and its Consolidated Subsidiaries for such period and for the
period from the beginning of the respective fiscal year to the end of such
period, and the related consolidated balance as at the end of such period,
setting forth in comparative form the corresponding consolidated figures for the
corresponding period in the preceding fiscal year, accompanied by a certificate
of a senior financial officer of the Company, which certificate shall state that
said financial statements fairly present the consolidated financial condition
and results of operations of the Company and its Consolidated Subsidiaries in
accordance with generally accepted accounting principles, consistently applied,
as at the end of, and for, such period (subject to normal year-end audit
adjustments);
(b) as soon as available and in any event within 120 days after the end of
each fiscal year of the Company, consolidated statements of income,
stockholders' equity and cash flows of the Company and its Consolidated
Subsidiaries for such year and the related consolidated balance sheet as at the
end of such year, setting forth in comparative form the corresponding
consolidated figures for the preceding fiscal year, and accompanied by an
opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that said consolidated financial
statements fairly present the consolidated financial condition and results of
operations of the Company and its Consolidated Subsidiaries as at the end of,
and for, such fiscal year, and a certificate of such accountants stating that,
in making the examination necessary for their opinion, they obtained no
knowledge, except as specifically stated, of any Default;
(c) promptly upon their becoming publicly available, copies of all
registration statements and regular periodic reports, if any, which the Company
shall have filed with the Securities and Exchange Commission (or any
governmental agency substituted therefor) or any national securities exchange;
(d) promptly upon the mailing thereof to the shareholders of the Company
generally, copies of all financial statements, reports and proxy statements so
mailed;
(e) as soon as possible, and in any event within ten days after the Company
knows or has reason to know that any of the events or conditions specified below
with respect to any Plan or Multiemployer Plan have occurred or exist, a
statement signed by a senior financial officer of the Company setting forth
details respecting such event or condition and the action, if any, which the
Company or its ERISA Affiliate proposes to take with respect thereto (and a copy
of any report or notice required to be filed with or given to PBGC by the
Company or an ERISA Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA and the
regulations issued thereunder, with respect to a Plan, as to which PBGC has not
by regulation waived the requirement of Section 4043(a) of ERISA that it be
notified within 30 days of the occurrence of such event (provided that a failure
to meet the minimum funding standard of Section 412 of the Code or Section 302
of ERISA shall be a reportable event regardless of the issuance of any waivers
in accordance with Section 412(d) of the Code);
(ii) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan or the termination of any Plan;
<PAGE>
(iii) the institution by PBGC of proceedings under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan,
or the receipt by the Company or any ERISA Affiliate of a notice from a
Multiemployer Plan that such action has been taken by PBGC with respect to such
Multiemployer Plan;
(iv) the complete or partial withdrawal by the Company or any ERISA
Affiliate under Section 4201 or 4204 of ERISA from a Multiemployer Plan, or the
receipt by the Company or any ERISA Affiliate of notice from a Multiemployer
Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245
of ERISA or that it intends to terminate or has terminated under Section 4041A
of ERISA; and
(v) the institution of a proceeding by a fiduciary of any Multiemployer
Plan against the Company or any ERISA Affiliate to enforce Section 515 of ERISA,
which proceeding is not dismissed within 30 days;
(f) promptly after the Company knows or has reason to know that any Default
has occurred, a notice of such Default describing the same in reasonable detail
and, together with such notice or as soon thereafter as possible, a description
of the action that the Company has taken and proposes to take with respect
thereto; and
(g) from time to time such other information regarding the business,
affairs or financial condition of the Company or any of its Subsidiaries
(including, without limitation, any Plan or Multiemployer Plan and any reports
or other information required to be filed under ERISA) as any Bank or the Agent
may reasonably request.
The Company will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
senior financial officer of the Company (i) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken and proposes to take with respect thereto) and (ii) setting
forth in reasonable detail the computations necessary to determine whether the
Company is in compliance with Sections 9.07 through and including 9.10 hereof as
of the end of the respective quarterly fiscal periods or fiscal year.
9.02 Litigation. The Company will promptly give to each Bank notice of all
legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and any material development in
respect of such legal or other proceedings, affecting the Company or any of its
Subsidiaries, except proceedings which, if adversely determined, would not have
a material adverse effect on the consolidated financial condition, operations,
business or prospects taken as a whole of the Company and its Consolidated
Subsidiaries.
9.03 Corporate Existence, Etc. The Company will, and will cause each of its
Subsidiaries to: preserve and maintain its corporate existence and all of its
material rights, privileges and franchises (provided that nothing in this
Section 9.03 shall prohibit any transaction expressly permitted under Section
9.05 hereof); comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure to
comply with such requirements would materially and adversely affect the
consolidated financial condition, operations, business or prospects taken as a
whole of the Company and its Consolidated Subsidiaries; pay and discharge all
taxes, assessments and governmental charges or levies imposed on it or on its
income or profits or on any of its property prior to the date on which penalties
attach thereto, except for any such tax, assessment, charge or levy the payment
of which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained; maintain all of its properties
used or useful in its business in good working order and condition, ordinary
wear and tear excepted; and permit representatives of any Bank or the Agent,
subject to at least two Business Days' advance notice (which notice shall not be
required at any time a Default shall be continuing) and during normal business
hours, to examine, copy and make extracts from its books and records, to inspect
its properties, and to discuss its business and affairs with its officers, all
to the extent reasonably requested by such Bank or the Agent (as the case may
be).
<PAGE>
9.04 Insurance. The Company will, and will cause each of its Subsidiaries
to, keep insured by financially sound and reputable insurers all property of a
character usually insured by corporations engaged in the same or similar
business similarly situated against loss or damage of the kinds and in the
amounts customarily insured against by such corporations and carry such other
insurance as is usually carried by such corporations; provided that the Company
and any of its Subsidiaries may self-insure to the extent determined by
management to be consistent with prudent business practice.
9.05 Prohibition of Fundamental Changes. The Company 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 Company will not, 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 Company 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 of this Section 9.05:
(a) any Subsidiary of the Company may be merged or consolidated with or
into: (i) the Company if the Company 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; and
(b) any such Subsidiary may sell, lease, transfer or otherwise dispose of
any or all of its assets (upon voluntary liquidation or otherwise) to the
Company or a Wholly-Owned Subsidiary of the Company.
9.06 Limitation on Liens. The Company will not, nor will it permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any
of its property, assets or revenues, whether now owned or hereafter acquired,
except:
(a) Liens imposed by any governmental authority for taxes, assessments or
charges not yet due or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are maintained
on the books of the Company or any of its Subsidiaries, as the case may be, in
accordance with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business which are not
overdue for a period of more than 30 days or which are being contested in good
faith and by appropriate proceedings;
(c) pledges or deposits under worker's compensation, unemployment insurance
and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts (other than
for borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(e) Liens on assets of corporations which become Subsidiaries of the
Company after the date of this Agreement, provided that such Liens are in
existence at the time the respective corporations become Subsidiaries of the
Company and were not created in anticipation thereof;
<PAGE>
(f) Liens upon real property, fixtures and equipment (excluding equipment
that constitutes inventory) acquired after the date hereof (by purchase,
construction or otherwise) by the Company or any of its Subsidiaries;
(g) Liens upon the assets of the Company and its Subsidiaries in existence
on the date hereof; and
(h) any extension, renewal or replacement of the foregoing, provided,
however, that the Liens permitted hereunder shall not be spread to cover any
additional Indebtedness or property (other than a substitution of like
property).
9.07 Leverage Ratio. The Company will not permit the Leverage Ratio to
exceed 1.5 to 1.0.
9.08 Tangible Net Worth. The Company will not permit its Tangible Net Worth
to be on any date of determination thereof less than the sum of (x) $520,000,000
plus (y) 25% of the aggregate amount of Net Earnings for each quarterly period
occurring during the period commencing January 29,1 995 and ending on the date
that is the last day of the Company's fiscal quarter next preceding such date of
determination.
9.09 Current Ratio. The Company will not permit the ratio of consolidated
current assets of the Company and its Consolidated Subsidiaries to consolidated
current liabilities of the Company 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.
9.10 NOP/Interest Charges Ratio. The Company will not at any time permit
the NOP/Interest Charges Ratio to be less than 2.5 to 1.0.
9.11 Lines of Business. Neither the Company nor any of its Subsidiaries
shall engage in any substantial extent in any line or lines of business activity
other than the business of owning and operating retail stores.
9.12 Use of Proceeds. The Company will use the proceeds of the Loans
hereunder solely to refinance certain of the Indebtedness described in Schedule
I hereof and to finance the expansion of the Company's stores and for general
working capital purposes (in compliance with all applicable legal and regulatory
requirements); provided, that neither the Agent nor any Bank shall have any
responsibility as to the use of any of such proceeds.
9.13 Additional Guarantors. The Company will take such action, and will
cause each of its Subsidiaries to take such action, from time to time as shall
be necessary to ensure that all such Subsidiaries are Guarantors and, thereby,
"Obligors" hereunder. Without limiting the generality of the foregoing, in the
event that the Company or any of its Subsidiaries shall form any new Subsidiary,
which is a "Material Subsidiary" (as defined below), after the date hereof, the
Company or the respective Subsidiary will cause such new Subsidiary to become a
"Guarantor" (and, thereby, an "Obligor") hereunder pursuant to a written
instrument in form and substance satisfactory to each Bank and the Agent, and to
deliver such proof of corporate action, incumbency of officers, opinions of
counsel and other documents as is comparable to those delivered by each Obligor
pursuant to Section 7.01 hereof upon the making of the initial Loan hereunder or
as any Bank or the Agent shall have reasonably requested. For the purposes of
this Section 9.13, "Material Subsidiary" shall mean any Subsidiary of the
Company (a) whose assets equal 10% or more of the total assets of the Company
and its consolidated Subsidiaries, or (b) whose revenues equal 10% or more of
the total revenues of the Company and its consolidated Subsidiaries; in each
case, as of the end of the most recently completed fiscal year of the Company.
<PAGE>
Section 10. Events of Default. If one or more of the following events
(herein called "Events of Default") shall occur and be continuing:
(a) The Company shall default in the payment when due of any principal of
any Loan; or the Company shall default in the payment when due of any interest
or any other amount payable by it hereunder and such default shall continue for
a period of two Business Days; or
(b) The Company or any of its Subsidiaries shall default in the payment
when due of any principal of or interest on any of its other Indebtedness
aggregating $5,000,000 or more; or any event specified in any note, agreement,
indenture or other document evidencing or relating to any such Indebtedness
shall occur if the effect of such event is to cause, or (with the giving of any
notice or the lapse of time or both) to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause, such Indebtedness to become due, or to be required to be prepaid in full
(whether by redemption, purchase or otherwise), prior to its stated maturity; or
(c) Any representation, warranty or certification made or deemed made
herein (or in any modification or supplement hereto) by the Company, or any
certificate furnished to any Bank or the Agent pursuant to the provisions hereof
(or thereof), shall prove to have been false or misleading as of the time made
or furnished in any material respect; or
(d) The Company shall default in the performance of any of its obligations
under Section 9.01(f), or any of Sections 9.03 through and including 9.12
hereof; or the Company shall default in the performance of any of its other
obligations in this Agreement and such default shall continue unremedied for a
period of thirty days after notice thereof to the Company by the Agent or any
Bank (through the Agent); or
(e) The Company or any of its Subsidiaries shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become due;
or
(f) The Company or any of its Subsidiaries shall (i) apply for or consent
to the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of its creditors, (iii) commence
a voluntary case under the Bankruptcy Code (as now or hereafter in effect), (iv)
file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
readjustment of debts, (v) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code, or (vi) take any corporation action
for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application or
consent of the Company or any of its Subsidiaries, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution or
winding-up, or the composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of the
Company or such Subsidiary or of all or any substantial part of its assets, or
(iii) similar relief in respect of the Company or such Subsidiary under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect, for a period of 60 or more days;
or an order for relief against the Company or such Subsidiary shall be entered
in an involuntary case under the Bankruptcy Code; or
<PAGE>
(h) A final judgment or judgments for the payment of money in excess of
$1,000,000 in the aggregate shall be rendered by a court or courts against the
Company and/or any of its Subsidiaries and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution thereof
shall not be procured, within 30 days from the date of entry thereof and the
Company or the relevant Subsidiary shall not, within said period of 30 days, or
such longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal; or
(i) An event or condition specified in Section 9.01(e) hereof shall occur
or exist with respect to any Plan or Multiemployer Plan and, as a result of such
event or condition, together with all other such events or conditions, the
Company or any ERISA Affiliate shall incur or in the opinion of the Majority
Bank shall be reasonably likely to incur a liability to a Plan, a Multiemployer
Plan or PBGC (or any combination of the foregoing) which is, in the
determination of the Majority Banks, material in relation to the consolidated
financial condition, operations, business or prospects taken as a whole of the
Company and its Consolidated Subsidiaries; or
(j) During any period of 12 consecutive calendar months, individuals who
were directors of the Company on the first day of such period shall no longer
(other than by reason of death) constitute a majority of the board of directors
of the Company;
THEREUPON: (i) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 10 with respect to the Company, the Agent may
and, upon request of the Majority Banks, shall, by notice to the Company, cancel
the Commitments and/or declare the principal amount then outstanding of, and the
accrued interest on, the Loans and all other amounts payable by the Company
hereunder and under the Notes (including, without limitation, any amounts
payable under Section 5.05 hereof) to be forthwith due and payable, whereupon
such amounts shall be immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Company; and (ii) in the case of the occurrence of an Event of
Default referred to in clause (f) or (g) of this Section 10 with respect to the
Company, the Commitments shall automatically be canceled and the principal
amount then outstanding of, and the accrued interest on, the Loans and all other
amounts payable by the Company hereunder and under the Notes (including, without
limitation, any amounts payable under Section 5.05 hereof) shall automatically
become immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Company.
Section 11. The Agent.
11.01 Appointment, Powers and Immunities. Each Bank hereby irrevocably
appoints and authorizes the Agent to act as its agent hereunder with such powers
as are specifically delegated to the Agent by the terms of this Agreement,
together with such other powers as are reasonably incidental thereto. The Agent
(which term as used in this sentence and in Section 11.05 and the first sentence
of Section 11.06 hereof shall include reference to its affiliates and its own
and its affiliates' officers, directors, employees and agents): (a) shall have
no duties or responsibilities except those expressly set forth in this
Agreement, and shall not by reason of this Agreement be a trustee for any Bank;
(b) shall not be responsible to the Banks for any recitals, statements,
representations or warranties contained in this Agreement, or in any certificate
or other document referred to or provided for in, or received by any of them
under, this Agreement, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, any Note or any other document
referred to or provided for herein or for any failure by the Company or any
other Person to perform any of its obligations hereunder or thereunder; (c)
except as otherwise expressly set forth herein, shall not be required to
initiate or conduct any litigation or collection proceedings hereunder; and (d)
shall not be responsible for any action taken or omitted to be taken by it
hereunder or under any other document or instrument referred to or provided for
herein or in connection herewith, except for its own gross negligence or willful
misconduct. The Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. The Agent may deem and treat the
payee of any Note as the holder thereof for all purposes hereof unless and until
a written notice of the assignment or transfer thereof shall have been filed
with the Agent, together with the written consent of the Company to such
assignment or transfer.
<PAGE>
11.02 Reliance by Agent. The Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telex, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Agent. As to any matters not expressly provided
for by this Agreement, the Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder in accordance with instructions
signed by the Majority Banks, and such instructions of the Majority Banks and
any action taken or failure to act pursuant thereto shall be binding on all of
the Banks.
11.03 Defaults. The Agent shall not be deemed to have knowledge or notice
of the occurrence of a Default (other than the non-payment of principal of or
interest on Loans or of commitment fees) unless the Agent has received notice
from a Bank or the Company specifying such Default and stating that such notice
is a "Notice of Default". In the event that the Agent receives such a notice of
the occurrence of a Default, the Agent shall give prompt notice thereof to the
Bank (and shall give each Bank prompt notice of each such non-payment). The
Agent shall (subject to Section 11.07 hereof) take such action with respect to
such Default as shall be directed by the Majority Banks, provided that, unless
and until the Agent shall have received such directions, the Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Default as it shall deem advisable in the best interest of
the Banks.
11.04 Rights as a Bank. With respect to its Commitment and the Loans made
by it, Chase (and any successor acting as Agent) in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not acting as the Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise indicates, include the
Agent in its individual capacity. Chase (and any successor acting as Agent) and
its affiliates may (without having to account therefor to any Bank) accept
deposits from, lend money to and generally engage in any kind of banking, trust
or other business with the Company (and any of its Subsidiaries or Affiliates)
as if it were not acting as the Agent, and Chase and its Subsidiaries or
Affiliates may accept fees and other consideration from the Company for services
in connection with this Agreement or otherwise without having to account for the
same to the Banks.
11.05 Indemnification. The Banks agree to indemnify the Agent (to the
extent not reimbursed under Section 12.03 hereof, but without limiting the
obligations of the Company under said Section 12.03), ratably in accordance with
their respective Commitments, for any and all liabilities obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement or any other documents contemplated by or referred to herein or the
transactions contemplated hereby (including, without limitation, the costs and
expenses which the Company is obligated to pay under Section 12.03 hereof but
excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or of any such
other documents, provided that no Bank shall be liable for any of the foregoing
to the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified.
11.06 Non-Reliance on Agent and other Banks. Each Bank agrees that it has,
independently and without reliance on the Agent or other Bank, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis of the Company and its Subsidiaries and decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement. The Agent shall not be
required to keep itself informed as to the performance or observance by the
Company of this Agreement or any other document referred to or provided for
herein or to inspect the properties or books of the Company or any of its
Subsidiaries. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the affairs, financial condition or
business of the Company or any of its Subsidiaries (or any of their affiliates)
which may come into the possession of the Agent or any of its affiliates.
<PAGE>
11.07 Failure to Act. Except for action expressly required of the Agent
hereunder, the Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall receive further assurances to its
satisfaction from the Banks of their indemnification obligations under Section
11.05 hereof against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action.
11.08 Resignation or Removal of Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Banks and the Company, and the Agent may be
removed at any time without cause by the Majority Banks. Upon any such
resignation or removal, the Majority Banks shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Majority Banks and shall have accepted such appointment within 30 days after the
retiring Agent's giving of notice of resignation or the Majority Banks' removal
of the retiring Agent, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a bank with a combined capital and
surplus of at least $500,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Section 11 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent.
Section 12. Miscellaneous.
12.01 Waiver. No failure on the part of the Agent or any Bank to exercise
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under this Agreement or any Note shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement or any Note preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
12.02 Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telecopy, telegraph,
cable or in writing (or, with respect to notices given pursuant to Section 2.03
hereof, by telephone, confirmed in writing by telex by the close of business on
the day the notice is given) and telexed, telecopied, telegraphed, cabled,
mailed or delivered (or telephoned, as the case may be) to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof; or, as to any party, at such other address as shall be designated
by such party in a notice to each other party. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telex or telecopier, delivered to the telegraph or cable
office of personally delivered or, in the case of a mailed notice, upon receipt,
in each case given or addressed as aforesaid.
12.03 Expenses, Etc. The Company agrees to pay or reimburse each of the
Banks and the Agent for paying: (a) all reasonable out-of-pocket costs and
expenses for the Agent (including, without limitation, the reasonable fees and
expenses of external counsel to the Agent and costs allocated by the Agent's
internal legal department (which, for the purposes of this Section 12.03(a),
shall constitute out-of-pocket expenses), in connection with (i) the
negotiation, preparation, execution and delivery of this Agreement and the Notes
and the making of the Loans hereunder and (ii) any amendment, modification or
waiver of any of the terms of this Agreement or any of the Notes; (b) all
reasonable costs and expenses of the Banks and the Agent (including reasonable
counsels' fees and costs allocated by their respective internal legal
departments) in connection with any Default and any enforcement or collection
proceedings resulting therefrom; and (c) all transfer, stamp, documentary or
other similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement, any of the Notes or any other
document referred to herein.
<PAGE>
12.04 Amendments, Etc. Except as otherwise expressly provided in this
Agreement, any provision of this Agreement may be amended or modified only by an
instrument in writing signed by the Company, the Guarantors, the Agent and the
Majority Banks, or by the Company, the Guarantors and the Agent acting with the
consent of the Majority Banks, and any provision of this Agreement may be waived
by the Majority Banks or by the Agent acting with the consent of the Majority
Banks; provided that no amendment, modification or waiver shall, unless by an
instrument signed by all of the Banks or by the Agent acting with the consent of
all of the Banks: (i) increase or extend the term, or extend the time or waive
any requirement for the reduction or termination, of the Commitments, (ii)
extend any date fixed for the payment of principal of or interest on any Loan,
(iii) reduce the amount of any payment of principal thereof or the rate at which
interest is payable thereon or any fee is payable hereunder, (iv) alter the
terms of this Section 12.04, (v) amend the definition of the term "Majority
Banks", (vi) waive any of the conditions precedent set forth in Section 7 hereof
or (vii) alter the form of Exhibit E hereto; and provided, further, that any
amendment of Section 11 hereof, or which increases the obligations of the Agent
hereunder, shall require the consent of the Agent.
12.05 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
12.06 Assignments and Participations.
(a) The Company may not assign its rights or obligations hereunder or under
the Notes without the prior consent of all of the Banks and the Agent.
(b) Except as otherwise provided in Section 2.10(b) hereof, no Bank may
assign any of its Loans, its Notes or its Commitment without the prior consent
of the Company and the Agent; provided that: (i) without the consent of the
Company or the Agent, any Bank may assign to another Bank all or (subject to the
further clauses below) any portion of its Commitment; (ii) any such partial
assignment shall be in multiples of $5,000,000; and (iii) such assigning Bank
shall also simultaneously assign to such assignee Bank the same proportion of
each of its Loans then outstanding (together with the same proportion of its
Notes then outstanding). Upon written notice to the Company and the Agent of an
assignment permitted by the preceding sentence (which notice shall identify the
assignee Bank, the amount of the assigning Bank's Commitment and Loans assigned
in detail reasonably satisfactory to the Agent) and upon the effectiveness of
any assignment consented to by the Company and the Agent, the assignee shall
have, to the extent of such assignment (unless otherwise provided in such
assignment with the consent of the Company and the Agent), the obligations,
rights and benefits of a Bank hereunder holding the Commitment and Loans (or
portions thereof) assigned to it (in addition to the Commitment and Loans, if
any, theretofore held by such assignee) and the assigning Bank shall, to the
extent of such assignment, be released from the Commitment (or portions thereof)
so assigned.
(c) A Bank may sell or agree to sell to one or more other Persons a
participation in all or any part of any Loan held by it or Loans made or to be
made by it, in which event each such participant shall be entitled to the rights
and benefits of the provisions of Section 9.01(g) hereof with respect to its
participation in such Loan as if (and the Company shall be directly obligated to
such participant under such provisions as if) such participant were a "Bank" for
purposes of said Section, but shall not have any other rights or benefits under
this Agreement or any Note (the participant's rights against such Bank in
respect of such participation to be those set forth in the agreement (the
"Participation Agreement") executed by such Bank in favor of the participant).
All amounts payable by the Company to any Bank under Section 5 hereof shall be
determined as if such Bank had not sold or agreed to sell any participations in
such Loan and as if such Bank were funding all of such Loan in the same way that
it is funding the portion of such Loan in which no participations have been
sold. In no event shall a Bank that sells a participation be obligated to the
participant under the Participation Agreement to take or refrain from taking any
action hereunder or under such Bank's Note except that such Bank may agree in
the Participation Agreement that it will not, without the consent of the
participant, agree to (i) the increase or extension of the term, or the
extension of the time or waiver of any requirement for the reduction or
termination, of such Bank's Commitment, (ii) the extension of any date fixed for
the payment of principal of or interest on the related Loan or Loans or any
portion of any fees payable to the participant, (iii) the reduction of any
payment of principal thereof, or (iv) the reduction of the rate at which either
interest is payable thereon or (if the participant is entitled to any part
thereof) commitment fee is payable hereunder to a level below the rate at which
the participant is entitled to receive interest or commitment fee (as the case
may be) in respect of such participation.
<PAGE>
(d) A Bank may furnish any information concerning the Company or any of its
Subsidiaries in the possession of such Bank from time to time to assignee and
participants (including prospective assignees and participants), subject,
however, to the provisions of Section 12.11 hereof.
(e) In addition to the assignments and participations permitted under this
Section 12.06, any Bank may assign and pledge all or any portion of its Loans
and Notes to (i) any affiliate of such Bank or (ii) any Federal Reserve Bank as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal Reserve
Bank. No such assignment shall release the assigning Bank from its obligations
hereunder.
12.07 Survival. The obligations of the Company under Section 5.01, 5.05 and
12.03 hereof shall survive the repayment of the Loans and the termination of the
Commitments.
12.08 Captions. The table of contents and captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
12.09 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
12.10 Governing Law; Submission to Jurisdiction; Wavier of Jury Trial. THIS
AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK. EACH OBLIGOR HEREBY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY
FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OBLIGOR IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OBLIGOR, THE AGENT AND THE BANKS
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
12.11 Confidentiality. Each Bank and the Agent agrees (on behalf of itself
and each of its affiliates, directors, officers, employees and representatives)
to use reasonable precautions to keep confidential, in accordance with their
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices, any non-public information
supplied to it by the Company pursuant to this Agreement which is identified by
the Company as being confidential at the time the same is delivered to the Banks
or the Agent, provided that nothing herein shall limit the disclosure of any
such information (i) to the extent required by statute, rule, regulation or
judicial process, (ii) to counsel for any of the Banks or the Agent, (iii) to
bank examiners, auditors or accountants, (iv) to the Agent or any other Bank (or
an Affiliate of such Bank), (v) in connection with any litigation to which any
one or more of the Banks is a party or (vi) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first executes and delivers to the
respective Bank a Confidentiality Agreement in substantially the form of Exhibit
F hereto; and provided finally that in no event shall any Bank or the Agent be
obligated or required to return any materials furnished by the Company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE PEP BOYS - MANNY, MOE & JACK
By /s/ Michael J. Holden
----------------------------------
Title: Senior Vice President and
Chief Financial Officer
Address for Notices:
3111 W. Allegheny Avenue
Philadelphia, Pennsylvania 19132
Telecopier No.:(215) 227-8078
Telephone No.:(215) 227-9202
Attention:Michael J. Holden
Senior Vice President and
Chief Financial Officer
With a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53d Street
New York, New York 10022-4677
Attention: Daniel D. Rubino, Esq.
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK
OF CALIFORNIA, as a Guarantor
By /s/ Michael J. Holden
----------------------------------
Title: Senior Vice President and
Chief Financial Officer
Address for Notices:
1122 W. Washington Boulevard
Los Angeles, California 90015
Telecopier No.:(215) 227-8078
Telephone No.:(215) 227-9202
Attention:Michael J. Holden
Senior Vice President and
Chief Financial Officer
<PAGE>
PBY CORPORATION, as a Guarantor
By /s/ Michael J. Holden
----------------------------------
Title: Senior Vice President and
Chief Financial Officer
Address for Notices:
1105 North Market Street, Suite 1300
Wilmington, Delaware 19899
Telecopier No.: (215) 227-8078
Telephone No.: (215) 227-9202
Attention:Michael J. Holden
Senior Vice President and
Chief Financial Officer
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK
OF DELAWARE, INC., as a Guarantor
By /s/ Michael J. Holden
----------------------------------
Title: Senior Vice President and
Chief Financial Officer
Address for Notices:
3111 West Allegheny Avenue
Philadelphia, Pennsylvania 19132
Telecopier No.: (215) 227-8078
Telephone No.: (215) 227-9202
Attention:Michael J. Holden
Senior Vice President
Chief Financial Officer
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK
OF PUERTO RICO, INC., as a Guarantor
By /s/ Michael J. Holden
----------------------------------
Title: Senior Vice President and
Chief Financial Officer
Address for Notices:
3111 West Allegheny Avenue
Philadelphia, Pennsylvania 19132
Telecopier No.: (215) 227-8078
Telephone No.: (215) 227-9202
Attention:Michael J. Holden
Senior Vice President and
Chief Financial Officer
<PAGE>
COLCHESTER INSURANCE COMPANY,
as a Guarantor
By /s/ Michael J. Holden
----------------------------------
Title: Senior Vice President and
Chief Financial Officer
Address for Notices:
7 Burlington Square
Burlington, Vermont 05401
Telecopier No.: (215) 227-8078
Telephone No.: (215) 227-9202
Attention:Michael J. Holden
Senior Vice President and
Chief Financial Officer
<PAGE>
CARRUS SUPPLY CORPORATION,
as a Guarantor
By /s/ Michael J. Holden
----------------------------------
Title: Senior Vice President and
Chief Financial Officer
Address for Notices:
32 Loockerman Square, Suite L-100
Dover, Delaware 19901
Telecopier No.: (215) 227-8078
Telephone No.: (215) 227-9202
Attention:Michael J. Holden
Senior Vice President and
Chief Financial Officer
<PAGE>
Commitment THE CHASE MANHATTAN BANK
$25,000,000 (NATIONAL ASSOCIATION)
By /s/ Charles F. Wallach
----------------------------------
Title: Vice President
Lending Office for All Loans:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Address for Notices:
The Chase Manhattan Bank
(National Association)
c/o Chase National Corporate Services
Heights Plaza
777 Terrace Avenue - 3rd Floor
Hasbrouck Heights, New Jersey 07604
Telecopier No.: (201) 288-8231
Telephone No.: (201) 393-7286
Attention: Stephen Van Besien
Vice President
<PAGE>
Commitment CORESTATES BANK, as successor in
$25,000,000 interest to Philadelphia National Bank
By /s/ [ILLEGIBLE]
----------------------------------
Title: Vice President
Lending Office for All Loans:
CoreStates Bank
Eastern Corporate
1339 Chestnut Street
F.C. 1-8-3-16
P.O. Box 7618
Philadelphia, PA 19101-7618
Address for Notices for Business/Credit Matters:
CoreStates Bank
1339 Chestnut Street
F.C. 1-8-3-16
P.O. Box 7618
Philadelphia, PA 19101-7618
Telecopier No.:(215) 973-6745
Telephone No.:(215) 973-3858
Attention:Randy Southern
Vice President
Address for Notices for Administrative/Operations
Matters:
CoreStates Bank
1339 Chestnut Street
F.C. 1-8-3-16
P.O. Box 7618
Philadelphia, PA 19101-7618
Telecopier No.:(215) 973-2045
Telephone No.:(215) 973-4448
Attention:Sharon Burgess
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Terminating
Bank
By_____________________________________
Title:
<PAGE>
Commitment BANK OF AMERICA ILLINOIS, as successor in $25,000,000
interest to Continental Bank
By /s/ [ILLEGIBLE]
----------------------------------
Title: Managing Director
Lending Office for Syndicated Loans:
Bank of America Illinois
c/o 333 S. Beaudry Avenue, Dept. #5583
Los Angeles, CA 90017
Lending Office for Money Market Loans:
Bank of America N.T. % S.A.
555 California Street, 10th Fl.
San Francisco, CA 94104
Address for Notices for Business/Credit Matters (not funding
requests):
Bank of America Illinois
c/o 555 S. Flower Street, Dept. #5618, 11th Fl.
Los Angeles, CA 90017
Telecopier No.: (213) 228-2756
Telephone No.: (213) 228-2666
Attention:Yvonne C. Dennis
Address for Notices for Administrative/Operations
Matters,
including Fund Requests :
Bank of America Illinois
c/o 333 S. Beaudry Avenue, Dept. #5583
Los Angeles, CA 90017
Telecopier No.: (213) 345-6550
Telephone No.: (213) 345-6312
Attention:Jackie Holland
<PAGE>
FIRST INTERSTATE BANK OF ARIZONA, N.A.,
as a Terminating Bank
By /s/ [ILLEGIBLE]
----------------------------------
Title: Vice President
<PAGE>
Commitment NATIONSBANK, N.A. (CAROLINAS)
$25,000,000
By /s/ [ILLEGIBLE]
----------------------------------
Title: Vice President
Lending Office for All Loans:
NationsBank , N.A. (Carolinas)
100 North Tyron Street, 8th Floor
NC1-007-8-04
Charlotte, North Carolina 28255
Address for Notices:
NationsBank , N.A. (Carolinas)
100 North Tyron Street, 8th Floor
NC1-007-8-04
Charlotte, North Carolina 28255
Telecopier No.:(704) 386-3271
Telephone No.:(704) 386-1265
Attention:Greg Seaton
Senior Vice President
<PAGE>
Commitment TRUST COMPANY BANK, ATLANTA
$15,000,000
By /s/ Elizabeth A. Muse
----------------------------------
Title: Assistant Vice President
Lending Office for All Loans:
Trust Company Bank, Atlanta
25 Park Place
Atlanta, Georgia 30303
Address for Notices for Business/Credit Matters:
Trust Company Bank, Atlanta
25 Park Place
Atlanta, Georgia 30303
Telecopier No.:(404 ) 588-8833
Telephone No.:(404) 588-7546
Attention:Elizabeth A. Muse
Assistant Vice President
Address for Notices for Administrative/Operations
Matters:
Trust Company Bank, Atlanta
25 Park Place
Atlanta, Georgia 30303
Telecopier No.: (404) 588-8833
Telephone No.: (404) 588-8341
Attention:Sharon Judge
<PAGE>
THE FUJI BANK, LTD., as a Terminating Bank
By /s/ Gina Kearns
----------------------------------
Title: Vice President and Manager
<PAGE>
Commitment FIRST FIDELITY BANK, N.A.
$15,000,000
By /s/ T. Woodward
----------------------------------
Title: Vice President
Lending Office for All Loans:
First Fidelity Bank, N.A.
Borad & Chestnut Streets, 6th Fl.
Philadelphia, PA 19609
Address for Notices for Business/Credit Matters:
First Fidelity Bank, N.A.
123 South Broad Street
Philadelphia, Pennsylvania 19109
Telecopier No.: (215) 985-8793
Telephone No.: (215) 985-8133
Attention:Thomas C. Woodward
Vice President
Address for Notices for Administrative/Operations
Matters:
First Fidelity Bank, N.A.
123 South Broad Street, Suite 630
Philadelphia, PA 19109
Telecopier No.: (215) 985-8793
Telephone No.: (215) 985-3011
Attention:Anita L. Munce
<PAGE>
Commitment PNC BANK, N.A.
$25,000,000
By /s/ Robert Q. Reilly
----------------------------------
Title: Vice President
Lending Office for All Loans:
PNC Bank, N.A.
100 S. Broad Street
Philadelphia, PA 19110
Address for Notices for Business/Credit Matters:
PNC Bank, N.A.
100 S. Broad Street
Philadelphia, PA 19110
Telecopier No.: (215) 585-6037
Telephone No.:(215) 585-7484
Attention:Robert Q. Reilly
Vice President
Address for Notices for Administrative/Operations
Matters:
PNC Bank, N.A.
100 S. Broad Street
Philadelphia, PA 19110
Telecopier No.: (215) 585-6037
Telephone No.:(215) 585-5286
Attention:Joyce Sanders
<PAGE>
Commitment NATWEST BANK, N.A., formerly known as
$25,000,000 National Westminster Bank
By /s/ [ILLEGIBLE]
----------------------------------
Title: Vice President
Lending Office for All Loans:
10 Exchange Place
Jersey City, NJ 07302
Address for Notices for Business/Credit Matters:
NatWest Bank, N.A.
One Presidential Boulevard, Suite 229
Bala Cynwyd, Pennsylvania 19004
Telecopier No.:(610) 660-9976
Telephone No.:(610) 660-9337
Attention:William K. Lacy
Vice President
Address for Notices for Administrative/Operations
Matters:
Natwest Bank, N.A.
22 Route 70 West
Cherry Hill, NJ 08002
Telecopier No.: (609) 795-4847
Telephone No.: (609) 795-3209
Attention:Monica Szczepankiewicz
<PAGE>
Commitment UNION BANK
$10,000,000
By /s/ Cecilia M. Valente
----------------------------------
Title: Vice President
Lending Office for All Loans:
Union Bank
250 California Street, 11th Fl.
San Francisco, California 94104
Address for Notices for Business/Credit Matters:
Union Bank
350 California Streeet, 11th Floor
San Francisco, California 94104
Telecopier No.: (415) 705-7092
Telephone No.: (415) 705-7042
Attention:Cecilia M. Valente,
Vice President
With a copy to:
Union Bank
445 South Figueroa Street, 16th Floor
Los Angeles, California 90071
Telecopier No.:(213) 236-7636
Telephone No.:(213) 236-6604
Attention:Ann Yasuda, Vice President
Address for Notices for Administrative/Operations
Matters:
Union Bank
350 California Street, 10th Fl.
San Francisco, California 94104
Telecopier No.: (415) 705-7111
Telephone No.: (415) 705-7325
Attention:Mark McElwain
<PAGE>
Commitment CREDIT SUISSE
$10,000,000
By /s/ Dawn E. Rubinstein
----------------------------------
Title: Associate
By /s/ Thomas G. Muoio
----------------------------------
Title: Associate
Lending Office for All Loans:
Credit Suisse
12 East 49th Street
New York, New York 10017
Address for Notices for Business/Credit Matters:
Credit Suisse
12 East 49th Street
New York, New York 10017
Telecopy No.: (212) 238-5389
Telephone No.: (212) 238-5359
Attention:Andres E. Shkane
Vice President
Address for Notices for Administrative/Operations
Matters:
Credit Suisse
12 East 49th Street
New York, New York 10017
Telecopier No.: (212) 238-5389
Telephone No.: (212) 238-5362
Attention:Yvette McQueen
THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),
as Agent
By_____________________________________
Title:
Address for Notices to Chase as Agent:
The Chase Manhattan Bank
(National Association)
4 Chase Metrotech Centerc, 13th Fl.
Brooklyn, New York 11245
Telecopier No.:(718) 242-6909
Telephone No.:(718) 242-7944
Attention:New York Agency Office
Laura Rebecca
<PAGE>
PRICING SCHEDULE
Each of the "Applicable Margin", "Commitment Fee Rate" and "Facility Fee Rate"
means, for any day, the per annum rates set forth below in the column under such
term and in the row corresponding to the "Debt to Capital Ratio" that exists on
such day.
Debt to Capital Applicable Commitment Facility
Ratio Eurodollar Fee Rate Fee Rate
Loans
- --------------- ---------- ---------- --------
<0.30 0.125% 0.000% 0.125%
>0.30 but 0.225% 0.000% 0.125%
LTE 0.35
<0.35 but 0.325% 0.025% 0.125%
LTE 0.40
>0.40 but 0.400% 0.050% 0.150%
LTE 0.45
>.045 0.625% 0.050% 0.200%
<PAGE>
SCHEDULE II
SUBSIDIARIES OF THE PEP BOYS - MANNY, MOE & JACK
MARCH, 30, 1995
<TABLE>
<CAPTION>
NAME WHERE % OF SHARES
INCORPORATED WHERE INCORPORATED
------------ ------------ -------------------------
OWNED BY COMPANY
<S> <C> <C>
THE PEP BOYS-MANNY, MOE & CALIFORNIA 100% JACK OF CALIFORNIA
1122 W. WASHINGTON BLVD.
LOS ANGELES, CA 90015
PEP BOYS - MANNY, MOE & JACK DELAWARE 100% OF DELAWARE, INC.
3111 WEST ALLEGHENY AVENUE
PHILADELPHIA, PA 19132
PEP BOYS - MANNY, MOE & JACK DELAWARE 100% OF PUERTO RICO, INC.
3111 WEST ALLEGHENY AVENUE
PHILADELPHIA, PA 19132
COLCHESTER INSURANCE COMPANY VERMONT 100% 7 BURLINGTON SQUARE
BURLINGTON, VT 05401
PBY CORPORATION DELAWARE 100% SUITE 1300
1105 NORTH MARKET STREET
WILMINGTON, DE 19899
MMJ CORPORATION DELAWARE 100%
32 LOOCKERMAN SQUARE
SUITE L-100
DOVER, DE 19901
CARRUS SUPPLY CORPORATION DELAWARE 100% 32 LOOCKERMAN SQUARE
SUITE L-100
DOVER, DE 19901
</TABLE>
<PAGE>
Exhibit A-1
[Form of Note for Syndicated Loans]
PROMISSORY NOTE
$_____________ April 21, 1995
New York, New York
FOR VALUE RECEIVED, THE PEP BOYS - MANNY, MOE & JACK, a Pennsylvania corporation
(the "Company"), hereby promises to pay to ____________________________ (the
"Bank"), for account of its respective Applicable Lending Offices provided for
by the Credit Agreement referred to below, at the principal office of The Chase
Manhattan Bank (National Association) at 1 Chase Manhattan Plaza, New York, New
York 10081, the principal sum of ____________ Dollars (or such lesser amount as
shall equal the aggregate unpaid principal under the Credit Agreement), in
lawful money of the United States of America and in immediately available funds,
on the dates and in the principal amounts provided in the Credit Agreement, and
to pay interest on the unpaid principal amount of each such Syndicated Loan, at
such office, in like money and funds, for the period commencing on the date of
such Syndicated Loan until such Syndicated Loan shall be paid in full, at the
rates per annum and on the dates provided in the Credit Agreement. The date,
amount, type, interest rate and maturity date of each Syndicated Loan made by
the Bank to the Company, and each payment made on account of the principal
thereof, shall be recorded by the Bank on its books and, prior to any transfer
of this Note, endorsed by the Bank on the schedule attached hereto or any
continuation thereof.
This Note is one of the Notes referred to in the Amended and Restated Credit
Agreement (as modified and supplemented and in effect from time to time, the
"Credit Agreement") dated as of April 21, 1995 between the Company, the
Guarantors named therein, the banks named therein (including the Bank) and The
Chase Manhattan Bank (National Association), as Agent, and evidences Syndicated
Loans made by the Bank thereunder. Capitalized terms used in this Note have the
respective meanings assigned to them in the Credit Agreement. The Credit
Agreement provides for the acceleration of the maturity of this Note upon the
occurrence of certain events and for prepayments of Loans upon the terms and
conditions specified therein.
Except as permitted by Section 12.06(b) of the Credit Agreement, this Note may
not be assigned by the Bank to any other Person. THIS NOTE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
THE PEP BOYS - MANNY, MOE & JACK
By______________________________________
Title:
<PAGE>
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described Credit Agreement to
the Company, on the dates, in the principal amounts, of the types, bearing
interest at the rates and maturing on the dates set forth below, subject to the
payments and prepayments of principal set forth below:
<PAGE>
EXHIBIT A-2
[Form of Note for Money Market Loans]
PROMISSORY NOTE
April 21, 1995
New York, New York
FOR VALUE RECEIVED, THE PEP BOYS - MANNY, MOE & JACK, a Pennsylvania corporation
(the "Company"), hereby promises to pay to ____________________________ (the
"Bank"), for account of its respective Applicable Lending Offices provided for
by the Credit Agreement referred to below, at the principal office of The Chase
Manhattan Bank (National Association) at 1 Chase Manhattan Plaza, New York, New
York 10081, the aggregate unpaid principal amount of the Money Market Loans made
by the Bank to the Company under the Credit Agreement, in lawful money of the
United States of America and in immediately available funds, on the dates and in
the principal amounts provided in the Credit Agreement, and to pay interest on
the unpaid principal amount of each such Money Market Loan, at such office, in
like money and funds, for the period commencing on the date of such Money Market
Loan until such Money Market Loan shall be paid in full, at the rates per annum
and on the dates provided in the Credit Agreement. The date, amount, type,
interest rate and maturity date of each Money Market Loan made by the Bank to
the Company, and each payment made on account of the principal thereof, shall be
recorded by the Bank on its books and, prior to any transfer of this Note,
endorsed by the Bank on the schedule attached hereto or any continuation
thereof.
This Note is one of the Notes referred to in the Amended and Restated Credit
Agreement (as modified and supplemented and in effect from time to time, the
"Credit Agreement") dated as of April 21, 1995 between the Company, the
Guarantors named therein, the banks named therein (including the Bank) and The
Chase Manhattan Bank (National Association), as Agent, and evidences Money
Market Loans made by the Bank thereunder. Capitalized terms used in this Note
have the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of this Note
upon the occurrence of certain events and for prepayments of Loans upon the
terms and conditions specified therein.
Except as permitted by Section 12.06(b) of the Credit Agreement, this Note may
not be assigned by the Bank to any other Person.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK.
THE PEP BOYS - MANNY, MOE & JACK
By___________________________________
Title:
<PAGE>
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described Credit Agreement to
the Company, on the dates, in the principal amounts, of the types, bearing
interest at the rates and maturing on the dates set forth below, subject to the
payments and prepayments of principal set forth below:
<PAGE>
Exhibit A
FOREIGN QUALIFICATIONS
The Pep Boys - Manny, Moe & Jack
Alabama Kentucky Ohio
Arkansas Louisiana Oklahoma
Colorado Maryland Pennsylvania
Delaware Massachusetts Rhode Island
District of Columbia Missouri South Carolina
Florida New Jersey Tennessee
Georgia New York Texas
Indiana North Carolina Virginia
The Pep Boys - Manny, Moe & Jack of California
Arizona Kansas Utah
California Nevada New Mexico
Illinois Texas
The Pep Boys - Manny, Moe & Jack of Delaware, Inc.
[to come based on asset transfers]
<PAGE>
Exhibit B
THE PEP BOYS - MANNY, MOE & JACK
Secretary's Certificate
I, Frederick A. Stampone, Secretary of The Pep Boys - Manny, Moe & Jack, a
Pennsylvania corporation (the "Company"), DO HEREBY CERTIFY that set forth below
is a complete and accurate list of the jurisdictions in which the property
owned, leased or operated or the business conducted by the Company or any of its
subsidiaries is material to the Company and its subsidiaries, taken as a whole:
The Pep Boys - Manny, Moe & Jack
Alabama Kentucky Ohio
Arkansas Louisiana Oklahoma
Colorado Maryland Pennsylvania
Delaware Massachusetts Rhode Island
District of Columbia Missouri South Carolina
Florida New Jersey Tennessee
Georgia New York Texas
Indiana North Carolina Virginia
The Pep Boys - Manny, Moe & Jack of California
Arizona Kansas Utah
California Nevada New Mexico
Illinois Texas
The Pep Boys - Manny, Moe & Jack of Delaware, Inc.
[to come based on asset transfers]
IN WITNESS WHEREOF, I have executed this certificate as of this ___ day of
April, 1995.
THE PEP BOYS - MANNY, MOE & JACK
BY:
Name: Frederick A. Stampone
Title: Secretary
<PAGE>
EXHIBIT C
[Form of Money Market Quote Request]
[Date]
To: The Chase Manhattan Bank, N.A.,
as Agent
From: The Pep Boys - Manny, Moe & Jack
Re: Money Market Quote Request
Pursuant to Section 2.03 of the Amended and Restated Credit Agreement (the
"Credit Agreement") dated as of April 21, 1995 between The Pep Boys - Manny, Moe
& Jack, the Guarantors named therein, the Banks named therein and The Chase
Manhattan Bank, N.A., Agent, we hereby give notice that we request Money Market
Quotes for the following proposed Money Market Borrowing(s):
Borrowing Quotation Interest
Date Date 1/ Amount 2/ Type 3/ Period 4/
Terms used herein have the meanings assigned to them in the Credit Agreement.
The Pep Boys - Manny, Moe & Jack
By______________________________
Title:
- --------------
*All numbered footnotes appear on the last page of this
Exhibit.______________
1/ For use if a Money Market Rate in a Set Rate Auction is requested to be
submitted before the Borrowing Date.
2/ Each amount must be $10,000,000 or a larger multiple of $1,000,000.
3/ Insert either "Margin" (in the case of LIBOR Market Loans) or "Rate" (in the
case of Set Rate Loans).
4/ 1, 2, 3 or 6 months, in the case of a LIBOR Market Loan or, in the case of a
Set Rate Loan, a period of up to 180 days after the making of such Set Rate Loan
and ending on a Business Day.
<PAGE>
EXHIBIT D
[Form of Money Market Quote]
The Chase Manhattan Bank, N.A., as Agent
90 William Street -- 16th Floor
New York, New York 10081
Attention:
Re: Money Market Quote to
The Pep Boys - Manny, Moe & Jack (the "Borrower")
This Money Market Quote is given in accordance with Section 2.03(c) of the
Amended and Restated Credit Agreement (the "Credit Agreement") dated as of April
21, 1995 between The Pep Boys - Manny, Moe & Jack, the Guarantors named therein,
the Banks named therein and The Chase Manhattan Bank, N.A., as Agent. Terms
defined in the Credit Agreement are used herein as defined therein.
In response to the Borrower's invitation dated _________, 19__, we hereby make
the following Money Market Quote(s) on the following terms: 1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. We hereby offer to make Money Market Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
Borrowing Quotation Interest
Date Date 1/ Amount 2/ Type 3/ Period 4/ Rate 5/
- ---------------
*All number footnotes appear on the last page of this Exhibit.
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit Agreement,
irrevocably obligate(s) us to make the Money Market Loan(s) for which any
offer(s) [is] [are] accepted, in whole or in part (subject to the third sentence
of Section 2.03(e) of the Credit Agreement).
Very truly yours,
[Name of Bank]
Dated: By:_____________________________
Authorized Officer
- -----------------
1/ As specified in the related Money Market Quote Request
2/ The principal amount bid for each Interest Period may not exceed the
principal amount requested. Bids must be made for at least $5,000,000 or a
larger multiple of $1,000,000.
3/ Indicate "Margin" (in the case of LIBOR Market Loans) or "Rate" (in the case
of Set Rate Loans).
4/ 1, 2, 3 or 6 months in the case of a LIBOR Market Loan or, in the case of a
Set Rate Loan, a period of up to 180 days after the making of such Set Rate Loan
and ending on a Business Day, as specified in the related Money Market Quote
Request.
5/ For a LIBOR Market Loan, specify margin over or under the London interbank
offered rate determined for the applicable Interest Period. Specify percentage
(rounded to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS".
For a Set Rate Loan, specify rate of interest per annum (rounded to the nearest
1/10,000 of 1%).
<PAGE>
EXHIBIT E
[Form of Request for Extension of Commitment Termination Date]
[Date]
To the Banks Party to the credit
Agreement Referred to Below
We hereby request an extension of the Commitment Termination Date
currently specified in the definition of "Commitment Termination Date" in
Section 1.01 of the Amended and Restated Credit Agreement dated as of April 21,
1995 (as amended) between the undersigned, the Guarantors party thereto (the
"Guarantors"), the banks party thereto (the "Banks") and The Chase Manhattan
Bank (National Association) to April 21, 199_ (the "New Commitment Termination
Date"). Upon the Agent's receipt of a counterpart of this letter by each Bank
and each Guarantor indicating its consent to this request, the "Commitment
Termination Date" specified in the definition thereof in Section 1.01 of such
Credit Agreement shall be the New Commitment Termination Date.
THE PEP BOYS - MANNY, MOE & JACK
By______________________________
Title:
[GUARANTOR A]
By______________________________
Title:
Consented:
[BANK A]
By_________________________________
Title:
THE CHASE MANHATTAN BANK, as Agent
By__________________________________
Title:
<PAGE>
EXHIBIT F
[Form of Confidentiality Agreement]
[Date]
CONFIDENTIALITY AGREEMENT
[Insert Name and
Address of Prospective
Participant or Assignee]
Re: Amended and Restated Credit Agreement dated as of April 21, 1995
between The Pep Boys - Manny, Moe & Jack, the Guarantors party thereto, the
banks party thereto, and The Chase Manhattan Bank (National Association), as
Agent.
Dear__________:
As a Bank party to the above-referenced Amended and Restated Credit
Agreement (the "Credit Agreement"), we have agreed with The Pep Boys -
Manny, Moe & Jack (the "Company") pursuant to Section 12.11 of the Credit
Agreement to use reasonable precautions to keep confidential, except as
otherwise provided therein, all non-public information identified by the Company
as being confidential at the time same is delivered to us pursuant to the Credit
Agreement.
As provided in said Section 12.11, we are permitted to provide you,
as a prospective [holder of a participation in the Loans (as defined in the
Credit Agreement)] [assignee Bank], with certain of such non-public information
subject to the execution and delivery by you, prior to receiving such non-public
information, of a Confidentiality Agreement in this form. Such information will
not be made available to you until your execution and return to us of this
Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you agree (on behalf
of yourself and each of your affiliates, directors, officers, employees and
representatives) that (A) such information will not be used by you except in
connection with the proposed [participation] [assignment] mentioned above and
(B) you shall use reasonable precautions, in accordance with your customary
procedures for handling confidential information and in accordance with safe and
sound banking practices, to keep such information confidential, provided that
nothing herein shall limit the disclosure of any such information (i) to the
extent required by statute, rule, regulation or judicial process, (ii) to your
counsel or to counsel for any of the Banks or the Agent, (iii) to bank
examiners, auditors or accountants, (iv) to the Agent or any other Bank, (v) in
connection with any litigation to which you or any one or more of the Banks is a
party; provided, further, that in no event shall you be obligated to return any
materials furnished to you pursuant to this Confidentiality Agreement.
Would you please indicate your agreement to the foregoing by signing
at the place provided below the enclosed copy of this Confidentiality Agreement.
Very truly yours,
[Insert Name of Bank]
By:________________________
Title:
The foregoing is agreed to as of the date of this letter.
[Insert name of prospective
participant or assignee]
By:_______________________
<PAGE>
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of March 18, 1998 to the AMENDED AND RESTATED
CREDIT AGREEMENT dated as of April 2, 1995 among THE PEP BOYS - MANNY, MOE &
JACK., the Banks signatory thereto and THE CHASE MANHATTAN BANK (successor in
interest to The Chase Manhattan Bank (National Association)), as Agent.
W I T N E S S E T H:
WHEREAS, the Company, the Banks and the Agent are parties to the Amended
and Restated Credit Agreement referred to above (as heretofore amended, the
"Credit Agreement") pursuant to which the Banks have agreed to extend credit to
the Company as provided therein;
WHEREAS, the Company has requested the Banks and the Agent to amend the
Credit Agreement as herein after set forth;
WHEREAS, the Majority Banks and the Agent are agreeable to such
amendment on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein it is hereby agreed as follows:
1. Definitions.
All terms defined in the Credit Agreement shall be used herein as
defined in the Credit Agreement unless otherwise defined herein or the context
otherwise requires.
2. Amendments to the Agreement.
(a) Section 1.01 of the Credit Agreement is hereby amended by restating
the definition of "Debt to Capital Ratio" in its entirety to read as follows:
"`Debt to Capital Ratio' shall mean, at any time, the
ratio of (a) all Indebtedness (whether senior or subordinated) of
the Company described in clause (a) of the definition of
"Indebtedness" at such time to (b) all Indebtedness (whether senior
or subordinated) of the Company described in clause (a) of the
definition of "Indebtedness," plus Tangible Net Worth, at such
time."
(b) Section 1.01 of the Credit Agreement is hereby further amended by
deleting the definition of "Senior Funded Debt" in its entirety.
(c) Section 9.07 of the Agreement is hereby amended by restating it in
its entirety to read as follows:
"9.07 Leverage Ratio. The Company will not at any time
permit the Leverage Ratio to exceed (a) 1.75 to 1.0 for the period
from January 31, 1998 through August 1, 1998, (b) 1.65 to 1.0 for
the period from August 2, 1998 through January 30, 1999, and (c) 1.6
to 1.0 thereafter."
<PAGE>
(d) Section 9.10 of the Agreement is hereby amended by restating it in
its entirety to read as follows:
"9.10 NOP/Interest Charges Ratio. The Company will not at
any time permit the NOP/Interest Charges Ratio to be less than (a)
1.75 to 1.0 for the period from January 31, 1998 through January 30,
1999 and (b) 2.5 to 1.0 thereafter."
(e) The Pricing Schedule is hereby amended in its entirety to read as
follows:
"PRICING SCHEDULE"
Each of the "Applicable Margin," "Commitment Fee Rate" and "Facility Fee Rate"
means, for any day, the per annum rates set forth below in the column under such
term and in the row corresponding to the 'Debt to Capital Ratio' that exists on
such day.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Debt to Capital Applicable Margin
Ratio for Eurodollar Loans Commitment Fee Rate Facility Fee Rate
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
< 0.30 0.125% 0.000% 0.125%
- ------------------------------------------------------------------------------------------------------
> 0.30 but < = 0.35 0.225% 0.000% 0.125%
- ------------------------------------------------------------------------------------------------------
> 0.35 but < = 0.40 0.325% 0.025% 0.125%
- ------------------------------------------------------------------------------------------------------
> 0.40 but < = 0.50 0.400% 0.050% 0.150%
- ------------------------------------------------------------------------------------------------------
> 0.50 0.625% 0.050% 0.200%"
- ------------------------------------------------------------------------------------------------------
</TABLE>
3. Representations and Warranties.
In order to induce the Majority Banks and the Agent to make this
Amendment, the Company hereby represents that:
(a) the execution and delivery of this Amendment and the performance of
the Company thereunder and under the Credit Agreement as amended hereby (i) have
been duly authorized by all necessary corporate action, will not violate any
provision of law, or the Company's charter or by-laws, or result in the breach
of or constitute a default, or require a consent, under any indenture or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or their respective
property may be bound or affected, and (ii) each of this Amendment and the
Credit Agreement as amended hereby constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms;
2
<PAGE>
(b) the representations and warranties in Section 8 of the Credit
Agreement are true and correct as of the Closing Date (hereinafter defined) as
if they were being made on such date; and
(c) no Event of Default or event which with notice or lapse of time, or
both, would constitute an Event of Default, has occurred and is continuing on
the Closing Date.
4. Conditions of Effectiveness.
This Amendment shall be effective (as of the date hereof) on the date
when all of the following conditions shall have been met, and such date shall be
the "Closing Date":
(a) Counterparts of this Amendment shall have been executed by the
Company, the Banks and the Agent;
(b) The Agent shall have received a certificate dated the Closing Date
specifying the names and titles and including specimen signatures of the
officers authorized to sign this Amendment.
5. Miscellaneous.
(a) Except as specifically amended hereby, all the provisions of the
Credit Agreement shall remain unamended and in full force and effect, and the
term "Credit Agreement", and words of like import shall be deemed to refer to
the Credit Agreement as amended by this Amendment unless otherwise provided
herein or the context otherwise requires. Nothing herein shall affect the
obligations of the Company under the Credit Agreement with respect to any period
prior to the effective date hereof.
(b) This Amendment shall be governed by and construed and interpreted in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
THE PEP BOYS - MANNY, MOE & JACK
By /s/ George Babich
-------------------------------------------
Title: Vice President-Finance and Treasurer
THE CHASE MANHATTAN BANK,
as Agent and a Bank
By /s/ [ILLEGIBLE]
--------------------------------------------
Title: Vice President
THE PEP BOYS - MANNY, MOE & JACK
OF CALIFORNIA, as a Guarantor
By /s/ George Babich
--------------------------------------------
Title: Vice President-Finance and Treasurer
3
<PAGE>
PBY CORPORATION, as a Guarantor
By /s/ George Babich
--------------------------------------------
Title: Vice President-Finance and Treasurer
THE PEP BOYS - MANNY, MOE & JACK
OF DELAWARE, INC., as a Guarantor
By /s/ George Babich
--------------------------------------------
Title: Vice President-Finance and Treasurer
THE PEP BOYS - MANNY, MOE & JACK OF
PUERTO RICO, INC., as a Guarantor
By /s/ George Babich
--------------------------------------------
Title: Vice President-Finance and Treasurer
COLCHESTER INSURANCE COMPANY,
as a Guarantor
By [N/A]
---------------------------------------------
Title:
CARRUS SUPPLY CORPORATION,
as a Guarantor
By /s/ George Babich
--------------------------------------------
Title: Vice President-Finance and Treasurer
4
<PAGE>
CORESTATES BANK
By /s/ Randal Southern
-------------------------------
Title: Vice President
BANK OF AMERICA NT&SA
By /s/ J. Pritchard
-------------------------------
Title: Vice President
NATIONSBANK
By /s/ [ILLEGIBLE]
-------------------------------
Title: Senior Vice President
SUN TRUST BANKS INC..
By /s/ [ILLEGIBLE]
-------------------------------
Title: Group Vice President
FIRST UNION NATIONAL BANK
By /s/ Carl Goelz
-------------------------------
Title: Vice President
PNC BANK.
By /s/ [ILLEGIBLE]
-------------------------------
Title: Vice President
5
<PAGE>
FLEET BANK
By /s/ Thomas J. Bullard
--------------------------------
Title: Vice President
UNION BANK of California
By /s/ [ILLEGIBLE]
--------------------------------
Title: Vice President
CREDIT SUISSE FIRST BOSTON
By /s/ Jay Chall
--------------------------------
Title: Director
6
<PAGE>
AMENDMENT NO. 2
AMENDMENT NO. 2 dated as of July 31, 1998 to the AMENDED AND RESTATED
CREDIT AGREEMENT dated as of April 21, 1995 among THE PEP BOYS - MANNY, MOE &
JACK, the Banks signatory thereto and THE CHASE MANHATTAN BANK, as Agent.
W I T N E S S E T H:
WHEREAS, the Company, the Banks and the Agent are parties to the Amended
and Restated Credit Agreement referred to above (as heretofore amended, the
"Credit Agreement") pursuant to which the Banks have agreed to extend credit to
the Company as provided therein;
WHEREAS, the Company has requested the Banks and the Agent to amend the
Credit Agreement as herein after set forth;
WHEREAS, the Majority Banks and the Agent are agreeable to such amendment
on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein it is hereby agreed as follows:
1. Definitions.
All terms defined in the Credit Agreement shall be used herein as defined
in the Credit Agreement unless otherwise defined herein or the context otherwise
requires.
2. Amendments to the Agreement.
(a) Section 1.01 of the Credit Agreement is hereby amended by restating the
definition of "NOP/Interest Charges Ratio" in its entirety to read as follows:
"'NOP/Interest Charges Ratio' shall mean, (a) as at the end of
each fiscal quarter occurring during fiscal year ending January 30,
1999 of the Company, the ratio of (i) Net Operating Profit for the
period of such fiscal quarter and including any 1999 fiscal quarters
prior thereto to (ii) Interest Expense for such period; and (b) as at
any date of determination after fiscal year ending January 30, 1999,
the ratio of (i) Net Operating Profit for the period of four
consecutive fiscal quarters of the Company ending on or most recently
ended prior to such date of determination to (ii) Interest Expense for
such period."
(b) Section 9.10 of the Agreement is hereby amended by restating it in
its entirety to read as follows:
"9.10 NOP/Interest Charges Ratio. The Company will
not at any time permit the NOP/Interest Charges Ratio to be
less than 2.25 to 1.0."
1
<PAGE>
(c) The first paragraph of the Pricing Schedule is hereby amended in its
entirety to read as follows:
"Each of the 'Applicable Margin,' 'Commitment Fee Rate' and 'Facility
Fee Rate' means, for any day, the per annum rates set forth below in
the column under such term and in the row corresponding to the 'Debt
to Capital Ratio' that exists on such day; provided that for each day
after the first quarter of the Company's fiscal year ending January
30, 1999 on which the NOP/Interest Charges Ratio is less than 2.5 to
1, the Facility Fee Rate shall increase by 0.01%."
3. Representations and Warranties.
In order to induce the Majority Banks and the Agents to make this
Amendment, the Company hereby represents that:
(a) the execution and delivery of this Amendment and the performance of the
Company thereunder and under the Credit Agreement as amended hereby (i) have
been duly authorized by all necessary corporate action, will not violate any
provision of law, or the Company's charter or by-laws, or result in the breach
of or constitute a default, or require a consent, under any indenture or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or their respective
property may be bound or affected, and (ii) each of this Amendment and the
Credit Agreement as amended hereby constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms;
(b) the representations and warranties in Section 8 of the Credit Agreement
are true and correct as of the Closing Date (hereinafter defined) as if they
were being made on such date; and
(c) no Event of Default or event which with notice or lapse of time, or
both, would constitute an Event of Default, has occurred and is continuing on
the Closing Date.
2
<PAGE>
4. Conditions of Effectiveness.
This Amendment shall be effective (as of the date hereof) on the date when
all of the following conditions shall have been met, and such date shall be the
"Closing Date":
(a) Counterparts of this Amendment shall have been executed by the Company,
the Banks and the Agent;
(b) The Agent shall have received a certificate dated the Closing Date
specifying the names and titles and including specimen signatures of the
officers authorized to sign this Amendment.
(c) The Borrower shall have paid an amendment fee to the Agent for the
account of each Bank equal to 0.05% of the amount of such Bank's Commitment.
5. Miscellaneous.
(a) Except as specifically amended hereby, all the provisions of the Credit
Agreement shall remain unamended and in full force and effect, and the term
"Credit Agreement", and words of like import shall be deemed to refer to the
Credit Agreement as amended by this Amendment unless otherwise provided herein
or the context otherwise requires. Nothing herein shall affect the obligations
of the Company under the Credit Agreement with respect to any period prior to
the effective date hereof.
(b) This Amendment shall be governed by and construed and interpreted in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
3
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK
By /s/ George Babich
--------------------------------------------
Title: Vice President-Finance and Treasurer
THE CHASE MANHATTAN BANK,
as Agent and a Bank
By /s/ [ILLEGIBLE]
--------------------------------------------
Title: Vice President
PBY CORPORATION, as a Guarantor
By /s/ George Babich
--------------------------------------------
Title: Vice President-Finance and Treasurer
CARRUS SUPPLY CORPORATION,
as a Guarantor
By /s/ George Babich
--------------------------------------------
Title: Vice President-Finance and Treasurer
4
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK
OF CALIFORNIA, as a Guarantor
By /s/ George Babich
--------------------------------------------
Title: Vice President-Finance and Treasurer
THE PEP BOYS - MANNY, MOE & JACK
OF DELAWARE, INC., as a Guarantor
By /s/ George Babich
--------------------------------------------
Title: Vice President-Finance and Treasurer
THE PEP BOYS - MANNY, MOE & JACK
OF PUERTO RICO, INC., as a Guarantor
By /s/ George Babich
--------------------------------------------
Title: Vice President-Finance and Treasurer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By /s/ J. Pritchard
--------------------------------------------
Title: Vice President
5
<PAGE>
CREDIT SUISSE FIRST BOSTON
By /s/ Jay Chall
-------------------------------
Title: Director
By /s/ James Lee
-------------------------------
Title: Assistant Vice President
FIRST UNION NATIONAL BANK
By /s/ Rendel Southern
-------------------------------
Title: Vice President
[Fleet Bank]
By /s/ Christopher Kampe
-------------------------------
Title: Assistant Vice President
NATIONSBANK, N.A. (CAROLINAS)
By /s/ Timothy Sparros
-------------------------------
Title: Senior Vice President
6
<PAGE>
PNC BANK, N.A.
By /s/ [ILLEGIBLE]
-------------------------------
Title: Officer
SUNTRUST BANK, ATLANTA
By /s/ [ILLEGIBLE]
-------------------------------
Title: Group Vice President
By /s/ Karen Copeland
-------------------------------
Title: Assistant Vice President
UNION BANK OF CALIFORNIA, N.A.
By /s/ [ILLEGIBLE]
-------------------------------
Title: Vice President
7
<PAGE>
AMENDMENT NO. 3
AMENDMENT NO. 3 dated as of October 31, 1998 to the AMENDED AND RESTATED
CREDIT AGREEMENT dated as of April 21, 1995 among THE PEP BOYS - MANNY, MOE &
JACK., the Banks signatory thereto and THE CHASE MANHATTAN BANK, as Agent.
W I T N E S S E T H:
WHEREAS, the Company, the Banks and the Agent are parties to the Amended
and Restated Credit Agreement referred to above (as heretofore amended, the
"Credit Agreement") pursuant to which the Banks have agreed to extend credit to
the Company as provided therein;
WHEREAS, pursuant to the Consent and Waiver dated as of October 5, 1998
(the "Consent") to the Credit Agreement, the Majority Banks consented to the
sale of one hundred Pep Boys Express stores and the closing of nine other such
stores;
WHEREAS, the Company has requested the Banks and the Agent to amend the
Credit Agreement as herein after set forth;
WHEREAS, the Majority Banks and the Agent are agreeable to such amendment
on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein it is hereby agreed as follows:
1. Definitions.
All terms defined in the Credit Agreement shall be used herein as defined
in the Credit Agreement unless otherwise defined herein or the context otherwise
requires.
2. Amendments to the Agreement.
(a) Section 1.01 of the Credit Agreement is hereby amended by restating the
definition of "Net Operating Profits" to read as follows:
"'Net Operating Profit' shall mean, for any period for the
Company 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; provided
that charges and expenses incurred in connection with the sale of one
hundred Pep Boys Express stores and the closing nine other such
stores, as contemplated by the Consent, which occur in the third and
fourth quarters of the fiscal year ending January 31, 1999 shall be
excluded from the calculation of Net Operating Profit. Such excluded
amounts shall not exceed $29,742,000."
(b) Section 1.01 of the Credit Agreement is hereby further amended by
adding in alphabetical order therein a new definition of the term "Consent" to
read as follows:
"'Consent' shall mean that certain Consent and Waiver dated as of
October 5, 1998 (the "Consent") to this Agreement, pursuant to which
the Majority Banks consented to the sale by the Company of one hundred
Pep Boys Express stores and the closing of nine other such stores."
1
<PAGE>
(c) Section 9.10 of the Agreement is hereby amended by restating it in its
entirety to read as follows:
"9.10 NOP/Interest Charges Ratio. The Company will not at any
time permit the NOP/Interest Charges Ratio to be less than: (a) for
the period from January 31, 1999 through May 1, 1999, 1.65 to 1.0; (b)
for the period from May 2, 1999 through July 31, 1999, 1.75 to 1.0;
(c) for the period from August 1, 1999 through October 30, 1999 2.0 to
1.0 and (d) at any time thereafter, 2.25 to 1.0."
(d) The Pricing Schedule is hereby amended in its entirety to read as
follows:
"PRICING SCHEDULE
Each of the 'Applicable Margin,' 'Commitment Fee Rate' and 'Facility Fee Rate'
means, for any day, the per annum rates set forth below in the column under such
term and in the row corresponding to the 'Debt to Capital Ratio' that exists on
such day; provided that until the Company maintains the NOP/Interest Charges
Ratio at 2.25 to 1.0 or greater, the 'Applicable Margin,' 'Commitment Fee Rate,'
and 'Facility Fee Rate' shall be no less than the per annum rate set forth below
in the column under such term and in the row corresponding to the 'Debt to
Capital Ratio' in the range of 0.45 to < 0.50.
Debt to Capital Applicable Margin for Commitment Fee Facility Fee Rate
Ratio Eurodollar Loans Rate
< 0.30 0.175% 0.000% 0.175%
> 0.30 but < or = 0.35 0.275% 0.000% 0.175%
> 0.35 but < or = 0.40 0.375% 0.025% 0.20 %
> 0.40 but < or = 0.45 0.40 % 0.05 % 0.20 %
> 0.45 but < or = 0.50 0.45 % 0.050% 0.25 %
> 0.50 0.625% 0.050% 0.30 %"
2
<PAGE>
3. Representations and Warranties.
In order to induce the Majority Banks and the Agent to make this Amendment,
the Company hereby represents that:
(a) the execution and delivery of this Amendment and the performance of the
Company thereunder and under the Credit Agreement as amended hereby (i) have
been duly authorized by all necessary corporate action, will not violate any
provision of law, or the Company's charter or by-laws, or result in the breach
of or constitute a default, or require a consent, under any indenture or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or their respective
property may be bound or affected, and (ii) each of this Amendment and the
Credit Agreement as amended hereby constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms;
(b) the representations and warranties in Section 8 of the Credit Agreement
are true and correct as of the Closing Date (hereinafter defined) as if they
were being made on such date; and
(c) no Event of Default or event which with notice or lapse of time, or
both, would constitute an Event of Default, has occurred and is continuing on
the Closing Date.
4. Conditions of Effectiveness.
This Amendment shall be effective (as of the date hereof) on the date when
all of the following conditions shall have been met, and such date shall be the
"Closing Date":
(a) Counterparts of this Amendment shall have been executed by the Company,
the Banks and the Agent;
(b) The Agent shall have received a certificate dated the Closing Date
specifying the names and titles and including specimen signatures of the
officers authorized to sign this Amendment.
(c) The Company shall have paid an amendment fee to the Agent for the
account of each Bank equal to 0.125% of the amount of such Bank's Commitment.
5. Miscellaneous.
(a) Except as specifically amended hereby, all the provisions of the Credit
Agreement shall remain unamended and in full force and effect, and the term
"Credit Agreement", and words of like import shall be deemed to refer to the
Credit Agreement as amended by this Amendment unless otherwise provided herein
or the context otherwise requires. Nothing herein shall affect the obligations
of the Company under the Credit Agreement with respect to any period prior to
the effective date hereof.
(b) This Amendment shall be governed by and construed and interpreted in
accordance with the laws of the State of New York.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
THE PEP BOYS - MANNY, MOE & JACK
By /s/ Michael J. Holden
---------------------------------
Title: Executive Vice President &
Chief Financial Officer
THE CHASE MANHATTAN BANK,
as Agent and a Bank
By /s/ Lee P. Brennan
-------------------------------
Title: Vice President
THE PEP BOYS - MANNY, MOE & JACK
OF CALIFORNIA, as a Guarantor
By /s/ Michael J. Holden
---------------------------------
Title: Executive Vice President &
Chief Financial Officer
PBY CORPORATION, as a Guarantor
By /s/ Michael J. Holden
---------------------------------
Title: Executive Vice President &
Chief Financial Officer
THE PEP BOYS - MANNY, MOE & JACK
OF DELAWARE, INC., as a Guarantor
By /s/ Michael J. Holden
---------------------------------
Title: Executive Vice President &
Chief Financial Officer
THE PEP BOYS - MANNY, MOE & JACK
OF PUERTO RICO, INC., as a Guarantor
By /s/ Michael J. Holden
---------------------------------
Title: Executive Vice President &
Chief Financial Officer
4
<PAGE>
CARRUS SUPPLY CORPORATION,
as a Guarantor
By /s/ Michael J. Holden
---------------------------------
Title: Executive Vice President &
Chief Financial Officer
BANK OF AMERICA NT&SA
By________________________________
Title:
SUN TRUST BANKS INC..
By /s/ David Wisdom
----------------------------------
Title: Group Vice President
SUN TRUST BANKS INC..
By /s/ Laura G. Harrison
----------------------------------
Title: Assistant Vice President
FIRST UNION NATIONAL BANK
By /s/ Randal D. Southern
----------------------------------
Title: Vice President
PNC BANK.
By /s/ Brennan T. Danile
----------------------------------
Title: Corporate Banking Officer
FLEET BANK
By /s/ Christopher J. Kampe
----------------------------------
Title: Vice President
UNION BANK of CA
By /s/ Cecilia M. Valente
----------------------------------
Title: Senior Vice President
CREDIT SUISSE FIRST BOSTON
By /s/ Robert N. Finney
----------------------------------
Title: Managing Director
CREDIT SUISSE FIRST BOSTON
By /s/ James M. Lee
----------------------------------
Title: Assistant Vice President
5
<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 January 31, 1998 and February 1, 1997,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the three years in the period ended January 31, 1998. 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 these 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 January 31, 1998 and February 1, 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 1998 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.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 19, 1998
25
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
January 31, February 1,
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 10,811 $ 2,589
Accounts receivable, less allowance for
uncollectible accounts of $265 and $252 13,070 7,653
Merchandise inventories 655,363 520,082
Prepaid expenses 27,449 33,042
Deferred income taxes 23,215 16,982
Other 40,308 24,570
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 770,216 604,918
- -----------------------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost:
Land 296,721 278,345
Building and improvements 920,522 794,244
Furniture, fixtures and equipment 542,256 448,425
Construction in progress 21,432 22,528
- -----------------------------------------------------------------------------------------------------------------------------------
1,780,931 1,543,542
Less accumulated depreciation and amortization 403,182 353,808
- -----------------------------------------------------------------------------------------------------------------------------------
Total Property and Equipment 1,377,749 1,189,734
- -----------------------------------------------------------------------------------------------------------------------------------
Other 13,395 23,713
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,161,360 $ 1,818,365
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 409,053 $ 337,536
Accrued expenses 162,666 133,557
Short-term borrowings 47,000 63,000
Current maturities of long-term debt 157 134
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 618,876 534,227
- -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt, less current maturities 402,021 217,178
Deferred Income Taxes 73,208 50,382
Convertible Subordinated Notes 86,250 86,250
Zero Coupon Convertible Subordinated Notes 158,370 152,237
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $1 per share: Authorized 500,000,000 shares;
Issued and outstanding 63,657,728 and 63,119,491 63,658 63,119
Additional paid-in capital 171,741 162,660
Retained earnings 647,505 612,581
- -----------------------------------------------------------------------------------------------------------------------------------
882,904 838,360
Less cost of shares in benefits trust - 2,232,500 shares, at cost 60,269 60,269
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 822,635 778,091
- -----------------------------------------------------------------------------------------------------------------------------------
$ 2,161,360 $ 1,818,365
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
January 31, February 1, February 3,
Year ended 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Merchandise Sales $1,720,670 $ 1,554,757 $ 1,355,008
Service Revenue 335,850 273,782 239,332
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenues 2,056,520 1,828,539 1,594,340
- ------------------------------------------------------------------------------------------------------------------------------------
Costs of Merchandise Sales 1,246,431 1,070,263 943,875
Costs of Service Revenue 269,769 220,757 194,942
- ------------------------------------------------------------------------------------------------------------------------------------
Total Costs of Revenues 1,516,200 1,291,020 1,138,817
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit from Merchandise Sales 474,239 484,494 411,133
Gross Profit from Service Revenue 66,081 53,025 44,390
- ------------------------------------------------------------------------------------------------------------------------------------
Total Gross Profit 540,320 537,519 455,523
- ------------------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative
Expenses 430,517 350,419 296,089
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Profit 109,803 187,100 159,434
Nonoperating Income 5,309 2,435 2,090
Interest Expense 39,656 30,306 32,072
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 75,456 159,229 129,452
Income Taxes 25,845 58,405 47,958
- ------------------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 49,611 $ 100,824 $ 81,494
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Share $ .81 $ 1.67 $ 1.37
Diluted Earnings per Share $ .80 $ 1.62 $ 1.34
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
Additional Total
Common Stock Paid-in Retained Benefits Stockholders'
Shares Amount Capital Earnings Trust Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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 ($.21 per share) (12,686) (12,686)
Exercise of stock options
and related tax benefits 1,002,333 1,002 22,977 23,979
Dividend reinvestment plan 33,137 33 1,025 1,058
Acquisitions and transfers of 150,500
shares to employees' savings plan (544) (544)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, February 1, 1997 63,119,491 63,119 162,660 612,581 (60,269) 778,091
Net earnings 49,611 49,611
Cash dividends ($.24 per share) (14,687) (14,687)
Exercise of stock options
and related tax benefits 491,039 492 6,850 7,342
Minimum pension liability adjustment,
net of tax 1,366 1,366
Dividend reinvestment plan 47,198 47 1,221 1,268
Acquisitions and transfers of 190,000
shares to employees' savings plan (356) (356)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998 63,657,728 $63,658 $171,741 $647,505 $(60,269) $822,635
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands)
January 31, February 1, February 3,
Year ended 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 49,611 $ 100,824 $ 81,494
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Depreciation and amortization 82,862 65,757 53,456
Accretion of bond discount 6,133 2,238 -
Increase in deferred income taxes 16,593 8,838 2,034
Loss (gain) from sales of assets 12,278 (34) 201
Changes in operating assets and liabilities:
Increase in accounts receivable, prepaid expenses
and other (16,875) (44,950) (2,445)
Increase in merchandise inventories (135,281) (102,230) (51,009)
Increase in accounts payable 71,517 115,012 122,360
Increase in accrued expenses 30,119 37,138 25,228
- ------------------------------------------------------------------------------------------------------------------------------------
Total Adjustments 67,346 81,769 149,825
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 116,957 182,593 231,319
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Capital expenditures (284,084) (245,246) (205,913)
Proceeds from sales of assets 929 3,841 114
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (283,155) (241,405) (205,799)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net borrowings (payments) under line of credit
agreements 19,000 (1,500) (102,700)
Borrowings from life insurance policies 12,406 - -
Reduction of long-term debt (134) (107,187) (19,807)
Dividends paid (14,687) (12,686) (11,339)
Net proceeds from issuance of notes 149,225 146,250 98,992
Proceeds from exercise of stock options 7,342 23,979 8,384
Proceeds from dividend reinvestment plan 1,268 1,058 689
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 174,420 49,914 (25,781)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 8,222 (8,898) (261)
Cash at Beginning of Year 2,589 11,487 11,748
- ------------------------------------------------------------------------------------------------------------------------------------
Cash at End of Year $ 10,811 $ 2,589 $ 11,487
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Income taxes paid $ 29,009 $ 56,336 $ 40,251
Interest paid, net of amounts capitalized 38,622 34,081 30,155
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended January 31, 1998, February 1, 1997 and February 3, 1996 (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 711 stores at January 31, 1998. 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 1997, 1996 and 1995 were comprised of 52 weeks, 52
weeks and 53 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
$870 and $3,300 higher at January 31, 1998 and February 1, 1997, 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 $1,861, $1,575 and $1,407 in fiscal years 1997, 1996 and 1995, 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.
<PAGE>
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 Statement of Financial Accounting Standards (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. The Company nets cooperative advertising
reimbursements against costs incurred. Net advertising expense for fiscal years
1997, 1996 and 1995 was $0, $324 and $973, respectively. No advertising costs
were recorded as an asset as of January 31, 1998.
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.
30
<PAGE>
ACCOUNTING FOR STOCK-BASED COMPENSATION The Company adopted the disclosure-only
provisions of 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.
REPORTING COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income." This
statement, which establishes standards for reporting and disclosure of
comprehensive income, is effective for interim and annual periods beginning
after December 15, 1997, although earlier adoption is permitted. As this
statement only requires additional disclosures in the Company's consolidated
financial statements, its adoption will not have any impact on the Company's
consolidated financial position or results of operations. The Company will adopt
SFAS No. 130 in fiscal 1998.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION In June
1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." This statement, which establishes standards for the
reporting of information about operating segments and requires the reporting of
selected information about operating segments in interim financial statements,
is effective for fiscal years beginning after December 15, 1997, although
earlier application is permitted. If applicable, this statement would only
require additional disclosures in the Company's consolidated financial
statements and as such, its adoption will not have any impact on the Company's
consolidated financial position or results of operations. The Company expects to
adopt SFAS No. 131 in fiscal 1998.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement, which established
standards for the reporting of information about pensions and other
postretirement benefits, is effective for periods beginning after December 15,
1997, although earlier adoption is permitted. The Company does not expect
adoption of this statement to result in significant changes to its presentation
of pension and other postretirement benefit information. The Company will adopt
SFAS No. 132 in fiscal 1998.
RECLASSIFICATIONS Certain reclassifications have been made to the prior years'
consolidated financial statements to conform to the current year's presentation.
31
<PAGE>
NOTE B - DEBT
SHORT-TERM BORROWINGS The Company had short-term borrowings of $47,000 at
January 31, 1998 and $63,000 at February 1, 1997. The Company had short-term
lines of credit with several banks totaling $159,000 at January 31, 1998 and
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 5.9% at January 31, 1998 and 5.8% at February 1, 1997. The average and
maximum month end balances on these borrowings were $111,014 and $143,150 during
fiscal 1997 and $98,696 and $154,200 during fiscal 1996.
<TABLE>
<CAPTION>
LONG-TERM DEBT
- -----------------------------------------------------------------------------------------------------------
Jan. 31, Feb. 1,
1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Medium-term notes, 6.4% to 6.7%, due
November 2004 through September 2007 $150,000 $ -
7% notes due June 2005 100,000 100,000
Revolving credit agreement (a) 75,000 40,000
6 5/8% notes due May 2003 75,000 75,000
Mortgage notes payable, 5.8% to 8% (b) 2,178 2,312
- -----------------------------------------------------------------------------------------------------------
402,178 217,312
Less current maturities 157 134
- -----------------------------------------------------------------------------------------------------------
Total long-term debt $402,021 $217,178
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) 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, 2002. 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 the banks fails to agree to
this extension, the Company has the right to replace that 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 5.9% at January 31, 1998 and 5.7% at
February 1, 1997.
(b) The weighted average interest rate on the mortgage notes payable was 6.9%
at January 31, 1998 and February 1, 1997. These notes, which mature at
various times through August 2016, are collateralized by land and building
with an aggregate carrying value of approximately $7,695 at January 31,
1998.
32
<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 1997 and 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 $57,649 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 January 31, 1998.
The annual maturities of all long-term debt for the next five years are
$157 in 1998, $86,420 in 1999, $183 in 2000, $197 in 2001 and $75,111 in 2002.
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 $23,443 at January 31, 1998.
In February 1998, the Company established a Medium-Term Note program
which permits the Company to issue up to $200,000 of Medium-Term Notes. Under
this program the Company has sold $100,000 principal amount of senior notes,
ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and March
2006. The net proceeds of $99,429 were used for working capital, the repayment
of debt and for general corporate purposes.
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: 1998 - $43,015; 1999 - $41,967; 2000 - $41,642; 2001 -
$41,831; 2002 - $42,081; thereafter - $422,636. Rental expenses incurred for
operating leases in 1997, 1996 and 1995 were $49,105, $33,616 and $22,302,
respectively.
<PAGE>
NOTE D - STOCKHOLDERS' EQUITY
RIGHTS AGREEMENT On December 31, 1997, 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 5,1997), without
the proper consent of the Company's Board of Directors, acquires 15% or more, or
makes an offer to acquire 15% or more of the Company's outstanding stock. When
exercisable, the rights entitle the holder to purchase one share of the
Company's common stock for $125. Under certain circumstances, including the
acquisition of 15% 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 $.01 per right anytime before a 15% position
has been acquired and for 10 days thereafter, at which time the rights become
nonredeemable. The rights expire on December 31, 2007.
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
33
<PAGE>
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. As of January 31, 1998, 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 - FOURTH QUARTER CHARGES
During the fourth quarter of fiscal 1997 the Company recorded pretax
charges of $28,012 ($18,418 net of tax), $16,330 of which was recorded as Costs
of Merchandise Sales on the Company's Consolidated Statements of Earnings and
includes the costs associated with closing nine stores, converting all PARTS USA
stores to the PEP BOYS EXPRESS format, certain equipment write-offs and other
non-recurring expenses. The remaining $11,682 of these expenses, which include
costs associated with reducing the store expansion program, certain equipment
write-offs and other non-recurring expenses, have been included in Selling,
General and Administrative Expenses on the Company's Consolidated Statements of
Earnings.
NOTE F - 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 1997, 7.5% in 1996 and
8.5% in 1995, 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 and 1995. 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 plan's 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.
Pension (income) expense includes the following:
<TABLE>
<CAPTION>
Jan. 31, Feb. 1, Feb. 3,
Year Ended 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Normal service costs $ - $1,213 $ 968
Interest cost on projected
benefit obligation 1,667 1,561 1,382
Actual return on plan assets (614) (752) (720)
Net amortization of transition
asset and unrecognized net gain (214) (214) (759)
Prior service cost - 19 19
Asset gain deferred (1,115) (974) (1,013)
- -----------------------------------------------------------------------------------------------------------------------------------
Total pension (income) expense $ (276) $ 853 $ (123)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
34
<PAGE>
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 weighted average discount rate of 7.25% at December 31, 1997 and 7.5%
at December 31, 1996.
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $(24,567) $(22,076)
- -------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $(24,567) $(22,076)
- -------------------------------------------------------------------------------------------------------------
Projected benefit obligation for
service rendered to date $(24,567) $(22,076)
Plan assets at fair value 20,324 20,815
- -------------------------------------------------------------------------------------------------------------
Assets less than projected benefit obligation (4,243) (1,261)
Unrecognized net asset (at date of transition) (857) (1,071)
Unrecognized net loss from past
experience different from previous
assumption 3,043 -
Adjustment to recognize minimum liability (2,186) -
- -------------------------------------------------------------------------------------------------------------
Accrued pension cost
as of January 31, 1998 and
February 1, 1997, respectively $ (4,243) $ (2,332)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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 $4,543 in 1997, $3,685 in 1996 and $3,150 in 1995.
35
<PAGE>
NOTE G - INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
Jan. 31, Feb. 1, Feb. 3,
Year ended 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 8,651 $45,831 $42,276
State 601 3,761 3,648
Deferred:
Federal 15,487 8,225 1,905
State 1,106 588 129
- -----------------------------------------------------------------------------------------------------------------------------------
$25,845 $58,405 $47,958
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of the statutory federal income tax rate to the
effective rate of the provision for income taxes follows:
<TABLE>
<CAPTION>
Jan. 31, Feb. 1, Feb. 3,
Year ended 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal
tax benefits 1.5 1.8 1.9
Other, net (2.2) (.1) .1
- -----------------------------------------------------------------------------------------------------------------------------------
34.3% 36.7% 37.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes relate to the following temporary differences:
<TABLE>
<CAPTION>
Jan. 31, Feb. 1, Feb. 3,
Year ended 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation $ 22,173 $ 9,330 $ 6,420
Inventories 575 (1,593) (2,551)
Vacation accrual (725) (593) (522)
Pension accrual (2,118) 263 47
Store closing reserves (3,866) - -
Insurance (288) 1,096 (1,143)
Other, net 842 310 (217)
- -----------------------------------------------------------------------------------------------------------------------------------
$16,593 $ 8,813 $ 2,034
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
The following are components of the net deferred tax accounts as of
January 31, 1998:
<TABLE>
<CAPTION>
Federal State Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Current $33,817 $2,415 $36,232
Long-term 18,981 1,356 20,337
Deferred tax liabilities:
Current 12,149 868 13,017
Long-term 87,308 6,237 93,545
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following are components of the net deferred tax accounts as of
February 1, 1997:
<TABLE>
<CAPTION>
Federal State Total
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Items that gave rise to significant portions of the deferred tax
accounts are as follows:
<TABLE>
<CAPTION>
Jan. 31, Feb. 1,
Year ended 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventories $ 9,500 $10,075
Vacation accrual 4,325 3,600
Minimum pension liability adjustment 820 -
Store closing reserves 3,866 -
Other, net 4,704 3,307
- -----------------------------------------------------------------------------------------------------------------------------------
$23,215 $16,982
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $70,681 $48,507
Other, net 2,527 1,875
- -----------------------------------------------------------------------------------------------------------------------------------
$73,208 $50,382
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
NOTE H - NET EARNINGS PER SHARE
The FASB issued SFAS No. 128, "Earnings per Share," to be effective for
all periods ending after December 15, 1997. SFAS 128 requires all prior period
earnings per share data presented to be restated to conform with the provisions
of this pronouncement. SFAS 128 replaces primary earnings per share with the
presentation of basic earnings per share and fully diluted earnings per share
with diluted earnings per share.
For fiscal years 1997, 1996 and 1995, basic earnings per share are
based on net earnings divided by the weighted average number of shares
outstanding during the period. Diluted earnings per share assumes conversion of
convertible subordinated notes, zero coupon convertible subordinated notes and
the dilutive effects of stock options. Adjustments for convertible securities
were antidilutive in 1997 and therefore excluded from the computation of diluted
EPS, however, these securities could potentially be dilutive in the future.
Options to purchase 2,281,572 shares of common stock at various prices ranging
from $23.78 to $37.38 were outstanding at January 31, 1998 but were not included
in the computation of diluted EPS because the options' exercise prices were
greater than the average market price of the common shares.
- --------------------------------------------------------------------------------
- -- (in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
---------------------------------- ------------------------------------------
Earnings Shares Per Share Earnings Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------ ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Earnings available to
common stockholders $49,611 61,133 $0.81 $100,824 60,305 $1.67
===== =====
Effect of Dilutive Securities
Adjustment for interest on 4%
convertible subordinated
notes, net of tax - - 2,168 2,104
Adjustment for interest on 4%
zero coupon subordinated
notes, net of tax - - 1,409 1,303
Common Shares assumed
issued upon exercise of
dilutive stock options - 524 - 893
Diluted EPS ------- ------ -------- ------
Earnings available to common
stockholders assuming
conversion $49,611 61,657 $0.80 $104,401 64,605 $1.62
======= ====== ===== ======== ====== =====
[RESTUBBED TABLE]
(in thousands, except per share amounts)
Fiscal 1995
---------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Earnings available to
common stockholders $81,494 59,581 $1.37
=====
Effect of Dilutive Securities
Adjustment for interest on 4%
convertible subordinated
notes, net of tax 2,200 2,104
Adjustment for interest on 4%
zero coupon subordinated
notes, net of tax - -
Common Shares assumed
issued upon exercise of
dilutive stock options - 903
Diluted EPS ------- ------
Earnings available to common
stockholders assuming
conversion $83,694 62,588 $1.34
======= ====== =====
</TABLE>
38
<PAGE>
NOTE I - 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. 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. 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. Additional shares
in the amounts of 2,000,000, 1,500,000 and 1,500,000 were authorized by
stockholders on June 4, 1997, May 31, 1995 and June 1, 1993, respectively. 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
January 31, 1998, 2,277,285 shares remain available for grant.
Stock option transactions for the Company's stock option plans are
summarized as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
------------------------ ----------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 3,500,036 $23.34 4,031,329 $20.91 3,662,779 $16.24
Granted 837,000 30.15 613,702 33.64 1,042,970 30.90
Exercised (487,914) 15.00 (988,605) 18.43 (582,470) 8.16
Canceled (383,928) 30.24 (156,390) 31.10 (91,950) 28.76
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding - end of year 3,465,194 25.40 3,500,036 23.34 4,031,329 20.91
- ---------------------------------------------------------------------------------------------------------------------------
Options exercisable - at year end 1,988,209 21.08 2,227,917 18.53 2,724,607 16.77
Weighted average estimated fair value
of options granted 11.00 11.28 11.04
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
The following table summarizes information about stock options
outstanding at January 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 1/31/98 Life Price at 1/31/98 Price
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11.13 to $20.00 894,855 2 years $12.36 894,855 $12.36
$20.01 to $25.00 404,900 6 years 22.85 336,850 22.67
$25.01 to $30.00 297,889 7 years 27.38 192,311 27.79
$30.01 to $37.38 1,867,550 8 years 31.88 564,193 31.67
- ----------------------------------------------------------------------------------------------------------------------------------
$11.13 to $37.38 3,465,194 1,988,209
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Fiscal 1997 Fiscal 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings:
As reported $49,611 $ 100,824
Pro forma $46,120 $ 98,185
Net earnings per share:
As reported
Basic $ 0.81 $ 1.67
Diluted $ 0.80 $ 1.62
Pro forma
Basic $ 0.75 $ 1.63
Diluted $ 0.75 $ 1.58
- ---------------------------------------------------------------------------------------------------
</TABLE>
The pro forma effect on net earnings for fiscal 1997 and fiscal 1996
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 1997 and fiscal
1996 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 33% and 32%, respectively, (iii)
risk-free interest rate ranges of 5.5% to 6.9% and 5.5% to 6.7%, respectively,
and (iv) ranges of expected lives 3.5 years to 6.5 years and 3.5 years to 6
years, respectively.
NOTE J - 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," in
the Circuit Court of Mobile County, Alabama. The Company has moved to dismiss
the case for failure to state a claim. The Company's motion to dismiss is
pending before the Circuit Court of Mobile County, Alabama. 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.
40
<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 K - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are
as follows:
...............................................................................
<TABLE>
<CAPTION>
January 31, 1998 February 1, 1997
------------------------ ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash $ 10,811 $ 10,811 $ 2,589 $ 2,589
Accounts receivable 13,070 13,070 7,653 7,653
Liabilities:
Accounts payable 409,053 409,053 337,536 337,536
Short-term borrowings 47,000 47,000 63,000 63,000
Long-term debt including
current maturities 402,178 406,086 217,312 215,029
Convertible subordinated
notes 86,250 84,637 86,250 88,838
Zero coupon convertible
subordinated notes 158,370 147,236 152,237 146,041
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 January 31, 1998 and February 1, 1997.
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.
41
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED) The Pep Boys - Manny, Moe & Jack and Subsidiaries
(dollar amounts in thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------------------------
Net Earnings Cash Market Price
Year Ended Total Gross Operating Net Per Share Dividends Per Share
Jan. 31, 1998 Revenues Profit Profit Earnings Basic Diluted Per Share High Low
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $489,278 $141,942 $44,105 $23,146 $.38 $.37 $.0600 35 29 3/8
2nd Quarter 539,298 160,465 55,508 30,088 .49 .47 .0600 35 5/8 30
3rd Quarter 525,564 152,866 46,318 24,120 .39 .38 .0600 34 7/8 23 5/8
4th Quarter 502,380 85,047 (36,128) (27,743) (.45) (.45) .0600 26 3/16 21 9/16
- --------------------------------------------------------------------------------------------------------------------
Year Ended
Feb. 1, 1997
- --------------------------------------------------------------------------------------------------------------------
1st Quarter $428,614 $121,301 $39,594 $20,116 $.34 $.33 $.0525 34 7/8 27 7/8
2nd Quarter 476,673 141,421 55,333 30,235 .50 .49 .0525 35 1/2 28
3rd Quarter 478,819 138,287 50,109 27,777 .46 .44 .0525 38 1/4 30 3/4
4th Quarter 444,433 136,510 42,064 22,696 .37 .36 .0525 38 27 7/8
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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. See
discussion of fourth quarter charges in Note E to the Consolidated Financial
Statements.
42
<PAGE>
Index
Page
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Condensed Consolidated
Financial Statements (Unaudited)
Consolidated Balance Sheets -
October 31, 1998 and January 31, 1998 3
Consolidated Statements of Operations -
Thirteen and Thirty-nine weeks ended
October 31, 1998 and November 1, 1997 4
Condensed Consolidated Statements of
Cash Flows - Thirty-nine weeks ended
October 31, 1998 and November 1, 1997 5
Notes to Condensed Consolidated
Financial Statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-14
PART II - OTHER INFORMATION 15
- ---------------------------
SIGNATURE 16
2
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Oct. 31, 1998 Jan. 31, 1998*
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 97,470 $ 10,811
Accounts receivable, net................................... 15,989 13,070
Merchandise inventories.................................... 548,963 655,363
Prepaid expenses........................................... 13,494 27,449
Deferred income taxes...................................... 23,215 23,215
Other...................................................... 30,829 40,308
------------- -------------
Total Current Assets.................................... 729,960 770,216
Property and Equipment-at cost:
Land....................................................... 278,887 296,721
Building and improvements.................................. 897,354 920,522
Furniture, fixtures and equipment.......................... 568,657 542,256
Construction in progress................................... 31,647 21,432
------------ -------------
1,776,545 1,780,931
Less accumulated depreciation and amortization............. 463,939 403,182
------------- -------------
Total Property and Equipment............................ 1,312,606 1,377,749
Other........................................................ 12,897 13,395
------------- -------------
Total Assets.................................................. $2,055,463 $2,161,360
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................... $ 160,665 $ 409,053
Accrued expenses........................................... 210,071 162,666
Short-term borrowings...................................... - 47,000
Current maturities of long-term debt....................... 166 157
Convertible Subordinated Notes............................. 86,250 -
------------- -------------
Total Current Liabilities............................... 457,152 618,876
Long-Term Debt, less current maturities...................... 526,894 402,021
Deferred Income Taxes........................................ 70,952 73,208
Convertible Subordinated Notes............................... - 86,250
Zero Coupon Convertible Subordinated Notes................... 163,118 158,370
Commitments and Contingencies
Stockholders' Equity:
Common Stock, par value $1 per share:
Authorized 500,000,000 shares - Issued and
outstanding 63,820,110 and 63,657,728..................... 63,820 63,658
Additional paid-in capital................................. 175,817 173,107
Retained earnings.......................................... 659,345 647,505
Accumulated other comprehensive income..................... (1,366) (1,366)
------------- ------------
897,616 882,904
Less:
Cost of shares in benefits trust-2,232,500 shares, at cost. 60,269 60,269
------------- ------------
Total Stockholders' Equity.............................. 837,347 822,635
------------- ------------
Total Liabilities and Stockholders' Equity.................... $2,055,463 $2,161,360
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
*Taken from the audited financial statements at January 31, 1998.
3
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollar amounts in thousands, except per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
-------------------------------- ---------------------------------
October 31, 1998 November 1, 1997 October 31, 1998 November 1, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Merchandise Sales.................................... $512,912 $440,500 $1,527,492 $1,303,518
Service Revenue...................................... 103,055 85,064 308,000 250,622
-------------- -------------- -------------- --------------
Total Revenues....................................... 615,967 525,564 1,835,492 1,554,140
Costs of Merchandise Sales........................... 393,000 304,759 1,123,536 901,184
Costs of Service Revenue............................. 82,890 67,939 245,089 197,683
-------------- -------------- -------------- --------------
Total Costs of Revenues.............................. 475,890 372,698 1,368,625 1,098,867
Gross Profit from Merchandise Sales.................. 119,912 135,741 403,956 402,334
Gross Profit from Service Revenue.................... 20,165 17,125 62,911 52,939
-------------- -------------- -------------- --------------
Total Gross Profit................................... 140,077 152,866 466,867 455,273
Selling, General and Administrative Expenses......... 134,681 106,548 393,475 309,342
-------------- -------------- -------------- --------------
Operating Profit..................................... 5,396 46,318 73,392 145,931
Nonoperating Income.................................. 708 1,129 1,470 3,738
Interest Expense..................................... 12,230 9,758 37,610 28,147
-------------- -------------- -------------- --------------
Earnings (Loss) before Income Taxes.................. (6,126) 37,689 37,252 121,522
Income Taxes......................................... (2,205) 13,569 13,411 44,168
-------------- -------------- -------------- --------------
Net Earnings (Loss).................................. (3,921) 24,120 23,841 77,354
Retained Earnings, beginning of period............... 667,268 658,485 647,505 612,581
Cash Dividends....................................... 4,002 3,673 12,001 11,003
-------------- -------------- -------------- --------------
Retained Earnings, end of period..................... $659,345 $678,932 $ 659,345 $ 678,932
============== ============== ============== ==============
Basic Earnings (Loss) per Share...................... $ (.06) $ .39 $ .39 $ 1.27
Diluted Earnings (Loss) per Share.................... $ (.06) $ .38 $ .39 $ 1.22
============== ============== ============== ==============
Cash Dividends per Share............................. $ .0650 $ .0600 $ .1950 $ .1800
============== ============== ============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
UNAUDITED
<TABLE>
<CAPTION>
Thirty-nine weeks ended
----------------------------------
October 31, 1998 November 1, 1997
-------------- --------------
<S> <C> <C>
Net Cash Provided by (Used in) Operating Activities............. $ 43,428 $ (1,850)
Cash Flows from Investing Activities:
Capital expenditures............................................ (126,966) (215,422)
Proceeds from sale of assets.................................... 97,473 -
Other, net...................................................... 1,730 788
------------- -------------
Net Cash Used in Investing Activities........................... (27,763) (214,634)
Cash Flows from Financing Activities:
Net (payments) borrowings under line of credit agreements....... (122,000) 124,100
Net proceeds from issuance of notes............................. 202,241 99,000
Reduction of long-term debt..................................... (118) (368)
Dividends paid.................................................. (12,001) (11,003)
Proceeds from exercise of stock options
and dividend reinvestment plan................................ 2,872 5,753
------------- -------------
Net Cash Provided by Financing Activities....................... 70,994 217,482
------------- -------------
Net Increase in Cash................................................. 86,659 998
Cash at Beginning of Period.......................................... 10,811 2,589
------------- -------------
Cash at End of Period................................................ $ 97,470 $ 3,587
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Condensed Consolidated Financial Statements
The consolidated balance sheet as of October 31, 1998, the consolidated
statements of operations for the thirteen and thirty-nine week periods ended
October 31, 1998 and November 1, 1997 and the condensed consolidated statements
of cash flows for the thirty-nine week periods ended October 31, 1998 and
November 1, 1997 have been prepared by the Company without audit. In the opinion
of management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows at October 31, 1998 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's January 31, 1998 annual
report to shareholders. The results of operations for the thirteen and
thirty-nine week period ended October 31, 1998 are not necessarily indicative of
the operating results for the full year.
NOTE 2. Merchandise Inventories
Merchandise inventories are valued at the lower of cost (last-in, first-out) or
market. If the first-in, first-out method of valuing inventories had been used
by the Company, inventories would have been approximately $870,000 higher at
both October 31, 1998 and January 31, 1998.
NOTE 3. Comprehensive Income
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and disclosure of comprehensive
income and its components in financial statements. Accumulated other
comprehensive income in the consolidated balance sheets as of October 31, 1998
and January 31, 1998 consists of a minimum pension liability adjustment. There
were no differences between net earnings and comprehensive income for the
thirteen and thirty-nine week periods ended October 31, 1998 and November 1,
1997.
NOTE 4. Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for fiscal years beginning after June 15, 1999, although early
adoption is encouraged. Management has not yet determined what impact, if any,
the application of this statement will have on the Company's financial
statements.
Note 5. Medium-Term Note Program
In February 1998, the Company established a Medium-Term Note program which
permits the Company to issue up to $200,000,000 of Medium-Term Notes. Under this
program the Company has sold $100,000,000 principal amount of senior notes,
ranging in annual interest rates from 6.7% to 6.9% and due March 2004 and March
2006. The net proceeds of $99,429,000 were used for working capital, the
repayment of debt and for general corporate purposes. Additionally, in July
1998, under this note program, the Company sold $100,000,000 of Term Enhanced
ReMarketable Securities with a stated maturity date of July 2017. The Company
sold a call option with the securities, which allows the securities to be
remarketed to the public in July 2006 under certain circumstances. If the
securities are not remarketed, the Company will be obligated to repay the
principal amount in full in July 2017. The level yield to maturity on the
securities is approximately 6.85% and the coupon rate is 6.92%. The net proceeds
of $101,923,500 from the sale of the securities and the call option were used
for working capital, the repayment of debt and for general corporate purposes.
6
<PAGE>
NOTE 6. Net Earnings (Loss) Per Share
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
(in thousands, except per share data) -------------------- -----------------------
October 31, 1998 November 1, 1997 October 31, 1998 November 1, 1997
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
(a) Net earnings (loss).............................. $(3,921) $24,120 $23,841 $77,354
Adjustment for interest on 4% convertible
subordinated notes, net of income tax effect... _ 554 _ 1,661
Adjustment for interest on zero coupon convertible
subordinated notes, net of income tax effect... _ 978 _ 2,898
- ---------------------------------------------------------------------------------------------------------------------------------
(b) Adjusted net earnings (loss) $(3,921) $25,652 $23,841 $81,913
- ---------------------------------------------------------------------------------------------------------------------------------
(c) Average number of common shares outstanding
during the period.............................. 61,567 61,210 61,527 61,070
Common shares assumed issued upon conversion of
4% convertible subordinated notes.............. _ 2,104 _ 2,104
Common shares assumed issued upon conversion of
zero coupon convertible subordinated notes..... _ 3,513 _ 3,513
Common shares assumed issued upon exercise
of dilutive stock options, net of assumed
repurchase, at the average market price........ _ 435 220 590
- ---------------------------------------------------------------------------------------------------------------------------------
(d) Average number of common shares assumed
outstanding during the period.................. 61,567 67,262 61,747 67,277
- ---------------------------------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) per Share (a/c)............ $ (.06) $ .39 $ .39 $ 1.27
Diluted Earnings (Loss) per Share (b/d).......... $ (.06) $ .38 $ .39 $ 1.22
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Adjustments for certain convertible securities were antidilutive during the
thirteen and thirty-nine week periods ended October 31, 1998 and have therefore
been excluded from the computation of diluted EPS; however, these securities
could potentially be dilutive in the future. Options to purchase 3,971,661
shares of common stock at various prices ranging from $15.53 to $37.38 were
outstanding at October 31, 1998, but were not included in the computation of
diluted EPS because the options' exercise prices were greater than the average
market price of the common shares.
NOTE 7. Third Quarter Charges
In October 1998 the Company closed and consummated the sale of real estate
assets relating to 100 of its non-service/non-tire format Pep Boys Express
stores. Nine other such stores were also closed in October. As a result of these
events, the Company recorded pretax charges to earnings of $25,251,000
($16,160,000 net of tax), $23,769,000 of which was recorded as Cost of
Merchandise Sales in the Company's Consolidated Statements of Operations and
includes costs associated with the sale and closure of the 109 Pep Boys Express
stores. These costs include various building, leasehold improvement, fixture and
equipment write-offs, as well as lease commitment charges and the costs
associated with handling the related merchandise inventories. The remaining
$1,482,000 of related costs, which includes mainly store and general office
payroll and travel expenses, have been included in Selling, General and
Administrative Expenses on the Company's Consolidated Statements of Operations.
7
