UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended October 31, 1998
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from to
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Commission File No. 1-3381
------
The Pep Boys - Manny, Moe & Jack
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0962915
------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer ID number)
incorporation or organization)
3111 W. Allegheny Ave. Philadelphia, PA 19132
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(Address of principal executive offices) (Zip code)
215-229-9000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports); and (2) has been subject
to such filing requirements for the past 90 days. Yes ( x ) No ( )
As of October 31, 1998 there were 63,820,110 shares of the registrant's Common
Stock outstanding.
1
<PAGE>
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Index Page
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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>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands, except per share amounts)
<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
============= ============
See notes to condensed consolidated financial statements.
*Taken from the audited financial statements at January 31, 1998.
</TABLE>
3
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollar amounts in thousands, except per share amounts)
UNAUDITED
<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
============== ============== ============== ==============
See notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
UNAUDITED
<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
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
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
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations -
The following table presents for the periods indicated certain items in the
consolidated statements of operations as a percentage of total revenues (except
as otherwise provided) and the percentage change in dollar amounts of such items
compared to the indicated prior period.
<CAPTION>
Percentage of Total Revenues Percentage Change
- ------------------------------------------------------ ---------------------------------- -----------------
Thirteen weeks ended October 31, 1998 November 1, 1997 Fiscal 1998 vs.
(Fiscal 1998) (Fiscal 1997) Fiscal 1997
- ------------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Merchandise Sales..................................... 83.3% 83.8% 16.4%
Service Revenue (1)................................... 16.7 16.2 21.1
------ ------ -------
Total Revenues........................................ 100.0 100.0 17.2
Costs of Merchandise Sales (2)........................ 76.6 (3) 69.2 (3) 29.0
Costs of Service Revenue (2).......................... 80.4 (3) 79.9 (3) 22.0
------ ------ -------
Total Costs of Revenues............................... 77.3 70.9 27.7
Gross Profit from Merchandise Sales................... 23.4 (3) 30.8 (3) (11.7)
Gross Profit from Service Revenue..................... 19.6 (3) 20.1 (3) 17.8
------ ------ -------
Total Gross Profit.................................... 22.7 29.1 (8.4)
Selling, General and Administrative Expenses.......... 21.8 20.3 26.4
------ ------ -------
Operating Profit...................................... .9 8.8 (88.4)
Nonoperating Income................................... .1 .2 (37.3)
Interest Expense...................................... 2.0 1.8 25.3
------ ------ -------
Earnings (Loss) Before Income Taxes................... (1.0) 7.2 (116.3)
Income Taxes.......................................... 36.0 (4) 36.0 (4) (116.3)
------ ------ -------
Net Earnings (Loss)................................... (.6) 4.6 (116.3)
====== ====== =======
<FN>
(1) Service revenue consists of the labor charge for installing merchandise or
maintaining or repairing vehicles, excluding the sale of any installed parts or
materials.
(2) Costs of merchandise sales include the cost of products sold, buying,
warehousing and store occupancy costs. Costs of service revenue include service
center payroll and related employee benefits and service center occupancy costs.
Occupancy costs include utilities, rents, real estate and property taxes, repairs
and maintenance and depreciation and amortization expenses.
(3) As a percentage of related sales or revenue, as applicable.
(4) As a percentage of earnings (loss) before income taxes.
</FN>
</TABLE>
8
<PAGE>
Thirteen Weeks Ended October 31, 1998 vs. Thirteen Weeks Ended November 1, 1997
- -------------------------------------------------------------------------------
Total revenues increased 17.2% for the third quarter due to more stores in
operation during 1998 versus 1997 as well as a 9.8% increase in comparable store
revenues (revenues generated by stores in operation during the same months of
each period). Comparable store merchandise sales increased 9.5% while
comparable service revenue increased 11.5%. Comparative store merchandise sales
were positively impacted by the Company's commercial delivery program which was
operational in approximately 89% of stores at the end of third quarter 1998
versus approximately 22% of stores at the end of the same period in 1997.
Sales for the third quarter were negatively impacted by the sale and closure of
109 non-service/non-tire format Pep Boys Express stores. These 109 stores
closed on or about October 10, 1998, which is the end of the tenth week of the
thirteen week period ended October 31, 1998. On October 21, 1998 the Company
consummated the sale of real estate assets relating to 100 of such stores. 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 and includes costs associated with the sale and closure of
such 109 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.
The substantial decrease in gross profit from merchandise sales, as a percentage
of merchandise sales, was due primarily to significantly lower merchandise
margins and the $23,769,000 in pretax charges offset, in part, by a decrease in
warehousing costs.
Gross profit from service revenue decreased, as a percentage of service revenue,
due primarily to an increase in service center personnel costs.
Selling, general and administrative expenses increased, as a percentage of total
revenues, due primarily to increases in store expenses, media costs and employee
benefit expenses as well as the $1,482,000 in pretax charges offset, in part, by
a decrease in general office costs, as a percentage of total revenues.
<TABLE>
Nonoperating income consisted of the following:
(in thousands)
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Rental revenue $ 386 $ 289
Investment income 220 836
Other income 102 4
------ ------
Total $ 708 $1,129
====== ======
</TABLE>
Net earnings for the third quarter of fiscal 1998, which were negatively
impacted by the after tax charges of $16,160,000, decreased substantially as
compared with the third quarter of fiscal 1997, as a percentage of total
revenues, due primarily to a substantial decrease in gross profit from
merchandise sales, as a percentage of merchandise sales, a decrease in gross
profit from service revenue, as a percentage of service revenue, and an increase
in selling, general and administrative expenses, as a percentage of total
revenues.
9
<PAGE>
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations -
The following table presents for the periods indicated certain items in the
consolidated statements of earnings as a percentage of total revenues (except
as otherwise provided) and the percentage change in dollar amounts of such items
compared to the indicated prior period.
<CAPTION>
Percentage of Total Revenues Percentage Change
- ------------------------------------------------------ ---------------------------------- -----------------
Thirty-nine weeks ended October 31, 1998 November 1, 1997 Fiscal 1998 vs.
(Fiscal 1998) (Fiscal 1997) Fiscal 1997
- ------------------------------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
Merchandise Sales..................................... 83.2% 83.9% 17.2%
Service Revenue (1)................................... 16.8 16.1 22.9
------ ------ ------
Total Revenues........................................ 100.0 100.0 18.1
Costs of Merchandise Sales (2)........................ 73.6 (3) 69.1 (3) 24.7
Costs of Service Revenue (2).......................... 79.6 (3) 78.9 (3) 24.0
------ ------ ------
Total Costs of Revenues............................... 74.6 70.7 24.5
Gross Profit from Merchandise Sales................... 26.4 (3) 30.9 (3) .4
Gross Profit from Service Revenue..................... 20.4 (3) 21.1 (3) 18.8
------ ------ ------
Total Gross Profit.................................... 25.4 29.3 2.5
Selling, General and Administrative Expenses.......... 21.5 19.9 27.2
------ ------ ------
Operating Profit...................................... 3.9 9.4 (49.7)
Nonoperating Income................................... .1 .2 (60.7)
Interest Expense...................................... 2.0 1.8 33.6
------ ------ ------
Earnings Before Income Taxes.......................... 2.0 7.8 (69.3)
Income Taxes.......................................... 36.0 (4) 36.3 (4) (69.6)
------ ------ ------
Net Earnings.......................................... 1.3 5.0 (69.2)
====== ====== ======
<FN>
(1) Service revenue consists of the labor charge for installing merchandise or
maintaining or repairing vehicles, excluding the sale of any installed parts or
materials.
(2) Costs of merchandise sales include the cost of products sold, buying,
warehousing and store occupancy costs. Costs of service revenue include service
center payroll and related employee benefits and service center occupancy costs.
Occupancy costs include utilities, rents, real estate and property taxes, repairs
and maintenance and depreciation and amortization expenses.
(3) As a percentage of related sales or revenue, as applicable.
(4) As a percentage of earnings before income taxes.
</FN>
</TABLE>
10
<PAGE>
Thirty-nine Weeks Ended October 31, 1998 vs. Thirty-nine Weeks Ended
November 1 , 1997
- ------------------------------------------------------------------------------
Total revenues increased 18.1% for the thirty-nine weeks due to more stores in
operation during 1998 versus 1997 as well as a 7.8% increase in comparable store
revenues (revenues generated by stores in operation during the same months of
each period). Comparable store merchandise sales increased 7.0% while
comparable service revenue increased 12.0%. Comparative store merchandise sales
were positively impacted by the Company's commercial delivery program which was
in approximately 89% of stores at the end of the third quarter 1998 versus
approximately 22% of stores at the end of the same period in 1997.
On October 21, 1998 the Company 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 closed. 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 and includes
costs associated with the sale and closure of such 109 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.
The substantial decrease in gross profit from merchandise sales, as a percentage
of merchandise sales, was due primarily to significantly lower merchandise
margins and the $23,769,000 in pretax charge offset, in part, by a decrease in
warehousing costs.
Selling, general and administrative expenses increased, as a percentage of total
revenues, due primarily to increases in store expenses and media costs offset,
in part, by a decrease in general office costs, as a percentage of total
revenues.
<TABLE>
Nonoperating income consisted of the following:
(in thousands)
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Rental revenue $1,025 $1,197
Investment income 319 2,497
Other income 126 44
------ ------
Total $1,470 $3,738
====== ======
</TABLE>
Interest expense increased, as a percentage of total revenues, due primarily
to higher debt levels necessary to fund the Company's store expansion program
and related working capital requirements coupled with higher interest rates.
Net earnings for the thirty-nine weeks ended October 31, 1998, which were
negatively impacted by the after tax charges of $16,160,000, decreased
substantially as compared with the thirty-nine weeks ended November 1, 1997,
as a percentage of total revenues, due primarily to a substantial decrease in
gross profit from merchandise sales, as a percentage of merchandise sales, an
increase in selling, general and administrative expenses, as a percentage of
total revenues, and an increase in interest expense, as a percentage of total
revenues.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - October 31, 1998
- --------------------------------------------------
The Company's cash requirements arise principally from the need to finance
the acquisition, construction and equipping of new stores and to purchase
inventory. During the first thirty-nine weeks of 1998, the Company invested
$126,966,000 in property and equipment while net inventory (the change in net
inventory includes the decrease in inventory less the change in accounts
payable) increased $141,988,000. Working capital increased from $151,340,000 at
January 31, 1998 to $272,808,000 at October 31, 1998. At October 31, 1998, the
Company had stockholders' equity of $837,347,000 and long-term debt of
$690,012,000. The Company's long-term debt was 45.2% of its total capitalization
at October 31, 1998 and 44% at January 31, 1998.
The Company anticipates opening approximately 10 new Supercenters during the
balance of the current fiscal year. Management estimates that the cost of this
expansion, coupled with expenditures in existing stores, warehouses and offices
will be approximately $57,000,000. The Company currently anticipates opening
approximately 40 Supercenters during the fiscal year ending January 29, 2000
(fiscal 1999). Management intends to fund these new stores, including related
inventory requirements, out of funds generated from operating activities.
On October 21, 1998 the Company consummated the sale of the real estate assets
relating to 100 of its non-service/non-tire format Pep Boys Express stores for
net proceeds of $97,473,000. As of October 31, 1998, a portion
of the net proceeds were used to repay debt and the remaining amount of
approximately $67,000,000 was invested in short-term money market accounts
bearing interest at approximately 5%. In addition to these funds, the Company
has unused lines of credit totaling $324,000,000 at October 31, 1998.
Subsequent to October 31, 1998 management used an additional $13,956,000 of the
net proceeds from the real estate sale to repay convertible subordinated notes
due in September 1999.
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.
New Accounting Standards
- ------------------------
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.
12
<PAGE>
INFORMATION SYSTEMS AND THE YEAR 2000
- -------------------------------------
During 1997, the Company initiated a project to assess the impact
of Year 2000 issues on a corporate-wide basis. A Year 2000
Project Director, reporting directly to the Chief Information
Officer, was assigned to lead the project and, in conjunction with
senior management of the Company, has formulated a project plan
to address Year 2000 compliance issues. The Project Director
monitors and coordinates the project plan through regular
meetings with operational managers who execute the specifics of
the project plan. The Project Director regularly updates senior
management, including the Company's Chief Financial Officer.
In addition, the Board of Directors are periodically updated by
the Company's senior management.
The project plan is comprehensive and focuses on both information
technology (IT) systems and non-IT systems. Execution of the
project plan has been divided into five key phases: inventory,
assessment, remediation, testing, and implementation. The
Company is utilizing both internal and external resources to
complete its Year 2000 project plan initiatives.
IT systems include the Company's application software, both
proprietary and third party, as well as the hardware
infrastructure. Specifically, this includes all software and
related hardware for the Company's systems, namely: mainframe,
store, personal computer, local area network, and data
communication. The inventory and assessment phases for the IT
systems are substantially complete. Although the IT systems are
currently in various stages of remediation, testing and
implementation, the Company estimates that approximately 40% of
its IT systems are currently Year 2000 compliant. The Company
currently intends to substantially complete these processes with
respect to its IT systems by mid-1999.
The non-IT systems include equipment and systems that contain
embedded computer chips, such as energy management, HVAC,
telephone and the Company's service center equipment, which
specifically includes its engine diagnostic, wheel alignment and
emission testing equipment. The Company has completed the
inventory phase and is nearing completion of the assessment phase
for its non-IT systems. To complete the assessment process, the
Company is attempting to obtain assurances from its key equipment
providers.
The Company's critical third party vendor relationships (other than those
relating to IT and non-IT systems), such as critical
merchandise, transportation, utility, financial institutions and
other general service providers, will be reviewed in 1999 for
Year 2000 compliance.
13
<PAGE>
Although the Company is making significant progress to ensure that
its systems and facilities are Year 2000 compliant, the ability
of third party service providers, merchandise vendors and certain
other third parties, including communications and utility
companies, to be Year 2000 compliant is beyond the Company's
control. Therefore, the Company can offer no assurances that the
systems of other entities on which the Company's systems may
rely will be modified to be Year 2000 compliant or, if so modified,
will be compatible with the Company's systems. The failure of these
entities to achieve Year 2000 compliance on a timely basis could
have a material adverse effect on the Company. At this time, the
Company does not expect any Year 2000 issues to materially affect
its operations, merchandise sales, service revenues, competitive
position or financial performance.
The Company intends to develop contingency plans beginning in early
1999. These plans would identify what actions would need to
be taken if a critical system or third party service provider
were not Year 2000 compliant. The Company expects such plans to be
completed by October 1999.
The Company estimates that total costs associated with the Year
2000 effort will range from approximately $12,000,000 to
$16,000,000, of which approximately $2,500,000 has been incurred
through October 31, 1998. The Company's Year 2000 costs have been
and are expected to be funded out of cash flows from operating activities.
The foregoing statements as to costs and dates relating to the
Year 2000 effort are forward looking and as a result involve risks
and uncertainties. They are based on the Company's best
estimates which may be updated as additional information becomes
available. The Company's forward looking statements are also
based on assumptions about many important factors, including the
technical skills of employees and independent contractors, the
representations and preparedness of third parties, the failure of
vendors to deliver merchandise or perform services required by
the Company and the collateral effects of Year 2000 issues on
the Company's business partners and customers. While the Company
believes its assumptions are reasonable, it cautions that it is
impossible to predict the impact of certain factors that could
cause actual costs or timetables to differ materially from the
expected results.
FORWARD LOOKING STATEMENTS
- --------------------------
Certain statements made herein are forward looking and as a result involve
risks and uncertainties. Actual results could differ materially from expected
results due to factors beyond the control of the Company, including the strength
of the national and regional economies, the level of demand for the Company's
goods and services, 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 and the ability to reduce inventory levels during 1998. Further risk
factors are discussed in the Company's filings with the Securities and Exchange
Commission, including its most recent Form 10-K, a copy of which may be obtained
from the Company without charge.
14
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) Amendment No. 3 dated as of October 31, 1998 to the
Amended and Restated Credit Agreement dated as of
April 21, 1995 among the Company, the Banks signatory
thereto and The Chase Manhattan Bank, as Agent.
(10.2) Third Amendment dated as of October 31, 1998 to
Transaction Agreement between the Company and State
Street Bank and Trust Company dated as of
February 28, 1997.
(10.3) Third Amendment dated as of October 31, 1998 to Master
Lease between the Company and State Street Bank and
Trust Company dated as of November 13, 1995.
(10.4) Second Amendment dated as of October 31, 1998 to Master
Lease between the Company and State Street Bank and
Trust Company dated as of February 28, 1997.
(10.5) Fourth Amendment dated as of October 31, 1998 to
Transaction Agreement between the Company and State
Street Bank and Trust Company dated as of
November 13, 1995.
(10.6) Form of Employment Agreement dated as of June 1998
between the Company and certain officers of the
Company.
(10.7) Employment Agreement between Mitchell G Leibovitz
and the Company dated as of June 3, 1998.
(11) Statement Re: Computation of Earnings Per
Share
(27) Financial Data Schedules
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter for which this report is filed.
15
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PEP BOYS - MANNY, MOE & JACK
--------------------------------
(Registrant)
Date: December 15, 1998 By: /s/ Michael J. Holden
----------------------- -------------------------
Michael J. Holden
Executive Vice President &
Chief Financial Officer
16
<PAGE>
INDEX TO EXHIBITS
- -----------------
(10.1) Amendment No. 3 dated as of October 31, 1998 to the
Amended and Restated Credit Agreement dated as of
April 21, 1995 among the Company, the Banks signatory
thereto and The Chase Manhattan Bank, as Agent.
(10.2) Third Amendment dated as of October 31, 1998 to Transaction
Agreement between the Company and State Street Bank
and Trust Company dated as of February 28, 1997.
(10.3) Third Amendment dated as of October 31, 1998 to Master
Lease between the Company and State Street Bank and
Trust Company dated as of November 13, 1995.
(10.4) Second Amendment dated as of October 31, 1998 to Master
Lease between the Company and State Street Bank and
Trust Company dated as of February 28, 1997.
(10.5) Fourth Amendment dated as of October 31, 1998 to
Transaction Agreement between the Company and State
Street Bank and Trust Company dated as of November
13, 1995.
(10.6) Form of Employment Agreement dated as of June 1998
between the Company and certain officers of the
Company.
(10.7) Employment Agreement between Mitchell G Leibovitz
and the Company dated as of June 3, 1998.
(11) Computations of Earnings Per Share
(27) Financial Data Schedule
Exhibit 10.1
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
Exhibit 10.2
THIRD AMENDMENT TO TRANSACTION AGREEMENT
(Pep Boys II Leased Property Facility)
This THIRD AMENDMENT TO TRANSACTION AGREEMENT dated as of
the 31st day of October, 1998 (this "Amendment"), is entered into
by and among THE PEP BOYS - MANNY, MOE & JACK, a Pennsylvania
corporation ("Lessee" and "Lease Guarantor"); STATE STREET BANK
AND TRUST COMPANY, a Massachusetts trust company, not in its
individual capacity except as expressly stated in the Transaction
Agreement, but solely as Trustee under the Declaration of Trust
(State Street Bank and Trust Company, when acting in its
respective capacities as such Trustee, together with any
successor trustee under the Declaration of Trust, is herein
referred to as the "Trustee" and State Street Bank and Trust
Company, when acting in its individual capacity, is herein
referred to as "Trust Company"); CITICORP LEASING, INC., a
Delaware corporation ("CLI"), on behalf of itself as a Purchaser
and Instrument Holder under the Transaction Agreement and on
behalf of the other financial institutions that may, from time to
time, become Purchasers or Instrument Holders thereunder; BANK OF
MONTREAL ("Bank of Montreal"), as a Purchaser and Instrument
Holder under the Transaction Agreement; and CITICORP LEASING,
INC., a Delaware corporation ("Agent"), in its capacity as the
administrative agent for the Instrument Holders under the
Transaction Agreement. Capitalized terms used but not otherwise
defined in this Amendment shall have the meanings set forth in
the Transaction Agreement.
RECITALS
A. Effective as of February 28, 1997, Lessee, Trustee,
CLI, Bank of Montreal, and Agent entered into that certain
Transaction Agreement (as heretofore amended, supplemented or
otherwise modified from time to time, the "Transaction
Agreement") pursuant to the terms of which Trustee has acquired
the Property. The Property has been leased to Lessee (and, where
applicable, certain Additional Lessees that are wholly-owned
subsidiaries of Lessee) by Trustee (and in certain cases by a co-
trustee appointed pursuant to the terms of Section 8.04 of the
Declaration of Trust) under that certain Master Lease of even
date with the Transaction Agreement between Trustee, as lessor,
and Lessee, as lessee (as heretofore amended, supplemented or
otherwise modified from time to time, the "Lease").
B. Pursuant to the terms and provisions of that certain
Lease Guarantee dated of even date with the Lease ("Lease
Guarantee"), the Obligations (as defined in the Lease Guarantee)
of Lessee under the Lease have been guaranteed by Lease
Guarantor.
1
<PAGE>
C. The parties have agreed to certain modifications to the
Transaction Agreement.
NOW, THEREFORE, in consideration of the premises and
agreements set forth herein and therein, the parties agree as
follows:
1. Section 1.05(e) is hereby amended in its entirety as
follows:
"(c) In no event shall any Advance be available after
December 31, 1999 ('Outside Funding Date'). On the Outside
Funding Date, any unused Commitment of the Purchasers shall
be canceled and of no further effect."
2. The definition of "Spread" contained in Schedule 1
attached to the Transaction Agreement is hereby amended in its
entirety as follows, with such amendment to be effective as of
the Interest Period commencing January 4, 1999:
"'Spread' shall be either (A) in the case of the
Certificates, 225 basis points, or (B) in the case of the A-
Notes and the B-Notes, the number of basis points determined
by reference to the following chart, based on the Debt
Rating of Lessee as of the beginning of the applicable
Interest Period:
Lessee's Most
Recent Debt Rating Applicable Spread
BBB+ (or higher) 50 basis points (0.50%)
BBB 60 basis points (0.60%)
BBB- 70 basis points (0.70%)
less than BBB- 85 basis points (0.85%)"
3. Except as amended hereby, the terms and provisions of
the Transaction Agreement shall be and remain in full force and
effect and are hereby ratified and affirmed. By its execution
hereof Lessee Parent hereby ratifies and affirms each and every
representation, warranty, covenant, obligation and indemnity
contained in the Transaction Agreement as of the date hereof.
4. By its execution hereof, Lease Guarantor hereby
ratifies and affirms each and every representation, warranty,
covenant, obligation and indemnity contained in the Lease
Guarantee as of the date hereof and acknowledges that the Lease
Guarantee remains in full force and effect.
5. By their execution hereof, Lessee, Pep Boys - Manny,
Moe & Jack of Delaware, Inc., a Delaware corporation ("Pep Boys-
Delaware"), and The Pep Boys Manny Moe & Jack of California, a
California corporation ("Pep Boys-California"), as Indemnitors,
hereby ratify and affirm each and every representation, warranty,
covenant, obligation and indemnity contained in that certain
Environmental Indemnity Agreement dated of even date with the
Transaction Agreement as of the date hereof and acknowledge that
the Environmental Indemnity Agreement remains in full force and
effect.
2
<PAGE>
6. By their execution hereof, Pep Boys-Delaware and Pep
Boys-California, in their capacity as Additional Lessees under
the Lease, along with Lessee Parent in its capacity as Lessee
under the Lease, hereby ratify and affirm each and every
representation, warranty, covenant, obligation and indemnity
contained in the Lease as of the date hereof and acknowledge that
the Lease remains in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment effective as of the date first above written.
[SEE ATTACHED SIGNATURE PAGES]
3
<PAGE>
SIGNATURE PAGE OF THE PEP BOYS - MANNY, MOE & JACK
ATTACHED TO
THIRD AMENDMENT TO TRANSACTION AGREEMENT
LESSEE, LESSEE PARENT, LEASE
GUARANTOR AND INDEMNITOR:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By: /s/ Michael J. Holden
Name:
Title: Executive Vice President &
Chief Financial Officer
4
<PAGE>
SIGNATURE PAGE OF TRUSTEE AND TRUST COMPANY
ATTACHED TO
THIRD AMENDMENT TO TRANSACTION AGREEMENT
TRUSTEE:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company
(not in its individual capacity, but
solely as Trustee)
By:
Donald E. Smith, Vice President
TRUST COMPANY:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company (in its
individual capacity, but only as expressly
stated herein)
By:
Donald E. Smith, Vice President
5
<PAGE>
SIGNATURE PAGE OF CLI AND AGENT
ATTACHED TO
THIRD AMENDMENT TO TRANSACTION AGREEMENT
AGENT and CLI:
CITICORP LEASING, INC.,
a Delaware corporation
By: /s/ Edward S. Mundy
Name:
Title: Vice President
6
<PAGE>
SIGNATURE PAGE OF BANK OF MONTREAL
ATTACHED TO
THIRD AMENDMENT TO TRANSACTION AGREEMENT
Bank of Montreal:
BANK OF MONTREAL
By:
Name:
Title:
7
<PAGE>
SIGNATURE PAGE OF ADDITIONAL LESSEES
ATTACHED TO
THIRD AMENDMENT TO TRANSACTION AGREEMENT
ADDITIONAL LESSEES AND INDEMNITORS:
PEP BOYS - MANNY, MOE & JACK OF
DELAWARE, INC., a Delaware corporation
By: /s/ Michael J. Holden
Name:
Title: Executive Vice President &
Chief Financial Officer
THE PEP BOYS MANNY MOE & JACK OF
CALIFORNIA, a California corporation
By: /s/ Michael J. Holden
Name:
Title: Executive Vice President &
Chief Financial Officer
8
Exhibit 10.3
THIRD AMENDMENT TO MASTER LEASE
(Pep Boys Transaction)
This THIRD AMENDMENT TO MASTER LEASE dated as of October 31,
1998 (this "Amendment"), is entered into by and between STATE
STREET BANK AND TRUST COMPANY, a Massachusetts trust company, not
individually but solely in its capacity as Trustee under that
certain "Declaration of Trust" (herein so called) dated
November 13, 1995 (in such capacity, and not individually,
"Lessor"), having an address at Two International Place, Fourth
Floor, Boston, Massachusetts 02110, Attention: Corporate Trust
Department, THE PEP BOYS - MANNY, MOE & JACK, a Pennsylvania
corporation ("Lessee Parent"), THE PEP BOYS MANNY MOE & JACK OF
CALIFORNIA, a California corporation ("Pep Boys-California") and
PEP BOYS - MANNY, MOE & JACK OF DELAWARE, INC., a Delaware
corporation ("Pep Boys-Delaware"), each having an address at 3111
W. Allegheny Avenue, Philadelphia, Pennsylvania 19132. Lessee
Parent, Pep Boys-California, and Pep Boys-Delaware are herein
referred to, singularly or collectively as the context may
require, as the "Lessee".
RECITALS
On or about November 13, 1995, Lessor and Lessee entered
into a certain Master Lease (as heretofore amended, supplemented
or otherwise modified from time to time, the "Lease") relating to
certain real property to be leased from time to time by Lessor to
Lessee. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Lease.
Lessor and Lessee, with the consent of Citicorp Leasing,
Inc., as Agent on behalf of the Instrument Holders, have agreed
to amend the Lease in certain respects.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties, the parties hereto
have agreed to amend, and do hereby amend, the Lease as follows:
AGREEMENTS
1. Section 13(a)(iii) of the Lease, which provides for the
payment of an "Early Termination Fee", is hereby deleted in its
entirety. In addition, the Lease is hereby generally amended to
delete all references to the payment of an Early Termination Fee
under any circumstance.
1
<PAGE>
2. The definition of "Applicable Spread" contained in
Paragraph C of Exhibit A attached to the Lease is hereby amended
in its entirety as follows, with such amendment to be effective
as of January 4, 1999:
"Applicable Spread" means, as applicable, the amount
based on the debt rating most recently issued by Standard &
Poor's for Lessee's senior unsecured debt as of any
Adjustment Date determined by reference to the following:
Lessee's Most
Recent Debt Rating Applicable Spread
BBB+(or higher) 57.0 basis points (0.570%)
BBB 66.6 basis points (0.666%)
BBB- 76.2 basis points (0.762%)
less than BBB- 90.6 basis points (0.906%)
3. Except as amended hereby, the terms and provisions of
the Lease, as heretofore amended, shall be and remain in full
force and effect and are hereby ratified and affirmed. By its
execution hereof Lessee Parent hereby ratifies and affirms each
and every representation, warranty, covenant, obligation and
indemnity contained in the Lease as of the date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first above written.
[SEE ATTACHED SIGNATURE PAGES]
2
<PAGE>
SIGNATURE PAGE OF LESSOR
ATTACHED TO THIRD AMENDMENT TO MASTER LEASE
LESSOR:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company, not
in its individual capacity but solely
as Trustee under the Declaration of
Trust dated November 13, 1995
By:
Donald E. Smith, Vice President
3
<PAGE>
SIGNATURE PAGE OF LESSEE
ATTACHED TO THIRD AMENDMENT TO MASTER LEASE
LESSEE:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By: /s/ Michael J. Holden
Name:
Title: Executive Vice President &
Chief Financial Officer
THE PEP BOYS MANNY MOE & JACK,
OF CALIFORNIA, a California corporation
By: /s/ Michael J. Holden
Name:
Title: Executive Vice President &
Chief Financial Officer
PEP BOYS - MANNY, MOE & JACK
OF DELAWARE, INC., a Delaware corporation
By: /s/ Michael J. Holden
Name:
Title: Executive Vice President &
Chief Financial Officer
4
<PAGE>
SIGNATURE PAGE OF AGENT
ATTACHED TO THIRD AMENDMENT TO MASTER LEASE
The foregoing amendment is hereby approved.
AGENT:
CITICORP LEASING, INC.
By: /s/ Edward S. Mundy
Name:
Title: Vice President
5
Exhibit 10.4
SECOND AMENDMENT TO MASTER LEASE
(Pep Boys II Transaction)
This SECOND AMENDMENT TO MASTER LEASE dated as of October
31, 1998 (this "Amendment"), is entered into by and between STATE
STREET BANK AND TRUST COMPANY, a Massachusetts trust company, not
individually but solely in its capacity as Trustee under that
certain "Declaration of Trust" (herein so called) dated as of
February 28, 1997 (in such capacity, and not individually,
"Lessor"), having an address at Two International Place, Fourth
Floor, Boston, Massachusetts 02110, Attn: Corporate Trust
Department, THE PEP BOYS - MANNY, MOE & JACK, a Pennsylvania
corporation ("Lessee Parent"), THE PEP BOYS MANNY MOE & JACK OF
CALIFORNIA, a California corporation ("Pep Boys - California"),
and PEP BOYS - MANNY, MOE & JACK OF DELAWARE, INC. ("Pep Boys -
Delaware"), each having an address at 3111 W. Allegheny Avenue,
Philadelphia, Pennsylvania 19132. Lessee Parent, Pep Boys -
California, and Pep Boys - Delaware are herein referred to,
singly or collectively as the context may require, as the
"Lessee."
RECITALS
On or about February 28, 1997, Lessor and Lessee entered
into a certain Master Lease (as heretofore amended, supplemented
or otherwise modified from time to time, the "Lease") relating to
certain real property to be leased from time to time by Lessor to
Lessee. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Lease.
Lessor and Lessee, with the consent of Citicorp Leasing,
Inc., as Agent on behalf of the Instrument Holders, have agreed
to amend the Lease in certain respects.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties, the parties hereto
have agreed to amend, and do hereby amend, the Lease as follows:
1
<PAGE>
AGREEMENTS
1. Section 13(a)(iii) of the Lease, which provides for the
payment of an "Early Termination Fee", is hereby deleted in its
entirety. In addition, the Lease is hereby generally amended to
delete all references to the payment of an Early Termination Fee
under any circumstance.
2. The definition of "Applicable Spread" contained in
Paragraph C of Exhibit A attached to the Lease is hereby amended
in its entirety as follows, with such amendment to be effective
as of January 4, 1999:
"Applicable Spread" means, as applicable, the amount
based on the debt rating most recently issued by Standard &
Poor's for Lessee's senior unsecured debt as of any
Adjustment Date determined by reference to the following:
Lessee's Most
Recent Debt Rating Applicable Spread
BBB+ (or higher) 57.0 basis points (0.570%)
BBB 66.6 basis points (0.666%)
BBB- 76.2 basis points (0.762%)
less than BBB- 90.6 basis points (0.906%)
3. Except as amended hereby, the terms and provisions of
the Lease, as heretofore amended, shall be and remain in full
force and effect and are hereby ratified and affirmed. By its
execution hereof Lessee Parent hereby ratifies and affirms each
and every representation, warranty, covenant, obligation and
indemnity contained in the Lease as of the date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first above written.
[SEE ATTACHED SIGNATURE PAGES]
2
<PAGE>
SIGNATURE PAGE OF LESSOR
ATTACHED TO SECOND AMENDMENT TO MASTER LEASE
LESSOR:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company, not
in its individual capacity but solely
as Trustee under the Declaration of
Trust dated February 28, 1997
By:
Donald E. Smith, Vice President
3
<PAGE>
SIGNATURE PAGE OF LESSEE
ATTACHED TO SECOND AMENDMENT TO MASTER LEASE
LESSEE:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By: /s/ Michael J. Holden
Name:
Title: Executive Vice President &
Chief Financial Officer
THE PEP BOYS MANNY MOE & JACK,
OF CALIFORNIA, a California corporation
By: /s/ Michael J. Holden
Name:
Title: Executive Vice President &
Chief Financial Officer
PEP BOYS - MANNY, MOE & JACK
OF DELAWARE, INC., a Delaware corporation
By: /s/ Michael J. Holden
Name:
Title: Executive Vice President &
Chief Financial Officer
4
<PAGE>
SIGNATURE PAGE OF AGENT
ATTACHED TO SECOND AMENDMENT TO MASTER LEASE
The foregoing amendment is hereby approved.
AGENT:
CITICORP LEASING, INC.
By: /s/ Edward S. Mundy
Name:
Title: Vice President
5
Exhibit 10.5
FOURTH AMENDMENT TO TRANSACTION AGREEMENT
(Pep Boys Leased Property Facility)
This FOURTH AMENDMENT TO TRANSACTION AGREEMENT dated as of
the 31st day of October, 1998 (this "Amendment"), is entered into
by and among THE PEP BOYS - MANNY, MOE & JACK, a Pennsylvania
corporation ("Lessee" and "Lease Guarantor"); STATE STREET BANK
AND TRUST COMPANY, a Massachusetts trust company, not in its
individual capacity except as expressly stated in the Transaction
Agreement, but solely as Trustee under the Declaration of Trust
(State Street Bank and Trust Company, when acting in its capacity
as such Trustee, together with any successor trustee under the
Declaration of Trust, is herein referred to as the "Trustee", and
State Street Bank and Trust Company, when acting in its
individual capacity, is herein referred to as "Trust Company");
CITICORP LEASING, INC., a Delaware corporation ("CLI"), on behalf
of itself as the initial Purchaser and initial Instrument Holder
under the Transaction Agreement and on behalf of the other
financial institutions that may, from time to time, become
Purchasers or Instrument Holders thereunder; and CITICORP
LEASING, INC., a Delaware corporation ("Agent"), in its capacity
as the initial administrative agent for the Instrument Holders
under the Transaction Agreement. Capitalized terms used but not
otherwise defined in this Amendment shall have the meanings set
forth in the Transaction Agreement.
RECITALS
A. Effective as of November 13, 1995, Lessee, Trustee and
CLI, for itself and as Agent, entered into that certain
Transaction Agreement (as heretofore amended, supplemented or
otherwise modified from time to time, the "Transaction
Agreement") pursuant to the terms of which Trustee has acquired
the Property. The Property has been leased to Lessee (and, where
applicable, certain Additional Lessees that are wholly-owned
subsidiaries of Lessee) by Trustee (and in certain cases by a co-
trustee appointed pursuant to the terms of Section 8.04 of the
Declaration of Trust) under that certain Master Lease of even
date with the Transaction Agreement between Trustee, as lessor,
and Lessee, as lessee (as heretofore amended, supplemented or
otherwise modified from time to time, the "Lease").
B. Pursuant to the terms and provisions of that certain
Lease Guarantee dated of even date with the Lease ("Lease
Guarantee"), the Obligations (as defined in the Lease Guarantee)
of Lessee under the Lease have been guaranteed by Lease
Guarantor.
C. The parties have agreed to certain modifications to the
Transaction Agreement.
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and
agreements set forth herein and therein, the parties agree as
follows:
1. The definition of "Spread" contained in Schedule 1
attached to the Transaction Agreement is hereby amended in its
entirety as follows, with such amendment to be effective as of
the Interest Period commencing January 4, 1999:
"'Spread' shall be either (A) in the case of the
Certificates, 225 basis points, or (B) in the case of the A-
Notes and the B-Notes, the number of basis points determined
by reference to the following chart, based on the Debt
Rating of Lessee as of the beginning of the applicable
Interest Period:
Lessee's Most
Recent Debt Rating Applicable Spread
BBB+ (or higher) 50 basis points (0.50%)
BBB 60 basis points (0.60%)
BBB- 70 basis points (0.70%)
less than BBB- 85 basis points (0.85%)"
2. Except as amended hereby, the terms and provisions of
the Transaction Agreement shall be and remain in full force and
effect and are hereby ratified and affirmed. By its execution
hereof Lessee Parent hereby ratifies and affirms each and every
representation, warranty, covenant, obligation and indemnity
contained in the Transaction Agreement as of the date hereof.
3. By its execution hereof, Lease Guarantor hereby
ratifies and affirms each and every representation, warranty,
covenant, obligation and indemnity contained in the Lease
Guarantee as of the date hereof and acknowledges that the Lease
Guarantee remains in full force and effect.
4. By their execution hereof, Lessee, Pep Boys - Manny,
Moe & Jack of Delaware, Inc., a Delaware corporation ("Pep Boys-
Delaware"), and The Pep Boys Manny Moe & Jack of California, a
California corporation ("Pep Boys-California"), as Indemnitors,
hereby ratify and affirm each and every representation, warranty,
covenant, obligation and indemnity contained in that certain
Environmental Indemnity Agreement dated of even date with the
Transaction Agreement as of the date hereof and acknowledge that
the Environmental Indemnity Agreement remains in full force and
effect.
5. By their execution hereof, Pep Boys-Delaware and Pep
Boys-California, in their capacity as Additional Lessees under
the Lease, along with Lessee Parent in its capacity as Lessee
under the Lease, hereby ratify and affirm each and every
representation, warranty, covenant, obligation and indemnity
contained in the Lease as of the date hereof and acknowledge that
the Lease remains in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment effective as of the date first above written.
[SEE ATTACHED SIGNATURE PAGES]
2
<PAGE>
SIGNATURE PAGE OF THE PEP BOYS - MANNY, MOE & JACK
ATTACHED TO
FOURTH AMENDMENT TO TRANSACTION AGREEMENT
LESSEE, LESSEE PARENT, LEASE
GUARANTOR AND INDEMNITOR:
THE PEP BOYS - MANNY, MOE & JACK,
a Pennsylvania corporation
By: /s/ Michael J. Holden
Name:
Title: Executive Vice President &
Chief Financial Officer
3
<PAGE>
SIGNATURE PAGE OF TRUSTEE AND TRUST COMPANY
ATTACHED TO
FOURTH AMENDMENT TO TRANSACTION AGREEMENT
TRUSTEE:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company
(not in its individual capacity, but
solely as Trustee)
By:
Donald E. Smith, Vice President
TRUST COMPANY:
STATE STREET BANK AND TRUST COMPANY,
a Massachusetts trust company (in its
individual capacity, but only as expressly
stated herein)
By:
Donald E. Smith, Vice President
4
<PAGE>
SIGNATURE PAGE OF CLI AND AGENT
ATTACHED TO
FOURTH AMENDMENT TO TRANSACTION AGREEMENT
AGENT and CLI:
CITICORP LEASING, INC.,
a Delaware corporation
By: /s/ Edward S. Mundy
Name:
Title: Vice President
5
<PAGE>
SIGNATURE PAGE OF ADDITIONAL LESSEES
ATTACHED TO
FOURTH AMENDMENT TO TRANSACTION AGREEMENT
ADDITIONAL LESSEES AND INDEMNITORS:
PEP BOYS - MANNY, MOE & JACK OF
DELAWARE, INC., a Delaware corporation
By: /s/ Michael J. Holden
Name:
Title: Executive Vice President &
Chief Financial Officer
THE PEP BOYS MANNY MOE & JACK OF
CALIFORNIA, a California corporation
By: /s/ Michael J. Holden
Name:
Title: Executive Vice President &
Chief Financial Officer
6
Exhibit 10.6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made by and between THE
PEP BOYS - MANNY, MOE & JACK, a Pennsylvania corporation (the
"Corporation"), and _______________ (the "Executive"), dated as
of the __ day of June, 1998, and supersedes in its entirety the
Employment Agreement between the Corporation and the Executive
dated as of _________ __, ____.
The Corporation, on behalf of itself and its
shareholders, wishes to continue to attract and retain well-
qualified executive and key personnel who are an integral part of
the management of the Corporation, such as Executive, and to
better assure itself of continuity of management and better
assure Executive of continued employment, or compensation in lieu
thereof, in the event of any "Change of Control" (as defined in
Section 2 of this Agreement) of the Corporation;
IT IS, THEREFORE, AGREED:
1. Operation of Agreement.
(a) The "Effective Date" shall be the date during the "Change of
Control Period" (as defined in Section 1(b) hereof) on which a
Change of Control occurs. Anything in this Agreement to the
contrary notwithstanding, if the Executive's employment with the
Corporation is terminated prior to the date on which a Change of
Control occurs, and the Executive can reasonably demonstrate that
such termination (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control
or (ii) otherwise arose in connection with a Change of Control,
then for all purposes of this Agreement the "Effective Date"
shall mean the date immediately prior to the date of such
termination.
(b) The "Change of Control Period" is the period commencing on
the date hereof and ending on the earlier to occur of (i) the
second anniversary of such date or (ii) the first day of the
month coinciding with or next following the Executive's
termination of employment on account of retirement on or after
Executive's normal retirement date ("Normal Retirement Date")
under The Pep Boys - Manny, Moe & Jack Pension Plan as amended to
date ("Pension Plan") and The Pep Boys - Manny, Moe and Jack
Executive Supplemental Pension Plan as amended to date or any
successor retirement plan (the "Retirement Plan"); provided,
however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date
and each annual anniversary thereof is hereinafter referred to as
the "Renewal Date"), the Change of Control Period shall be
automatically extended so as to terminate on the earlier of (x)
two years from such Renewal Date or (y) the first day of the
month coinciding with or next following the Executive's Normal
Retirement Date, unless at least sixty (60) days prior to the
Renewal Date the Corporation shall give notice that the Change of
Control Period shall not be so extended.
1
<PAGE>
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall be deemed to have taken place if:
(a) individuals who, on the date hereof, constitute the Board of
Directors (the "Board") of the Corporation (the "Incumbent
Directors") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a
director subsequent to the date hereof, whose election or
nomination for election was approved by a vote of at least two-
thirds of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of the
Corporation in which such person is named as a nominee for
director, without written objection to such nomination) shall be
an Incumbent Director; provided, however, that no individual
initially elected or nominated as a director of the Corporation
as a result of an actual or threatened election contest with
respect to directors or as a result of any other actual or
threatened solicitation of proxies or consents by or on behalf of
any person other than the Board shall be deemed to be an
Incumbent Director;
(b) any "Person" (as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934 (the "Exchange Act") and as
used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Corporation representing 20% or more of the combined voting power
of the Corporation's then outstanding securities eligible to vote
for the election of the Board (the "Voting Securities");
provided, however, that the event described in this Section 2(b)
shall not be deemed to be a Change in Control by virtue of any of
the following acquisitions: (i) by the Corporation or any
subsidiary of the Corporation in which the Corporation owns more
than 50% of the combined voting power of such entity (a
"Subsidiary"), (ii) by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any
Subsidiary, (iii) by any underwriter temporarily holding the
Corporation's Voting Securities pursuant to an offering of such
Voting Securities, (iv) pursuant to a Non-Qualifying Transaction
(as defined in Section 2(c) hereof), or (v) pursuant to any
acquisition by Executive or any group of persons including
Executive (or any entity controlled by Executive or any group of
persons including Executive);
2
<PAGE>
(c) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction involving
the Corporation or any of its Subsidiaries that requires the
approval of the Corporation's stockholders, whether for such
transaction or the issuance of securities in the transaction (a
"Business Combination"), unless immediately following such
Business Combination: (i) more than 50% of the total voting
power of (A) the corporation resulting from such Business
Combination (the "Surviving Corporation"), or (B) if applicable,
the ultimate parent corporation that directly or indirectly has
beneficial ownership of 100% of the voting securities eligible to
elect directors of the Surviving Corporation (the "Parent
Corporation"), is represented by the Corporation's Voting
Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, is represented by shares
into which the Corporation's Voting Securities were converted
pursuant to such Business Combination), and such voting power
among the holders thereof is in substantially the same proportion
as the voting power of the Corporation's Voting Securities among
the holders thereof immediately prior to the Business
Combination, (ii) no person (other than any employee benefit plan
(or related trust) sponsored or maintained by the Surviving
Corporation or the Parent Corporation), is or becomes the
beneficial owner, directly or indirectly, of 20% or more of the
total voting power of the outstanding voting securities eligible
to elect directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation) and (iii) at least
a majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Business
Combination were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement providing for
such Business Combination (any Business Combination which
satisfies all of the criteria specified in (i), (ii) and (iii)
above shall be deemed to be a "Non-Qualifying Transaction");
(d) a sale of all or substantially all of the Corporation's
assets;
(e) the stockholders of the Corporation approve a plan of
complete liquidation or dissolution of the Corporation; or
(f) such other events as the Board may designate.
Notwithstanding the foregoing, a Change in Control of
the Corporation shall not be deemed to occur solely because any
person acquires beneficial ownership of more than 20% of the
Corporation's Voting Securities as a result of the acquisition of
the Corporation's Voting Securities by the Corporation which
reduces the number of the Corporation's Voting Securities
outstanding; provided, that if after such acquisition by the
Corporation such person becomes the beneficial owner of
additional Corporation Voting Securities that increases the
percentage of outstanding Corporation Voting Securities
beneficially owned by such person by more than one percent (1%)
of the Corporation's outstanding Voting Securities, a Change in
Control of the Corporation shall then occur.
3. Employment Period. The Corporation hereby agrees to
continue the Executive in its employ, for the period commencing
on the Effective Date and ending on the earlier to occur of (i)
the date two (2) years after such date or (ii) the first day of
the month coinciding with or next following the Executive's
Normal Retirement Date (the "Employment Period").
3
<PAGE>
4. Position and Duties.
(a) As of the date hereof, the Executive is employed as
_________________________________ and as such the Executive is
responsible for oversight and management of
_________________________________. During the Employment Period,
(i) the Executive's position (including status, offices, titles
and reporting requirements), authority, duties and
responsibilities shall be at least comparable in all material
respects with the most significant of those held, exercised and
assigned at any time during the ninety (90) day period
immediately preceding the Effective Date and (ii) the Executive's
services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or at an
office or location less than twenty (20) miles from such
location.
(b) Excluding periods of vacation, sick leave and disability to
which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the
business and affairs of the Corporation and, to the extent
necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best
efforts to perform faithfully and efficiently such
responsibilities. The Executive may (i) serve on corporate,
civic or charitable boards or committees, (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions
and (iii) manage personal investments, so long as such activities
do not significantly interfere with the performance of the
Executive's responsibilities. It is expressly understood and
agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with
the performance of the Executive's responsibilities to the
Corporation.
5. Compensation.
(a) Base Salary. During the Employment Period, as consideration
for services rendered, the Corporation shall pay to the Executive
a base salary at an annual rate at least equal to the annual rate
of base salary paid to the Executive by the Corporation, and any
affiliated companies, during the ninety-day period immediately
preceding the month in which the Effective Date occurs ("Base
Salary") payable over the calendar year at the regular pay
periods of the Corporation. During the Employment Period, Base
Salary shall be reviewed by the Board (or the Compensation
Committee thereof) at least annually and shall be increased, but
not decreased, at any time and from time to time as shall be
consistent with increases in Base Salary awarded by the
Corporation in the ordinary course of business to other key
executives. Any increase in Base Salary shall not serve to limit
or reduce any other obligation to the Executive under this
Agreement. Executive's Base Salary shall not be reduced after
any such increase. As used in this Agreement, the term
"affiliated companies" includes any company controlling,
controlled by or under common control with the Corporation.
4
<PAGE>
(b) Executive Incentive Bonus Plan. During the Employment
Period, the Executive shall receive an annual bonus (a "Bonus")
at least equal to the greater of (i) the average annual dollar
bonus amount that was earned by the Executive under the
Corporation's Annual Incentive Bonus Plan, amended and restated
as of March 31, 1998 (or any predecessor or successor plan,
policy or arrangement thereto) (the "Bonus Plan") for the three
completed fiscal years of the Corporation (each a "Fiscal Year")
immediately prior to the Effective Date, or (ii) Executive's
Target (as defined in the Bonus Plan) bonus amount under the
Bonus Plan for the Fiscal Year which includes the Effective Date
or, if no target has been set with respect to Executive for such
Fiscal Year, the Target bonus amount for the immediately
preceding Fiscal Year (in either case, based on Executive's
target percentage of Base Salary established pursuant to the
Bonus Plan).
(c) Employee Benefit Plans. In addition to the Base Salary and
Bonus payable as hereinabove provided, the Executive shall be
entitled to participate during the Employment Period in all
incentive programs, savings, pension and retirement plans and
programs applicable to other key executives, and to receive use
of an automobile of comparable value to automobiles provided to
other key executives (or to receive the same automobile allowance
as is provided to other key executives). In no event shall such
plans and programs, in the aggregate, provide the Executive with
compensation, benefits and reward opportunities less favorable
than the most favorable of those provided by the Corporation and
its affiliated companies for the Executive under such plans and
programs as in effect at any time during the ninety-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, as provided at any time thereafter with respect to
other key executives.
(d) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under each welfare benefit plan of the Corporation,
including, without limitation, all medical, supplemental medical,
prescription, dental, disability, salary continuance, life,
accidental death and travel accident insurance plan and programs
of the Corporation and its affiliated companies, in each case not
less favorable than those in effect at any time during the ninety-
day period immediately preceding the Effective Date which would
be most favorable to the Executive or, if more favorable to the
Executive, as in effect at any time thereafter with respect to
other key executives.
(e) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in the performance of his
duties hereunder.
(f) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to secretarial and
other assistance, at least equal to those provided to the
Executive at any time during the ninety-day period immediately
preceding the Effective Date, or, if more favorable to the
Executive, as provided at any time thereafter with respect to
other key executives.
5
<PAGE>
(g) Vacation. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the most
favorable policies of the Corporation as in effect at any time
during the ninety-day period immediately preceding the Effective
Date or, if more favorable to the Executive, as in effect at any
time thereafter with respect to other key executives.
6. Termination. This Agreement shall terminate under the
following circumstances:
(a) Expiration of the Employment Period. This Agreement shall
terminate automatically upon the expiration of the Employment
Period.
(b) Death or Disability. This Agreement shall terminate
automatically upon the Executive's death. The Corporation may
terminate this Agreement, after having established the
Executive's Disability (pursuant to the definition of
"Disability" set forth below), by giving to the Executive written
notice of its intention to terminate the Executive's employment.
In such a case, the Executive's employment with the Corporation
shall terminate effective on the 180th day after receipt of such
notice (the "Disability Effective Date"), provided that, within
180 days after such receipt, the Executive shall not have
returned to full performance of the Executive's duties. For
purposes of this Agreement, "Disability" means personal injury,
illness or other cause which, after the expiration of not less
than 180 days after its commencement, renders the Executive
unable to perform his duties with substantially the same level of
quality as immediately prior to such incident and such disability
is determined to be total and permanent by a physician selected
by the Corporation or its insurers and acceptable to the
Executive or the Executive's legal representative (such agreement
as to acceptability not to be withheld unreasonably).
6
<PAGE>
(c) With or Without Cause. The Corporation may terminate the
Executive's employment with or without "Cause." For purposes of
this Agreement, "Cause" means (i) the willful and continued
failure of Executive to perform substantially his duties with the
Corporation (other than any such failure resulting from
Executive's incapacity due to physical or mental illness or any
such failure subsequent to Executive being delivered a Notice of
Termination without Cause by the Corporation or delivering a
Notice of Termination for Good Reason to the Corporation) after a
written demand for substantial performance is delivered to
Executive by the Board which specifically identifies the manner
in which the Board believes that Executive has not substantially
performed Executive's duties and the Executive has failed to cure
such failure to the reasonable satisfaction of the Board; (ii)
the willful engaging by Executive in gross negligence or willful
misconduct which is demonstrably and materially injurious to the
Corporation or its affiliates; or (iii) Executive's conviction of
or pleading guilty or no contest to a felony. For purpose of
this Section 6(c), no act or failure to act by Executive shall be
considered "willful" unless done or omitted to be done by
Executive in bad faith and without reasonable belief that
Executive's action or omission was in the best interests of the
Corporation or its affiliates. Any act, or failure to act, based
upon authority given pursuant to a resolution duly adopted by the
Board, based upon the advice of counsel for the Corporation or
upon the instructions of the Corporation's chief executive
officer or another senior officer of the Corporation shall be
conclusively presumed to be done, or omitted to be done, by
Executive in good faith and in the best interests of the
Corporation. Cause shall not exist unless and until the
Corporation has delivered to Executive, along with the Notice of
Termination for Cause, a copy of a resolution duly adopted by
three-quarters (3/4) of all members of the Board (excluding
Executive if Executive is a Board member) at a meeting of the
Board called and held for such purpose (after reasonable notice
to Executive and an opportunity for Executive, together with
counsel, to be heard before the Board), finding that in the good
faith opinion of the Board an event set forth in clauses (i) -
(iii) above has occurred and specifying the particulars thereof
in detail. The Board must notify Executive of any event
constituting Cause within ninety (90) days following the Board's
knowledge of its existence or such event shall not constitute
Cause under this Agreement.
(d) With or Without Good Reason. The Executive's employment may
be terminated by the Executive with or without Good Reason. For
purposes of this Agreement, "Good Reason" means:
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(i) (A) any change in the duties or responsibilities (including
reporting responsibilities) of Executive that is inconsistent in
any material and adverse respect with Executive's position(s),
duties, responsibilities or status with the Corporation
immediately prior to the Effective Date (including any material
and adverse diminution of such duties or responsibilities);
provided, however, that Good Reason shall not be deemed to occur
upon a change in duties or responsibilities (other than reporting
responsibilities) that is solely and directly a result of the
Corporation no longer being a publicly traded entity and does not
involve any other event set forth in this Section 6(d) or (B) a
material and adverse change in Executive's titles or offices
(including, if applicable, membership on the Board) with the
Corporation as in effect immediately prior to the Effective Date;
(ii) any failure by the Corporation to comply with any of the
provisions of Section 5 hereof;
(iii) the Corporation requiring the Executive to be based
at any office or location other than that described in Section
4(a)(ii) hereof, except for travel required in the performance of
the Executive's responsibilities which shall be no more extensive
than the customary travel requirements of Executive prior to the
Effective Date;
(iv) any purported termination by the Corporation of the
Executive's employment other than as permitted by this Agreement,
it being understood that any such purported termination shall not
be effective for any purpose of this Agreement; or
(v) any failure by the Corporation to comply with and satisfy
Section 12(c) hereof by causing any successor to the Corporation
to expressly assume and agree to perform this Agreement with
Executive, to the full extent set forth in said Section 12(c);
provided, however, that a termination by Executive for Good
Reason shall be effective only if, within 30 days following the
delivery of a Notice of Termination for Good Reason by Executive
to the Corporation, the Corporation has failed to cure the
circumstances giving rise to Good Reason to the reasonable
satisfaction of the Executive. For purposes of this Section
6(d), a good faith determination made by the Executive that a
"Good Reason" for termination has occurred, and has not been
adequately cured, shall be conclusive and binding.
Any termination by the Corporation with or without Cause or by
the Executive with or without Good Reason shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 13(d) hereof. For purposes of this
Agreement, a "Notice of Termination" means a written notice which
(x) indicates the specific termination provision in this
Agreement relied upon, (y) sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated and (z) if the termination date is other than the date
of receipt of such notice, specifies the proposed termination
date.
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7. Obligations of the Corporation Upon Termination.
(a) Expiration of Employment Period. If the Executive's
employment shall be terminated on account of the expiration of
the Employment Period, the Corporation shall pay the Executive
his Base Salary through the expiration of the Employment Period,
plus any Bonus amounts earned but not paid during such period and
any benefits to which the Executive is entitled under the terms
of any of the Corporation's benefit plans, policies or
arrangements, and the Corporation shall have no further
obligations to the Executive under this Agreement.
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death, this Agreement shall terminate
without further obligations to the Executive's legal
representatives, other than those death benefits provided by the
Corporation to which Executive is entitled at the date of the
Executive's death, which shall be at least comparable to those in
effect at any time during the ninety-day period immediately
preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's designees, as in effect on the
date of the Executive's death with respect to other key
executives and their designees.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability, this Agreement shall
terminate without further obligations to the Executive, other
than those benefits provided by the Corporation to which
Executive is entitled as of the Disability Effective Date, which
benefits shall be at least comparable to those in effect at any
time during the ninety-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the
Executive's designees, as in effect on the date of the
Executive's Disability with respect to other key executives and
their designees.
(d) With Cause or Without Good Reason. If the Executive's
employment shall be terminated (i) by the Corporation with Cause,
or (ii) by Executive without Good Reason, the Corporation shall
pay the Executive his Base Salary through the date of termination
at the rate in effect at the time Notice of Termination is given,
plus any Bonus amounts earned but not paid through the date of
termination and any benefits to which the Executive is entitled
under the terms of any of the Corporation's benefit plans,
policies or arrangements, and the Corporation shall have no
further obligations to the Executive under this Agreement.
(e) Without Cause or With Good Reason. If, during the
Employment Period, Executive's employment shall be terminated (i)
by the Corporation without Cause, or (ii) by Executive for Good
Reason, the Corporation shall pay to the Executive in a lump sum
in cash within ten (10) days after the date of termination the
aggregate of the following amounts, with respect to which
Executive shall have no duty of mitigation and the Corporation
shall have no right of set-off:
(A) to the extent not theretofore paid, the Executive's
Base Salary through the date of termination at the rate in effect on
the date of termination plus any Bonus amounts which have become
payable and any accrued vacation pay;
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(B) a pro rata portion of Executive's Bonus for the Fiscal
Year in which the date of termination occurs equal to the product of
(1) the greater of (x) the average annual dollar bonus amount
that was earned by the Executive under the Bonus Plan for the
three completed Fiscal Years immediately prior to the date of
termination, or (y) Executive's Target bonus amount under the
Bonus Plan for the Fiscal Year which includes the date of
termination or, if no target has been set with respect to
Executive for such Fiscal Year, the Target bonus amount for the
immediately preceding Fiscal Year (in either case, based on
Executive's target percentage of Base Salary established pursuant
to the Bonus Plan) (the greater of (x) and (y) being referred to
as the "Target Bonus"), multiplied by (2) a fraction, the
numerator of which is the number of days in the Fiscal Year in
which the date of termination occurs through the date of
termination and the denominator of which is three hundred sixty-
five (365);
(C) an amount equal to Executive's Base Salary and Target
Bonus for the remainder of the Employment Period; and
(D) the present lump sum value of benefits which would have
accrued under the Pension Plan and the Retirement Plan had
Executive remained employed through the date of termination and
for the remainder of the Employment Period (and Executive's
entire Supplemental Plan benefit, including such lump sum, shall
be computed by applying early retirement factors and subsidies as
if Executive was the age he would be, and had accrued the years
of service he would have accrued, at the end of such Employment
Period), determined using the factors specified in the Pension
Plan for calculating lump sum distributions, and assuming that
Executive would have continued for such period to earn the Base
Salary at the date of termination and be paid the Target Bonus on
each date during such Employment Period that the Bonus typically
had been paid prior to the date of termination.
In addition, upon a termination of Executive in accordance with
this Section 7(e), the Corporation shall continue to provide
welfare benefits to the Executive and his or her family during
the remainder of the Employment Period at least equal to those
which would have been provided to them in accordance with the
plans, programs and policies described in Section 5(d) hereof if
the Executive's employment had continued through the Employment
Period. To the extent that the provision of such welfare
benefits is not permissible after termination of employment under
the terms of the benefit plans of the Corporation then in effect,
the Corporation shall pay to the Executive in a lump sum in cash
within thirty (30) days after the date of termination an amount
equal to the cost to the Executive of acquiring on a non-group
basis those benefits lost to the Executive and/or the Executive's
family as a result of the Executive's termination.
In addition, upon a termination of Executive in accordance with
this Section 7(e), all non-vested stock options, and any other
non-vested stock or stock-based awards held by Executive, shall
immediately become fully vested, non-forfeitable and exercisable.
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8. Non-Exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation or any of its affiliated
companies and for which the Executive may qualify, nor shall
anything herein limit such rights as the Executive may have under
any stock option or other agreements with the Corporation or any
of its affiliated companies. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any
plan or program of the Corporation or any of its affiliated
companies at or subsequent to the date on which the Executive's
employment is terminated shall be payable in accordance with such
plan or program. Anything herein to the contrary
notwithstanding, if the Executive becomes entitled to payments
pursuant to Section 7(e) hereof, such Executive agrees to waive
payments under any severance plan or program of the Corporation.
9. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Corporation all secret
or confidential information, knowledge or data relating to the
Corporation or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the
Executive during the Executive's employment by the Corporation or
any of its affiliated companies and which shall not be public
knowledge (other than by acts by the Executive or his
representatives in violation of this Agreement). After
termination of the Executive's employment with the Corporation,
the Executive shall not, without the prior written consent of the
Corporation, communicate or divulge any such information,
knowledge or data to anyone other than the Corporation and those
designated by it. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under
this Agreement.
10. Covenant Against Competition.
(a) If, after the occurrence of a Change in Control, the
Executive's employment by the Corporation is terminated pursuant
to Sections 7(d) or 7(e) hereof, then for the greater of (i) one
year after the date of termination or (ii) the remainder of the
Employment Period, the Executive shall not directly or indirectly
induce or attempt to influence any employee of the Corporation to
terminate his employment with the Corporation and shall not
engage in (as a principal, partner, director, officer, agent,
employee, consultant or otherwise) or be financially interested
in any business operating within the United States of America,
which is involved in business activities which are substantially
the same as, similar to or in competition with business
activities carried on by the Corporation, or being definitely
planned by the Corporation, at the time of the termination of the
Executive's employment. However, nothing contained in this
Section 10(a) shall prevent the Executive from holding for
investment no more than two percent (2%) of any class or equity
securities of a company whose securities are traded on a national
securities exchange.
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(b) Executive acknowledges that the restrictions contained in
Sections 9 and 10(a) hereof, in view of the nature of the
business in which the Corporation is engaged, are reasonable and
necessary in order to protect the legitimate interests of the
Corporation, and that any violation thereof would result in
irreparable injuries to the Corporation, and the Executive
therefore acknowledges that, in the event of his violation of any
of these restrictions, the Corporation shall be entitled to
obtain from any court of competent jurisdiction preliminary and
permanent injunctive relief as well as damages and an equitable
accounting of all earnings, profits and other benefits arising
from such a violation, which rights shall be cumulative and in
addition to any other rights or remedies to which the Corporation
may be entitled.
(c) If the Executive violates any of the restrictions contained
in the foregoing Section 10(a), the period during which the
restrictions contained in Section 10(a) shall remain in effect
shall be tolled as of the time of commencement of such
violation, and shall not begin to run again until such time as
such violation shall be cured by the Executive to the
satisfaction of the Corporation.
(d) Executive acknowledges and agrees that the covenants and
other provisions set forth in Sections 10(a), 10(b) and 10(c)
hereof are reasonable and valid in geographical and temporal
scope and in all other respects. If any of such covenants or
other provisions are found to be invalid or unenforceable by a
final determination of a court of competent jurisdiction, then
(I) the remaining covenants and other provisions set forth in
Sections 10(a), 10(b) and 10(c) shall be unimpaired, and (ii) the
invalid or unenforceable covenant or provision shall be deemed
replaced by a covenant or provision that is valid or enforceable
and that comes closest to expressing the intention of the
covenant or provision found to be invalid or unenforceable.
11. Certain Additional Payments by the Corporation.
(a) If it is determined (as hereafter provided) that any payment
or distribution by the Corporation to or for the benefit of
Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar
right, or the lapse or termination of any restriction on or the
vesting or exercisability of any of the foregoing (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) or to any similar tax
imposed by state or local law, or any interest or penalties with
respect to such excise tax (such tax or taxes, together with any
such interest and penalties, are hereafter collectively referred
to as the "Excise Tax"), then Executive will be entitled to
receive an additional payment or payments (a "Gross-Up Payment")
in an amount such that, after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
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(b) Subject to the provisions of Section 11(f) hereof, all
determinations required to be made under this Section 11,
including whether an Excise Tax is payable by Executive and the
amount of such Excise Tax and whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment, will be made by
a nationally recognized firm of certified public accountants (the
"Accounting Firm") selected by Executive in his sole discretion.
Executive will direct the Accounting Firm to submit its
determination and detailed supporting calculations to both the
Corporation and Executive within 30 days after the date of the
Change in Control or the date of Executive's termination of
employment, if applicable, and any other such time or times as
may be requested by the Corporation or Executive. If the
Accounting Firm determines that any Excise Tax is payable by
Executive, the Corporation will pay the required Gross-Up Payment
to Executive within 15 days after receipt of such determination
and calculations. If the Accounting Firm determines that no
Excise Tax is payable by Executive, it will, at the same time as
it makes such determination, furnish Executive with an opinion
that he has substantial authority not to report any Excise Tax on
his federal, state, local income or other tax return. Any
determination by the Accounting Firm as to the amount of the
Gross-Up Payment will be binding upon the Corporation and
Executive. As a result of the uncertainty in the application of
Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state
or local tax law at the time of any determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments
which will not have been made by the Corporation should have been
made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Corporation
exhausts or fails to pursue its remedies pursuant to
Section 11(f) hereof and Executive thereafter is required to make
a payment of any Excise Tax, Executive will direct the Accounting
Firm to determine the amount of the Underpayment that has
occurred and to submit its determination and detailed supporting
calculations to both the Corporation and Executive as promptly as
possible. Any such Underpayment will be promptly paid by the
Corporation to, or for the benefit of, Executive within 15 days
after receipt of such determination and calculations.
(c) The Corporation and Executive will each provide the
Accounting Firm access to and copies of any books, records and
documents in the possession of the Corporation or Executive, as
the case may be, reasonably requested by the Accounting Firm, and
otherwise cooperate with the Accounting Firm in connection with
the preparation and issuance of the determination contemplated by
Section 11(b) hereof.
(d) The federal, state and local income or other tax returns
filed by Executive will be prepared and filed on a consistent
basis with the determination of the Accounting Firm with respect
to the Excise Tax payable by Executive. Executive will make
proper payment of the amount of any Excise Tax, and at the
request of the Corporation, provide to the Corporation true and
correct copies (with any amendments) of his federal income tax
return as filed with the Internal Revenue Service and
corresponding state and local tax returns, if relevant, as filed
with the applicable taxing authority, and such other documents
reasonably requested by the Corporation, evidencing such payment.
If prior to the filing of Executive's federal income tax return,
or corresponding state or local tax return, if relevant, the
Accounting Firm determines that the amount of the Gross-Up
Payment should be reduced, Executive will within 15 days pay to
the Corporation the amount of such reduction.
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(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by Sections 11(b) and (d) hereof will be borne by
the Corporation. If such fees and expenses are initially
advanced by Executive, the Corporation will reimburse Executive
the full amount of such fees and expenses within 15 days after
receipt from Executive of a statement therefor and reasonable
evidence of his payment thereof.
(f) Executive will notify the Corporation in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Corporation of a Gross-Up Payment.
Such notification will be given as promptly as practicable but no
later than 30 days after Executive actually receives notice of
such claim and Executive will further apprise the Corporation of
the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by
Executive). Executive will not pay such claim prior to the date
that any payment of amount with respect to such claim is due. If
the Corporation notifies Executive in writing prior to the
expiration of such period that it desires to contest such claim,
Executive will:
(A) provide the Corporation with any written records or
documents in his possession relating to such claim reasonably
requested by the Corporation;
(B) take such action in connection with contesting such
claim as the Corporation will reasonably request in writing from time to
time, including without limitation accepting legal representation
with respect to such claim by an attorney competent in respect of
the subject matter and reasonably selected by the Corporation;
(C) cooperate with the Corporation in good faith in order
effectively to contest such claim; and
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(D) permit the Corporation to participate in any
proceedings relating to such claim;
provided, however, that the Corporation will bear and pay
directly all costs and expenses (including interest and
penalties) incurred in connection with such contest and will
indemnify and hold harmless Executive, on an after-tax basis, for
and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limiting the foregoing provisions of this Section 11(f), the
Corporation will control all proceedings taken in connection with
the contest of any claim contemplated by this Section 11(f) and,
at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim (provided that
Executive may participate therein at his own cost and expense)
and may, at its option, either direct Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Corporation will determine; provided, however,
that if the Corporation directs Executive to pay the tax claimed
and sue for a refund, the Corporation will advance the amount of
such payment to Executive on an interest-free basis and will
indemnify and hold Executive harmless, on an after-tax basis,
from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such
advance; and provided further, however, that any extension of the
statute of limitations relating to payment of taxes for the
taxable year of Executive with respect to which the contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Corporation's control of any such
contested claim will be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Executive will be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
(g) If Executive receives any refund with respect to any Excise
Tax previously paid to the Internal Revenue Service by Executive,
and if Executive had received a Gross-Up Payment from the
Corporation with respect to such Excise Tax, Executive will
promptly pay to the Corporation the amount of such refund
(together with any interest paid or credited thereon after any
taxes applicable thereto). If, after the receipt by Executive of
an amount advanced by the Corporation pursuant to Section 11(f)
hereof, a determination is made that Executive will not be
entitled to any refund with respect to such claim and the
Corporation does not notify Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 days
after such determination, then such advance will be forgiven and
will not be required to be repaid and the amount of such advance
will offset, to the extent thereof, the amount of the Gross-Up
Payment required to be paid pursuant to this Section 11.
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12. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Corporation shall not be assignable
by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and
be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Corporation and its successors.
(c) The Corporation will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Corporation to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession
had taken place. As used in this Agreement, "Corporation" shall
mean the Corporation as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania
without reference to principles of conflict of laws. The parties
hereto agree that the exclusive jurisdiction of any dispute
regarding this Agreement shall be the state courts located in
Philadelphia, Pennsylvania. The Corporation shall reimburse
Executive for the fees and expenses incurred by him in enforcing
this Agreement, provided that at least one matter in dispute is
decided in favor of Executive.
(b) The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
(c) This Agreement may not be amended or modified otherwise than
by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(d) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
If to the Corporation:
The Pep Boys - Manny, Moe & Jack
3111 West Allegheny Avenue
Philadelphia, PA 19132
Attention: Mitchell G. Leibovitz,
Chairman of the Board
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
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(e) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
(f) The Corporation may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(g) This Agreement contains the entire understanding of the
Corporation and the Executive with respect to the subject matter
hereof.
(h) The Executive and the Corporation acknowledge that the
employment of the Executive by the Corporation, prior to the
Effective Date, is "at will", and may be terminated by either the
Executive or the Corporation at any time. Upon a termination of
the Executive's employment or upon the Executive's ceasing to be
an officer of the Corporation, in each case, prior to the
Effective Date, there shall be no further rights under this
Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set his
hand and the Corporation has caused this Agreement to be executed
in its name on its behalf, all as of the day and year first above
written.
THE PEP BOYS - MANNY, MOE & JACK
By:
17
Exhibit 10.7
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT was originally made as of
September 14, 1988, was amended from time to time subsequent to
that date, and is hereby amended and restated in its entirety as
of June 3, 1998 (the Restatement Effective Date), by and
between THE PEP BOYS-MANNY, MOE & JACK, a Pennsylvania
corporation (the Corporation), and Mitchell G. Leibovitz (the
Executive).
The Corporation, on behalf of itself and its
shareholders, wishes to continue to attract and retain well-
qualified executive and key personnel who are an integral part of
the management of the Corporation, such as Executive.
IT IS, THEREFORE, AGREED:
1. Term of Agreement. This Agreement shall be
effective as of the Restatement Effective Date, and shall
continue in effect for a period of three years. This Agreement
shall be automatically renewed for an additional three-year
period on June 3, 2001, and on the last day of each succeeding
three-year period, unless either party gives the other party
written notice (in accordance with Section 11(d)) of such party's
intention not to renew this Agreement at least three months prior
to the end of the original or any additional three-year period.
Any time during which this Agreement is in effect shall be
referred to as the "Employment Period". Notwithstanding the
foregoing provisions of this Section 1, the Employment Period
shall expire upon the termination of Executive's employment in
accordance with Section 5, provided that all payments and
benefits required to be paid or provided to Executive hereunder
are paid or provided, or arrangements therefor are made.
2. Employment Period. The Corporation hereby agrees
to continue Executive in its employ for the Employment Period.
3. Position and Duties.
(a) As of the date hereof, Executive is employed
as Chief Executive Officer and Chairman of the Board of Directors
("Board"), and as such Executive is responsible for oversight and
management of all operations and activities of the Corporation.
Executive shall report to the Board and to such committees
thereof as the Board shall direct. Executive shall perform such
executive duties consistent with his position as may be time-to-
time specified by the Board. During the Employment Period,
Executive's position (including, without limitation, his status,
offices, titles and reporting requirements), authority, duties
and responsibilities shall be consistent with those of the Chief
Executive Officer and Chairman of the Board of a publicly traded
corporation. Executive's services shall be performed at the
executive offices of the Corporation located in the Philadelphia,
Pennsylvania metropolitan area.
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(b) Excluding periods of vacation, sick leave and
disability to which Executive is entitled, Executive agrees to
devote reasonable attention and time during normal business hours
to the business and affairs of the Corporation and, to the extent
necessary to discharge the duties and responsibilities assigned
to Executive hereunder, to use Executive's reasonable best
efforts to perform faithfully and efficiently such duties and
responsibilities. Executive may (i) serve on corporate, civic or
charitable boards or committees, (ii) deliver lectures, fulfill
speaking engagements or teach at educational institutions and
(iii) manage personal investments, so long as such activities do
not significantly interfere with the performance of Executive's
duties and responsibilities. If the Board determines to pursue a
transaction which will result in a Change In Control (as herein
after defined), Executive's duties shall include all reasonable
efforts to maximize the value received by the Company and/or its
Shareholders in any such transaction.
4. Compensation.
(a) Base Salary. During the Employment Period,
as consideration for services rendered, the Corporation shall pay
to Executive a base salary at an annual rate equal to $825,000,
as adjusted as described in the following sentence (Base
Salary), payable in accordance with the regular pay policy of
the Corporation. During the Employment Period, Base Salary shall
be reviewed by the Board (or the Compensation Committee thereof)
at least annually during each fiscal year of the Corporation and
may be increased at any time, and at any number of times, but not
decreased at any time, at the discretion of the Board. Any
increase in Base Salary shall be in addition to any other
obligation of the Corporation to Executive under this Agreement.
(b) Bonus. During each fiscal year of the
Corporation ending during the Employment Period, Executive shall
receive a bonus in the amount actually earned by Executive under
the Corporation's Executive Incentive Bonus Plan, as such Plan
may be amended, modified or superseded or supplemented by another
bonus plan sponsored by the Corporation or any affiliated
company. The Board may at any time, and at any number of times,
award Executive additional bonus amounts in its discretion (the
aggregate of all such bonus amounts referred to under this
subsection 4(b) shall be referred to as the Bonus).
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(c) Additional Benefits. In addition to the Base
Salary and Bonus payable as hereinabove provided, Executive shall
be entitled to participate, without duplication, in The Executive
Supplemental Retirement Plan, The Long Term Disability Salary
Continuation Plan, The Pep Boys-Manny, Moe & Jack Pension Plan,
and any other similar incentive programs, savings, pension and
retirement plans and programs applicable to other key executives.
The Executive shall also receive an allowance for a late model
Jaguar, or similar automobile, as well as other automobile
allowances for gasoline, maintenance and repairs which are no
less favorable than those provided to other key executives of the
Corporation. The Corporation agrees in accordance with Split
Dollar and Collateral Assignment Agreements executed in
connection with the issuance of Guardian Life Insurance Policy
Number 3808137 on the lives of Executive and his wife, in the
face amount of Five Million Dollars, to pay premiums on such
policy so that the death benefit payable to the Executive's
beneficiary thereunder remains no less than Five Million Dollars,
and such premiums shall be paid irrespective of whether or not
Executive is employed by the Corporation, except where
Executive's employment was terminated in accordance with the
provisions of Section 6(c) hereof.
The Corporation shall also reimburse
Executive for reasonable legal and accounting fees which he may
incur in connection with the preparation and periodic review of:
his estate plan; tax planning; tax returns; and this Employment
Agreement and related employment arrangements.
(d) Welfare Benefit Plans. During the Employment
Period, Executive and/or Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits, without duplication, under each welfare benefit plan of
the Corporation maintained for its executives or employees,
including, without limitation, all medical, prescription, dental,
disability, reimbursement, salary continuance, life, accidental
death and travel accident insurance plans and programs of the
Corporation and its affiliated companies.
(e) Expenses. During the Employment Period,
Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by Executive in the performance
of his duties hereunder, including, without limitation, the
expenses of membership at Galloway National Golf Club (or such
similar replacement club); and the reasonable travel expenses of
Executive's wife where it is appropriate that she accompany him
on business related travel. Executive shall comply with the
Corporation's expense reimbursement policies as in effect from
time-to-time in connection with expense reimbursement under this
paragraph.
(f) Office and Support Staff. During the
Employment Period, Executive shall be entitled to an office and
secretarial and other assistance consistent with his position as
Chief Executive Officer and Chairman of the Board.
(g) Vacation. During the Employment Period,
Executive shall be entitled to eight weeks per calendar year of
paid vacation, but in no event shall Executive accumulate more
than twenty weeks of paid and unused vacation.
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(h) Change in Control Bonus. Upon the effective
date of a Change in Control, as that term is defined in the
following Section 4(i) ("Change in Control"), Corporation shall
pay to Executive, in immediately available funds by wire transfer
in accordance with Executive's instructions an amount equal to
three times Executive's Base Salary and Target Bonus (as those
terms are defined herein).
(i) Definition of Change in Control. For the
purpose of this Agreement, a Change of Control shall be deemed
to become effective on the date on which any of the following
shall occur:
(i) individuals who, on the date hereof,
constitute the Board (the Incumbent Directors) cease for any
reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the date
hereof, whose election or nomination for election was approved by
a vote of at least two-thirds of the Incumbent Directors then on
the Board (either by a specific vote or by approval of the proxy
statement of the Corporation in which such person is named as a
nominee for director, without written objection to such
nomination) shall be an Incumbent Director; provided, however,
that no individual initially elected or nominated as a director
of the Corporation as a result of an actual or threatened
election contest with respect to directors or as a result of any
other actual or threatened solicitation of proxies or consents by
or on behalf of any person other than the Board shall be deemed
to be an Incumbent Director;
(ii) any Person including a "Group" (as
such term is defined in Section 3(a)(9) of the Securities
Exchange Act of 1934 (the Exchange Act) and as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a
beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, in a single transaction or group of
related transactions of securities of the Corporation
representing 20% or more of the combined voting power of the
Corporation's then outstanding securities eligible to vote for
the election of the Board (the Voting Securities); provided,
however, that the event described in this Section 4(i)(ii) shall
not be deemed to be a Change in Control by virtue of any of the
following acquisitions: (i) by the Corporation or any subsidiary
of the Corporation in which the Corporation owns more than 50% of
the combined voting power of such entity (a Subsidiary), (ii)
by any employee benefit plan (or related trust) sponsored or
maintained by the Corporation or any Subsidiary, (iii) by any
underwriter temporarily holding the Corporation's Voting
Securities pursuant to an offering of such voting Securities,
(iv) pursuant to a Non-Qualifying Transaction (as defined in
Section 4(i)(iii)), or (v) pursuant to any acquisition by
Executive or any person or group of persons including Executive
(or any entity controlled by Executive or any group of persons
including Executive or any Person or Group with whom Executive
has any management, investment or other relationship);
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(iii) the date on which there is a
consummation of a merger, consolidation, statutory share exchange
or similar form of corporate transaction involving the
Corporation or any of its Subsidiaries that requires the approval
of the Corporation's shareholders, (a Business Combination),
unless immediately following such Business Combination any of the
following is applicable: (i) more than 50% of the total voting
power of (A) the corporation resulting from such Business
Combination (the Surviving Corporation), or (B) if applicable,
the ultimate parent corporation that directly or indirectly has
beneficial ownership of 100% of the voting securities eligible to
elect directors of the Surviving Corporation (the Parent
Corporation), is represented by the Corporation's Voting
Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, is represented by shares
into which the Corporation's Voting Securities were converted
pursuant to such Business Combination), and such voting power
among the holders thereof is in substantially the same proportion
as the voting power of the Corporation's Voting Securities among
the holders thereof immediately prior to the Business
Combination; and (ii) no person (other than any person engaged in
a transaction described in clauses (i) through (v) in Section
4(i)(ii) above), is or becomes the beneficial owner, directly or
indirectly, of 20% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the
Parent Corporation (or, if there is no parent Corporation, the
Surviving Corporation); or (iii) at least a majority of the
members of the board of directors of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving Corporation)
following the consummation of the Business Combination were
Incumbent Directors at the time of the Board's approval of the
execution of the initial agreement providing for such Business
Combination (any Business Combination in which any of the
criteria specified in (i), (ii) or (iii) of this Section
4(i)(iii) is applicable shall be deemed to be a Non-Qualifying
Transaction);
(iv) the closing for a sale of all or
substantially all of the Corporation's assets;
(v) the date on which a plan of complete
liquidation or dissolution of the Corporation becomes effective;
or
(vi) such other events as the Board may
designate.
Notwithstanding the foregoing, a Change in Control of
the Corporation shall not be deemed to occur solely because any
person acquires beneficial ownership of more than 20% of the
Corporation's Voting Securities as a result of the acquisition of
the Corporation's Voting Securities by the Corporation which
reduces the number of the Corporation's Voting Securities
outstanding; provided, that if after such acquisition by the
Corporation such person becomes the beneficial owner of
additional Corporation Voting Securities that increases the
percentage of outstanding Corporation Voting Securities
beneficially owned by such person by more than 3%, a Change in
Control of the Corporation shall then become effective unless
otherwise exempt under clauses (i) through (v) of Section
4(i)(ii) above or because it constitutes a Non-Qualifying
Transaction.
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5. Termination. The Executive's employment shall
terminate upon any of the following circumstances:
(a) Death or Disability. The Executive's
employment shall terminate automatically upon Executive's death.
The Corporation may terminate the Executive's employment, after
having established Executive's Disability (pursuant to the
definition of Disability set forth below), by giving to
Executive written notice of its intention to terminate
Executive's employment. In such a case, Executive's employment
with the Corporation shall terminate effective on the 179th day
after receipt of such notice (the Disability Effective Date),
provided that, within the 179 days after such receipt, Executive
shall not have returned to full performance of Executive's duties
and responsibilities, in which case the notice to terminate shall
be deemed null and void. For purposes of this Agreement,
Disability means personal injury, illness or other cause which,
after the expiration of not fewer than 180 days after its
commencement, renders Executive unable to perform fully his
duties and responsibilities with substantially the same level of
quality as immediately prior to such 180 days and such disability
is determined to be total and permanent by a physician selected
by the Corporation or its insurers and acceptable to Executive or
Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
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(b) With or Without Cause. The Corporation may
terminate Executive's employment with or without Cause. For
purposes of this Agreement, Cause means (i) the willful and
continued failure of Executive to perform substantially his
duties and responsibilities with the Corporation (other than any
such failure resulting from Executive's Disability or any such
failure subsequent to Executive being delivered a Notice of
Termination without Cause by the Corporation or delivering a
Notice of Termination for Good Reason to the Corporation) after a
written demand for substantial performance is delivered to
Executive by the Board which specifically identifies the manner
in which the Board believes that Executive has not substantially
performed Executive's duties and responsibilities and Executive
has failed to cure such failure to the reasonable satisfaction of
the Board within 30 days, (ii) the willful engaging by Executive
in gross misconduct which is demonstrably and materially
injurious to the Corporation or any affiliated company, (iii)
Executive's non-appealable conviction of, or pleading guilty or
no contest to, a felony such that Executive's continued
employment would negatively compromise the image of the
Corporation and is determined by the Board to be Cause for
termination, (iv) abuse of alcohol or other drugs which
interferes with the performance by Executive of his duties,
provided Executive has been given 30 days notice by Corporation
of its intent to terminate Executive pursuant to this provision
during which time Executive has not demonstrated the cessation of
such abuse to the reasonable satisfaction of the Board; (v) fraud
theft, misappropriation or embezzlement of the Corporation's
funds, or (vi) Executive's attainment of his normal retirement
date (Normal Retirement Date) under both The Pep Boys - Manny,
Moe & Jack Pension Plan as amended to date, or any successor
thereof (the Pension Plan), and The Pep Boys - Manny, Moe and
Jack Executive Supplemental Pension Plan, as amended to date or
any successor thereof (the Supplemental Pension Plan). For
purpose of this paragraph (b), no act or failure to act by
Executive shall be considered willful unless done or omitted to
be done by Executive in bad faith and without reasonable belief
that Executive's action or omission was in the best interests of
the Corporation or its affiliates. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted
by the Board or based upon the advice of counsel for the
Corporation shall be conclusively presumed to be done, or omitted
to be done, by Executive in good faith and in the best interests
of the Corporation. Cause shall not exist unless and until the
Corporation has delivered to Executive, along with the Notice of
Termination for Cause, a copy of a resolution duly adopted by
three-quarters (3/4) of the entire Board (excluding Executive if
Executive is a Board member) at a meeting of the Board called and
held for such purpose (after reasonable notice to Executive and
an opportunity for Executive, together with counsel, to be heard
before the Board), finding that in the good faith opinion of the
Board an event set forth in clauses (i) - (v) above has occurred
and specifying the particulars thereof in detail. The Board must
notify Executive of any event constituting Cause within ninety
(90) days following the Board's knowledge of its existence or
such event shall not constitute Cause under this Agreement.
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(c) With or Without Good Reason. Executive's
employment may be terminated by Executive with or without Good
Reason. For purposes of this Agreement, Good Reason means:
(i) without the express consent of Executive
(A) any change in the duties or responsibilities (including
reporting responsibilities) of Executive that is inconsistent in
any material and adverse respect with Executive's position(s),
duties, responsibilities or status as Chief Executive Officer and
Chairman of the Board immediately prior to the Effective Date
(including any material and adverse diminution of such duties or
responsibilities); provided, however, that Good Reason shall not
be deemed to occur upon a change in duties or responsibilities
(other than reporting responsibilities) that is solely and
directly a result of the Corporation no longer being a publicly
traded entity and does not involve any other event set forth in
this paragraph (c) or (B) a material and adverse change in
Executive's titles or offices (including his position as Chief
Executive Officer and Chairman of the Board) with the
Corporation;
(ii) any failure by the Corporation to comply
in any material respect with any of the provisions of Section 4
of this Agreement;
(iii) the Corporation's requiring
Executive to perform his services regularly other than at the
executive offices of the Corporation at a location other than
that described in Section 3(a) hereof or requiring Executive to
travel in the performance of his duties significantly more
extensively than the customary travel requirements of Executive
prior to the date hereof;
(iv) any purported termination by the
Corporation of Executive's employment otherwise than as permitted
by this Agreement, it being understood that any such purported
termination shall not be effective for any purpose of this
Agreement; or
(v) any failure by the Corporation to comply
with and satisfy Section 10(c) of this Agreement;
provided that a termination by Executive with Good
Reason shall be effective only if, within 30 days following the
delivery of a Notice of Termination for Good Reason by Executive
to the Corporation, the Corporation has failed to cure the
circumstances giving rise to Good Reason to the reasonable
satisfaction of Executive.
(d) Expiration of the Employment Period. The
Executive's employment shall terminate upon the expiration of the
Employment Period due to the giving of a notice of non-renewal by
the Corporation or Executive in accordance with Section 1.
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(e) Notice of Termination. Any termination by
the Corporation with or without Cause or by Executive with or
without Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with
Section 11(d) of this Agreement. For purposes of this Agreement,
a Notice of Termination means a written notice which (i)
indicates the specific termination provision in this Agreement
relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated and (iii)
if the termination date is other than the date of receipt of such
notice specifies the proposed termination date.
6. Obligations of the Corporation Upon Termination of
Employment.
(a) Death. If Executive's employment is
terminated by reason of Executive's death, this Agreement shall
terminate without further obligations to Executive's personal
representatives, other than those death benefits provided by the
Corporation to which Executive is entitled at the date of
Executive's death, including, without limitation, benefits under
The Pension Plan, The Supplemental Pension Plan, the split dollar
insurance benefit referred to under Section 4(c) and the group
life insurance plan.
(b) Disability. If Executive's employment is
terminated by reason of Executive's disability, this Agreement
shall terminate without further obligations to Executive, other
than those benefits provided by the Corporation to which
Executive is entitled as of the Disability Effective Date.
(c) Cause, Without Good Reason or Non-Renewal By
Executive. If Executive's employment shall be terminated (i) by
the Corporation with Cause, (ii) by Executive without Good Reason
or (iii) on account of the expiration of the Employment Period
due to the giving of a notice of non-renewal by Executive in
accordance with Section 1, the Corporation shall pay Executive
his Base Salary through the date of termination and shall have no
further obligations to Executive under this Agreement.
(d) Without Cause, With Good Reason or
Non-Renewal by the Corporation. If Executive's employment shall
be terminated (i) by the Corporation without Cause, (ii) by
Executive with Good Reason or (iii) on account of the expiration
of the Employment Period due to the giving of a notice of non-
renewal by the Corporation in accordance with Section 1, the
Corporation shall pay to Executive in a lump sum in cash within
ten (10) days after the date of termination the aggregate of the
following amounts, with respect to which Executive shall have no
duty of mitigation and the Corporation shall have no right of
set-off:
(i) to the extent not theretofore paid,
Executive's Base Salary through the date of termination plus any
Bonus amounts which have become payable and any accrued vacation
pay;
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(ii) a pro-rata portion of Executive's Bonus
for the Fiscal Year in which the date of termination occurs equal
to the product of (A) greater of (x) the average annual dollar
bonus amount that was earned by the Executive under the
Corporation's Executive Incentive Bonus Plan (or any predecessor
or successor plan, policy or arrangement thereto) (the Bonus
Plan) for the three completed Fiscal Years immediately prior to
the date of termination, or (y) Executive's target bonus amount
under the Bonus Plan for the Fiscal Year which includes the date
of termination or, if no target has been set with respect to
Executive for such Fiscal Year, the target bonus amount for the
immediately preceding Fiscal Year (in either case, based on
Executive's target percentage of Base Salary established pursuant
to the Bonus Plan) (the greater of (x) and (y) being referred to
as the Target Bonus), multiplied by (B) a fraction, the
numerator of which is the number of days in the Fiscal Year in
which the date of termination occurs through the date of
termination, and the denominator of which is three hundred sixty-
five (365);
(iii) an amount equal to three times
Executive's Base Salary and Target Bonus; except that the
aforesaid amount shall not be payable under this Section
6(d)(iii) if the date of termination of Executive's employment
occurs on or before the seventh calendar day after the effective
date of a Change in Control;
(iv) to the extent not theretofore paid, the
Change in Control Bonus, if any, payable in accordance with the
provisions of Section 4(h), except that if Executive's employment
has terminated for any reason prior to the effective date of a
Change in Control, the aforesaid bonus shall not be payable under
this Section 6(d)(iv); and
(v) the present lump sum value of benefits
which would have accrued under the Pension Plan had Executive
remained employed for three years following the date of
termination determined using the factors specified in the Pension
Plan for calculating lump sum distributions and assuming that
Executive would have continued for such period to earn the Base
Salary at the date of termination and be paid the Target Bonus on
each date during such three-year period that the Bonus typically
had been paid prior to the date of termination.
In addition, upon termination of Executive's employment
in accordance with this Section 6(d), including termination after
a Change in Control, he shall be deemed, for purposes of the
Supplemental Pension Plan, to have attained his Normal Retirement
Date and shall commence receiving his Supplemental Pension Plan
benefit upon the date which is the later to occur of his fifty-
fifth birthday or the date of termination under this Section
6(d), and such benefit shall be computed without regard to early
retirement factors and assuming he accrued 25 years of service.
None of the Change in Control Bonus payable under this Agreement,
any amount payable under this Agreement on account of the
Executive's termination of employment, other than Base Salary and
Bonus (as defined in Sections 4(a) and 4(b) hereof) accrued to
the date of termination of employment, or any amount payable as,
or because of, a Sale Transaction Bonus under an agreement
between the Executive and the Company dated as of June 3, 1998,
shall be considered in computing the Executive's benefit under
the Supplemental Pension Plan.
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In addition, upon a termination of Executive's
employment in accordance with this Section 6(d), the Corporation
shall continue to provide benefits to Executive and his family
for three years following the termination date at least equal to
those which were being provided to them in accordance with
Sections 4(c) and 4(d) at any time within the six-month period
ending on the date of termination. To the extent that the
benefits provided for in this Section 6(d) are not permissible
after termination of employment under the terms of the benefit
plans of the Corporation then in effect, the Corporation shall
pay to Executive in a lump sum in cash within thirty (30) days
after the date of termination an amount equal to the cost to
Executive of acquiring on a non-group basis, for three years,
those benefits lost to Executive and/or Executive's family as a
result of Executive's termination.
(e) In addition, upon a termination of
Executive's employment in accordance with section 6(d), and
notwithstanding any other provisions of this Agreement or any
other agreement dealing with the subject matter of stock options
or stock-based awards, upon termination of the Executive's
employment because of his death, disability or attainment of the
Normal Retirement Date, all non-vested stock options, and any
other non-vested stock or stock-based awards, shall immediately
become fully vested, non-forfeitable and exercisable at any time
on the sooner of (i) their expiration or (ii) last day of the
month which is within the period ending forty-two calendar months
after the date of termination of employment.
(f) The obligations of the Corporation upon
Executive's termination of employment set forth in this Section 6
(together with any other benefits referred to in this Section 6,
as well as any amounts payable under the terms of certain
agreement of even date herewith relating to a Sale Transaction)
will be the sole and exclusive benefits or compensation of any
nature due to Executive or his estate upon a termination of
employment for any reason.
7. Non-Exclusivity of Rights. Nothing in this
Agreement shall prevent or limit Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation or any of its affiliated
companies and for which Executive may qualify, nor shall anything
herein limit or otherwise affect such rights as Executive may
have under any stock option or other agreements with the
Corporation or any of its affiliated companies. Amounts which
are vested benefits or which Executive is otherwise entitled to
receive under any plan or program of the Corporation or any of
its affiliated companies at or subsequent to the date on which
Executive's employment is terminated shall be payable in
accordance with such plan or program. Anything herein to the
contrary notwithstanding, if Executive becomes entitled to
payments pursuant to Section 6(d) hereof, the Executive agrees to
waive payments under any severance plan or program of the
Corporation.
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8. Noncompetition; Nondisclosure; Nonsolicitation.
(a) Executive hereby covenants and agrees that,
during the Employment Period and for one year thereafter (the
Covenant Period), he shall not, without the prior written
consent of the Corporation, engage in Competition (as defined
below) with the Corporation. For purposes of this Agreement, if
Executive takes any of the following actions he shall be engaged
in Competition: engaging in or carrying on, directly or
indirectly, any enterprise, whether as an advisor, principal,
agent, lender, investor, partner, officer, director, employee,
stockholder, associate or consultant to any person, partnership,
corporation or any other business entity, that is engaged in any
business operating within the United States of America, which is
involved in business activities which are the same as, similar to
or in competition with business activities carried on by the
Corporation, or actually known by the Executive as being
definitely planned by the Corporation, at or about the time of
the termination of the Executive's employment; provided, however,
that Competition shall not include (i) the passive ownership of
securities in any public enterprise and exercise of rights
appurtenant thereto, so long as such securities (other than
securities obtained by reason of a merger of the Corporation)
represent no more than two percent of the voting power of all
securities of such enterprise or (ii) the indirect ownership of
securities through ownership of shares in a registered investment
company.
(b) Executive shall not, directly or indirectly,
without the Corporation's prior written consent, disclose or use
any nonpublic confidential information of or relating to the
Corporation, whether disclosed to or learned by Executive during
the course of his employment or otherwise, so long as such
information is not publicly known or available through no breach
hereof by Executive, except for such disclosures as are required
by law. All computer software and books paid for by the
Corporation and all records or files generated or acquired while
an employee of the Corporation and in the capacity as an employee
of the Corporation are acknowledged to be property of the
Corporation and shall not be removed from the Corporation's
possession or made use of other than in pursuit of the
Corporation's business and upon termination of employment for any
reason, Executive shall deliver to Corporation without further
demand all copies thereof which are in his possession or under
his control. Executive further agrees that he shall not make any
statements at any time that disparage the reputation of the
Corporation or any of its affiliates. For purposes of this
Section 8, the term affiliate of the Corporation means the
Board, any and all Committees of the Board (the Committees) and
any and all individual members of either the Board or any of the
Committees, in their capacity as such, and any employee or
officer of the Corporation.
(c) Executive hereby covenants and agrees that,
during the Covenant Period, he shall not directly or indirectly
attempt to influence, persuade, hire or induce, or assist any
other person in so influencing, persuading or inducing, any
employee, supplier or customer of the Corporation to give up, or
to not commence, employment or a business relationship with the
Corporation.
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(d) Executive acknowledges and agrees that the
remedy at law available to the Corporation for breach of any of
his obligations under Section 8(a), (b) or (c) of this Agreement
would be inadequate, and that damages flowing from such a breach
may not readily be susceptible to being measured in monetary
terms. Accordingly, Executive acknowledges, consents and agrees
that, in addition to any other rights or remedies which the
Corporation may have at law, in equity or under this Agreement,
upon adequate proof of his violation of any provision of Section
4 of this Agreement, the Corporation shall be entitled to
immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach, without the
necessity of proof of actual damage and without any need to post
a bond.
(e) Executive acknowledges and agrees that the
covenants set forth in Section 8(a), (b) and (c) of this
Agreement are reasonable and valid in geographical and temporal
scope and in all other respects. If any of such covenants or
such other provisions of this Agreement are found to be invalid
or unenforceable by a final determination of a court of competent
jurisdiction (i) the remaining terms and provisions hereof shall
be unimpaired and (ii) the invalid or unenforceable term or
provision shall be deemed replaced by a term or provision that is
valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision.
(f) Executive understands that the provisions of
Section 8(a), (b) and (c) of this Agreement may limit his ability
to earn a livelihood in a business similar to the business of the
Corporation but he nevertheless agrees and hereby acknowledges
that (i) such provisions do not impose a greater restraint than
is necessary to protect the goodwill or other business interests
of the Corporation, (ii) such provisions contain reasonable
limitations as to time and scope of activity to be restrained,
and (iii) the consideration provided hereunder is separate,
independent and sufficient to compensate Executive for the
restrictions contained in Section 8 of this Agreement. In
consideration of the foregoing and in light of Executive's
education, skills and abilities, Executive agrees that he shall
not assert that, and it should not be considered that, any
provisions of Section 8 otherwise are void, voidable or
unenforceable or should be voided or held unenforceable.
(g) If Executive violates any of the restrictions
contained in Section 8(a), (b) and (c) of this Agreement, the
restrictive period shall not run in favor of the Executive from
the time of the commencement of any such violation until such
time as such violation shall be cured by the Executive to the
satisfaction of the Corporation. Executive's obligations under
this Section 8 shall survive any expiration or termination of
this Agreement.
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9. Certain Additional Payments by the Corporation.
(a) If it is determined (as hereafter provided)
that any payment or distribution by the Corporation to or for the
benefit of Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar
right, or the lapse or termination of any restriction on or the
vesting or exercisability of any of the foregoing (a Payment),
would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) or to any similar tax
imposed by state or local law, or any interest or penalties with
respect to such excise tax (such tax or taxes, together with any
such interest and penalties, are hereafter collectively referred
to as the Excise Tax), then Executive will be entitled to
receive an additional payment or payments (a Gross-Up Payment)
in an amount such that, after payment by Executive of all taxes
(including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(f)
hereof, all determinations required to be made under this Section
9, including whether an Excise Tax is payable by Executive and
the amount of such Excise Tax and whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment, will be made by
a nationally recognized firm of certified public accountants (the
Accounting Firm) selected jointly by Executive and the
Corporation. Executive will direct the Accounting Firm to submit
its determination and detailed supporting calculations to both
the Corporation and Executive within 15 calendar days after the
effective date of any Change in Control or the date of
Executive's termination of employment, if applicable, and any
other such time or times as may be requested by the Corporation
or Executive. If the Accounting Firm determines that any Excise
Tax is payable by Executive, the Corporation will pay the
required Gross-Up Payment (net of any applicable withholding
taxes) to Executive within five business days after receipt of
such determination and calculations. If the Accounting Firm
determines that no Excise Tax is payable by Executive, it will,
at the same time as it makes such determination, furnish
Executive with an opinion that he has substantial authority not
to report any Excise Tax on his federal, state, local income or
other tax return. Any determination by the Accounting Firm as to
the amount of the Gross-Up Payment will be binding upon the
Corporation and Executive. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any
determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the
Corporation should have been made (an Underpayment), consistent
with the calculations required to be made hereunder. In the
event that the Corporation exhausts or fails to pursue its
remedies pursuant to Section 9(f) hereof and Executive thereafter
is required to make a payment of any Excise Tax, Executive will
direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Corporation and
Executive as promptly as possible. Any such Underpayment will be
promptly paid by the Corporation to, or for the benefit of,
Executive within five business days after receipt of such
determination and calculations.
14
<PAGE>
(c) The Corporation and Executive will each
provide the Accounting Firm access to and copies of any books,
records and documents in the possession of the Corporation or
Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm
in connection with the preparation and issuance of the
determination contemplated by Section 9(b) hereof.
(d) The federal, state and local income or other
tax returns filed by Executive will be prepared and filed based
on the advice of the Accounting Firm with respect to the Excise
Tax payable by Executive. Executive will make proper payment of
the amount of any Excise Tax, and at the request of the
Corporation, provide to the Corporation true and correct copies
(with any amendments) of his federal income tax return as filed
with the Internal Revenue Service and corresponding state and
local tax returns, if relevant, as filed with the applicable
taxing authority, and such other documents reasonably requested
by the Corporation, evidencing such payment. If prior to the
filing of Executive's federal income tax return, or corresponding
state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be
reduced, Executive will within five business days pay to the
Corporation the amount of such reduction.
(e) The fees and expenses of the Accounting Firm
for its services in connection with the determinations and
calculations contemplated by Sections 9(b) and (d) hereof will be
borne by the Corporation. If such fees and expenses are
initially advanced by Executive, the Corporation will reimburse
Executive the full amount of such fees and expenses within five
business days after receipt from Executive of a statement
therefor and reasonable evidence of his payment thereof.
(f) Executive will notify the Corporation in
writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Corporation of a
Gross-Up Payment. Such notification will be given as promptly as
practicable but no later than 10 business days after Executive
actually receives notice of such claim and Executive will further
apprise the Corporation of the nature of such claim and the date
on which such claim is requested to be paid (in each case, to the
extent known by Executive). Executive will not pay such claim
prior to the earlier of (a) the expiration of the 30-calendar-day
period following the date on which he gives such notice to the
Corporation and (b) the date that any payment of amount with
respect to such claim is due. If the Corporation notifies
Executive in writing prior to the expiration of such period that
it desires to contest such claim, Executive will:
(1) provide the Corporation with any written
records or documents in his possession
relating to such claim reasonably
requested by the Corporation;
15
<PAGE>
(2) take such action in connection with
contesting such claim as the Corporation
will reasonably request in writing from
time to time, including without
limitation accepting legal
representation with respect to such
claim by an attorney competent in
respect of the subject matter and
reasonably selected by the Corporation;
(3) cooperate with the Corporation in good
faith in order effectively to contest
such claim; and
(4) permit the Corporation to participate in
any proceedings relating to such claim;
provided, however, that the Corporation will bear and pay
directly all costs and expenses (including interest and
penalties) incurred in connection with such contest and will
indemnify and hold harmless Executive, on an after-tax basis, for
and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limiting the foregoing provisions of this Section 9(f), the
Corporation will control all proceedings taken in connection with
the contest of any claim contemplated by this section 9(f) and,
at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim (provided that
Executive may participate therein at his own cost and expense)
and may, at its option, either direct Executive to pay the tax
claimed and sue for a refund or refrain from paying such tax and
contest the claim in any permissible manner, and Executive agrees
to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and
in one or more appellate courts, as the Corporation will
determine; provided, however, that if the Corporation directs
Executive to pay the tax claimed and sue for a refund, the
Corporation will advance the amount of such payment to Executive
on an interest-free basis and will indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income
tax, including interest or penalties with respect thereto,
imposed with respect to such advance; and provided further,
however, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of Executive
with respect to which the contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the
Corporation's control of any such contested claim will be limited
to issues with respect to which a Gross-Up Payment would be
payable hereunder and Executive will be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
16
<PAGE>
(g) If, after the receipt by Executive of an
amount advanced by the Corporation pursuant to Section 9(f)
hereof, Executive receives any refund with respect to such claim,
Executive will (subject to the Corporation's complying with the
requirements of Section 9(f) hereof) promptly pay to the
Corporation the amount of such refund (together with any interest
paid or credited thereon after any taxes applicable thereto).
If, after the receipt by Executive of an amount advanced by the
Corporation pursuant to Section 10(f) hereof, a determination is
made that Executive will not be entitled to any refund with
respect to such claim and the Corporation does not notify
Executive in writing of its intent to contest such denial or
refund prior to the expiration of 30 calendar days after such
determination, then such advance will be forgiven and will not be
required to be repaid and the amount of such advance will offset,
to the extent thereof, the amount of the Gross-Up Payment
required to be paid pursuant to this Section 9.
10. Successors.
(a) This Agreement is personal to Executive and
without the prior written consent of the Corporation shall not be
assignable by Executive otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal
representatives.
(b) This Agreement shall inure to the benefit of
and be binding upon the Corporation and its successors and
assigns.
(c) The Corporation will require any successor
(whether direct or indirect, by purchase, merger, consolidation
or otherwise and whether or not there has been a Sale
Transaction, as that term may be defined in an Agreement between
Executive and Corporation contemporaneously executed herewith,
and any amended or successor agreement thereto or whether or not
there has been a Change in Control as defined herein) to all or
substantially all of the business and/or assets of the
Corporation to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
corporation would be required to perform as if no such succession
had taken place. As used in this Agreement, Corporation shall
mean the Corporation as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Pennsylvania without reference to principles of conflict of laws.
The parties hereto agree that exclusive jurisdiction of any
dispute regarding this Agreement shall be the state courts
located in Philadelphia, Pennsylvania. The fees and expenses
incurred by either party in enforcing this Agreement shall be
paid to the party prevailing in such enforcement by the non-
prevailing party.
17
<PAGE>
(b) The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect.
(c) Any amendment, modification or waiver of this
Agreement shall not be effective unless in writing executed by
the parties hereto or their respective successors and legal
representatives.. Neither the failure nor any delay on the part
of any party to exercise any right, remedy, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or of any
right remedy, power or privilege with respect to any occurrence
be construed as a waiver of any right remedy, power privilege
with respect to such occurrence.
(d) All notices and other communications
hereunder shall be in writing and shall be given by hand delivery
to the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to Executive:
Mitchell G. Leibovitz
750 John Barry Drive
Bryn Mawr, PA 19010
If to the Corporation:
The Pep Boys - Manny, Moe & Jack
3111 West Allegheny Avenue
Philadelphia, PA 19132
Attention: Board of Directors, c/o Corporate
Secretary
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(e) As used in this Agreement, the term
"affiliated companies" includes any company controlling,
controlled by or under common ownership with the Corporation.
(f) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement. Each of
the parties hereto shall execute such further instruments and
take such further actions as any other party shall reasonably
request in order to effectuate the purposes of this Agreement.
(g) The Corporation may withhold from any amounts
payable under this Agreement such Federal, state or local taxes
as shall be required to be withheld pursuant to any applicable
law or regulation.
18
<PAGE>
IN WITNESS WHEREOF, Executive has hereunto set his hand
and the Corporation, duly authorized by its Board of Directors,
has caused this Agreement to be executed in its name on its
behalf, all as of the day and year first above written.
/s/ Mitchell G. Leibovitz
____________________ -----------------------------------
Witness Mitchell G. Leibovitz
Attest: THE PEP BOYS - MANNY, MOE & JACK
____________________ By: /s/ Myles H. Tanenbaum
-----------------------------------
Myles H. Tanenbaum
Chairman of the Compensation
Committee of the Board of Directors
19
<TABLE>
THE PEP BOYS - MANNY, MOE & JACK AND SUBSIDIARIES Exhibit 11
COMPUTATION OF NET OPERATIONS PER SHARE
(in thousands, except per share data)
(UNAUDITED)
<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>
(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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE
SHEET AS OF OCTOBER 31, 1998 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE THIRTY-NINE WEEK
PERIOD ENDED OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 97,470
<SECURITIES> 0
<RECEIVABLES> 16,520
<ALLOWANCES> 531
<INVENTORY> 548,963
<CURRENT-ASSETS> 729,960
<PP&E> 1,312,606
<DEPRECIATION> 463,939
<TOTAL-ASSETS> 2,055,463
<CURRENT-LIABILITIES> 457,152
<BONDS> 690,012
0
0
<COMMON> 63,820
<OTHER-SE> 773,527
<TOTAL-LIABILITY-AND-EQUITY> 2,055,463
<SALES> 1,527,492
<TOTAL-REVENUES> 1,835,492
<CGS> 1,123,536
<TOTAL-COSTS> 1,368,625
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,610
<INCOME-PRETAX> 37,252
<INCOME-TAX> 13,411
<INCOME-CONTINUING> 23,841
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,841
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
